A L LY F I N A N C I A L
2 01 8 A N N UA L R E P O RT
our business: a leader in
digital financial services
Ally Financial Inc. is a leading digital financial-services company with $178.9 billion in assets
as of December 31, 2018. As a customer-centric company with passionate customer service
and innovative financial solutions, we are relentlessly focused on “Doing It Right” and being
a trusted financial-services provider to our consumer, commercial, and corporate customers.
We are one of the largest full-service automotive-finance operations in the country and offer
a wide range of financial services and insurance products to automotive dealerships and
consumers. Our award-winning online bank (Ally Bank, Member FDIC and Equal Housing
Lender) offers mortgage-lending services and a variety of deposit and other banking
products, including savings, money-market, and checking accounts, certificates of deposit
(CDs), and individual retirement accounts (IRAs). We also support the Ally CashBack Credit
Card. Additionally, we offer securities-brokerage and investment-advisory services through
Ally Invest. Our robust corporate finance business offers capital for equity sponsors and
middle-market companies.
our vision: be a relentless ally
for your financial well-being
Our commitment to our customers has been at the core of who we are for nearly 100 years.
We’re committed to constantly creating and reinventing with the singular purpose of making
a real difference for our customers. That’s why we offer award-winning online banking,
rewarding credit and lending experiences, leading auto financing products and services
and a growing wealth management and brokerage platform.
2018 ANNUAL REPORT
ALLY FINANCIAL
1
2018 FINANCIAL
HIGHLIGHTS
$3.34 Adj. EPS*
$106b Total Deposits
12.3% Core ROTCE*
$179b Total Assets
2018 ACCOLADES
Best Banks to Work for
by American Banker
E-Commerce Customer
Service Gold Stevie Award –
Financial Services
Best Places to Work by
Human Rights Campaign
* The following are non-GAAP financial measures which Ally believes are important to the reader of the Consolidated Financial Statements, but which are supplemental to and not a
substitute for GAAP measures: Adjusted Earnings per Share (Adj. EPS), Core Return on Tangible Common Equity (Core ROTCE), Adjusted Tangible Book Value Per Share (Adj. Tangible
Book Value Per Share), Adjusted Total Net Revenue (Adj. Total Net Revenue) and Adjusted Other Revenue (Adj. Other Revenue). These measures are used by management and we believe
are useful to investors in assessing the company’s operating performance and capital. Refer to the 2018 Financial Tables later in this document for a Reconciliation to GAAP.
dear
shareholders,
The Ally team delivered exceptional financial and
operational results in 2018, demonstrating the strength
of the Ally brand and the underlying earnings power
of our leading auto and digital bank franchises.
We achieved several milestones in 2018, including
the highest Adjusted Total Net Revenue* and Adjusted
EPS* since becoming a public company, while surpassing
$100 billion of total deposits, a testament to the robust
franchise we’ve built at Ally Bank. Our results reflect our
deep industry expertise, resilient and customer-centric
business model and strong alignment with consumer
banking trends. As we enter 2019 and prepare to
celebrate our 100th year in auto finance and 10th year
since establishing Ally Bank, I remain optimistic about
our ability to continue innovating and serving our
customers while delivering strong shareholder value.
As I reflect on our performance, we skillfully navigated
a variety of challenges to deliver these results, including
tumultuous capital markets, a difficult interest rate
environment, a highly competitive deposit market,
and an uncertain political landscape. Our strategic
focus on prioritizing the customer and our unrelenting
commitment to ‘Do It Right’ guided us through this
backdrop. At Ally, ‘Do It Right’ is more than just a
tagline, it’s our promise to our stakeholders and the
embodiment of how we strive to operate and serve
our customers and communities each and every day.
* Represents a non-GAAP financial measure. These measures are used by management and we believe are useful to investors in assessing the company’s operating performance and
capital. Refer to the 2018 Financial Tables later in this document for a Reconciliation to GAAP.
2018 ANNUAL REPORT
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progress in 2018 with increased originations and account
openings. In our first full year offering a diversified and
cohesive product suite to our banking customers, we
saw encouraging progress, including significant growth
in customers using multiple Ally products. The revenue
trends and customer growth serve as affirmation that
these products align with customer preferences to
have simple, convenient offerings, coupled with strong
customer service levels. These are cornerstones of our
approach at Ally, and we expect momentum to continue
from here.
Our operational performance, along with our disciplined
risk management and efficient capital deployment
Operationally, our auto business had an outstanding
year, posting $35.4 billion of consumer originations and
growing pre-tax income by 12% relative to 2017. We have
been successful in executing a very deliberate strategy
to diversify the composition and sourcing of our auto
originations while optimizing risk-adjusted returns.
Along those lines, we’ve increased our non-RV dealer
base, and the application volume we see from those
dealers, every year since 2014. In 2018, we processed
11.6 million applications, or more than 30,000 applications
on average every day. Our Growth channel1 accounted for
46% of our consumer originations in 2018, compared to
just 20% in 2014, strong evidence that Ally’s best-in-class
service and superior product suite appeal to dealers
across all OEMs. We are
a comprehensive finance
provider for our dealers
and customers, with a
nationwide platform and
full spectrum of products,
including our insurance
offerings. Our insurance
business had a great year in
2018, posting strong written
premium growth while
diversifying its dealer base
and introducing new and
innovative products under the
Ally Premier Protection brand.
with our compelling
culture and business
model I see a
substantial runway
for growth and a
business that reflects
the future of banking
strategy, translated to excellent
top-line and bottom-line financial
results in 2018. Adjusted Total Net
Revenue* exceeded $6.0 billion
for the first time since our IPO,
while Adjusted EPS* increased
39% to $3.34 and Core ROTCE*
expanded 256 basis points to
12.3%. We remained committed
to distributing capital to our
owners, returning $1.2 billion to
common shareholders through
dividends and share repurchases
in 2018, up 26% versus the prior
year, while reducing outstanding
share count by 7.4%.
Our corporate finance business also posted solid results,
with total assets growing 17% while experiencing
strong credit performance across a highly diversified
middle-market portfolio. The attractive risk-adjusted
return profile of this business, along with our expertise
in secured lending, aligns well with our commercial
product offerings. We expect corporate finance to be
a source of enhanced returns and profitability in the future.
Our retail deposit business was resilient in the face of
heightened competition, growing balances $11.2 billion
while adding 230 thousand customers, the highest
annual customer growth we’ve seen since the inception
of Ally Bank, while finishing 2018 with over 1.6 million
retail deposit customers. I’m excited about the investments
we’ve made over the past two years to better serve our
customers. Ally Home and Ally Invest made considerable
As I enter my fifth year as CEO of Ally, I’m continually
amazed by the transformation I’ve seen over such a
short period of time. We’ve evolved from a privately-
held, majority wholesale funded, auto finance lender
to a publicly traded, majority deposit-funded, digital
financial services company. The one constant during
that time, however, has been a culture that is committed
to innovation, diversity and the empowerment of every
Ally team member. We strive to put the customer at
the center of everything we do, every day. With our
compelling culture and business model I see a substantial
runway for growth and a business that reflects the
future of banking. As we move forward, I remain confident
as ever in our ability to deliver significant value to our
customers, communities, and shareholders.
* Represents a non-GAAP financial measure. These measures are used by management and we believe are useful to investors in assessing the company’s operating performance and
capital. Refer to the 2018 Financial Tables later in this document for a Reconciliation to GAAP.
1 Growth channel defined as originations from non-GM/Chrysler dealers and direct-to-consumer loans
2018 ANNUAL REPORT
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2018 financial
results
Ally delivered strong financial results in 2018 as we
successfully executed our strategy to expand our retail
deposit franchise, optimize our auto finance business,
and return significant capital to common shareholders.
Consequently, we posted the best results since becoming
a public company across multiple financial and
operational metrics.
We continued to drive higher deposit balances while
minimizing funding from the wholesale markets. I’m very
proud of surpassing $100 billion of total deposits in 2018,
ultimately finishing the year at $106.2 billion, up $12.9
billion for the year. Magnifying the benefit of these
deposits is the structural roll-down of our unsecured debt
footprint. In 2018, we had $3.6 billion of institutional
we posted the
best results since
becoming a public
company across
multiple financial and
operational metrics
Adjusted Total Net Revenue*
increased $175 million to $6
billion in 2018, driven by the
expansion of retail auto and
commercial auto yields, strong
earning asset growth, and
further optimization of our
funding profile, highlighted
by the reduction of high-
cost legacy debt and higher
deposit balances. Retail auto
and commercial auto portfolio
yields increased by 34 bps
and 77 bps, respectively, and we expect further expansion
of retail auto portfolio yields given the strong yields
originated during 2018 and the short-duration nature of
our balance sheet. Earning assets increased over $10 billion
at the end of 2018 compared to year-end 2017, driven by
growth in our auto and mortgage businesses as well as
the expansion of our investment securities portfolio.
unsecured debt mature at a
weighted average coupon of
4.3%. We have another $3.7
billion scheduled to mature
during 2019 and 2020 with
a weighted average coupon
of 5.3%, providing a tailwind
to net financing revenue over
the coming years. In total,
our deposit philosophy remains
consistent - maintain balanced
growth and pricing while
leveraging the secular trends
in digital banking to drive more
customers to the Ally brand. Longer term, as we approach
our stated goal of deposits representing 70% to 75% of
our funding profile, we expect to have greater opportunity
to optimize the financial benefits of our deposit base.
* Represents a non-GAAP financial measure. These measures are used by management and we believe are useful to investors in assessing the company’s operating performance and
capital. Refer to the 2018 Financial Tables later in this document for a Reconciliation to GAAP.
2018 ANNUAL REPORT
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ADJ. EPS*
+98%
RETAIL DEPOSIT CUSTOMERS 2
+93%
ADJ. TANGIBLE BOOK VALUE PER SHARE*2
+$8.45
FYE 2018
FYE 2014
12/31/2018
6/30/2014
12/31/2018
6/30/2014
CORE ROTCE*
+445bps
FYE 2018
FYE 2014
TOTAL DEPOSITS 2
+$50b
$3.34
$1.68
1.65M
0.85M
$29.93
$21.48
12.3%
7.9%
$106.2B
$56.1B
12/31/2018
6/30/2014
* Represents a non-GAAP financial measure. These measures are used by management and we believe are useful to investors in assessing the company’s operating performance and
capital. Refer to the 2018 Financial Tables later in this document for a Reconciliation to GAAP.
2 Metrics reflect growth from June 30, 2014, the quarter-end subsequent to Ally’s IPO, through December 31, 2018.
2018 ANNUAL REPORT
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AUTOMOTIVE FINANCE
Our auto finance business delivered strong risk-adjusted
returns in 2018 through prudent diversification and sound
risk management. We leveraged our national scale and
strong dealer relationships to gain share in the used
vehicle financing market. Pre-tax income increased 12%
to $1.4 billion driven by strong asset growth and higher
consumer and commercial revenue. Estimated retail auto
originated yield3 for 2018 increased by 83 bps to 7.07%
on $35.4 billion of consumer originations. The expansion
of retail auto and commercial auto yields came against
a backdrop of disciplined underwriting and strong credit
performance, with the 2018 retail auto net charge-off
rate declining 15 bps to 1.33%. Additionally, we remained
consistent in the market, with our nonprime originations,
defined as loans with a FICO score of less than 620,
representing 10% of volume in both 2017 and 2018, while
the average FICO score on 2018 retail originations was
689, just 1 point below our 2017 vintage.
With approximately 17,900 dealer relationships across
all 50 states and 100 years of experience in the auto
finance business, we have the ability to quickly pivot
across geographies and products in response to shifting
competitive landscapes. In 2018, we decisioned 11.6
million consumer applications, which drove the increase
in full-year origination volume. Our growth in application
and origination volume reflects the strength of our unique
value proposition in the auto finance market, where
we go beyond traditional consumer and commercial
financing and insurance products. We also provide
comprehensive automotive remarketing services,
including the use of SmartAuction, our online auction
platform, which efficiently supports dealer-to-dealer
and other commercial wholesale vehicle transactions.
SmartAuction, which was used to sell 281,000 vehicles to
dealers and other commercial customers in 2018, provides
diversified fee-based revenue and serves as a means of
deepening relationships with our dealership customers.
During 2018, used volume increased $2.5 billion to $18.2
billion while the Growth channel accounted for a record
46% of our consumer origination volume, evidence of our
successful diversification efforts. Beyond our longstanding
GM and Chrysler relationships, our ability to diversify
across all OEMs at this scale demonstrates the strength
of our customer service, product offerings, Dealer Rewards
program, and deep industry knowledge.
Several years ago, we identified used vehicle financing
as an attractive opportunity to expand risk-adjusted
returns given the competitive dynamics and risk profile
of that market. In 2018, used vehicles accounted for a
record 52% of our consumer originations and we remain
upbeat on the ability to drive returns in the used vehicle
market. Our approach is targeted at the upper-end of the
used market, with a focus on newer vehicles, including
certified pre-owned, and primarily sourced through
franchised dealers. Consequently, the FICO differential
between our new and used originations was approximately
20 points compared to a differential of more than 50
points4 for the overall industry.
In addition to our retail auto finance operations, our
commercial auto business had a terrific year, increasing
total financing revenue $210 million year-over-year to
$1.5 billion. Serving automotive dealers is foundational
to who we are, and we’ve grown non-RV dealer
relationships every year since 2014, while continuing
to expand our relationships with existing dealers and
steadily making inroads with newer Growth channel
dealers. In addition to expanding commercial auto
portfolio yield by 77 bps, 2018 marked the eighth
consecutive year in which commercial auto portfolio
losses have been less than or equal to two basis points.
We remain forward-looking in how we position our
business, as evidenced by our relationships with
innovative players in the industry, and our in-house
direct-to-consumer auto offering, ClearLane. The
industry continues to evolve, and as we’ve always done,
we are positioning ourselves for long-term success.
3 Estimated Retail Auto Originated Yield is a forward-looking non-GAAP financial measure determined by calculating the estimated average annualized yield for loans originated during
the period.
4 Source: Experian State of the Auto Finance Market (4Q2018).
we leveraged our national
scale and strong dealer
relationships to gain
share in the used vehicle
financing market
USED VEHICLES ACCOUNTED
FOR A RECORD
52%
of our consumer originations in 2018
2018 ANNUAL REPORT
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INSURANCE
Our insurance business had another solid year, with
total written premiums up 18% to $1.2 billion. Vehicle
service contract volume steadily increased, and
we saw strong growth in new non-GM relationships.
In 2018, we renewed our agreement to serve as
a preferred insurance provider for Subaru while closing
out a successful year serving as the preferred vehicle
service contract and protection plan provider for
GM Canada. Our insurance franchise is an important
complement to our auto finance business and a
difference maker in allowing us to provide a full suite
of products to our dealer customers. As we grow written
premiums, expand Growth channel relationships, and
introduce new products, we expect Ally Insurance to
remain a critical part of our dealer-facing strategy.
GROW WRITTEN
PREMIUMS
INTRODUCE
NEW PRODUCTS
EXPAND GROWTH
CHANNEL
RELATIONSHIPS
ALLY INSURANCE
2018 ANNUAL REPORT
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CORPORATE FINANCE
Our corporate finance business experienced strong
growth in 2018 and represents an attractive opportunity
to grow risk-adjusted returns in the future. The corporate
finance team, which provides senior secured leveraged
cash flow and asset-based loans to mostly U.S.-based
middle market companies, has significant industry
experience, a proven track record, and strong financial
sponsor relationships. Our average net charge-off rate
since 2006 has been approximately 10 basis points, and
we’re prudently growing our portfolio. The investments
we made in the business in 2017, including expanding into
new industry verticals and the hiring of key talent, paid
dividends in 2018, with pre-tax income increasing 26%
to $144 million. Our diversified held-for-investment
portfolio increased 19% to $4.6 billion in 2018, while
experiencing a net charge-off rate of only seven basis
points. While corporate finance will continue to be
a growth engine for Ally moving forward, we remain
cognizant of the headwinds within the leverage finance
market and will remain disciplined.
DIVERSIFIED HFI PORTFOLIO
+19%
to $4.6 billion in 2018
MORTGAGE FINANCE
Our mortgage business saw 2018 pre-tax income more
than double from $20 million to $45 million, while net
financing revenue increased by $47 million year-over-
year. Total assets increased $3.5 billion to $15.2 billion,
driven primarily by bulk mortgage purchases. In the
second half of 2018, direct-to-consumer origination
volume, through our Ally Home platform, began to
accelerate. Mortgage is a large addressable market and
remains an attractive growth opportunity for us as well
as a value-added way to deepen customer relationships.
NET FINANCING REVENUE
+$47m
year-over-year
2018 ANNUAL REPORT
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investment
thesis
STRONG FINANCIAL
RESULTS
I’m pleased to report that our strong financial and
operational performance met or exceeded our
expectations across the board in 2018. While historically
low unemployment, tax reform and a strong consumer
benefited our bottom line, it was our measurable
improvement across our business units and prudent
capital deployment strategy that drove our results.
These solid operating results, along with strong credit
performance and judicious capital management actions,
helped us achieve the targets we provided to investors in
early 2018 and subsequently revised higher in the third
quarter for full-year 2018 results. Against that guidance,
our Core ROTCE* of 12.3% and Adjusted EPS* growth of
39% were in line with our targets. Our portfolio experienced
solid credit performance driven by consistent underwriting,
a healthy consumer, and enhanced collections capabilities,
pushing provision for loan losses down 20% in 2018,
stronger than our target. These same dynamics benefited
our retail auto net charge-off rate, which ended 2018 at
1.33% relative to a target of below 1.40%. Our top-line
performance, including net financing revenue and
Adjusted Other Revenue*, were also in line with our targets.
Lastly, we remained disciplined on expenses while still
supporting our core businesses and investing in growth,
with noninterest expense increasing 5% year-over-year,
directly in the middle of our target range.
our strong financial
and operational
performance met
or exceeded our
expectations across
the board in 2018
* Represents a non-GAAP financial measure. These measures are used by management and we believe are useful to investors in assessing the company’s operating performance and
capital. Refer to the 2018 Financial Tables later in this document for a Reconciliation to GAAP.
2018 ANNUAL REPORT
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RETAIL DEPOSIT CUSTOMERS
>1.6m
POWERFUL AUTO FINANCE & DEPOSIT FRANCHISES
I view our auto finance business and deposit franchise
as the stable foundation around which we continue to
expand into new consumer and commercial products.
We’ve been in the auto business for 100 years and have
national scale, leading capabilities, and deep and
longstanding dealer relationships, all of which contribute
to our leading market position as we serve more than
4 million auto finance customers and approximately
17,900 dealers. Our deposit franchise set the stage for
what a digital customer-centric bank should look like
when it was established in 2009, while collecting countless
accolades along the way. This allowed us to expand to
over 1.6 million retail deposit customers, while achieving
36 consecutive quarters of double-digit year-over-year
retail deposit growth. Simply put, these are two powerful
businesses that underpin our financial path and provide
us with brand recognition and a large customer base as
we introduce new and innovative products and services.
2018 ANNUAL REPORT
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OUTSTANDING SHARE COUNT (IN MM)
TOTAL CAPITAL RETURNED TO COMMON
SHAREHOLDERS ($ IN MM)
500
400
300
200
2016
2017
2018
$1,200
$1,000
$800
$600
$400
$200
$0
2016
2017
2018
EFFICIENT CAPITAL MANAGEMENT
Our capital management strategy at Ally balances
returning capital to shareholders with investing in our
businesses. In an environment where the pressures of
short-termism are pervasive, we spend significant time
analyzing and discussing how we can deliver the most
value to our shareholders over the long-term. We are
well-positioned to leverage our brand and national
scale to create and grow new businesses in response
to our customers’ demands. Meanwhile, our stock
continued to trade below book value throughout most
of 2018, creating compelling opportunities for share
repurchases. Given those two dynamics, we prioritized
our customers, ensuring we were providing them
with the products and user experience they expect and
then taking advantage of the market opportunity
to repurchase our shares. We believe this is the best
approach for our shareholders, allowing us to drive
profitability by investing in our businesses while also
returning significant capital. In 2018, we spent $939
million repurchasing 35 million shares while raising
our dividend from $0.12 per share in 4Q2017 to $0.15
per share in 3Q20185. Overall, we returned $1.2 billion
to common shareholders in 2018, equivalent to more
than 10% of our average market capitalization. Since
we started returning capital to our shareholders in
mid-2016, we’ve repurchased over 86 million shares,
reducing share count by 16.3%, while increasing our
common dividend four times5. Going forward, we will
continue to provide our core businesses with what
they need to maintain their leading market positions
and generate attractive risk-adjusted returns, while
also supporting our growth businesses and actively
returning capital to our shareholders.
5 On January 14, 2019, Ally declared a common dividend of $0.17 per share, reflecting a $0.02 increase relative to its 4Q2018 dividend payment.
2018 ANNUAL REPORT
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POSITIONED FOR THE FUTURE
While I’m proud of the financial results we posted in 2018,
I’m also excited about the initiatives we undertook and
the investments we made to drive strong and sustainable
profitability in the future. We continued to prudently
enhance the capabilities and customer experience within
our Ally Invest and Ally Home businesses and saw
encouraging customer trends in both franchises. As
the largest branchless bank in the United States, we
understand the importance of the digital user experience,
and we made smart investments across both our core
and growth businesses to provide Ally customers with
best-in-class service. We rolled out new functionality
within Ally Invest, enhanced the fulfillment process
at Ally Home, leveraged machine learning within our
deposits business, and made improvements to our auto
underwriting and servicing capabilities.
Positioning for the future, however, is more than fostering
innovation and creating a path toward sustainable and
profitable growth - it’s also about maintaining the trust
of our customers and keeping their money and data safe.
As a company, we remain intensely focused on protecting
customer data. Cybersecurity is a foundational element
of our enterprise risk management and an obligation of
every Ally associate. The tone comes from the top, and
along with crisis management simulations and testing,
mandatory training modules, and monthly phishing
exercises for employees, our Board of Directors and
management team consistently convey our organizational
commitment to data privacy and cybersecurity.
Our focus on safety and soundness extends beyond
cybersecurity. Our strong capital and liquidity profile,
coupled with our expertise in managing credit through
many cycles, enables us to focus on what we do best –
serve as a trusted financial provider to our customers while
providing innovative solutions and exceptional service.
cybersecurity is a
foundational element
of our enterprise risk
management and an
obligation of every
ally associate
2018 ANNUAL REPORT
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14
do right
tirelessly
innovate
obsess over
the customer
SERVING WITH A PURPOSE
I believe a strong culture serves as the foundation for
strong operational results, which ultimately drives strong
financial performance and enhanced long-term returns
for our owners. Our brand is a reflection of our culture
and is centered around three simple pillars: Do Right,
Tirelessly Innovate and Obsess Over the Customer.
We’re committed to constantly creating and reinventing
with the singular purpose of making a real difference
in the lives of our customers.
Investing in the communities where we live and
work is critical to improving the financial wellbeing
of our customers. Consequently, upon enactment of
tax reform in 2017, we announced an increase to our
philanthropic giving of $6 million to better support
our local communities. During 2018, our corporate
citizenship priorities shifted from a focus on financial
literacy toward a focus on long-term economic mobility
that addresses generational poverty. This is a crucial
societal issue that resonates with all of us at Ally. As
a digital bank with no brick and mortar footprint, we
are very purposefully accessible to everyone, providing
financial products fairly and transparently from coast
to coast. Through both monetary support, including
strategic investments, as well as volunteerism, our
actions and initiatives strive to make a genuine impact
on people’s lives and their ability to improve their income
through economic mobility.
Ally has been an engaged and committed corporate
citizen for a long time, and I’m excited to share that we
now have a comprehensive report that highlights our
philosophy and accomplishments in this arena. In 2018,
we released our inaugural Corporate Social Responsibility
(CSR) report, showcasing how we serve as relentless allies
to create positive social impact while underscoring our
commitment to do right for our customers, communities,
colleagues, and shareholders.
Our ability to serve our customers and communities
starts and ends with our 8,200 employees. Ally’s
programs, processes and policies help our associates
embrace a purpose-driven career that is owned by the
employee while being supported by a host of career
tools, a mentoring program, holistic benefits, and lots
of recognition. As a result, Ally colleagues are highly
engaged and our employee engagement scores evidence
this – Ally improved upon its 2017 results and scored six
points above the industry average in 2018.
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looking ahead
banking experience with competitive rates from
an organization that not only has a higher purpose
and commitment beyond its financial results, but
clearly demonstrates that commitment in its actions.
Ally reflects the future of banking, and I couldn’t be
more excited to build on our momentum in 2019 as
the leading digital bank.
In closing, I want to express my deep appreciation
to the Board of Directors for their invaluable wisdom
and guidance. I also want to thank my senior leadership
team and our 8,200 teammates for their hard work and
dedication. Our results in 2018 are a direct reflection
of your collective efforts and commitment to serving
our customers.
Lastly, thank you to all fellow shareholders for your
continued support of Ally. I remain humbled and
honored to lead this company on your behalf.
JEFFREY J. BROWN
Chief Executive Officer
Our business reflects the future of banking. Over half of
our new deposit customers in 2018 were millennials, a
digitally-savvy demographic segment that is expected
to benefit from an intergenerational wealth transfer of
$30 trillion6, driving financial services for decades. The
relationships we’re establishing today will continue to
grow and deepen as we enhance our new products and
improve our digital capabilities, supporting the growth
of Ally moving forward.
ally reflects the
future of banking,
and I couldn’t be
more excited to build
on our momentum in
2019 as the leading
digital bank
It’s said that imitation is the sincerest form of flattery.
We view the multitude of financial institutions, both
new and old, that have emulated our digital and
customer-centric approach to banking as the ultimate
compliment, and affirmation of what we’ve known
for a long time. Since we started Ally Bank in 2009,
we’ve always been forward looking. We understood
that customers want a fair and transparent digital
6 Source: Accenture. The “Greater” Wealth Transfer – Capitalizing on the Intergenerational Shift in Wealth, 2015.
2018 ANNUAL REPORT
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doing right for
our employees
We pride ourselves on having a unique and collaborative
culture, and that all starts with our associates.
Ally works to champion a diverse and engaged workforce
by ensuring our values are reflected in our programs,
processes, and policies, including comprehensive benefits
that support the health and well-being of employees
both in and out of the office. We strive for a work
environment where all backgrounds, experiences, interests
and skills are respected, appreciated and encouraged.
This focus is essential to our culture – by leveraging
unique perspectives and ideas, we can better approach
challenges, discover opportunities and drive innovation.
As our greatest asset, we continually invest in our
associates with holistic benefits that meet the varying needs
of our diverse employee base. Our goal is to provide our
employees and their family members with comprehensive
benefits and tools to support their physical, financial,
emotional and social health and well-being. We offer
a variety of tools and learning opportunities to help
develop and build future leaders and have a cross-
functional mentoring program with nearly 1,100 mentors.
During 2018, we improved our already leading and
2018 ACCOLADES
progressive benefits package by enhancing our free
financial planning program, introducing a stronger and
more flexible bereavement policy, and expanding fertility,
adoption, and surrogacy benefits.
Our commitment to Diversity & Inclusion begins at the
top, and members of Ally’s Executive Council chair our
eight Employee Resources Groups (ERGs) while our
CEO was a signatory to the CEO Action for Diversity
& Inclusion™, a united commitment from CEOs of the
world’s largest companies to support a more inclusive
workplace. Our strategy and framework for Diversity &
Inclusion includes ERGs, talent acquisition initiatives,
employee development, leader learning tools, and an
overarching culture that embraces unique perspectives.
ERG participation increased by 70% to over 2,500 Ally
employees in 2018, and we held over 500 ERG events
focused on topics such as talent acquisition and recruiting,
development, and community outreach. Understanding
that fostering a truly inclusive culture requires tough
conversations, we launched a series called “Let’s Talk
About It” to facilitate a conversation of understanding
and how to talk about difference.
Best and Brightest
in Wellness
Limeade’s Rookie of the
Year Award for Wellbeing
& Engagement
Best Companies to work
for Women and Millennials
by Women’s Choice Award
2018 ANNUAL REPORT
ALLY FINANCIAL
17
ERG PARTICIPATION
+70%
to over 2,500 Ally employees in 2018
2018 ANNUAL REPORT
ALLY FINANCIAL
18
innovating for
our customers
Ally leads the industry because we listen, we learn
and we’re always looking ahead. Customer-centric
creative thinking cuts across all aspects of our business
and drives us to improve, whether that’s redesigning
our auto servicing platform, streamlining customer
onboarding, or partnering with companies like Carvana
and EchoPark to provide financing in more of the places
where consumers are purchasing vehicles.
We’re continuously improving the digital customer
experience and had several notable accomplishments
in 2018. We fully redesigned our mobile app, upgraded
our website, enhanced the deposit account opening
process, and improved profile management and secure
messaging functionality. Ally Invest made it easier and
faster to open an account and transfer funds while
enhancing and redesigning tax tools, market research
capabilities, and chart functionality, all while expanding
its product suite. The capital we’re deploying to innovation
is improving the customer experience and consequently
deepening our customer relationships. Multi-product
customers across our business lines continued to grow
- over 90% of our mortgage customers and roughly
one-third of our incoming Invest customers were existing
deposit account holders.
TM STUDIO
At Ally, we believe a great workspace is critical to
being competitive in today’s marketplace. That’s why
we introduced a concept testing studio in 2018 called
TM Studio. Our goal through TM Studio is to expand
our foundational culture of innovative thinking to further
transform business processes, leverage design-thinking
principles and deliver innovative solutions for consumers.
The creation of TM Studio was a deliberate effort
to provide a unique environment conducive to cross-
functional coordination and ideation to tackle real life
challenges of our businesses and create solutions to
improve the customer experience.
2018 ANNUAL REPORT
ALLY FINANCIAL
19
DATAFEST
IT HACKATHON
Ally’s insurance business hosted its fourth-annual
DataFest event in 2018, an internal competition
focused on improving business processes and
programs. Taking place over two days and including
more than 100 employee participants across the
country, competitors developed an idea, defended
it with data, and then presented a compelling business
case to a panel of judges. Over the past four years,
DataFest has generated 70 discrete ideas, and several
have been piloted or implemented.
Ally’s IT Hackathon featured more than 100 IT teammates
seeking to create innovative solutions to challenges that
our customers may face in real life, ultimately presenting
working code or proof of concept to a panel of judges.
The 2018 winner showcased a system that streamlined
the process for customers to connect with Ally Bank
associates without waiting on hold.
2018 ANNUAL REPORT
ALLY FINANCIAL
20
leading brand
At Ally, our brand is a powerful competitive differentiator.
The Ally brand is known for ‘Doing it Right,’ tirelessly
innovating, and being a trusted financial partner for
consumer, commercial and corporate clients. Our brand
started with a simple belief in 2009 that better banking
was possible and was built on a customer-first
commitment. The continued expansion of Ally’s customer
base and enhancement of the digital experience
supported the significant growth of the Ally brand in 2018,
which was recognized by Brand Finance as one of the
top 5 fastest growing banking brands. Moreover, in 2018,
we achieved record levels of brand awareness, brand
sentiment, and social sentiment, reflecting the strength
of our brand and the durability of our customer-centric
approach to banking.
On the fourth anniversary of National Online Bank Day,
a holiday we established in 2015 to emphasize the value,
ease, and convenience of banking with online-only
institutions, we launched our new marketing campaign
encouraging consumers to expect more from their banks.
At the heart of our Ally Bank marketing strategy was
a desire to emphasize that we are a true ally for our
customers' financial well-being. Our new ad campaign
highlighted the reality that many consumers were missing
out on improving their financial profile by keeping their
savings in low interest accounts. In other words, better is
out there, and Ally is here to help customers accomplish
their financial goals.
at the heart of our
ally bank marketing
strategy was a desire
to emphasize that
we are a true ally
for our customers'
financial well-being
2018 ANNUAL REPORT
ALLY FINANCIAL
21
INNOVATIVE SPONSORSHIPS
In 2018, we celebrated our two largest sponsorships
in the history of Ally Bank, starting with the inaugural
Ally Challenge, a PGA TOUR Champions event that
brought professional golf back to Southeastern
Michigan. Our sponsorship of this event reflects our
deep commitment to supporting the revitalization of
Detroit, as the tournament raised over $800,000 for
the Community Foundation of Greater Flint and Junior
Achievement of Southeastern Michigan, and other local
charities. Additionally, Ally entered into a partnership
with Hendrick Motorsports and Jimmie Johnson in late
2018, including an exclusive sponsorship of the No. 48
car in the NASCAR racing series.
CHEDDAR
Ally’s brand and value proposition strongly appeal to
millennials, which is why, for the second year in a row,
Ally partnered with Cheddar, a leading post-cable
networks company, to present a live, weekly personal
finance show aimed at people in their 20s and 30s.
This unique collaboration provides an opportunity to
speak to a young, financially savvy audience and bring
them relevant content that addresses the opportunities
and challenges they face in this stage of their lives.
MOGULS IN THE MAKING
Ally launched a collaboration with entertainer and
entrepreneur Big Sean and the Thurgood Marshall
College Fund (TMCF) to create Moguls in the Making,
an entrepreneurial competition that aims to prepare
and empower young black entrepreneurs.
2018 ANNUAL REPORT
ALLY FINANCIAL
22
relentless
ally for social
impact in the
community
Supporting our communities is foundational to our culture.
Giving back to our communities, however, is about more
than financial contributions. In addition to our philanthropic
dollars, we are involved in the communities where we
live and work by sharing our time and expertise. During
2018, 47% of Ally employees participated in giving back,
ultimately volunteering approximately 21,000 hours and
contributing more than $6.4 million, including company
contributions, to more than 1,800 charitable organizations
across the country.
47%
of Ally employees participated
in giving back in 2018
2018 ANNUAL REPORT
ALLY FINANCIAL
23
FINANCIAL EDUCATION
Financial education has been a bedrock of our community
engagement philosophy since our days as a private
company. Ally Wallet Wise, our financial literacy platform,
was designed to educate consumers about important
topics related to money, including credit, budgets,
banking, and investing. Since launching Wallet Wise
in 2011, Ally has provided over 20,000 Wallet Wise sessions
for more than 117,000 consumers. Complementing our
Wallet Wise program is Planet Zeee and the Money Tree,
a children’s book released in 2017 that teaches fundamental
money concepts to children and has been read by Ally
employees to more than 46,000 elementary age students
across the country.
ECONOMIC MOBILITY
As we look forward, we intend to build on our historical
financial literacy efforts as we expand our focus to truly
make a sustainable social impact by “Innovating for
Economic Mobility for Everyone.” Ally believes in providing
individuals and communities with greater access to
services, education and resources they can use to improve
their economic circumstances and enrich their lives.
You can expect to see more partnerships, investments
and activities moving forward as we aggressively embrace
economic mobility. Our Community Reinvestment Act
(CRA) program plays an integral role in serving our
communities and promoting our corporate citizenship
efforts. In 2018, Ally Bank’s CRA program deployed
over $850 million into communities through various
loans and investments that supported affordable
housing development and preservation, or promoted
economic development by financing small businesses
and job creation. The Bank’s three-year CRA Strategic
Plan commits to support low-income communities by
investing $2.5 billion through loans and investments
with an additional 2,000 hours of volunteer work. Ally
Bank is currently rated the highest possible CRA rating
of “Outstanding.”
CRA PROGRAM DEPLOYED OVER
$850m
into communities through various loans
and investments
2018 ANNUAL REPORT
ALLY FINANCIAL
24
GIVING BACK MONTH
While giving back is encouraged all year, Ally increases
its efforts in November for Giving Back Month. During
this time, employees are encouraged to give back
through donations or volunteering. Giving Back Month
celebrated its seventh anniversary in 2018, featuring
more than 200 different volunteer and fundraising events
with participation from 2,300 employees. Collectively,
the contributions of our employees and Ally’s company
match resulted in more than $800,000 of donations and
7,000 volunteer hours.
We’re always looking for ways to go above and beyond
for our customers and in connection with Giving Back
Month in November 2018 we introduced ‘Banksgiving’,
an opportunity for our call center teammates to surprise
customers with random acts of kindness. Whether it was
a trip to see a family member, an anniversary gift, or a
$55,000 donation to help deliver Thanksgiving baskets in
the community of one of our customers, we were thrilled
to demonstrate our brand promise and ‘Do it Right’ for
our customers during the holiday season.
2018 ANNUAL REPORT
ALLY FINANCIAL
25
IN 2018, ALLY HELPED
1.3m
consumers finance a vehicle
SUPPORTING THE AUTO INDUSTRY
Ally is deeply embedded in the fabric of the U.S. auto
market as a leading finance and insurance provider.
In 2018, we helped 1.3 million consumers finance a
vehicle while lending approximately $37 billion to
automotive dealers across the country. Our dealer
customers are pillars of their communities, and we
are committed to supporting the causes that are
important to our dealers. In 2018, Ally provided nearly
$900,000 to 281 charitable organizations in support
of dealer community relationships.
For the 7th year in a row, Ally partnered with TIME
magazine on the “Dealer of the Year” award to honor
new-car dealers throughout America that exhibited
exceptional performance in their dealerships
and performed distinguished community service.
The prestigious TIME Dealer of the Year Award is
presented annually, in partnership with Ally and the
National Automobile Dealers Association.
Furthering our support of the dealer community, Ally
and the National Association of Minority Automobile
Dealers awarded the first-ever ‘Ally Sees Her Award’ in
2018, designed to recognize promising, young women
leaders in the auto retail industry.
2018 ANNUAL REPORT
ALLY FINANCIAL
26
2018 financial tables
ADJUSTED EARNINGS PER SHARE
($ per share)
GAAP EPS (diluted)
Discontinued Operations, Net of Tax
Core OID, Net of tax1
Change in Fair Value of Equity Securities, Net of Tax1,2
Repositioning Items, Net of Tax1,3
Significant Discrete Tax Items4
Capital Actions (Series A & G)
Adjusted EPS
FY 2018
FY 2017
FY 2016
FY 2015
FY 2014
$2.95
-
0.16
0.22
-
-
-
$3.34
$2.04
(0.01)
0.10
-
-
0.26
-
$2.39
$2.15
0.09
0.08
-
0.01
(0.18)
0.00
$2.16
$(2.66)
(0.81)
0.08
-
0.48
-
4.90
$2.00
$1.83
(0.47)
0.25
-
0.07
-
-
$1.68
ADJUSTED TANGIBLE BOOK VALUE PER SHARE
($ per share)
FY 2018
FY 2017
FY 2016
FY 2015
FY 2014
GAAP Shareholder's Equity
Preferred Equity
Goodwill & Intangibles, Net of DTLs
Tangible Common Equity
Tax-effected Core OID Balance5
Series G Discount
$32.8
$30.9
$28.5
-
(0.7)
32.1
(2.1)
-
-
(0.7)
30.2
(2.1)
-
-
(0.6)
27.9
(1.7)
-
Adjusted Tangible Book Value Per Share
$29.9
$28.1
$26.2
$27.9
(1.4)
(0.1)
26.4
(1.8)
-
$24.6
$32.1
(2.6)
(0.1)
29.4
(1.9)
(4.9)
$22.7
ORIGINAL ISSUE DISCOUNT AMORTIZATION EXPENSE
($ millions)
FY 2018
FY 2017
FY 2016
FY 2015
FY 2014
Core OID Amortization Expense8
Other OID
GAAP OID Amortization Expense
$86
15
$101
$71
20
$90
$57
21
$78
$45
17
$62
$172
17
$189
OUTSTANDING ORIGINAL ISSUE DISCOUNT BALANCE
($ millions)
FY 2018
FY 2017
FY 2016
FY 2015
FY 2014
Core Outstanding OID Balance (Core OID Balance)
$(1,092)
$(1,178)
$(1,249)
$(1,304)
$(1,351)
Other Outstanding OID Balance
GAAP Outstanding OID Balance
(43)
(57)
(77)
(87)
(64)
$(1,135)
$(1,235)
$(1,326)
$(1,391)
$(1,415)
2018 ANNUAL REPORT
ALLY FINANCIAL
27
CORE RETURN ON TANGIBLE COMMON EQUITY (ROTCE)
($ millions)
FY 2018
FY 2017
FY 2016
FY 2015
FY 2014
GAAP Net Income Attributable to Common Shareholders
$1,263
$929
$1,037
$(1,282)
Discontinued Operations, Net of Tax
Core OID
Change in Fair Value of Equity Securities2
Repositioning items3
Tax on Core OID, Repo Items & Change in Fair Value
of Equity Securities6
Significant Discrete Tax Items & Other
Capital Actions (Series A & G)
Core Net Income Attributable to Common Shareholders
GAAP Shareholder's Equity7
Preferred Equity7
Goodwill & Intangibles, Net of DTLs7
Tangible Common Equity
Core OID Balance7
Net Deferred Tax Asset7
Normalized Common Equity
Core Return on Tangible Common Equity
ADJUSTED TOTAL NET REVENUE
-
86
121
-
(43)
-
-
$1,427
$13,381
-
(290)
$13,091
(1,135)
(391)
$11,565
12.3%
(392)
59
-
349
(139)
22
2,372
$990
$882
(225)
186
-
187
(127)
(103)
-
$800
44
59
-
11
(24)
(84)
1
$1,043
$13,378
(348)
(160)
(3)
71
-
-
(25)
119
-
$1,091
$13,406
-
(293)
$13,112
(1,213)
(737)
$14,419
$14,804
(976)
(27)
(1,255)
(27)
$12,870
$13,416
$13,522
(1,276)
(1,182)
(1,327)
(1,583)
(1,441)
(1,923)
$11,162
$10,412
$10,506
$10,157
9.8%
10.0%
9.4%
7.9%
($ millions)
FY 2018
FY 2017
FY 2016
FY 2015
FY 2014
GAAP Net Financing Revenue
$4,390
$4,221
$3,907
Core OID
Net Financing Revenue (ex. Core OID)
GAAP Other Revenue
Accelerated OID & Repo Items3
Change in Fair Value of Equity Securities2
Adjusted Other Revenue
Adjusted Total Net Revenue
86
$4,476
$1,414
-
121
$1,535
$6,011
71
$4,292
$1,544
-
-
$1,544
$5,836
57
$3,964
$1,530
4
-
$1,534
$5,498
$3,719
45
$3,764
$1,142
356
-
$1,498
$5,262
$3,375
172
$3,547
$1,276
162
-
$1,438
$4,985
1 Tax rate 21% starting 1Q2018; 35% starting 1Q2016; 34% prior
2 Change in fair value of equity securities reflects equity fair value adjustments related to ASU 2016-01, effective 1/1/2018, which requires change in the fair value of equity securities to
be recognized in current period net income as compared to prior periods in which such adjustments were recognized through other comprehensive income, a component of equity
3 Repositioning items are primarily related to the extinguishment of high cost legacy debt and strategic activities
4 Significant discrete tax items do not relate to the operating performance of the core businesses. 2017 effective tax rate was impacted primarily by a $119 million revaluation of federal
deferred tax assets and liabilities and related valuation allowance recorded in 4Q2017 due to the enactment of the Tax Cuts and Jobs Act in 2017
5 Tax rate 21% starting 4Q2017; 35% starting 1Q2016; 34% prior
6 Tax rate 21% starting 1Q2018; 35% prior
7 Calculated using 2-period average
8 Excludes accelerated OID
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
Commission file number: 1-3754
ALLY FINANCIAL INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
38-0572512
(I.R.S. Employer
Identification No.)
Ally Detroit Center
500 Woodward Ave.
Floor 10, Detroit, Michigan
48226
(Address of principal executive offices)
(Zip Code)
(866) 710-4623
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act (all listed on the New York Stock Exchange):
Title of each class
Common Stock, par value $0.01 per share
8.125% Fixed Rate/Floating Rate Trust Preferred Securities,
Series 2 of GMAC Capital Trust I
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K (§ 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
No
No
No
No
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The aggregate market value of the Registrant’s common stock (Common Stock) held on June 29, 2018 by non-affiliated entities was
approximately $11.2 billion (based on the June 29, 2018 closing price of Common Stock of $26.27 per share as reported on the New York
Stock Exchange).
At February 15, 2019, the number of shares outstanding of the Registrant’s common stock was 402,666,101 shares.
Documents incorporated by reference: portions of the Registrant’s Proxy Statement for the annual meeting of stockholders to be held on
May 7, 2019, are incorporated by reference in this Form 10-K in response to Items 10, 11, 12, 13, and 14 of Part III.
No
INDEX
Ally Financial Inc. • Form 10-K
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Management’s Report on Internal Control over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Item 9.
Item 9A.
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Item 16.
Signatures
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits, Financial Statement Schedule
Form 10-K Summary
Page
3
12
25
25
25
25
26
28
31
94
95
95
96
98
100
101
103
104
106
185
185
185
186
188
188
188
188
189
191
192
Part I
Ally Financial Inc. • Form 10-K
Item 1. Business
Our Business
Ally Financial Inc. (together with its consolidated subsidiaries unless the context otherwise requires, Ally, the Company, or we, us, or
our) is a leading digital financial-services company with $178.9 billion in assets as of December 31, 2018. As a customer-centric company
with passionate customer service and innovative financial solutions, we are relentlessly focused on “Doing It Right” and being a trusted
financial-services provider to our consumer, commercial, and corporate customers. We are one of the largest full-service automotive-finance
operations in the country and offer a wide range of financial services and insurance products to automotive dealerships and consumers. Our
award-winning online bank (Ally Bank, Member FDIC and Equal Housing Lender) offers mortgage-lending services and a variety of deposit
and other banking products, including savings, money-market, and checking accounts, certificates of deposit (CDs), and individual retirement
accounts (IRAs). We also support the Ally CashBack Credit Card. Additionally, we offer securities-brokerage and investment-advisory
services through Ally Invest. Our robust corporate-finance business offers capital for equity sponsors and middle-market companies.
We are a Delaware corporation and are registered as a bank holding company (BHC) under the Bank Holding Company Act of 1956, as
amended (BHC Act), and a financial holding company (FHC) under the Gramm-Leach-Bliley Act of 1999, as amended (GLB Act). Our
primary business lines are Dealer Financial Services, which comprises our Automotive Finance and Insurance operations, Mortgage Finance,
and Corporate Finance. Corporate and Other primarily consists of centralized corporate treasury activities, the management of our legacy
mortgage portfolio, the activity related to Ally Invest, and reclassifications and eliminations between the reportable operating segments. Ally
Bank’s assets and operating results are included within our Automotive Finance, Mortgage Finance, and Corporate Finance segments, as well
as Corporate and Other, based on its underlying business activities. As of December 31, 2018, Ally Bank had total assets of $159.0 billion and
total deposits of $106.2 billion.
Our strategic focus is centered around continuing to optimize our Automotive Finance and Insurance operations, to grow our deposits
and customers, to increase the scale of our digital product offerings, to maintain efficient capital management and disciplined risk
management, to build the long-term value of our business, and to foster a culture of relentlessly focusing on our customers, communities,
associates, and stockholders. Within our Automotive Finance and Insurance operations, we are focused on strengthening our network of
dealer relationships and pursuing digital distribution channels for our products and services, including through our operation of a direct-
lending platform, our participation in other direct-lending platforms, and our work with dealers innovating in digital transactions—all while
maintaining an appropriate level of risk. We also seek to extend our leading position in automotive finance in the United States by continuing
to provide automotive dealers and their retail customers with premium service, a comprehensive product suite, consistent funding, and
competitive pricing—reflecting our commitment to the automotive industry. Within our other banking operations—including Mortgage
Finance and Corporate Finance—we seek to prudently expand our consumer and commercial banking products and services while providing a
high level of customer service. In addition, we continue to focus on delivering significant and sustainable growth in deposit customers and
balances while optimizing our cost of funds. At Ally Invest, we look to augment our securities brokerage and investment advisory services to
more comprehensively assist our customers in managing their savings and wealth.
We continue to invest in enhancing the customer experience with integrated features across product lines on our digital platform. We also
continue to build on our existing foundation of approximately 6.0 million consumer automotive financing and primary deposit customers,
strong brand, and innovative culture. Upon launching our first ever enterprise-wide campaign themed “Do It Right,” we introduced a broad
audience to our full suite of digital financial services, which emphasizes our relentless customer-centric focus and commitment to constantly
create and reinvent our product offerings and digital experiences to meet the needs of consumers. Our product offerings and brand continue to
gain traction in the marketplace, as demonstrated by industry recognition of our award-winning direct online bank and strong retention rates
of our customer base.
Unless the context otherwise requires, the following definitions apply. The term “loans” means the following consumer and commercial
products associated with our direct and indirect financing activities: loans, retail installment sales contracts, lines of credit, and other
financing products excluding operating leases. The term “operating leases” means consumer- and commercial-vehicle lease agreements where
Ally is the lessor and the lessee is generally not obligated to acquire ownership of the vehicle at lease-end or compensate Ally for the vehicle’s
residual value. The terms “lend,” “finance,” and “originate” mean our direct extension or origination of loans, our purchase or acquisition of
loans, or our purchase of operating leases as applicable. The term “consumer” means all consumer products associated with our loan and
operating-lease activities and all commercial retail installment sales contracts. The term “commercial” means all commercial products
associated with our loan activities, other than commercial retail installment sales contracts.
For further details and information related to our business segments and the products and services they provide, refer to Management’s
Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in Part II, Item 7 of this report, and Note 26 to the
Consolidated Financial Statements.
Industry and Competition
The markets for automotive financing, insurance, banking (including corporate finance and mortgage finance), securities brokerage, and
investment-advisory services are highly competitive. We directly compete in the automotive financing market with banks, credit unions,
captive automotive finance companies, and independent finance companies. Our insurance business also faces significant competition from
automotive manufacturers, captive automotive finance companies, insurance carriers, third-party administrators, brokers, and other insurance-
related companies. Some of these competitors in automotive financing and insurance, such as captive automotive finance companies, have
3
Ally Financial Inc. • Form 10-K
certain exclusivity privileges with automotive manufacturers whose customers and dealers make up a significant portion of our customer
base. In addition, our banking, securities brokerage, and investment-advisory businesses face intense competition from banks, savings
associations, finance companies, credit unions, mutual funds, investment advisers, asset managers, brokerage firms, hedge funds, insurance
companies, mortgage-banking companies, and credit card companies. Financial-technology (fintech) companies also have been partnering
more often with financial services providers to compete against us in lending and other markets. Many of our competitors have substantial
positions nationally or in the markets in which they operate. Some of our competitors have significantly greater scale, financial and
operational resources, investment capacity, and brand recognition as well as lower cost structures, substantially lower costs of capital, and
much less reliance on securitization, unsecured debt, and other capital markets. Our competitors may be subject to different and, in some
cases, less stringent legislative, regulatory, and supervisory regimes than we are. A range of competitors differ from us in their strategic and
tactical priorities and, for example, may be willing to suffer meaningful financial losses in the pursuit of disruptive innovation or to accept
more aggressive business, compliance, and other risks in the pursuit of higher returns. Competition affects every aspect of our business,
including product and service offerings, rates, pricing and fees, and customer service. Successfully competing in our markets also depends on
our ability to innovate, to invest in technology and infrastructure, to maintain and enhance our reputation, and to attract, retain, and motivate
talented employees, all the while effectively managing risks and expenses. We expect that competition will only intensify in the future.
Regulation and Supervision
We are subject to significant regulatory frameworks in the United States—at federal, state, and local levels—that affect the products and
services that we may offer and the manner in which we may offer them, the risks that we may take, the ways in which we may operate, and
the corporate and financial actions that we may take.
We are also subject to direct supervision and periodic examinations by various governmental agencies and industry self-regulatory
organizations (SROs) that are charged with overseeing the kinds of business activities in which we engage, including the Board of Governors
of the Federal Reserve System (FRB), the Utah Department of Financial Institutions (UDFI), the Federal Deposit Insurance Corporation
(FDIC), the Bureau of Consumer Financial Protection (CFPB), the Securities and Exchange Commission (SEC), the Financial Industry
Regulatory Authority (FINRA), and a number of state regulatory and licensing authorities such as the New York Department of Financial
Services (NYDFS). These agencies and organizations generally have broad authority and discretion in restricting and otherwise affecting our
businesses and operations and may take formal or informal supervisory, enforcement, and other actions against us when, in the applicable
agency’s or organization’s judgment, our businesses or operations fail to comply with applicable law, comport with safe and sound practices,
or meet its supervisory expectations.
This system of regulation, supervision, and examination is intended primarily for the protection and benefit of our depositors and other
customers, the FDIC’s Deposit Insurance Fund (DIF), the banking and financial systems as a whole, and the broader economy—and not for
the protection or benefit of our stockholders (except in the case of securities laws) or non-deposit creditors. The scope, intensity, and focus of
this system can vary from time to time for reasons that range from the state of the economic and political environments to the performance of
our businesses and operations, but for the foreseeable future, we expect to remain subject to extensive regulation, supervision, and
examinations.
This section summarizes some relevant provisions of the principal statutes, regulations, and other laws that apply to us. The descriptions,
however, are not complete and are qualified in their entirety by the full text and judicial or administrative interpretations of those laws and
other laws that affect us.
Bank Holding Company, Financial Holding Company, and Depository Institution Status
Ally and IB Finance Holding Company, LLC (IB Finance) are BHCs under the BHC Act. Ally is also an FHC under the GLB Act.
IB Finance is a direct subsidiary of Ally and the direct parent of Ally Bank, which is a commercial bank that is organized under the laws of
the State of Utah and whose deposits are insured by the FDIC under the Federal Deposit Insurance Act (FDI Act). As BHCs, Ally and IB
Finance are subject to regulation, supervision, and examination by the FRB. Ally Bank is a member of the Federal Reserve System and is
subject to regulation, supervision, and examination by the FRB and the UDFI.
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Permitted Activities — Under the BHC Act, BHCs and their subsidiaries are generally limited to the business of banking and to
closely related activities that are incident to banking. The GLB Act amended the BHC Act and created a regulatory framework for
FHCs, which are BHCs that meet certain qualifications and elect FHC status. FHCs, directly or indirectly through their nonbank
subsidiaries, are generally permitted to engage in a broader range of financial and related activities than those that are permissible
for BHCs—for example, (1) underwriting, dealing in, and making a market in securities; (2) providing financial, investment, and
economic advisory services; (3) underwriting insurance; and (4) merchant banking activities. The FRB regulates, supervises, and
examines FHCs, as it does all BHCs, but insurance and securities activities conducted by an FHC or any of its nonbank subsidiaries
are also regulated, supervised, and examined by functional regulators such as state insurance commissioners, the SEC, or FINRA.
Ally’s status as an FHC allows us to provide insurance products and services, to deliver our SmartAuction finder services and a
number of related vehicle-remarketing services for third parties, and to offer a range of brokerage and advisory services. To remain
eligible to conduct these broader financial and related activities, Ally and Ally Bank must remain “well-capitalized” and “well-
managed” as defined under applicable law. Refer to Note 20 to the Consolidated Financial Statements and the section below titled
Basel Capital Frameworks for additional information. In addition, our ability to expand these financial and related activities or to
make acquisitions generally requires that we achieve a satisfactory or better rating under the Community Reinvestment Act (CRA).
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Ally Financial Inc. • Form 10-K
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Further, under the BHC Act, we may be subject to approvals, conditions, and other restrictions when seeking to acquire control
over another entity or its assets. For this purpose, control includes (a) directly or indirectly owning, controlling, or holding the
power to vote 25% or more of any class of the entity’s voting securities, (b) controlling in any manner the election of a majority of
the entity’s directors, trustees, or individuals performing similar functions, or (c) directly or indirectly exercising a controlling
influence over the management or policies of the entity. For example, Ally generally may not directly or indirectly acquire control
of more than 5% of any class of voting securities of any unaffiliated bank or BHC without first obtaining FRB approval.
Enhanced Prudential Standards — Ally is currently subject to enhanced prudential standards that have been established by the
FRB as required or authorized under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).
In May 2018, targeted amendments to the Dodd-Frank Act and other financial-services laws were enacted through the Economic
Growth, Regulatory Relief, and Consumer Protection Act (EGRRCP Act), including amendments that affect whether and, if so, how
the FRB applies enhanced prudential standards to BHCs like us with $100 billion or more but less than $250 billion in total
consolidated assets. During the fourth quarter of 2018, the FRB and other U.S. banking agencies issued proposals that would
implement these amendments in the EGRRCP Act and establish risk-based categories for determining the prudential standards and
the capital and liquidity requirements that apply to large U.S. banking organizations. Under the proposals, Ally would be treated as
a Category IV firm and, as such, would be (1) made subject to the FRB’s Comprehensive Capital Analysis and Review (CCAR) on
a two-year cycle rather than the current one-year cycle, (2) made subject to supervisory stress testing on a two-year cycle rather than
the current one-year cycle, (3) required to continue submitting an annual capital plan to the FRB for non-objection, (4) allowed to
continue excluding accumulated other comprehensive income (AOCI) from regulatory capital, (5) required to continue maintaining
a buffer of unencumbered highly liquid assets to meet projected net cash outflows for 30 days, (6) required to conduct liquidity
stress tests on a quarterly basis rather than the current monthly basis, (7) allowed to engage in more tailored liquidity risk
management, including monthly rather than weekly calculations of collateral positions, the elimination of limits for activities that
are not relevant to the firm, and fewer required elements of monitoring of intraday liquidity exposures, (8) exempted from
company-run stress testing, the modified liquidity coverage ratio (LCR), and the proposed modified net stable funding ratio
(NSFR), and (9) allowed to remain exempted from the supplementary leverage ratio, the countercyclical capital buffer, and single-
counterparty credit limits. In the proposals, the FRB also expressed an intent to propose at a later date similar amendments to its
capital-plan rule and a separate rulemaking on the applicability of resolution-planning requirements to banking organizations with
$100 billion or more but less than $250 billion in total consolidated assets. The FRB and other U.S. banking agencies control when
and how the existing proposals and any future proposals may be considered and adopted, and their actions cannot be predicted with
any certainty. In the meantime, Ally remains subject to the enhanced prudential standards and the capital and liquidity requirements
as currently applied and, in the case of the latter, further described later in this section.
Liquidity Coverage Ratio Requirements — The FRB and other U.S. banking agencies have adopted the LCR consistent with
international standards developed by the Basel Committee on Banking Supervision (Basel Committee). The LCR complements the
enhanced prudential standards for managing liquidity risk and establishes a minimum quantitative ratio of high-quality liquid assets
to total net cash outflows over a prospective 30 calendar-day period. Pending the adoption of proposals described earlier in
Enhanced Prudential Standards, Ally is subject to a modified and less stringent version of the LCR that applies to BHCs with $100
billion or more but less than $250 billion in total consolidated assets and less than $10 billion in foreign exposures. Ally is required
to calculate its LCR on a monthly basis and is subject to a minimum LCR of 100%. Additionally, effective October 1, 2018, Ally is
required to publicly disclose quantitative information about its LCR calculation and a qualitative discussion of the factors that have
a significant effect on its LCR.
Capital Adequacy Requirements — Ally and Ally Bank are subject to various capital adequacy requirements. Refer to Note 20 to
the Consolidated Financial Statements and the section below titled Basel Capital Frameworks for additional information.
Capital Planning and Stress Tests — Pending the adoption of proposals described earlier in Enhanced Prudential Standards, Ally
must comply with the FRB’s current capital planning and stress testing requirements for large and noncomplex BHCs with $100
billion or more but less than $250 billion in total consolidated assets and less than $75 billion in total nonbank assets. Specifically,
Ally is subject to annual supervisory and semiannual company-run stress tests and must submit a proposed capital plan to the FRB
annually in connection with CCAR. The proposed capital plan must include an assessment of our expected uses and sources of
capital and a description of all planned capital actions over a nine-quarter planning horizon, including any issuance of a debt or
equity capital instrument, any dividend or other capital distribution, and any similar action that the FRB determines could have an
impact on Ally’s capital. The proposed capital plan must also include a discussion of how Ally, under expected and stressful
conditions, will maintain capital commensurate with its risks and above the minimum regulatory capital ratios and will serve as a
source of strength to Ally Bank. The FRB will either object to Ally’s proposed capital plan, in whole or in part, or provide a notice
of non-objection. If the FRB objects to the proposed capital plan, or if certain material events occur after approval of the plan, Ally
must submit a revised capital plan within 30 days. Ally received a non-objection to its 2018 capital plan in June 2018.
The FRB’s quantitative assessment of Ally’s proposed capital plan is based on the FRB’s estimate of Ally’s post-stress capital
ratios under the supervisory stress test. Pending the adoption of proposals described earlier in Enhanced Prudential Standards, the
FRB also requires Ally to conduct semiannual company-run stress tests under baseline, adverse, and severely adverse economic
scenarios over a nine-quarter planning horizon. For the 2018 stress testing cycle, Ally submitted the results of its company-run
stress tests to the FRB in April and October 2018.
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Ally Financial Inc. • Form 10-K
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In January 2017, the FRB amended its capital planning and stress testing rules, effective for the 2017 cycle and beyond. As a
result of this amendment, the FRB may no longer object to the capital plan of a large and noncomplex BHC, like Ally, on the basis
of qualitative deficiencies in its capital planning process. Instead, the qualitative assessment of Ally’s capital planning process is
now conducted outside of CCAR through the supervisory review process. The amendment also decreased the de minimis threshold
for the amount of capital that Ally could distribute to stockholders outside of an approved capital plan without the FRB’s prior
approval, and modified Ally’s reporting requirements to reduce unnecessary burdens.
The FRB publishes summary quantitative results of the supervisory stress test of each large and noncomplex BHC, like Ally,
ordinarily in June in connection with the culmination of the CCAR process. Additionally, we publicly disclose summary results of
each company-run stress test under the severely adverse economic scenario in accordance with regulatory requirements. In 2018,
we disclosed the summary results of our annual stress test on June 28, 2018, and the summary results of our mid-cycle stress test on
October 5, 2018.
During the first quarter of 2019, the FRB announced that a number of large and noncomplex BHCs with $100 billion or more
but less than $250 billion in total consolidated assets, including Ally, will not be required to submit a capital plan to the FRB,
participate in the supervisory stress test or CCAR, or conduct company-run stress tests during the 2019 cycle. Instead, Ally’s capital
actions during this cycle will be largely based on the results from its 2018 supervisory stress test.
Resolution Planning — Under the Dodd-Frank Act, Ally is required to periodically submit to the FRB and the FDIC plans
(commonly known as a living will) for the rapid and orderly resolution of Ally and its significant legal entities under the U.S.
Bankruptcy Code and other applicable insolvency laws in the event of future material financial distress or failure. If the FRB and
the FDIC jointly determine that the resolution plan is not credible and the deficiencies are not adequately remedied in a timely
manner, they may jointly impose on us more stringent capital, leverage, or liquidity requirements or restrictions on our growth,
activities, or operations. Further, if we were to fail to address any deficiencies in our resolution plan when required, we could
eventually be compelled to divest specified assets or operations. Ally submitted its most recent resolution plan to the FRB and the
FDIC on December 31, 2017. In addition, under rules issued by the FDIC, Ally Bank is required to periodically submit to the FDIC
a separate resolution plan, which is similarly assessed for its credibility. The most recent Ally Bank plan was filed on July 1, 2018.
The public versions of the resolution plans previously submitted by Ally and Ally Bank are available on the FRB’s and the FDIC’s
websites. With the enactment of the EGRRCP Act, the FRB and the FDIC have expressed their intent to revise the resolution-
planning requirements for banking organizations like Ally and Ally Bank with $100 billion or more but less than $250 billion in
total consolidated assets. As with related proposals, the FRB and the FDIC control when and how the revisions may be considered
and adopted, and their actions cannot be predicted with any certainty.
Limitations on Bank and BHC Dividends and Other Capital Distributions — Federal and Utah law place a number of conditions,
limits, and other restrictions on dividends and other capital distributions that may be paid by Ally Bank to IB Finance and thus
indirectly to Ally. In addition, even if the FRB does not object to our capital plan, Ally and IB Finance may be precluded from or
limited in paying dividends or other capital distributions without the FRB’s approval under certain circumstances—for example,
when Ally or IB Finance would not meet minimum regulatory capital ratios after giving effect to the distributions. FRB supervisory
guidance also directs BHCs like us to consult with the FRB prior to increasing dividends, implementing common-stock-repurchase
programs, or redeeming or repurchasing capital instruments. Further, the U.S. banking agencies are authorized to prohibit an insured
depository institution, like Ally Bank, or a BHC, like Ally, from engaging in unsafe or unsound banking practices and, depending
upon the circumstances, could find that paying a dividend or other capital distribution would constitute an unsafe or unsound
banking practice.
Transactions with Affiliates — Sections 23A and 23B of the Federal Reserve Act and the FRB’s Regulation W prevent Ally and its
nonbank subsidiaries from taking undue advantage of the benefits afforded to Ally Bank as a depository institution, including its
access to federal deposit insurance and the FRB’s discount window. Pursuant to these laws, “covered transactions”—including Ally
Bank’s extensions of credit to and asset purchases from its affiliates—are generally subject to meaningful restrictions. For example,
unless otherwise exempted, (1) covered transactions are limited to 10% of Ally Bank’s capital stock and surplus in the case of any
individual affiliate and 20% of Ally Bank’s capital stock and surplus in the case of all affiliates; (2) Ally Bank’s credit transactions
with an affiliate are generally subject to stringent collateralization requirements; (3) with few exceptions, Ally Bank may not
purchase any “low quality asset” from an affiliate; and (4) covered transactions must be conducted on terms and conditions that are
consistent with safe and sound banking practices (collectively, Affiliate Transaction Restrictions). In addition, transactions between
Ally Bank and an affiliate must be on terms and conditions that are either substantially the same as or more beneficial to Ally Bank
than those prevailing at the time for comparable transactions with or involving nonaffiliates.
Furthermore, these laws include an attribution rule that treats a transaction between Ally Bank and a nonaffiliate as a
transaction between Ally Bank and an affiliate to the extent that the proceeds of the transaction are used for the benefit of or
transferred to the affiliate. Thus, Ally Bank’s purchase from a dealer of a retail installment sales contract involving a vehicle for
which Ally provided floorplan financing is subject to the Affiliate Transaction Restrictions because the purchase price paid by Ally
Bank is ultimately transferred by the dealer to Ally to pay off the floorplan financing.
The Dodd-Frank Act tightened the Affiliate Transaction Restrictions in a number of ways. For example, the definition of
covered transactions was expanded to include credit exposures arising from derivative transactions, securities lending and
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Ally Financial Inc. • Form 10-K
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borrowing transactions, and the acceptance of affiliate-issued debt obligations (other than securities) as collateral. For a credit
transaction that must be collateralized, the Dodd-Frank Act also requires that collateral be maintained at all times while the credit
extension or credit exposure remains outstanding and places additional limits on acceptable collateral.
Source of Strength — The Dodd-Frank Act codified the FRB’s policy requiring a BHC, like Ally, to serve as a source of financial
strength for a depository institution subsidiary, like Ally Bank, and to commit resources to support the subsidiary in circumstances
when Ally might not otherwise elect to do so. This commitment is also reflected in Ally Bank’s application for membership in the
Federal Reserve System, as described in Note 20 to the Consolidated Financial Statements. The functional regulator of any nonbank
subsidiary of Ally, however, may prevent that subsidiary from directly or indirectly contributing its financial support, and if that
were to preclude Ally from serving as an adequate source of financial strength, the FRB may instead require the divestiture of Ally
Bank and impose operating restrictions pending such a divestiture.
Single Point of Entry Resolution Authority — Under the Dodd-Frank Act, a BHC whose failure would have serious adverse effects
on the financial stability of the United States may be subjected to an FDIC-administered resolution regime called the orderly
liquidation authority as an alternative to bankruptcy. If Ally were to be placed into receivership under the orderly liquidation
authority, the FDIC as receiver would have considerable rights and powers in liquidating and winding up Ally, including the ability
to assign assets and liabilities without the need for creditor consent or prior court review and the ability to differentiate and
determine priority among creditors. In doing so, moreover, the FDIC’s primary goal would be a liquidation that mitigates risk to the
financial stability of the United States and that minimizes moral hazard. Under the FDIC’s proposed Single Point of Entry strategy
for the resolution of a systemically important financial institution under the orderly liquidation authority, the FDIC would place the
top-tier U.S. holding company in receivership, keep its operating subsidiaries open and out of insolvency proceedings by
transferring them to a new bridge holding company, impose losses on the stockholders and creditors of the holding company in
receivership according to their statutory order of priority, and address the problems that led to the institution’s failure.
Enforcement Authority — The FRB possesses extensive authorities and powers to regulate and supervise the conduct of Ally’s
businesses and operations. If the FRB were to take the position that Ally or any of its subsidiaries have violated any law or
commitment or engaged in any unsafe or unsound practice, formal or informal enforcement and other supervisory actions could be
taken by the FRB against Ally, its subsidiaries, and institution-affiliated parties (such as directors, officers, and agents). The UDFI
and the FDIC have similarly expansive authorities and powers over Ally Bank and its subsidiaries. For example, these governmental
authorities could order us to cease and desist from engaging in specified activities or practices or could affirmatively compel us to
correct specified violations or practices. Some or all of these government authorities also would have the power, as applicable, to
issue administrative orders against us that can be judicially enforced, to direct us to increase capital and liquidity, to limit our
dividends and other capital distributions, to restrict or redirect the growth of our assets, businesses, and operations, to assess civil
money penalties against us, to remove our officers and directors, to require the divestiture or the retention of assets or entities, to
terminate deposit insurance, or to force us into bankruptcy, conservatorship, or receivership. These actions could directly affect not
only Ally, its subsidiaries, and institution-affiliated parties but also Ally’s counterparties, stockholders, and creditors and its
commitments, arrangements, and other dealings with them.
In addition, the CFPB has broad authorities and powers to enforce federal consumer protection laws involving financial
products and services. The CFPB has exercised these authorities and powers through public enforcement actions, lawsuits, and
consent orders and through nonpublic enforcement actions. In doing so, the CFPB has generally sought remediation of harm alleged
to have been suffered by consumers, civil money penalties, and changes in practices and other conduct.
The SEC, FINRA, the Department of Justice, state attorneys general, and other domestic or foreign government authorities
also have an array of means at their disposal to regulate and enforce matters within their jurisdiction that could impact Ally’s
businesses and operations.
Basel Capital Framework
The FRB and other U.S. banking agencies have adopted risk-based and leverage capital standards that establish minimum capital-to-
asset ratios for BHCs, like Ally, and depository institutions, like Ally Bank.
The risk-based capital ratios are based on a banking organization’s risk-weighted assets (RWAs), which are generally determined under
the standardized approach applicable to Ally and Ally Bank by (1) assigning on-balance sheet exposures to broad risk weight categories
according to the counterparty or, if relevant, the guarantor or collateral (with higher risk weights assigned to categories of exposures perceived
as representing greater risk), and (2) multiplying off-balance sheet exposures by specified credit conversion factors to calculate credit
equivalent amounts and assigning those credit equivalent amounts to the relevant risk weight categories. The leverage ratio, in contrast, is
based on an institution’s average unweighted on-balance sheet exposures.
Until January 1, 2015, the U.S. risk-based and leverage capital standards applicable to Ally and Ally Bank were based on the Basel I
capital accord promulgated by the Basel Committee in 1989 (U.S. Basel I). Ally and Ally Bank were required to maintain, under U.S. Basel I,
a minimum Tier 1 risk-based capital ratio of Tier 1 capital to RWAs of 4%, a minimum total risk-based capital ratio of total qualifying capital
to RWAs of 8%, and a minimum Tier 1 leverage ratio of Tier 1 capital to average on-balance-sheet exposures of 4%.
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Ally Financial Inc. • Form 10-K
In December 2010, the Basel Committee reached an agreement on the global Basel III capital framework, which was designed to
increase the quality and quantity of regulatory capital by introducing new risk-based and leverage capital standards. In July 2013, the U.S.
banking agencies finalized rules implementing the Basel III capital framework in the United States as well as related provisions of the Dodd-
Frank Act (U.S. Basel III). U.S. Basel III represents a substantial revision to the previously effective regulatory capital standards for U.S.
banking organizations. We became subject to U.S. Basel III on January 1, 2015, although a number of its provisions—including capital
buffers and certain regulatory capital deductions—were subject to a phase-in period through December 31, 2018.
Under U.S. Basel III, Ally and Ally Bank must maintain a minimum Common Equity Tier 1 risk-based capital ratio of 4.5%, a minimum
Tier 1 risk-based capital ratio of 6%, and a minimum total risk-based capital ratio of 8%. In addition to these minimum risk-based capital
ratios, Ally and Ally Bank are also subject to a Common Equity Tier 1 capital conservation buffer of more than 2.5%, which was subject to a
phase-in period from January 1, 2016, through December 31, 2018. Failure to maintain the full amount of the buffer would result in
restrictions on the ability of Ally and Ally Bank to make capital distributions, including dividend payments and stock repurchases and
redemptions, and to pay discretionary bonuses to executive officers. U.S. Basel III also subjects Ally and Ally Bank to a minimum Tier 1
leverage ratio of 4%.
U.S. Basel III also revised the eligibility criteria for regulatory capital instruments and provided for the phase-out of instruments that had
previously been recognized as capital but that do not satisfy these criteria. For example, subject to certain exceptions (e.g., certain debt or
equity issued to the U.S. government under the Emergency Economic Stabilization Act), trust preferred and other hybrid securities were
excluded from a BHC’s Tier 1 capital beginning January 1, 2016. Also, certain items are deducted from Common Equity Tier 1 capital under
U.S. Basel III that had not previously been deducted from regulatory capital, and certain other deductions from regulatory capital have been
modified. Among other things, U.S. Basel III requires significant investments in the common stock of unconsolidated financial institutions,
mortgage servicing assets, and certain deferred tax assets (DTAs) that exceed specified individual and aggregate thresholds to be deducted
from Common Equity Tier 1 capital. U.S. Basel III also revised the standardized approach for calculating RWAs by, among other things,
modifying certain risk weights and the methods for calculating RWAs for certain types of assets and exposures.
Ally and Ally Bank are subject to the U.S. Basel III standardized approach for counterparty credit risk but not to the U.S. Basel III
advanced approaches for credit risk or operational risk. Ally is also not subject to the U.S. market risk capital rule, which applies only to
banking organizations with significant trading assets and liabilities.
The capital-to-asset ratios play a central role in prompt corrective action (PCA), which is an enforcement framework used by the U.S.
banking agencies to constrain the activities of depository institutions based on their levels of regulatory capital. Five categories have been
established using thresholds for the Common Equity Tier 1 risk-based capital ratio, the Tier 1 risk-based capital ratio, the total risk-based
capital ratio, and the leverage ratio: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically
undercapitalized. The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) generally prohibits a depository institution
from making any capital distribution, including any payment of a cash dividend or a management fee to its BHC, if the depository institution
would become undercapitalized after the distribution. An undercapitalized institution is also subject to growth limitations and must submit
and fulfill a capital restoration plan. While BHCs are not subject to the PCA framework, the FRB is empowered to compel a BHC to take
measures—such as the execution of financial or performance guarantees—when PCA is required in connection with one of its depository
institution subsidiaries. In addition, under FDICIA, only well-capitalized and adequately capitalized institutions may accept brokered
deposits, and even adequately capitalized institutions are subject to some restrictions on the rates they may offer for brokered deposits. At
December 31, 2018, Ally Bank was well capitalized under the PCA framework.
At December 31, 2018, Ally and Ally Bank were in compliance with their regulatory capital requirements. For an additional discussion
of capital adequacy requirements, refer to Note 20 to the Consolidated Financial Statements.
The Financial Accounting Standards Board (FASB) has issued Accounting Standards Update 2016-13, Financial Instruments - Credit
Losses (CECL), which is further described in Note 1 to the Consolidated Financial Statements. CECL introduces a new accounting model to
measure credit losses for financial assets measured at amortized cost, which includes the vast majority of our finance receivables and loan
portfolio. Under CECL, credit losses for each of these financial assets are measured based on the total current expected credit losses over the
life of the financial asset or group of financial assets. In effect, this means that the financial asset or group of financial assets are presented at
the net amount expected to ever be collected. CECL will become effective for our fiscal year beginning January 1, 2020, and represents a
significant departure from existing accounting principles generally accepted in the United States (GAAP), which currently provide for credit
losses on these financial assets to be measured as they are incurred. When effective for us on January 1, 2020, CECL is expected to
substantially increase our allowance for loan losses with a resulting negative day-one adjustment to equity. In December 2018, the FRB and
other U.S. banking agencies approved a final rule to mitigate the impact of CECL on regulatory capital by allowing BHCs and banks,
including Ally, to phase in the day-one impact of CECL over a period of three years for regulatory capital purposes. In addition, the FRB
announced that although BHCs subject to company-run stress tests as part of CCAR must incorporate CECL beginning in the 2020 cycle, the
FRB also further clarified that, in order to reduce uncertainty, it will maintain its current modeling framework for the allowance for loan
losses in supervisory stress tests through the 2021 cycle.
Prompted by the enactment of the EGRRCP Act, the FRB and other U.S. banking agencies in the fourth quarter of 2018 issued proposals
that would establish risk-based categories for determining capital and liquidity requirements that apply to large U.S. banking organizations.
Refer to Holding Company, Financial Holding Company, and Depository Institution Status earlier in this section. In April 2018, the FRB
issued a proposal to more closely align forward-looking stress testing results with the FRB’s non-stress regulatory capital requirements for
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Ally Financial Inc. • Form 10-K
banking organizations with $50 billion or more in total consolidated assets. The proposal would introduce a stress capital buffer based on
firm-specific stress test performance, which would effectively replace the non-stress capital conservation buffer. The proposal would also
make several changes to the CCAR process, such as eliminating the CCAR quantitative objection, narrowing the set of planned capital actions
assumed to occur in the stress scenario, and eliminating the 30% dividend payout ratio as a criterion for heightened scrutiny of a firm’s capital
plan.
In December 2017, the Basel Committee approved revisions to the global Basel III capital framework (commonly known as Basel IV),
many of which—if adopted in the United States—could heighten regulatory capital standards even more.
At this time, how all of these proposals and revisions will be harmonized and finalized in the United States is not clear or predictable.
Insured Depository Institution Status
Ally Bank is an insured depository institution and, as such, is required to file periodic reports with the FDIC about its financial condition.
Total assets of Ally Bank were $159.0 billion and $137.4 billion at December 31, 2018, and 2017, respectively.
Ally Bank’s deposits are insured by the FDIC in the standard insurance amounts per depositor for each account ownership category as
prescribed by the FDI Act. Deposit insurance is funded through assessments on Ally Bank and other insured depository institutions, and the
FDIC may take action to increase insurance premiums if the DIF is not funded to its regulatory mandated Designated Reserve Ratio (DRR).
Currently, the FDIC is required to achieve a DRR of 1.35% by September 30, 2020, and has established a target DRR of 2.0%. Under the
Dodd-Frank Act, the FDIC assesses premiums from each institution based on its average consolidated total assets minus its average tangible
equity, while utilizing a scorecard method to determine each institution’s risk to the DIF. The Dodd-Frank Act also requires the FDIC, in
setting assessments, to offset the effect of increasing its reserve for the DIF on institutions with consolidated total assets of less than $10
billion. To achieve the mandated DRR consistent with these provisions of the Dodd-Frank Act, the FDIC implemented a rule in 2016
imposing a surcharge of 4.5 basis points on all insured depository institutions with consolidated total assets of $10 billion or more in addition
to their regular assessments. Under the rule, the surcharge would cease once a DRR of 1.35% had been achieved or on December 31, 2018,
whichever came first. On September 30, 2018, the DRR reached 1.36%, and the surcharge was eliminated.
If an insured depository institution like Ally Bank were to become insolvent or if other specified events were to occur relating to its
financial condition or the propriety of its actions, the FDIC may be appointed as conservator or receiver for the institution. In that capacity,
the FDIC would have the power to (1) transfer assets and liabilities of the institution to another person or entity without the approval of the
institution’s creditors; (2) require that its claims process be followed and to enforce statutory or other limits on damages claimed by the
institution’s creditors; (3) enforce the institution’s contracts or leases according to their terms; (4) repudiate or disaffirm the institution’s
contracts or leases; (5) seek to reclaim, recover, or recharacterize transfers of the institution’s assets or to exercise control over assets in which
the institution may claim an interest; (6) enforce statutory or other injunctions; and (7) exercise a wide range of other rights, powers, and
authorities, including those that could impair the rights and interests of all or some of the institution’s creditors. In addition, the administrative
expenses of the conservator or receiver could be afforded priority over all or some of the claims of the institution’s creditors, and under the
FDI Act, the claims of depositors (including the FDIC as subrogee of depositors) would enjoy priority over the claims of the institution’s
unsecured creditors.
Consumer Financial Laws
Ally and Ally Bank are subject to regulation, supervision, and examination by the CFPB with respect to federal consumer protection
laws involving financial products and services. The Dodd-Frank Act also empowers state attorneys general and other state officials to enforce
federal consumer protection laws under specified conditions. Ally and Ally Bank are subject to a host of state consumer protections laws as
well.
• Mortgage Operations — Our mortgage business is subject to extensive federal, state, and local laws, including related judicial and
administrative decisions. The federal, state, and local laws to which our mortgage business is subject, among other things, impose
licensing obligations and financial requirements; limit the interest rates, finance charges, and other fees that can be charged; regulate
the use of credit reports and the reporting of credit information; impose underwriting requirements; regulate marketing techniques
and practices; require the safeguarding of nonpublic information about customers; and regulate servicing practices, including in
connection with assessments, collection and foreclosure activities, claims handling, and investment and interest payments on escrow
accounts.
Through our direct-to-consumer mortgage offering, we offer a variety of jumbo and conforming fixed- and adjustable-rate
mortgage products with the assistance of a third-party fulfillment provider. Jumbo mortgage loans are generally held on our balance
sheet and are accounted for as held-for-investment. Conforming mortgage loans are generally originated as held-for-sale and then
sold to the fulfillment provider, which in turn may sell the loans to the Federal National Mortgage Association (Fannie Mae), the
Federal Home Loan Mortgage Corporation (Freddie Mac), or other participants in the secondary mortgage market. The nature and
dynamics of this market, however, continue to evolve in ways that are often not clear or predictable. For example, Fannie Mae and
Freddie Mac have been in conservatorship since September 2008. While the Federal Housing Finance Agency has published and
pursued strategic goals for these government-sponsored enterprises during the conservatorship, their role in the market remains
subject to uncertainty. Relatedly, during this same period, Congress has debated comprehensive housing-finance reform, but
proposed legislation has yet to be meaningfully advanced.
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Ally Financial Inc. • Form 10-K
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Automotive Lending Business — In March 2013, the CFPB issued guidance about compliance with the fair-lending requirements
of the Equal Credit Opportunity Act and Regulation B. The guidance was specific to the practice of indirect automotive finance
companies purchasing financing contracts executed between dealers and consumers and paying dealers for the contracts at a
discount below the rates dealers charge consumers. In December 2017, the Government Accountability Office (GAO) determined
that the CFPB’s guidance constituted a rule under the Congressional Review Act. In May 2018, the guidance was disapproved and
nullified under the Congressional Review Act by a joint resolution adopted by Congress and signed by the President.
Asset-backed Securitizations
Section 941 of the Dodd-Frank Act requires securitizers of different types of asset-backed securitizations, including transactions backed
by residential mortgages, commercial mortgages, and commercial, credit card, and automotive loans, to retain no less than five percent of the
credit risk of the assets being securitized, with an exemption for securitizations that are wholly composed of “qualified residential
mortgages” (QRMs). Federal regulators issued final rules implementing this Dodd-Frank Act requirement in October 2014. The final rules
aligned the definition of QRMs with the CFPB’s definition of “Qualified Mortgage” and also included an exemption for the mortgage-backed
securities (MBS) of government-sponsored enterprises. The regulations took effect on February 23, 2015. Compliance was required with
respect to securitization transactions backed by residential mortgages beginning December 24, 2015, and with respect to securitization
transactions backed by other types of assets beginning December 24, 2016. Ally Bank has complied with the FDIC’s Safe Harbor Rule
requiring it to retain five percent risk retention in consumer automotive loan and operating lease securitizations.
Insurance Companies
Certain of our Insurance operations are subject to certain minimum aggregate capital requirements, net asset and dividend restrictions
under applicable state and foreign insurance laws, and the rules and regulations promulgated by various U.S. and foreign regulatory agencies.
Under various state and foreign insurance regulations, dividend distributions may be made only from statutory unassigned surplus with
approvals required from the regulatory authorities for dividends in excess of certain statutory limitations. Our insurance operations are also
subject to applicable state laws generally governing insurance companies, as well as laws and regulations for products that are not regulated
as insurance, such as vehicle service contracts (VSCs) and guaranteed asset protection (GAP) waivers.
Investments in Ally
Because Ally Bank is an insured depository institution and Ally and IB Finance are BHCs, direct or indirect control of us—whether
through the ownership of voting securities, influence over management or policies, or other means—is subject to approvals, conditions, and
other restrictions under federal and state laws. Refer to Bank Holding Company, Financial Holding Company, and Depository Institution
Status earlier in this section. Investors are responsible for ensuring that they do not, directly or indirectly, acquire control of us in
contravention of these laws.
Ally Invest Subsidiaries
Ally Invest Securities LLC (Ally Invest Securities) is registered as a securities broker-dealer with the SEC and in all 50 states, the
District of Columbia, and Puerto Rico, is registered with the Municipal Securities Rulemaking Board as a municipal securities broker-dealer,
and is a member of FINRA, Securities Investor Protection Corporation (SIPC), and various other SROs, including BATS BYX Exchange,
BATS BZX Exchange, NYSE Arca, and Nasdaq Stock Market. As a result, Ally Invest Securities and its personnel are subject to extensive
requirements under the Securities Exchange Act of 1934, as amended (Exchange Act), SEC regulations, SRO rules, and state laws, which
collectively cover all aspects of the firm’s securities activities—including sales and trading practices, capital adequacy, recordkeeping,
privacy, anti-money laundering, financial and other reporting, supervision, misuse of material nonpublic information, conducting its business
in accordance with just and equitable principles of trade, and personnel qualifications. The firm operates as an introducing broker and clears
all transactions, including all customer transactions, through a third-party clearing broker-dealer on a fully disclosed basis.
Ally Invest Forex LLC (Ally Invest Forex) is registered with the U.S. Commodity Futures Trading Commission (CFTC) as an
introducing broker and is a member of the National Futures Association (NFA), which is the primary SRO for the U.S. futures industry. It is
subject to similarly expansive requirements under the Commodity Exchange Act, CFTC and NFA rules governing introducing brokers and
their personnel, and CFTC retail forex rules.
Ally Invest Advisors Inc. (Ally Invest Advisors) is registered as an investment adviser with the SEC. As a result, it is subject to a host of
requirements governing investment advisers and their personnel under the Investment Advisers Act of 1940 as amended, and the rules and
regulations promulgated thereunder, including certain fiduciary and other obligations with respect to its relationships with its investment
advisory clients.
Regulators conduct periodic examinations of Ally Invest Securities, Ally Invest Forex, and Ally Invest Advisors, and regularly review
reports that the firms are required to submit on an ongoing basis. Violations of relevant regulatory requirements could result in adverse
consequences for the firms and their personnel, including censure, penalties and fines, the issuance of cease-and-desist orders, and restriction,
suspension or expulsion from the securities industry and other adverse consequences.
Other Laws
Ally is subject to numerous federal, state, and local statutes, regulations, and other laws, and the possibility of violating applicable law
presents an ongoing risk to Ally. Some of the other more significant laws to which we are subject include:
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Ally Financial Inc. • Form 10-K
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Privacy and Data Security — The GLB Act and related regulations impose obligations on financial institutions to safeguard
specified consumer information maintained by them, to provide notice of their privacy practices to consumers in specified
circumstances, and to allow consumers to “opt-out” of specified kinds of information sharing with unaffiliated parties. Related
regulatory guidance also directs financial institutions to notify consumers in specified cases of unauthorized access to sensitive
consumer information. In addition, most states have enacted laws requiring notice of specified cases of unauthorized access to
information. In February 2017, the NYDFS adopted expansive cybersecurity regulations that require regulated entities to establish
cybersecurity programs and policies, to designate chief information security officers, to comply with notice and reporting
obligations, and to take other actions in connection with the security of their information. As these and future laws impose
increasingly stringent privacy and data-security obligations on us, our compliance costs and other liabilities could increase
substantially.
Volcker Rule — Under the Dodd-Frank Act and implementing regulations of the CFTC, FDIC, FRB, Office of the Comptroller of
the Currency and the SEC (the Volcker Rule), insured depository institutions and their affiliates are prohibited from (1) engaging in
“proprietary trading,” and (2) investing in or sponsoring certain types of funds (covered funds) subject to certain limited exceptions.
The final rules contain exemptions for market-making, hedging, underwriting, trading in U.S. government and agency obligations
and also permit certain ownership interests in certain types of funds to be retained. They also permit the offering and sponsoring of
funds under certain conditions. In early 2017, the FRB granted us a five-year extension to conform with requirements related to
certain covered funds activities. The Volcker Rule imposes significant compliance and reporting obligations on banking entities.
The impact of the Volcker Rule is not expected to be material to Ally’s business operations.
Fair Lending Laws — The Equal Credit Opportunity Act, the Fair Housing Act, and similar fair-lending laws (collectively, Fair
Lending Laws) generally prohibit a creditor from discriminating against an applicant or borrower in any aspect of a credit
transaction on the basis of specified characteristics known as “prohibited bases,” such as race, gender, and religion. Creditors are
also required under the Fair Lending Laws to follow a number of highly prescriptive rules, including rules requiring credit decisions
to be made promptly, notices of adverse actions to be given, and, in the case of mortgage lenders of a certain size, anonymized data
and information about mortgage applicants and credit decisions to be gathered and made publicly available. Ally, under the
oversight of its Fair and Responsible Banking team, has established a comprehensive fair-lending program that is designed to
identify and mitigate fair-lending risk. Because the Fair Lending Laws and interpretations of them continue to evolve, however,
Ally remains at risk of being accused of violations.
Fair Credit Reporting Act — The Fair Credit Reporting Act regulates the dissemination of credit reports by credit reporting
agencies, requires users of credit reports to provide specified notices to the subjects of those reports, imposes standards on the
furnishing of information to credit reporting agencies, obligates furnishers to maintain reasonable procedures to deal with the risk of
identity theft, addresses the sharing of specified kinds of information with affiliates and third parties, and regulates the use of credit
reports to make preapproved offers of credit and insurance to consumers. All of these provisions impose additional regulatory and
compliance costs on us and affect our marketing programs.
Truth in Lending Act — The Truth in Lending Act (TILA) and Regulation Z, which implements TILA, require lenders to provide
borrowers with uniform, understandable information about the terms and conditions in certain credit transactions. These rules apply
to Ally and its subsidiaries when they extend credit to consumers and require, in the case of certain mortgage and automotive
consumer loans, conspicuous disclosure of the finance charge and annual percentage rate, as applicable. In addition, if an
advertisement for credit states specific credit terms, Regulation Z requires that the advertisement state only those terms that actually
are or will be arranged or offered by the creditor together with specified notices. The CFPB has issued substantial amendments to
the mortgage requirements under Regulation Z, and additional changes are likely in the future. Amendments to Regulation Z and
Regulation X, which implements the Real Estate Settlement Procedures Act, require integrated mortgage loan disclosures to be
provided for applications received on or after October 3, 2015. Failure to comply with TILA can result in liability for damages as
well as criminal and civil penalties.
Sarbanes-Oxley Act — The Sarbanes-Oxley Act of 2002 implemented a broad range of corporate governance and accounting
measures designed to promote honesty and transparency in corporate America. The principal provisions of the act include, among
other things, (1) the creation of an independent accounting oversight board; (2) auditor independence provisions that restrict non-
audit services that accountants may provide to their audit clients; (3) additional corporate governance and responsibility measures
including the requirement that the principal executive and financial officers certify financial statements; (4) the potential forfeiture
of bonuses or other incentive-based compensation and profits from the sale of an issuer’s securities by directors and senior officers
in the twelve-month period following initial publication of any financial statements that later require restatement; (5) an increase in
the oversight and enhancement of certain requirements relating to audit committees and how they interact with the independent
auditors; (6) requirements that audit committee members must be independent and are barred from accepting consulting, advisory,
or other compensatory fees from the issuer; (7) requirements that companies disclose whether at least one member of the audit
committee is a “financial expert” (as defined by the SEC) and, if not, why the audit committee does not have a financial expert;
(8) a prohibition on personal loans to directors and officers, except certain loans made by insured financial institutions, on
nonpreferential terms and in compliance with other bank regulatory requirements; (9) disclosure of a code of ethics;
(10) requirements that management assess the effectiveness of internal control over financial reporting and that the independent
registered public accounting firm attest to the assessment; and (11) a range of enhanced penalties for fraud and other violations.
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Ally Financial Inc. • Form 10-K
• USA PATRIOT Act/Anti-Money-Laundering Requirements — In 2001, the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act (USA PATRIOT Act) was signed into law. Title III of the
USA PATRIOT Act amends the Bank Secrecy Act and contains provisions designed to detect and prevent the use of the
U.S. financial system for money laundering and terrorist financing activities. The Bank Secrecy Act, as amended by the USA
PATRIOT Act, requires banks, certain other financial institutions, and, in certain cases, BHCs to undertake activities including
maintaining an anti-money-laundering program, verifying the identity of clients, monitoring for and reporting on suspicious
transactions, reporting on cash transactions exceeding specified thresholds, and responding to certain requests for information by
regulatory authorities and law enforcement agencies. We have implemented internal practices, procedures, and controls designed to
comply with these anti-money-laundering requirements.
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Community Reinvestment Act — Under the CRA, a bank has a continuing and affirmative obligation, consistent with the safe and
sound operation of the institution, to help meet the credit needs of its entire community, including low- and moderate-income
persons and neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions.
However, institutions are rated on their performance in meeting the needs of their communities. Ally Bank filed its three-year CRA
Strategic Plan with the FRB in October 2016, and received approval in November 2016. In addition, in 2017, Ally Bank received an
“Outstanding” rating in its most recent CRA performance evaluation. Failure by Ally Bank to maintain a “Satisfactory” or better
rating under the CRA may adversely affect our ability to expand our financial and related activities as an FHC or make acquisitions.
Employees
We had approximately 8,200 and 7,900 employees at December 31, 2018, and 2017, respectively.
Additional Information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K (and amendments to these
reports) are available on our internet website, free of charge, as soon as reasonably practicable after the reports are electronically filed with or
furnished to the SEC. These reports are available at www.ally.com/about/investor/sec-filings/. These reports can also be found on the SEC
website at www.sec.gov.
Item 1A. Risk Factors
We face many risks and uncertainties, any one or more of which could have a material adverse effect on our business, results of
operations, financial condition (including capital and liquidity), or prospects or the value of or return on an investment in Ally. We believe that
the most significant of these risks and uncertainties are described in this section, although we may be adversely affected by other risks or
uncertainties that are not presently known to us, that we have failed to appreciate, or that we currently consider immaterial. These risk factors
should be read in conjunction with the MD&A in Part II, Item 7 of this report, and the Consolidated Financial Statements and notes thereto.
This Annual Report on Form 10-K is qualified in its entirety by these risk factors.
Risks Related to Regulation and Supervision
The regulatory and supervisory environment in which we operate could have an adverse effect on our business, financial condition,
results of operations, and prospects.
We are subject to extensive regulatory frameworks and to direct supervision and periodic examinations by various governmental
agencies and industry SROs that are charged with overseeing the kinds of business activities in which we engage. This regulatory and
supervisory oversight is designed to protect public and private interests—such as macroeconomic policy objectives, financial-market stability
and liquidity, and the confidence and security of depositors—that may not always be aligned with those of our stockholders or non-deposit
creditors. Refer to the section above titled Regulation and Supervision in Part I, Item 1 of this report. In the last decade, governmental
scrutiny of the financial services industry has intensified, fundamental changes have been made to the banking, securities, and other laws that
govern financial services, and a multitude of related business practices have been altered. While the scope, intensity, and focus of
governmental oversight can vary from time to time, we expect to continue devoting substantial time and resources to risk management,
compliance, regulatory change management, and cybersecurity and other technology initiatives, each of which may adversely affect our
ability to operate profitably or to pursue advantageous business opportunities.
Ally operates as an FHC, which permits us to engage in a number of financial and related activities—including securities, advisory,
insurance, and merchant-banking activities—beyond the business of banking. To remain eligible to do so, Ally and Ally Bank must remain
well capitalized and well managed as defined under applicable law. If Ally or Ally Bank were found not to be well capitalized or well
managed, we may be restricted from engaging in the broader range of financial and related activities permitted for FHCs and may be required
to discontinue these activities or even divest Ally Bank. In addition, if we fail to achieve a satisfactory or better rating under the CRA, our
ability to expand these financial and related activities or make acquisitions could be restricted.
In connection with their continuous supervision and examinations of us, the FRB, the UDFI, the CFPB, the SEC, FINRA, the NYDFS,
or other regulatory agencies may require changes in our business or operations. Such a requirement may be judicially enforceable or
impractical for us to contest, and if we are unable to implement or maintain the requirement in a timely and effective manner, we could
become subject to formal or informal enforcement and other supervisory actions, including memoranda of understanding, written agreements,
cease-and-desist orders, and prompt-corrective-action or safety-and-soundness directives. Supervisory actions could entail significant
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Ally Financial Inc. • Form 10-K
restrictions on our existing business, our ability to develop new business, our flexibility in conducting operations, and our ability to pay
dividends or utilize capital. Enforcement and other supervisory actions also may result in the imposition of civil monetary penalties or
injunctions, related litigation by private plaintiffs, damage to our reputation, and a loss of investor confidence. We could be required as well to
dispose of specified assets and liabilities within a prescribed period of time. As a result, any enforcement or other supervisory action could
have an adverse effect on our business, financial condition, results of operations, and prospects.
Our regulatory and supervisory environments are not static. No assurance can be given that applicable statutes, regulations, and other
laws will not be amended or construed differently, that new laws will not be adopted, or that any of these laws will not be enforced more
aggressively. For example, while Congress nullified the CFPB’s guidance about compliance with fair-lending laws in the context of indirect
automotive financing, the NYDFS has since adopted arguably more far-reaching guidance on the subject. Changes in the regulatory and
supervisory environments could adversely affect us in substantial and unpredictable ways, including by limiting the types of financial services
and products we may offer, enhancing the ability of others to offer more competitive financial services and products, restricting our ability to
make acquisitions or pursue other profitable opportunities, and negatively impacting our financial condition and results of operations. Further,
noncompliance with applicable laws could result in the suspension or revocation of licenses or registrations that we need to operate and in the
initiation of enforcement and other supervisory actions or private litigation.
Our ability to execute our business strategy for Ally Bank may be adversely affected by regulatory constraints.
A primary component of our business strategy is the continued growth of Ally Bank, which is a direct bank with no branch network. This
growth includes amassing a higher level of retail deposits and expanding our consumer and commercial lending. If regulatory agencies raise
concerns about any aspect of our business strategy for Ally Bank or the way in which we implement it, we may be obliged to limit or even
reverse the growth of Ally Bank or otherwise alter our strategy, which could have an adverse effect on our business, financial condition,
results of operations, or prospects. In addition, if we are compelled to retain or shift any of our business activities in or to nonbank affiliates,
our funding costs for those activities—such as unsecured funding in the capital markets—could be more expensive than our cost of funds at
Ally Bank.
We are subject to stress tests, capital and liquidity planning, and other enhanced prudential standards, which impose significant
restrictions and costly requirements on our business and operations.
We are currently subject to enhanced prudential standards that have been established by the FRB as required or authorized under the
Dodd-Frank Act, including capital planning and stress testing requirements for large and noncomplex BHCs with $100 billion or more but
less than $250 billion in total consolidated assets and less than $75 billion in total nonbank assets. Specifically, Ally is subject to annual
supervisory and semiannual company-run stress tests and must submit a proposed capital plan to the FRB annually in connection with CCAR.
Refer to the section above titled Regulation and Supervision in Part I, Item 1 of this report. The FRB will either object to our proposed capital
plan, in whole or in part, or provide a notice of non-objection. The failure to receive a notice of non-objection from the FRB—whether due to
how well our business and operations are forecasted to perform, how capably we execute our capital planning process, how acutely the FRB
projects severely adverse conditions to be, or otherwise—may prohibit us from paying dividends, repurchasing our common stock, or making
other capital distributions, may compel us to issue capital instruments that could be dilutive to stockholders, may prevent us from maintaining
or expanding lending or other business activities, or may damage our reputation and result in a loss of investor confidence.
Further, we may be required to raise capital if we are at risk of failing to satisfy our minimum regulatory capital ratios or related
supervisory requirements, whether due to inadequate operating results that erode capital, future growth that outpaces the accumulation of
capital through earnings, changes in regulatory capital standards, changes in accounting standards that affect capital (such as CECL), or
otherwise. In addition, we may elect to raise capital for strategic reasons even when not required to do so. Our ability to raise capital on
favorable terms or at all will depend on general economic and market conditions, which are outside of our control, and on our operating and
financial performance. Accordingly, we cannot be assured of being able to raise capital when needed or on favorable terms. An inability to
raise capital when needed and on favorable terms could damage the performance and value of our business, prompt supervisory actions and
private litigation, harm our reputation, and cause a loss of investor confidence, and if the condition were to persist for any appreciable period
of time, our viability as a going concern could be threatened. Even if we are able to raise capital but do so by issuing common stock or
convertible securities, the ownership interest of our existing stockholders could be diluted, and the market price of our common stock could
decline.
Existing enhanced prudential standards also require Ally to conduct liquidity stress tests and maintain a sufficient quantity of highly
liquid assets to survive a projected 30-day liquidity stress event, to adopt a contingency funding plan that would address liquidity needs
during various stress events, and to implement specified liquidity risk management and corporate governance measures. These enhanced
liquidity standards, together with a quantitative minimum liquidity coverage ratio that we must satisfy as a complement to these standards,
could constrain our ability to originate or invest in longer-term or less liquid assets or to take advantage of other profitable opportunities and,
therefore, may adversely affect our business, results of operations, and prospects.
In May 2018, targeted amendments to the Dodd-Frank Act and other financial-services laws were enacted through the EGRRCP Act,
including amendments that affect whether and, if so, how the FRB applies enhanced prudential standards to BHCs like us with $100 billion or
more but less than $250 billion in total consolidated assets. During the fourth quarter of 2018, the FRB and other U.S. banking agencies
issued proposals that would implement these amendments in the EGRRCP Act and establish risk-based categories for determining the
prudential standards and the capital and liquidity requirements that apply to large U.S. banking organizations. Under the proposals, Ally
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Ally Financial Inc. • Form 10-K
would be treated as a Category IV firm and, for the most part, would be subject to prudential standards that are more tailored to our risk
profile. Similar proposals revising the FRB’s capital-plan rule and the FRB’s and the FDIC’s resolution-planning requirements are expected as
well. Additionally, during the first quarter of 2019, the FRB announced that a number of large and noncomplex BHCs with $100 billion or
more but less than $250 billion in total consolidated assets, including Ally, will not be required to submit a capital plan to the FRB, participate
in the supervisory stress test or CCAR, or conduct company-run stress tests during the 2019 cycle. Instead, Ally’s capital actions during this
cycle will be largely based on the results from its 2018 supervisory stress test. Refer to the section above titled Regulation and Supervision in
Part I, Item 1 of this report. The FRB and other U.S. banking agencies, however, control when and how the existing proposals and any future
proposals may be considered and adopted, and their actions cannot be predicted with any certainty. Final rules may be more or less favorable
than the proposals. Even if favorable to us in form and content, final rules may be interpreted, applied, and enforced by regulatory agencies in
ways that dilute or eliminate that favorability. In addition, other laws may be enacted, adopted, interpreted, applied, and enforced in ways that
offset any favorability generated by these proposals.
Our ability to rely on deposits as a part of our funding strategy may be limited.
Ally Bank is a key part of our funding strategy, and we place great reliance on deposits at Ally Bank as a source of funding. Competition
for deposits and deposit customers, however, is fierce and has only intensified with the implementation of enhanced capital and liquidity
requirements in the last decade. Ally Bank does not have a branch network but, instead, obtains its deposits through online and other digital
channels, from customers of Ally Invest, and through deposit brokers. Brokered deposits may be more price sensitive than other types of
deposits and may become less available if alternative investments offer higher returns. Brokered deposits totaled $16.9 billion at
December 31, 2018, which represented 15.9% of Ally Bank’s total deposits. In addition, our ability to maintain or grow deposits may be
constrained by our lack of in-person banking services, gaps in our product and service offerings, changes in consumer trends, competition
from fintech companies and emerging financial-services providers, or any loss of confidence in our brand or our business. Our level of
deposits also could be adversely affected by regulatory or supervisory restrictions, including any applicable prior approval requirements or
limits on our offered rates or brokered deposit growth, and by changes in monetary or fiscal policies that influence deposit or other interest
rates. Perceptions of our financial strength, rates or returns offered by other financial institutions or third parties, and other competitive factors
beyond our control, including returns on alternative investments, will also impact the size of our deposit base.
Requirements under the U.S. Basel III rules to increase the quality and quantity of regulatory capital and future revisions to the Basel III
framework may adversely affect our business and financial results.
In December 2010, the Basel Committee reached an agreement on the global Basel III capital framework, which was designed to
increase the quality and quantity of regulatory capital by introducing new risk-based and leverage capital standards. In July 2013, the U.S.
banking agencies finalized rules implementing U.S. Basel III, which substantially revised the previously effective regulatory capital standards
for U.S. banking organizations. Refer to the section above titled Regulation and Supervision in Part I, Item 1 of this report.
Ally and Ally Bank became subject to U.S. Basel III on January 1, 2015, although a number of its provisions—including capital buffers
and certain regulatory capital deductions—were subject to a phase-in period through December 31, 2018. U.S. Basel III subjects Ally and
Ally Bank to higher minimum risk-based capital ratios and a capital conservation buffer above these minimum ratios. Failure to maintain the
full amount of the buffer would result in restrictions on our ability to make capital distributions, including dividend payments and stock
repurchases and redemptions, and to pay discretionary bonuses to executive officers. U.S. Basel III also has, over time, imposed more
stringent deductions for specified DTAs and other assets and limited our ability to meet regulatory capital requirements through the use of
trust preferred securities or other hybrid securities.
If Ally or Ally Bank were to fail to satisfy its regulatory capital requirements, significant regulatory sanctions could result, such as a bar
on capital distributions as well as acquisitions and new activities, restrictions on our acceptance of brokered deposits, a loss of our status as an
FHC, informal or formal enforcement and other supervisory actions, or even resolution or receivership. Any of these sanctions could have an
adverse effect on our business, results of operations, financial condition, or prospects.
Through its adoption of CECL, the FASB has introduced a new accounting model to measure credit losses for financial assets measured
at amortized cost, which includes the vast majority of our finance receivables and loan portfolio. Refer to Note 1 to the Consolidated
Financial Statements and the section above titled Regulation and Supervision in Part I, Item 1 of this report. When effective for us on
January 1, 2020, CECL is expected to substantially increase our allowance for loan losses with a resulting negative day-one adjustment to
equity. In December 2018, the FRB and other U.S. banking agencies approved a final rule to mitigate the impact of CECL on regulatory
capital by allowing BHCs and banks, including Ally, to phase in the day-one impact of CECL over a period of three years for regulatory
capital purposes. In addition, the FRB announced that although BHCs subject to company-run stress tests as part of CCAR must incorporate
CECL beginning in the 2020 cycle, the FRB also further clarified that, in order to reduce uncertainty, it will maintain its current modeling
framework for the allowance for loan losses in supervisory stress tests through the 2021 cycle. It is not yet clear whether, taken together, these
actions by the U.S. banking agencies will mitigate the impact of CECL to a degree that is sufficient for us to sustain appropriate levels of
regulatory capital without meaningfully altering our business, financial, and operational plans, including our current level of capital
distributions. If the actions are insufficient, our business, results of operations, financial condition, or prospects could suffer.
In April 2018, the FRB issued a proposal that would introduce a stress capital buffer based on firm-specific stress test performance—
which would effectively replace the non-stress capital conservation buffer—as well as several related changes to CCAR. Refer to Note 1 to
the Consolidated Financial Statements and the section above titled Regulation and Supervision in Part I, Item 1 of this report. In December
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Ally Financial Inc. • Form 10-K
2017, the Basel Committee approved revisions to the global Basel III capital framework (commonly known as Basel IV), many of which—if
adopted in the United States—could heighten regulatory capital standards. How these proposals and revisions will be harmonized and
finalized in the United States is not clear or predictable, and no assurance can be provided that they would not further impact our business,
results of operations, financial condition, or prospects in an adverse way.
Our business and financial results could be adversely affected by the political environment and governmental fiscal and monetary
policies.
A fractious or volatile political environment in the United States, including any related social unrest, could negatively impact business
and market conditions, economic growth, financial stability, and business, consumer, investor, and regulatory sentiments, any one or more of
which in turn could cause our business and financial results to suffer. In addition, disruptions in the foreign relations of the United States
could adversely affect the automotive and other industries on which our business depends and our tax positions and other dealings in foreign
countries. We also could be negatively impacted by political scrutiny of the financial-services industry in general or our business or operations
in particular, whether or not warranted, and by an environment where criticizing financial-services providers or their activities is politically
advantageous.
Our business and financial results are also significantly affected by the fiscal and monetary policies of the U.S. government and its
agencies. We are particularly affected by the policies of the FRB, which regulates the supply of money and credit in the United States in
pursuit of maximum employment, stable prices, and moderate long-term interest rates. The FRB and its policies influence the availability and
demand for loans and deposits, the rates and other terms for loans and deposits, the conditions in equity, fixed-income, currency, and other
markets, and the value of securities and other financial instruments. Refer to the risk factor below, titled The levels of or changes in interest
rates could affect our results of operations and financial condition, for more information on how the FRB could affect interest rates. These
policies and related governmental actions could adversely affect every facet of our business and operations—for example, the new and used
vehicle financing market, the cost of our deposits and other interest-bearing liabilities, and the yield on our earning assets. Tax and other fiscal
policies, moreover, impact not only general economic and market conditions but also give rise to incentives or disincentives that affect how
we and our customers prioritize objectives, deploy resources, and run households or operate businesses. Both the timing and the nature of any
changes in monetary or fiscal policies, as well as their consequences for the economy and the markets in which we operate, are beyond our
control and difficult to predict but could adversely affect us.
If our ability to receive distributions from subsidiaries is restricted, we may not be able to satisfy our obligations to counterparties or
creditors, make dividend payments to stockholders, or repurchase our common stock.
Ally is a legal entity separate and distinct from its bank and nonbank subsidiaries and, in significant part, depends on dividend payments
and other distributions from those subsidiaries to fund its obligations to counterparties and creditors, its dividend payments to stockholders,
and its repurchases of common stock. Refer to the section above titled Regulation and Supervision in Part I, Item 1 of this report. Regulatory
or other legal restrictions, deterioration in a subsidiary’s performance, or investments in a subsidiary’s own growth may limit the ability of the
subsidiary to transfer funds freely to Ally. In particular, many of Ally’s subsidiaries are subject to laws that authorize their supervisory
agencies to block or reduce the flow of funds to Ally in certain situations. In addition, if any subsidiary were unable to remain viable as a
going concern, Ally’s right to participate in a distribution of assets would be subject to the prior claims of the subsidiary’s creditors (including,
in the case of Ally Bank, its depositors and the FDIC).
Legislative or regulatory initiatives on cybersecurity and data privacy could adversely impact our business and financial results.
Cybersecurity and data privacy risks have received heightened legislative and regulatory attention. For example, the U.S. banking
agencies have proposed enhanced cyber risk management standards that would apply to us and our service providers and that would address
cyber risk governance and management, management of internal and external dependencies, and incident response, cyber resilience, and
situational awareness. Several states also have adopted or proposed cybersecurity laws targeting these issues.
Legislation and regulations on cybersecurity and data privacy may compel us to enhance or modify our systems, invest in new systems,
change our service providers, or alter our business practices or our policies on data governance and privacy. If any of these outcomes were to
occur, our operational costs could increase significantly. In addition, if government authorities were to conclude that we or our service
providers had not adequately implemented laws on cybersecurity and data privacy or had not otherwise met related supervisory expectations,
we could be subject to enforcement and other supervisory actions, related litigation by private plaintiffs, reputational damage, or a loss of
investor confidence.
Risks Related to Our Business
Weak or deteriorating economic conditions, failures in underwriting, changes in underwriting standards, financial or systemic shocks, or
growth in our nonprime or used vehicle financing business could increase our credit risk, which could adversely affect our business and
financial results.
Our business is centered around lending and banking, and a significant percentage of our assets are composed of loans, operating leases,
and securities. As a result, in the ordinary course of business, credit risk is our most pronounced risk.
Our business and financial results depend significantly on household, business, economic, and market conditions. When those conditions
are weak or deteriorating, we could simultaneously experience reduced demand for credit and increased delinquencies or defaults, including
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Ally Financial Inc. • Form 10-K
in the loans that we have securitized and in which we retain a residual interest. These kinds of conditions also could dampen the demand for
products and services in our insurance, banking, brokerage, and other businesses. Increased delinquencies or defaults could result as well
from us failing to appropriately underwrite loans and operating leases that we originate or purchase or from us adopting—for strategic,
competitive, or other reasons—more liberal underwriting standards. If delinquencies or defaults on our loans and operating leases increase,
their value and the income derived from them could be adversely affected, and we could incur increased administrative and other costs in
seeking a recovery on claims and any collateral. If unfavorable conditions are negatively affecting used vehicle or other collateral values at
the same time, the amount and timing of recoveries could suffer as well. Weak or deteriorating economic conditions also may negatively
impact the market value and liquidity of our investment securities, and we may be required to record additional impairment charges that
adversely affect earnings if debt securities suffer a decline in value that is considered other-than-temporary. There can be no assurance that
our monitoring of our credit risk and our efforts to mitigate credit risk through risk-based pricing, appropriate underwriting and investment
policies, loss-mitigation strategies, and diversification are, or will be, sufficient to prevent an adverse impact to our business and financial
results. A financial or systemic shock and a failure of a significant counterparty or a significant group of counterparties could negatively
impact us as well, possibly to a severe degree, due to our role as a financial intermediary and the interconnectedness of the financial system.
We continue to have exposure to nonprime consumer automotive financing and used vehicle financing. We define nonprime consumer
automotive loans primarily as those loans with a FICO® Score (or an equivalent score) at origination of less than 620. Customers that finance
used vehicles tend to have lower FICO® Scores as compared to new vehicle customers, and defaults resulting from vehicle breakdowns are
more likely to occur with used vehicles as compared to new vehicles that are financed. The carrying value of our nonprime consumer
automotive loans before allowance for loan losses was $8.3 billion, or approximately 11.7% of our total consumer automotive loans at
December 31, 2018, as compared to $8.8 billion, or approximately 12.9% of our total consumer automotive loans at December 31, 2017. At
December 31, 2018, and 2017, $203 million and $204 million, respectively, of nonprime consumer automotive loans were considered
nonperforming as they had been placed on nonaccrual status in accordance with our accounting policies. Refer to the Nonaccrual Loans
section of Note 1 to the Consolidated Financial Statements for additional information. Additionally, the carrying value of our consumer
automotive used vehicle loans before allowance for loan losses was $36.3 billion, or approximately 51.5% of our total consumer automotive
loans at December 31, 2018, as compared to $31.8 billion, or approximately 46.8% of our total consumer automotive loans at December 31,
2017. If our exposure to nonprime consumer automotive loans or used vehicle financing were to increase over time, our credit risk will
increase to a possibly significant degree.
As part of the underwriting process, we rely heavily upon information supplied by applicants and other third parties, such as automotive
dealers and credit reporting agencies. If any of this information is intentionally or negligently misrepresented and the misrepresentation is not
detected before completing the transaction, we may experience increased credit risk.
Our allowance for loan losses may not be adequate to cover actual losses, and we may be required to significantly increase our
allowance, which may adversely affect our financial condition and results of operations.
We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expenses and
which represents management’s best estimate of probable credit losses that have been incurred within the existing portfolio of loans. Refer to
Note 1 to the Consolidated Financial Statements. The allowance is established to reserve for estimated loan losses and risks inherent in the
loan portfolio. Any increase in the allowance results in an associated decrease in net income and capital and, if significant, may adversely
affect our financial condition or results of operations.
The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires
us to make significant estimates of current credit risks using existing quantitative and qualitative information, all of which may change
substantially over time. Changes in economic conditions affecting borrowers, revisions to accounting rules and related guidance, new
qualitative or quantitative information about existing loans, identification of additional problem loans, changes in the size or composition of
our loan portfolio, and other factors, both within and outside of our control, may require an increase in the allowance for loan losses. For
example, our shift to a full credit spectrum consumer automotive finance portfolio over the past several years could result in additional
increases in our allowance for loan losses in the future.
Through its adoption of CECL, the FASB has introduced a new accounting model to measure credit losses for financial assets measured
at amortized cost, which includes the vast majority of our finance receivables and loan portfolio. Refer to Note 1 to the Consolidated
Financial Statements and the section above titled Regulation and Supervision in Part I, Item 1 of this report. Immediately when effective on
January 1, 2020, CECL is expected to substantially increase our allowance for loan losses with a resulting negative adjustment to equity.
While the FRB and other U.S. banking agencies have taken steps to mitigate the impact of CECL on regulatory capital, it is not yet clear
whether these actions will do so to a degree that is sufficient for us to sustain appropriate levels of regulatory capital without meaningfully
altering our business, financial, and operational plans, including our current level of capital distributions. Refer to the risk factor above, titled
Requirements under the U.S. Basel III rules to increase the quality and quantity of regulatory capital and future revisions to the Basel III
framework may adversely affect our business and financial results, for more information about the consequences of our failure to satisfy
regulatory capital requirements.
Regulatory agencies periodically review our allowance for loan losses, as well as our methodology for calculating our allowance for loan
losses, and from time to time may insist on an increase in the allowance for loan losses or the recognition of additional loan charge-offs based
on judgments different than those of management. If these differences in judgment are considerable, our allowance could meaningfully
increase and result in a sizable decrease in our net income and capital.
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Ally Financial Inc. • Form 10-K
We have dealer-centric automotive finance and insurance businesses, and a change in the key role of dealers within the automotive
industry or our ability to maintain or build relationships with them could have an adverse effect on our business, results of operations,
financial condition, or prospects.
Our Dealer Financial Services business, which includes our Automotive Finance and Insurance segments, depends on the continuation of
the key role of dealers within the automotive industry, the maintenance of our existing relationships with dealers, and our creation of new
relationships with dealers. Refer to the section titled Our Business in the MD&A that follows.
A number of trends are affecting the automotive industry and the role of dealers within it. These include challenges to the dealer’s role as
intermediary between manufacturers and purchasers, shifting financial and other pressures exerted by manufacturers on dealers, the rise of
vehicle sharing and ride hailing, the development of autonomous and alternative-energy vehicles, the impact of demographic shifts on
attitudes and behaviors toward vehicle ownership and use, changing expectations around the vehicle buying experience, adjustments in the
geographic distribution of new and used vehicle sales, and advancements in communications technology. Any one or more of these trends
could adversely affect the key role of dealers and their business models, profitability, and viability, and if this were to occur, our dealer-centric
automotive finance and insurance businesses could suffer as well.
Our share of commercial wholesale financing remains at risk of decreasing in the future as a result of intense competition and other
factors. The number of dealers with whom we have wholesale relationships decreased approximately 7% as compared to December 31, 2017.
If we are not able to maintain existing relationships with significant automotive dealers or if we are not able to develop new relationships for
any reason—including if we are not able to provide services on a timely basis, offer products and services that meet the needs of the dealers,
compete successfully with the products and services of our competitors, or effectively counter the exclusivity privileges that some competitors
have with automotive manufacturers—our wholesale funding volumes, and the number of dealers with whom we have retail funding
relationships, could decline in the future. If this were to occur, our business, results of operations, financial condition, or prospects could be
adversely affected.
General Motors Company (GM) and Fiat Chrysler Automobiles US LLC (Chrysler) dealers and their retail customers continue to
constitute a significant portion of our customer base, which creates concentration risk for us.
While we have diversified—and are continuing to diversify—our automotive finance and insurance businesses and to expand into other
financial services, GM and Chrysler dealers and their retail customers continue to constitute a significant portion of our customer base. In
2018, 48% of our new vehicle dealer inventory financing and 27% of our consumer automotive financing volume were transacted for GM-
franchised dealers and customers, and 36% of our new vehicle dealer inventory financing and 27% of our consumer automotive financing
volume were transacted for Chrysler dealers and customers. GM, Chrysler, and their captive automotive finance companies compete
vigorously with us and could take further actions that negatively impact the amount of business that we do with GM and Chrysler dealers and
their retail customers. Further, a significant adverse change in GM’s or Chrysler’s business—including, for example, in the production or sale
of GM or Chrysler vehicles, the quality or resale value of GM or Chrysler vehicles, GM’s or Chrysler’s relationships with its key suppliers, or
the rate or volume of recalls of GM or Chrysler vehicles—could negatively impact our GM and Chrysler dealer and retail customer bases and
the value of collateral securing our extensions of credit to them. Any future reductions in GM and Chrysler business that we are not able to
offset could adversely affect our business and financial results.
Our business and financial results are dependent upon overall U.S. automotive industry sales volume.
Our automotive finance and insurance businesses can be impacted by the sales volume for new and used vehicles. Vehicle sales are
impacted, in turn, by several economic and market conditions, including employment levels, household income, interest rates, credit
availability, and fuel costs. For example, new vehicle sales decreased dramatically during the economic crisis that began in 2007–2008 and
did not rebound significantly until 2012 and 2013. Any future declines in new or used vehicle sales could have an adverse effect on our
business and financial results.
Vehicle loans and operating leases make up a significant part of our earning assets, and our business and financial results could suffer if
used vehicle prices are low or volatile or decrease in the future.
During the year ended December 31, 2018, more than 65% of our average earning assets were composed of vehicle loans or operating
leases and related residual securitization interests. If we experience higher losses on the sale of repossessed vehicles or lower or more volatile
residual values for off-lease vehicles, our business or financial results could be adversely affected.
General economic conditions, the supply of off-lease and other vehicles to be sold, relative market prices for new and used vehicles,
perceived vehicle quality, overall vehicle prices, the vehicle disposition channel, volatility in gasoline or diesel fuel prices, levels of
household income, interest rates, and other factors outside of our control heavily influence used vehicle prices. Consumer confidence levels
and the strength of automotive manufacturers and dealers can also influence the used vehicle market. For example, when the recent economic
crisis began in 2007–2008, sharp declines in used vehicle demand and sale prices adversely affected our remarketing proceeds and financial
results.
Our expectation of the residual value of a vehicle subject to an automotive operating lease contract is a critical element used to determine
the amount of the operating lease payments under the contract at the time the customer enters into it. As a result, to the extent that the actual
residual value of the vehicle—as reflected in the sale proceeds received upon remarketing at lease termination—is less than the expected
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Ally Financial Inc. • Form 10-K
residual value for the vehicle at lease inception, we will incur additional depreciation expense and lower profit on the operating lease
transaction than our priced expectation. Our expectation of used vehicle values is also a factor in determining our pricing of new loan and
operating lease originations. In stressed economic environments, residual-value risk may be even more volatile than credit risk. To the extent
that used vehicle prices are significantly lower than our expectations, our profit on vehicle loans and operating leases could be substantially
less than our expectations, even more so if our estimate of loss frequency is underestimated as well. In addition, we could be adversely
affected if we fail to efficiently process and effectively market off-lease vehicles and repossessed vehicles and, as a consequence, incur
higher-than-expected disposal costs or lower-than-expected proceeds from the vehicle sales.
The levels of or changes in interest rates could affect our results of operations and financial condition.
We are highly dependent on net interest income, which is the difference between interest income on earning assets (such as loans and
investments) and interest expense on deposits and borrowings. Net interest income is significantly affected by market rates of interest, which
in turn are influenced by monetary and fiscal policies, general economic and market conditions, the political and regulatory environments,
business and consumer sentiment, competitive pressures, and expectations about the future (including future changes in interest rates). We
may be adversely affected by policies, laws, or events that have the effect of flattening or inverting the yield curve (that is, the difference
between long-term and short-term interest rates), depressing the interest rates associated with our earning assets to levels near the rates
associated with our interest expense, increasing the volatility of market rates of interest, or changing the spreads among different interest rate
indices.
The levels of or changes in interest rates could adversely affect us beyond our net interest income, including the following:
•
•
•
•
•
increase the cost or decrease the availability of deposits or other variable-rate funding instruments;
reduce the return on or demand for loans or increase the prepayment speed of loans;
increase customer or counterparty delinquencies or defaults;
negatively impact our ability to remarket off-lease and repossessed vehicles; and
reduce the value of our loans, retained interests in securitizations, and fixed-income securities in our investment portfolio and the
efficacy of our hedging strategies.
The level of and changes in market rates of interest—and, as a result, these risks and uncertainties—are beyond our control. The
dynamics among these risks and uncertainties are also challenging to assess and manage. For example, while an accommodative monetary
policy may benefit us to some degree by spurring economic activity among our customers, such a policy may ultimately cause us more harm
by inhibiting our ability to grow or sustain net interest income. A rising interest rate environment can pose different challenges, such as
potentially slowing the demand for credit, increasing delinquencies and defaults, and reducing the values of our loans and fixed-income
securities. Following a prolonged period in which the federal funds rate was stable or decreasing, the FRB has recently increased this
benchmark rate. In addition, the FRB has begun to end its quantitative-easing program and reduce the size of its balance sheet, which is
expected to exert upward pressure on interest rates as well and which also may create market volatility in interest rates. Refer to the section
titled Market Risk in the MD&A that follows and Note 21 to the Consolidated Financial Statements.
Uncertainty about the future of the London Interbank Offer Rate (LIBOR) may adversely affect our business and financial results.
LIBOR meaningfully influences market interest rates around the globe. In July 2017, the Chief Executive of the United Kingdom
Financial Conduct Authority, which regulates LIBOR, announced its intent to stop persuading or compelling banks to submit rates for the
calculation of LIBOR to the administrator of LIBOR after 2021. This announcement indicates that the continuation of LIBOR as currently
constructed is not guaranteed after 2021. It is impossible to predict whether and to what extent banks will continue to provide LIBOR
submissions to the administrator of LIBOR, whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere,
and whether other rate or rates may become accepted alternatives to LIBOR.
In 2014, the FRB and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee (ARRC) to identify
best practices for alternative reference rates, identify best practices for contract robustness, develop an adoption plan, and create an
implementation plan with metrics of success and a timeline. The ARRC accomplished its first set of objectives and has identified the Secured
Overnight Financing Rate (SOFR) as the rate that represents best practice for use in certain new U.S. dollar derivatives and other financial
contracts. The ARRC also published its Paced Transition Plan, with specific steps and timelines designed to encourage adoption of the SOFR.
The ARRC was reconstituted in 2018 to help to ensure the successful implementation of the Paced Transition Plan and serve as a forum to
coordinate and track planning across cash and derivatives products and market participants currently using LIBOR.
No assurance can be provided that the uncertainties around LIBOR or their resolution will not adversely affect the use, level, and
volatility of LIBOR or other interest rates or the value of LIBOR-based securities—including Ally’s 8.125% Fixed Rate/Floating Rate Trust
Preferred Securities, Series 2—or other securities or financial arrangements. Further, the viability of SOFR as an alternative reference rate and
the availability and acceptance of other alternative reference rates are unclear and also may have adverse effects on market rates of interest
and the value of securities and other financial arrangements. These uncertainties, proposals and actions to resolve them, and their ultimate
resolution also could negatively impact our funding costs, loan and other asset values, asset-liability management strategies, and other aspects
of our business and financial results.
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Ally Financial Inc. • Form 10-K
We rely extensively on third-party service providers in delivering products and services to our customers and otherwise conducting our
business and operations, and their failure to perform to our standards or other issues of concern with them could adversely affect our
reputation, business, and financial results.
We seek to distinguish ourselves as a customer-centric company that delivers passionate customer service and innovative financial
solutions and that is relentlessly focused on “Doing It Right.” Third-party service providers, however, are key to much of our business and
operations, including online and mobile banking, mortgage finance, brokerage, customer service, and operating systems and infrastructure.
While we have implemented a supplier-risk-management program and can exert varying degrees of influence over our service providers, we
do not control them, their actions, or their businesses. Our contracts with service providers, moreover, may not require or sufficiently incent
them to perform at levels and in ways that we would choose acting on our own. No assurance can be provided that service providers will
perform to our standards, adequately represent our brand, comply with applicable law, appropriately manage their own risks, remain
financially or operationally viable, abide by their contractual obligations, or continue to provide us with the services that we require. In such a
circumstance, our ability to deliver products and services to customers, to satisfy customer expectations, and to otherwise successfully
conduct our business and operations could be adversely affected. In addition, we may need to incur substantial expenses to address issues of
concern with a service provider, and even if the issues cannot be acceptably resolved, we may not be able to timely or effectively replace the
service provider due to contractual restrictions, the unavailability of acceptable alternative providers, or other reasons. Further, regardless of
how much we can influence our service providers, issues of concern with them could result in supervisory actions and private litigation
against us and could harm our reputation, business, and financial results.
Our operating systems or infrastructure, as well as those of our service providers or others on whom we rely, could fail or be
interrupted, which could disrupt our business and adversely affect our results of operations, financial condition, and prospects.
We rely heavily upon communications, data management, and other operating systems and infrastructure to conduct our business and
operations, which creates meaningful operational risk for us. Any failure of or interruption in these systems or infrastructure or those of our
service providers or others on whom we rely—including as a result of inadequate or failed technology or processes, unplanned or
unsuccessful updates to technology, sudden increases in transaction volume, human errors, fraud or other misconduct, deficiencies in the
integration of acquisitions or the commencement of new businesses, energy or similar infrastructure outages, disruptions in communications
networks or systems, natural disasters, catastrophic events, pandemics, acts of terrorism, political or social unrest, external or internal security
breaches, acts of vandalism, cyberattacks such as computer viruses and malware, misplaced or lost data, or breakdowns in business continuity
plans—could cause failures or delays in receiving applications for loans and operating leases, underwriting or processing loan or operating-
lease applications, servicing loans and operating leases, accessing online accounts, processing transactions, executing brokerage orders,
communicating with our customers, managing our investment portfolio, or otherwise conducting our business and operations. These adverse
effects could be exacerbated if systems or infrastructure need to be taken offline or meaningfully repaired, if backup systems or infrastructure
are not adequately redundant and effective for the conduct of our business and operations, or if technological or other solutions do not exist or
are slow to be developed. Further, to the extent that the systems or infrastructure of service providers or others are involved, we may have
little or no control or influence over how and when failures or delays are addressed. As a digital financial services company, we are
susceptible to business, reputational, financial, regulatory, and other harm as a result of these risks.
In the ordinary course of our business, we collect, store, process, and transmit sensitive, confidential, or proprietary data and other
information, including business information, intellectual property, and the personally identifiable information of customers and employees.
The secure collection, storage, processing, and transmission of this information are critical to our business and reputation, and if any of this
information were mishandled, misused, improperly accessed, lost, or stolen or if related operations were disabled or otherwise disrupted, we
could suffer significant business, reputational, financial, regulatory, and other damage.
Even when a failure of or interruption in operating systems or infrastructure is timely resolved, we may need to expend substantial
resources in doing so, may be required to take actions that could adversely affect customer satisfaction or behavior, and may be exposed to
reputational damage. We also could be exposed to contractual claims, supervisory actions, or litigation by private plaintiffs.
We face a wide array of security risks that could result in business, reputational, financial, regulatory, and other harm to us.
Our operating systems and infrastructure, as well as those of our service providers or others on whom we rely, are subject to security
risks that are rapidly evolving and increasing in scope and complexity, in part, because of the introduction of new technologies, the expanded
use of the internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions, and
the increased sophistication and activities of hostile state-sponsored actors, organized crime, perpetrators of fraud, hackers, terrorists, and
others. We along with other financial institutions, our service providers, and others on whom we rely have been and are expected to continue
to be the target of cyberattacks, which could include computer viruses, malware, malicious or destructive code, phishing or spear phishing
attacks, denial-of-service or denial-of-information attacks, ransomware, identity theft, access violations by employees or vendors, attacks on
the personal email of employees, and ransom demands accompanied by threats to expose security vulnerabilities. We, our service providers,
and others on whom we rely are also exposed to more traditional security threats to physical facilities and personnel.
These security risks could result in business, reputational, financial, regulatory, and other harm to us. For example, if sensitive,
confidential, or proprietary data or other information about us or our customers or employees were improperly accessed or destroyed because
of a security breach, we could experience business or operational disruptions, reputational damage, contractual claims, supervisory actions, or
litigation by private plaintiffs. As security threats evolve, moreover, we expect to continue expending significant resources to enhance our
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Ally Financial Inc. • Form 10-K
defenses, to educate our employees, to monitor and support the defenses established by our service providers and others on whom we rely,
and to investigate and remediate incidents and vulnerabilities as they arise or are identified. Even so, we may not be able to anticipate or
implement effective preventive measures against all security breaches, especially because techniques change frequently, and attacks can be
launched with no warning from a wide variety of sources around the globe. A sophisticated breach, moreover, may not be identified until well
after the attack has occurred and the damage has been caused.
We also could be adversely affected by security risks faced by others. For example, a cyberattack or other security breach affecting a
service provider or another entity on whom we rely could negatively impact us and our ability to conduct business and operations just as
much as a breach affecting us directly. Even worse, in such a circumstance, we may not receive timely notice of or information about the
breach or be able to exert any meaningful control or influence over how and when the breach is addressed. In addition, a security threat
affecting the business community, the markets, or parts of them may cycle or cascade through the financial system and harm us. The mere
perception of a security breach involving us or any part of the financial services industry, whether or not true, also could damage our business,
operations, or reputation.
Many if not all of these risks and uncertainties are beyond our control. Refer to section titled Risk Management in the MD&A that
follows.
We are heavily reliant on technology, and a failure in effectively implementing technology initiatives or anticipating future technology
needs or demands could adversely affect our business or financial results.
We significantly depend on technology to deliver our products and services and to otherwise conduct our business and operations. To
remain technologically competitive and operationally efficient, we invest in system upgrades, new solutions, and other technology initiatives.
Many of these initiatives take a significant amount of time to develop and implement, are tied to critical systems, and require substantial
financial, human, and other resources. Although we take steps to mitigate the risks and uncertainties associated with these initiatives, no
assurance can be provided that they will be implemented on time, within budget, or without negative operational or customer impact or that,
once implemented, they will perform as we or our customers expect. We also may not succeed in anticipating or keeping pace with future
technology needs, the technology demands of customers, or the competitive landscape for technology. If we were to misstep in any of these
areas, our business, financial results, or reputation could be negatively impacted.
Our enterprise risk-management framework or independent risk-management function may not be effective in mitigating risk and loss.
We maintain an enterprise risk-management framework that is designed to identify, measure, assess, monitor, test, control, report,
escalate, and mitigate the risks that we face. These include credit, insurance/underwriting, market, liquidity, business/strategic, reputation,
operational, information-technology/security, compliance, and conduct risks. The framework incorporates risk culture and incentives, risk
governance and organization, strategy and risk appetite, a material-risk taxonomy, key risk-management processes, and risk capabilities. Our
chief risk officer, chief compliance officer, and other personnel who make up our independent risk-management function are responsible for
overseeing and implementing the framework. Refer to the section titled Risk Management in the MD&A that follows. There can be no
assurance, however, that the framework—including its design and implementation—will effectively mitigate risk and limit losses in our
business and operations. If conditions or circumstances arise that expose flaws or gaps in the framework or its implementation, the
performance and value of our business and operations could be adversely affected. An ineffective risk-management framework or function
also could give rise to enforcement and other supervisory actions, damage our reputation, and result in private litigation.
We are or may be subject to potential liability in connection with pending or threatened legal proceedings and other matters, which
could adversely affect our business or financial results.
We are involved from time to time in a variety of judicial, alternative-dispute, and other proceedings arising out of our business and
operations. These legal matters may be formal or informal and include litigation and arbitration with one or more identified claimants,
certified or purported class actions with yet-to-be-identified claimants, and regulatory or other governmental information-gathering requests,
examinations, investigations, and enforcement proceedings. Our legal matters exist in varying stages of adjudication, arbitration, negotiation,
or investigation and span our business lines and operations. Claims may be based in law or equity—such as those arising under contracts or in
tort and those involving banking, consumer protection, securities, tax, employment, and other laws—and some can present novel legal
theories and allege substantial or indeterminate damages.
The course and outcome of legal matters are inherently unpredictable. This is especially so when a matter is still in its early stages, the
damages sought are indeterminate or unsupported, significant facts are unclear or disputed, novel questions of law or other meaningful legal
uncertainties exist, a request to certify a proceeding as a class action is outstanding or granted, multiple parties are named, or regulatory or
other governmental entities are involved. As a result, we often are unable to determine how or when threatened or pending legal matters will
be resolved and what losses may be incurred. Actual losses may be higher or lower than any amounts accrued or estimated for those matters,
possibly to a significant degree. Refer to Note 29 to the Consolidated Financial Statements. In addition, while we maintain insurance policies
to mitigate the cost of litigation and other proceedings, these policies have deductibles, limits, and exclusions that may diminish their value or
efficacy. Substantial legal claims, even if not meritorious, could have a detrimental impact on our business, results of operations, and financial
condition and could cause us reputational harm.
20
Ally Financial Inc. • Form 10-K
Our inability to attract, retain, or motivate qualified employees could adversely affect our business or financial results.
Skilled employees are our most important resource, and competition for talented people is intense. Even though compensation and
benefits expense is among our highest expenses, we may not be able to locate and hire the best people, keep them with us, or properly
motivate them to perform at a high level. Recent scrutiny of compensation practices, especially in the financial services industry, has made
this only more difficult. In addition, many parts of our business are particularly dependent on key personnel. If we were to lose and find
ourselves unable to replace these personnel or other skilled employees or if the competition for talent were to drive our compensation costs to
unsustainable levels, our business and financial results could be negatively impacted.
Our ability to successfully make acquisitions is subject to significant risks, including the risk that government authorities will not provide
the requisite approvals, the risk that integrating acquisitions may be more difficult, costly, or time consuming than expected, and the risk that
the value of acquisitions may be less than anticipated.
We may from time to time seek to acquire other financial services companies or businesses. These acquisitions may be subject to
regulatory approval, and no assurance can be provided that we will be able to obtain that approval in a timely manner or at all. Even when we
are able to obtain regulatory approval, the failure of other closing conditions to be satisfied or waived could delay the completion of an
acquisition for a significant period of time or prevent it from occurring altogether. Any failure or delay in closing an acquisition could
adversely affect our reputation, business, and performance.
Acquisitions involve numerous risks and uncertainties, including lower-than-expected performance or higher-than-expected costs,
difficulties related to integration, diversion of management’s attention from other business activities, changes in relationships with customers
or counterparties, and the potential loss of key employees. An acquisition also could be dilutive to our existing stockholders if we were to
issue common stock to fully or partially pay or fund the purchase price. We, moreover, may not be successful in identifying appropriate
acquisition candidates, integrating acquired companies or businesses, or realizing expected value from acquisitions. There is significant
competition for valuable acquisition targets, and we may not be able to acquire other companies or businesses on attractive terms. No
assurance can be given that we will pursue future acquisitions, and our ability to grow and successfully compete may be impaired if we
choose not to pursue or are unable to successfully make acquisitions.
Our business requires substantial capital and liquidity, and a disruption in our funding sources or access to the capital markets may
have an adverse effect on our liquidity, capital positions, and financial condition.
Liquidity is the ability to fund increases in assets and meet obligations as they come due, all without incurring unacceptable losses.
Banks are especially vulnerable to liquidity risk because of their role in the maturity transformation of demand or short-term deposits into
longer-term loans or other extensions of credit. We, like other financial services companies, rely to a significant extent on external sources of
funding (such as deposits and borrowings) for the liquidity needed to conduct our business and operations. A number of factors beyond our
control, however, could have a detrimental impact on the availability or cost of that funding and thus on our liquidity. These include market
disruptions, changes in our credit ratings or the sentiment of our investors, the state of the regulatory environment and monetary and fiscal
policies, reputational damage, the confidence of depositors in us, financial or systemic shocks, and significant counterparty failures. Weak
business or operational performance, unexpected declines or limits on dividends or other distributions from our subsidiaries, and other failures
to execute our strategic plan also could adversely affect Ally’s liquidity position.
We have significant maturities of unsecured debt each year. While we have reduced our reliance on unsecured funding in recent years, it
remains an important component of our capital structure and financing plans. At December 31, 2018, approximately $1.7 billion in principal
amount of total outstanding consolidated unsecured debt is scheduled to mature in 2019, and approximately $2.3 billion and $702 million is
scheduled to mature in 2020 and 2021, respectively. We also obtain short-term funding from the sale of floating-rate demand notes, all of
which the holders may elect to have redeemed at any time without restriction. At December 31, 2018, approximately $2.5 billion in principal
amount of demand notes were outstanding, which is not included in the amount of unsecured debt described above. We also rely substantially
on secured funding. At December 31, 2018, approximately $7.3 billion in principal amount of total outstanding consolidated secured long-
term debt is scheduled to mature in 2019, approximately $7.4 billion is scheduled to mature in 2020, and approximately $10.2 billion is
scheduled to mature in 2021. Furthermore, at December 31, 2018, approximately $31.5 billion in certificates of deposit at Ally Bank are
scheduled to mature in 2019, which is not included in the amounts provided above. Additional funding, whether through deposits or
borrowings, will be required to fund a substantial portion of the debt maturities over these periods.
We continue to rely as well on our ability to borrow from other financial institutions, and many of our primary bank facilities are up for
renewal on a yearly basis. Any weakness in market conditions, tightening of credit availability, or other events referenced earlier in this risk
factor could have a negative effect on our ability to refinance these facilities and could increase the costs of bank funding. Ally and Ally Bank
also continue to access the securitization markets. While those markets have stabilized following the liquidity crisis that commenced in 2007–
2008, there can be no assurances that these sources of liquidity will remain available to us.
Our policies and controls are designed to enable us to maintain adequate liquidity to conduct our business in the ordinary course even in
a stressed environment. There is no guarantee, however, that our liquidity position will never become compromised. In such an event, we may
be required to sell assets at a loss or reduce loan and operating lease originations in order to continue operations. This could damage the
performance and value of our business, prompt regulatory intervention and private litigation, harm our reputation, and cause a loss of investor
confidence, and if the condition were to persist for any appreciable period of time, our viability as a going concern could be threatened. Refer
21
Ally Financial Inc. • Form 10-K
to section titled Liquidity Management, Funding, and Regulatory Capital in the MD&A that follows and Note 20 to the Consolidated
Financial Statements.
Our indebtedness and other obligations are significant and could adversely affect our business and financial results.
We have a significant amount of indebtedness apart from deposit liabilities. At December 31, 2018, we had approximately $55.3 billion
in principal amount of indebtedness outstanding (including $39.7 billion in secured indebtedness). Interest expense on our indebtedness
constituted approximately 21.0% of our total financing revenue and other interest income for the year ended December 31, 2018. We also
have the ability to create additional indebtedness.
If our debt service obligations increase, whether due to the increased cost of existing indebtedness or the incurrence of additional
indebtedness, more of our cash flow from operations would need to be allocated to the payment of principal of, and interest on, our
indebtedness, which would reduce the funds available for other purposes. Our indebtedness also could limit our ability to execute our strategic
plan and withstand competitive pressures and could reduce our flexibility in responding to changing business and economic conditions. In
addition, if we are unable to satisfy our indebtedness and other obligations in full and on time, our business, reputation, and value as a going
concern could be profoundly and perhaps inexorably damaged.
The markets for automotive financing, insurance, banking (including corporate finance and mortgage finance), brokerage, and
investment-advisory services are extremely competitive, and competitive pressures could adversely affect our business and financial results.
The markets for automotive financing, insurance, banking (including corporate finance and mortgage finance), brokerage, and
investment-advisory services are highly competitive, and we expect competitive pressures only to intensify in the future, especially in light of
the regulatory and supervisory environments in which we operate, technological innovations that alter the barriers to entry, current and
evolving economic and market conditions, changing customer preferences and consumer and business sentiment, and monetary and fiscal
policies. Refer to the section above titled Industry and Competition in Part I, Item 1 of this report. Competitive pressures may drive us to take
actions that we might otherwise eschew, such as lowering the interest rates or fees on loans, raising the interest rates on deposits, or adopting
more liberal underwriting standards. These pressures also may accelerate actions that we might otherwise elect to defer, such as substantial
investment in systems or infrastructure. Whatever the reason, actions that we take in response to competition may adversely affect our results
of operations and financial condition. These consequences could be exacerbated if we are not successful in introducing new products and
services, achieving market acceptance of our products and services, developing and maintaining a strong customer base, continuing to
enhance our reputation, or prudently managing risks and expenses.
Our borrowing costs and access to the banking and capital markets could be negatively impacted if our credit ratings are downgraded
or otherwise fail to meet investor expectations or demands.
The cost and availability of our funding are meaningfully affected by our short- and long-term credit ratings. Each of Standard & Poor’s
Rating Services, Moody’s Investors Service, Inc., Fitch, Inc., and Dominion Bond Rating Service rates some or all of our debt, and these
ratings reflect the rating agency’s opinion of our financial strength, operating performance, strategic position, and ability to meet our
obligations. Agency ratings are not a recommendation to buy, sell, or hold any security and may be revised or withdrawn at any time. Each
agency’s rating should be evaluated independently of any other agency’s rating.
Some of our current credit ratings are below investment grade, which negatively impacts our access to liquidity and increases our
borrowing costs in the banking and capital markets. If our credit ratings were to be downgraded further or were to otherwise fail to meet
investor expectations or demands, our borrowing costs and access to the banking and capital markets could become even more challenging
and, as a result, negatively affect our business and financial results. In addition, downgrades of our credit ratings or their failure to meet
investor expectations or demands could result in more restrictive terms and conditions being added to any new or replacement financing
arrangements as well as trigger disadvantageous provisions of existing borrowing arrangements.
Challenging business, economic, or market conditions may adversely affect our business, results of operations, and financial condition.
Our businesses are driven by wealth creation in the economy, robust market activity, monetary and fiscal stability, and positive investor,
business, and consumer sentiment. A downturn in economic conditions, disruptions in the equity or debt markets, high unemployment or
underemployment, depressed vehicle or housing prices, unsustainable debt levels, unfavorable changes in interest rates, declines in household
incomes, deteriorating consumer or business sentiment, consumer or commercial bankruptcy filings, or declines in the strength of national or
local economies could decrease demand for our products and services, increase the amount and rate of delinquencies and losses, raise our
operating and other expenses, and negatively impact the returns on and the value of our loans, investment portfolio, and other assets. Further,
if a significant and sustained increase in fuel prices or other adverse conditions were to lead to diminished new and used vehicle purchases or
prices, our automotive finance and insurance businesses could suffer considerably. In addition, concerns about the pace of economic growth
and uncertainty about fiscal and monetary policies can result in significant volatility in the financial markets and could impact our ability to
obtain cost-effective funding. If any of these events were to occur or worsen, our business, results of operation, and financial condition could
be adversely affected.
22
Ally Financial Inc. • Form 10-K
Acts or threats of terrorism, natural disasters, and other conditions or events beyond our control could adversely affect us.
Geopolitical conditions, natural disasters, and other conditions or events beyond our control may adversely affect our business, results of
operations, financial condition, or prospects. For example, acts or threats of terrorism and political or military actions taken in response to
terrorism could adversely affect general economic, business, or market conditions and, in turn, us. We also could be negatively impacted if
our key personnel, a significant number of our employees, or our systems or infrastructure were to become unavailable or damaged due to a
pandemic, natural disaster, war, act of terrorism, accident, or similar cause. These same risks and uncertainties arise too for the service
providers and counterparties on whom we depend as well as their own third-party service providers and counterparties.
Significant repurchases or indemnification payments in our securitizations or whole-loan sales could harm our profitability and financial
condition.
We have repurchase and indemnification obligations in our securitizations and whole-loan sales. If we were to breach a representation,
warranty, or covenant in connection with a securitization or whole-loan sale, we may be required to repurchase the affected loans or operating
leases or otherwise compensate investors or purchasers for losses caused by the breach. If the scale or frequency of repurchases or
indemnification payments were to increase substantially from its present levels, our results of operations and financial condition could be
adversely affected. In such a circumstance, we also could suffer reputational damage, become subject to stricter supervisory scrutiny and
private litigation, and find our access to capital and banking markets more limited or more costly.
Our business and operations make extensive use of models, and we could be adversely affected if our design, implementation, or use of
models is flawed.
We use quantitative models to price products and services, measure risk, estimate asset and liability values, assess capital and liquidity,
manage our balance sheet, create financial forecasts, and otherwise conduct our business and operations. If the design, implementation, or use
of any of these models is flawed, we could make strategic or tactical decisions based on incorrect, misleading, or incomplete information. In
addition, to the extent that any inaccurate model outputs are used in reports to banking agencies or the public, we could be subjected to
supervisory actions, private litigation, and other proceedings that may adversely affect our business and financial results. Refer to section
titled Risk Management in the MD&A that follows.
Our hedging strategies may not be successful in mitigating our interest rate, foreign exchange, and market risks, which could adversely
affect our financial results.
We employ various hedging strategies to mitigate the interest rate, foreign exchange, and market risks inherent in many of our assets and
liabilities. Our hedging strategies rely considerably on assumptions and projections regarding our assets and liabilities as well as general
market factors. If any of these assumptions or projections prove to be incorrect or our hedges do not adequately mitigate the impact of
changes in interest rates, foreign exchange rates, and other market factors, we may experience volatility in our earnings that could adversely
affect our profitability and financial condition. In addition, we may not be able to find market participants that are willing to act as our
hedging counterparties on acceptable terms or at all, which could have an adverse effect on the success of our hedging strategies.
We use estimates and assumptions in determining the value or amount of many of our assets and liabilities. If our estimates or
assumptions prove to be incorrect, our cash flow, profitability, financial condition, and prospects could be adversely affected.
We use estimates and assumptions in determining the fair value of many of our assets, including retained interests from securitizations,
loans held-for-sale, and other investments that do not have an established market value or are not publicly traded. We also use estimates and
assumptions in determining the residual values of our operating lease assets. In addition, we use estimates and assumptions in determining our
reserves for legal matters, insurance losses, and loss adjustment expenses (which 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). Refer to section titled Critical Accounting Estimates in the MD&A that follows. Our assumptions and estimates may be
inaccurate for many reasons. For example, they often involve matters that are inherently difficult to predict and that are beyond our control
(such as macroeconomic conditions and their impact on automotive dealers) and often involve complex interactions between a number of
dependent and independent variables, factors, and other assumptions. Assumptions and estimates are also far more difficult during periods of
market dislocation or illiquidity. As a result, our actual experience may differ substantially from these estimates and assumptions. A
meaningful difference between our estimates and assumptions and our actual experience may adversely affect our cash flow, profitability,
financial condition, and prospects and may increase the volatility of our financial results. In addition, several different judgments associated
with assumptions or estimates could be reasonable under the circumstances and yet result in significantly different results being reported.
Significant fluctuations in the valuation of investment securities or market prices could negatively affect our financial results.
Market prices for securities and other financial assets are subject to considerable fluctuation. Fluctuations may result, for example, from
perceived changes in the value of the asset, the relative price of alternative investments, shifts in investor sentiment, geopolitical events,
actual or expected changes in monetary or fiscal policies, and general market conditions. Due to these kinds of fluctuations, the amount that
we realize in the subsequent sale of an investment may significantly differ from the last reported value and could negatively affect our
financial results. Additionally, negative fluctuations in the value of available-for-sale investment securities could result in unrealized losses
recorded in equity.
23
Ally Financial Inc. • Form 10-K
Changes in accounting standards could adversely affect our reported revenues, expenses, profitability, and financial condition.
Our financial statements are subject to the application of GAAP, which are periodically revised or expanded. The application of GAAP is
also subject to varying interpretations over time. Accordingly, we are required to adopt new or revised accounting standards or comply with
revised interpretations that are issued from time to time by various parties, including accounting standard setters and those who interpret the
standards, such as the FASB, the SEC, banking agencies, and our independent registered public accounting firm. Those changes are beyond
our control but could adversely affect our revenues, expenses, profitability, or financial condition. Refer to Note 1 to the Consolidated
Financial Statements for financial accounting standards issued by the FASB, but not yet adopted by the company, with effective dates between
January 1, 2019, and January 1, 2020.
The financial system is highly interrelated, and the failure of even a single financial institution could adversely affect us.
The financial system is highly interrelated, including as a result of lending, trading, clearing, counterparty, and other relationships. We
have exposure to and routinely execute transactions with a wide variety of financial institutions, including brokers, dealers, commercial
banks, and investment banks. If any of these institutions were to become or perceived to be unstable, were to fail in meeting its obligations in
full and on time, or were to enter bankruptcy, conservatorship, or receivership, the consequences could ripple throughout the financial system
and may adversely affect our business, results of operations, financial condition, or prospects. Because of interrelationships within the
financial system, this could occur even if the institution itself were not systemically important or perceived to play a meaningful role in the
stable functioning of the financial markets.
Adverse economic conditions or changes in laws in the states where we have loan or operating lease concentrations may negatively
affect our business and financial results.
We are exposed to portfolio concentrations in some states, including California, Texas, and Florida. Factors adversely affecting the
economies and applicable laws in these states could have an adverse effect on our business, results of operations, and financial condition.
Negative publicity outside of our control, or our failure to successfully manage issues arising from our conduct or in connection with the
financial services industry generally, could damage our reputation and adversely affect our business or financial results.
The performance and value of our business could be negatively impacted by any reputational harm that we may suffer. This harm could
arise from negative publicity outside of our control or our failure to adequately address issues arising from our conduct or in connection with
the financial services industry generally. Risks to our reputation could arise in any number of contexts—for example, stricter regulatory or
supervisory environments, cyber incidents and other security breaches, inabilities to meet customer expectations, mergers and acquisitions,
lending or banking practices, actual or perceived conflicts of interest, failures to prevent money laundering, inappropriate conduct by
employees, and inadequate corporate governance.
Risks Related to Ownership of Our Common Stock
Our ability to pay dividends on our common stock or repurchase shares in the future may be limited.
Any future dividends on our common stock or changes in our stock-repurchase program will be determined by our Board of Directors in
its sole discretion and will depend on our business, financial condition, earnings, capital, liquidity, and other factors at the time. In addition,
any plans to continue dividends or share repurchases in the future will be subject to the FRB’s review of and non-objection to our capital plan,
which is unpredictable. Refer to the section above titled Regulation and Supervision in Part I, Item 1 of this report. There is no assurance that
our Board of Directors will approve, or the FRB will permit, future dividends or share repurchases.
It is possible that any indentures or other financing arrangements that we execute in the future could limit our ability to pay dividends on
our capital stock, including our common stock. In the event that any of our indentures or other financing arrangements in the future restrict
that ability, we may be unable to pay dividends unless and until we can refinance the amounts outstanding under those arrangements. In
addition, under Delaware law, our Board of Directors may declare dividends on our capital stock only to the extent of our statutory surplus
(which is defined as the amount equal to total assets minus total liabilities, in each case at fair market value, minus statutory capital) or, if no
surplus exists, out of our net profits for the then-current or immediately preceding fiscal year. Further, even if we are permitted under our
contractual obligations and Delaware law to pay dividends on our common stock, we may not have sufficient cash or regulatory approvals to
do so.
The market price of our common stock could be adversely impacted by anti-takeover provisions in our organizational documents and
Delaware law that could delay or prevent a takeover attempt or change in control of Ally or by other banking, antitrust, or corporate laws
that have or are perceived as having an anti-takeover effect.
Our certificate of incorporation, our bylaws, and Delaware law contain provisions that could have the effect of discouraging, hindering,
or preventing an acquisition that our Board of Directors does not find to be in the best interests of us and our stockholders. For example, our
organizational documents include provisions:
•
limiting the liability of our directors and providing indemnification to our directors and officers; and
24
Ally Financial Inc. • Form 10-K
•
limiting the ability of our stockholders to call and bring business before special meetings of stockholders by requiring any
requesting stockholders to hold at least 25% of our common stock in the aggregate.
These provisions, alone or together, could delay hostile takeovers and changes in control of Ally or changes in management.
In addition, we are subject to Section 203 of the General Corporation Law of the State of Delaware, which generally prohibits a
corporation from engaging in various business combination transactions with any interested stockholder (generally defined as a stockholder
who owns 15% or more of a corporation’s voting stock) for a period of three years following the time that the stockholder became an
interested stockholder, except under specified circumstances such as the receipt of prior board approval.
Banking and antitrust laws, including associated regulatory-approval requirements, also impose significant restrictions on the acquisition
of direct or indirect control over any BHC like Ally or any insured depository institution like Ally Bank.
Any provision of our organizational documents or applicable law that deters, hinders, or prevents a non-negotiated takeover or change in
control of Ally could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also
affect the price that some investors are willing to pay for our common stock.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal corporate offices are located in Detroit, Michigan, and Charlotte, North Carolina. In Detroit, we lease approximately
317,000 square feet of office space under a lease that expires in December 2028. In Charlotte, we lease approximately 234,000 square feet of
office space under a variety of leases expiring between November 2019 and May 2024. In September 2017, we entered into a new agreement,
scheduled to commence in April 2021, to lease approximately 543,000 square feet of office space in Charlotte under a lease that is expected to
expire in March 2036. Under the new lease we plan to consolidate our three current Charlotte, North Carolina locations, through a series of
phases, as the existing leases expire.
The primary offices for both our Automotive Finance and Insurance operations are located in Detroit, and are included in the totals
referenced above. The primary office for our Mortgage Finance operations is located in Charlotte, where, in addition to the totals referenced
above, we lease approximately 84,000 square feet of office space under a lease that expires in December 2022. Upon expiration, our
Mortgage Finance operations will relocate to the consolidated office space in Charlotte, North Carolina, referenced above. The primary office
for our Corporate Finance operations is located in New York, New York, where we lease approximately 55,000 square feet of office space
under a lease that expires in June 2023.
In addition to the properties described above, we lease additional space to conduct our operations. We believe our facilities are adequate
for us to conduct our present business activities.
Item 3. Legal Proceedings
Refer to Note 29 to the Consolidated Financial Statements for a discussion related to our legal proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
25
Part II
Ally Financial Inc. • Form 10-K
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Market Information
Our common stock is listed on the New York Stock Exchange (NYSE) under the symbol “ALLY.” At December 31, 2018, we had
404,899,599 shares of common stock outstanding, compared to 437,053,936 shares at December 31, 2017. As of February 15, 2019, we had
approximately 37 holders of record of our common stock.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information about the securities authorized for issuance under our equity compensation plans as of
December 31, 2018.
(1)
Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights (a)
(in thousands)
(2)
Weighted-average exercise
price of outstanding options,
warrants and rights
(3)
Number of securities remaining
available for further issuance
under equity compensation
plans (excluding securities
reflected in column (1)) (b)
(in thousands)
7,576
7,576
—
—
27,289
27,289
Plan category
Equity compensation plans
approved by security holders
Total
(a)
(b)
Includes restricted stock units outstanding under the Incentive Compensation Plan and deferred stock units outstanding under the Non-Employee
Directors Equity Compensation Plan.
Includes 24,883,283 securities available for issuance under the plans identified in (a) above and 2,405,374 securities available for issuance under Ally’s
Employee Stock Purchase Plan.
26
Ally Financial Inc. • Form 10-K
Stock Performance Graph
The following graph compares the cumulative total return to stockholders on our common stock relative to the cumulative total returns of
the S&P 500 index and the S&P Financials index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made
in our common stock and in each index on April 10, 2014 (the date our common stock first commenced trading on the NYSE), and its relative
performance is tracked through December 31, 2018. The returns shown are based on historical results and are not intended to suggest future
performance.
This performance graph is not deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities
of that section, or incorporated by reference into any filing of Ally under the Securities Act of 1933, as amended (Securities Act), or the
Exchange Act, except as expressly set forth by specific reference in such a filing.
Recent Sales of Unregistered Securities
Ally did not have any sales of unregistered securities in the last three fiscal years.
Purchases of Equity Securities by the Issuer
The following table presents repurchases of our common stock, by month, for the three months ended December 31, 2018.
Three months ended December 31, 2018
October 2018
November 2018
December 2018
Total
Total number
of shares
repurchased (a)
(in thousands)
Weighted-average
price paid per
share (a) (b)
(in dollars)
Total number of
shares
repurchased as
part of publicly
announced
program (a) (c)
(in thousands)
Maximum
approximate dollar
value of shares that
may yet be
repurchased under
the program (a) (b) (c)
($ in millions)
3,887
$
6,195
2,039
12,121
25.84
25.57
24.73
25.52
3,887
$
6,195
2,039
12,121
650
491
441
Includes shares of common stock withheld to cover income taxes owed by participants in our share-based incentive plans.
(a)
(b) Excludes brokerage commissions.
(c) On June 28, 2018, we announced a common-stock-repurchase program of up to $1.0 billion. The program commenced in the third quarter of 2018 and
will expire on June 30, 2019. Refer to Note 20 to the Consolidated Financial Statements for a discussion of our 2018 capital plan.
27
Ally Financial Inc. • Form 10-K
Item 6. Selected Financial Data
The selected historical financial information set forth below should be read in conjunction with Management’s Discussion and Analysis
of Financial Condition and Results of Operations (MD&A) in Part II, Item 7 of this report, and our Consolidated Financial Statements and the
notes thereto. The historical financial information presented may not be indicative of our future performance.
The following table presents selected Consolidated Statement of Income and earnings per common share data.
($ in millions, except per share data; shares in thousands)
2018
2017
2016
2015
2014
Total financing revenue and other interest income
$
9,052
$
8,322
$
8,305
$
8,397
$
Total interest expense
Net depreciation expense on operating lease assets
Net financing revenue and other interest income
Total other revenue
Total net revenue
Provision for loan losses
Total noninterest expense
Income from continuing operations before income tax expense
Income tax expense from continuing operations (a)
Net income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
Basic earnings per common share (b) (c):
Net income (loss) from continuing operations
Net income (loss)
Weighted-average common shares outstanding
Diluted earnings per common share (b) (c):
Net income (loss) from continuing operations
Net income (loss)
Weighted-average common shares outstanding (d)
Common share information (c):
Cash dividends declared per common share
Period-end common shares outstanding
$
$
$
$
2,629
1,769
3,907
1,530
5,437
917
2,939
1,581
470
1,111
(44)
1,067
2.25
2.15
3,637
1,025
4,390
1,414
5,804
918
3,264
1,622
359
1,263
—
1,263
2.97
2.97
425,165
2.95
2.95
$
$
$
2,857
1,244
4,221
1,544
5,765
1,148
3,110
1,507
581
926
3
929
2.04
2.05
453,704
2.03
2.04
$
$
$
2,429
2,249
3,719
1,142
4,861
707
2,761
1,393
496
897
392
8,391
2,783
2,233
3,375
1,276
4,651
457
2,948
1,246
321
925
225
$
$
1,289
$
1,150
(3.47) $
(2.66)
1.36
1.83
481,105
482,873
481,155
2.24
2.15
$
(3.47) $
(2.66)
1.36
1.83
427,680
455,350
482,182
482,873
481,934
0.56
$
0.40
$
0.16
$
— $
—
404,900
437,054
467,000
481,980
480,095
(a) As a result of the Tax Cuts and Jobs Act of 2017 (the Tax Act) an additional $119 million of tax expense was incurred during 2017.
(b)
Includes shares related to share-based compensation that vested but were not yet issued. Earnings per common share is reflected net of preferred stock
dividends, which included $2.4 billion for the year ended December 31, 2015, recognized in connection with the partial redemption of the Series G
Preferred Stock and the repurchase of the Series A Preferred Stock. These dividends represent an additional return to preferred stockholders calculated as
the excess consideration paid over the carrying amount derecognized.
In April 2014, we completed an initial public offering (IPO) of 95 million shares of common stock at $25 per share. In connection with the IPO, we
effected a 310-for-one stock split on shares of our common stock, $0.01 par value per share. Accordingly, these references to share and per share amounts
relating to common stock have been adjusted, on a retroactive basis, to recognize the 310-for-one stock split.
(c)
(d) Due to antidilutive effect of the net loss from continuing operations attributable to common stockholders for the year ended December 31, 2015, basic
weighted-average common shares outstanding was used to calculate basic and diluted earnings per share.
28
Ally Financial Inc. • Form 10-K
The following tables present selected Consolidated Balance Sheet and ratio data.
December 31, ($ in millions)
Selected period-end balance sheet data:
Total assets
Total deposit liabilities
Long-term debt
Preferred stock
Total equity
2018
2017
2016
2015
2014
$
$
$
$
$
178,869
106,178
44,193
$
$
$
167,148
93,256
44,226
$
$
$
163,728
79,022
54,128
$
$
$
— $
— $
— $
158,581
66,478
66,234
696
13,268
$
13,494
$
13,317
$
13,439
$
$
$
$
$
151,631
58,203
66,380
1,255
15,399
Year ended December 31, ($ in millions)
2018
2017
2016
2015
2014
Financial ratios:
Return on average assets (a)
Return on average equity (a)
Equity to assets (a)
Common dividend payout ratio (b)
Net interest spread (a) (c) (d)
Net yield on interest-earning assets (a) (d) (e)
0.74%
9.65%
7.65%
0.57%
6.89%
8.28%
18.86%
19.51%
2.47%
2.65%
2.58%
2.71%
0.68%
7.80%
8.69%
7.44%
2.49%
2.63%
0.84%
8.69%
9.65%
—%
2.44%
2.57%
0.77%
7.77%
9.86%
—%
2.26%
2.41%
(a) The ratios were based on average assets and average equity using a combination of monthly and daily average methodologies.
(b) Common dividend payout ratio was calculated using basic earnings per common share.
(c) Net interest spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities, excluding
discontinued operations for the periods shown.
(d) Amounts for the years ended December 31, 2015, and 2014, were adjusted to include previously excluded equity investments and related income on
equity investments.
(e) Net yield on interest-earning assets represents net financing revenue and other interest income as a percentage of total interest-earning assets.
29
Ally Financial Inc. • Form 10-K
As of January 1, 2015, Ally became subject to the rules implementing the 2010 Basel III capital framework in the United States (U.S.
Basel III), which reflect new and higher capital requirements, capital buffers, and new regulatory capital definitions, deductions and
adjustments. Certain aspects of U.S. Basel III, including the new capital buffers, were subject to a phase-in period through December 31,
2018. To assess our capital adequacy against the full impact of U.S. Basel III, we also present “fully phased-in” information that reflects
regulatory capital rules that took effect at the conclusion of the transition period. Refer to Note 20 to the Consolidated Financial Statements
for further information. The following table presents selected regulatory capital data.
December 31, ($ in millions)
2018
2017
2016
2015
2018
2017
2016
2015
2014
Under Basel III (a)
Transitional
Fully phased-in (b)
Under
Basel I (c)
9.14%
10.80%
12.31%
9.53%
11.25%
12.94%
9.37%
10.93%
12.57%
9.21%
11.10%
12.52%
9.13%
10.78%
12.29%
9.46%
11.22%
12.91%
9.13%
10.88%
12.52%
8.74%
11.06%
12.47%
9.64%
12.55%
13.24%
9.00%
9.53%
9.54%
9.73%
9.00%
9.53%
9.53%
9.73%
10.94%
$ 13,268
$ 13,494
$ 13,317
$ 13,439
$ 13,268
$ 13,494
$ 13,317
$ 13,439
$ 15,399
—
—
—
(696)
—
—
—
(696)
(1,255)
(285)
(283)
(272)
(27)
(285)
(294)
(293)
(27)
(27)
Common Equity Tier 1 capital ratio
Tier 1 capital ratio
Total capital ratio
Tier 1 leverage ratio (to adjusted
quarterly average assets) (d)
Total equity
Preferred stock
Goodwill and certain other
intangibles
Deferred tax assets arising from net
operating loss and tax credit
carryforwards (e)
Other adjustments
(1,310)
(219)
12,588
1,255
2,546
(143)
557
(224)
250
(410)
343
(392)
183
(143)
557
(280)
250
(683)
343
(980)
183
Common Equity Tier 1 capital
13,397
13,237
12,978
12,507
13,397
13,170
12,684
11,919
Preferred stock
Trust preferred securities
—
2,493
—
2,491
—
2,489
696
2,520
—
2,493
—
2,491
—
2,489
696
2,520
Deferred tax assets arising from net
operating loss and tax credit
carryforwards
Other adjustments
Tier 1 capital
Qualifying subordinated debt and
other instruments qualifying as
Tier 2
Qualifying allowance for credit
losses and other adjustments
—
(59)
(56)
(44)
(273)
(47)
(588)
(58)
—
(59)
—
(44)
—
(47)
—
(58)
—
—
15,831
15,628
15,147
15,077
15,831
15,617
15,126
15,077
16,389
1,031
1,113
1,174
1,184
1,233
1,098
932
996
1,031
1,113
1,174
1,184
1,233
1,098
932
996
237
668
Total capital
$ 18,046
$ 17,974
$ 17,419
$ 17,005
$ 18,046
$ 17,963
$ 17,398
$ 17,005
$ 17,294
Risk-weighted assets (f)
$146,561
$138,933
$138,539
$135,844
$146,794
$139,185
$138,987
$136,354
$130,590
(a) U.S. Basel III became effective for us on January 1, 2015, subject to transitional provisions primarily related to deductions and adjustments impacting Common Equity Tier 1
capital and Tier 1 capital.
(b) Our fully phased-in capital ratios are non-GAAP financial measures that management believes are important to the reader of the Consolidated Financial Statements but should
be supplemental to, and not a substitute for, primary GAAP measures. The fully phased-in capital ratios are compared to the transitional capital ratios above. We believe these
capital ratios are important because we believe investors, analysts, and banking regulators may assess our capital utilization and adequacy using these ratios. Additionally,
presentation of these ratios allows readers to compare certain aspects of our capital utilization and adequacy on the same basis to other companies in the industry.
(c) Capital ratios as of December 31, 2014, are presented under the U.S. Basel I capital framework.
(d) Tier 1 leverage ratio equals Tier 1 capital divided by adjusted quarterly average total assets (which reflects adjustments for disallowed goodwill, certain intangible assets, and
disallowed deferred tax assets).
(e) Contains deferred tax assets required to be deducted from capital under U.S. Basel III.
(f) Risk-weighted assets are defined by regulation and are generally determined by allocating assets and specified off-balance sheet exposures into various risk categories.
30
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Notice about Forward-Looking Statements and Other Terms
From time to time we have made, and in the future will make, forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts.
Forward-looking statements often use words such as “believe,” “expect,” “anticipate,” “intend,” “pursue,” “seek,” “continue,” “estimate,”
“project,” “outlook,” “forecast,” “potential,” “target,” “objective,” “trend,” “plan,” “goal,” “initiative,” “priorities,” or other words of
comparable meaning or future-tense or conditional verbs such as “may,” “will,” “should,” “would,” or “could.” Forward-looking statements
convey our expectations, intentions, or forecasts about future events, circumstances, or results.
This report, including any information incorporated by reference in this report, contains forward-looking statements. We also may make
forward-looking statements in other documents that are filed or furnished with the SEC. In addition, we may make forward-looking
statements orally or in writing to investors, analysts, members of the media, or others.
All forward-looking statements, by their nature, are subject to assumptions, risks, and uncertainties, which may change over time and
many of which are beyond our control. You should not rely on any forward-looking statement as a prediction or guarantee about the future.
Actual future objectives, strategies, plans, prospects, performance, conditions, or results may differ materially from those set forth in any
forward-looking statement. While no list of assumptions, risks, or uncertainties could be complete, some of the factors that may cause actual
results or other future events or circumstances to differ from those in forward-looking statements include:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
evolving local, regional, national, or international business, economic, or political conditions;
changes in laws or the regulatory or supervisory environment, including as a result of recent financial services legislation,
regulation, or policies or changes in government officials or other personnel;
changes in monetary, fiscal, or trade laws or policies, including as a result of actions by government agencies, central banks, or
supranational authorities;
changes in accounting standards or policies, including ASU 2016-13, Financial Instruments — Credit Losses;
changes in the automotive industry or the markets for new or used vehicles, including the rise of vehicle sharing and ride hailing,
the development of autonomous and alternative-energy vehicles, and the impact of demographic shifts on attitudes and behaviors
toward vehicle ownership and use;
disruptions or shifts in investor sentiment or behavior in the securities, capital, or other financial markets, including financial or
systemic shocks and volatility or changes in market liquidity, interest or currency rates, or valuations;
changes in business or consumer sentiment, preferences, or behavior, including spending, borrowing, or saving by businesses or
households;
changes in our corporate or business strategies, the composition of our assets, or the way in which we fund those assets;
our ability to execute our business strategy for Ally Bank, including its digital focus;
our ability to optimize our automotive finance and insurance businesses and to continue diversifying into and growing other
consumer and commercial business lines, including mortgage finance, corporate finance, brokerage, and wealth management;
our ability to develop capital plans that will be approved by the FRB and our ability to implement them, including any payment of
dividends or share repurchases;
our ability to effectively manage capital or liquidity consistent with evolving business or operational needs, risk-management
standards, and regulatory or supervisory requirements;
our ability to cost-effectively fund our business and operations, including through deposits and the capital markets;
changes in any credit rating assigned to Ally, including Ally Bank;
adverse publicity or other reputational harm to us or our senior officers;
our ability to develop, maintain, or market our products or services or to absorb unanticipated costs or liabilities associated with
those products or services;
our ability to innovate, to anticipate the needs of current or future customers, to successfully compete, to increase or hold market
share in changing competitive environments, or to deal with pricing or other competitive pressures;
the continuing profitability and viability of our dealer-centric automotive finance and insurance businesses, especially in the face of
competition from captive finance companies and their automotive manufacturing sponsors and challenges to the dealer’s role as
intermediary between manufacturers and purchasers;
31
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our ability to appropriately underwrite loans that we originate or purchase and to otherwise manage credit risk;
changes in the credit, liquidity, or other financial condition of our customers, counterparties, service providers, or competitors;
our ability to effectively deal with economic, business, or market slowdowns or disruptions;
judicial, regulatory, or administrative investigations, proceedings, disputes, or rulings that create uncertainty for, or are adverse to,
us or the financial services industry;
our ability to address stricter or heightened regulatory or supervisory requirements and expectations;
the performance and availability of third-party service providers on whom we rely in delivering products and services to our
customers and otherwise conducting our business and operations;
our ability to maintain secure and functional financial, accounting, technology, data processing, or other operating systems or
infrastructure, including our capacity to withstand cyberattacks;
the adequacy of our corporate governance, risk-management framework, compliance programs, or internal controls over financial
reporting, including our ability to control lapses or deficiencies in financial reporting or to effectively mitigate or manage
operational risk;
the efficacy of our methods or models in assessing business strategies or opportunities or in valuing, measuring, estimating,
monitoring, or managing positions or risk;
our ability to keep pace with changes in technology that affect us or our customers, counterparties, service providers, or
competitors;
our ability to successfully make and integrate acquisitions;
the adequacy of our succession planning for key executives or other personnel and our ability to attract or retain qualified
employees;
natural or man-made disasters, calamities, or conflicts, including terrorist events and pandemics; or
other assumptions, risks, or uncertainties described in the Risk Factors (Item 1A), Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Item 7), or the Notes to the Consolidated Financial Statements (Item 8) in this
Annual Report on Form 10-K or described in any of the Company’s annual, quarterly or current reports.
Any forward-looking statement made by us or on our behalf speaks only as of the date that it was made. We do not undertake to update
any forward-looking statement to reflect the impact of events, circumstances, or results that arise after the date that the statement was made,
except as required by applicable securities laws. You, however, should consult further disclosures (including disclosures of a forward-looking
nature) that we may make in any subsequent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, or Current Report on Form 8-K.
Unless the context otherwise requires, the following definitions apply. The term “loans” means the following consumer and commercial
products associated with our direct and indirect financing activities: loans, retail installment sales contracts, lines of credit, and other
financing products excluding operating leases. The term “operating leases” means consumer- and commercial-vehicle lease agreements where
Ally is the lessor and the lessee is generally not obligated to acquire ownership of the vehicle at lease-end or compensate Ally for the vehicle’s
residual value. The terms “lend,” “finance,” and “originate” mean our direct extension or origination of loans, our purchase or acquisition of
loans, or our purchase of operating leases as applicable. The term “consumer” means all consumer products associated with our loan and
operating-lease activities and all commercial retail installment sales contracts. The term “commercial” means all commercial products
associated with our loan activities, other than commercial retail installment sales contracts.
Overview
Ally Financial Inc. (together with its consolidated subsidiaries unless the context otherwise requires, Ally, the Company, or we, us, or
our) is a leading digital financial-services company. As a customer-centric company with passionate customer service and innovative financial
solutions, we are relentlessly focused on “Doing It Right” and being a trusted financial-services provider to our consumer, commercial, and
corporate customers. We are one of the largest full-service automotive-finance operations in the country and offer a wide range of financial
services and insurance products to dealerships and consumers. Our award-winning online bank (Ally Bank, Member FDIC and Equal
Housing Lender) offers mortgage-lending services and a variety of deposit and other banking products, including savings, money-market, and
checking accounts, certificates of deposit (CDs), and individual retirement accounts (IRAs). We also support the Ally CashBack Credit Card.
Additionally, we offer securities-brokerage and investment-advisory services through Ally Invest. Our robust corporate-finance business
offers capital for equity sponsors and middle-market companies. We are a Delaware corporation and are registered as a bank holding company
(BHC) under the Bank Holding Company Act of 1956, as amended, and a financial holding company (FHC) under the Gramm-Leach-Bliley
Act of 1999, as amended.
32
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Our Business
Dealer Financial Services
Dealer Financial Services comprises our Automotive Finance and Insurance segments. Our primary customers are automotive dealers,
which are independently owned businesses. A dealer may sell or lease a vehicle for cash but, more typically, enters into a retail installment
sales contract or operating lease with the customer and then sells the retail installment sales contract or the operating lease and the leased
vehicle, as applicable, to Ally or another automotive-finance provider. The purchase by Ally or another provider is commonly described as
indirect automotive lending to the customer.
Our Dealer Financial Services is one of the largest full service automotive finance operations in the country and offers a wide range of
financial services and insurance products to automotive dealerships and customers. We have deep dealer relationships that have been built
throughout our hundred-year history, and we are leveraging competitive strengths to expand our dealer footprint. Our dealer-centric business
model encourages dealers to use our broad range of products through incentive programs like our Ally Dealer Rewards program, which
rewards individual dealers based on the depth and breadth of our relationship. Our automotive finance services include purchasing retail
installment sales contracts and operating leases from dealers, extending automotive loans directly to consumers, offering term loans to
dealers, financing dealer floorplans and providing other lines of credit to dealers, supplying warehouse lines to automotive retailers, offering
automotive-fleet financing, providing financing to companies and municipalities for the purchase or lease of vehicles, and supplying vehicle-
remarketing services. We also offer retail VSCs and commercial insurance primarily covering dealers’ vehicle inventories. We are a leading
provider of VSCs, GAP, and vehicle maintenance contracts (VMCs).
Automotive Finance
Our Automotive Finance operations provide U.S.-based automotive financing services to consumers, automotive dealers, other
businesses, and municipalities. Our dealer-focused business model, value-added products and services, full-spectrum financing, and business
expertise proven over many credit cycles make us a premier automotive finance company. For consumers, we provide financing for new and
used vehicles. In addition, our Commercial Services Group (CSG) provides automotive financing for small businesses. At December 31,
2018, our CSG had $7.9 billion of loans outstanding. Through our commercial automotive financing operations, we fund dealer purchases of
new and used vehicles through wholesale floorplan financing. At December 31, 2018, our Automotive Finance operations had $117.3 billion
of assets and generated $4.0 billion of total net revenue in 2018. We manage commercial account servicing on approximately 3,600 dealers
that utilize our floorplan inventory lending or other commercial loans. We service a $79.7 billion consumer loan and operating lease portfolio
at December 31, 2018. The extensive infrastructure, technology, and analytics of our servicing operations as well as the experience of our
servicing personnel enhance our ability to minimize our loan losses and enable us to deliver a favorable customer experience to both our
dealers and retail customers. During 2018, we continued to reposition our origination profile to focus on capital optimization and risk-
adjusted returns. In 2018, total consumer automotive originations were $35.4 billion, an increase of $694 million compared to 2017. The
shorter-term duration consumer automotive loan and variable-rate commercial loan portfolios offer attractive asset classes where we continue
to optimize risk-adjusted returns through origination mix management and pricing and underwriting discipline.
Our success as an automotive finance provider is driven by the consistent and broad range of products and services we offer to dealers.
The automotive marketplace is dynamic and evolving, and we are focused on meeting the needs of both our dealer and consumer customers
and continuing to strengthen and expand upon the 17,900 dealer relationships we have. Clearlane, our online automotive lender exchange,
expands our direct-to-consumer capabilities and provides a digital platform for consumers seeking financing. Clearlane further enhances our
automotive financing offerings, dealer relationships, and digital capabilities. In addition to providing a digital direct-to-consumer channel for
Ally, Clearlane is a fee-based business that generates revenue by successfully referring leads to other automotive lenders. Additionally, we
continue to expand our relationship with Carvana, a leading eCommerce platform for buying used vehicles. During the fourth quarter of 2018,
we renewed our annual program with Carvana to provide up to $1.6 billion in purchases of retail installment sales contracts and warehouse
financing. We believe these actions will enable us to respond to the growing trends for a more streamlined and digital automotive financing
process to serve both dealers and consumers.
The Growth channel was established to focus on developing dealer relationships beyond those relationships that primarily were
developed through our role as a captive finance company for General Motors Company (GM) and Fiat Chrysler Automobiles US LCC
(Chrysler). The Growth channel was expanded to include direct-to-consumer financing through Clearlane and other channels and our
arrangements with online automotive retailers. We have established relationships with thousands of Growth channel dealers through our
customer-centric approach and specialized incentive programs designed to drive loyalty amongst dealers to our products and services. The
success of the Growth channel has been a key enabler to converting our business model from a focused captive finance company to a leading
market competitor. In this channel, we currently have over 11,000 dealer relationships, of which approximately 89% are franchised dealers
(including brands such as Ford, Nissan, Kia, Hyundai, Toyota, Honda, and others), or used vehicle only retailers that have a national presence.
Over the past several years, we have continued to focus on the used vehicle segment primarily through franchised dealers, which has
resulted in used vehicle financing volume growth, and has positioned us as an industry leader in used vehicle financing. The highly-
fragmented used vehicle financing market, with a total financing opportunity represented by over 275 million vehicles in operation, provides
an attractive opportunity that we believe will further expand and support our dealer relationships and increase our risk-adjusted return on
retail loan originations. In January 2019, we renewed our annual program with DriveTime, the nation’s second largest vehicle retailer focused
solely on used vehicles, to provide up to $200 million for the purchase of retail installment sales contracts.
33
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
For consumers, we provide automotive loan financing and leasing for new and used vehicles to approximately 4.3 million customers.
Retail financing for the purchase of vehicles generally takes the form of installment sales financing. During 2018 and 2017, we originated a
total of approximately 1.4 million and 1.3 million automotive loans and operating leases totaling $35.4 billion and $34.7 billion, respectively.
Our operating lease residual risk, which may be more volatile than credit risk in stressed macroeconomic scenarios, has declined over the past
several years as we have experienced growth in our consumer automotive loan portfolio and a significant reduction in operating lease assets
since 2014. As of December 31, 2018, operating lease assets, net of accumulated depreciation, decreased 57%, to $8.4 billion, since
December 31, 2014. While all operating leases are exposed to potential reductions in used vehicle values, only loans where we take
possession of the vehicle are affected by potential reductions in used vehicle values.
Our consumer automotive financing operations generate revenue primarily through finance charges on retail installment sales contracts
and rental payments on operating lease contracts. For operating leases, when the contract is originated, we estimate the residual value of the
leased vehicle at lease termination. Periodically thereafter we revise the projected residual value of the leased vehicle at lease termination and
adjust depreciation expense over the remaining life of the lease if appropriate. Given the fluctuations in used vehicle values, our actual sales
proceeds from remarketing the vehicle may be higher or lower than the projected residual value, which results in gains or losses on lease
termination. During 2018, we recognized $90 million of gains on operating lease terminations, compared to $124 million of gains in 2017.
Remarketing gains decreased in 2018 due to lower operating lease termination volume as a result of our focus on consumer automotive loans.
We continue to maintain a diverse mix of product offerings across a broad risk spectrum, subject to underwriting policies that reflect our
risk appetite. Our current operating results continue to increasingly reflect our ongoing strategy to grow used vehicle financing and expand
risk-adjusted returns. While we predominately focus on prime-lending markets, we seek to be a meaningful source of financing to a wide
spectrum of customers and continue to carefully measure risk versus return. We place great emphasis on our risk management and risk-based
pricing policies and practices and employ robust credit decisioning processes coupled with granular pricing that is differentiated across credit
tiers.
Our commercial automotive financing operations primarily fund dealer inventory purchases of new and used vehicles, commonly
referred to as wholesale floorplan financing. This represents the largest portion of our commercial automotive financing business. Wholesale
floorplan loans are secured by vehicles financed (and all other vehicle inventory), which provide strong collateral protection in the event of
dealership default. Additional collateral or other credit enhancements (e.g., personal guarantees from dealership owners) are typically
obtained to further mitigate credit risk. The amount we advance to dealers is equal to 100% of the wholesale invoice price of new vehicles.
Interest on wholesale automotive financing is generally payable monthly and is indexed to a floating-rate benchmark. The rate for a particular
dealer is based on, among other considerations, competitive factors and the dealer’s creditworthiness. During 2018, we financed an average of
$29.5 billion of dealer vehicle inventory through wholesale floorplan financings. Other commercial automotive lending products, which
averaged $6.0 billion during 2018, consist of automotive dealer term loans, including those to finance dealership land and buildings, and
dealer fleet financing. We also provide comprehensive automotive remarketing services, including the use of SmartAuction, our online
auction platform, which efficiently supports dealer-to-dealer and other commercial wholesale vehicle transactions. SmartAuction provides
diversified fee-based revenue and serves as a means of deepening relationships with our dealership customers. In 2018, Ally and other parties,
including dealers, fleet rental companies, and financial institutions, utilized SmartAuction to sell approximately 281,000 vehicles to dealers
and other commercial customers. SmartAuction served as the remarketing channel for 52% of our off-lease vehicles.
Insurance
Our Insurance operations offer both consumer finance protection and insurance products sold primarily through the automotive dealer
channel, and commercial insurance products sold directly to dealers. We serve approximately 2.4 million end consumers and have active
relationships with approximately 4,200 dealerships nationwide across Finance and Insurance (F&I) and Property and Casualty (P&C)
products. Our Insurance operations had $7.7 billion of assets at December 31, 2018, and generated $1.0 billion of total net revenue during
2018. As part of our focus on offering dealers a broad range of consumer financial and insurance products, we offer VSCs, VMCs, GAP
products, and other ancillary products desired by consumers. We also underwrite selected commercial insurance coverages, which primarily
insure dealers’ wholesale vehicle inventory. Ally Premier Protection is our flagship VSC offering, which provides coverage for new and used
vehicles of virtually all makes and models. We also offer ClearGuard on the SmartAuction platform, which is a protection product designed to
minimize the risk to dealers from arbitration claims for eligible vehicles sold at auction. Additionally, we are the preferred VSC and protection
plan provider for GM Canada.
From a dealer perspective, Ally provides significant value and expertise, which creates high retention rates and strong relationships. In
addition to our product offerings, we provide consultative services and training to assist dealers in optimizing F&I results while achieving
high levels of customer satisfaction and regulatory compliance. We also serve in an advisory role to dealers relative to their necessary liability
and physical damage coverages.
The primary channel in which our F&I products are distributed is indirectly through the automotive dealer network. We have established
1,900 F&I dealer relationships and are focused on growing dealer relationships in the future. Our VSCs for retail customers offer owners and
lessees mechanical repair protection and roadside assistance for new and used vehicles beyond the manufacturer’s new vehicle warranty.
These VSCs are marketed to the public through automotive dealerships and on a direct response basis. We also offer GAP products, which
allow the recovery of a specified amount beyond the covered vehicle’s value in the event the vehicle is damaged or stolen and declared a total
loss. We continue to evolve our product suite and digital capabilities to position our business for future opportunities through growing third-
party relationships and sales through our online automotive lending exchange, Clearlane.
34
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
We have approximately 3,200 dealer relationships within our P&C business where we offer a variety of commercial products and levels
of coverage. Vehicle inventory insurance for dealers provides physical damage protection for dealers’ floorplan vehicles. Among dealers to
whom we provide wholesale financing, our insurance product penetration rate is approximately 77%. Dealers who receive wholesale
financing from us are eligible for insurance incentives such as automatic eligibility in our preferred insurance programs. In April 2018, we
entered into a one-year reinsurance agreement to obtain excess of loss coverage for our vehicle inventory insurance product, including
catastrophe coverage for weather-related events, to help manage our level of risk.
A significant aspect of our Insurance operations is the investment of proceeds from premiums and other revenue sources. We use these
investments to satisfy our obligations related to future claims at the time these claims are settled. Our Insurance operations have an
Investment Committee, which develops guidelines and strategies for these investments. The guidelines established by this committee reflect
our risk appetite, liquidity requirements, regulatory requirements, and rating agency considerations, among other factors.
Mortgage Finance
Our Mortgage Finance operations consist of the management of held-for-investment and held-for-sale consumer mortgage loan
portfolios. Our held-for-investment portfolio includes bulk purchases of high-quality jumbo and low-to-moderate income (LMI) mortgage
loans originated by third parties, and a direct-to-consumer mortgage offering under the Ally Home brand. Our Mortgage Finance operations
had $15.2 billion of assets at December 31, 2018, and generated $186 million of total net revenue in 2018.
Through the bulk loan channel, we purchase loans from several qualified sellers including direct originators and large aggregators who
have the financial capacity to support strong representations and warranties and the industry knowledge and experience to originate high-
quality assets. Bulk purchases are made on a servicing-released basis, allowing us to directly oversee servicing activities and manage
prepayments through retention modification or refinancing through our direct-to-consumer channel. During the year ended December 31,
2018, we purchased $4.4 billion of mortgage loans that were originated by third parties. Our mortgage loan purchases are held-for-investment.
Through our direct-to-consumer channel, which was introduced late in 2016, we offer a variety of competitively-priced jumbo and
conforming fixed- and adjustable-rate mortgage products through a third-party fulfillment provider. Under our current arrangement, our
direct-to-consumer conforming mortgages are originated as held-for-sale and sold, while jumbo and LMI mortgages are originated as held-
for-investment. Loans originated in the direct-to-consumer channel are sourced by existing Ally customer marketing, prospect marketing on
third-party websites, and email or direct mail campaigns.
The combination of our bulk portfolio purchase program and our direct-to-consumer strategy provides the capacity to expand revenue
sources and further grow and diversify our finance receivable portfolio with an attractive asset class while also deepening relationships with
existing Ally customers.
Corporate Finance
Our Corporate Finance operations primarily provide senior secured leveraged cash flow and asset-based loans to mostly U.S.-based
middle-market companies. Our Corporate Finance operations had $4.7 billion of assets at December 31, 2018, and generated $242 million of
total net revenue during 2018, and continues to offer attractive returns and diversification benefits to our broader lending portfolio. We believe
our growing deposit-based funding model coupled with our expanded product offerings and deep industry relationships provide an advantage
over our competition, which includes other banks as well as publicly and privately held finance companies. While there has been an increase
in liquidity and competition in the middle-market lending space given a strong economic environment and favorable returns in this area, we
have continued to prudently grow our lending portfolio with a focus on a disciplined and selective approach to credit quality. We seek markets
and opportunities where our clients require customized, complex, and time-sensitive financing solutions. Our corporate finance lending
portfolio is generally composed of first-lien, first-out loans. Our primary focus is on businesses owned by private equity sponsors with loans
typically used for leveraged buyouts, mergers and acquisitions, debt refinancing, expansions, restructurings, and working capital. Our target
commitment hold level for individual exposures ranges from $25 million to $100 million for individual borrowers, depending on product
type. We also selectively arrange larger transactions that we may retain on-balance sheet or syndicate to other lenders. By syndicating loans to
other lenders, we are able to provide larger financing commitments beyond our target hold levels to our customers and generate loan
syndication fee income while limiting our risk exposure to individual borrowers. Loan facilities typically include both a revolver and term
loan component. All of our loans are floating-rate facilities with maturities typically ranging from two to seven years. In certain instances, we
may be offered the opportunity to make small equity investments in our borrowers, where we could benefit from potential appreciation in the
company’s value. The portfolio is well diversified across multiple industries including manufacturing, distribution, services, and other
specialty sectors. These specialty sectors include our Technology Finance and Healthcare verticals. Our Technology Finance vertical provides
financing solutions to venture capital-backed, technology-based companies. The Healthcare vertical provides financing across the healthcare
spectrum including services, pharmaceuticals, manufacturing, and medical devices and supplies. Additionally, in late 2017 we launched a
commercial real estate product focused on lending to skilled nursing facilities, senior housing, medical office buildings, and hospitals. Other
smaller complementary product offerings that help strengthen our reputation as a full-spectrum provider of financing solutions for borrowers
include selectively offering second-out loans on certain transactions and issuing letters of credit through Ally Bank.
Corporate and Other
Corporate and Other primarily consists of centralized corporate treasury activities such as management of the cash and corporate
investment securities and loan portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative instruments, original
issue discount, and the residual impacts of our corporate funds-transfer pricing (FTP) and treasury asset liability management (ALM)
activities. Corporate and Other also includes activity related to the Ally CashBack credit card, certain equity investments, which primarily
35
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
consist of Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock, the management of our legacy mortgage portfolio,
which primarily consists of loans originated prior to January 1, 2009, and reclassifications and eliminations between the reportable operating
segments.
In May 2017, we launched Ally Invest, our digital brokerage and wealth management offering, which enables us to complement our
competitive deposit products with low-cost investing through the platform we acquired from the June 2016 acquisition of TradeKing Group,
Inc. (TradeKing). The digital wealth management business aligns with our strategy to create a premier digital financial services company and
provides additional sources of fee income through trading commissions and asset management fees, with minimal balance sheet utilization.
This business also provides an additional source of low-cost funding in the form of sweep deposits.
Through Ally Invest, we are able to offer brokerage and investment-advisory services through a fully-integrated digital consumer
platform. Our value proposition is based on the combination of attractive pricing, a broad product offering for active and passive investors,
and outstanding client-focused and user-friendly customer service that is accessible twenty-four hours a day, seven days a week, via the
phone, web or email—consistent with the Ally brand.
Ally Invest provides clients with self-directed trading services for a variety of securities including stocks, options, exchange-traded funds
(ETFs), mutual funds, and fixed-income products through Ally Invest Securities. Ally Invest Securities also offers margin lending, which
allows customers to borrow money by using securities and cash currently held in their accounts as collateral. Through Ally Invest Forex, we
offer self-directed investors and traders the ability to trade over fifty currency pairs through a state-of-the-art forex trading platform.
Ally Invest also provides digital advisory services to clients through web-based solutions, informational resources, and virtual interaction
through Ally Invest Advisors, an SEC-registered investment advisor. These services have emerged as a fast-growing segment within the
financial services industry over the past several years. Ally Invest Advisors provides clients the opportunity to obtain professional portfolio
management services in return for a fee that is based upon the client’s assets under management. A number of core managed portfolios are
offered, which hold ETFs diversified across asset class, industry sector, and geography and which are customized for clients based on risk
tolerance, investment time horizon, and wealth ratio.
Financial results related to our online brokerage operations are currently included within Corporate and Other.
The net financing revenue and other interest income of our Automotive Finance, Mortgage Finance, and Corporate Finance operations
include the results of an FTP process that insulates these operations from interest rate volatility by matching assets and liabilities with similar
interest rate sensitivity and maturity characteristics. The FTP process assigns charge rates to the assets and credit rates to the liabilities within
our Automotive Finance, Mortgage Finance, and Corporate Finance operations, based on anticipated maturity and a benchmark rate curve
plus an assumed credit spread. The assumed credit spread represents the cost of funds for each asset class based on a blend of funding
channels available to the enterprise, including unsecured and secured capital markets, private funding facilities, and deposits. In addition, a
risk-based methodology is used to allocate equity to these operations.
Deposits
We are focused on growing a stable deposit base and deepening relationships with our 1.6 million primary deposit customers driven by
our compelling brand and strong value proposition. Ally Bank, which is a direct bank with no branch network, obtains retail deposits directly
from customers through internet, telephone, mobile, and mail channels. We have grown our deposits with a strong brand that is based on a
promise of being straightforward, and offering high-quality customer service. Ally Bank has consistently increased its share of the direct
banking deposit market and remains one of the largest direct banks in terms of retail deposit balances. Our strong retention rates and a
growing customer base reflect the strength of our brand and, together with competitive deposit rates, continue to drive growth in retail
deposits. At December 31, 2018, Ally Bank had $106.2 billion of total deposits—including $89.1 billion of retail deposits, which grew $11.2
billion, or 14% during 2018. Over the past several years, the continued growth of our retail-deposit base has contributed to a more favorable
mix of lower cost funding. Our segment results include cost of funds associated with these deposit-product offerings. Noninterest costs
associated with deposit gathering activities were $303 million for the year ended December 31, 2018, and are allocated to each segment based
on their relative balance sheets.
Our deposit products and services are designed to develop long-term customer relationships and capitalize on the shift in consumer
preference for direct banking. These products and services appeal to a broad group of customers, many of whom appreciate a streamlined
digital experience coupled with our strong value proposition. Ally Bank offers a full spectrum of deposit product offerings, such as savings
and money market accounts, interest-bearing checking accounts, CDs, including several raise-your-rate CD terms, IRAs, and trust accounts.
Our deposit services include Zelle® person-to-person payment services, eCheck remote deposit capture, and mobile banking. In addition,
brokered deposits are obtained through third-party intermediaries.
We believe we are well-positioned to continue to benefit from the consumer-driven shift from branch banking to direct banking as
demonstrated by the growth we have experienced. Our 1.6 million deposit customers and 3.2 million retail bank accounts as of December 31,
2018, reflect increases from 1.4 million and 2.7 million, respectively, as compared to December 31, 2017. Our customer base spans across
diverse demographic segmentations and socioeconomic bands. Our direct bank business model resonates particularly well with the millennial
generation, which consistently makes up the largest percentage of our new customers. According to a 2018 American Bankers Association
survey, 75% of customers prefer to do their banking most often via digital and other direct channels (internet, mobile, telephone, and mail).
Furthermore, over the past five years, estimated direct banking deposits as a percentage of the broader retail deposits market increased by
36
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
approximately 2 percentage points, from 7% to 9%. We have received a positive response to innovative savings and other deposit products
and have been recognized as a “best online bank” by industry and consumer publications. Ally Bank’s competitive direct banking includes
online and mobile banking features such as electronic bill pay, remote deposit, and electronic funds transfer nationwide, with innovative
interfaces such as banking through Alexa-enabled devices, and no minimum balance requirements.
We intend to continue to grow and invest in our direct online bank and further capitalize on the shift in consumer preference for direct
banking with expanded digital capabilities and customer-centric products that utilize advanced analytics for personalized interactions and
other technologies that improve efficiency, security, and the customer’s connection to the brand. We are focused on growing, deepening, and
further leveraging the customer relationships and brand loyalty that exist with Ally Bank as a catalyst for future loan and deposit growth, as
well as revenue opportunities that arise from introducing Ally Bank deposit customers to our digital wealth management offering, Ally Invest.
Funding and Liquidity
Our funding strategy largely focuses on maintaining a diversified mix of retail and brokered deposits, public and private secured debt,
and public unsecured debt. These funding sources are managed across products, markets, and investors to enhance funding flexibility and
limit dependence on any one source, resulting in a more cost-effective long-term funding strategy.
Prudent expansion of asset originations at Ally Bank and continued growth of a stable deposit base continue to be the cornerstone of our
long-term liquidity strategy. Retail deposits provide a low-cost source of funds that are less sensitive to interest rate changes, market volatility,
or changes in our credit ratings than other funding sources. At December 31, 2018, deposit liabilities totaled $106.2 billion, which reflects an
increase of $12.9 billion as compared to December 31, 2017. Deposits as a percentage of total liability-based funding increased three
percentage points to 66% at December 31, 2018, as compared to December 31, 2017.
In addition to building a larger deposit base, we continue to remain active in the securitization markets to finance our automotive loan
portfolios. During 2018, we issued $7.4 billion in securitizations backed by consumer automotive loans and dealer floorplan automotive
assets. Securitizations continue to be an attractive source of funding due to structural efficiencies and the established market. Additionally, for
retail loans and operating leases, the term structure of the transaction locks in funding for a specified pool of loans and operating leases. Once
a pool of consumer automotive loans is selected and placed into a securitization, the underlying assets and corresponding debt amortize
simultaneously resulting in committed and matched funding for the life of the asset. We manage the execution risk arising from securitizations
by maintaining a diverse investor base and maintaining committed secured credit facilities.
As we continue to migrate assets to Ally Bank and grow our bank funding capabilities, our reliance on parent company liquidity has been
reduced. At December 31, 2018, 89% of Ally’s total assets were within Ally Bank. This compares to approximately 82% as of December 31,
2017. Funding sources at the parent company generally consist of longer-term unsecured debt, asset-backed securitizations, and private
committed credit facilities. At December 31, 2018, we had $1.7 billion and $2.3 billion of unsecured long-term debt principal maturing in
2019 and 2020, respectively. We plan to reduce our reliance on market-based funding and continue to replace a significant portion of our
unsecured term debt with lower cost deposit funding.
The strategies outlined above have allowed us to build and maintain a conservative liquidity position. Total available liquidity at
December 31, 2018, was $19.0 billion. Absolute levels of liquidity increased during 2018 primarily as a result of continued growth in our
portfolio of highly liquid investment securities. Refer to the section below titled Liquidity Management, Funding, and Regulatory Capital for
a further discussion about liquidity risk management.
Credit Strategy
Our strategy and approach to extending credit, as well as our management of credit risk, is a critical element of our business. Credit
performance is driven by a number of factors including our risk appetite, our credit and underwriting processes, our monitoring and collection
efforts, the financial condition of our borrowers, the performance of loan collateral, and various macroeconomic considerations. The majority
of our businesses offer credit products and services, which drive overall business performance. The failure to effectively manage credit risk
can have a direct and significant impact on Ally’s earnings, capital position, and reputation. Refer to the Risk Management section of this
MD&A for a further discussion of credit risk and performance of our consumer and commercial credit portfolios.
Within our Automotive Finance operations, we target a mix of consumers across the credit spectrum to achieve portfolio diversification
and to optimize the risk and return of our consumer automotive portfolio. This is carried out through the utilization of robust credit
decisioning processes coupled with granular pricing that is differentiated across our credit tiers. While we are a full-spectrum automotive
finance lender, the large majority of our consumer automotive loans are underwritten within the prime-lending markets. During 2018, our
strategy for originations was to optimize the deployment of stockholder capital by focusing on our risk-adjusted returns against available
origination opportunities, which has included a gradual and measured shift toward our Growth channel including used vehicle financings.
Consistent with our risk appetite, the Mortgage Finance team operates under credit standards that consider the borrower’s ability and
willingness to repay the mortgage loan, and considers and assesses the value of the underlying real estate in accordance with prudent credit
practices and regulatory requirements. For both the direct-to-consumer business and the loans obtained through the bulk-purchase program,
we generally focus on applicants with stronger credit profiles with and income streams to support repayment of the loan. Refer to the
Mortgage Finance section of the MD&A that follows for credit quality information about purchases and originations of consumer mortgages
held-for-investment. We generally rely on appraisals conducted by licensed appraisers in conformance with the expectations and requirements
of Fannie Mae and federal regulators. When appropriate, we require credit enhancements such as private mortgage insurance. We price each
37
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
mortgage loan that we originate based on a number of factors, including the customer’s FICO® Score, the loan-to-value (LTV) ratio, and the
size of the loan. For bulk purchases, we only purchase loans from sellers with the financial wherewithal to support their representations and
warranties and the experience to originate high-quality loans.
Within our commercial lending portfolios, Corporate Finance operations primarily provide senior secured leveraged cash flow and asset-
based loans to mostly U.S.-based middle-market companies. During 2018, we continued to prudently grow this portfolio with a disciplined
and selective approach to credit quality, which has included the avoidance of covenant-light lending arrangements. Within our commercial
automotive business we continue to offer a variety of dealer-centric lending products that primarily center around floorplan financing and
dealer term loans. These commercial products are an important aspect of our dealer relationships and offer a secured lending arrangement
with a number of strong collateral protections in the event of dealer default. The performance of our commercial credit portfolios continues to
remain strong. During the years ended December 31, 2018, and 2017, we recognized total net charge-offs of $8 million and $18 million,
respectively, within our commercial lending portfolios.
During 2018, the U.S. economy continued to modestly expand, and consumer confidence remained strong. The labor market remained
healthy during the year, with the unemployment rate falling to 3.9% as of December 31, 2018. Our credit portfolios will continue to be
impacted by household, business, economic, and market conditions—including used vehicle and housing price levels, and unemployment
levels—and their impact to our borrowers. We expect to experience modest downward pressure on used vehicle values during 2019.
Discontinued Operations
During 2013 and 2012, certain disposal groups met the criteria to be presented as discontinued operations. The remaining activity relates
to previous discontinued operations for which we continue to have wind-down, legal, and minimal operational costs. For all periods
presented, the operating results for these operations have been removed from continuing operations. Refer to Note 2 to the Consolidated
Financial Statements for more details. The MD&A has been adjusted to exclude discontinued operations unless otherwise noted.
Primary Business Lines
Dealer Financial Services, which includes our Automotive Finance and Insurance operations, Mortgage Finance, and Corporate Finance
are our primary business lines. The following table summarizes the operating results excluding discontinued operations of each business line.
Operating results for each of the business lines are more fully described in the MD&A sections that follow.
Year ended December 31, ($ in millions)
2018
2017
2016
Favorable/
(unfavorable)
2018–2017
% change
Favorable/
(unfavorable)
2017–2016
% change
Total net revenue
Dealer Financial Services
Automotive Finance
Insurance
Mortgage Finance
Corporate Finance
Corporate and Other
Total
Income (loss) from continuing operations before income tax
expense
Dealer Financial Services
Automotive Finance
Insurance
Mortgage Finance
Corporate Finance
Corporate and Other
Total
$
4,038
$
4,068
$
1,035
1,118
186
242
303
136
212
231
3,971
1,097
97
147
125
$
5,804
$
5,765
$
5,437
$
1,368
$
1,220
$
80
45
144
(15)
168
20
114
(15)
1,380
157
34
71
(61)
$
1,622
$
1,507
$
1,581
(1)
(7)
37
14
31
1
12
(52)
125
26
—
8
2
2
40
44
85
6
(12)
7
(41)
61
75
(5)
38
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Consolidated Results of Operations
The following table summarizes our consolidated operating results excluding discontinued operations for the periods shown. Refer to the
operating segment sections of the MD&A that follows for a more complete discussion of operating results by business line.
Year ended December 31, ($ in millions)
2018
2017
2016
Favorable/
(unfavorable)
2018–2017
% change
Favorable/
(unfavorable)
2017–2016
% change
Net financing revenue and other interest income
Total financing revenue and other interest income
$
9,052
$
8,322
$
Total interest expense
Net depreciation expense on operating lease assets
Net financing revenue and other interest income
Other revenue
Insurance premiums and service revenue earned
Gain on mortgage and automotive loans, net
Other (loss) gain on investments, net
Other income, net of losses
Total other revenue
Total net revenue
Provision for loan losses
Noninterest expense
Compensation and benefits expense
Insurance losses and loss adjustment expenses
Other operating expenses
Total noninterest expense
Income from continuing operations before income tax
expense
Income tax expense from continuing operations
3,637
1,025
4,390
1,022
25
(50)
417
1,414
5,804
918
1,155
295
1,814
3,264
1,622
359
Net income from continuing operations
$
1,263
$
n/m = not meaningful
2018 Compared to 2017
2,857
1,244
4,221
973
68
102
401
1,544
5,765
1,148
1,095
332
1,683
3,110
1,507
581
926
$
8,305
2,629
1,769
3,907
945
11
185
389
1,530
5,437
917
992
342
1,605
2,939
1,581
470
1,111
9
(27)
18
4
5
(63)
(149)
4
(8)
1
20
(5)
11
(8)
(5)
8
38
36
—
(9)
30
8
3
n/m
(45)
3
1
6
(25)
(10)
3
(5)
(6)
(5)
(24)
(17)
We earned net income from continuing operations of $1.3 billion for the year ended December 31, 2018, compared to $926 million for
the year ended December 31, 2017. During the year ended December 31, 2018, results were favorably impacted by a decrease in the provision
for loan losses primarily due to favorable credit performance within our consumer automotive loan portfolio, higher net financing revenue
across our lending operations resulting from a continued focus on optimizing portfolio growth within our Automotive Finance operations, and
growth within our Mortgage Finance and Corporate Finance operations. Additionally, results were favorably impacted by the reduction in the
U.S. federal corporate tax rate effective during 2018 and $119 million of income tax expense attributable to changes to our net deferred tax
assets in the fourth quarter of 2017 as a result of the Tax Cuts and Jobs Act of 2017 (the Tax Act). A more favorable interest rate environment
and higher investment securities balances also contributed to higher yields on earning assets. These items were partially offset by higher
interest expense, lower net operating lease revenue due to runoff of our legacy GM operating lease portfolio, and higher noninterest expense.
Additionally, results were unfavorably impacted by $121 million of unrealized losses on equity securities. Beginning January 1, 2018, as a
result of a change in accounting principles, unrealized gains and losses on equity securities are included in net income. Refer to Note 1 to the
Consolidated Financial Statements for further discussion.
Net financing revenue and other interest income increased $169 million for the year ended December 31, 2018, compared to the year
ended December 31, 2017. Within our automotive finance business, consumer automotive net financing revenue continued to benefit from our
efforts to reposition our origination profile to further drive capital optimization and expand risk-adjusted returns, a higher interest rate
environment, and higher average retail asset levels. Commercial automotive net financing revenue also increased due to higher benchmark
interest rates, partially offset by a decrease in average outstanding floorplan assets resulting from a reduction in the number of GM dealer
floorplan lines. Income from our portfolio of investment securities and other earning assets, including cash and cash equivalents, increased
$224 million for the year ended December 31, 2018, compared to 2017, due to both higher yields and higher balances of investment securities
as we continue to utilize this portfolio to manage liquidity and generate a stable source of income. Net financing revenue and other interest
income within our Mortgage Finance operations was favorably impacted by increased loan balances primarily as a result of bulk purchases of
high-quality jumbo and LMI mortgage loans. Net financing revenue and other interest income within our Corporate Finance operations was
favorably impacted by our strategy to prudently grow assets and our product suite within existing verticals while selectively pursuing
39
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
opportunities to broaden industry and product diversification. The increase to net financing revenue and other interest income was partially
offset by the runoff of our legacy GM operating lease portfolio, which was substantially wound-down as of June 30, 2018. Additionally, total
interest expense increased 27% for the year ended December 31, 2018, compared to 2017. While we continue to shift borrowings toward
more cost-effective deposit funding and reduce our dependence on market-based funding through reductions in higher-cost secured and
unsecured debt, interest expense increased as a result of higher market rates across all funding sources. Additionally, our overall borrowing
levels were higher to support the growth in our lending operations. Our total deposit liabilities increased $12.9 billion to $106.2 billion as of
December 31, 2018, as compared to $93.3 billion as of December 31, 2017.
Insurance premiums and service revenue earned increased $49 million for the year ended December 31, 2018, compared to 2017,
primarily due to higher vehicle inventory insurance rates and growth in GAP volume. The increase was partially offset by the implementation
of ASU 2014-09, Revenue from Contracts with Customers, on January 1, 2018, which changed the revenue recognition portion of revenue
earned on noninsurance contracts to be recognized over the contract term as further described in Note 3 to the Consolidated Financial
Statements.
Gain on mortgage and automotive loans was $25 million for the year ended December 31, 2018, as compared to $68 million in 2017.
The decrease for the year ended December 31, 2018, was due to lower levels of consumer automotive whole-loan sales. We continue to utilize
whole-loan sales to proactively manage our credit exposure, asset levels, funding, and capital utilization, including the sale of previously
written-down consumer automotive loans related to consumers in Chapter 13 bankruptcy.
Other loss on investments was $50 million for the year ended December 31, 2018, compared to a gain of $102 million for the year ended
December 31, 2017. The loss on investments for the year ended December 31, 2018, includes $121 million of unrealized losses due to
changes in the fair value of our portfolio of equity securities. Beginning January 1, 2018, as a result of a change in accounting principles,
unrealized gains and losses on equity securities are included in net income. Refer to Note 1 to the Consolidated Financial Statements for
further discussion. Additionally, the decrease for the year ended December 31, 2018, was attributable to higher sales of investment securities
in 2017 that did not recur in the current period.
The provision for loan losses was $918 million for the year ended December 31, 2018, compared to $1.1 billion in 2017. The decrease in
provision for loan losses was primarily driven by our consumer automotive loan portfolio where we experienced strong overall credit
performance driven by favorable macroeconomic trends including low unemployment, as well as continued disciplined underwriting and
higher recoveries on charge-offs driven by improved used vehicle values. Additionally, our automotive and mortgage loan portfolios were
impacted by $53 million of additional reserves associated with the estimated impacts of hurricanes Harvey and Irma during the third quarter
of 2017. These items were partially offset by asset growth in the consumer automotive loan portfolio. Refer to the Risk Management section
of this MD&A for further discussion.
Noninterest expense was $3.3 billion for the year ended December 31, 2018, compared to $3.1 billion for the year ended December 31,
2017. The increase was driven by expenses related to supporting the growth of our retail deposits and consumer loan portfolios. We also
continue to make investments in product expansion initiatives in our direct-to-consumer mortgage offering, in our technology platform to
enhance the customer experience and expand our digital capabilities, and in marketing activities to promote brand awareness and drive retail
deposit growth. Additionally, compensation and benefits expense was impacted by a one-time tax reform-related bonus paid to eligible Ally
employees during the first quarter of 2018, as well as certain employee separation expenses incurred during the second and fourth quarters of
2018. The increase for the year ended December 31, 2018, was partially offset by lower insurance losses and loss adjustment expenses,
primarily driven by lower weather-related losses.
We recognized total income tax expense from continuing operations of $359 million for the year ended December 31, 2018, compared to
$581 million for the year ended December 31, 2017. The decrease in income tax expense for the year ended December 31, 2018, compared to
2017, was primarily driven by the reduction in the U.S. federal corporate tax rate effective during 2018 and $119 million of income tax
expense attributable to changes to our net deferred tax assets in the fourth quarter of 2017 as a result of the Tax Act. This decrease was
partially offset by the tax effects of an increase in pretax earnings, nondeductible Federal Deposit Insurance Corporation (FDIC) premiums as
a result of the Tax Act, and a nonrecurring tax benefit in 2017 from the release of valuation allowance against our capital-in-nature deferred
tax assets.
2017 Compared to 2016
We earned net income from continuing operations of $926 million for the year ended December 31, 2017, compared to $1.1 billion for
the year ended December 31, 2016. During the year ended December 31, 2017, results were favorably impacted by higher net financing
revenue across all lending operations resulting from a continued focus on optimizing portfolio growth through pricing actions and originating
loans across a broader credit spectrum within our Automotive Finance operations, and growth within our Mortgage Finance and Corporate
Finance operations. Higher investment securities balances and a more favorable interest rate environment also contributed to higher yields on
our earnings assets. Results were also favorably impacted by higher gains on the sale of automotive loans and higher insurance premiums and
service revenue earned. These items were more than offset by runoff in our legacy GM operating lease portfolio, higher provision expense
related to our focus on originating across a broader credit spectrum with appropriate risk-adjusted returns, and estimated impacts from
hurricane related activity during the third quarter of 2017. Results were also unfavorably impacted by higher noninterest expense to support
the launch and growth of our consumer and commercial product offerings, technology and digital investments, and lower realized gains on
investments. Additionally, net income was unfavorably impacted by $119 million of income tax expense driven primarily by a one-time
impact of the passage of tax reform legislation during the fourth quarter of 2017, and a nonrecurring tax benefit in the second quarter of 2016
40
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
due to a U.S. tax reserve release related to a prior-year federal return that reduced our liability for unrecognized tax benefits by $175 million,
both of which were partially offset by changes to our valuation allowance relating to capital-in-nature deferred tax assets and foreign tax
credit carryforwards.
Net financing revenue and other interest income increased $314 million for the year ended December 31, 2017, compared to the year
ended December 31, 2016. Income from our portfolio of investment securities and other earning assets, including cash and cash equivalents,
increased $204 million for the year ended December 31, 2017, due primarily to growth of investment securities balances as we continue to
utilize this portfolio to manage liquidity and generate a stable source of income. Net financing revenue and other interest income from our
Automotive Finance operations increased, despite continued runoff of our legacy GM operating lease portfolio, which was substantially
wound-down as of June 30, 2018. Consumer automotive financing revenue continued to benefit from our pricing actions and efforts to
reposition our origination profile to focus on capital optimization and risk-adjusted returns, as well as higher average retail asset levels.
Commercial automotive financing revenue also increased during the period due to higher benchmark interest rates and an increase in average
outstanding floorplan assets. Net financing revenue and other interest income within our Mortgage Finance operations was favorably
impacted in 2017 by increased portfolio loan balances as a result of bulk purchases of high-quality jumbo and LMI mortgage loans and direct-
to-consumer originations. Net financing revenue and other interest income within our Corporate Finance operations increased in 2017 as a
result of our strategy to responsibly grow assets and our product suite within existing verticals while selectively pursuing opportunities to
broaden industry and product diversification. Total interest expense increased 9% for the year ended December 31, 2017, compared to the
year ended December 31, 2016. While we continue to shift borrowings toward more cost-effective deposit funding and to reduce our
dependence on market-based funding through reductions in higher-cost secured and unsecured debt, interest expense increased as a result of
higher market rates across funding sources and higher deposit levels to support growth in our lending operations. Our total deposit liabilities
increased to $93.3 billion as of December 31, 2017, as compared to $79.0 billion as of December 31, 2016.
Insurance premiums and service revenue earned increased to $973 million for the year ended December 31, 2017, as compared to $945
million for the year ended December 31, 2016, primarily due to higher vehicle inventory insurance rates and growth in our consumer finance
protection and insurance products, partially offset by ceding of premiums under a one-year reinsurance agreement we entered into in April
2017.
Gain on mortgage and automotive loans increased to $68 million for the year ended December 31, 2017, as compared to $11 million for
the year ended December 31, 2016. The increase was primarily driven by sales of certain previously written-down consumer automotive loans
related to consumers in Chapter 13 bankruptcy where borrowers continue to make payments to proactively manage our overall credit
exposure, asset levels, and capital utilization.
Other gain on investments was $102 million for the year ended December 31, 2017, compared to $185 million for the year ended
December 31, 2016. The decrease was due primarily to higher levels of sales of investment securities in 2016 that did not recur in 2017.
Other income increased to $401 million for the year ended December 31, 2017, as compared to $389 million for the year ended
December 31, 2016. The increase for the year ended December 31, 2017, was primarily due to contributions from our Corporate Finance
operations, which included an $11 million equity investment gain in the first quarter of 2017 and an increase in loan syndication income, as
well as contributions from operations of Ally Invest included in our results subsequent to acquisition in the second quarter of 2016. This was
partially offset by a decrease in servicing fee income at our Automotive Finance operations resulting from lower levels of off-balance sheet
retail serviced loans.
The provision for loan losses was $1.1 billion for the year ended December 31, 2017, compared to $917 million for the year ended
December 31, 2016. The increase in provision for loan losses was primarily driven by our consumer automotive loan portfolio, where we
experienced higher net charge-offs as a result of our focus on originating across a broader credit spectrum by focusing on risk-adjusted
returns. Additionally, provision expense increased in 2017 due to retail asset growth and the estimated impacts of hurricane activity that
occurred during the third quarter of 2017, which most notably impacted our consumer automotive loan portfolio. Refer to the Risk
Management section of this MD&A for further discussion.
Noninterest expense was $3.1 billion for the year ended December 31, 2017, compared to $2.9 billion for the year ended December 31,
2016. The increase was primarily driven by expenses related to the growth of our consumer and commercial products, including the addition
and integration of Ally Invest and Clearlane, as well as the expansion of our direct-to-consumer mortgage offering as we continue to enhance
our digital wealth management offering, expand our product suite, and grow digital platforms for consumers and dealers. This increase was
partially offset by lower insurance losses and loss adjustment expenses during the year ended December 31, 2017, compared to the year ended
December 31, 2016, primarily due to the ceding of weather-related losses subject to a reinsurance agreement.
We recognized total income tax expense from continuing operations of $581 million for the year ended December 31, 2017, compared to
$470 million for the year ended December 31, 2016. The increase in income tax expense for the year ended December 31, 2017, compared to
the year ended December 31, 2016, was primarily driven by $119 million of tax expense attributable to tax reform enacted on December 22,
2017, and a nonrecurring tax benefit in the second quarter of 2016 due to a U.S. tax reserve release related to a prior-year federal return that
reduced our liability for unrecognized tax benefits by $175 million. The increase in tax expense was partially offset by changes to our
valuation allowance relating to capital-in-nature deferred tax assets and foreign tax credit carryforwards.
41
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Dealer Financial Services
Results for Dealer Financial Services are presented by reportable segment, which includes our Automotive Finance and Insurance
operations.
Automotive Finance
Results of Operations
The following table summarizes the operating results of our Automotive Finance operations. The amounts presented are before the
elimination of balances and transactions with our other reportable segments.
Year ended December 31, ($ in millions)
2018
2017
2016
Net financing revenue and other interest income
Consumer
Commercial
Loans held-for-sale
Operating leases
Other interest income
Total financing revenue and other interest income
Interest expense
Net depreciation expense on operating lease assets
Net financing revenue and other interest income
Other revenue
Gain on automotive loans, net
Other income
Total other revenue
Total net revenue
Provision for loan losses
Noninterest expense
Compensation and benefits expense
Other operating expenses
Total noninterest expense
$
4,287
$
3,882
$
1,516
3
1,489
7
7,302
2,508
1,025
3,769
22
247
269
4,038
920
505
1,245
1,750
1,306
—
1,867
6
7,061
2,104
1,244
3,713
76
279
355
4,068
1,134
510
1,204
1,714
3,587
1,068
—
2,711
11
7,377
1,943
1,769
3,665
17
289
306
3,971
924
481
1,186
1,667
Income from continuing operations before income tax
expense
Total assets
n/m = not meaningful
$
$
1,368
117,304
$
$
1,220
114,089
$
$
1,380
116,347
Components of net operating lease revenue, included in amounts above, were as follows.
Favorable/
(unfavorable)
2018–2017
% change
Favorable/
(unfavorable)
2017–2016
% change
10
16
n/m
(20)
17
3
(19)
18
2
(71)
(11)
(24)
(1)
19
1
(3)
(2)
12
3
8
22
—
(31)
(45)
(4)
(8)
30
1
n/m
(3)
16
2
(23)
(6)
(2)
(3)
(12)
(2)
($ in millions)
Net operating lease revenue
Operating lease revenue
Depreciation expense
Depreciation expense on operating lease assets
(excluding remarketing gains)
Remarketing gains, net
Net depreciation expense on operating lease assets
Total net operating lease revenue
Investment in operating leases, net
2018
2017
2016
Favorable/
(unfavorable)
2018–2017
% change
Favorable/
(unfavorable)
2017–2016
% change
$
1,489
$
1,867
$
2,711
(20)
1,368
(124)
1,244
623
8,741
$
$
1,982
(213)
1,769
942
11,470
18
(27)
18
(26)
(4)
1,115
(90)
1,025
464
8,417
$
$
42
$
$
(31)
31
(42)
30
(34)
(24)
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table presents the average balance and yield of the loan and operating lease portfolios of our Automotive Financing
operations.
Year ended December 31, ($ in millions)
Finance receivables and loans, net (a) (b)
Consumer automotive (c)
Commercial
Wholesale floorplan
Other commercial automotive (d)
Investment in operating leases, net (e)
2018
2017
2016
Average
balance
Yield
Average
balance
Yield
Average
balance
Yield
$
69,804
6.14% $
66,502
5.80% $
64,230
5.52%
29,455
6,038
8,590
4.21
4.55
5.40
31,586
5,802
9,791
3.37
4.15
6.36
29,989
5,202
13,791
2.86
4.00
6.83
(a) Average balances are calculated using a daily average methodology.
(b) Nonperforming finance receivables and loans are included in the average balances. For information on our accounting policies regarding nonperforming
status, refer to Note 1 to the Consolidated Financial Statements.
Includes the effects of derivative financial instruments designated as hedges.
(c)
(d) Consists primarily of automotive dealer term loans, including those to finance dealership land and buildings, and dealer fleet financing.
(e) Yield includes gains on the sale of off-lease vehicles of $90 million, $124 million, and $213 million for years ended December 31, 2018, 2017, and 2016,
respectively. Excluding these gains on sale, the yield would be 4.35%, 5.10%, and 5.29% for the years ended December 31, 2018, 2017, and 2016,
respectively.
2018 Compared to 2017
Our Automotive Finance operations earned income from continuing operations before income tax expense of $1.4 billion for the year
ended December 31, 2018, compared to $1.2 billion for the year ended December 31, 2017. During the year ended December 31, 2018, we
continued to focus on repositioning our origination profile to further drive capital optimization, and expanding risk-adjusted returns. As a
result, we experienced higher consumer loan financing revenue primarily due to an increase in consumer loan portfolio yields and asset levels.
We also experienced higher commercial financing revenue due to higher yields resulting from higher benchmark interest rates, partially offset
by a decrease in wholesale floorplan balances. Results were also favorably impacted by a decrease in provision for loan losses primarily due
to favorable credit performance within our consumer loan portfolio. Results were unfavorably impacted by higher interest expense due to
higher benchmark rates, a decrease in net operating lease revenue from the runoff of our legacy GM operating lease portfolio, and lower gains
on automotive loan sales.
Consumer loan financing revenue increased $405 million for the year ended December 31, 2018, compared to 2017. The increase was
primarily due to improved portfolio yields as a result of our continued focus on expanding risk-adjusted returns, a higher interest rate
environment, and higher average retail asset levels resulting from sustained asset growth. We have continued to focus on the used vehicle
segment primarily through franchised dealers, which has continued to support growth in our used vehicle automotive loans. Additionally, we
have continued to identify and grow relationships with automotive retailers including those with leading eCommerce platforms. Through
these actions we continue to focus on risk-adjusted returns, optimizing our origination mix, and achieving greater portfolio diversification.
Commercial financing revenue increased $210 million for the year ended December 31, 2018, compared to 2017. The increase was
primarily due to higher yields resulting from higher benchmark interest rates, partially offset by a decrease in average outstanding floorplan
assets resulting from a reduction in the number of GM dealer floorplan lines. The decline in average outstanding floorplan units was partially
offset by higher average vehicle prices.
Interest expense was $2.5 billion for the year ended December 31, 2018, compared to $2.1 billion for the year in 2017. The increase was
primarily due to higher funding costs as a result of a rising interest rate environment.
We recorded gains from the sale of automotive loans of $22 million for the year ended December 31, 2018, compared to $76 million for
2017. We continue to utilize whole-loan sales to proactively manage our credit exposure, asset levels, funding, and capital utilization,
including the sale of previously written-down consumer automotive loans related to consumers in Chapter 13 bankruptcy.
Other income decreased 11% for the year ended December 31, 2018, compared to the year ended December 31, 2017. The decrease was
primarily due to a decrease in servicing fee income resulting from lower levels of off-balance sheet retail serviced loans, as well as a decrease
in remarketing fee income primarily resulting from lower operating lease termination volume.
Total net operating lease revenue decreased $159 million for the year ended December 31, 2018, compared to 2017. The decrease was
primarily due to the runoff of our legacy GM operating lease portfolio, which was substantially wound-down as of June 30, 2018.
Additionally, we recognized remarketing gains of $90 million for the year ended December 31, 2018, compared to gains of $124 million for
2017 due primarily to a lower number of terminated units. Refer to the Operating Lease Residual Risk Management section of this MD&A for
further discussion.
The provision for loan losses was $920 million for the year ended December 31, 2018, compared to $1.1 billion for 2017. The decrease
in provision for loan losses for the year ended December 31, 2018, was primarily driven by our consumer automotive loan portfolio where we
43
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
experienced strong overall credit performance driven by favorable macroeconomic trends including low unemployment, as well as continued
disciplined underwriting and higher recoveries on charge-offs driven by improved used vehicle values. Additionally, results were impacted by
$48 million of additional reserves associated with the estimated impacts of hurricanes Harvey and Irma during the third quarter of 2017.
These items were partially offset by asset growth in the consumer automotive loan portfolio. Refer to the Risk Management section of this
MD&A for further discussion.
2017 Compared to 2016
Our Automotive Finance operations earned income from continuing operations before income tax expense of $1.2 billion for the year
ended December 31, 2017, compared to $1.4 billion for the year ended December 31, 2016. During the year ended December 31, 2017, we
continued to focus on pricing actions and repositioning our origination profile to focus on capital optimization and expanding risk-adjusted
returns. As a result, we experienced higher consumer loan financing revenue primarily due to an increase in consumer loan portfolio yields
and assets. We also experienced higher commercial financing revenue primarily due to higher yields resulting from higher benchmark interest
rates. Additionally, we realized an increase in gains on the sale of automotive loans of $59 million during the year ended December 31, 2017.
These favorable items were more than offset by a decrease in net operating lease revenue primarily resulting from the continued runoff of our
legacy GM operating lease portfolio, as well as less favorable remarketing activity for the year ended December 31, 2017, compared to 2016,
due to lower used vehicle prices and a decline in operating lease termination volume. We also experienced higher provision for loan losses
resulting from higher net charge-offs, driven by the changing composition of our portfolio associated with our focus on originating across a
broader credit spectrum, higher retail asset levels, and the estimated impact of hurricane activities during the third quarter of 2017.
Consumer loan financing revenue increased $295 million for the year ended December 31, 2017, compared to 2016. The increase was
primarily due to improved portfolio yields as a result of the execution of our pricing actions and continued focus on expanding risk-adjusted
returns, as well as higher average retail loan balances.
Commercial financing revenue increased $238 million for the year ended December 31, 2017, compared to 2016. The increase was
primarily due to higher yields resulting from higher benchmark interest rates and an increase in average outstanding floorplan assets resulting
from higher average dealer inventory levels and vehicle prices. The increase was also due to an increase in non-floorplan dealer loan balances.
We recognized gains from the sale of automotive loans of $76 million for the year ended December 31, 2017, compared to $17 million
for 2016. During the year ended December 31, 2017, we sold certain previously written-down consumer automotive loans related to
consumers in Chapter 13 bankruptcy where borrowers continue to make payments to proactively manage our overall credit exposure, asset
levels, and capital utilization. A portion of the total gains on sale for the year ended December 31, 2017, was offset within Corporate and
Other as a result of our FTP methodology.
Total net operating lease revenue decreased 34% for the year ended December 31, 2017, compared to 2016. The decrease was primarily
due to the runoff of our legacy GM operating lease portfolio, which was substantially wound-down as of June 30, 2018. The decrease was
also due to less favorable remarketing activity. We recognized remarketing gains of $124 million for the year ended December 31, 2017,
compared to gains of $213 million for 2016. Remarketing gains decreased in 2017 due to lower used vehicle prices and a decline in operating
lease termination volume. Refer to the Operating Lease Residual Risk Management section of this MD&A for further discussion.
The provision for loan losses was $1.1 billion for the year ended December 31, 2017, compared to $924 million for 2016. The increase in
provision for loan losses for the year ended December 31, 2017, was primarily due to higher net charge-offs in our consumer automotive loan
portfolio as a result of our focus on originating across a broader credit spectrum, retail asset growth, and the impact of hurricane activities
during the third quarter of 2017. Refer to the Risk Management section of this MD&A for further discussion.
44
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Automotive Financing Volume
Our Automotive Finance operations provide automotive financing services to consumers and automotive dealers. For consumers, we
provide retail 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 floorplan financing and provide dealer term and revolving loans and automotive fleet
financing. In 2016, we expanded operations to include direct-to-consumer lending.
Acquisition and Underwriting
Our underwriting process is focused on multidimensional risk factors and data driven risk-adjusted probabilities that are continuously
monitored and routinely updated. Each application is placed into an analytical category based on specific aspects of the applicant’s credit
profile and loan structure. We then evaluate the application by applying a proprietary credit scoring algorithm tailored to its applicable
category. Inputs into this algorithm include, but are not limited to, proprietary scores and deal structure variables such as LTV, new or used
vehicle collateral, and term of financing. The output of the algorithm is used to sort applications into various credit tiers (S, A, B, C, D, and
E). Credit tiers help determine our primary indication of credit quality and pricing, and are also communicated to the dealer that submitted the
application. This process is built on long established credit risk fundamentals to determine both the applicant’s ability and willingness to
repay. While advances in excess of 100% of the vehicle collateral value at loan origination—notwithstanding cash down and vehicle trade in
value—are typical in the industry (primarily due to additional costs such as mechanical warranty contracts, taxes, license, and title fees), our
pricing, risk, and underwriting processes are rooted in statistical analysis to manage this risk.
Our underwriting process uses a combination of automated strategies and manual evaluation by an experienced team of dedicated
underwriters. We have developed an automated process to expedite the review of applications with various combinations of credit factors that
we have observed over time to substantially outperform or underperform in terms of net credit losses. As a result, automated decisions are
based on many clusters of credit factors rather than a small set of benchmark characteristics. Automated approvals are primarily limited to the
highest-quality credit tiers and automated rejections to lower-quality credit tiers. Underwriting is also governed by our credit policies, which
set forth guidelines such as acceptable transaction parameters and verification requirements. For higher-risk approved transactions, these
guidelines require verification of details such as applicant income and employment through documentation provided by the applicant or other
data sources.
Underwriters have a limited ability to approve exceptions to the guidelines in our credit policies. For example, an exception may be
approved to allow a term or a ratio of payment-to-income, debt-to-income, or LTV greater than that in the guidelines. Exceptions must be
approved by underwriters with appropriate approval authority and generally are based on compensating factors. We monitor exceptions with
the goal of limiting them to a small portion of approved applications and originated loans, and rarely permit more than a single exception to
avoid layered risk.
Consumer Automotive Financing
New- and used-vehicle consumer financing through dealerships takes one of two forms: retail installment sales contracts (retail
contracts) and operating lease contracts. We purchase retail contracts and operating lease contracts for new and used vehicles from dealers
after those contracts are executed by the dealers and the consumers. Our consumer automotive financing operations generate revenue
primarily through finance charges on retail contracts and rental payments on operating lease contracts. In connection with operating lease
contracts, we recognize depreciation expense on the vehicle over the operating lease contract period and we may also recognize a gain or loss
on the remarketing of the vehicle at the end of the lease.
The amount we pay a dealer for a retail contract is based on the rate of finance charge agreed by the dealer and customer, the negotiated
purchase price of the vehicle, any other products such as service contracts, less any vehicle trade-in value, any down payment from the
consumer, and any available automotive manufacturer incentives. Under the retail contract, the consumer is obligated to make payments in an
amount equal to the purchase price of the vehicle (less any trade-in or down payment) plus finance charges at a rate negotiated between the
consumer and the dealer. In addition, the consumer is responsible for charges related to past-due payments. Consistent with industry practice,
when we purchase the retail contract, we pay the dealer at a rate discounted below the rate agreed by the dealer and the consumer (generally
described in the industry as the “buy rate”). Our agreements with dealers limit the amount of the discount that we will accept. Although we do
not own the vehicles we finance through retail contracts, our agreements require that we hold a perfected security interest in those vehicles.
With respect to consumer leasing, we purchase operating lease contracts and the associated vehicles from dealerships after those
contracts are executed by the dealers and the consumers. The amount we pay a dealer for an operating lease contract is based on the
negotiated price for the vehicle less any vehicle trade-in, any down payment from the consumer, and any available automotive manufacturer
incentives. Under the operating lease, the consumer is obligated to make payments in amounts equal to the amount by which the negotiated
purchase price of the vehicle (less any trade-in value, down payment, or any available manufacturer incentives) exceeds the contract residual
value (including residual support) of the vehicle at lease termination, plus operating lease rental charges. The consumer is also generally
responsible for charges related to past-due payments, excess mileage, excessive wear and tear, and certain disposal fees where applicable. At
contract inception, we determine pricing based on the projected residual value of the leased vehicle. This evaluation is primarily based on a
proprietary model, which includes variables such as vehicle age, expected mileage, seasonality, segment factors, vehicle type, economic
indicators, production cycle, automotive manufacturer incentives, and shifts in used vehicle supply. This internally-generated data is
compared against third-party, independent data for reasonableness.
45
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Periodically, we revise the projected value of the leased vehicle at termination based on then-current market conditions and adjust
depreciation expense appropriately over the remaining life of the contract. At termination, our actual sales proceeds from remarketing the
vehicle may be higher or lower than the estimated residual value resulting in a gain or loss on remarketing recorded through depreciation
expense.
Our standard consumer operating lease contract, SmartLease, requires a monthly payment by the consumer. We also offer an alternative
leasing plan, SmartLease Plus, which requires one up-front payment of all operating lease amounts at the time the consumer takes possession
of the vehicle.
Our standard consumer lease contracts are operating leases; therefore, credit losses on the operating lease portfolio are not as significant
as losses on retail contracts because lease credit losses are primarily limited to past-due payments and assessed fees. Since some of these fees
are not assessed until the vehicle is returned, these losses on the operating lease portfolio are correlated with lease termination volume.
Operating lease accounts over 30 days past due represented 1.48% and 1.41% of the portfolio at December 31, 2018, and 2017, respectively.
With respect to all financed vehicles, whether subject to a retail contract or an operating lease contract, we require that property damage
insurance be obtained by the consumer. In addition, for operating lease contracts, we require that bodily injury, collision, and comprehensive
insurance be obtained by the consumer.
For the year ended December 31, 2018, our portfolio yield for consumer automotive loans has increased 34 basis points relative to the
year ended December 31, 2017, and 62 basis points relative to the year ended December 31, 2016. We set our buy rates using a granular, risk-
based methodology factoring in several variables including interest costs, projected net average annualized loss rates at the time of
origination, anticipated operating costs, and targeted return on equity. The increases in rates on recent loan originations were primarily the
result of a higher interest rate environment and our continued shift in origination mix toward the Growth channel. Over the past several years,
we have continued to focus on portfolio diversification and the used vehicle segment, primarily through franchised dealers, which has
contributed to higher yields on our consumer automotive loan portfolio. Commensurate with this shift in origination mix, we continue to
maintain consistent, disciplined underwriting within our new and used consumer automotive loan originations. The carrying value of our
nonprime consumer automotive loans before allowance for loan losses was $8.3 billion, or approximately 11.7% of our total consumer
automotive loans at December 31, 2018, as compared to $8.8 billion, or approximately 12.9% of our total consumer automotive loans at
December 31, 2017.
The following table presents retail loan originations by credit tier and product type.
Credit Tier (a)
Year ended December 31, 2018
S
A
B
C
Total retail originations
Year ended December 31, 2017
S
A
B
C
Total retail originations
Year ended December 31, 2016
S
A
B
C
Total retail originations
Used retail
New retail
Volume
($ in billions)
% Share of
volume
Average
FICO®
Volume
($ in billions)
% Share of
volume
Average
FICO®
$
$
$
$
$
$
5.0
7.8
4.3
1.1
18.2
4.1
7.0
3.8
0.8
15.7
3.5
6.8
4.0
1.0
15.3
27
43
24
6
100
26
45
24
5
100
23
44
26
7
100
739
675
644
611
682
749
666
640
606
679
759
667
642
607
677
$
$
$
$
$
$
6.2
4.8
1.8
0.3
13.1
6.8
5.4
2.1
0.4
14.7
7.1
6.8
2.8
0.7
17.4
47
37
14
2
100
46
37
14
3
100
41
39
16
4
100
746
676
645
613
701
757
670
641
610
702
761
671
643
609
699
(a) Represents Ally’s internal credit score, incorporating numerous borrower and structure attributes including: severity and aging of delinquency; number of
credit inquiries; LTV ratio; and payment-to-income ratio. We periodically update our underwriting scorecard, which can have an impact on our credit tier
scoring. We originated an insignificant amount of retail loans classified below Tier C during the periods presented.
46
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table presents the percentage of total retail loan originations, in dollars, by the loan term in months.
Year ended December 31,
0–71
72–75
76 +
Total retail originations (a)
(a) Excludes RV loans.
2018
2017
2016
20%
67
13
100%
20%
66
14
100%
18%
67
15
100%
Retail originations with a term of 76 months or more represented 13% of total retail originations for the year ended December 31, 2018,
compared to 14% for the year ended December 31, 2017, and 15% for the year ended December 31, 2016. Substantially all of the loans
originated with a term of 76 months or more during the year ended December 31, 2018, 2017, and 2016, were considered to be prime and in
credit tiers S, A, or B. We define prime consumer automotive loans primarily as those loans with a FICO® Score (or an equivalent score) at
origination of 620 or greater.
The following table presents the percentage of total outstanding retail loans by origination year.
December 31,
Pre-2014
2014
2015
2016
2017
2018
Total
2018
2017
2016
1%
4%
11%
4
11
18
27
39
7
19
30
40
—
13
31
45
—
—
100%
100%
100%
The 2018, 2017, and 2016 vintages comprise 84% of the overall retail portfolio as of December 31, 2018, and have higher average buy
rates than older vintages.
The following tables present the total retail loan and operating lease origination dollars and percentage mix by product type and by
channel.
Year ended December 31, ($ in millions)
2018
2017
2016
2018
2017
2016
Consumer automotive financing
originations
% Share of Ally originations
Used retail
New retail standard
Lease
New retail subvented
$
18,239
$
15,698
$
15,259
12,752
14,587
16,993
4,058
330
4,237
163
3,385
367
Total consumer automotive financing originations (a)
$
35,379
$
34,685
$
36,004
52
36
11
1
100
45
42
12
1
100
42
47
10
1
100
(a)
Includes CSG originations of $3.7 billion, $3.8 billion, and $3.6 billion for the years ended December 31, 2018, 2017, and 2016, respectively, and RV
originations of $238 million, $459 million, and $504 million for the years ended December 31, 2018, 2017, and 2016, respectively.
Consumer automotive financing
originations
% Share of Ally originations
Year ended December 31, ($ in millions)
2018
2017
2016
2018
2017
2016
Growth channel
GM dealers
Chrysler dealers
$
16,190
$
13,767
$
13,082
9,678
9,511
10,965
9,953
12,960
9,962
Total consumer automotive financing originations
$
35,379
$
34,685
$
36,004
46
27
27
100
40
32
28
100
36
36
28
100
During the year ended December 31, 2018, total consumer loan and operating lease originations increased $694 million, compared to
2017. The increase was primarily due to larger volume from the Growth channel, which outpaced lower originations from the GM and
Chrysler channels. Over the past several years we have continued to diversify our portfolio through the Growth channel, including increased
levels of used vehicle loan volume which we view as an attractive asset class consistent with our continued focus on obtaining appropriate
risk-adjusted returns.
47
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
We have included origination metrics by loan term and FICO® Score within this MD&A. However, the proprietary way we evaluate risk
is based on multiple inputs as described in the section above titled Acquisition and Underwriting.
The following table presents the percentage of retail loan and operating lease originations, in dollars, by FICO® Score and product type.
Used retail
New retail
Lease
Year ended December 31, 2018
740 +
660–739
620–659
540–619
< 540
Unscored (a)
Total consumer automotive financing originations
Year ended December 31, 2017
740 +
660–739
620–659
540–619
< 540
Unscored (a)
Total consumer automotive financing originations
Year ended December 31, 2016
740 +
660–739
620–659
540–619
< 540
Unscored (a)
19%
25%
49%
39
27
12
1
2
34
21
6
1
13
34
10
5
—
2
100%
100%
100%
18 %
28 %
46 %
37
29
13
1
2
32
21
7
1
11
38
10
4
—
2
100 %
100 %
100 %
18 %
26 %
42 %
37
29
13
1
2
35
22
7
1
9
41
10
5
—
2
Total consumer automotive financing originations
100 %
100 %
100 %
(a) Unscored are primarily CSG contracts with business entities that have no FICO® Score.
Originations with a FICO® Score of less than 620 (considered nonprime) represented 10% of total consumer loan and operating lease
originations for both the years ended December 31, 2018, and 2017. Consumer loans and operating leases with FICO® Scores of less than
540 continued to comprise only 1% of total originations for the year ended December 31, 2018. Nonprime applications that are not
automatically declined by our proprietary credit-scoring models for risk reasons are manually reviewed and decisioned by an experienced
underwriting team. The nonprime portfolio is subject to more stringent underwriting criteria for certain loan attributes (e.g., payment-to-
income, mileage, and maximum amount financed) and generally does not include any loans with a term of 76 months or more. For discussion
of our credit-risk-management practices and performance, refer to the section titled Risk Management.
Manufacturer Marketing Incentives
Automotive manufacturers may elect to sponsor incentive programs on retail contracts and operating leases by subsidizing finance rates
below market rates. These marketing incentives are also referred to as rate support or subvention. When an automotive manufacturer
subsidizes the finance rate, we are compensated at contract inception for the present value of the difference between the manufacturer-
supported customer rate and our standard rate. For a retail contract, we defer and recognize this amount as a yield adjustment over the life of
the contract. For an operating lease contract, this payment reduces our cost basis in the underlying operating lease asset.
Automotive manufacturers may also elect to sponsor incentives, referred to as residual support, on operating leases. When an automotive
manufacturer provides residual support, we receive payment at contract inception that increases the contractual operating lease residual value
resulting in a lower operating lease payment from the customer. The payment received from the automotive manufacturer reduces our cost
basis in the underlying operating lease asset. Other operating lease incentive programs sponsored by automotive manufacturers may be made
at contract inception indirectly through dealers, which also reduces our cost basis in the underlying operating lease asset.
Under what the automotive finance industry refers to as pull-ahead programs, consumers may be encouraged by the manufacturer to
terminate operating leases early in conjunction with the acquisition of a new vehicle. As part of these programs, we waive all or a portion of
the customer’s remaining payment obligation. Under most programs, the automotive manufacturer compensates us for a portion of the
48
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
foregone revenue from the waived payments. This compensation may be partially offset to the extent that our remarketing sales proceeds are
higher than otherwise would be realized if the vehicle had been remarketed upon contract maturity.
Servicing
We have historically serviced all retail contracts and operating leases we originated. However, our expansion into direct-to-consumer
lending and other relationships have resulted in the employment of third-party servicers for a small portion of the portfolio. On occasion, we
have sold a portion of the retail contracts we originated through whole-loan sales and securitizations, but generally retained the right to
service and earn a servicing fee for our servicing functions.
Servicing activities consist largely of collecting and processing customer payments, responding to customer concerns and inquiries,
processing customer requests (including those for payoff quotes, total-loss handling, and payment modifications), maintaining a perfected
security interest in the financed vehicle, engaging in collections activity, and disposing of off-lease and repossessed vehicles. Servicing
activities are generally consistent across our Automotive Finance operations; however, certain practices may be influenced by state laws.
Our customers have the option to receive monthly billing statements and remit payment by mail or through electronic fund transfers, or
to establish online web-based account administration through Ally Auto Online Services. Customer payments are processed by regional third-
party processing centers that electronically transfer payment information to customers’ accounts.
Collections activity includes initiating contact with customers who fail to comply with the terms of the retail contract or operating lease
agreement by sending reminder notices or contacting via telephone generally when an account becomes 3 to 15 days past due. The type of
collection treatment and level of intensity increases as the account becomes more delinquent. The nature and timing of these activities depend
on the repayment risk of the account.
During the collections process, we may offer a payment extension to a customer experiencing temporary financial difficulty. A payment
extension enables the customer to delay monthly payments for 30, 60, or 90 days. Extensions granted to a customer typically do not exceed
90 days in the aggregate during any twelve-month period or 180 days in aggregate over the life of the contract. During the extension period,
finance charges continue to accrue. If the customer’s financial difficulty is not temporary but we believe the customer is willing and able to
repay their loan at a lower payment amount, we may offer to modify the remaining obligation, extending the term and lowering the scheduled
monthly payment. In those cases, the outstanding balance generally remains unchanged. The use of extensions and modifications helps
mitigate financial loss in those cases where we believe the customer will recover from short-term financial difficulty and resume regularly
scheduled payments or can fulfill the obligation with lower payments over a longer period. Before offering an extension or modification, we
evaluate and take into account the capacity of the customer to meet the revised payment terms. Generally, we do not consider extensions that
fall within our policy guidelines to represent more than an insignificant delay in payment, and therefore, they are not considered a Troubled
Debt Restructuring (TDR). Although the granting of an extension could delay the eventual charge-off of an account, typically we are able to
repossess and sell the related collateral, thereby mitigating the loss. At December 31, 2018, 11.3% of the total amount outstanding in the
servicing portfolio had been granted an extension or was rewritten, compared to 12.0% at December 31, 2017. The decrease was largely due
to the impacts of hurricane activities experienced during the third quarter of 2017 and continued optimization of servicing activities.
Subject to legal considerations, we normally begin repossession activity once an account is at least eighty-five days past due.
Repossession may occur earlier if we determine the customer is unwilling to pay, the vehicle is in danger of being damaged or hidden, or the
customer voluntarily surrenders the vehicle. Approved third-party repossession vendors handle the repossession activity. Generally, after
repossession, the customer is given a period of time to redeem the vehicle or reinstate the contract by paying off the account or bringing the
account current, respectively. If the vehicle is not redeemed or the contract is not reinstated, the vehicle is sold at auction. If the proceeds do
not cover the unpaid balance, including unpaid earned finance charges and allowable expenses, the resulting deficiency is charged-off. Asset
recovery centers pursue collections on accounts that have been charged-off, including those accounts where the vehicle was repossessed, and
skip accounts where the vehicle cannot be located.
At both December 31, 2018, and 2017, our total consumer automotive serviced portfolio was $79.7 billion, compared to our consumer
automotive on-balance sheet serviced portfolio of $77.8 billion and $76.3 billion, respectively.
Remarketing and Sales of Leased Vehicles
When we acquire an operating lease, we assume ownership of the vehicle from the dealer. Neither the consumer nor the dealer is
responsible for the value of the vehicle at the time of lease termination. When vehicles are not purchased by customers or the receiving dealer
at scheduled lease termination, the vehicle is returned to us for remarketing. We generally bear the risk of loss to the extent the value of a
leased vehicle upon remarketing is below the expected residual value. Our ability to efficiently process and effectively market off-lease
vehicles affects the disposal costs and the proceeds realized from vehicle sales. Our methods of vehicle sales at lease termination primarily
include the following:
•
•
Sale to dealer — After the lessee declines an option to purchase the off-lease vehicle, the dealer who accepts it has the opportunity
to purchase it directly from us at a price we define.
Internet auctions — Once the lessee and the dealer decline to purchase the off-lease vehicle, we offer it to dealers and other third
parties through our proprietary internet site (SmartAuction). Through SmartAuction, we seek to maximize the net sales proceeds
from an off-lease vehicle by reducing the time between vehicle return and ultimate disposition, reducing holding costs, and
49
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
broadening the number of prospective buyers. We use SmartAuction for our own vehicles and make it available for third-party use.
We earn a service fee for every third-party vehicle sold through SmartAuction, which includes the cost of ClearGuard coverage, our
protection product designed to assist in minimizing the risk to dealers of arbitration claims for eligible vehicles. In 2018,
approximately 281,000 vehicles were sold through SmartAuction.
•
Physical auctions — We dispose of an off-lease vehicle not purchased at termination by the lessee or dealer or sold on
SmartAuction through traditional third-party, physical auctions. We are responsible for handling decisions at the auction including
arranging for inspections, authorizing repairs and reconditioning, and determining whether bids received at auction should be
accepted.
We employ an internal team, including statisticians, to manage our analysis of projected used vehicle values and residual risk. This team
aids in the pricing of new operating leases, managing the disposal process including vehicle concentration risk, geographic optimization of
vehicles to maximize gains, disposal platform (internet vs. physical), and evaluating our residual risk on a real-time basis. This team tracks
market movements of used vehicles using data down to the VIN level including trim and options, vehicle age, mileage, and seasonality factors
that we feel are more relevant than other published indices (e.g., Manheim, NADA). This analysis includes vehicles sold on Ally’s
SmartAuction platform, as well as vehicles sold through Manheim, ADESA, and over 200 independent physical auction sites. We believe this
analysis gives us a competitive advantage over our peers.
Commercial Automotive Financing
Automotive Wholesale Dealer Financing
One of the most important aspects of our dealer relationships is providing wholesale floorplan financing for new- and used-vehicle
inventories at dealerships. Wholesale floorplan financing, including syndicated loan arrangements, represents the largest portion of our
commercial automotive financing business and is the primary source of funding for dealers’ purchases of new and used vehicles.
Wholesale floorplan financing is generally extended in the form of lines of credit to individual dealers. These lines of credit are secured
by the vehicles financed and all other vehicle inventory, which provide strong collateral protection in the event of dealership default.
Additional collateral (e.g., blanket lien over all dealership assets) or other credit enhancements (e.g., personal guarantees from dealership
owners) are generally obtained to further mitigate credit risk. Furthermore, in some cases, we benefit from automotive manufacturer
repurchase arrangements, which may serve as an additional layer of protection in the event of repossession of dealership new-vehicle
inventory or dealership franchise termination. The amount we advance to dealers for a new vehicle is equal to 100% of the manufacturer’s
wholesale invoice price. The amount we advance to dealers for a used vehicle is typically 90–100% of the dealer’s cost of acquiring it.
Interest on wholesale floorplan financing is generally payable monthly. The majority of wholesale floorplan financing is structured to yield
interest at a floating rate indexed to London interbank offer rate (LIBOR) or the Prime Rate. The rate for a particular dealer is based on,
among other things, competitive factors, the size of the account, and the dealer’s creditworthiness. Additionally, under our Ally Dealer
Rewards Program, dealers benefit in certain circumstances from wholesale-floorplan-financing incentives, which we credit and account for as
a reduction to interest income in the period they are earned.
Under our wholesale-floorplan-financing agreement, the dealership is generally required to pay the principal amount financed for a
vehicle within a specified number of days following the dealership’s sale or lease of the vehicle. The agreement also affords us the right to
demand payment of all amounts owed under the wholesale credit line at any time. We, however, generally make this demand only if we
terminate the credit line, the dealer defaults, or a risk-based reason exists to do so.
Commercial Wholesale Financing Volume
The following table presents the percentage of average balance of our commercial wholesale floorplan finance receivables, in dollars, by
product type and by channel.
Year ended December 31, ($ in millions)
GM new vehicles
Chrysler new vehicles
Growth new vehicles
Used vehicles
Total
Total commercial wholesale finance receivables
Average balance
2018
2017
2016
42%
50%
47%
31
14
13
25
13
12
28
13
12
100%
100%
100%
$ 29,455
$
31,586
$
29,989
Average commercial wholesale financing receivables outstanding decreased $2.1 billion during the year ended December 31, 2018,
compared to 2017. The decrease was primarily driven by a reduction in the number of GM dealer relationships due to the competitive
environment across the automotive lending market, partially offset by higher average vehicle prices. Dealer inventory levels are dependent on
a number of factors including manufacturer production schedules and vehicle mix, sales incentives, and industry sales—all of which can
influence future wholesale balances.
50
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Other Commercial Automotive Financing
We also provide other forms of commercial financing for the automotive industry including automotive dealer term and revolving loans
and automotive fleet financing. Automotive dealer term and revolving loans are loans that we make to dealers to finance other aspects of the
dealership business, including acquisitions. These loans are usually secured by real estate or other dealership assets and are typically
personally guaranteed by the individual owners of the dealership. Automotive fleet financing credit lines may be obtained by dealers, their
affiliates, and other independent companies that are used to purchase vehicles, which they lease or rent to others. Other commercial
automotive loans increased 4% to an average of $6.0 billion for the year ended December 31, 2018.
Servicing and Monitoring
We service all of the wholesale credit lines in our portfolio and the wholesale automotive finance receivables that we have securitized. A
statement setting forth billing and account information is distributed on a monthly basis to each dealer. Interest and other nonprincipal charges
are billed in arrears and are required to be paid immediately upon receipt of the monthly billing statement. Generally, dealers remit payments
to us through ACH transactions initiated by the dealer through a secure web application.
We manage risk related to wholesale floorplan financing by assessing dealership borrowers using a proprietary model based on various
factors, including their capital sufficiency, operating performance, and credit and payment history. This model assigns dealership borrowers a
risk rating that affects the amount of the line of credit and the ongoing risk management of the account. We monitor the level of borrowing
under each dealer’s credit line daily. We may adjust the dealer’s credit line if warranted, based on the dealership’s vehicle sales rate, and
temporarily suspend the granting of additional credit, or take other actions following evaluation and analysis of the dealer’s financial
condition.
We periodically inspect and verify the existence of dealer vehicle inventories. The timing of these collateral audits varies, and no
advance notice is given to the dealer. Among other things, audits are intended to assess dealer compliance with the financing agreement and
confirm the status of our collateral.
51
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Insurance
Results of Operations
The following table summarizes the operating results of our Insurance operations. The amounts presented are before the elimination of
balances and transactions with our other reportable segments.
Year ended December 31, ($ in millions)
Insurance premiums and other income
2018
2017
2016
Favorable/
(unfavorable)
2018–2017
% change
Favorable/
(unfavorable)
2017–2016
% change
Insurance premiums and service revenue earned
$
1,022
$
973
$
945
5
Interest and dividends on investment securities and cash
and cash equivalents, net (a)
Other (loss) gain on investments, net (b)
Other income
54
(51)
10
59
78
8
61
84
7
Total insurance premiums and other income
1,035
1,118
1,097
Expense
Insurance losses and loss adjustment expenses
Acquisition and underwriting expense
Compensation and benefits expense
Insurance commissions expense
Other expenses
Total acquisition and underwriting expense
Total expense
295
75
440
145
660
955
332
73
415
130
618
950
342
68
389
141
598
940
Income from continuing operations before income tax
expense
Total assets
Insurance premiums and service revenue written
Combined ratio (c)
$
$
$
80
7,734
1,174
$
$
$
168
7,464
996
$
$
$
157
7,172
948
92.6%
96.8%
98.7%
(8)
(165)
25
(7)
11
(3)
(6)
(12)
(7)
(1)
(52)
4
18
3
(3)
(7)
14
2
3
(7)
(7)
8
(3)
(1)
7
4
5
(a)
(b)
Includes interest expense of $67 million, $50 million, and $47 million for the years ended December 31, 2018, 2017, and 2016, respectively. Amounts for
the years ended December 31, 2017, and 2016, were adjusted to include $7 million and $9 million, respectively, of interest on cash and cash equivalents
previously classified as other income to conform to the current period presentation.
Includes net unrealized losses on equity investments of $112 million for the year ended December 31, 2018, which are included in net income as a result
of the adoption of Accounting Standards Update (ASU) 2016-01 on January 1, 2018.
(c) Management uses a combined ratio as a primary measure of underwriting profitability. Underwriting profitability is indicated by a combined ratio under
100% and is calculated as the sum of all incurred losses and expenses (excluding interest and income tax expense) divided by the total of premiums and
service revenues earned and other income.
2018 Compared to 2017
Our Insurance operations earned income from continuing operations before income tax expense of $80 million for the year ended
December 31, 2018, compared to income of $168 million for the year ended December 31, 2017. The decrease for the year ended
December 31, 2018, was primarily driven by unrealized losses of $112 million related to the decrease in fair value of equity investments. As
further described in Note 1 to the Consolidated Financial Statements, we adopted ASU 2016-01 on January 1, 2018, which requires that
equity investments be measured at fair value with changes in fair value recognized in net income instead of through other comprehensive
(loss) income, which was the practice during 2017 prior to implementing the new standard. This decline was partially offset by higher
premiums and service revenue earned as well as lower weather-related losses.
Insurance premiums and service revenue earned was $1.0 billion for the year ended December 31, 2018, compared to $973 million for
the year ended December 31, 2017. The increase for the year ended December 31, 2018, was primarily due to higher vehicle inventory
insurance rates and growth in GAP volume. The increase was partially offset by the implementation of ASU 2014-09, Revenue from Contracts
with Customers, on January 1, 2018, which changed the revenue recognition portion of revenue earned on noninsurance contracts to be
recognized over the contract term, as further described in Note 3 to the Consolidated Financial Statements.
Insurance losses and loss adjustment expenses totaled $295 million for the year ended December 31, 2018, compared to $332 million in
2017. The decrease for the year ended December 31, 2018, was primarily driven by lower weather-related losses, which contributed to a
decline in the combined ratio to 92.6% for the year ended December 31, 2018, compared to 96.8% for the year ended December 31, 2017. In
April 2018, we renewed our annual reinsurance program and continue to utilize this coverage to manage our risk of weather-related loss.
52
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
2017 Compared to 2016
Our Insurance operations earned income from continuing operations before income tax expense of $168 million for the year ended
December 31, 2017, compared to income of $157 million for the year ended December 31, 2016. The increase for the year ended
December 31, 2017, was primarily due to higher vehicle inventory insurance rates, and lower weather-related losses as a result of a one-year
reinsurance agreement entered into in April 2017, partially offset by lower realized investment income.
Insurance premiums and service revenue earned was $973 million for the year ended December 31, 2017, compared to $945 million for
the year ended December 31, 2016. The increase for the year ended December 31, 2017, was primarily due to higher vehicle inventory
insurance rates and growth in our consumer finance protection and insurance products, partially offset by ceding of premiums under a one-
year reinsurance agreement we entered into in April 2017.
Insurance losses and loss adjustment expenses totaled $332 million for the year ended December 31, 2017, compared to $342 million for
2016. The decrease for the year ended December 31, 2017, was primarily due to the ceding of weather-related losses subject to a reinsurance
agreement. The ceding of weather-related losses primarily drove the decrease in the combined ratio to 96.8% for the year ended December 31,
2017, compared to 98.7% for the year ended December 31, 2016.
Premium and Service Revenue Written
The following table summarizes premium and service revenue written by product.
Year ended December 31, ($ in millions)
Vehicle service contracts
New retail
Used retail
Reinsurance (a)
Total vehicle service contracts (b)
Vehicle inventory insurance (c)
Other (d)
Total
2018
2017
2016
$
$
475
551
(170)
856
217
101
$
453
464
(206)
711
191
94
$
1,174
$
996
$
444
427
(189)
682
191
75
948
(a) Reinsurance represents the transfer of premiums and risk from an Ally insurance company to a third-party insurance company.
(b) VSC revenue is earned over the life of the service contract on a basis proportionate to the anticipated cost pattern. Refer to the section titled Recently
Adopted Accounting Standards in Note 1 to the Consolidated Financial Statements for further information regarding our adoption of the amendments to
the revenue recognition principles of Accounting Standards Codification 606, Revenue from Contracts with Customers, and Note 3 to the Consolidated
Financial Statements for further discussion of this revenue stream and the related impacts of adoption.
(c) Vehicle inventory insurance includes dealer ancillary products.
(d) Other products include GAP coverage, VMCs, ClearGuard, and other ancillary products.
Insurance premiums and service revenue written was $1.2 billion for the year ended December 31, 2018, compared to $996 million in
2017. The increase for the year ended December 31, 2018, was primarily due to higher VSC volume and higher vehicle inventory insurance
rates.
Insurance premiums and service revenue written was $996 million for the year ended December 31, 2017, compared to $948 million for
2016. The increase for the year ended December 31, 2017, was primarily due to higher VSC and GAP volume, and higher vehicle inventory
insurance rates, partially offset by the ceding of vehicle inventory insurance premiums under a one-year reinsurance agreement we entered
into in April 2017 to obtain excess of loss coverage for our vehicle inventory insurance product, which allows us to strategically manage our
level of risk.
Cash and Investments
A significant aspect of our Insurance operations is the investment of proceeds from premiums and other revenue sources. We use these
investments to satisfy our obligations related to future claims at the time these claims are settled. Our Insurance operations have an
Investment Committee, which develops guidelines and strategies for these investments. The guidelines established by this committee reflect
our risk appetite, liquidity requirements, regulatory requirements, and rating agency considerations, among other factors.
53
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table summarizes the composition of our Insurance operations cash and investment portfolio at fair value.
December 31, ($ in millions)
Cash
Noninterest-bearing cash
Interest-bearing cash
Total cash
Equity securities
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies
U.S. States and political subdivisions
Foreign government
Agency mortgage-backed residential
Mortgage-backed residential
Mortgage-backed commercial
Corporate debt
Total available-for-sale securities
Total cash and securities
2018
2017
$
$
252
644
896
766
460
691
145
758
135
—
1,241
3,430
$
5,092
$
298
983
1,281
518
380
773
154
613
174
22
1,256
3,372
5,171
54
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Mortgage Finance
Results of Operations
The following table summarizes the activities of our Mortgage Finance operations. The amounts presented are before the elimination of
balances and transactions with our reportable segments.
Year ended December 31, ($ in millions)
2018
2017
2016
Favorable/
(unfavorable)
2018–2017
% change
Favorable/
(unfavorable)
2017–2016
% change
Net financing revenue and other interest income
Total financing revenue and other interest income
$
Interest expense
Net financing revenue and other interest income
Gain on mortgage loans, net
Other income, net of losses
Total other revenue
Total net revenue
Provision for loan losses
Noninterest expense
Compensation and benefits expense
Other operating expenses
Total noninterest expense
Income from continuing operations before income tax
expense
Total assets
n/m = not meaningful
2018 Compared to 2017
$
$
483
304
179
5
2
7
186
1
32
108
140
45
15,211
$
$
$
308
176
132
3
1
4
136
8
23
85
108
20
11,708
$
250
153
97
—
—
—
97
(4)
13
54
67
34
8,307
$
$
57
(73)
36
67
100
75
37
88
(39)
(27)
(30)
125
30
23
(15)
36
n/m
n/m
n/m
40
n/m
(77)
(57)
(61)
(41)
41
Our Mortgage Finance operations earned income from continuing operations before income tax expense of $45 million and $20 million
for the years ended December 31, 2018, and 2017, respectively. The increase for the year ended December 31, 2018, was primarily due to an
increase in net financing revenue and other interest income driven by increased portfolio loan balances as a result of bulk purchases of high-
quality jumbo and LMI mortgage loans and direct-to-consumer originations, and a decrease in the provision for loan losses. The increase was
partially offset by higher noninterest expense driven by continued build out of the direct-to-consumer offering and asset growth.
Net financing revenue and other interest income was $179 million and $132 million for the years ended December 31, 2018, and 2017,
respectively. The increase in net financing revenue and other interest income was primarily due to increased loan balances as a result of bulk
purchases of high-quality jumbo and LMI mortgage loans and direct-to-consumer originations. During the year ended December 31, 2018, we
purchased $4.4 billion of mortgage loans that were originated by third parties, compared to $4.5 billion during the year ended December 31,
2017.
Gain on sale of mortgage loans, net, increased $2 million for the year ended December 31, 2018, compared to 2017, as a result of higher
direct-to-consumer mortgage originations and the subsequent sale of these loans to our fulfillment provider.
The provision for loan losses decreased $7 million for the year ended December 31, 2018, compared to 2017. The decrease for the year
ended December 31, 2018, was primarily due to reserve increases in the prior year associated with the hurricanes experienced in the third
quarter of 2017 as well as reserve reductions in the current period due to strong credit performance.
Total noninterest expense was $140 million for the year ended December 31, 2018, compared to $108 million for the year ended
December 31, 2017. The increase was driven by continued expansion of the direct-to-consumer offering and asset growth.
2017 Compared to 2016
Our Mortgage Finance operations earned income from continuing operations before income tax expense of $20 million and $34 million
for the years ended December 31, 2017, and 2016, respectively. The decrease for the year ended December 31, 2017, was primarily due to an
increase in noninterest expense driven by continued build out of the direct-to-consumer offering and asset growth as well as higher provision
for loan losses. This decrease was partially offset by an increase in net financing revenue and other interest income driven by increased
portfolio loan balances as a result of bulk purchases of high-quality jumbo and LMI mortgage loans and direct-to-consumer originations.
Net financing revenue and other interest income was $132 million and $97 million for the years ended December 31, 2017, and 2016,
respectively. The increase in net financing revenue and other interest income was primarily due to increased loan balances as a result of bulk
55
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
purchases of high-quality jumbo and LMI mortgage loans. During the year ended December 31, 2017, we purchased $4.5 billion of mortgage
loans that were originated by third parties, compared to $3.7 billion during the year ended December 31, 2016.
Gain on sale of mortgage loans increased $3 million for the year ended December 31, 2017, compared to 2016, as a result of direct-to-
consumer mortgage originations and the subsequent sale of these loans to our fulfillment provider.
The provision for loan losses increased $12 million for the year ended December 31, 2017, compared to 2016. The increase for the year
ended December 31, 2017, was primarily due to lower loss reserve requirements in 2016, which resulted from the seasoning of the loan
portfolio and the alignment of reserves to favorable loss experience. Provision expense also increased as a result of estimated impacts of
hurricane activity which occurred during the third quarter of 2017 as well as growth in the loan portfolio. The portfolio continues to
demonstrate strong credit performance.
Total noninterest expense was $108 million for the year ended December 31, 2017, compared to $67 million for the year ended
December 31, 2016. The increase was driven by continued expansion of the direct-to-consumer offering and asset growth.
The following table presents the total unpaid principal balance (UPB) of purchases and originations of consumer mortgages held-for-
investment, by FICO® Score at the time of acquisition.
FICO® Score
Year ended December 31, 2018
740 +
720–739
700–719
680–699
660–679
Total consumer mortgage financing volume
Year ended December 31, 2017
740 +
720–739
700–719
680–699
660–679
Total consumer mortgage financing volume
Year ended December 31, 2016
740 +
720–739
700–719
680–699
660–679
Volume
($ in millions)
% Share of
volume
$
3,861
$
$
$
$
520
391
74
1
4,847
3,831
478
288
22
10
4,629
3,045
447
219
30
13
80
11
8
1
—
100
83
10
6
1
—
100
81
12
6
1
—
100
Total consumer mortgage financing volume
$
3,754
56
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table presents the net UPB, net UPB as a percentage of total, weighted-average coupon (WAC), premium net of discounts,
LTV, and FICO® Scores for the products in our Mortgage Finance held-for-investment loan portfolio.
Product
December 31, 2018
Adjustable-rate
Fixed-rate
Total
December 31, 2017
Adjustable-rate
Fixed-rate
Total
Net UPB (a)
($ in millions)
% of total net
UPB
WAC
Net premium
($ in millions)
Average
refreshed
LTV (b)
Average
refreshed
FICO® (c)
$
$
$
$
2,828
12,042
14,870
2,579
8,824
11,403
19
81
100
23
77
100
3.40% $
4.15
4.01
$
3.35 % $
4.02
3.87
$
37
248
285
42
212
254
53.69%
60.97
59.58
56.82 %
62.02
60.84
775
774
774
774
771
772
(a) Represents UPB net of charge-offs.
(b) Updated home values were derived using a combination of appraisals, broker price opinions, automated valuation models, and metropolitan statistical area
level house price indices.
(c) Updated to reflect changes in credit score since loan origination.
57
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Corporate Finance
Results of Operations
The following table summarizes the activities of our Corporate Finance operations. The amounts presented are before the elimination of
balances and transactions with our reportable segments.
Year ended December 31, ($ in millions)
2018
2017
2016
Favorable/
(unfavorable)
2018–2017
% change
Favorable/
(unfavorable)
2017–2016
% change
Net financing revenue and other interest income
Interest and fees on finance receivables and loans
$
321
$
256
$
Interest on loans held-for-sale
Interest expense
Net financing revenue and other interest income
Total other revenue
Total net revenue
Provision for loan losses
Noninterest expense
Compensation and benefits expense
Other operating expenses
Total noninterest expense
Income from continuing operations before income tax
expense
Total assets
n/m = not meaningful
2018 Compared to 2017
10
127
204
38
242
12
53
33
86
—
89
167
45
212
22
47
29
76
$
$
144
4,670
$
$
114
3,979
$
$
192
—
71
121
26
147
10
38
28
66
71
3,183
25
n/m
(43)
22
(16)
14
45
(13)
(14)
(13)
26
17
33
—
(25)
38
73
44
(120)
(24)
(4)
(15)
61
25
Our Corporate Finance operations earned income from continuing operations before income tax expense of $144 million for the year
ended December 31, 2018, compared to $114 million for the year ended December 31, 2017. The increase was due primarily to higher net
financing revenue and other interest income resulting from higher asset levels driven by our strategy to prudently grow the loan portfolio and
expand our product suite while selectively pursuing opportunities to broaden industry and product breadth. Additionally, for the year ended
December 31, 2018, results were favorably impacted by lower provision expense due primarily to improved overall credit performance as
well as higher syndication and other fee income. These items were partially offset by lower investment-related income primarily driven by
gains on equity investments realized during 2017 as compared to net realized and unrealized losses during 2018.
Net financing revenue and other interest income was $204 million for the year ended December 31, 2018, compared to $167 million for
the year ended December 31, 2017. The increase was primarily due to the growth of our lending portfolio, represented by a 19% increase in
the gross carrying value of finance receivables and loans as of December 31, 2018, compared to December 31, 2017.
Other revenue was $38 million for the year ended December 31, 2018, compared to $45 million for the year ended December 31, 2017.
The decrease for the year ended December 31, 2018, was primarily driven by gains of $20 million from the sale of equity investments during
2017 as compared to $6 million of net realized and unrealized losses on equity investments for the year ended December 31, 2018, following
the adoption of ASU 2016-01 on January 1, 2018, which requires that equity investments be measured at fair value with changes in fair value
recognized in net income. The decrease was partially offset by an increase in syndication and other fee income of $20 million due to strong
new loan origination volume and overall growth in the portfolio.
The provision for loan losses decreased $10 million for the year ended December 31, 2018, compared to 2017. The decrease for the year
ended December 31, 2018, was primarily due to improved overall credit performance in the portfolio as well as a $6 million recovery of a
previously charged-off loan in the second quarter of 2018. This was partially offset by higher specific reserves for individually impaired
loans.
Total noninterest expense was $86 million for the year ended December 31, 2018, compared to $76 million for the year ended
December 31, 2017. The increase was primarily due to higher compensation and benefits expense and other noninterest costs associated with
growth in the business.
2017 Compared to 2016
Our Corporate Finance operations earned income from continuing operations before income tax expense of $114 million for the year
ended December 31, 2017, compared to $71 million for the year ended December 31, 2016. The increase was driven by our strategy to
responsibly grow our lending portfolio and extend our product suite while selectively pursuing opportunities to broaden industry and product
58
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
diversification. Results were also favorably impacted by a gain on an equity investment in the first quarter of 2017, the full collection of funds
related to a nonaccrual loan in the second quarter of 2017, and higher loan syndication income.
Net financing revenue and other interest income was $167 million for the year ended December 31, 2017, compared to $121 million for
the year ended December 31, 2016. The increase was primarily due to the growth of our lending portfolio driven by higher new loan
originations, which resulted in a 23% increase in the gross carrying value of finance receivables and loans as of December 31, 2017,
compared to December 31, 2016. Additionally, interest and fees on finance receivables and loans for the year ended December 31, 2017, was
favorably impacted by the payoff of a nonaccrual loan exposure in the second quarter of 2017, which resulted in the recognition of $9 million
of interest income.
Other revenue was $45 million for the year ended December 31, 2017, compared to $26 million for the year ended December 31, 2016.
The increase was primarily driven by an $11 million gain on the sale of an equity investment during the first quarter of 2017, and higher loan
syndication income.
The provision for loan losses increased $12 million for the year ended December 31, 2017, compared to 2016. This increase was
primarily due to higher provision expense for individually impaired loans, and increased reserves due primarily to continued asset growth.
The provision also increased as a result of lower recoveries of previously charged-off loans, compared to 2016.
Total noninterest expense was $76 million for the year ended December 31, 2017, compared to $66 million for the year ended
December 31, 2016. The increase was primarily due to an increase in compensation and benefits expense to support the growth of the
business.
Credit Portfolio
The following table presents loans held-for-sale, the gross carrying value of finance receivables and loans outstanding, unfunded
commitments to lend, and total serviced loans of our Corporate Finance operations.
December 31, ($ in millions)
Loans held-for-sale, net
Finance receivables and loans
Unfunded lending commitments (a)
Total serviced loans
2018
2017
$
$
$
$
47
4,636
2,141
5,501
$
$
$
$
77
3,910
1,813
3,893
(a)
Includes unused revolving credit line commitments for loans held-for-sale and finance receivables and loans, signed commitment letters, and standby
letter of credit facilities, which are issued on behalf of clients and may contingently require us to make payments to a third-party beneficiary in the event
of a draw by the beneficiary thereunder. As many of these commitments are subject to borrowing base agreements and other restrictive covenants or may
expire without being fully drawn, the stated amounts of these letters of credit are not necessarily indicative of future cash requirements.
The following table presents the percentage of total finance receivables and loans of our Corporate Finance operations by industry
concentration. The finance receivables and loans are reported at gross carrying value.
December 31,
Industry
Services
Health services
Automotive and transportation
Wholesale
Machinery, equipment, and electronics
Food and beverages
Chemicals and metals
Other manufactured products
Paper, printing, and publishing
Construction
Other
Total finance receivables and loans
59
2018
2017
25.6%
31.0%
24.5
12.3
7.5
6.0
5.0
4.9
4.7
2.8
2.2
4.5
15.6
10.3
8.7
7.9
4.1
5.0
7.1
3.0
1.9
5.4
100.0%
100.0%
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Corporate and Other
The following table summarizes the activities of Corporate and Other, which primarily consist of centralized corporate treasury activities
such as management of the cash and corporate investment securities and loan portfolios, short- and long-term debt, retail and brokered deposit
liabilities, derivative instruments, original issue discount, and the residual impacts of our corporate FTP and treasury ALM activities.
Corporate and Other also includes certain equity investments, which primarily consist of FHLB and FRB stock, the management of our
legacy mortgage portfolio, which primarily consists of loans originated prior to January 1, 2009, the activity related to Ally Invest, and
reclassifications and eliminations between the reportable operating segments.
Year ended December 31, ($ in millions)
2018
2017
2016
Favorable/
(unfavorable)
2018–2017
% change
Favorable/
(unfavorable)
2017–2016
% change
Net financing revenue and other interest income
Interest and fees on finance receivables and loans (a)
$
Interest on loans held-for-sale
Interest and dividends on investment securities and other
earning assets
Interest on cash and cash equivalents
Other, net
Total financing revenue and other interest income
Interest expense
Original issue discount amortization (b)
Other interest expense (c)
Total interest expense
Net financing revenue and other interest income
Other revenue
Loss on mortgage and automotive loans, net
Other gain on investments, net
Other income, net of losses
Total other revenue
Total net revenue
Provision for loan losses
Total noninterest expense (d)
Loss from continuing operations before income tax
expense
Total assets
$
$
83 $
2
$
68
—
677
62
(9)
815
101
530
631
184
(2)
8
113
119
303
(15)
333
497
30
(7)
588
90
348
438
150
(11)
24
68
81
231
(16)
262
(15) $
(15) $
66
—
319
5
(12)
378
78
337
415
(37)
(6)
101
67
162
125
(13)
199
(61)
33,950 $
29,908
$
28,719
22
n/m
36
107
(29)
39
(12)
(52)
(44)
23
82
(67)
66
47
31
(6)
(27)
—
14
3
—
56
n/m
42
56
(15)
(3)
(6)
n/m
(83)
(76)
1
(50)
85
23
(32)
75
4
n/m = not meaningful
(a) Primarily related to financing revenue from our legacy mortgage portfolio and impacts related to hedging activities associated with our consumer
automotive loan portfolio.
(b) Amortization is included as interest on long-term debt in the Consolidated Statement of Income.
(c)
(d)
Includes the residual impacts of our FTP methodology and impacts of hedging activities of certain debt obligations.
Includes reductions of $854 million, $804 million, and $770 million for the years ended December 31, 2018, 2017, and 2016, respectively, related to the
allocation of corporate overhead expenses to other segments. The receiving segments record their allocation of corporate overhead expense within other
operating expense.
The following table presents the scheduled remaining amortization of the original issue discount at December 31, 2018.
Year ended December 31, ($ in millions)
2019
2020
2021
2022
2023
2024 and
thereafter (a)
Total
Original issue discount
Outstanding balance at year end
$
1,094
$
1,053
$
1,008
$
959
$
903
$
—
Total amortization (b)
41
41
45
49
56
903
$
1,135
(a) The maximum annual scheduled amortization for any individual year is $147 million in 2030.
(b) The amortization is included as interest on long-term debt in the Consolidated Statement of Income.
60
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
2018 Compared to 2017
Corporate and Other incurred a loss from continuing operations before income tax expense of $15 million for the year ended
December 31, 2018, compared to a loss of $15 million for the year ended December 31, 2017. Higher investment security income and interest
on cash and cash equivalents were offset by funding costs and higher noninterest expenses to support business growth.
Financing revenue and other interest income was $815 million for the year ended December 31, 2018, compared to $588 million for the
year ended December 31, 2017. The increase was primarily driven by higher interest and dividends from investment securities and other
earning assets, primarily as a result of higher yields and growth in the size of the investment portfolio. Results for the year ended
December 31, 2018, were also favorably impacted by increases in interest on cash and cash equivalents, as a result of higher yields.
Total interest expense was $631 million for the year ended December 31, 2018, compared to $438 million for the year ended
December 31, 2017. The increase was primarily driven by increased interest on deposits resulting from higher market rates and deposit
growth as well as increased LIBOR rates on secured borrowings. The increase was partially offset by a decrease in higher-cost unsecured
borrowings as $3.6 billion in unsecured maturities during 2018 were replaced with lower cost funding.
Total other revenue was $119 million for the year ended December 31, 2018, compared to $81 million for the year ended December 31,
2017. The increase was primarily due to higher income on certain equity-method investments and lower losses on the retirement of debt.
Results for the year ended December 31, 2018, were also favorably impacted by a lower loss on mortgage and automotive loans, net, driven
by the sales of automotive loans in both periods and the corresponding impact to the Corporate and Other segment as a result of our FTP
methodology. The increase was partially offset by lower net gains on investments, primarily as a result of higher sales of investment securities
in 2017 that did not recur in the current period.
Noninterest expense was $333 million for the year ended December 31, 2018, compared to $262 million for the year ended
December 31, 2017. The increase was primarily due to higher compensation and benefit costs and other operating expenses associated with
the continued growth and investment in our business, including digital and technological capabilities, as well as higher marketing costs.
Total assets were $34.0 billion as of December 31, 2018, compared to $29.9 billion as of December 31, 2017. The increase was primarily
the result of growth in our available-for-sale and held-to-maturity securities portfolios and higher interest-bearing cash and cash equivalents.
The increase was partially offset by the continued runoff of our legacy mortgage portfolio. At December 31, 2018, the gross carrying value of
the legacy mortgage portfolio was $1.5 billion, compared to $2.1 billion at December 31, 2017.
2017 Compared to 2016
Corporate and Other incurred a loss from continuing operations before income tax expense of $15 million for the year ended
December 31, 2017, compared to a loss of $61 million for the year ended December 31, 2016. The decrease in loss for the year ended
December 31, 2017, was primarily due to an increase in financing revenue and other interest income driven by an increase in interest and
dividends on investment securities and other earning assets. The decrease in loss was partially offset by a decrease in gains on sales of
investment securities, an increase in noninterest expense, including compensation and benefits, to support the growth of the business, and an
increase in interest expense driven by increased interest on deposits resulting from deposit growth and increased LIBOR rates on secured
borrowings.
Financing revenue and other interest income was $588 million for the year ended December 31, 2017, compared to $378 million for the
year ended December 31, 2016. The increase was primarily driven by increased interest and dividends from investment securities and other
earning assets compared to 2016, primarily as a result of growth in the size of the investment portfolio. Results for the year ended
December 31, 2017, were also favorably impacted by increases in interest on cash and cash equivalents, as a result of higher yields.
Total interest expense was $438 million for the year ended December 31, 2017, compared to $415 million for the year ended
December 31, 2016. Total interest expense increased during the year ended December 31, 2017, compared to 2016, driven primarily by
increased interest on deposits resulting from deposit growth and increased LIBOR rates on secured borrowings. The increase was partially
offset by a decrease in higher-cost unsecured debt borrowings as maturities are replaced with lower cost funding.
Other gain on investments was $24 million for the year ended December 31, 2017, compared to $101 million for the year ended
December 31, 2016. The decrease was due primarily to higher levels of sales of investment securities in 2016 that did not recur in 2017.
The provision for loan losses decreased $3 million for the year ended December 31, 2017, compared to the same period in 2016, as a
result of lower net charge-offs as the legacy mortgage portfolio continues to run-off and loss trends remain favorable, partially offset by the
impacts of hurricane activity during the year.
Noninterest expense was $262 million for the year ended December 31, 2017, compared to $199 million for the year ended
December 31, 2016. The increase was primarily due to increased expenses from the Ally Invest integration and operations included in our
results subsequent to acquisition in the second quarter of 2016 and increased expenses to support the growth of the business.
Total assets were $29.9 billion as of December 31, 2017, compared to $28.7 billion as of December 31, 2016. The increase was primarily
the result of growth in our available-for-sale and held-to-maturity securities portfolios. The increase was partially offset by a reduction of cash
and cash equivalents, other assets, and the continued runoff of our legacy mortgage portfolio. At December 31, 2017, the gross carrying value
of the legacy mortgage portfolio was $2.1 billion, compared to $2.8 billion at December 31, 2016.
61
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Cash and Securities
The following table summarizes the composition of the cash and securities portfolio at fair value for Corporate and Other.
December 31, ($ in millions)
Cash
Noninterest-bearing cash
Interest-bearing cash
Total cash
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies
U.S. States and political subdivisions
Agency mortgage-backed residential
Mortgage-backed residential
Mortgage-backed commercial
Asset-backed
Total available-for-sale securities
Held-to-maturity securities
Debt securities
Agency mortgage-backed residential
Asset-backed retained notes
Total held-to-maturity securities
Total cash and securities
Ally Invest
2018
2017
$
535
$
3,083
3,618
1,391
111
16,380
2,551
717
723
523
2,425
2,948
1,397
81
13,678
2,320
519
936
21,873
18,931
2,264
43
2,307
1,829
36
1,865
$
27,798
$
23,744
In May 2017, we launched Ally Invest, our digital brokerage and wealth management offering that combines the platform we acquired
from the June 2016 acquisition of TradeKing with our award-winning online banking products in a single, convenient customer experience
that provides low-cost investing with competitive deposit products. The following table presents the trading days and average customer trades
per day during each respective quarter and the number of funded accounts, total net customer assets, and total customer cash balances as of
the last five quarters.
Trading days (a)
Average customer trades per day (in thousands)
Funded accounts (b) (in thousands)
Total net customer assets ($ in millions)
Total customer cash balances ($ in millions)
4th quarter
2018
3rd quarter
2018
2nd quarter
2018
1st quarter
2018
4th quarter
2017
62.0
19.6
302
62.5
19.1
287
64.0
18.0
271
61.0
21.8
259
$
$
5,804
1,159
$
$
6,608
1,178
$
$
5,990
1,166
$
$
5,473
1,111
$
$
62.5
16.8
245
5,354
1,144
(a) Represents the number of days the New York Stock Exchange and other U.S. stock exchange markets are open for trading. A half day represents a day
when the U.S. markets close early.
(b) Represents open and funded brokerage accounts.
Total funded accounts increased 5% from the prior quarter and 23% from the prior year as a result of a continued focus on marketing
campaigns. Average customer trades per day increased slightly during the fourth quarter of 2018 to approximately 19,600. Additionally, net
customer assets decreased in the fourth quarter of 2018 primarily as a result of depreciation in equity markets.
62
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Risk Management
Managing the risk/reward trade-off is a fundamental component of operating our businesses, and all employees are responsible for
managing risk. We use multiple layers of defense to identify, monitor, and manage current and emerging risks.
•
•
•
Business lines — Responsible for owning and managing all of the risks that emanate from their risk-taking activities, including
business units and support functions.
Independent risk management — Responsible for establishing and maintaining our risk-management framework and promulgating
it enterprise-wide. Independent risk management also provides an objective, critical assessment of risks and—through oversight,
effective challenge, and other means—evaluates whether Ally remains aligned with its risk appetite.
Internal audit — Provides its own independent assessments of the effectiveness of our risk management, internal controls, and
governance; and independent assessments regarding the quality of our loan portfolios. Internal audit includes Audit Services and the
Loan Review Group.
Our risk-management framework is overseen by the Risk Committee (RC) of the Ally Board of Directors (the Board). The RC sets the
risk appetite across our company while risk-oriented management committees, the executive leadership team, and our associates identify and
monitor current and emerging risks and manage those risks within our risk appetite. Our primary types of risk include the following:
•
•
•
Credit risk — The risk of loss arising from an obligor not meeting its contractual obligations to us.
Insurance/underwriting risk — The risk of loss or of adverse change in the value of insurance liabilities, due to inadequate pricing
and provisioning assumptions.
Liquidity risk — The risk that our financial condition or overall safety and soundness is adversely affected by the actual or
perceived inability to liquidate assets or obtain adequate funding or to easily unwind or offset specific exposures without
significantly lowering market prices because of inadequate market depth or market disruptions. Refer to discussion in the section
titled Liquidity Management, Funding, and Regulatory Capital within this MD&A.
• Market risk — The risk of loss arising from changes in the value of our assets or liabilities (including derivatives) caused by
movements in market variables such as interest rates, credit spreads, foreign-exchange rates, and equity and commodity prices.
Market risk includes interest rate risk, investment risk, and lease residual risk.
•
•
Business/strategic risk — The risk resulting from the pursuit of business plans that turn out to be unsuccessful due to a variety of
factors.
Reputation risk — The risk arising from negative public opinion on our business practices, whether true or not, that will cause a
decline in the customer base, litigation, or revenue reductions.
• Operational risk — The risk of loss or harm arising from inadequate or failed processes or systems, human factors, or external
events.
•
•
•
Information technology/security risk — The risk resulting from the failure of, or insufficiency in, information technology (e.g.,
system outage) or intentional or accidental unauthorized access, sharing, removal, tampering, or disposal of company and customer
data or records.
Compliance risk — The risk of legal or regulatory sanctions, financial loss, or damage to reputation resulting from failure to
comply with laws, regulations, rules, other regulatory requirements, or codes of conduct and other standards of self-regulatory
organizations applicable to the banking organization (applicable rules and standards).
Conduct risk — The risk of customer harm, employee harm, reputational damage, regulatory sanction, or financial loss resulting
from the behavior of our employees and contractors toward customers, counterparties, other employees and contractors, or the
markets in which we operate.
Our risk-governance structure starts within each business line, including committees established to oversee risk in their respective areas.
The business lines are responsible for their risk-based performance and compliance with risk-management policies and applicable law.
The independent risk-management function is accountable for independently identifying, monitoring, measuring, and reporting on our
various risks and for designing an effective risk-management framework and structure. The independent risk-management function is also
responsible for developing, maintaining, and implementing enterprise risk-management policies. In addition, the Enterprise Risk Management
Committee (ERMC) is responsible for supporting the Chief Risk Officer’s oversight of senior management’s responsibility to execute on our
strategy within our risk appetite set by the RC and the Chief Risk Officer’s implementation of our independent risk-management program.
The Chief Risk Officer reports to the RC, as well as administratively to the Chief Executive Officer.
All business lines are subject to full and unrestricted audits by Audit Services. The Chief Audit Executive reports to the Audit Committee
of the Board (AC), as well as administratively to the Chief Executive Officer, and is primarily responsible for assisting the AC in fulfilling its
63
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
governance and oversight responsibilities. Audit Services is granted free and unrestricted access to any and all of our records, physical
properties, technologies, management, and employees.
In addition, our Loan Review Group provides an independent assessment of the quality of our extensions of credit and credit-risk-
management practices, and all business lines that create or influence credit risk are subject to full and unrestricted reviews by the Loan
Review Group. This group is also granted free and unrestricted access to any and all of our records, physical properties, technologies,
management and employees, and reports its findings directly to the RC.
Loan and Operating Lease Exposure
The following table summarizes the exposures from our loan and operating lease activities.
December 31, ($ in millions)
Finance receivables and loans
Automotive Finance
Mortgage Finance
Corporate Finance
Corporate and Other (a)
Total finance receivables and loans
Loans held-for-sale
Automotive Finance
Mortgage Finance (b)
Corporate Finance
Corporate and Other
Total loans held-for-sale
Total on-balance sheet loans
Off-balance sheet securitized loans
Automotive Finance (c)
Whole-loan sales
Automotive Finance (c)
Total off-balance sheet loans
Operating lease assets
Automotive Finance
Total loan and operating lease exposure
2018
2017
$
108,463
$
105,129
15,155
4,636
1,672
11,657
3,910
2,197
129,926
122,893
210
8
47
49
314
—
13
77
18
108
130,240
123,001
1,235
1,964
634
1,869
1,399
3,363
8,417
8,741
$
140,526
$
135,105
(a)
Includes $1.5 billion and $2.1 billion of consumer mortgage loans in our legacy mortgage portfolio at December 31, 2018, and December 31, 2017,
respectively.
(b) Represents the current balance of conforming mortgages originated directly to the held-for-sale portfolio.
(c) Represents the current unpaid principal balance of outstanding loans based on our customary representation and warranty provisions.
The risks inherent in our loan and operating lease exposures are largely driven by changes in the overall economy, used vehicle and
housing price levels, unemployment levels, and their impact on our borrowers. The potential financial statement impact of these exposures
varies depending on the accounting classification and future expected disposition strategy. We retain the majority of our consumer automotive
loans as they complement our core business model, but we do sell loans from time to time on an opportunistic basis. We ultimately manage
the associated risks based on the underlying economics of the exposure. Our operating lease residual risk, which may be more volatile than
credit risk in stressed macroeconomic scenarios, has declined over the past several years as we have experienced growth in our consumer
automotive loan portfolio and a significant reduction in operating lease assets since 2014. While all operating leases are exposed to potential
reductions in used vehicle values, only loans where we take possession of the vehicle are affected by potential reductions in used vehicle
values.
•
Finance receivables and loans — Loans that we have the intent and ability to hold for the foreseeable future or until maturity, or
loans associated with an on-balance sheet securitization classified as secured borrowing. Finance receivables and loans are reported
at their gross carrying value, which includes the principal amount outstanding, net of unamortized deferred fees and costs on
originated loans, unamortized premiums and discounts on purchased loans, unamortized basis adjustments arising from the
designation of finance receivables and loans as the hedged item in qualifying fair value hedge relationships, and cumulative
principal charge-offs. We refer to the gross carrying value less the allowance for loan loss as the net carrying value in finance
receivables and loans. We manage the economic risks of these exposures, including credit risk, by adjusting underwriting standards
and risk limits, augmenting our servicing and collection activities (including loan modifications and restructurings), and optimizing
our product and geographic concentrations. Additionally, we may elect to account for certain mortgage loans at fair value. Changes
64
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
in the fair value of these loans are recognized in a valuation allowance separate from the allowance for loan losses and are reflected
in current period earnings. We use market-based instruments, such as derivatives, to hedge changes in the fair value of these loans.
•
Loans held-for-sale — Loans that we do not have the intent and ability to hold for the foreseeable future or until maturity. These
loans are recorded on our balance sheet at the lower of their net carrying value or fair market value and are evaluated by portfolio
and product type. Changes in the recorded value are recognized in a valuation allowance and reflected in current period earnings.
We manage the economic risks of these exposures, including market and credit risks, in various ways including the use of market-
based instruments, such as derivatives.
• Off-balance sheet securitized loans — Loans that we transfer off-balance sheet to nonconsolidated variable interest entities. Our
exposure is primarily limited to customary representation and warranty provisions. Similar to finance receivables and loans, we
manage the economic risks of these exposures through activities including servicing and collections.
• Whole-loan sales — Loans that we transfer off-balance sheet to third-party investors. Our exposure is primarily limited to
customary representation and warranty provisions. Similar to finance receivables and loans, we manage the economic risks of these
exposures through activities including servicing and collections.
• Operating lease assets — The net book value of the automotive assets we lease includes the expected residual values upon
remarketing the vehicles at the end of the lease and is reported net of accumulated depreciation. We are exposed to fluctuations in
the expected residual value upon remarketing the vehicle at the end of the lease, and as such at contract inception, we determine
pricing based on the projected residual value of the leased vehicle. This evaluation is primarily based on a proprietary model, which
includes variables such as age, expected mileage, seasonality, segment factors, vehicle type, economic indicators, production cycle,
automotive manufacturer incentives, and shifts in used vehicle supply. This internally-generated data is compared against third-
party, independent data for reasonableness. Periodically, we revise the projected value of the leased vehicle at termination based on
current market conditions and adjust depreciation expense appropriately over the remaining life of the contract. At termination, our
actual sales proceeds from remarketing the vehicle may be higher or lower than the estimated residual value resulting in a gain or
loss on remarketing recorded through depreciation expense. The balance sheet reflects both the operating lease asset as well as any
associated rent receivables. The operating lease rent receivable is accrued when collection is reasonably assured and presented as a
component of other assets. The operating lease asset is reviewed for impairment in accordance with applicable accounting
standards.
Refer to the section titled Critical Accounting Estimates within this MD&A and Note 1 to the Consolidated Financial
Statements for further information.
Credit Risk
Credit risk is defined as the risk of loss arising from an obligor not meeting its contractual obligations to us. Credit risk includes
consumer credit risk, commercial credit risk, and counterparty credit risk.
Credit risk is a major source of potential economic loss to us. Credit risk is monitored by the risk committees, executive leadership team,
and our associates. Together, they oversee credit decisioning, account servicing activities, and credit-risk-management processes and manage
credit risk exposures within our risk appetite. In addition, our Loan Review Group provides an independent assessment of the quality of our
credit portfolios and credit-risk-management practices, and directly reports its findings to the RC on a regular basis.
To mitigate risk, we have implemented specific policies and practices across business lines, utilizing both qualitative and quantitative
analyses. This reflects our commitment to maintaining an independent and ongoing assessment of credit risk and credit quality. Our policies
require an objective and timely assessment of the overall quality of the consumer and commercial loan and operating lease portfolios. This
includes the identification of relevant trends that affect the collectability of the portfolios, segments of the portfolios that are potential problem
areas, loans and operating leases with potential credit weaknesses, and the assessment of the adequacy of internal credit risk policies and
procedures. Our consumer and commercial loan and operating lease portfolios are subject to regular stress tests that are based on plausible,
but unexpected, economic scenarios to assess how the portfolios may perform in a severe economic downturn. In addition, we establish and
maintain underwriting policies and limits across our portfolios and higher risk segments (e.g., nonprime) based on our risk appetite.
Another important aspect to managing credit risk involves the need to carefully monitor and manage the performance and pricing of our
loan products with the aim of generating appropriate risk-adjusted returns. When considering pricing, various granular risk-based factors are
considered such as expected loss rates, loss volatility, anticipated operating costs, and targeted returns on equity. We carefully monitor credit
losses and trends in credit losses in conjunction with pricing at contract inception and continue to closely monitor our loan performance and
profitability performance in light of forecasted economic conditions, and manage credit risk and expectations of losses in the portfolio.
We manage credit risk based on the risk profile of the borrower, the source of repayment, the underlying collateral, and current market
conditions. We monitor the credit risk profile of individual borrowers and the aggregate portfolio of borrowers either within a designated
geographic region or a particular product or industry segment. We perform quarterly analyses of the consumer automotive, consumer
mortgage, and commercial portfolios using a range of indicators to assess the adequacy of the allowance for loan losses based on historical
and current trends. Refer to Note 9 to the Consolidated Financial Statements for additional information.
65
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Additionally, we utilize numerous collection strategies to mitigate loss and provide ongoing support to customers in financial distress.
For consumer automotive loans, we work with customers when they become delinquent on their monthly payment. In lieu of repossessing
their vehicle, we may offer several types of assistance to aid our customers based on their willingness and ability to repay their loan. Loss
mitigation may include payment extensions and rewrites of the loan terms. For mortgage loans, as part of certain programs, we offer mortgage
loan modifications to qualified borrowers. These programs are in place to provide support to our mortgage customers in financial distress,
including principal forgiveness, maturity extensions, delinquent interest capitalization, and changes to contractual interest rates.
Furthermore, we manage our credit exposure to financial counterparties based on the risk profile of the counterparty. Within our policies
we have established standards and requirements for managing counterparty risk exposures in a safe and sound manner. Counterparty credit
risk is derived from multiple exposure types, including derivatives, securities trading, securities financing transactions, financial futures, cash
balances (e.g., due from depository institutions, restricted accounts, and cash equivalents), and investment in debt securities. For more
information on derivative counterparty credit risk, refer to Note 21 to the Consolidated Financial Statements.
We employ an internal team of economists to enhance our planning and forecasting capabilities. This team conducts industry and market
research, monitors economic risks, and helps support various forms of scenario planning. This group closely monitors macroeconomic trends
given the nature of our business and the potential impacts on our exposure to credit risk. During 2018, the U.S. economy continued to
modestly expand, and consumer confidence remained strong. The labor market remained healthy during the year, with the unemployment rate
down year over year to 3.9% as of December 31, 2018. Within the U.S. automotive market, new light vehicle sales have moderated from
historic highs, and remain stable year over year at 17.2 million for the year ended December 31, 2018. We expect to experience modest
downward pressure on used vehicle values during 2019.
Consumer Credit Portfolio
Our consumer loan portfolio primarily consists of automotive loans, first-lien mortgages, and home equity loans. Loan losses in our
consumer loan portfolio are influenced by general business and economic conditions including unemployment rates, bankruptcy filings, and
home and used vehicle prices. Additionally, our consumer credit exposure is significantly concentrated in automotive lending.
Credit risk management for the consumer loan portfolio begins with the initial underwriting and continues throughout a borrower’s credit
life cycle. We manage consumer credit risk through our loan origination and underwriting policies and the credit approval process. We use
proprietary credit-scoring models to differentiate the expected default rates of credit applicants enabling us to better evaluate credit
applications for approval and to tailor the pricing and financing structure according to this assessment of credit risk. We continuously monitor
and routinely update the inputs of the credit scoring models. These and other actions mitigate but do not eliminate credit risk. Ineffective
evaluations of a borrower’s creditworthiness, fraud, or changes in the applicant’s financial condition after approval could negatively affect the
quality of our portfolio, resulting in loan losses.
Our servicing activities are another key factor in managing consumer credit risk. Servicing activities consist largely of collecting and
processing customer payments, responding to customer concerns and inquiries, processing customer requests (including those for payoff
quotes, total-loss handling, and payment modifications), maintaining a perfected security interest in the financed vehicle, engaging in
collections activity, and disposing of off-lease and repossessed vehicles. Servicing activities are generally consistent across our Automotive
Finance operations; however, certain practices may be influenced by state laws.
During the year ended December 31, 2018, the credit performance of the consumer loan portfolio reflected both our underwriting
strategy to originate a diversified portfolio of consumer automotive loan assets, including used, nonsubvented new, higher LTV, extended
term, Growth channel, and nonprime finance receivables and loans, as well as high-quality jumbo and LMI mortgage loans that are acquired
through bulk loan purchases and direct-to-consumer mortgage originations. The carrying value of our nonprime consumer automotive loans
before allowance for loan losses represented approximately 11.7% of our total consumer automotive loans at December 31, 2018, compared
to approximately 12.9% at December 31, 2017. For information on our consumer credit risk practices and policies regarding delinquencies,
nonperforming status, and charge-offs, refer to Note 1 to the Consolidated Financial Statements.
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Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table includes consumer finance receivables and loans recorded at gross carrying value.
Outstanding
Nonperforming (a)
Accruing past due 90
days or more (b)
December 31, ($ in millions)
Consumer automotive (c) (d)
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
2018
2017
2018
2017
2018
2017
$
70,539
$
68,071
$
664
$
603
$
— $
15,155
1,546
11,657
2,093
9
70
25
92
—
—
Total consumer finance receivables and loans
$
87,240
$
81,821
$
743
$
720
$
— $
—
—
—
—
Includes nonaccrual TDR loans of $257 million and $219 million at December 31, 2018, and December 31, 2017, respectively.
(a)
(b) Loans are generally placed on nonaccrual status when principal or interest has been delinquent for 90 days or when full collection is not expected. Refer
to Note 1 to the Consolidated Financial Statements for a description of our accounting policies for finance receivables and loans.
(c) Certain finance receivables and loans are included in fair value hedging relationships. Refer to Note 21 to the Consolidated Financial Statements for
(d)
additional information.
Includes outstanding CSG loans of $7.9 billion and $7.3 billion at December 31, 2018, and December 31, 2017, respectively, and RV loans of $1.7 billion
and $1.8 billion at December 31, 2018, and December 31, 2017, respectively.
Total consumer finance receivables and loans increased $5.4 billion at December 31, 2018, compared with December 31, 2017,
reflecting an increase of $3.0 billion of consumer mortgage finance receivables and loans and an increase of $2.5 billion of consumer
automotive finance receivables and loans. The increase in consumer mortgage finance receivables and loans was primarily due to the
execution of bulk loan purchases totaling $4.4 billion during the year ended December 31, 2018, partially offset by legacy mortgage portfolio
runoff. The increase in consumer automotive finance receivables and loans was primarily related to continued momentum in our Growth
channel.
Total consumer nonperforming finance receivables and loans at December 31, 2018, increased $23 million to $743 million from
December 31, 2017, reflecting an increase of $61 million of consumer automotive finance receivables and loans and a decrease of $38 million
of consumer mortgage nonperforming finance receivables and loans. The increase in nonperforming consumer automotive finance receivables
and loans was primarily due to the continued gradual shift in the composition of the overall portfolio as a result of our diversification strategy,
as well as portfolio growth. This increase was partially offset by the decrease in nonperforming consumer mortgage finance receivables and
loans primarily due to favorable macroeconomic conditions. Refer to Note 9 to the Consolidated Financial Statements for additional
information. Nonperforming consumer finance receivables and loans as a percentage of total outstanding consumer finance receivables and
loans were 0.9% at both December 31, 2018, and December 31, 2017.
Total consumer TDRs outstanding at December 31, 2018, increased $65 million since December 31, 2017, to $726 million. The increase
was primarily driven by growth in and performance of our consumer automotive loan portfolio which continues to gradually shift in
composition as a result of our diversification strategy, as well as the proactive utilization of certain workout strategies to optimize servicing
efforts. Refer to Note 9 to the Consolidated Financial Statements for additional information.
Consumer automotive loans accruing and past due 30 days or more increased $164 million compared to December 31, 2017, to $2.5
billion at December 31, 2018, driven by growth in the overall size of the consumer automotive loan portfolio as well as slightly higher
delinquency rates associated with a measured increase in the mix of used vehicle financings as part of our continued diversification strategy.
Used vehicle loans within our portfolio generally have higher delinquency rates and higher loss frequency, but lower loss severity relative to
new vehicle loans due to lower original loan balances and slower collateral depreciation.
The following table includes consumer net charge-offs from finance receivables and loans at gross carrying value and related ratios.
Year ended December 31, ($ in millions)
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer finance receivables and loans
Net charge-offs
Net charge-off ratios (a)
2018
2017
2018
2017
927
$
986
1.3%
1.5%
3
7
1
5
937
$
992
—
0.4
1.1
—
0.2
1.3
$
$
(a) Net charge-off ratios are calculated as net charge-offs divided by average outstanding finance receivables and loans excluding loans measured at fair value
and loans held-for-sale during the period for each loan category.
Our net charge-offs from total consumer finance receivables and loans were $937 million for the year ended December 31, 2018,
compared to $992 million for the year ended December 31, 2017. The decrease in net charge-offs for the year ended December 31, 2018,
were primarily driven by our consumer automotive loan portfolio where we experienced strong overall credit performance driven by
67
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
favorable macroeconomic trends including low unemployment, as well as continued disciplined underwriting and higher recoveries on
charge-offs driven by improved used vehicle values.
The following table summarizes total consumer loan originations for the periods shown. Total consumer loan originations include loans
classified as finance receivables and loans and loans held-for-sale during the period.
Year ended December 31, ($ in millions)
Consumer automotive
Consumer mortgage (a)
Total consumer loan originations
2018
2017
$
$
31,321
703
32,024
$
$
30,448
284
30,732
(a) Excludes bulk loan purchases associated with our Mortgage Finance operations and includes $302 million of loans originated as held-for-sale for the year
ended December 31, 2018, and $136 million for the year ended December 31, 2017.
Total consumer loan originations increased $1.3 billion for the year ended December 31, 2018, compared to the year ended
December 31, 2017. The increase in consumer loan originations for the year ended December 31, 2018, was primarily due to higher consumer
automotive loan volume in the Growth channel, with our continued focus on obtaining appropriate risk-adjusted returns.
The following table shows the percentage of total consumer finance receivables and loans recorded at gross carrying value by state
concentration. Total consumer automotive loans were $70.5 billion and $68.1 billion at December 31, 2018, and December 31, 2017,
respectively. Total mortgage and home equity loans were $16.7 billion and $13.8 billion at December 31, 2018, and December 31, 2017,
respectively.
December 31,
California
Texas
Florida
Pennsylvania
Illinois
Georgia
North Carolina
New York
Ohio
New Jersey
Other United States
Total consumer loans
2018 (a)
2017
Consumer
automotive
Consumer
mortgage
Consumer
automotive
Consumer
mortgage
8.4%
12.8
8.8
4.5
4.1
4.1
3.9
3.1
3.5
2.7
36.9%
6.2
4.7
1.4
3.0
2.8
1.7
2.4
0.4
2.1
8.2%
13.2
8.5
4.6
4.2
4.2
3.7
3.0
3.4
2.6
34.6%
6.5
4.8
1.5
3.2
2.5
1.8
2.2
0.5
2.1
44.1
38.4
44.4
40.3
100.0%
100.0%
100.0%
100.0%
(a) Presentation is in descending order as a percentage of total consumer finance receivables and loans at December 31, 2018.
We monitor our consumer loan portfolio for concentration risk across the states in which we lend. The highest concentrations of
consumer loans are in California and Texas, which represented an aggregate of 25.4% and 24.7% of our total outstanding consumer finance
receivables and loans at December 31, 2018, and December 31, 2017, respectively. Our consumer mortgage loan portfolio concentration
within California, which is primarily composed of high-quality jumbo mortgage loans, generally aligns to the California share of jumbo
mortgages nationally.
Repossessed and Foreclosed Assets
We classify an asset as repossessed or foreclosed, which is included in other assets on our Consolidated Balance Sheet, when physical
possession of the collateral is taken. We dispose of the acquired collateral in a timely fashion in accordance with regulatory requirements. For
more information on repossessed and foreclosed assets, refer to Note 1 to the Consolidated Financial Statements.
Repossessed consumer automotive loan assets in our Automotive Finance operations decreased $4 million from December 31, 2017, to
$136 million at December 31, 2018. Foreclosed mortgage assets increased $1 million from December 31, 2017, to $11 million at
December 31, 2018.
Commercial Credit Portfolio
Our commercial portfolio consists primarily of automotive loans through the extension of wholesale floorplan financing, automotive
dealer term real estate loans, and automotive fleet financing, as well as other commercial loans including our Corporate Finance lending
portfolio. Wholesale floorplan loans are secured by the vehicles financed (and all other vehicle inventory), which provide strong collateral
protection in the event of dealership default. Additional collateral (e.g., blanket lien over all dealership assets) or other credit enhancements
68
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
(e.g., personal guarantees from dealership owners) are typically obtained to further mitigate credit risk. Furthermore, in most cases, we benefit
from automotive manufacturer repurchase arrangements, which may serve as an additional layer of protection in the event of repossession of
new-vehicle dealership inventory or dealership franchise termination.
Within our commercial portfolio, we utilize a proprietary risk rating model that is fundamental to managing credit risk exposure
consistently across various types of commercial borrowers and captures critical risk factors for each borrower. The ratings are used for many
areas of credit risk management, including loan origination, portfolio risk monitoring, management reporting, and loan loss reserves analyses.
Therefore, the rating system is critical to an effective and consistent credit-risk-management framework.
During the year ended December 31, 2018, the credit performance of the commercial portfolio remained strong. While nonperforming
finance receivables and loans increased as a result of several specific exposures, our net charge-offs remained low at $8 million and $18
million for the years ended December 31, 2018, and 2017, respectively. For information on our commercial credit risk practices and policies
regarding delinquencies, nonperforming status, and charge-offs, refer to Note 1 to the Consolidated Financial Statements.
The following table includes total commercial finance receivables and loans reported at gross carrying value.
Outstanding
Nonperforming (a)
Accruing past due 90
days or more (b)
2018
2017
2018
2017
2018
2017
December 31, ($ in millions)
Commercial and industrial
Automotive
Other (c)
Commercial real estate
$
33,672
$
33,025
$
4,205
4,809
3,887
4,160
$
203
142
4
27
44
1
72
$
$
— $
—
—
— $
—
—
—
—
Total commercial finance receivables and loans
$
42,686
$
41,072
$
349
$
Includes nonaccrual TDR loans of $86 million and $51 million at December 31, 2018, and December 31, 2017, respectively.
(a)
(b) Loans are generally placed on nonaccrual status when principal or interest has been delinquent for 90 days or when full collection is not expected. Refer
to Note 1 to the Consolidated Financial Statements for a description of our accounting policies for finance receivables and loans.
(c) Other commercial primarily includes senior secured commercial lending largely associated with our Corporate Finance operations.
Total commercial finance receivables and loans outstanding increased $1.6 billion from December 31, 2017, to $42.7 billion at
December 31, 2018. The increase was primarily driven by higher dealer inventory levels and growth in automotive real estate term loans, as
well as in our Corporate Finance portfolio in line with our business strategy.
Total commercial nonperforming finance receivables and loans were $349 million at December 31, 2018, reflecting an increase of $277
million when compared to December 31, 2017. The increase was primarily due to the default of one larger dealer group that resulted in $153
million of additional nonperforming loans, as well as the downgrade of five accounts within our Corporate Finance portfolio. Nonperforming
commercial finance receivables and loans as a percentage of outstanding commercial finance receivables and loans increased to 0.8% at
December 31, 2018, compared to 0.2% at December 31, 2017. Despite the increase in nonperforming commercial loans, we expect our
collateral positions to meaningfully mitigate the risk of loss on these loans. Our commercial loan portfolio includes multiple forms of loan
collateral. Wholesale floorplan loans are secured by vehicles financed, and additional collateral or other credit enhancements are typically
obtained to further mitigate credit risk. Automotive dealer term and revolving loans are generally secured by real estate or other dealership
assets and are typically personally guaranteed by the individual owners of the dealership. Our corporate finance lending portfolio is generally
composed of first-lien, first-out loans that are typically secured by all assets of the borrowers.
Total commercial TDRs outstanding at December 31, 2018, increased $35 million since December 31, 2017, to $86 million. The increase
was primarily driven by the addition of two accounts in our Corporate Finance portfolio. Refer to Note 9 to the Consolidated Financial
Statements for additional information.
The following table includes total commercial net charge-offs from finance receivables and loans at gross carrying value and related
ratios.
Year ended December 31, ($ in millions)
Commercial and industrial
Automotive
Other
Total commercial finance receivables and loans
Net charge-offs
Net charge-off ratios (a)
2018
2017
2018
2017
$
$
5
3
8
$
$
2
16
18
—%
0.1
—
—%
0.5
—
(a) Net charge-off ratios are calculated as net charge-offs divided by average outstanding finance receivables and loans excluding loans measured at fair value
and loans held-for-sale during the period for each loan category.
Our net charge-offs from total commercial finance receivables and loans were $8 million for the year ended December 31, 2018,
compared to $18 million for the year ended December 31, 2017. The decrease in net charge-offs for the year ended December 31, 2018, was
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Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
primarily driven by our Corporate Finance portfolio, which incurred lower partial charge-offs on restructured loans and recognized a recovery
from a previously charged-off loan.
Commercial Real Estate
The commercial real estate portfolio consists of finance receivables and loans issued primarily to automotive dealers. Commercial real
estate finance receivables and loans were $4.8 billion and $4.2 billion at December 31, 2018, and December 31, 2017, respectively.
The following table presents the percentage of total commercial real estate finance receivables and loans by state concentration. These
finance receivables and loans are reported at gross carrying value.
December 31,
Texas
Florida
California
Michigan
New York
Georgia
North Carolina
South Carolina
New Jersey
Utah
Other United States
Total commercial real estate finance receivables and loans
Commercial Criticized Exposure
2018
2017
15.5%
11.6
15.7%
10.3
8.3
6.8
4.8
4.0
3.6
3.4
3.1
2.6
8.2
7.7
2.1
4.6
3.6
3.5
3.6
1.6
36.3
39.1
100.0%
100.0%
Finance receivables and loans classified as special mention, substandard, or doubtful are reported as criticized. These classifications are
based on regulatory definitions and generally represent finance receivables and loans within our portfolio that have a higher default risk or
have already defaulted. These finance receivables and loans require additional monitoring and review including specific actions to mitigate
our potential loss.
Total criticized exposures increased $895 million from December 31, 2017, to $4.0 billion at December 31, 2018. The increase was
primarily due to the reclassification of certain accounts to special mention and substandard within the commercial automotive portfolio.
The following table presents the percentage of total commercial criticized finance receivables and loans by industry concentration. These
finance receivables and loans within our automotive and Corporate Finance portfolios are reported at gross carrying value.
December 31,
Industry
Automotive
Services
Health/Medical
Other
Total commercial criticized finance receivables and loans
2018
2017
80.6%
76.3%
5.0
3.7
10.7
6.7
4.9
12.1
100.0%
100.0%
70
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Selected Loan Maturity and Sensitivity Data
The table below shows the maturity of the commercial finance receivables and loans portfolio and the distribution between fixed and
floating interest rates based on the stated terms of the commercial loan agreements. This portfolio is reported at gross carrying value.
December 31, 2018 ($ in millions)
Commercial and industrial
Commercial real estate
Total commercial finance receivables and loans
Loans at fixed interest rates
Loans at variable interest rates
Total commercial finance receivables and loans
Within 1
year (a)
$
$
32,658
138
32,796
1–5 years
After
5 years
$
$
$
$
3,855
2,067
5,922
1,424
4,498
5,922
$
$
$
$
1,364
2,604
3,968
2,708
1,260
3,968
Total (b)
$
$
37,877
4,809
42,686
Includes loans (e.g., floorplan) with revolving terms.
(a)
(b) Loan maturities are based on the remaining maturities under contractual terms.
Allowance for Loan Losses
The following tables present an analysis of the activity in the allowance for loan losses on finance receivables and loans.
Year ended December 31, 2018 ($ in millions)
Consumer
automotive
Consumer
mortgage
Total
consumer
Commercial
Total
Allowance at January 1, 2018
$
1,066
$
Charge-offs (a)
Recoveries
Net charge-offs
Provision for loan losses
Other (b)
(1,383)
456
(927)
911
(2)
Allowance at December 31, 2018
$
1,048
$
Allowance for loan losses to finance receivables and loans
outstanding at December 31, 2018 (c)
Net charge-offs to average finance receivables and loans
outstanding for the year ended December 31, 2018
Allowance for loan losses to total nonperforming finance
receivables and loans at December 31, 2018 (c)
Ratio of allowance for loan losses to net charge-offs at
December 31, 2018
1.5%
1.3%
79
(35)
25
(10)
(15)
(1)
53
0.3%
0.1%
$
1,145
$
(1,418)
481
(937)
896
(3)
131
(15)
7
(8)
22
(4)
$
1,276
(1,433)
488
(945)
918
(7)
$
1,101
$
141
$
1,242
1.3%
1.1%
0.3%
—%
1.0%
0.8%
157.8%
67.3%
148.2%
40.5%
113.8%
1.1
5.3
1.2
16.7
1.3
(a) Represents the amount of the gross carrying value directly written off. For consumer and commercial loans, the loss from a charge-off is measured as the
difference between the gross carrying value of a loan and the fair value of the collateral, less costs to sell. Refer to Note 1 to the Consolidated Financial
Statements for more information regarding our charge-off policies.
(b) Primarily related to the transfer of finance receivables and loans from held-for-investment to held-for-sale.
(c) Coverage percentages are based on the allowance for loan losses related to finance receivables and loans excluding those loans held at fair value as a
percentage of the gross carrying value.
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Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Year ended December 31, 2017 ($ in millions)
Consumer
automotive
Consumer
mortgage
Total
consumer
Commercial
Total
Allowance at January 1, 2017
$
932
$
Charge-offs (a)
Recoveries
Net charge-offs
Provision for loan losses
Other (b)
(1,344)
358
(986)
1,127
(7)
Allowance at December 31, 2017
$
1,066
$
Allowance for loan losses to finance receivables and loans
outstanding at December 31, 2017 (c)
Net charge-offs to average finance receivables and loans
outstanding for the year ended December 31, 2017
Allowance for loan losses to total nonperforming finance
receivables and loans at December 31, 2017 (c)
Ratio of allowance for loan losses to net charge-offs at
December 31, 2017
1.6%
1.5%
91
(30)
24
(6)
(7)
1
79
0.6%
0.1%
$
1,023
$
(1,374)
382
(992)
1,120
(6)
121
(18)
—
(18)
28
—
$
1,144
(1,392)
382
(1,010)
1,148
(6)
$
1,145
$
131
$
1,276
1.4%
1.3%
0.3%
—%
1.0%
0.8%
176.9%
67.3%
159.1%
182.2%
161.2%
1.1
12.2
1.2
7.3
1.3
(a) Represents the amount of the gross carrying value directly written off. For consumer and commercial loans, the loss from a charge-off is measured as the
difference between the gross carrying value of a loan and the fair value of the collateral, less costs to sell. Refer to Note 1 to the Consolidated Financial
Statements for more information regarding our charge-off policies.
(b) Primarily related to the transfer of finance receivables and loans from held-for-investment to held-for-sale.
(c) Coverage percentages are based on the allowance for loan losses related to finance receivables and loans excluding those loans held at fair value as a
percentage of the gross carrying value.
The allowance for consumer loan losses at December 31, 2018, declined $44 million compared to December 31, 2017, reflecting a
decrease of $18 million in the consumer automotive allowance and a decrease of $26 million in the consumer mortgage allowance. The
reduction in our consumer automotive allowance resulted from overall improved credit performance, as well as higher reserves we maintained
in the prior year as a result of the hurricanes experienced in the third quarter of 2017, partially offset by growth in the portfolio. The decrease
in the consumer mortgage allowance was primarily driven by run-off in our legacy mortgage portfolio and lower hurricane-related reserves,
partially offset by growth in our Mortgage Finance portfolio.
The allowance for commercial loan losses increased $10 million at December 31, 2018, compared to December 31, 2017. The increase
was primarily driven by higher reserves for individually impaired loans in our Corporate Finance portfolio.
Allowance for Loan Losses by Type
The following table summarizes the allocation of the allowance for loan losses by product type.
December 31, ($ in millions)
Consumer
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer mortgage
Total consumer loans
Commercial
Commercial and industrial
Automotive
Other
Commercial real estate
Total commercial loans
Total allowance for loan losses
$
2018
2017
Allowance
for loan
losses
Allowance
as a % of
loans
outstanding
Allowance as
a % of total
allowance for
loan losses
Allowance
for loan
losses
Allowance as
a % of loans
outstanding
Allowance as
a % of total
allowance for
loan losses
$
1,048
1.5%
84.3% $
1,066
1.6%
83.5%
16
37
53
1,101
36
77
28
141
1,242
0.1
2.4
0.3
1.3
0.1
1.8
0.6
0.3
1.0
72
1.3
3.0
4.3
88.6
2.9
6.2
2.3
11.4
100.0% $
19
60
79
1,145
37
68
26
131
1,276
0.2
2.9
0.6
1.4
0.1
1.7
0.6
0.3
1.0
1.5
4.7
6.2
89.7
2.9
5.4
2.0
10.3
100.0%
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Provision for Loan Losses
The following table summarizes the provision for loan losses by product type.
Year ended December 31, ($ in millions)
2018
2017
2016
Consumer
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer mortgage
Total consumer loans
Commercial
Commercial and industrial
Automotive
Other
Commercial real estate
Total commercial loans
Total provision for loan losses
$
911
$
1,127
$
919
1
(16)
(15)
896
8
12
2
22
8
(15)
(7)
1,120
6
21
1
28
$
918
$
1,148
$
(4)
(12)
(16)
903
4
9
1
14
917
The provision for consumer loan losses decreased $224 million for the year ended December 31, 2018, compared to 2017. The decrease
during the year ended December 31, 2018, was primarily driven by our consumer automotive loan portfolio where we experienced strong
overall credit performance driven by favorable macroeconomic trends including low unemployment, as well as continued disciplined
underwriting and higher recoveries on charge-offs driven by improved used vehicle values. Additionally, results were impacted by $53 million
of additional reserves associated with the estimated impacts of the hurricanes experienced during the third quarter of 2017.
The provision for commercial loan losses decreased $6 million for the year ended December 31, 2018, compared to the year ended
December 31, 2017. The decrease in provision for commercial loan losses for the year ended December 31, 2018, was primarily due to
improved overall credit performance in the portfolio as well as a $6 million recovery of a previously charged-off loan in the second quarter of
2018. This decrease was partially offset by higher specific reserves for individually impaired loans.
Insurance/Underwriting Risk
The underwriting of our VSCs, VMCs, GAP, and insurance policies includes an assessment of the risk to determine acceptability and
categorization for appropriate pricing. The acceptability of a particular risk is based on expected losses, expenses and other factors specific to
the product in question. With respect to VSCs, considerations include the quality of the vehicles produced, the price of replacement parts,
repair labor rates, and new model introductions. Insurance risk also includes event risk, which is synonymous with pure risk, hazard risk, or
insurance risk, and presents no chance of gain, only of loss.
We mitigate losses by the active management of claim settlement activities using experienced claims personnel and the evaluation of
current period reported claims. Losses for these events may be compared to prior claims experience, expected claims, or loss expenses from
similar incidents to assess the reasonableness of incurred losses.
In some instances, reinsurance is used to reduce the risk associated with volatile business lines, such as catastrophe risk in vehicle
inventory insurance. Our vehicle inventory insurance product is covered by excess of loss protection, including catastrophe coverage for
weather-related events. In addition, loss control techniques such as storm path monitoring to assist dealers in preparing for severe weather
help to mitigate loss potential.
In accordance with industry and accounting practices and applicable insurance laws and regulatory requirements, we maintain reserves
for reported losses, losses incurred but not reported, losses expected to be incurred in the future for contracts in force and loss adjustment
expenses. The estimated values of our prior reported loss reserves and changes to the estimated values are routinely monitored by credentialed
actuaries. Our reserve estimates are regularly reviewed by management; however, since the reserves are based on estimates and numerous
assumptions, the ultimate liability may differ from the amount estimated.
Market Risk
Our financing, investing, and insurance activities give rise to market risk, or the potential change in the value of our assets (including
securities, assets held-for-sale, and operating leases) and liabilities (including deposits and debt) due to movements in market variables such
as interest rates, credit spreads, foreign-exchange rates, equity prices, and off-lease vehicle prices.
The impact of changes in benchmark interest rates on our assets and liabilities (interest rate risk) represents an exposure to market risk.
We primarily use interest rate derivatives to manage our interest rate risk exposure.
73
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
The fair value of our credit-sensitive assets is also exposed to credit spread risk. Credit spread is the amount of additional return over the
benchmark interest rates that an investor would demand for taking exposure to the credit risk of an instrument. Generally, an increase in credit
spreads would result in a decrease in a fair value measurement.
We are also exposed to foreign-currency risk arising from foreign-currency denominated assets and liabilities, primarily in Canada. We
enter into hedges to mitigate foreign exchange risk.
We also have exposure to changes in the value of equity securities, primarily related to our Insurance operations. We use equity
derivatives to manage our exposure to equity price fluctuations.
The composition of our balance sheet, including shorter-duration consumer automotive loans and variable-rate commercial loans,
coupled with the continued funding shift toward retail deposits, partially mitigates market risk. Additionally, we maintain risk-management
control systems to measure and monitor market risk using a variety of analytical techniques including market value, sensitivity analysis, and
value at risk models. Refer to Note 21 to the Consolidated Financial Statements for further information.
Fair Value Sensitivity Analysis
The following table and subsequent discussion presents a fair value sensitivity analysis of our assets and liabilities using isolated
hypothetical movements in specific market rates. The analysis assumes adverse instantaneous, parallel shifts in market-exchange rates,
interest rate yield curves, and equity prices. Additionally, since only adverse fair value impacts are included, the natural offset between asset
and liability rate sensitivities that arise within a diversified balance sheet, such as ours, may not be considered.
December 31, ($ in millions)
Financial instruments exposed to changes in:
Interest rates
Estimated fair value
Effect of 10% adverse change in rates
Foreign-currency exchange rates
Estimated fair value
Effect of 10% adverse change in rates
Equity prices
Estimated fair value
Effect of 10% decrease in prices
2018
2017
(a)
(a)
392
$
(18)
810
$
(81)
(a)
(a)
359
(22)
577
(58)
$
$
(a) Refer to the section below titled Net Financing Revenue Sensitivity Analysis for information on the interest rate sensitivity of our financial instruments.
Net Financing Revenue Sensitivity Analysis
Interest rate risk represents our most significant exposure to market risk. We actively monitor the level of exposure so that movements in
interest rates do not adversely affect future earnings. We use net financing revenue sensitivity analysis as our primary metric to measure and
manage the interest rate sensitivities of our financial instruments.
We prepare our forward-looking baseline forecasts of net financing revenue taking into consideration anticipated future business growth,
asset/liability positioning, and interest rates based on the implied forward curve. The analysis is highly dependent upon a variety of
assumptions including the repricing characteristics of retail deposits with both contractual and non-contractual maturities. Based on current
market conditions, actual beta on our total retail deposits portfolio has been approximately 35% relative to the increase in the federal funds
rate since the third quarter of 2015. We continually monitor industry and competitive repricing activity along with other market factors when
contemplating deposit pricing actions.
Simulations are used to assess changes in net financing revenue in multiple interest rate scenarios relative to the baseline forecast. The
changes in net financing revenue relative to the baseline are defined as the sensitivity. Our simulations incorporate contractual cash flows and
repricing characteristics for all assets, liabilities, and off-balance sheet exposures and incorporate the effects of changing interest rates on the
prepayment and attrition rates of certain assets and liabilities. Our simulation does not assume any specific future actions are taken to
mitigate the impacts of changing interest rates.
The net financing revenue sensitivity tests measure the potential change in our pretax net financing revenue over the following twelve
months. A number of alternative rate scenarios are tested, including immediate and gradual parallel shocks to the implied market forward
curve. Management also evaluates nonparallel shocks to interest rates and stresses to certain term points on the yield curve in isolation to
capture and monitor a number of risk types. Relative to our baseline forecast, which is based on the implied forward curve, our net financing
revenue over the next twelve months would decrease by $10 million if interest rates remain unchanged.
74
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table presents the pretax dollar impact to forecasted net financing revenue over the next twelve months assuming 100
basis point and 200 basis point instantaneous parallel and gradual parallel shock increases, and assuming 100 basis point instantaneous
parallel and gradual parallel shock decreases to the implied market forward curve as of December 31, 2018, and December 31, 2017.
December 31, ($ in millions)
Change in interest rates
-100 basis points
+100 basis points
+200 basis points
2018
2017
Gradual (a)
Instantaneous
Gradual (a)
Instantaneous
$
(20) $
(34) $
(22) $
51
81
10
(10)
(18)
(68)
15
(106)
(294)
(a) Gradual changes in interest rates are recognized over twelve months.
The implied forward rate curve was higher and flatter compared to December 31, 2017, as short-end rates have increased more than
long-end rates. The impact of this change is reflected in our baseline net financing revenue projections. We have reduced our liability-
sensitive position as of December 31, 2018, in the upward interest rate shock scenarios. Exposure in the +100 and +200 instantaneous shock
scenarios has decreased as of December 31, 2018, primarily due to the hedge program we initiated in the first quarter of 2018 of pay-fixed
interest rate swaps on certain automotive assets that allows us to reduce our sensitivity to a rise in short-term interest rates beyond the implied
forward curve. This was partially offset by the impact of higher interest rates on deposits as a result of our assumption that deposit pass-
through levels increase with higher interest rates.
The exposure in the downward instantaneous interest rate shock scenario has increased as of December 31, 2018, primarily due to
changes to our derivative hedging position as noted above, partially offset by the benefit of deposits in a lower rate environment.
Our risk position is influenced by the net impact of derivative hedging which includes interest rate swaps designated as fair value hedges
of certain fixed-rate assets and fixed-rate debt instruments, and pay-fixed interest rate swaps designated as cash flow hedges of certain
floating-rate debt instruments. The size, maturity, and mix of our hedging activities are adjusted as our balance sheet, ALM objectives, and
interest rate environment evolve over time.
Operating Lease Residual Risk Management
We are exposed to residual risk on vehicles in the consumer operating lease portfolio. This operating lease residual risk represents the
possibility that the actual proceeds realized upon the sale of returned vehicles will be lower than the projection of these values used in
establishing the pricing at lease inception. However, certain automotive manufacturers have provided their guarantee for portions of our
residual exposure for lease programs with them. For information on our valuation of automotive operating lease residuals including periodic
revisions through adjustments to depreciation expense based on current and forecasted market conditions, refer to the section titled Critical
Accounting Estimates — Valuation of Automotive Operating Lease Assets and Residuals within this MD&A.
•
•
Priced residual value projections — At contract inception, we determine pricing based on the projected residual value of the leased
vehicle. This evaluation is primarily based on a proprietary model, which includes variables such as age, expected mileage,
seasonality, segment factors, vehicle type, economic indicators, production cycle, automotive manufacturer incentives, and
unanticipated shifts in used vehicle supply. This internally-generated data is compared against third-party, independent data for
reasonableness. Periodically, we revise the projected value of the leased vehicle at termination based on current market conditions
and adjust depreciation expense if necessary over the remaining life of the contract. At termination, our actual sales proceeds from
remarketing the vehicle may be higher or lower than the estimated residual value resulting in a gain or loss on remarketing recorded
through depreciation expense.
Remarketing abilities — Our ability to efficiently process and effectively market off-lease vehicles affects the disposal costs and
the proceeds realized from vehicle sales. Vehicles can be remarketed through auction (internet and physical), sale to dealer, sale to
lessee, and other methods. The results within these channels vary, with physical auction typically resulting in the lowest-priced
outcome.
• Manufacturer vehicle and marketing programs — Automotive manufacturers influence operating lease residual results in the
following ways:
The brand image of automotive manufacturers and consumer demand for their products affect residual risk.
Automotive manufacturer marketing programs may influence the used vehicle market for those vehicles through programs
such as incentives on new vehicles, programs designed to encourage lessees to terminate their operating leases early in
conjunction with the acquisition of a new vehicle (referred to as pull-ahead programs), and special rate used vehicle programs.
• Used vehicle market — We have exposure to changes in used vehicle prices. General economic conditions, used vehicle supply and
demand, and new vehicle market prices heavily influence used vehicle prices.
75
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Operating Lease Vehicle Terminations and Remarketing
The following table summarizes the volume of operating lease terminations and average gain per vehicle, as well as our methods of
vehicle sales at lease termination, stated as a percentage of total operating lease vehicle disposals.
Year ended December 31,
Off-lease vehicles terminated (in units)
Average gain per vehicle ($ per unit)
Method of vehicle sales
Auction
Internet
Physical
Sale to dealer, lessee, and other
2018
2017
2016
135,365
268,054
307,557
$
661
$
462
$
691
52%
15
33
56%
13
31
55%
13
32
During the year ended December 31, 2018, our operating lease portfolio, net of accumulated depreciation, decreased 4% from $8.7
billion at December 31, 2017, to $8.4 billion at December 31, 2018. The number of off-lease vehicles remarketed during the year ended
December 31, 2018, decreased 50% compared to 2017. The decrease in net operating lease assets and remarketing volume was primarily due
to the wind down of our legacy GM operating lease portfolio. The residual risk associated with our operating lease portfolio has declined
during this run-off period. We expect future termination volume to be more consistent with trends experienced during the year ended
December 31, 2018.
We recognized an average gain per vehicle of $661 for the year ended December 31, 2018, compared to $462 for the year ended
December 31, 2017. The increase in average gain per vehicle for the year ended December 31, 2018, compared to 2017, was primarily due to
an increase in the mix of trucks and a decrease in the mix of cars, which drove more favorable remarketing results. For more information on
our investment in operating leases, refer to Note 1 and Note 10 to the Consolidated Financial Statements.
Operating Lease Portfolio Mix
We monitor the concentration of our outstanding operating leases. The following table presents the mix of operating lease assets by
vehicle type, based on volume of units outstanding.
December 31,
Sport utility vehicle
Truck
Car
2018
2017
2016
57%
31
12
55%
27
18
52%
17
31
Our overall operating lease residual exposure has declined in recent years largely as a result of the runoff of our legacy GM operating
lease portfolio, and as a result our exposure to Chrysler vehicles has grown and now represents approximately 94% of our operating lease
units as of December 31, 2018. The following table presents the mix of vehicles by manufacturer, based on volume of units outstanding.
December 31,
Chrysler vehicles
GM vehicles
Other
Business/Strategic Risk
2018
2017
2016
94%
1
5
79%
12
9
44%
51
5
Business/strategic risk is embedded in every facet of our organization and is one of our primary risk types. It is the risk resulting from the
pursuit of business plans that turn out to be unsuccessful due to a variety of factors, including incorrect assumptions, inappropriate business
plans, ineffective business strategy execution, or failure to respond in a timely manner to changes in the regulatory, macroeconomic or
competitive environments, in the geographic locations in which we operate, competitor actions, changing customer preferences, product
obsolescence, and technology developments. We aim to mitigate this risk within our business units through portfolio diversification, product
innovations, and close monitoring of the execution of our strategic and capital plan, and ensuring flexibility of the cost base (e.g., through
outsourcing).
The strategic plan is reviewed and approved annually by the Board, as are the capital plan and financial business plan. With oversight
from the Board, executive management seeks to consistently apply core operating principles while executing our strategic plan consistent
with the risk appetite approved by the RC. The executive management team continuously monitors business performance throughout the year
to assess strategic risk and find early warning signals so that risks can be proactively managed. Executive management regularly reviews
actual performance versus the plan, updates the Board via reporting routines and implements changes as deemed appropriate.
76
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Significant strategic actions, such as capital actions, material acquisitions or divestitures, and recovery and resolution plans are reviewed
and approved by the Board as required. At the business level, as we introduce new products, we monitor their performance relative to
expectations. With oversight by the Board, executive management performs similar analyses throughout the year, and evaluates changes to the
financial forecast or the risk, capital, or liquidity positions as deemed appropriate to balance and optimize achieving our targeted risk appetite,
stockholder returns, and maintaining our targeted financial strength.
Reputation Risk
Reputation risk is the risk arising from negative public opinion on our business practices, whether true or not, that will cause a decline in
the customer base, litigation, or revenue reductions. Reputation risk may result from many of our activities, including those related to the
management of our business/strategic, operational, and credit risks. We manage reputation risk through established policies and controls in
our businesses and risk-management processes to mitigate reputation risks in a timely manner and through proactive monitoring and
identification of potential reputation risk events. We have established processes and procedures to respond to events that give rise to
reputation risk, including educating individuals and organizations that influence public opinion, external communication strategies to mitigate
the risk, and informing key stakeholders of potential reputation risks. Primary responsibility for the identification, escalation and resolution of
reputation risk issues resides with our business lines. Each employee is under an obligation, within the scope of their activities, to analyze and
assess any imminent or intended transaction in terms of possible risk factors in order to minimize reputation risks. Further, Ally’s strong
“LEAD” culture and distinct “Do it Right” philosophy also strengthen our efforts to mitigate reputational risks by promoting a transparent
culture where every associate is expected to act as a risk manager. Our culture is proactive with its core principles embedded at all levels of
the organization so that any associate, at any time, can and should call attention to risks that need to be addressed and taken into account. Our
organization and governance structures provide oversight of reputation risks, and key risk indicators are reported regularly and directly to
management and the RC, which provide primary oversight of reputation risk.
Operational Risk
Operational risk is the risk of loss or harm arising from inadequate or failed processes or systems, human factors, or external events.
Operational risk is an inherent risk element in all of our activities. Such risk can manifest in various ways, including errors, business
interruptions, and inappropriate behavior of employees, and can potentially result in financial losses and other damage to us. Operational risk
includes business disruption risk, fraud risk, human capital risk, legal risk, model risk, process execution and management risk, and supplier
(third party) risk.
•
•
Business disruption risk — The risk of significant disruption to our operations resulting from natural disasters, external technology
outages, or other external events.
Fraud risk — The risk from deliberate misrepresentation or concealment of information material to a transaction with the intent to
deceive another and that is reasonably relied on or used in decision making. Fraud can occur internally (e.g., employees) or
externally (e.g., criminal activity, third-party suppliers).
• Human capital risk — The risk caused by high turnover, inadequate or improper staffing levels, departure/unavailability of key
personnel, or inadequate training and includes our exposure to worker’s compensation and employment litigation.
•
Legal risk — The risk arising from the potential that unenforceable contracts, lawsuits, or adverse judgments can disrupt or
otherwise negatively affect our operations or condition.
• Model risk — The potential for adverse consequences from decisions based on incorrect or misused model assumptions, inputs,
outputs, and reports. This risk may include fundamental errors within the model that produce inaccurate outputs or that the model is
used incorrectly or inappropriately.
•
•
Process execution and management risk — The risk caused by failure to execute or adhere to policies, standards, procedures,
processes, controls, and activities as designed and documented.
Supplier (third party) risk — The risk associated with third-party suppliers and their delivery of products or services and effect on
overall business performance. This includes a supplier’s failure to comply with information technology requirements, information
and physical security, laws, rules, regulations, and legal agreements.
To monitor and mitigate such risk, we maintain a system of policies and a control framework designed to provide a sound and well-
controlled operational environment. This framework employs practices and tools designed to maintain risk identification, risk governance,
risk and control assessment and testing, risk monitoring, and transparency through risk reporting mechanisms. The goal is to maintain
operational risk at appropriate levels based on our financial strength, the characteristics of the businesses and the markets in which we
operate, and the related competitive and regulatory environment.
Information Technology/Security Risk
Information technology/security risk includes risk resulting from the failure of, or insufficiency in, information technology (e.g., system
outage) or intentional or accidental unauthorized access, sharing, removal, tampering, or disposal of company and customer data or records.
77
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
We and our service providers rely extensively on communications, data-management, and other operating systems and infrastructure to
conduct our business and operations. Failures or disruptions to these systems or infrastructure from cyberattacks or other events may impede
our ability to conduct business and operations and may result in business, reputational, financial, regulatory, or other harm.
We and other financial institutions continue to be the target of various cyberattacks, including those by unauthorized parties who may
seek to disrupt our operations through malware, phishing attacks, denial-of-service, or other security breaches, as part of an effort to disrupt
the operations of financial institutions or obtain confidential, proprietary, or other information or assets of the Company, our customers,
employees, or other third parties with whom we transact.
Cybersecurity and the continued development of our controls, processes, and systems to protect our technology infrastructure, customer
information, and other proprietary information or assets remain a critical and ongoing priority. We recognize that cyber-related risks continue
to evolve and have become increasingly sophisticated, and as a result we continuously evaluate the adequacy of our preventive and detective
measures.
In order to help mitigate cybersecurity risks, we devote substantial resources to protect the Company from cyber-related incidents. We
regularly assess vulnerabilities and threats to our environment utilizing various resources including independent third-party assessments to
evaluate whether our layered system of controls effectively mitigates risk. We also invest in new technologies and infrastructure in order to
respond to evolving risks within our environment. We continue to partner with other industry peers in order to share knowledge and
information to further our security environment and invest in training and employee awareness to cyber-related risks. Additionally, as a
further protective measure, we maintain insurance coverage that, subject to terms and conditions, may cover certain aspects of cybersecurity
and information risks; however, such insurance may not be sufficient to cover losses. Management monitors a significant amount of
operational metrics and data surrounding cybersecurity operations, and the organization monitors compliance with established limits in
connection with our risk appetite. Senior leadership regularly reviews, questions, and challenges such information.
The RC reviews cybersecurity risks, incidents, and developments in connection with its oversight of our independent risk-management
program. The Board and the AC also undertake reviews as appropriate. The Information Technology Risk Committee is responsible for
supporting the Chief Risk Officer’s oversight of Ally’s management of cybersecurity and other risks involving our communications, data-
management, and other operating systems and infrastructure. Additionally, our cybersecurity program is regularly assessed by Audit Services,
which reports directly to the AC. The business lines are also actively engaged in overseeing the service providers that supply or support the
operating systems and infrastructure on which we depend and, with effective challenge from the independent risk-management function,
managing related operational and other risks.
Notwithstanding these risk and control initiatives, we may incur losses attributable to information technology/security risk from time to
time, and there can be no assurance these losses will not be incurred in the future or will not be substantial. For further information on
security, technology, systems, and infrastructure, refer to the section titled Risk Factors in Part I, Item 1A of this report.
Compliance Risk
Compliance risk is the risk of legal or regulatory sanctions, financial loss, or damage to reputation resulting from failure to comply with
laws, regulations, rules, other regulatory requirements, or codes of conduct and other standards of self-regulatory organizations applicable to
the banking organization (applicable rules and standards). Examples of such risks include compliance with regulations set forth by banking
agencies including fair and responsible banking, anti-money laundering, or community reinvestment act, risks associated with offering our
products or services, or risks associated with deviating from internal policies and procedures including those that are established to promote
sound risk-management and internal-control practices. Compliance risk also includes fiduciary risk, which includes risks arising from our
duty to exercise loyalty, act in the best interest of our clients, and care for assets according to an appropriate standard of care. This risk
generally exists to the extent that we exercise discretion in managing assets on behalf of a customer.
We recognize that an effective compliance program, including driving a culture of compliance, plays a key role in managing and
overseeing compliance risk, and that a proactive compliance environment and program are essential to help meet various legal, regulatory, or
other requirements or expectations. To manage compliance risk, we maintain a system of policies, change-management protocols, control
frameworks, and other formal governance structures designed to provide a holistic enterprise approach to managing such risks, which
includes consideration of identifying, assessing, monitoring, and communicating compliance risks throughout the Company. Our compliance
function provides independent, enterprise-wide oversight of compliance-risk exposures and related risk-management practices and is led by
the Chief Compliance Officer who reports to our Chief Executive Officer. The Chief Compliance Officer has the authority and responsibility
for the oversight and administration of our Enterprise Compliance Program, which includes ongoing reporting of significant compliance-
related matters to the Board and various committees established to govern compliance-related risks. The Compliance Risk Management
Committee, established by the Chief Compliance Officer, serves to facilitate compliance risk management and to oversee the implementation
of Ally’s compliance risk-management strategies and covers compliance matters across the enterprise including matters impacting customers,
products, geographies, and services.
Conduct Risk
Conduct risk includes the risk of customer harm, employee harm, reputational damage, regulatory sanction, or financial loss resulting
from the behavior of our employees and contractors toward customers, counterparties, other employees and contractors, or the markets in
which we operate.
78
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
All business lines are responsible for identifying and managing conduct risk and driving a culture consistent with our “LEAD” core
values and “Do it Right” philosophy. We manage conduct risk through a variety of enterprise programs, policies, and procedures. Our Code of
Conduct and Ethics and various other training programs and resources serve as a guide to our associates regarding expectations around
appropriate conduct, ethical behavior, and a culture of compliance with laws, regulations, policies, and standards. Our Code of Conduct and
Ethics requires officers and employees to take personal responsibility for maintaining the highest standards of honesty, trustworthiness, and
ethical conduct; to understand and manage the risks associated with their positions; and to escalate concerns about risk management including
reporting of violations of the code, our policies, or other laws and regulations. Associates are required to complete training about our Code of
Conduct and Ethics upon on-boarding and annually thereafter to affirm compliance to our Code of Conduct and Ethics. Conduct risk is also
considered through various human resource and management activities including associate recruiting and on-boarding and management of
performance and compensation. Conduct risk is also managed through our Enterprise Fraud, Security, and Investigations program, which
identifies, monitors, and investigates potential fraud or conduct violations through a variety of measures including the administration of an
anonymous reporting hotline.
79
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Liquidity Management, Funding, and Regulatory Capital
Overview
The purpose of liquidity management is to enable us to meet loan and operating lease demand, debt maturities, deposit withdrawals, and
other cash commitments under both normal operating conditions as well as periods of economic or financial stress. Our primary objective is
to maintain cost-effective, stable and diverse sources of funding capable of sustaining the organization throughout all market cycles. Sources
of funding include both retail and brokered deposits and secured and unsecured market-based funding across various maturity, interest rate,
and investor profiles. Additional liquidity is available through a pool of unencumbered highly liquid securities, committed secured credit
facilities, repurchase agreements, and advances from the FHLB of Pittsburgh.
We define liquidity risk as the risk that an institution’s financial condition or overall safety and soundness is adversely affected by an
inability, or perceived inability, to meet its financial obligations, and to withstand unforeseen liquidity stress events. Liquidity risk can arise
from a variety of institution-specific or market-related events that could have a negative impact on cash flows available to the organization.
Effective management of liquidity risk facilitates an organization’s preparedness to meet cash flow obligations caused by unanticipated
events. Managing liquidity needs and contingent funding exposures has proven essential to the solvency of financial institutions.
The Asset-Liability Committee (ALCO) is chaired by the Corporate Treasurer and is responsible for overseeing our funding and liquidity
strategies. Corporate Treasury is responsible for managing our liquidity positions within limits approved by ALCO and the RC. As part of
managing liquidity risk, we prepare periodic forecasts depicting anticipated funding needs and sources of funds with oversight and monitoring
by the Liquidity Risk Group within Corporate Treasury. Corporate Treasury executes our funding strategies and manages liquidity under
baseline economic projections as well as more severely stressed macroeconomic environments.
Funding Strategy
Liquidity and ongoing profitability are largely dependent on the timely and cost-effective access to retail deposits and funding in
different segments of the capital markets. Our funding strategy largely focuses on the development of diversified funding sources across a
broad base of depositors, lenders, and investors to meet liquidity needs throughout different market cycles, including periods of financial
distress. These funding sources include retail and brokered deposits, committed secured credit facilities, public and private asset-backed
securitizations, unsecured debt, FHLB advances, whole-loan sales, demand notes, and repurchase agreements. The diversity of our funding
sources enhances funding flexibility, limits dependence on any one source, and results in a more cost-effective funding strategy over the long
term. We evaluate funding markets on an ongoing basis to achieve an appropriate balance of unsecured and secured funding sources and
maturity profiles.
We diversify our overall funding to reduce reliance on any one source of funding and to achieve a well-balanced funding portfolio across
a spectrum of risk, maturity, and cost-of-funds characteristics. Optimizing funding at Ally Bank continues to be a key part of our long-term
liquidity strategy. We optimize our funding sources at Ally Bank by growing retail deposits, maintaining active public and private
securitization programs, managing a prudent maturity profile of our brokered deposit portfolio, utilizing repurchase agreements, and
continuing to access funds from the FHLB.
Since becoming a BHC in December 2008, a significant portion of asset originations have been directed to Ally Bank to reduce parent
company exposures and funding requirements, and to utilize our growing consumer deposit-taking capabilities. This has allowed us to use
bank funding for a wider array of our automotive finance and other assets and to provide a sustainable long-term funding channel for the
business, while also improving the cost of funds for the enterprise.
Liquidity Risk Management
Multiple metrics are used to measure the level of liquidity risk, manage the liquidity position, and identify related trends. These metrics
include coverage ratios and comprehensive stress tests that measure the sufficiency of the liquidity portfolio over short- and long-term
stressed horizons, stability ratios that measure longer-term structural liquidity, and concentration ratios that enable prudent funding
diversification. In addition, we have established internal management routines designed to review all aspects of liquidity and funding plans,
evaluate the adequacy of liquidity buffers, review stress testing results, and assist management in the execution of its funding strategy and
risk-management accountabilities.
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Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
We maintain available liquidity in the form of cash, unencumbered highly liquid securities, and available committed secured credit
facility capacity. Our liquidity stress testing is designed to enable an ongoing total liquidity position that would allow us to operate our
businesses and to meet our contractual and contingent obligations, including unsecured debt maturities, for at least twelve months, assuming
severe market-wide disruptions and enterprise-specific events disrupt normal access to funding. We hold available liquidity at various entities,
taking into consideration regulatory restrictions and tax implications that may limit our ability to transfer funds across entities. The following
table summarizes our total available liquidity.
December 31, 2018 ($ in millions)
Unencumbered highly liquid U.S. federal government and U.S. agency securities
$
12,849
Liquid cash and equivalents
Committed secured credit facilities
Total capacity
Outstanding
Unused capacity (a)
Total available liquidity
4,227
8,600
6,665
1,935
$
19,011
(a) Funding from committed secured credit facilities is available on request in the event excess collateral resides in certain facilities or the extent incremental
collateral is available and contributed to the facilities.
In addition, our Modified Liquidity Coverage Ratio exceeded 100% at December 31, 2018. Refer to Note 20 to the Consolidated
Financial Statements and the section titled Regulation and Supervision in Part I, Item 1 of this report for further discussion of our liquidity
requirements.
Deposits
Ally Bank, which is a direct bank with no branch network, obtains retail deposits directly from customers through internet, telephone,
mobile, and mail channels. These retail deposits provide our Automotive Finance, Mortgage Finance, and Corporate Finance operations with
a stable and low-cost funding source. Retail deposit growth is a key driver of optimizing funding costs and reducing reliance on capital
markets-based funding. We believe deposits provide a stable, low-cost source of funds that are less sensitive to interest rate changes, market
volatility, or changes in credit ratings when compared to other funding sources. We have continued to expand our deposit gathering efforts
through both direct and indirect marketing channels. Current retail deposit offerings consist of a variety of products including CDs, savings
accounts, money market accounts, IRA deposit products, as well as an interest checking product. In addition, we utilize brokered deposits,
which are obtained through third-party intermediaries, including a deposit related to Ally Invest customer cash balances.
The following table shows Ally Bank’s number of accounts and our deposit balances by type as of the end of each quarter since 2017.
Number of retail bank
accounts (in thousands)
Deposits ($ in millions)
Retail
Brokered (a)
Other (b)
Total deposits
4th quarter
2018
3rd quarter
2018
2nd quarter
2018
1st quarter
2018
4th quarter
2017
3rd quarter
2017
2nd quarter
2017
1st quarter
2017
3,238
3,079
2,947
2,864
2,740
2,603
2,474
2,366
$
89,121 $
84,629 $
81,736 $
81,657 $
77,925 $
74,928 $
71,094 $
16,914
16,567
16,839
15,661
15,211
15,045
14,937
143
183
159
128
120
143
152
69,971
14,327
188
$
106,178 $
101,379 $
98,734 $
97,446 $
93,256 $
90,116 $
86,183 $
84,486
(a) Brokered deposit balances include a deposit related to Ally Invest customer cash balances deposited at Ally Bank by a third party of $1.1 billion as of
December 31, 2018, and $1.2 billion as of the end of each other quarter presented.
(b) Other deposits include mortgage escrow, dealer, and other deposits.
During 2018, our deposit base grew $12.9 billion. The recent growth in total deposits has been primarily attributable to our retail deposit
portfolio—particularly within retail CDs and our online savings product. Strong retention rates and customer acquisition, reflecting the
strength of the brand, continue to drive growth in retail deposits. Refer to Note 14 to the Consolidated Financial Statements for a summary of
deposit funding by type.
Securitizations and Secured Financings
In addition to building a larger deposit base, secured funding continues to be a significant, reliable and cost-effective source of financing.
Securitizations and secured funding transactions, collectively referred to as securitization transactions due to their similarities, allow us to
convert our automotive finance receivables and operating leases into cash earlier than what would have occurred in the normal course of
business, and we continue to remain active in the well-established securitization markets.
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Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
As part of these securitization transactions, we sell assets to various special purpose entities (SPEs) in exchange for the proceeds from
the issuance of debt and other beneficial interests in the assets. The SPEs activities are generally limited to acquiring the assets, issuing and
making payments on the debt, paying related expenses, and periodically reporting to the investors.
These SPEs are separate legal entities that assume the risks and rewards of ownership of the receivables they hold. The assets of the
SPEs are not available to satisfy our claims or those of our creditors. In addition, the SPEs do not invest in our equity or in the equity of any
of our affiliates. Our economic exposure related to the SPEs is generally limited to cash reserves, retained interests, and customary
representation and warranty provisions.
We typically agree to service the transferred assets in our securitization transactions for a fee, and we may also earn other related fees.
The total amount of servicing fees earned is disclosed in Note 5 to the Consolidated Financial Statements. We may also retain a portion of
senior and subordinated interests issued by the SPEs. Subordinate interests typically provide credit support to the more highly rated senior
interest in a securitization transaction and may be subject to all or a portion of the first loss position related to the sold assets.
Certain of these securitization transactions meet the criteria to be accounted for as off-balance sheet securitization transactions if we do
not hold a potentially significant economic interest or do not provide servicing or asset management functions for the financial assets held by
the securitization entity. Certain of our securitization transactions do not meet the required criteria to be accounted for as off-balance sheet
securitization transactions; therefore, they are accounted for as secured borrowings. For information regarding our securitization activities,
refer to Note 1 and Note 11 to the Consolidated Financial Statements.
During 2018, we raised $7.4 billion through the completion of term securitization transactions backed by consumer automotive loans and
dealer floorplan automotive assets. Additionally, for consumer automotive loans and operating leases, the term structure of the transaction
locks in funding for a specified pool of loans and operating leases, creating an effective tool for managing interest rate and liquidity risk.
We manage securitization execution risk by maintaining a diverse investor base and available committed secured credit facility capacity.
We have access to private committed credit facilities provided by banks, the largest of which is a syndicate of five lenders secured by
automotive receivables, though the facility can also fund dealer floorplan loans and operating leases. In March 2018, this facility was renewed
with $4.0 billion of capacity and the maturity was extended to March 2020. In the event this facility is not renewed at maturity, the
outstanding debt will be repaid over time as the underlying collateral amortizes. At December 31, 2018, there was $2.7 billion outstanding
under this facility. Our ability to access the unused capacity in the facility depends on the availability of eligible assets to collateralize the
incremental funding and, in some instances, on the execution of interest rate hedges.
In addition to our syndicated facility, we maintain various bilateral facilities provided by banks through private transactions, which fund
our Automotive Finance operations. The facilities can be revolving in nature—generally having an original tenor ranging from 364 days to
two years and allowing for additional funding during the commitment period—or they can be amortizing and not allow for any further
funding after the commitment period. At December 31, 2018, all of our $8.6 billion of capacity was revolving. As of December 31, 2018, we
had $7.0 billion of capacity from facilities with a remaining tenor greater than 364 days.
We also have access to funding through advances with the FHLB. These advances are primarily secured by consumer mortgage and
commercial real estate automotive finance receivables and loans. As of December 31, 2018, we had pledged $30.8 billion of assets and
investment securities to the FHLB resulting in $23.9 billion in total funding capacity with $21.8 billion of debt outstanding.
At December 31, 2018, $59.5 billion of our total assets were restricted as collateral for the payment of debt obligations accounted for as
secured borrowings and repurchase agreements. Refer to Note 15 to the Consolidated Financial Statements for further discussion.
Unsecured Financings
We obtain unsecured funding from the sale of floating-rate demand notes under our Demand Notes program. The holder has the option to
require us to redeem these notes at any time without restriction. Demand Notes outstanding were $2.5 billion at December 31, 2018. We also
have short-term and long-term unsecured debt outstanding from retail term note programs. These programs are composed of callable fixed-
rate instruments with fixed-maturity dates and floating-rate notes. There were $347 million of retail term notes outstanding at December 31,
2018. The remainder of our unsecured debt is composed of institutional term debt. Refer to Note 15 to the Consolidated Financial Statements
for additional information about our outstanding short-term borrowings and long-term unsecured debt.
Other Secured and Unsecured Short-term Borrowings
We have access to repurchase agreements. A repurchase agreement is a transaction in which the firm sells financial instruments to a
buyer, typically in exchange for cash, and simultaneously enters into an agreement to repurchase the same or substantially the same financial
instruments from the buyer at a stated price plus accrued interest at a future date. The securities sold in repurchase agreements include U.S.
government and federal agency obligations. As of December 31, 2018, we had $685 million debt outstanding under repurchase agreements.
Additionally, we have access to the FRB Discount Window and can borrow funds to meet short-term liquidity demands. However, the
FRB is not a primary source of funding for day to day business. Instead, it is a liquidity source that can be accessed in stressed environments
or periods of market disruption. We have assets pledged and restricted as collateral to the FRB totaling $2.4 billion. We had no debt
outstanding with the FRB as of December 31, 2018.
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Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Recent Funding Developments
During 2018, we accessed the public and private markets to execute secured funding transactions, unsecured funding transactions, and
committed secured credit facility renewals totaling $16.0 billion. Key funding highlights from January 1, 2018, to date were as follows:
• We closed, renewed, increased, or extended $8.6 billion in committed secured credit facilities during the year ended December 31,
2018.
• We continued to access the public and private term asset-backed securitization markets raising $7.4 billion during the year ended
December 31, 2018. During 2018, we raised $4.8 billion through securitizations backed by consumer automotive loans. We also
raised approximately $2.6 billion through public securitizations backed by dealer floorplan automotive assets.
•
In February 2019, we raised approximately $1.0 billion through a public securitization backed by consumer automotive loans.
Funding Sources
The following table summarizes our sources of funding and the amount outstanding under each category for the periods shown.
December 31, ($ in millions)
Deposits
Debt
Secured financings
Institutional term debt
Retail debt programs (a)
Total debt (b)
Total on-balance sheet funding
On-balance sheet
funding
% Share of funding
2018
2017
2018
2017
$
106,178
$
93,256
39,657
11,632
2,824
54,113
36,869
15,099
3,463
55,431
$
160,291
$
148,687
66
25
7
2
34
100
63
25
10
2
37
100
Includes $347 million and $292 million of retail term notes at December 31, 2018, and December 31, 2017, respectively.
(a)
(b) Excludes fair value adjustment as described in Note 21 to the Consolidated Financial Statements.
Refer to Note 15 to the Consolidated Financial Statements for a summary of the scheduled maturity of long-term debt at December 31,
2018.
Cash Flows
The following summarizes the activity reflected on the Consolidated Statement of Cash Flows. While this information may be helpful to
highlight certain macro trends and business strategies, the cash flow analysis may not be as relevant when analyzing changes in our net
earnings and net assets. We believe that in addition to the traditional cash flow analysis, the discussion related to liquidity, dividends, and
ALM herein may provide more useful context in evaluating our liquidity position and related activity.
Net cash provided by operating activities was $4.2 billion for the year ended December 31, 2018, compared to $4.1 billion for 2017.
Activity was largely consistent year over year, as cash flows from our consumer and commercial lending activities offset a decline in our
leasing business.
Net cash used in investing activities was $14.5 billion for the year ended December 31, 2018, compared to $8.7 billion for 2017. The
increase during the year ended December 31, 2018, was primarily due to a $3.7 billion net increase in cash outflows from purchases, sales,
originations and repayments of finance receivables and loans, as new loan originations and purchases outpaced loan sales. The increase was
also driven by a $2.1 billion decrease in proceeds from disposals of operating lease assets, net of purchases. This was partially offset by a
$527 million decrease in net outflows from purchases of held-to-maturity securities, net of repayments.
Net cash provided by financing activities for the year ended December 31, 2018, was $10.7 billion, compared to net cash provided of
$2.0 billion for 2017. The increase in net cash provided by financing activities was primarily attributable to a $10.0 billion decrease in net
cash outflows for repayment of long-term debt and an increase of $432 million from cash inflows due to issuance of long-term debt. This was
partially offset by a decrease in net cash inflows associated with deposits of $1.3 billion and an increase in net cash outflows related to short-
term borrowings of approximately $163 million between the two periods.
Capital Planning and Stress Tests
Pending the adoption of proposals issued by the FRB and other U.S. banking agencies during the fourth quarter of 2018 that would
implement the EGRRCP Act, as further described in Note 20 to the Consolidated Financial Statements, Ally is required to conduct semi-
annual company-run stress tests, is subject to an annual supervisory stress test conducted by the FRB, and must submit a proposed capital plan
to the FRB.
Ally’s proposed capital plan must include an assessment of our expected uses and sources of capital and a description of all planned
capital actions over a nine-quarter planning horizon, including any issuance of a debt or equity capital instrument, any dividend or other
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Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
capital distribution, and any similar action that the FRB determines could have an impact on Ally’s capital. The proposed capital plan must
also include a discussion of how Ally, under expected and stressful conditions, will maintain capital commensurate with its risks and above
the minimum regulatory capital ratios, and will serve as a source of strength to Ally Bank. The FRB will either object to Ally’s proposed
capital plan, in whole or in part, or provide a notice of non-objection. If the FRB objects to the proposed capital plan, or if certain material
events occur after approval of the plan, Ally must submit a revised capital plan within 30 days. Even if the FRB does not object to our capital
plan, Ally may be precluded from or limited in paying dividends or other capital distributions without the FRB’s approval under certain
circumstances—for example, when we would not meet minimum regulatory capital ratios and capital buffers after giving effect to the
distributions.
The following table presents information related to our common stock for each quarter since the commencement of our common-stock-
repurchase programs and initiation of a quarterly cash dividend on common stock.
($ in millions, except per share data; shares in thousands)
2016
Third quarter
Fourth quarter
2017
First quarter
Second quarter
Third quarter
Fourth quarter
2018
First quarter
Second quarter
Third quarter
Fourth quarter
Common stock repurchased
during period (a)
Number of common shares
outstanding
Approximate
dollar value
Number of
shares
Beginning
of period
End of
period
Cash
dividends
declared per
common
share (b)
$
$
$
159
167
169
204
190
190
185
195
250
309
8,298
8,745
8,097
10,485
8,507
7,033
6,473
7,280
9,194
12,121
483,753
475,470
467,000
462,193
452,292
443,796
437,054
432,691
425,752
416,591
475,470
$
467,000
462,193
$
452,292
443,796
437,054
432,691
$
425,752
416,591
404,900
0.08
0.08
0.08
0.08
0.12
0.12
0.13
0.13
0.15
0.15
Includes shares of common stock withheld to cover income taxes owed by participants in our share-based incentive plans.
(a)
(b) On January 14, 2019, the Board declared a quarterly cash dividend of $0.17 per share on all common stock, payable on February 15, 2019. Refer to Note
31 to the Consolidated Financial Statements for further information regarding this common stock dividend.
Ally submitted its 2018 capital plan and company-run stress test results to the FRB on April 5, 2018. On June 21, 2018, we publicly
disclosed summary results of the stress test under the severely adverse scenario in accordance with applicable regulatory requirements. On
June 28, 2018, we received from the FRB a non-objection to our capital plan, which included increases in both our stock-repurchase program
and our planned dividends. Consistent with the capital plan, the Board authorized a 32% increase in our stock-repurchase program, permitting
us to repurchase up to $1.0 billion of our common stock from time to time from the third quarter of 2018 through the second quarter of 2019.
Also consistent with the capital plan, on January 14, 2019, the Board declared a quarterly cash dividend of $0.17 per share of our common
stock. Refer to Note 31 to the Consolidated Financial Statements for further information on the most recent dividend. On October 5, 2018, we
submitted to the FRB the results of our company-run mid-cycle stress test and publicly disclosed summary results under the severely adverse
scenario in accordance with applicable regulatory requirements.
During the first quarter of 2019, the FRB announced that a number of large and noncomplex BHCs with $100 billion or more but less
than $250 billion in total consolidated assets, including Ally, will not be required to submit a capital plan to the FRB, participate in the
supervisory stress test or CCAR, or conduct company-run stress tests during the 2019 cycle. Instead, Ally’s capital actions during this cycle
will be largely based on the results from its 2018 supervisory stress test.
Our ability to make capital distributions, including our ability to pay dividends or repurchase shares of our common stock, will continue
to be subject to the FRB’s review. The amount and size of any future dividends and share repurchases also will depend upon our results of
operations, capital levels, future opportunities, consideration and approval by the Board, and other considerations.
In January 2017, the FRB amended its capital planning and stress testing rules, effective for the 2017 cycle and beyond. As a result of
this amendment, the FRB may no longer object to the capital plan of a large and noncomplex BHC, like Ally, on the basis of qualitative
deficiencies in its capital planning process. Instead, the qualitative assessment of Ally’s capital planning process is now conducted outside of
CCAR through the supervisory review process. The amendment also decreased the de minimis threshold for the amount of capital that Ally
could distribute to stockholders outside of an approved capital plan without the FRB’s prior approval, and modified Ally’s reporting
requirements to reduce unnecessary burdens.
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Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Regulatory Capital
Refer to Note 20 to the Consolidated Financial Statements and the section titled Selected Financial Data in Part II, Item 6 of this report.
Credit Ratings
The cost and availability of unsecured financing are influenced by credit ratings, which are intended to be an indicator of the
creditworthiness of a particular company, security, or obligation. Lower ratings result in higher borrowing costs and reduced access to capital
markets. This is particularly true for certain institutional investors whose investment guidelines require investment-grade ratings on term debt
and the two highest rating categories for short-term debt (particularly money market investors).
Nationally recognized statistical rating organizations rate substantially all our debt. The following table summarizes our current ratings
and outlook by the respective nationally recognized rating agencies.
Rating agency
Fitch
Moody’s
S&P
DBRS
Short-term
B
Not Prime
B
R-3
Senior unsecured
debt
BB+
Ba2
BB+
BBB (Low)
Outlook
Positive
Stable
Positive
Stable
Date of last action
August 28, 2018 (a)
February 11, 2019 (b)
October 17, 2018 (c)
May 1, 2018 (d)
(a) Fitch affirmed our senior unsecured debt rating of BB+, affirmed our short-term rating of B, and maintained a Positive outlook on August 28, 2018.
(b) Moody’s upgraded our senior unsecured debt rating to Ba2 from Ba3, affirmed our short-term rating of Not Prime, and maintained a Stable outlook on
February 11, 2019. Effective December 1, 2014, we determined to not renew our contractual arrangement with Moody’s related to their providing of our
issuer, senior debt, and short-term ratings. Notwithstanding this, Moody’s has determined to continue to provide these ratings on a discretionary basis.
However, Moody’s has no obligation to continue to provide these ratings, and could cease doing so at any time.
(c) Standard & Poor’s affirmed our senior unsecured debt rating of BB+, affirmed our short-term rating of B, and changed the outlook from Stable to Positive
on October 17, 2018.
(d) DBRS affirmed our senior unsecured debt rating of BBB (Low), affirmed our short-term rating of R-3, and maintained a Stable outlook on May 1, 2018.
Rating agencies indicate that they base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity,
asset quality, business mix, level and quality of earnings, and the current operating, legislative, and regulatory environment. Rating agencies
themselves could make or be required to make substantial changes to their ratings policies and practices—particularly in response to
legislative and regulatory changes. Potential changes in rating methodology, as well as in the legislative and regulatory environment, and the
timing of those changes could impact our ratings, which as noted above could increase our borrowing costs and reduce our access to capital.
A credit rating is not a recommendation to buy, sell, or hold securities, and the ratings are subject to revision or withdrawal at any time
by the assigning rating agency. Each rating should be evaluated independently of any other rating.
Off-balance Sheet Arrangements
Refer to Note 11 to the Consolidated Financial Statements.
Guarantees
Guarantees are defined as contracts or indemnification agreements that contingently require us to make payments to third parties based
on changes in an underlying agreement that is related to a guaranteed party. Our guarantees include client securities to a clearing broker,
standby letters of credit, and certain contract provisions associated with securitizations, sales, and divestitures. Refer to Note 28 to the
Consolidated Financial Statements for more information regarding our outstanding guarantees to third parties.
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Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Aggregate Contractual Obligations
The following table provides aggregated information about our outstanding contractual obligations disclosed elsewhere in our
Consolidated Financial Statements.
December 31, 2018 ($ in millions)
Contractually obligated payments due by period
Long-term debt
Total (a)
Scheduled interest payments for fixed-rate long-term
debt
Estimated interest payments for variable-rate long-term
debt (b)
Lease commitments
Purchase obligations
Bank certificates of deposit (c) (d)
Deposit liabilities without a stated maturity (d) (e)
Total contractually obligated payments due by period
Total other commitments by expiration period
Lending commitments
$
$
Total
Less than
1 year
1–3 years
3–5 years
More than
5 years
$
45,353
$
9,040
$
20,563
$
7,638
$
8,112
5,090
5,594
503
117
50,021
56,193
162,871
4,338
$
$
1,098
1,487
462
48
70
31,523
56,193
98,434
2,224
$
$
786
93
47
16,287
—
39,263
612
$
$
721
569
68
—
2,211
—
11,207
903
$
$
1,784
3,777
294
—
—
—
13,967
599
(a) Total long-term debt amount reflects the remaining principal obligation and excludes net original issue discount of $1.1 billion, unamortized debt issuance
costs of $94 million, and an unfavorable hedge basis adjustment of $67 million related to fixed-rate debt previously designated as a hedged item.
(b) Estimated using a forecasted variable interest model, when available, or the applicable variable interest rate as of the most recent reset date prior to
December 31, 2018. For additional information on derivative instruments and hedging activities, refer to Note 21 to the Consolidated Financial
Statements.
(c) Amounts presented exclude unamortized commissions paid to brokers.
(d) Deposits exclude estimated interest payments.
(e) Deposits without a stated maturity are payable on demand and include savings and money market checking, mortgage escrow, dealer, and other deposits;
and are classified above as due in less than one year.
The foregoing table does not include our reserves for insurance losses and loss adjustment expenses, which total $134 million at
December 31, 2018. While payments due on insurance losses are considered contractual obligations because they related to insurance policies
issued by us, the ultimate amount to be paid and the timing of payment for an insurance loss is an estimate subject to significant uncertainty.
Furthermore the majority of the balance is expected to be paid out in less than five years.
The following provides a description of the items summarized in the preceding table of contractual obligations.
Long-term Debt
Amounts represent the scheduled maturity of long-term debt at December 31, 2018, assuming that no early redemptions occur. The
maturity of secured debt may vary based on the payment activity of the related secured assets. The amounts presented are before the effect of
any unamortized discount, debt issuance costs, or fair value adjustment. Refer to Note 15 to the Consolidated Financial Statements for
additional information on our debt obligations. We primarily use interest rate swaps to manage interest rate risk associated with our secured
and unsecured long-term debt portfolio. These derivatives are recorded on the balance sheet at fair value. For additional information on
derivatives, refer to Note 21 to the Consolidated Financial Statements.
Lease Commitments
We have obligations under various operating lease arrangements for real property with noncancelable lease terms that expire after
December 31, 2018. Refer to Note 28 to the Consolidated Financial Statements for additional information.
Purchase Obligations
We enter into multiple contractual arrangements for various services. The arrangements represent fixed payment obligations under our
most significant contracts and primarily relate to contracts with information technology providers. Refer to Note 28 to the Consolidated
Financial Statements for additional information.
Bank Certificates of Deposit
Refer to Note 14 to the Consolidated Financial Statements for additional information.
Lending Commitments
We have outstanding lending commitments with customers. The amounts presented represent the unused portion of those commitments
at December 31, 2018. Refer to Note 28 to the Consolidated Financial Statements for additional information.
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Ally Financial Inc. • Form 10-K
Critical Accounting Estimates
Accounting policies are integral to understanding our Management’s Discussion and Analysis of Financial Condition and Results of
Operations. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of
America (GAAP) requires management to make certain judgments and assumptions, on the basis of information available at the time of the
financial statements, in determining accounting estimates used in the preparation of these statements. Our significant accounting policies are
described in Note 1 to the Consolidated Financial Statements; critical accounting estimates are described in this section. An accounting
estimate is considered critical if the estimate requires management to make assumptions about matters that were highly uncertain at the time
the accounting estimate was made. If actual results differ from our judgments and assumptions, then it may have an adverse impact on the
results of operations and cash flows. Our management has discussed the development, selection, and disclosure of these critical accounting
estimates with the Audit Committee of the Board, and the Audit Committee has reviewed our disclosure relating to these estimates.
Allowance for Loan Losses
We maintain an allowance for loan losses (the allowance) to absorb probable loan credit losses inherent in the held-for-investment
portfolio. The allowance is maintained at a level that management considers to be adequate based upon ongoing quarterly assessments and
evaluations of collectability and historical loss experience in our lending portfolio. The allowance is management’s estimate of incurred losses
in our lending portfolio and involves significant judgment. Management performs quarterly analyses of these portfolios to determine if
impairment has occurred and to assess the adequacy of the allowance based on historical and current trends and other factors affecting credit
losses. Additions to the allowance are charged to current period earnings through the provision for loan losses; amounts determined to be
uncollectible are charged directly against the allowance, while amounts recovered on previously charged-off accounts increase the allowance.
Determining the appropriateness of the allowance requires management to exercise significant judgment about matters that are inherently
uncertain, including the timing, frequency, and severity of credit losses that could materially affect the provision for loan losses and, therefore,
net income. For additional information regarding our portfolio segments and classes, refer to Note 9 to the Consolidated Financial Statements.
While we attribute portions of the allowance across our lending portfolios, the entire allowance is available to absorb probable loan losses
inherent in our total lending portfolio.
The consumer portfolio segments consist of smaller-balance, homogeneous loans within our Automotive Finance operations and
Mortgage Finance operations. Excluding certain loans that are identified as individually impaired, the allowance for each consumer portfolio
segment (automotive and mortgage) is evaluated collectively. The allowance is based on aggregated portfolio segment evaluations that begin
with estimates of incurred losses in each portfolio segment based on various statistical analyses. We leverage statistical models based on
recent loss trends to develop a systematic incurred loss reserve. These statistical loss forecasting models are utilized to estimate incurred
losses and consider several credit quality indicators including, but not limited to, historical loss experience, current economic conditions,
credit scores, and expected loss factors by loan type. Management believes these factors are relevant to estimate incurred losses and are
updated on a quarterly basis in order to incorporate information reflective of the current economic environment, as changes in these
assumptions could have a significant impact. In order to develop our best estimate of probable incurred losses inherent in the loan portfolio,
management reviews and analyzes the output from the models and may adjust the reserves to take into consideration environmental,
qualitative, and other factors that may not be captured in the models. These adjustments are documented and reviewed through our risk
management processes. Management reviews, updates, and validates its systematic process and loss assumptions on a periodic basis. This
process involves an analysis of loss information, such as a review of loss and credit trends, a retrospective evaluation of actual loss
information to loss forecasts, and other analyses.
The commercial portfolio segment is primarily composed of larger-balance, nonhomogeneous exposures within our Automotive Finance
operations and Corporate Finance operations. These loans are primarily evaluated individually and are risk-rated based on borrower,
collateral, and industry-specific information that management believes is relevant in determining the occurrence of a loss event and measuring
impairment. A loan is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual
terms of the loan agreement based on current information and events. Management establishes specific allowances for commercial loans
determined to be individually impaired based on the present value of expected future cash flows, discounted at the loans’ effective interest
rate, and the observable market price or the fair value of collateral, whichever is determined to be the most appropriate. Estimated costs to sell
the collateral on a discounted basis are included in the impairment measurement, when appropriate. In addition to the specific allowances for
impaired loans, loans that are not identified as individually impaired are grouped into pools based on similar risk characteristics and
collectively evaluated. These allowances are based on historical loss experience, concentrations, current economic conditions, performance
trends within specific geographic locations, and other qualitative factors identified by management. The commercial historical loss experience
is updated quarterly to incorporate the most recent data reflective of the current economic environment.
The determination of the allowance is influenced by numerous assumptions and many factors that may materially affect estimates of
loss, including volatility of loss given default, probability of default, and rating migration. The critical assumptions underlying the allowance
include: (i) segmentation of each portfolio based on common risk characteristics; (ii) identification and estimation of portfolio indicators and
other factors that management believes are key to estimating incurred credit losses; and (iii) evaluation by management of borrower,
collateral, and geographic information. Management monitors the adequacy of the allowance and makes adjustments as the assumptions in the
underlying analyses change to reflect an estimate of incurred loan losses at the reporting date, based on the best information available at that
time. In addition, the allowance related to the commercial portfolio segment is influenced by estimated recoveries from automotive
manufacturers in those cases where we have guarantees or agreements with them to repurchase vehicles used as collateral to secure the loans.
If an automotive manufacturer has provided such a guarantee or agreement but is unable to honor its obligations, our ultimate loan losses
87
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
could be higher. To the extent that actual outcomes differ from our estimates, additional provision for credit losses may be required that would
reduce earnings.
Valuation of Automotive Operating Lease Assets and Residuals
We have significant investments in vehicles in our operating lease portfolio. In accounting for operating leases, management must make
a determination at the beginning of the operating lease contract of the estimated realizable value (i.e., residual value) of the vehicle at the end
of the lease. Residual value represents an estimate of the market value of the vehicle at the end of the lease term. At contract inception, we
determine pricing based on the projected residual value of the vehicle. This evaluation is primarily based on a proprietary model, which
includes variables such as age, expected mileage, seasonality, segment factors, vehicle type, economic indicators, production cycle,
automotive manufacturer incentives, and shifts in used vehicle supply. This internally-generated data is compared against third-party,
independent data for reasonableness. The customer is obligated to make payments during the term of the lease for the difference between the
purchase price and the contract residual value plus rental charges. However, since the customer is not obligated to purchase the vehicle at the
end of the contract, we are exposed to a risk of loss to the extent the value of the vehicle is below the residual value estimated at contract
inception. Management periodically performs a detailed review of the estimated realizable value of vehicles to assess the appropriateness of
the carrying value of operating lease assets.
To account for residual risk, we depreciate automotive operating lease assets to expected realizable value on a straight-line basis over the
lease term. The estimated realizable value is initially based on the residual value established at contract inception. Periodically, we revise the
projected value of the leased vehicle at termination based on current market conditions, and other relevant data points, and adjust depreciation
expense as necessary over the remaining term of the lease. Impairment of operating lease assets is assessed upon the occurrence of a
triggering event. Triggering events are systemic, observed events impacting the used vehicle market such as shocks to oil and gas prices that
may indicate impairment of the operating lease asset. Impairment is determined to exist if the expected undiscounted cash flows generated
from the operating lease assets are less than the carrying value of the operating lease assets. If the operating lease assets are impaired, they are
written down to their fair value as estimated by discounted cash flows. There were no such impairment charges in 2018, 2017, or 2016.
Our depreciation methodology for operating lease assets considers management’s expectation of the value of the vehicles upon lease
termination, which is based on numerous assumptions and factors influencing used vehicle values. The critical assumptions underlying the
estimated carrying value of automotive operating lease assets include: (i) estimated market value information obtained and used by
management in estimating residual values, (ii) proper identification and estimation of business conditions, (iii) our remarketing abilities, and
(iv) automotive manufacturer vehicle and marketing programs. Changes in these assumptions could have a significant impact on the operating
lease residual value. Expected residual values include estimates of payments from automotive manufacturers related to residual support and
risk-sharing agreements, if any. To the extent an automotive manufacturer is not able to fully honor its obligation relative to these agreements,
our depreciation expense would be negatively impacted.
Fair Value of Financial Instruments
We use fair value measurements to record fair value adjustments to certain instruments and to determine fair value disclosures. Refer to
Note 24 to the Consolidated Financial Statements for a description of valuation methodologies used to measure material assets and liabilities
at fair value and details of the valuation models, key inputs to those models, and significant assumptions utilized. We follow the fair value
hierarchy set forth in Note 24 to the Consolidated Financial Statements in order to prioritize the inputs utilized to measure fair value. We
review and modify, as necessary, our fair value hierarchy classifications on a quarterly basis. As such, there may be reclassifications between
hierarchy levels.
We have numerous internal controls in place to address risks inherent in estimating fair value measurements. Significant fair value
measurements are subject to detailed analytics and management review and approval. We have an established risk management policy and
model validation program. This model validation program establishes a controlled environment for the development, implementation, and
operation of models used to generate fair value measurements and change procedures. Further, this program uses a risk-based approach to
determine the frequency at which models are to be independently reviewed and validated. Additionally, a wide array of operational controls
govern fair value measurements, including controls over the inputs into and the outputs from the fair value measurement models. For
example, we backtest the internal assumptions used within models against actual performance. We also monitor the market for recent trades,
market surveys, or other market information that may be used to benchmark model inputs or outputs. Certain valuations will also be
benchmarked to market indices when appropriate and available. We have scheduled model or input recalibrations that occur on a periodic
basis but will recalibrate earlier if significant variances are observed as part of the backtesting or benchmarking noted above.
Considerable judgment is used in forming conclusions from market observable data used to estimate our Level 2 fair value
measurements and in estimating inputs to our internal valuation models used to estimate our Level 3 fair value measurements. Level 3 inputs
such as interest rate movements, prepayment speeds, credit losses, and discount rates are inherently difficult to estimate. Changes to these
inputs can have a significant effect on fair value measurements and amounts that could be realized.
Determination of Provision for Income Taxes
Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best
assessment of estimated current and future taxes to be paid. We are subject to income taxes predominantly in the United States. Significant
judgments and estimates are required in determining consolidated income tax expense. Deferred income taxes arise from temporary
differences between the tax and financial statement recognition of revenue and expense. In evaluating our ability to recover our deferred tax
88
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of
deferred tax liabilities, projected future taxable income, tax planning strategies, and recent results of operations. In projecting future taxable
income, we begin with historical results adjusted for the results of discontinued operations and incorporate assumptions about the amount of
future state, federal, and foreign pretax operating income. These assumptions about future taxable income require significant judgment and
are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that
historical results provide, we consider three years of cumulative operating income (loss).
As of each reporting date, we consider existing evidence, both positive and negative, that could impact our view with regard to future
realization of deferred tax assets. We continue to believe it is more likely than not that the benefit for certain foreign tax credit carryforwards
and state net operating loss carryforwards will not be realized. In recognition of this risk, we continue to provide a partial valuation allowance
on these deferred tax assets relating to these carryforwards and it is reasonably possible that the valuation allowance may change in the next
twelve months.
For additional information regarding our provision for income taxes, refer to Note 22 to the Consolidated Financial Statements.
Recently Issued Accounting Standards
Refer to Note 1 to the Consolidated Financial Statements for further information related to recently adopted and recently issued
accounting standards.
89
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Statistical Tables
The accompanying supplemental information should be read in conjunction with the more detailed information, including our
Consolidated Financial Statements and the notes thereto, which appears elsewhere in this Annual Report.
Net Interest Margin Table
The following table presents an analysis of net yield on interest-earning assets (or net interest margin) excluding discontinued operations
for the periods shown.
Year ended December 31, ($ in millions)
Average
balance (a)
Assets
2018
Interest
income/
Interest
expense
2017
Interest
income/
Interest
expense
2016
Interest
income/
Interest
expense
Yield/
rate
Yield/
rate
Average
balance (a)
Yield/
rate
Average
balance (a)
Interest-bearing cash and cash equivalents
$
4,365
$
72
1.65% $
3,086
$
37
1.20% $
2,657
$
14
0.53%
Federal funds sold and securities purchased
under resale agreements
Investment securities (b)
Loans held-for-sale, net
—
26,217
287
—
729
15
Finance receivables and loans, net (b) (c)
124,932
6,688
Investment in operating leases, net (d)
Other earning assets
Total interest-earning assets
Noninterest-bearing cash and cash
equivalents
Other assets
Allowance for loan losses
Total assets
Liabilities and equity
—
2.78
5.23
5.35
5.40
4.99
4.85
—
22,784
5
—
568
—
119,040
5,819
9,791
908
623
31
155,614
7,078
—
2.49
—
4.89
6.36
3.41
4.55
1
18,255
9
113,140
13,791
864
—
411
—
5,162
942
7
148,717
6,536
—
2.25
—
4.56
6.83
0.81
4.39
827
7,686
(1,208)
1,412
8,291
(1,095)
8,590
1,182
464
59
165,573
8,027
493
6,267
(1,266)
$
171,067
$
162,919
$ 157,325
Interest-bearing deposit liabilities
$
99,056
$ 1,735
1.75% $
86,631
$ 1,077
1.24% $
72,515
$
830
1.14%
Short-term borrowings
Long-term debt (b)
Total interest-bearing liabilities
Noninterest-bearing deposit liabilities
7,674
45,893
152,623
133
149
1,753
3,637
1.94
3.82
2.38
9,055
48,989
144,675
101
127
1,653
2,857
1.40
3.37
1.97
6,161
59,792
138,468
94
57
1,742
2,629
0.93
2.91
1.90
Total funding sources
152,756
3,637
2.38
144,776
2,857
1.97
138,562
2,629
1.90
Other liabilities
Total liabilities
Total equity
5,222
157,978
13,089
Total liabilities and equity
$
171,067
Net financing revenue and other interest
income
Net interest spread (e)
Net yield on interest-earning assets (f)
4,652
149,428
13,491
$
162,919
5,090
143,652
13,673
$ 157,325
$ 4,390
$ 4,221
$ 3,907
2.47%
2.65%
2.58%
2.71%
2.49%
2.63%
(a) Average balances are calculated using a combination of monthly and daily average methodologies.
(b)
Includes the effects of derivative financial instruments designated as hedges. Refer to Note 21 to the Consolidated Financial Statements for further information about the effects
of our hedging activities.
(c) Nonperforming finance receivables and loans are included in the average balances. For information on our accounting policies regarding nonperforming status, refer to Note 1
to the Consolidated Financial Statements.
(d) Yield includes gains on the sale of off-lease vehicles of $90 million, $124 million, $213 million, for the years ended December 31, 2018, 2017, and 2016, respectively.
Excluding these gains on sale, the yield would be 4.35%, 5.10%, and 5.29% for the years ended December 31, 2018, 2017, and 2016, respectively.
(e) Net interest spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities.
(f) Net yield on interest-earning assets represents net financing revenue and other interest income as a percentage of total interest-earning assets.
90
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table presents an analysis of the changes in net financing revenue and other interest income, volume, and rate.
Year ended December 31, ($ in millions)
Volume
Yield/rate
Total
Volume
Yield/rate
Total
2018 vs. 2017
Increase (decrease) due to (a)
2017 vs. 2016
Increase (decrease) due to (a)
Assets
Interest-bearing cash and cash equivalents
$
Investment securities
Loans held-for-sale, net
Finance receivables and loans, net
Investment in operating leases, net
Other earning assets
Total interest-earning assets
Liabilities
$
15
86
15
288
(76)
9
Interest-bearing deposit liabilities
$
154
$
Short-term borrowings
Long-term debt
Total interest-bearing liabilities
Net financing revenue and other interest
income
(19)
(104)
20
75
—
581
(83)
19
504
41
204
$
35
$
2
$
161
15
869
(159)
28
949
102
—
269
(273)
—
658
$
162
$
27
(315)
22
100
780
169
$
$
$
$
21
55
—
388
(46)
24
85
43
226
$
$
$
$
$
23
157
—
657
(319)
24
542
247
70
(89)
228
314
(a) Changes in interest not solely due to volume or yield/rate are allocated in proportion to the absolute dollar amount of change in volume and yield/rate.
Outstanding Finance Receivables and Loans
The following table presents the composition of our on-balance sheet finance receivables and loans.
December 31, ($ in millions)
Consumer
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer mortgage
Total consumer
Commercial
Commercial and industrial
Automotive
Other
Commercial real estate
Total commercial loans
Total finance receivables and loans
Loans held-for-sale
2018
2017
2016
2015
2014
$
70,539
$
68,071
$
65,793
$
64,292
$
56,570
8,294
2,756
11,050
76,843
35,041
3,248
3,812
42,101
6,413
3,360
9,773
3,504
3,970
7,474
74,065
64,044
31,469
2,640
3,426
37,535
30,871
1,882
3,151
35,904
99,948
2,003
$
$
118,944
$
111,600
— $
105
$
$
15,155
1,546
16,701
87,240
11,657
2,093
13,750
81,821
33,672
4,205
4,809
42,686
129,926
314
$
$
33,025
3,887
4,160
41,072
122,893
108
$
$
91
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Nonperforming Assets
The following table summarizes the nonperforming assets in our on-balance sheet portfolio.
December 31, ($ in millions)
Consumer
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer mortgage
Total consumer (a)
Commercial
Commercial and industrial
Automotive
Other
Commercial real estate
Total commercial (b)
Total nonperforming finance receivables and loans
Foreclosed properties
Repossessed assets (c)
Total nonperforming assets
Loans held-for-sale
2018
2017
2016
2015
2014
$
664
$
603
$
598
$
475
$
386
9
70
79
743
203
142
4
349
1,092
11
136
1,239
$
25
92
117
720
27
44
1
72
792
10
140
942
$
10
89
99
697
33
84
5
122
819
13
135
967
$
15
113
128
603
25
44
8
77
680
10
122
812
$
— $
— $
— $
— $
$
$
19
158
177
563
32
46
4
82
645
10
90
745
8
(a)
(b)
Interest revenue that would have been accrued on total consumer finance receivables and loans at original contractual rates was $61 million during the
year ended December 31, 2018. Interest income recorded for these loans was $27 million during the year ended December 31, 2018.
Interest revenue that would have been accrued on total commercial finance receivables and loans at original contractual rates was $27 million during the
year ended December 31, 2018. Interest income recorded for these loans was $14 million during the year ended December 31, 2018.
(c) Repossessed assets exclude $6 million, $9 million, $8 million, $8 million, and $7 million of repossessed operating lease assets at December 31, 2018,
2017, 2016, 2015, and 2014, respectively.
Accruing Finance Receivables and Loans Past Due 90 Days or More
Loans are generally placed on nonaccrual status when principal or interest has been delinquent for 90 days or when full collection is not
expected. Refer to Note 1 to the Consolidated Financial Statements for a description of our accounting policies for finance receivables and
loans. We had no consumer or commercial on-balance sheet accruing finance receivables and loans or loans held-for-sale past due 90 days or
more as to principal and interest as of December 31, 2018, 2017, 2016, 2015, and 2014.
Allowance for Loan Losses
The following table presents an analysis of the activity in the allowance for loan losses on finance receivables and loans.
($ in millions)
Balance at January 1,
Charge-offs (a)
Recoveries
Net charge-offs
Provision for loan losses
Other (b)
Balance at December 31,
2018
2017
2016
2015
2014
$
1,276
$
1,144
$
1,054
$
977
$
1,208
(1,433)
488
(945)
918
(7)
(1,392)
382
(1,010)
1,148
(6)
(1,142)
341
(801)
917
(26)
(892)
283
(609)
707
(21)
$
1,242
$
1,276
$
1,144
$
1,054
$
(776)
239
(537)
457
(151)
977
(a) Represents the amount of the gross carrying value directly written-off. For consumer and commercial loans, the loss from a charge-off is measured as the
difference between the gross carrying value of a loan and the fair value of the collateral, less costs to sell. Refer to Note 1 to the Consolidated Financial
Statements for more information regarding our charge-off policies.
(b) Primarily related to the transfer of finance receivables and loans from held-for-investment to held-for-sale.
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Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Allowance for Loan Losses by Type
The following table summarizes the allocation of the allowance for loan losses by product type.
December 31, ($ in millions)
Amount
% of
total
Amount
% of
total
Amount
% of
total
Amount
% of
total
Amount
% of
total
2018
2017
2016
2015
2014
Consumer
Consumer automotive
$
1,048
84.3
$
1,066
83.5
$
932
81.4
$
834
79.1
$
685
70.1
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer mortgage
16
37
53
1.3
3.0
4.3
19
60
79
1.5
4.7
6.2
11
80
91
1.0
7.0
8.0
Total consumer loans
1,101
88.6
1,145
89.7
1,023
89.4
Commercial
Commercial and industrial
Automotive
Other
Commercial real estate
Total commercial loans
36
77
28
2.9
6.2
2.3
37
68
26
2.9
5.4
2.0
32
64
25
2.8
5.6
2.2
16
98
114
948
29
53
24
1.5
9.3
10.8
89.9
2.8
5.0
2.3
10
142
152
837
65
42
33
1.0
14.6
15.6
85.7
6.7
4.2
3.4
140
977
14.3
100.0
141
11.4
131
10.3
121
10.6
106
10.1
Total allowance for loan losses
$
1,242
100.0
$
1,276
100.0
$
1,144
100.0
$
1,054
100.0
$
Deposit Liabilities
The following table presents the average balances and interest rates paid for types of domestic deposits.
Year ended December 31, ($ in millions)
Domestic deposits
Noninterest-bearing deposits
Interest-bearing deposits
2018
2017
2016
Average
balance (a)
Average
deposit rate
Average
balance (a)
Average
deposit rate
Average
balance (a)
Average
deposit rate
$
133
—% $
101
—% $
94
—%
Savings and money market checking accounts
Certificates of deposit
Dealer deposits
51,427
47,624
5
Total domestic deposit liabilities
$
99,189
1.60
1.91
6.91
1.75
50,204
36,375
52
$
86,732
1.07
1.47
5.09
1.24
42,040
30,275
200
$
72,609
0.96
1.39
4.16
1.14
(a) Average balances are calculated using a combination of monthly and daily average methodologies.
The following table presents the amount of certificates of deposit in denominations of $100 thousand or more and $250 thousand or
more, segregated by time remaining until maturity.
December 31, 2018 ($ in millions)
Three months
or less
Over three months
through
six months
Over six months
through
twelve months
Over
twelve months
Total
Certificates of deposit ($100,000 or more)
$
3,557
$
3,430
$
8,724
$
5,287
$ 20,998
Certificates of deposit ($250,000 or more)
870
935
2,738
1,581
6,124
93
Quantitative and Qualitative Disclosures about Market Risk
Ally Financial Inc. • Form 10-K
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Refer to the Market Risk section of Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
94
Management’s Report on Internal Control over Financial Reporting
Ally Financial Inc. • Form 10-K
Item 8. Financial Statements and Supplementary Data
Ally management is responsible for establishing and maintaining effective internal control over financial reporting. The Company’s
internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief
Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of published financial
statements in accordance with generally accepted accounting principles.
The Company’s internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of the Consolidated Financial Statements in conformity with
generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the Consolidated Financial
Statements.
Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance and may not prevent
or detect misstatements. Further, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted, under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, an evaluation of
the effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control — Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, commonly referred to as the
“COSO” criteria.
Based on the assessment performed, management concluded that at December 31, 2018, Ally’s internal control over financial reporting
was effective based on the COSO criteria.
The independent registered public accounting firm, Deloitte & Touche LLP, has audited the Consolidated Financial Statements of Ally
and has issued an attestation report on our internal control over financial reporting at December 31, 2018, as stated in its report, which is
included herein.
/S/ JEFFREY J. BROWN
Jeffrey J. Brown
Chief Executive Officer
February 20, 2019
/S/ JENNIFER A. LACLAIR
Jennifer A. LaClair
Chief Financial Officer
February 20, 2019
95
Report of Independent Registered Public Accounting Firm
To the stockholders and the Board of Directors of Ally Financial Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Ally Financial Inc. and subsidiaries (the “Company”) as of December
31, 2018 and 2017, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the
three years in the period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and
2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity
with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control —
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
February 20, 2019, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits
included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis
for our opinion.
/S/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Detroit, Michigan
February 20, 2019
We have served as the Company’s auditor since at least 1936; however, an earlier year could not be reliably determined.
96
Report of Independent Registered Public Accounting Firm
To the stockholders and the Board of Directors of Ally Financial Inc.:
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Ally Financial Inc. and subsidiaries (the “Company”) as of December 31,
2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by
COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the consolidated financial statements as of and for the year ended December 31, 2018, of the Company and our report dated February 20,
2019, expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our
audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
/S/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Detroit, Michigan
February 20, 2019
97
Consolidated Statement of Income
Ally Financial Inc. • Form 10-K
Year ended December 31, ($ in millions)
Financing revenue and other interest income
Interest and fees on finance receivables and loans
Interest on loans held-for-sale
Interest and dividends on investment securities and other earning assets
Interest on cash and cash equivalents
Operating leases
Total financing revenue and other interest income
Interest expense
Interest on deposits
Interest on short-term borrowings
Interest on long-term debt
Total interest expense
Net depreciation expense on operating lease assets
Net financing revenue and other interest income
Other revenue
Insurance premiums and service revenue earned
Gain on mortgage and automotive loans, net
Other (loss) gain on investments, net
Other income, net of losses
Total other revenue
Total net revenue
Provision for loan losses
Noninterest expense
Compensation and benefits expense
Insurance losses and loss adjustment expenses
Other operating expenses
Total noninterest expense
Income from continuing operations before income tax expense
Income tax expense from continuing operations
Net income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
Statement continues on the next page.
The Notes to the Consolidated Financial Statements are an integral part of these statements.
2018
2017
2016
$
6,688
$
5,819
$
5,162
15
788
72
1,489
9,052
1,735
149
1,753
3,637
1,025
4,390
1,022
25
(50)
417
1,414
5,804
918
1,155
295
1,814
3,264
1,622
359
1,263
—
—
599
37
1,867
8,322
1,077
127
1,653
2,857
1,244
4,221
973
68
102
401
1,544
5,765
1,148
1,095
332
1,683
3,110
1,507
581
926
3
—
418
14
2,711
8,305
830
57
1,742
2,629
1,769
3,907
945
11
185
389
1,530
5,437
917
992
342
1,605
2,939
1,581
470
1,111
(44)
$
1,263
$
929
$
1,067
98
Consolidated Statement of Income
Ally Financial Inc. • Form 10-K
Year ended December 31, (in dollars) (a)
Basic earnings per common share
Net income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
Diluted earnings per common share
Net income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
Cash dividends declared per common share
2018
2017
2016
$
$
$
$
$
2.97
—
2.97
2.95
—
2.95
0.56
$
$
$
$
$
2.04
0.01
2.05
2.03
0.01
2.04
0.40
$
$
$
$
$
2.25
(0.09)
2.15
2.24
(0.09)
2.15
0.16
(a) Figures in the table may not recalculate exactly due to rounding. Earnings per share is calculated based on unrounded numbers.
Refer to Note 19 for additional earnings per share information. The Notes to the Consolidated Financial Statements are an integral part of
these statements.
99
Consolidated Statement of Comprehensive Income
Ally Financial Inc. • Form 10-K
Year ended December 31, ($ in millions)
Net income
Other comprehensive (loss) income, net of tax
Investment securities
Net unrealized (losses) gains arising during the period
Less: Net realized gains reclassified to net income
Net change
Translation adjustments
Net unrealized (losses) gains arising during the period
Less: Net realized losses reclassified to net income
Net change
Net investment hedges
Net unrealized gains (losses) arising during the period
Translation adjustments and net investment hedges, net change
Cash flow hedges
Net unrealized gains arising during the period
Less: Net realized gains reclassified to net income
Net change
Defined benefit pension plans
Net unrealized gains (losses) arising during the period
Less: Net realized losses reclassified to net income
Net change
Other comprehensive (loss) income, net of tax
Comprehensive income
The Notes to the Consolidated Financial Statements are an integral part of these statements.
2018
2017
2016
$
1,263
$
929
$
1,067
(287)
8
(295)
(11)
—
(11)
9
(2)
10
2
8
—
—
—
192
92
100
8
—
8
(6)
2
3
—
3
1
—
1
33
147
(114)
3
(1)
4
1
5
—
—
—
(3)
(2)
(1)
(289)
106
$
974
$
1,035
$
(110)
957
100
Consolidated Balance Sheet
Ally Financial Inc. • Form 10-K
December 31, ($ in millions, except share data)
2018
2017
Assets
Cash and cash equivalents
Noninterest-bearing
Interest-bearing
Total cash and cash equivalents
Equity securities
Available-for-sale securities (refer to Note 8 for discussion of investment securities pledged as collateral)
Held-to-maturity securities (fair value of $2,307 and $1,865)
Loans held-for-sale, net
Finance receivables and loans, net
Finance receivables and loans, net of unearned income
Allowance for loan losses
Total finance receivables and loans, net
Investment in operating leases, net
Premiums receivable and other insurance assets
Other assets
Total assets
Liabilities
Deposit liabilities
Noninterest-bearing
Interest-bearing
Total deposit liabilities
Short-term borrowings
Long-term debt
Interest payable
Unearned insurance premiums and service revenue
Accrued expenses and other liabilities
Total liabilities
Commitments and contingencies (refer to Note 28 and Note 29)
Equity
Common stock and paid-in capital ($0.01 par value, shares authorized 1,100,000,000; issued 492,797,409 and
489,883,553; and outstanding 404,899,599 and 437,053,936)
Accumulated deficit
Accumulated other comprehensive loss
Treasury stock, at cost (87,897,810 and 52,829,617 shares)
Total equity
Total liabilities and equity
The Notes to the Consolidated Financial Statements are an integral part of these statements.
$
810
$
3,727
4,537
773
25,303
2,362
314
844
3,408
4,252
518
22,303
1,899
108
129,926
122,893
(1,242)
(1,276)
128,684
121,617
8,417
2,326
6,153
8,741
2,047
5,663
$
178,869
$
167,148
$
142
$
106,036
106,178
9,987
44,193
523
3,044
1,676
108
93,148
93,256
11,413
44,226
375
2,604
1,780
165,601
153,654
21,345
(5,489)
(539)
(2,049)
13,268
21,245
(6,406)
(235)
(1,110)
13,494
$
178,869
$
167,148
101
Consolidated Balance Sheet
Ally Financial Inc. • Form 10-K
The assets of consolidated variable interest entities that can be used only to settle obligations of the consolidated variable interest entities
and the liabilities of these entities for which creditors (or beneficial interest holders) do not have recourse to our general credit were as
follows.
December 31, ($ in millions)
Assets
Finance receivables and loans, net
2018
2017
Finance receivables and loans, net of unearned income
$
18,086
$
20,623
Allowance for loan losses
Total finance receivables and loans, net
Investment in operating leases, net
Other assets
Total assets
Liabilities
Long-term debt
Accrued expenses and other liabilities
Total liabilities
The Notes to the Consolidated Financial Statements are an integral part of these statements.
(114)
17,972
164
767
18,903
10,482
12
10,494
$
$
$
(136)
20,487
444
689
21,620
10,197
9
10,206
$
$
$
102
Consolidated Statement of Changes in Equity
Ally Financial Inc. • Form 10-K
($ in millions)
Common
stock and
paid-in
capital
Preferred
stock
Accumulated
deficit
Accumulated
other
comprehensive
loss
Treasury
stock
Total
equity
Balance at January 1, 2016
$
21,100
$
696
$
(8,110) $
(231) $
(16) $
13,439
Net income
Preferred stock dividends
1,067
(30)
Series A preferred stock redemption
(696)
Share-based compensation
Other comprehensive loss
Common stock repurchases
66
Common stock dividends ($0.16 per share)
(78)
1,067
(30)
(696)
66
(110)
(341)
(78)
(110)
(341)
Balance at December 31, 2016
$
21,166
$
— $
(7,151) $
(341) $
(357) $
13,317
Net income
Share-based compensation
Other comprehensive income
Common stock repurchases
Common stock dividends ($0.40 per share)
79
929
(184)
106
(753)
929
79
106
(753)
(184)
Balance at December 31, 2017
$
21,245
$
— $
(6,406) $
(235) $
(1,110) $
13,494
Cumulative effect of changes in accounting
principles, net of tax (a)
Adoption of Accounting Standards Update
2014-09
Adoption of Accounting Standards Update
2016-01
Adoption of Accounting Standards Update
2018-02
Balance at January 1, 2018, after cumulative
effect of adjustments
Net income
Share-based compensation
Other comprehensive loss
Common stock repurchases
Common stock dividends ($0.56 per share)
21,245
—
100
(126)
(20)
42
(6,510)
1,263
(242)
27
(42)
(250)
(1,110)
(289)
(939)
(126)
7
—
13,375
1,263
100
(289)
(939)
(242)
Balance at December 31, 2018
$
21,345
$
— $
(5,489) $
(539) $
(2,049) $
13,268
(a) Refer to the section titled Recently Adopted Accounting Standards in Note 1 for additional information.
The Notes to the Consolidated Financial Statements are an integral part of these statements.
103
Consolidated Statement of Cash Flows
Ally Financial Inc. • Form 10-K
Year ended December 31, ($ in millions)
2018
2017
2016
Operating activities
Net income
Reconciliation of net income to net cash provided by operating activities
Depreciation and amortization
Provision for loan losses
Gain on mortgage and automotive loans, net
Other loss (gain) on investments, net
Originations and purchases of loans held-for-sale
Proceeds from sales and repayments of loans held-for-sale
Net change in
Deferred income taxes
Interest payable
Other assets
Other liabilities
Other, net
Net cash provided by operating activities
Investing activities
Purchases of equity securities
Proceeds from sales of equity securities
Purchases of available-for-sale securities
Proceeds from sales of available-for-sale securities
Proceeds from repayments of available-for-sale securities
Purchases of held-to-maturity securities
Proceeds from repayments of held-to-maturity securities
Purchases of finance receivables and loans held-for-investment
Proceeds from sales of finance receivables and loans initially held-for-investment
Originations and repayments of finance receivables and loans held-for-investment and other,
net
Purchases of operating lease assets
Disposals of operating lease assets
Acquisitions, net of cash acquired
Net change in nonmarketable equity investments
Other, net
Net cash used in investing activities
Statement continues on the next page.
The Notes to the Consolidated Financial Statements are an integral part of these statements.
$
1,263
$
929
$
1,067
1,649
918
(25)
50
(1,016)
948
330
148
(87)
2
(30)
1,859
1,148
(68)
(102)
(414)
310
534
24
(153)
(69)
81
2,382
917
(11)
(185)
(141)
240
458
1
(120)
(206)
165
4,150
4,079
4,567
(1,076)
787
(899)
1,049
(470)
680
(7,868)
(10,335)
(15,561)
852
3,215
(578)
147
(5,693)
91
(3,245)
(3,709)
3,089
—
(181)
(340)
3,584
2,899
(1,026)
68
(5,452)
1,339
(1,063)
(4,052)
5,567
—
(187)
(219)
10,356
3,379
(841)
—
(3,859)
4,285
(8,826)
(3,274)
6,304
(309)
(628)
(306)
(14,509)
(8,727)
(9,070)
104
Consolidated Statement of Cash Flows
Ally Financial Inc. • Form 10-K
Year ended December 31, ($ in millions)
Financing activities
Net change in short-term borrowings
Net increase in deposits
Proceeds from issuance of long-term debt
Repayments of long-term debt
Repurchase and redemption of preferred stock
Repurchase of common stock
Dividends paid
Net cash provided by financing activities
Effect of exchange-rate changes on cash and cash equivalents and restricted cash
Net increase (decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of year
Cash and cash equivalents and restricted cash at end of year
Supplemental disclosures
Cash paid for
Interest
Income taxes
Noncash items
Held-to-maturity securities received in consideration for loans sold
Finance receivables and loans transferred to loans held-for-sale
Other disclosures
2018
2017
2016
(1,426)
12,867
18,401
(1,263)
14,172
17,969
4,564
12,508
14,155
(17,940)
(27,908)
(26,412)
—
(939)
(242)
10,721
(5)
357
5,269
—
(753)
(184)
2,033
3
(2,612)
7,881
5,626
$
5,269
$
(696)
(341)
(108)
3,670
1
(832)
8,713
7,881
3,380
$
2,829
$
2,647
36
26
815
51
56
19
—
1,339
4,282
$
$
Proceeds from repayments of mortgage loans held-for-investment originally designated as
held-for-sale
23
36
40
The following table provides a reconciliation of cash and cash equivalents and restricted cash from the Consolidated Balance Sheet to the
Consolidated Statement of Cash Flows.
December 31, ($ in millions)
Cash and cash equivalents on the Consolidated Balance Sheet
Restricted cash included in other assets on the Consolidated Balance Sheet (a)
Total cash and cash equivalents and restricted cash in the Consolidated Statement of Cash Flows
2018
2017
$
$
4,537
1,089
5,626
$
$
4,252
1,017
5,269
(a) Restricted cash balances relate primarily to Ally securitization arrangements. Refer to Note 13 for additional details describing the nature of restricted
cash balances.
The Notes to the Consolidated Financial Statements are an integral part of these statements.
105
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
1. Description of Business, Basis of Presentation, and Significant Accounting Policies
Ally Financial Inc. (together with its consolidated subsidiaries unless the context otherwise requires, Ally, the Company, or we, us, or
our) is a leading digital financial-services company. As a customer-centric company with passionate customer service and innovative financial
solutions, we are relentlessly focused on “Doing It Right” and being a trusted financial-services provider to our consumer, commercial, and
corporate customers. We are one of the largest full-service automotive-finance operations in the country and offer a wide range of financial
services and insurance products to dealerships and consumers. Our award-winning online bank (Ally Bank, Member FDIC and Equal
Housing Lender) offers mortgage-lending services and a variety of deposit and other banking products, including savings, money-market, and
checking accounts, certificates of deposit (CDs), and individual retirement accounts (IRAs). We also support the Ally CashBack Credit Card.
Additionally, we offer securities-brokerage and investment-advisory services through Ally Invest. Our robust corporate-finance business
offers capital for equity sponsors and middle-market companies. We are a Delaware corporation and are registered as a bank holding company
(BHC) under the Bank Holding Company Act of 1956, as amended, and a financial holding company (FHC) under the Gramm-Leach-Bliley
Act of 1999, as amended.
Consolidation and Basis of Presentation
The Consolidated Financial Statements include the accounts of the parent and its consolidated subsidiaries, of which it is deemed to
possess control, after eliminating intercompany balances and transactions, and include all variable interest entities (VIEs) in which we are the
primary beneficiary. Other entities in which we have invested and have the ability to exercise significant influence over operating and
financial policies of the investee, but upon which we do not possess control, are accounted for by the equity method of accounting within the
financial statements and they are therefore not consolidated. Refer to Note 11 for further details on our VIEs. Our accounting and reporting
policies conform to accounting principles generally accepted in the United States of America (GAAP). Additionally, where applicable, the
policies conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. Certain reclassifications may have been
made to the prior periods’ financial statements and notes to conform to the current period’s presentation, which did not have a material impact
on our Consolidated Financial Statements.
In the past, we have operated 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 until the foreign subsidiaries are sold or substantially liquidated at
which point the accumulated translation adjustments are recognized directly in earnings as part of the gain or loss on sale or liquidation.
Income and expense items are translated at average exchange rates prevailing during the reporting period. The majority of our international
operations have ceased and are included in discontinued operations as further described in Note 2.
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 and disclosure of contingent 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. Our most significant estimates pertain to the allowance for loan losses, valuations of automotive operating
lease assets and residuals, fair value of financial instruments, and the determination of the provision for income taxes.
Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash on deposit at other financial institutions, cash items in process of collection, and
certain highly liquid investments with original maturities of three months or less from the date of purchase. The book value of cash
equivalents approximates fair value because of the short maturities of these instruments and the insignificant risk they present to changes in
value with respect to changes in interest rates. Certain securities with original maturities of three months or less from the date of purchase that
are held as a portion of longer-term investment portfolios, primarily held by our Insurance operations, are classified as investment securities.
Cash and cash equivalents with legal restrictions limiting our ability to withdraw and use the funds are considered restricted cash and
restricted cash equivalents and are presented as other assets on our Consolidated Balance Sheet.
Investments
Our investment portfolio includes various debt and equity securities. Our debt securities include government securities, corporate bonds,
asset-backed securities (ABS), and mortgage-backed securities (MBS). Debt securities are classified based on management’s intent to sell or
hold the security. We classify debt securities as held-to-maturity only when we have both the intent and ability to hold the securities to
maturity. We classify debt securities as trading when the securities are acquired for the purpose of selling or holding them for a short period of
time. Debt securities not classified as either held-to-maturity or trading are classified as available-for-sale.
Our portfolio includes debt securities classified as available-for-sale and held-to-maturity. Our available-for-sale debt securities are
carried at fair value with unrealized gains and losses included in accumulated other comprehensive income and are subject to impairment. Our
held-to-maturity debt securities are carried at amortized cost and are subject to impairment.
106
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
We assess our available-for-sale and held-to-maturity debt securities for potential other-than-temporary impairment. We employ a
methodology that considers available evidence in evaluating potential other-than-temporary impairment of our debt securities. 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, for
debt securities classified as available-for-sale, our intent and ability to hold the investment through recovery of its amortized cost basis.
Once a decline in fair value of a debt security is determined to be other-than-temporary, an impairment charge for the credit component
is recorded to other gain on investments, net, in our Consolidated Statement of Income, and a new cost basis in the investment is established.
The noncredit loss component of a debt security continues to be recorded in other comprehensive income when we do not intend to sell the
security and it is not more likely than not that we will have to sell the security prior to the security’s anticipated recovery. Both the credit and
noncredit loss components are recorded in earnings when we intend to sell the security or it is more likely than not that we will have to sell
the security prior to the security’s anticipated recovery. Subsequent increases and decreases to the fair value of available-for-sale debt
securities are included in other comprehensive income, so long as they are not attributable to another other-than-temporary impairment.
We amortize premiums and discounts on debt securities as an adjustment to investment yield over the stated maturity of the security.
Our investment in equity securities includes securities that are recognized at fair value with changes in the fair value recorded in
earnings, and equity securities that are recognized using other measurement principles.
Effective January 1, 2018, equity securities that have a readily determinable fair value, as well as certain investments that do not have a
readily determinable fair value and are not eligible to be recognized using other measurement principles, are recorded at fair value with
changes in fair value recorded in earnings and reported in other gain on investments, net in our Consolidated Statement of Income. These
investments, which are primarily attributable to the investment portfolio of our Insurance operations, are included in equity securities on our
Consolidated Balance Sheet. Refer to Note 8 for further information on our equity securities that have a readily determinable market value.
Our equity securities recognized using other measurement principles include investments in Federal Home Loan Bank (FHLB) and
Federal Reserve Bank (FRB) stock held to meet regulatory requirements, equity investments related to low income housing tax credits and the
Community Reinvestment Act (CRA), which do not have a readily determinable fair value, and other equity investments that do not have a
readily determinable fair value. Our low income housing tax credit investments are accounted for using the proportional amortization method
of accounting for qualified affordable housing investments. Our obligations related to unfunded commitments for our low income housing tax
credit investments are included in other liabilities. The majority of our other CRA investments are accounted for using the equity method of
accounting. Our investments in low income housing tax credits and other CRA investments are included in other assets on our Consolidated
Balance Sheet. Our investments in FHLB and FRB stock are carried at cost, less impairment. Our remaining investment in equity securities
are recorded at cost, less impairment and adjusted for observable price changes under the measurement alternative provided under GAAP.
These investments, along with our investments in FHLB and FRB stock, are included in nonmarketable equity investments in other assets on
our Consolidated Balance Sheet. As conditions warrant, we review these investments for impairment and adjust the carrying value of the
investment if it is deemed to be impaired. Investments recorded under the measurement alternative are also reviewed at each reporting period
to determine if any adjustments are required for observable price changes in identical or similar securities of the same issuer.
Realized gains and losses on the sale of securities are determined using the specific identification method and are reported in other gain
on investments, net in our Consolidated Statement of Income.
Finance Receivables and Loans
We initially classify finance receivables and loans as either loans held-for-sale or loans held-for-investment based on management’s
assessment of our intent and ability to hold the loans for the foreseeable future or until maturity. Management’s view of the foreseeable future
is based on the longest reasonably reliable net income, liquidity, and capital forecast period. Management’s intent and ability with respect to
certain loans may change from time to time depending on a number of factors, for example economic, liquidity, and capital conditions. In
order to reclassify loans to held-for-sale, management must have the intent to sell the loans and reasonably identify the specific loans to be
sold.
Loans classified as held-for-sale are presented as loans held-for-sale, net on our Consolidated Balance Sheet and are carried at the lower
of their net carrying value or fair value, unless the fair value option was elected, in which case those loans are carried at fair value. Loan
origination fees and costs are included in the initial carrying value of loans originated as held-for-sale for which we have not elected the fair
value option. Loan origination fees and costs are recognized in earnings when earned or incurred, respectively, for loans classified as held-for-
sale for which we have elected the fair value option. We have elected the fair value option for conforming mortgage direct-to-consumer
originations for which we have a commitment to sell. The interest rate lock commitment that we enter into for a mortgage loan originated as
held-for-sale and certain forward commitments to sell mortgage loans are considered derivative instruments, which are carried at fair value on
our Consolidate Balance Sheet. We have elected the fair value option to measure our non-derivative forward commitments. Changes in the
fair value of our interest rate lock commitments, derivative forward commitments, and non-derivative forward commitments related to
mortgage loans originated as held-for-sale, as well as changes in the carrying value of loans classified as held-for-sale, are reported through
gain on mortgage and automotive loans, net in our Consolidated Statement of Comprehensive Income. Interest income on our loans classified
as held-for-sale is recognized based upon the contractual rate of interest on the loan and the unpaid principal balance. We report accrued
interest receivable on our loans classified as held-for-sale in other assets on the Consolidated Balance Sheet.
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Loans classified as held-for-investment are presented as finance receivables and loans, net on our Consolidated Balance Sheet. Finance
receivables and loans are reported at their gross carrying value, which includes the principal amount outstanding, net of unamortized deferred
fees and costs on originated loans, unamortized premiums and discounts on purchased loans, unamortized basis adjustments arising from the
designation of finance receivables and loans as the hedged item in qualifying fair value hedge relationships, and cumulative principal charge-
offs. We refer to the gross carrying value less the allowance for loan loss as the net carrying value in finance receivables and loans. Unearned
rate support received from an automotive manufacturer on certain automotive loans, deferred origination fees and costs, and premiums and
discounts on purchased loans, are amortized over the contractual life of the related finance receivable or loan using the effective interest
method. We make various incentive payments for consumer automotive loan originations to automotive dealers and account for these
payments as direct loan origination costs. Additionally, we make incentive payments to certain commercial automobile wholesale borrowers
and account for these payments as a reduction to interest income in the period they are earned. Interest income on our finance receivables and
loans is recognized based on the contractual rate of interest plus the amortization of deferred amounts using the effective interest method. We
report accrued interest receivable on our finance receivables and loans in other assets on our Consolidated Balance Sheet. Loan commitment
fees are generally deferred and amortized over the commitment period. For information on finance receivables and loans, refer to Note 9.
Our portfolio segments are based on the level at which we develop and document our methodology for determining the allowance for
loan losses. Additionally, the classes of finance receivables are based on several factors including the method for monitoring and assessing
credit risk, the method of measuring carrying value, and the risk characteristics of the finance receivable. Based on an evaluation of our
process for developing the allowance for loan losses including the nature and extent of exposure to credit risk arising from finance
receivables, we have determined our portfolio segments to be consumer automotive, consumer mortgage, and commercial.
•
•
Consumer automotive — Consists of retail automotive financing for new and used vehicles.
Consumer mortgage — Consists of the following classes of finance receivables.
• Mortgage Finance — Consists of consumer first-lien mortgages from our ongoing mortgage operations including bulk
acquisitions, direct-to-consumer originations, and refinancing of high-quality jumbo mortgages and low-to-moderate
income (LMI) mortgages.
• Mortgage — Legacy — Consists of consumer mortgage assets originated prior to January 1, 2009, including first-lien
mortgages, subordinate-lien mortgages, and home equity mortgages.
•
Commercial — Consists of the following classes of finance receivables.
•
Commercial and Industrial
•
Automotive — Consists of financing operations to fund dealer purchases of new and used vehicles through
wholesale floorplan financing. Additional commercial offerings include automotive dealer term loans, and
dealer fleet financing.
• Other — Consists primarily of senior secured leveraged cash flow and asset-based loans related to our
Corporate Finance business.
•
Commercial Real Estate — Consists of term loans to finance dealership land and buildings, and other commercial lending
secured by real estate.
Nonaccrual Loans
Generally, we recognize loans of all classes as past due when they are 30 days delinquent on making a contractually required payment,
and loans are placed on nonaccrual status when principal or interest has been delinquent for 90 days or when full collection is not expected.
Interest income recognition is suspended when finance receivables and loans are placed on nonaccrual status. Additionally, amortization of
premiums and discounts and deferred fees and costs ceases when finance receivables and loans are placed on nonaccrual. Exceptions include
commercial real estate loans that are placed on nonaccrual status when delinquent for 60 days or when full collection is not probable, if
sooner. Additionally, our policy is to generally place all loans that have been modified in troubled debt restructurings (TDRs) on nonaccrual
status until the loan has been brought fully current, the collection of contractual principal and interest is reasonably assured, and six
consecutive months of repayment performance is achieved. In certain cases, if a borrower has been current up to the time of the modification
and repayment of the debt subsequent to the modification is reasonably assured, we may choose to continue to accrue interest on the loan.
Loans on nonaccrual status are reported as nonperforming loans in Note 9. The receivable for interest income that is accrued, but not
collected, at the date finance receivables and loans are placed on nonaccrual status is reversed against interest income and subsequently
recognized only to the extent it is received in cash or until it qualifies for return to accrual status. However, where there is doubt regarding the
ultimate collectability of loan principal, all cash received is applied to reduce the carrying value of such loans. Generally, finance receivables
and loans are restored to accrual status only when contractually current and the collection of future payments is reasonably assured.
Impaired Loans
Loans of all classes are considered impaired when we determine it is probable that we will be unable to collect all amounts due (both
principal and interest) according to the terms of the loan agreement.
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For all classes of consumer loans, impaired loans include all loans that have been modified in TDRs.
Commercial loans of all classes are considered impaired on an individual basis and reported as impaired when we determine it is
probable that we will be unable to collect all amounts due according to the terms of the loan agreement.
With the exception of certain consumer TDRs that have been returned to accruing status, for all classes of impaired loans, income
recognition is consistent with that of nonaccrual loans discussed above. Impaired loans may return to accrual status as discussed in the
preceding nonaccrual loan section at which time, the normal accrual of interest income resumes. For collateral dependent loans, if the
recorded investment in the impaired loans exceeds the fair value of the collateral, a charge-off is recorded consistent with the TDR discussion
below.
Troubled Debt Restructurings
When the terms of finance receivables or loans are modified, consideration must be given as to whether or not the modification results in
a TDR. A modification is considered to be a TDR when both the borrower is experiencing financial difficulty and we grant a concession to the
borrower. These considerations require significant judgment and vary by portfolio segment. In all cases, the cumulative impacts of all
modifications are considered at the time of the most recent modification.
For consumer loans of all classes, various qualitative factors are utilized for assessing the financial difficulty of the borrower. These
include, but are not limited to, the borrower’s default status on any of its debts, bankruptcy and recent changes in financial circumstances (loss
of job, etc.). A concession has been granted when as a result of the modification we do not expect to collect all amounts due under the original
loan terms, including interest accrued at the original contract rate. Types of modifications that may be considered concessions include, but are
not limited to, extensions of terms at a rate that does not constitute a market rate, a reduction, deferral or forgiveness of principal or interest
owed and loans that have been discharged in a Chapter 7 Bankruptcy and have not been reaffirmed by the borrower.
In addition to the modifications noted above, in our consumer automotive portfolio segment of loans we also provide extensions or
deferrals of payments to borrowers whom we deem to be experiencing only temporary financial difficulty. In these cases, there are limits
within our operational policies to minimize the number of times a loan can be extended, as well as limits to the length of each extension,
including a cumulative cap over the life of the loan. If these limits are breached, the modification is considered a TDR as noted in the
following paragraph. Before offering an extension or deferral, we evaluate the capacity of the customer to make the scheduled payments after
the deferral period. During the deferral period, we continue to accrue and collect interest on the loan as part of the deferral agreement. We
grant these extensions or deferrals when we expect to collect all amounts due including interest accrued at the original contract rate.
A restructuring that results in only a delay in payment that is deemed to be insignificant is not a concession and the modification is not
considered to be a TDR. In order to assess whether a restructuring that results in a delay in payment is insignificant, we consider the amount
of the restructured payments subject to delay in conjunction with the unpaid principal balance or the collateral value of the loan, whether or
not the delay is significant with respect to the frequency of payments under the original contract, or the loan’s original expected duration. In
the cases where payment extensions on our automotive loan portfolio cumulatively extend beyond 90 days and are more than 10% of the
original contractual term or where the cumulative payment extension is beyond 180 days, we deem the delay in payment to be more than
insignificant, and as such, classify these types of modifications as TDRs. Otherwise, we believe that the modifications do not represent a
concessionary modification and accordingly, they are not classified as TDRs.
For commercial loans of all classes, similar qualitative factors are considered when assessing the financial difficulty of the borrower. In
addition to the factors noted above, consideration is also given to the borrower’s forecasted ability to service the debt in accordance with the
contractual terms, possible regulatory actions and other potential business disruptions (e.g., the loss of a significant customer or other revenue
stream). Consideration of a concession is also similar for commercial loans. In addition to the factors noted above, consideration is also given
to whether additional guarantees or collateral have been provided.
For all loans, TDR classification typically results from our loss mitigation activities. For loans held-for-investment that are not carried at
fair value and are TDRs, impairment is typically measured based on the difference between the gross carrying value of the loan and the
present value of the expected future cash flows of the loan. The loan may also be measured for impairment based on the fair value of the
underlying collateral less costs to sell for loans that are collateral dependent. We recognize impairment by either establishing a valuation
allowance or recording a charge-off.
The financial impacts of modifications that meet the definition of a TDR are reported in the period in which they are identified as TDRs.
Additionally, if a loan that is classified as a TDR redefaults within twelve months of the modification, we are required to disclose the
instances of redefault. For the purpose of this disclosure, we have determined that a loan is considered to have redefaulted when the loan
meets the requirements for evaluation under our charge-off policy except for commercial loans where redefault is defined as 90 days past due.
Impaired loans may return to accrual status as discussed in the preceding nonaccrual loan section at which time, the normal accrual of interest
income resumes.
Net Charge-offs
We disclose the measurement of net charge-offs as the amount of gross charge-offs recognized less recoveries received. Gross charge-
offs reflect the amount of the gross carrying value directly written-off. Generally, we recognize recoveries when they are received and record
them as an increase to the allowance for loan losses. As a general rule, consumer automotive loans are written down to estimated collateral
value, less costs to sell, once a loan becomes 120 days past due. In our consumer mortgage portfolio segment, first-lien mortgages and a
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subset of our home equity portfolio that are secured by real estate in a first-lien position are written down to the estimated fair value of the
collateral, less costs to sell, once a mortgage loan becomes 180 days past due. Consumer mortgage loans that represent second-lien positions
are charged off at 180 days past due. Within 60 days of receipt of notification of filing from the bankruptcy court, or within the time frames
noted above, consumer automotive and first-lien consumer mortgage loans in bankruptcy are written down to their expected future cash
flows, which is generally fair value of the collateral, less costs to sell, and second-lien consumer mortgage loans are fully charged-off, unless
it can be clearly demonstrated that repayment is likely to occur. Regardless of other timelines noted within this policy, loans are considered
collateral dependent once foreclosure or repossession proceedings begin and are charged-off to the estimated fair value of the underlying
collateral, less costs to sell at that time.
Commercial loans are individually evaluated and where collectability of the recorded balance is in doubt are written down to the
estimated fair value of the collateral less costs to sell. Generally, all commercial loans are charged-off when it becomes unlikely that the
borrower is willing or able to repay the remaining balance of the loan and any underlying collateral is not sufficient to recover the outstanding
principal. Collateral dependent loans are charged-off to the fair market value of collateral less costs to sell when appropriate. Noncollateral
dependent loans are fully written-off.
Allowance for Loan Losses
The allowance for loan losses (the allowance) is management’s estimate of incurred losses in the lending portfolios. We determine the
amount of the allowance required for each of our portfolio segments based on its relative risk characteristics. The evaluation of these factors
for both consumer and commercial finance receivables and loans involves quantitative analysis combined with sound management judgment.
Additions to the allowance are charged to current period earnings through the provision for loan losses; amounts determined to be
uncollectible are charged directly against the allowance, net of amounts recovered on previously charged-off accounts.
The allowance is composed of two components: specific reserves established for individual loans evaluated as impaired and portfolio-
level reserves established for large groups of typically smaller balance homogeneous loans that are collectively evaluated for impairment. We
evaluate the adequacy of the allowance based on the combined total of these two components. Determining the appropriateness of the
allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. It is possible that others,
given the same information, may at any point in time reach different reasonable conclusions.
Measurement of impairment for specific reserves is generally determined on a loan-by-loan basis. Loans determined to be specifically
impaired are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, an observable
market price, or the estimated fair value of the collateral less estimated costs to sell when appropriate, whichever is determined to be the most
appropriate. When these measurement values are lower than the net carrying value of that loan, impairment is recognized. Loans that are not
identified as individually impaired are pooled with other loans with similar risk characteristics for evaluation of impairment for the portfolio-
level allowance.
For the purpose of calculating portfolio-level reserves, we have grouped our loans into three portfolio segments: consumer automotive,
consumer mortgage, and commercial. The allowance consists of the combination of a quantitative assessment component based on statistical
models, a retrospective evaluation of actual loss information to loss forecasts, and includes a qualitative component based on management
judgment. Management takes into consideration relevant qualitative factors, including external and internal trends such as the impacts of
changes in underwriting standards, collections and account management effectiveness, geographic concentrations, and economic events,
among other factors, that have occurred but are not yet reflected in the quantitative assessment component. Qualitative adjustments are
documented, reviewed, and approved through our established risk governance processes and follow regulatory guidance.
Management also considers the need for a reserve on unfunded non-derivative loan commitments across our portfolio segments,
including lines of credit and standby letters of credit, using similar procedures and methodologies used to determine the allowance for loan
losses while also considering historical loss ratios and potential usage levels. The reserve for unfunded loan commitments is recorded within
other liabilities on our Consolidated Balance Sheet and the related expense is reported as other noninterest expense in our Consolidated
Statement of Comprehensive Income. Refer to Note 28 for information on our unfunded loan commitments.
During 2018, we did not substantively change any material aspect of our overall approach used to determine the allowance for loan
losses for our portfolio segments. There were no material changes in criteria or estimation techniques as compared to prior periods that
impacted the determination of the current period allowance for loan losses for our portfolio segments.
Refer to Note 9 for information on the allowance for loan losses.
Consumer Loans
Our consumer automotive and consumer mortgage portfolio segments are reviewed for impairment based on an analysis of loans that are
grouped into common risk categories. We perform periodic and systematic detailed reviews of our lending portfolios to identify inherent risks
and to assess the overall collectability of those portfolios. Loss models are utilized for these portfolios, which consider a variety of credit
quality indicators including, but not limited to, historical loss experience, current economic conditions, credit scores, and expected loss factors
by loan type.
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Consumer Automotive Portfolio Segment
The allowance for loan losses within the consumer automotive portfolio segment is calculated using proprietary statistical models and
other risk indicators applied to pools of loans with similar risk characteristics, including credit bureau score and loan-to-value (LTV) ratios to
arrive at an estimate of incurred losses in the portfolio. These statistical loss forecasting models are utilized to estimate incurred losses and
consider a variety of factors including, but not limited to, historical loss experience, estimated defaults based on portfolio trends, and general
economic and business trends. These statistical models predict forecasted losses inherent in the portfolio.
The forecasted losses consider historical factors such as frequency (the number of contracts that we expect to default) and loss severity
(the loss amount of contracts we expect to default). The loss severity within the consumer automotive portfolio segment is impacted by the
market values of vehicles that are repossessed. Vehicle market values are affected by numerous factors including vehicle supply, the condition
of the vehicle upon repossession, the overall price and volatility of gasoline or diesel fuel, consumer preference related to specific vehicle
segments, and other factors.
The quantitative assessment component of the allowance may be supplemented with qualitative reserves based on management’s
determination that such adjustments provide a better estimate of credit losses. This qualitative assessment takes into consideration relevant
internal and external factors that have occurred, but are not yet reflected in the forecasted losses, and may affect the performance of the
portfolio.
Consumer Mortgage Portfolio Segment
The allowance for loan losses within the consumer mortgage portfolio segment is calculated by using statistical models based on pools of
loans with similar risk characteristics, including credit score, LTV, loan age, documentation type, product type, and loan purpose, to arrive at
an estimate of incurred losses in the portfolio. These statistical loss forecasting models are utilized to estimate incurred losses and consider a
variety of factors including, but not limited to, historical loss experience, estimated foreclosures or defaults based on portfolio trends,
delinquencies, and general economic and business trends.
The forecasted losses are statistically derived based on a suite of behavioral based transition models. This transition framework predicts
various stages of delinquency, default, and voluntary prepayment over the course of the life of the loan. The transition probability is a function
of the loan and borrower characteristics and economic variables and considers historical factors such as frequency and loss severity. When a
default event is predicted, a severity model is applied to estimate future loan losses. Loss severity within the consumer mortgage portfolio
segment is impacted by the market values of foreclosed properties, which is affected by numerous factors, including geographic
considerations and the condition of the foreclosed property.
The quantitative assessment component of the allowance may be supplemented with qualitative reserves based on management’s
determination that such adjustments provide a better estimate of credit losses. This qualitative assessment takes into consideration relevant
internal and external factors that have occurred, but are not yet reflected in the forecasted losses, and may affect the performance of the
portfolio.
Commercial Loans
The allowance for loan losses within the commercial portfolio is composed of reserves established for specific loans evaluated as
impaired and portfolio-level reserves based on nonimpaired loans grouped into pools based on similar risk characteristics and collectively
evaluated.
A commercial loan is considered impaired when it is probable that we will be unable to collect all amounts due according to the
contractual terms of the loan agreement based on current information and events. These loans are primarily evaluated individually and are
risk-rated based on borrower, collateral, and industry-specific information that management believes is relevant in determining the occurrence
of a loss event and measuring impairment. Management establishes specific allowances for commercial loans determined to be individually
impaired based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, observable market prices, or
the fair value of collateral—whichever is determined to be the most appropriate. Estimated costs to sell or realize the value of the collateral on
a discounted basis are included in the impairment measurement, when appropriate.
Loans not identified as impaired are grouped into pools based on similar risk characteristics and collectively evaluated. Our risk rating
models use historical loss experience, concentrations, current economic conditions, and performance trends. The commercial historical loss
experience is updated quarterly to incorporate the most recent data reflective of the current economic environment. The determination of the
allowance is influenced by numerous assumptions and many factors that may materially affect estimates of loss, including volatility of loss
given default, probability of default, and rating migration. In assessing the risk rating of a particular loan, several factors are considered
including an evaluation of historical and current information involving subjective assessments and interpretations. In addition, the allowance
related to the commercial portfolio segment is influenced by estimated recoveries from automotive manufacturers in those cases where we
have guarantees or agreements with them to repurchase vehicles used as collateral to secure the loans.
The quantitative assessment component of the allowance may be supplemented with qualitative reserves based on management’s
determination that such adjustments provide a better estimate of credit losses. This qualitative assessment takes into consideration relevant
internal and external factors that have occurred, but are not yet reflected in the forecasted losses, and may affect the performance of the
portfolio.
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Variable Interest Entities and Securitizations
VIEs are legal entities that either have an insufficient amount of equity at risk for the entity to finance its activities without additional
subordinated financial support or, as a group, the holders of equity investment at risk lack the ability to direct the entity’s activities that most
significantly impact economic performance through voting or similar rights, or do not have the obligation to absorb the expected losses or the
right to receive expected residual returns of the entity.
For all VIEs in which we are involved, we assess whether we are the primary beneficiary of the VIE on an ongoing basis. In
circumstances where we have both the power to direct the activities that most significantly impact the VIEs performance and the obligation to
absorb losses or the right to receive the benefits of the VIE that could be significant, we would conclude that we are the primary beneficiary
of the VIE, and would consolidate the VIE (also referred to as on-balance sheet). In situations where we are not deemed to be the primary
beneficiary of the VIE, we do not consolidate the VIE and only recognize our interests in the VIE (also referred to as off-balance sheet).
We are involved in securitizations that typically involve the use of VIEs. For information regarding the company’s securitization
activities, refer to Note 11.
In the case of a consolidated on-balance sheet VIE used for a securitization, the underlying assets remain on our Consolidated Balance
Sheet with the corresponding obligations to third party beneficial interest holders reflected as debt. We recognize income on the assets,
interest expense on the debt issued by the VIE, and losses on the assets as incurred. Consolidation of the VIE precludes us from recording an
accounting sale on the transaction.
In securitizations where we are not determined to be the primary beneficiary of the VIE, we must determine whether we achieve a sale
for accounting purposes. To achieve a sale for accounting purposes, the financial assets being transferred must be legally isolated, not be
constrained by restrictions from further transfer, and be deemed to be beyond our control. We would deem the transaction to be an off-balance
sheet securitization if the preceding three criteria for sale accounting are met. If we were to fail any of these three criteria for sale accounting,
the transfer would be accounted for as a secured borrowing consistent with the preceding paragraph regarding on-balance sheet VIEs.
The gain or loss recognized on off-balance sheet securitizations take into consideration any assets received or liabilities assumed,
including any retained interests, and servicing assets or liabilities (if applicable), which are initially recorded at fair value at the date of sale.
Upon the sale of the financial assets, we recognize a gain or loss on sale for the difference between the assets and liabilities recognized, and
the assets derecognized. The financial assets obtained from off-balance sheet securitizations are primarily reported as cash or if applicable,
retained interests. Retained interests are classified as securities or as other assets depending on their form and structure. The estimate of the
fair value of the retained interests and servicing requires us to exercise significant judgment about the timing and amount of future cash flows
from the interests. For a discussion on fair value estimates, refer to Note 24.
Gains or losses on off-balance sheet securitizations are reported in gain on mortgage and automotive loans, net, in our Consolidated
Statement of Income.
We retain the right to service our consumer and commercial automotive loan and operating lease securitizations. We may receive
servicing fees for off-balance sheet securitizations based on the securitized asset balances and certain ancillary fees, all of which are reported
in servicing fees in the Consolidated Statement of Income. Typically, the fee we are paid for servicing represents adequate compensation, and
consequently, does not result in the recognition of a servicing asset or liability.
Repossessed and Foreclosed Assets
Assets securing our finance receivables and loans are classified as repossessed and foreclosed and included in other assets when physical
possession of the collateral is taken, which includes the transfer of title through foreclosure or other similar proceedings. Repossessed and
foreclosed assets are initially recognized at the lower of the outstanding balance at the time of repossession or foreclosure or the fair value of
the asset less estimated costs to sell. Losses on the revaluation of repossessed and foreclosed assets (and generally, declines in value shortly
after repossession or foreclosure) are recognized as a charge-off of the allowance for loan losses. Subsequent declines in value are charged to
other operating expenses.
Investment in Operating Leases
Investment in operating leases, net, represents the automobiles that are underlying our automotive operating lease contracts and is
reported at cost, less accumulated depreciation and net of impairment charges and origination fees or costs. Depreciation of vehicles is
recorded on a straight-line basis to an estimated residual value over the lease term. Manufacturer support payments that we receive upfront are
treated as a reduction to the cost-basis in the underlying operating lease asset, which has the effect of reducing depreciation expense over the
life of the contract. We periodically evaluate our depreciation rate for leased vehicles based on expected residual values and adjust
depreciation expense over the remaining life of the lease if deemed necessary. Income from operating lease assets that includes lease
origination fees, net of lease origination costs, is recognized as operating lease revenue on a straight-line basis over the scheduled lease term.
We have significant investments in the residual values of the assets in our operating lease portfolio. The residual values represent an
estimate of the values of the assets at the end of the lease contracts. At contract inception, we determine pricing based on the projected
residual value of the leased vehicle. This evaluation is primarily based on a proprietary model, which includes variables such as age, expected
mileage, seasonality, segment factors, vehicle type, economic indicators, production cycle, automotive manufacturer incentives, and shifts in
used vehicle supply. This internally-generated data is compared against third-party, independent data for reasonableness. Realization of the
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residual values is dependent on our future ability to market the vehicles under the prevailing market conditions. Over the life of the lease, we
evaluate the adequacy of our estimate of the residual value and make adjustments to the depreciation rates to the extent the expected value of
the vehicle at lease termination changes. In addition to estimating the residual value at lease termination, we also evaluate the current value of
the operating lease asset and test for impairment to the extent necessary when there is an indication of impairment based on market
considerations and portfolio characteristics. Impairment is determined to exist if fair value of the leased asset is less than carrying value and it
is determined that the net carrying value is not recoverable. The net carrying value of a leased asset is not recoverable if it exceeds the sum of
the undiscounted expected future cash flows expected to result from the operating lease payments and the estimated residual value upon
eventual disposition. If our operating lease assets are considered to be impaired, the impairment is measured as the amount by which the
carrying amount of the assets exceeds the fair value as estimated by discounted cash flows. No impairment was recognized in 2018, 2017, or
2016. We accrue rental income on our operating leases when collection is reasonably assured. We generally discontinue the accrual of revenue
on operating leases at the time an account is determined to be uncollectible, which we determine to be the earliest of (i) the time of
repossession, (ii) within 60 days of bankruptcy notification, unless it can be clearly demonstrated that repayment is likely to occur, or (iii)
greater than 120 days past due.
When a leased vehicle is returned to us, either at the end of the lease term or through repossession, the asset is reclassified from
investment in operating leases, net, to other assets and recorded at the lower-of-cost or estimated fair value, less costs to sell, on our
Consolidated Balance Sheet. Any losses recognized at this time are recorded as depreciation expense. Subsequent decline in value and any
gain or loss recognized at the time of sale is recognized as a remarketing gain or loss and presented as a component of depreciation expense.
Impairment of Long-lived Assets
The net carrying values of long-lived assets (including property and equipment) are evaluated for impairment whenever events or
changes in circumstances indicate that their net carrying values may not be recoverable from the estimated undiscounted future cash flows
expected to result from their use and eventual disposition. Recoverability of assets to be held and used is measured by a comparison of their
net carrying amount to future net undiscounted cash flows expected to be generated by the assets. If these assets are considered to be
impaired, the impairment is measured as the amount by which the net carrying amount of the assets exceeds the fair value estimated using a
discounted cash flow method. No material impairment was recognized in 2018, 2017, or 2016.
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 net 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 net carrying amount over the
fair value of the assets less cost to sell. Refer to Note 2 for a discussion of discontinued 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, IT hardware and
software, capitalized software costs, and assets under construction. We begin depreciating these assets when they are ready for their intended
use. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets, which generally ranges from three to
thirty years depending on the asset class. 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.
Goodwill and Other Intangibles
Goodwill and intangible assets, net of accumulated amortization, are reported in other assets.
Our intangible assets primarily consist of acquired customer relationships and developed technology, and are amortized using a straight
line methodology over their estimated useful lives. We review intangible assets for impairment at least annually, or whenever events or
changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If it is determined the carrying amount of the
asset is not recoverable, an impairment charge is recorded.
Goodwill represents the excess of the cost of an acquisition over the fair value of net assets acquired, including identifiable intangibles.
We allocate goodwill to applicable reporting units based on the relative fair value of the other net assets allocated to those reporting units at
the time of the acquisition. In the event we restructure our business, we may reallocate goodwill. We test goodwill for impairment annually, or
more frequently if events and changes in circumstances indicate that it is more likely than not that impairment exists. Our annual goodwill
impairment test is performed as of August 31 of each year. In certain situations, we may perform a qualitative assessment to test goodwill for
impairment. We may also decide to bypass the qualitative assessment and perform a quantitative assessment. If we perform the qualitative
assessment to test goodwill for impairment and conclude that it is more likely than not that the reporting unit’s fair value is greater than its
carrying value, then the quantitative assessment is not required. However, if we perform the qualitative assessment and determine that it is
more likely than not that a reporting unit’s fair value is less than its carrying value, then we must perform the quantitative assessment. The
quantitative assessment uses a two-step process. The first step of the assessment requires us to compare the fair value of each of the reporting
units to their respective carrying value. The fair value of the reporting units in our quantitative assessment is determined based on various
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
analyses including discounted cash flow projections using assumptions a market participant would use. If the carrying value is less than the
fair value, no impairment exists, and the second step does not need to be completed. If the carrying value is greater than the fair value or there
is an indication that impairment may exist, a second step must be performed where we determine the implied value of goodwill based on the
individual fair values of the reporting unit’s assets and liabilities, including unrecognized intangibles, to compute the amount of the
impairment.
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 vehicle service and maintenance contracts, premiums and service revenues are earned on a basis proportionate
to the anticipated cost emergence. For additional information related to these contracts, refer to Note 3. For other short duration contracts,
premiums and service revenue are earned on a pro rata basis. For further information, refer to Note 4.
Deferred Insurance Policy Acquisition Costs
Certain incremental direct costs incurred to originate a policy are deferred and recorded in other assets. These costs primarily include
commissions paid to dealers to originate these policies and vary with the production of business. Deferred policy acquisition costs are
amortized over the terms of the related policies and service contracts on the same basis as premiums and service revenue are earned. 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 on our Consolidated
Balance Sheet. 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 loss adjustment expenses relating to direct insurance and assumed reinsurance agreements.
We use a combination of methods commonly used in the insurance industry, including the chain ladder development factor, expected
loss, Bornhuetter Ferguson (BF), and frequency and severity methods to determine the ultimate losses for an individual business line as well
as accident year basis depending on the maturity of the accident period and business-line specifics. These methodologies are based on
different assumptions and use various inputs to develop alternative estimates of losses. The chain ladder development factor is used for more
mature years where expected loss, BF, and frequency and severity methods are used for less mature years. Both paid and incurred loss and
loss adjustment expenses are reviewed where available and a weighted average of estimates or a single method may be considered in selecting
the final estimate for an individual accident period. We did not change our methodology for developing reserves for insurance losses for the
year ended December 31, 2018.
Estimates for salvage and subrogation recoverable are recognized at the time losses are incurred and netted against the 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 operating 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
legal or regulatory matter is not both probable and estimable, we do not establish a liability for the contingency. 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. We also
disclose 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.
Earnings per Common Share
We compute basic earnings per common share by dividing net income from continuing operations attributable to common stockholders
after deducting dividends on preferred stock by the weighted-average number of common shares outstanding during the period. We compute
diluted earnings per common share by dividing net income from continuing operations after deducting dividends on preferred stock by the
weighted-average number of common shares outstanding during the period plus the dilution resulting from incremental shares that would
have been outstanding if dilutive potential common shares had been issued (assuming it does not have the effect of antidilution), if applicable.
Derivative Instruments and Hedging Activities
We use derivative instruments primarily for risk management purposes. We do not use derivative instruments for speculative purposes.
Certain of our derivative instruments are designated as accounting hedges in qualifying relationships, whereas other derivative instruments
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Ally Financial Inc. • Form 10-K
have not been designated as accounting hedges. In accordance with applicable accounting standards, all derivative instruments, whether
designated for hedge accounting or not, are required to be recorded on the balance sheet as assets or liabilities and measured at fair value. We
have elected to report the fair value of derivative assets and liabilities on a gross basis—including the fair value for the right to reclaim cash
collateral or the obligation to return cash collateral—arising from instruments executed with the same counterparty under a master netting
arrangement where we do not have the intent to offset. For additional information on derivative instruments and hedging activities, refer to
Note 21.
At the inception of a hedge accounting relationship, we designate each qualifying hedge relationship as a hedge of the fair value of a
specifically identified asset or liability (fair value hedge); as a hedge of the variability of cash flows to be received or paid, or forecasted to be
received or paid, related to a recognized asset or liability (cash flow hedge); or as a hedge of the foreign-currency exposure of a net
investment in a foreign operation (net investment hedge). We formally document all relationships between hedging instruments and hedged
items, as well as the risk management objectives for undertaking various hedge transactions. Both at hedge inception and on an ongoing basis,
we formally assess whether the derivatives that are used in hedging relationships are highly effective in offsetting changes in fair values or
cash flows of hedged items.
Changes in the fair value of derivative instruments qualifying as fair value hedges, along with the gain or loss on the hedged asset or
liability attributable to the hedged risk, are recorded in current period earnings. For qualifying cash flow hedges, changes in the fair value of
the derivative financial instruments are recorded in accumulated other comprehensive income, and recognized in the income statement when
the hedged cash flows affect earnings. For a qualifying net investment hedge, the gain or loss is reported in accumulated other comprehensive
income as part of the cumulative translation adjustment.
Hedge accounting treatment is no longer applied if a derivative financial instrument is terminated, or if the hedge designation is removed
or assessed to be no longer highly effective. For terminated fair value hedges, any changes to the hedged asset or liability remain as part of the
basis of the hedged asset or liability and are recognized into income over the remaining life of the asset or liability. For terminated cash flow
hedges, unless it is probable that the forecasted cash flows will not occur within a specified period, any changes in fair value of the derivative
financial instrument previously recognized remain in accumulated other comprehensive income, and are reclassified into earnings in the same
period that the hedged cash flows affect earnings. Any previously recognized gain or loss for a net investment hedge continues to remain in
accumulated other comprehensive income until earnings are impacted by sale or liquidation of the associated foreign operation. In all
instances, after hedge accounting is no longer applied, any subsequent changes in fair value of the derivative instrument will be recorded into
earnings.
Changes in the fair value of derivative financial instruments held for risk management purposes that are not designated as accounting
hedges under GAAP are reported in current period earnings.
Income Taxes
Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best
assessment of estimated future taxes to be paid. We are subject to income taxes predominantly in the United States. Significant judgments and
estimates are required in determining the consolidated income tax expense.
Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In
evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise we consider all available positive and
negative evidence including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent
financial operations. In projecting future taxable income, we begin with historical results adjusted for the results of discontinued operations
and changes in accounting policies and incorporate assumptions including the amount of future state, federal and foreign pretax operating
income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies.
We use the portfolio method with respect to reclassification of stranded income tax effects in accumulated other comprehensive income.
We recognize the financial statement effects of uncertain income tax positions when it is more likely than not, based on the technical
merits, that the position will be sustained upon examination. Also, we recognize accrued interest and penalties related to liabilities for
uncertain income tax positions in interest expense and other operating expenses, respectively. For additional information regarding our
provision for income taxes, refer to Note 22.
Share-based Compensation
Our compensation and benefits expenses include the cost of share-based awards issued to employees. For equity classified share-based
awards, compensation cost is ratably charged to expense based on the grant date fair value of the awards over the applicable service periods.
For liability classified share-based awards, the associated liability is measured quarterly at fair value based on our share price and services
rendered at the time of measurement until the awards are paid, with changes in fair value charged to compensation expense in the period in
which the change occurs. We have made an accounting policy election to account for forfeitures of share-based awards as they occur. Refer to
Note 23 for a discussion of our share-based compensation plans.
Foreign Exchange
Foreign-denominated assets and liabilities resulting from foreign-currency transactions are valued using period-end foreign-exchange
rates and the results of operations and cash flows are determined using approximate weighted average exchange rates for the period.
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Ally Financial Inc. • Form 10-K
Translation adjustments are related to foreign subsidiaries using local currency as their functional currency and are reported as a separate
component of accumulated other comprehensive income. Translation gains or losses are reclassified to earnings upon the substantial sale or
liquidation of our investments in foreign operations. We may elect to enter into foreign-currency derivatives to mitigate our exposure to
changes in foreign-exchange rates. Refer to the Derivative Instruments and Hedging Activities section above for a discussion of our hedging
activities of the foreign-currency exposure of a net investment in a foreign operation.
Recently Adopted Accounting Standards
Revenue from Contracts with Customers (ASU 2014-09)
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09. The purpose of this guidance is to streamline and
consolidate existing revenue recognition principles in GAAP and to converge revenue recognition principles with International Financial
Reporting Standards. The core principle of the amendments is that an entity should recognize revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those
goods or services. The amendments include a five step process for consideration of the core principle, guidance on the accounting treatment
for costs associated with a contract, and disclosure requirements related to the revenue process. The FASB issued several additional ASUs to
clarify guidance and provide implementation support for ASU 2014-09. The clarifying guidance elaborates on the key concepts within ASU
2014-09 and clarifies how those concepts interact with other GAAP requirements. On January 1, 2018, we adopted ASU 2014-09 and all
subsequent ASUs that modified ASU 2014-09 (collectively, the amendments to the revenue recognition principles), which have been codified
in ASC 606, Revenue from Contracts with Customers, and ASC 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets,
respectively. We elected to adopt this guidance using the modified retrospective approach applied to all contracts with customers that were not
completed as of January 1, 2018. The adoption of the amendments resulted in a reduction to our opening retained earnings of approximately
$126 million, net of income taxes. Refer to Note 3 for further details.
Financial Instruments — Recognition and Measurement of Financial Assets (ASU 2016-01)
As of January 1, 2018, we adopted ASU 2016-01. The amendments in this update modify the requirements related to the measurement of
certain financial instruments in the statement of financial condition and results of operations. The FASB subsequently issued ASU 2018-03 to
clarify guidance and provide implementation support for ASU 2016-01, which we elected to early-adopt as of January 1, 2018, to align with
the adoption of ASU 2016-01. For equity investments (other than investments accounted for using the equity method), entities must measure
such instruments at fair value with changes in fair value recognized in net income. Changes in fair value for equity securities are no longer
recognized through other comprehensive (loss) income, which creates additional volatility in our Consolidated Statement of
Comprehensive Income. Reporting entities may continue to elect to measure certain equity investments that do not have a readily
determinable fair value at cost with adjustments for impairment and observable changes in price. In addition, for a liability (other than a
derivative liability) that an entity measures at fair value, any change in fair value related to the instrument-specific credit risk, that is the
entity’s own-credit, should be presented separately in other comprehensive (loss) income and not as a component of net income. We adopted
these amendments, as required, on a modified retrospective basis with a cumulative effect adjustment as of the beginning of the fiscal year of
initial adoption. The adoption of the amendments resulted in an increase to our opening accumulated deficit of approximately $20 million, net
of income taxes.
Derivatives and Hedging — Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12)
As of January 1, 2018, we elected to early-adopt ASU 2017-12. The amendments in this update enhance the financial reporting of
hedging relationships to better align hedge accounting with an entity’s risk-management activities. This update also makes certain targeted
improvements to simplify the application of the hedge accounting guidance in current GAAP and better portrays economic results through
changes to both the designation and measurement guidance for qualifying hedging relationships and presentation of hedge results. We adopted
the amendments to all cash flow and net investment hedge relationships that existed on the date of adoption using a modified retrospective
approach. No cumulative effect adjustment to our opening retained earnings was required as a result of the adoption. The presentation and
disclosure requirements included in this update were adopted prospectively. Refer to Note 21 for further details.
Accumulated Other Comprehensive Income — Reclassification of Certain Tax Effects (ASU 2018-02)
In February 2018, the FASB issued ASU 2018-02. The amendments in this update provide guidance concerning the treatment of the
impact of income tax effects resulting from the Tax Cuts and Jobs Act of 2017 (the Tax Act) on items included in accumulated other
comprehensive income. Our policy is to use the portfolio method with respect to reclassification of stranded income tax effects in
accumulated other comprehensive loss. The amendments in ASU 2018-02 provide entities an election to reclassify the income tax effect of the
Tax Act from accumulated other comprehensive income to retained earnings. We elected to early-adopt this standard as of January 1, 2018,
and reclassified the effect of the change in the federal corporate income tax rate on items included in accumulated other comprehensive loss.
This election resulted in a reclassification of $42 million from accumulated other comprehensive loss to accumulated deficit.
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value
Measurement (ASU 2018-13)
In August 2018, the FASB issued ASU 2018-13. The amendments in this update modify, remove, and add certain disclosure
requirements for fair value measurements based on the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter
8: Notes to Financial Statements. The ASU is effective on January 1, 2020, and early adoption is permitted. The amendments include (i) the
removal of certain disclosure requirements related to transfers between fair value input levels and the valuation process for Level 3 fair value
measurements, (ii) modification of the disclosures on measurement uncertainty and certain disclosures related to investment in entities that
calculate net asset value, and (iii) additional disclosure requirements related to changes in unrealized gains and losses included in other
comprehensive income for recurring Level 3 measurements and the range and weighted average of significant unobservable inputs used to
develop Level 3 fair value measurements. The modification of the narrative disclosure on measurement uncertainty, the disclosure of changes
in unrealized gains and losses, and disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3
fair value measurements should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year
of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. We elected to early-
adopt the amendments that allow for removal and modification of certain disclosure requirements, as well as the amendments that require
additional fair value measurement disclosures, as of September 30, 2018, and December 31, 2018, respectively. The adoption of these
amendments did not result in significant changes to our disclosures and did not have an impact on our financial position or results of
operations. Refer to Note 24 for further details.
Recently Issued Accounting Standards
Leases (ASU 2016-02)
In February 2016, the FASB issued ASU 2016-02. The amendments in this update primarily replace the existing accounting requirements
for operating leases for lessees. Lessee accounting requirements for finance leases and lessor accounting requirements for operating leases
and sales type and direct financing leases (sales-type and direct financing leases were both previously referred to as capital leases) are largely
unchanged. The amendments require the lessee of an operating lease to record a balance sheet gross-up upon lease commencement by
recognizing a right-of-use asset and lease liability equal to the present value of the lease payments. The right-of-use asset and lease liability
should be derecognized in a manner that effectively yields a straight line lease expense over the lease term. In addition to the changes to the
lessee operating lease accounting requirements, the amendments also change the types of costs that can be capitalized related to a lease
agreement for both lessees and lessors. The amendments also require additional disclosures for all lease types for both lessees and lessors. The
FASB has subsequently issued additional ASUs intended to clarify guidance, provide implementation support, and provide an additional
transition election. The amendments are effective on January 1, 2019, with early adoption permitted. The amendments must be applied on a
modified retrospective basis, and we have selected the transition option that will allow us to record a cumulative adjustment as of the adoption
date. We have elected certain practical expedients permitted within the ASU that allow us to not reassess (i) current lease classifications, (ii)
whether existing contracts meet the definition of a lease under the amendments to the lease guidance, and (iii) whether current initial direct
costs meet the new criteria for capitalization, for all existing leases as of the adoption date. Upon adoption of the amendments on January 1,
2019, we expect to recognize a right-of-use asset of approximately $161 million from operating leases, primarily for our various corporate
facilities, a $29 million reduction to accrued expenses and other liabilities for accrued rent and unamortized tenant improvement allowances,
and a lease liability of approximately $190 million. Additionally, upon adoption we expect to expand our financial statement disclosures as
required by the amendments, as well as implement any necessary changes to our control environment and reporting processes to reflect the
requirements of the amendments.
Financial Instruments — Credit Losses (ASU 2016-13)
In June 2016, the FASB issued ASU 2016-13. The amendments in this update introduce a new accounting model to measure credit losses
for financial assets measured at amortized cost. Credit losses for financial assets measured at amortized cost should be determined based on
the total current expected credit losses over the life of the financial asset or group of financial assets. In effect, the financial asset or group of
financial assets should be presented at the net amount expected to be collected. Credit losses will no longer be recorded under the current
incurred loss model for financial assets measured at amortized cost. The amendments also modify the accounting for available-for-sale debt
securities whereby credit losses will be recorded through an allowance for credit losses rather than a write-down to the security’s cost basis,
which allows for reversals of credit losses when estimated credit losses decline. Credit losses for available-for-sale debt securities should be
measured in a manner similar to current GAAP. The amendments are effective on January 1, 2020, with early adoption permitted as of
January 1, 2019. The amendments must be applied using a modified retrospective approach with a cumulative-effect adjustment through
retained earnings as of the beginning of the fiscal year upon adoption. The new accounting model for credit losses represents a significant
departure from existing GAAP, and will likely materially increase the allowance for credit losses with a resulting negative adjustment to
retained earnings. The amount of the change in the allowance for credit losses will also be impacted by the composition of our portfolio at the
adoption date, as well as economic conditions and forecasts at that time. Management created a cross-functional working group to govern the
implementation of these amendments, including consideration of model development, data integrity, technology, reporting and disclosure
requirements, key accounting interpretations, control environment, and corporate governance. We are in the process of refining and testing the
models and procedures that will be used to calculate the credit loss reserves in accordance with these amendments and we plan to run parallel
testing during 2019. We plan to adopt these amendments on January 1, 2020, and expect to use the modified retrospective approach as
required.
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Receivables — Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities
(ASU 2017-08)
In March 2017, the FASB issued ASU 2017-08. The amendments in this update require premiums on purchased callable debt securities
to be amortized to the security’s earliest call date. Prior to this ASU, premiums and discounts on purchased callable debt securities were
generally required to be amortized to the security’s maturity date. The amendments do not require an accounting change for securities held at
a discount. The amendments are effective on January 1, 2019, with early adoption permitted. The amendments must be applied using a
modified retrospective approach with a cumulative-effect adjustment through retained earnings as of the beginning of the fiscal year upon
adoption. Upon adoption of the amendments on January 1, 2019, we expect to recognize the cumulative effect of adoption by recording an
increase to our opening accumulated deficit of approximately $10 million, net of taxes. This reduction to total equity will be partially offset
by an $8 million decrease to accumulated other comprehensive loss, net of taxes. Additionally, upon adoption we expect to implement any
necessary changes to our control environment and reporting processes to reflect the requirements of the amendments.
2. Discontinued Operations
Prior to the adoption of ASU 2014-08, which was prospectively applied only to newly identified disposals that qualify as discontinued
operations beginning after January 1, 2015, we have classified operations as discontinued when operations and cash flows will be eliminated
from our ongoing operations and we do not expect to retain any significant continuing involvement in their operations after the respective sale
or disposal transactions. For all periods presented, the operating results for these discontinued operations have been removed from continuing
operations and presented separately as discontinued operations, net of tax, in the Consolidated Statement of Income. The Notes to the
Consolidated Financial Statements have been adjusted to exclude discontinued operations unless otherwise noted.
Our discontinued operations relate to previous discontinued operations in our Automotive Finance operations, Insurance operations, and
Corporate Finance operating segments, and other operations for which we continue to have wind-down, legal, and minimal operational costs.
Pretax loss of our discontinued operations for the year ended December 31, 2018, was $1 million. There was no net income due to an
offsetting tax benefit. Pretax loss and net income were $2 million and $3 million, respectively, for the year ended December 31, 2017. Pretax
loss and net loss were $43 million and $44 million, respectively, for the year ended December 31, 2016.
3. Revenue from Contracts with Customers
On January 1, 2018, we adopted the amendments to the revenue recognition principles using the modified retrospective approach applied
to contracts with customers outstanding as of the date of adoption. Results for reporting periods beginning after January 1, 2018, are presented
in accordance with the amendments to the revenue recognition principles, while prior period amounts have not been adjusted and continue to
be presented in accordance with the accounting standards in effect for those periods. Refer to Note 1 for additional information.
Our primary revenue sources, which include financing revenue and other interest income, are addressed by other GAAP and are not in
the scope of the amendments to the revenue recognition principles. As part of our Insurance operations, we recognize revenue from insurance
contracts, which are addressed by other GAAP and are not included in the scope of the amendments to the revenue recognition principles.
Certain noninsurance contracts within our Insurance operations, including vehicle service contracts (VSCs), guaranteed asset protection
(GAP) contracts, and vehicle maintenance contracts (VMCs), are included in the scope of the amendments to the revenue recognition
principles. Under the previous guidance, a portion of revenue earned on noninsurance contracts was recognized at contract inception, while
the remainder was recognized over the contract term on a basis proportionate to the anticipated cost emergence. In addition, dealer and sales
commissions incurred to obtain a noninsurance contract were recognized as expense when incurred, and certain direct-response advertising
costs were deferred and recognized as expense over the term of the contract. Upon adoption of the amendments to the revenue recognition
principles, all revenue associated with noninsurance contracts is recognized over the contract term on a basis proportionate to the anticipated
cost emergence. Further, commissions and sales expense incurred to obtain these contracts are capitalized and recognized as expense over the
contract term, and all advertising costs are recognized as expense when incurred.
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table presents the impact to our Consolidated Balance Sheet as of January 1, 2018, as a result of adopting the amendments
to the revenue recognition principles.
($ in millions)
Assets
Premiums receivable and other insurance assets
Other assets
Total assets
Liabilities
Unearned insurance premiums and service revenue
Total liabilities
Equity
Accumulated deficit
Total equity
Total liabilities and equity
As reported,
December 31,
2017
Adjustment
related to
adoption
As adjusted,
January 1,
2018
$
$
$
$
$
$
2,047
5,663
167,148
2,604
153,654
$
$
$
122
41
163
289
289
2,169
5,704
167,311
2,893
153,943
(6,406)
13,494
(126)
(126)
(6,532)
13,368
$
167,148
$
163
$
167,311
The following tables present the impact of adopting the amendments to the revenue recognition principles to our Consolidated Statement
of Income, Consolidated Statement of Comprehensive Income, and Consolidated Balance Sheet.
($ in millions)
Other revenue
Year ended
December 31, 2018
As
reported
Effect of
adoption
Insurance premiums and service revenue earned
$
1,022
$
Total other revenue
Total net revenue
Noninterest expense
Compensation and benefits expense
Other operating expenses
Total noninterest expense
Income from continuing operations before income tax expense
Income tax expense from continuing operations
Net income from continuing operations
Net income
Comprehensive income
December 31, 2018 ($ in millions)
Assets
Premiums receivable and other insurance assets
Other assets
Total assets
Liabilities
Unearned insurance premiums and service revenue
Total liabilities
Equity
Accumulated deficit
Total equity
Total liabilities and equity
119
1,414
5,804
1,155
1,814
3,264
1,622
359
1,263
1,263
$
974
$
(26)
(26)
(26)
(1)
(12)
(13)
(13)
(3)
(10)
(10)
(10)
As
reported
Effect of
adoption
$
$
$
$
$
$
2,326
6,153
178,869
3,044
165,601
(5,489)
13,268
$
178,869
$
135
44
179
315
315
(136)
(136)
179
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following is a description of our primary revenue sources that are derived from contracts with customers. As a result of the adoption
of the amendments to the revenue recognition principles, our only revenue source for which the recognition pattern was affected was that of
noninsurance contracts, as described in this note. Revenue from contracts with customers is recognized when control of the promised goods or
services is transferred to our customers, and in an amount that reflects the consideration that we expect to receive in exchange for those goods
or services. For information regarding our revenue recognition policies outside the scope of the amendments to the revenue recognition
principles of ASC 606, Revenue from Contracts with Customers, refer to Note 1.
• Noninsurance contracts — We sell VSCs that offer owners mechanical repair protection and roadside assistance for new and used
vehicles beyond the manufacturer’s new vehicle limited warranty. We sell GAP contracts that protect the customer against having to
pay certain amounts to a lender above the fair market value of their vehicle if the vehicle is damaged and declared a total loss or
stolen. We also sell VMCs that provide coverage for certain agreed-upon services, such as oil changes and tire rotations, over the
coverage period. We receive payment in full at the inception of each of these contracts. Our performance obligation for these
contracts is satisfied over the term of the contract and we recognize revenue over the contract term on a basis proportionate to the
anticipated incurrence of costs, as we believe this is the most appropriate method to measure progress towards satisfaction of the
performance obligation. Upon adoption of the amendments to the revenue recognition principles, unearned revenue of $289 million
was recognized as a component of unearned insurance premiums and service revenue on our Consolidated Balance Sheet associated
with outstanding contracts at January 1, 2018, and $91 million of this balance was recognized as insurance premiums and service
revenue earned in our Consolidated Statement of Income during the year ended December 31, 2018. At December 31, 2018, we had
unearned revenue of $2.6 billion associated with outstanding contracts, and with respect to this balance we expect to recognize
revenue of $721 million in 2019, $639 million in 2020, $519 million in 2021, $379 million in 2022, and $386 million thereafter.
The incremental costs to obtain these contracts are initially deferred and recorded as a component of premiums receivable and other
insurance assets on our Consolidated Balance Sheet. These deferred costs are amortized as an expense over the term of the related
contract commensurate with how the related revenue is recognized, and are included in compensation and benefits and other
operating expenses in our Consolidated Statement of Income. We had deferred insurance assets of $1.5 billion at December 31,
2018, and recognized $427 million of expense during the year ended December 31, 2018.
•
•
•
•
Sale of off-lease vehicles — When a customer’s vehicle lease matures, the customer has the option of purchasing or returning the
vehicle. If the vehicle is returned to us, we obtain possession with the intent to sell through SmartAuction—our online auction
platform, our dealer channel, or through various other physical auctions. Our performance obligation is satisfied and the
remarketing gain or loss is recognized when control of the vehicle has passed to the buyer, which coincides with the sale date. Our
actual sales proceeds from remarketing the vehicle may be higher or lower than the estimated residual value resulting in a gain or
loss on remarketing recorded through depreciation expense on operating lease assets in our Consolidated Statement of Income.
Remarketing fee income — In addition to using SmartAuction as a remarketing channel for our returned lease vehicles, we
maintain the internet auction site and administer the auction process for third-party use. We earn a service fee from dealers for every
third-party vehicle sold through SmartAuction. Our performance obligation is to provide the online marketplace for used vehicle
transactions to be consummated. This obligation is satisfied and revenue is recognized when control of the vehicle has passed to the
buyer, which coincides with the sale date. This revenue is recorded as remarketing fees within other income in our Consolidated
Statement of Income.
Brokerage commissions and other revenues through Ally Invest — We charge fees to customers related to their use of certain
services on our Ally Invest digital wealth management and online brokerage platform. These fees include commissions on
customer-directed trades, account service fees, account management fees on professional portfolio management services, and other
ancillary fees. Commissions on customer-directed trades and account service fees are based on published fee schedules and are
generated from a customer option to purchase the services offered under the contract. These options do not represent a material right
and are only considered a contract when the customer executes their option to purchase these services. Based on this, the term of the
contract does not extend beyond services provided, and as such revenue is recognized upon the completion of our performance
obligation, which we view as the successful execution of the trade or service. Revenue on professional portfolio management
services is calculated monthly based upon a fixed percentage of the client’s assets under management. Due to the fact that this
revenue stream is composed of variable consideration that is based on factors outside of our control, we have deemed this revenue
as constrained and we are unable to estimate the initial transaction price at the inception of the contract. We have elected to use the
practical expedient under GAAP to recognize revenue monthly based on the amount we are able to invoice the customer. We also
earn revenue from a fee-sharing agreement with our clearing broker related to the interest income the clearing broker earns on
customer cash balances and margin loans made to our customers. We concluded the initial transaction price is exclusively variable
consideration and, based on the nature of our performance obligation to allow the clearing broker to collect interest income from
cash deposits and customer loans from our customers, we are unable to determine the amount of revenue to be recognized until the
total customer cash balance or the total interest income recognized on margin loans has been determined, which occurs monthly.
These revenue streams are recorded as other income in our Consolidated Statement of Income.
Brokered/agent commissions through Insurance operations — We have agreements with third parties to offer various vehicle
protection products to consumers. We also have agreements with third-party insurers to offer various insurance coverages to dealers.
Our performance obligation for these arrangements is satisfied when a customer or dealer has purchased a vehicle protection
product or an insurance policy through the third-party provider. In determining the initial transaction price for these agreements, we
noted that revenue on brokered/agent commissions is based on the volume of vehicle protection product contracts sold or a
120
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
percentage of insurance premium written, which is not known to us at the inception of the agreements with these third-party
providers. As such, we believe the initial transaction price is exclusively variable consideration and, based on the nature of the
performance obligation, we are unable to determine the amount of revenue we will record until the customer purchases a vehicle
protection product or a dealer purchases an insurance policy from the third-party provider. Once we are notified of vehicle
protection product sales or insurance policies issued by the third-party providers, we record the commission earned as insurance
premiums and service revenues earned in our Consolidated Statement of Income.
• Deposit account and other banking fees — We charge depositors various account service fees including those for outgoing wires,
excessive transactions, overdrafts, stop payments, and returned deposits. These fees are generated from a customer option to
purchase services offered under the contract. These options do not represent a material right and are only considered a contract in
accordance with the amendments to the revenue recognition principles when the customer exercises their option to purchase these
account services. Based on this, the term for our contracts with customers is considered day-to-day, and the contract does not extend
beyond the services already provided. Revenue derived from deposit account fees is recorded at the point in time we perform the
requested service, and is recorded as other income in our Consolidated Statement of Income. As a debit card issuer, we also generate
interchange fee income from merchants during debit card transactions and incur certain corresponding charges from merchant card
networks. Our performance obligation is satisfied when we have initiated the payment of funds from a customer’s account to a
merchant through our contractual agreements with the merchant card networks. Interchange fees are reported on a net basis as other
income in our Consolidated Statement of Income. Gross interchange fee income was $12 million, and interchange expense was $10
million, for the year ended December 31, 2018.
• Other revenue — Other revenue primarily includes service revenue related to various account management functions, fee income
derived from third-party loans arranged through Clearlane—our online automotive lender exchange, and revenue associated with
licensing and marketing from the Ally CashBack Credit Card—our co-branded credit card. These revenue streams are recorded as
other income in our Consolidated Statement of Income.
The following table presents a disaggregated view of our revenue from contracts with customers included in other revenue that falls
within the scope of the amendments to the revenue recognition principles.
Year ended December 31, 2018
($ in millions)
Revenue from contracts with customers
Noninsurance contracts
Remarketing fee income
Brokerage commissions and other revenue
Brokered/agent commissions
Deposit account and other banking fees
Other
Total revenue from contracts with customers
Automotive
Finance
operations
Insurance
operations
Mortgage
Finance
operations
Corporate
Finance
operations
Corporate
and Other
Consolidated
$
— $
506
$
— $
— $
— $
506
79
—
—
—
13
92
—
—
15
—
1
522
459
981
$
—
—
—
—
—
—
7
7
$
—
—
—
—
—
—
38
38
—
62
—
13
—
75
44
$
119
$
79
62
15
13
14
689
725
1,414
All other revenue
Total other revenue (a)
177
269
$
$
(a) Represents a component of total net revenue. Refer to Note 26 for further information on our reportable operating segments.
In addition to the components of other revenue presented above, as part of our Automotive Finance operations, we recognized net
remarketing gains of $90 million for the year ended December 31, 2018, on the sale of off-lease vehicles. These gains are included in
depreciation expense on operating lease assets in our Consolidated Statement of Income.
121
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
4.
Insurance Premiums and Service Revenue Earned
The following table is a summary of insurance premiums and service revenue written and earned.
Year ended December 31, ($ in millions)
Written
Earned
Written
Earned
Written
Earned
2018
2017
2016
Insurance premiums
Direct
Assumed
Gross insurance premiums
Ceded
Net insurance premiums
Service revenue
$
420
$
414
$
384
$
364
$
317
$
—
420
(219)
201
973
4
418
(197)
221
801
2
386
(254)
132
864
5
369
(188)
181
792
3
320
(198)
122
826
Insurance premiums and service revenue written
and earned
$
1,174
$
1,022
$
996
$
973
$
948
$
318
5
323
(141)
182
763
945
5. Other Income, Net of Losses
Details of other income, net of losses, were as follows.
Year ended December 31, ($ in millions)
Late charges and other administrative fees
Remarketing fees
Income from equity-method investments
Servicing fees
Other, net
Total other income, net of losses
2018
2017
2016
$
110
$
79
46
27
155
417
$
$
102
104
14
51
130
401
$
$
98
103
18
64
106
389
6. Reserves for Insurance Losses and Loss Adjustment Expenses
The following table shows incurred claims and allocated loss adjustment expenses, net of reinsurance.
For the years ended December 31, ($ in millions)
December 31, 2018 ($ in millions)
Accident year (a)
2012 (b)
2013 (b)
2014 (b)
2015 (b)
2016
2017
2018
Total of incurred-
but-not-reported
liabilities plus
expected
development on
reported claims (c)
Cumulative
number of
reported
claims (c)
2012
2013
2014
2015
2016
2017
2018
Total
$
435
$
$
430
376
$
423
365
390
$
423
370
389
274
$
423
370
388
271
326
$
422
369
388
272
327
310
$
422
368
388
272
328
314
271
$ 2,363
—
—
—
—
—
—
19
772,549
672,273
525,297
342,261
475,973
481,319
482,605
(a) Due to the discontinuation of various product lines and sale of certain international operations, information prior to 2012 has been excluded from the table
in order to appropriately reflect the number of years for which claims are typically outstanding. In addition, given the short tail of our insurance contracts,
the table above reflects the combined presentation of all business lines.
Information presented for the years 2012 through 2015 is unaudited supplementary information.
(b)
(c) Claims are reported on a claimant basis. Claimant is defined as one vehicle for guaranteed asset protection (GAP) products, one repair visit for vehicle
service contracts (VSCs) and vehicle maintenance contracts (VMCs), one dealership for dealer inventory products, and per individual/coverage for run-off
personal automotive products.
122
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table shows cumulative paid claims and allocated loss adjustment expenses, net of reinsurance.
Accident year (a)
2012 (b)
2013 (b)
2014 (b)
2015 (b)
2016
2017
2018
For the years ended December 31, ($ in millions)
2012
2013
2014
2015
2016
2017
2018
Total
All outstanding liabilities for loss and allocated loss
adjustment expenses before 2012, net of reinsurance
Reserves for insurance losses and allocated loss adjustment
expenses, net of reinsurance
$
391
$
$
412
347
$
416
364
369
$
418
366
388
252
$
419
368
388
272
302
$
421
368
388
272
327
289
421
368
388
272
328
315
245
$ 2,337
9
$
35
(a) Due to the discontinuation of various product lines and sale of certain international operations, information prior to 2012 has been excluded from the table
in order to appropriately reflect the number of years for which claims are typically outstanding. In addition, given the short tail of our insurance contracts,
the table above reflects the combined presentation of all business lines.
Information presented for the years 2012 through 2015 is unaudited supplementary information.
(b)
The following table shows the average annual percentage payout of incurred claims by age, net of reinsurance. The information
presented is unaudited supplementary information.
Year
1
2
3
4
5
6
7
Percentage payout of incurred claims
92.8%
6.1%
0.4%
0.3%
0.1%
0.2%
0.1%
The following table shows a reconciliation of the disclosures of incurred and paid claims development to the reserves for insurance
losses and loss adjustment expenses.
December 31, ($ in millions)
Reserves for insurance losses and loss adjustment expenses, net of reinsurance
Total reinsurance recoverable on unpaid claims
Unallocated loss adjustment expenses
Total gross reserves for insurance losses and loss adjustment expenses
2018
2017
2016
$
$
35
96
3
$
30
$
108
2
134
$
140
$
38
108
3
149
The following table shows a rollforward of our reserves for insurance losses and loss adjustment expenses.
($ in millions)
2018
2017
2016
Total gross reserves for insurance losses and loss adjustment expenses at January 1,
$
Less: Reinsurance recoverable
Net reserves for insurance losses and loss adjustment expenses at January 1,
Net insurance losses and loss adjustment expenses incurred related to:
Current year
Prior years (a)
Total net insurance losses and loss adjustment expenses incurred
Net insurance losses and loss adjustment expenses paid or payable related to:
Current year
Prior years
Total net insurance losses and loss adjustment expenses paid or payable
Net reserves for insurance losses and loss adjustment expenses at December 31,
Plus: Reinsurance recoverable
$
140
108
32
291
4
295
(263)
(26)
(289)
38
96
Total gross reserves for insurance losses and loss adjustment expenses at December 31,
$
134
$
(a) There have been no material adverse changes to the reserve for prior years.
149
108
41
332
—
332
(309)
(32)
(341)
32
108
140
$
$
169
120
49
345
(3)
342
(320)
(30)
(350)
41
108
149
123
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
7. Other Operating Expenses
Details of other operating expenses were as follows.
Year ended December 31, ($ in millions)
2018
2017
2016
Insurance commissions
Technology and communications
Advertising and marketing
Lease and loan administration
Professional services
Regulatory and licensing fees
Vehicle remarketing and repossession
Premises and equipment depreciation
Occupancy
Non-income taxes
Amortization of intangible assets
Other
Total other operating expenses
$
$
440
299
172
164
133
121
111
87
45
29
11
202
$
415
284
133
159
113
113
110
89
46
21
11
189
$
1,814
$
1,683
$
389
274
112
136
103
94
95
84
51
25
6
236
1,605
8.
Investment Securities
Our investment portfolio includes various debt and equity securities. Our debt securities, which are classified as available-for-sale and
held-to-maturity, include government securities, corporate bonds, asset-backed securities, and mortgage-backed securities. The cost, fair
value, and gross unrealized gains and losses on available-for-sale and held-to-maturity debt securities were as follows.
December 31, ($ in millions)
Available-for-sale securities
Debt securities
2018
2017
Amortized
cost
Gross unrealized
gains
losses
Fair
value
Amortized
cost
Gross unrealized
gains
losses
Fair
value
U.S. Treasury and federal agencies
$
1,911
$ — $
(60) $ 1,851
$
1,831
$ — $
(54) $ 1,777
U.S. States and political subdivisions
Foreign government
Agency mortgage-backed residential
Mortgage-backed residential
Mortgage-backed commercial
Asset-backed
Corporate debt
816
145
17,486
2,796
718
723
1,286
3
1
47
1
1
2
1
(17)
(1)
(395)
(111)
(2)
(2)
802
145
17,138
2,686
717
723
(46)
1,241
850
153
14,412
2,517
541
933
1,262
11
2
35
11
1
4
5
(7)
(1)
854
154
(156)
14,291
(34)
2,494
(1)
(1)
541
936
(11)
1,256
Total available-for-sale securities (a) (b) (c)
$
25,881
$
56
$
(634) $ 25,303
$
22,499
$
69
$
(265) $ 22,303
Held-to-maturity securities
Debt securities
Agency mortgage-backed
residential (d)
Asset-backed retained notes
Total held-to-maturity securities
$
$
2,319
43
2,362
$
$
6
—
6
$
$
(61) $ 2,264
—
43
(61) $ 2,307
$
$
1,863
36
1,899
$
$
3
—
3
$
$
(37) $ 1,829
—
36
(37) $ 1,865
(a) Certain entities related to our Insurance operations are required to deposit securities with state regulatory authorities. These deposited securities totaled
$12 million at both December 31, 2018, and December 31, 2017.
(b) Certain available-for-sale securities are included in fair value hedging relationships. Refer to Note 21 for additional information.
(c) Available-for-sale securities with a fair value of $9.2 billion and $7.8 billion at December 31, 2018, and December 31, 2017, respectively, were pledged to
secure advances from the FHLB, short-term borrowings or repurchase agreements, or for other purposes as required by contractual obligation or law.
Under these agreements, we have granted the counterparty the right to sell or pledge $821 million and $1.0 billion of the underlying investment securities
at December 31, 2018, and December 31, 2017, respectively.
(d) Held-to-maturity securities with a fair value of $1.2 billion and $664 million at December 31, 2018, and December 31, 2017, respectively, were pledged
to secure advances from the FHLB.
124
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The maturity distribution of debt securities outstanding is summarized in the following tables. Call or prepayment options may cause
actual maturities to differ from contractual maturities.
Total
Due in one year
or less
Due after one
year through
five years
Due after five
years through
ten years
Due after ten
years
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
($ in millions)
December 31, 2018
Fair value of available-for-sale
securities (a)
U.S. Treasury and federal agencies
$ 1,851
1.9% $
1.0% $ 1,277
1.8% $
562
2.0% $
— —%
U.S. States and political
subdivisions
Foreign government
Agency mortgage-backed
residential
Mortgage-backed residential
Mortgage-backed commercial
Asset-backed
Corporate debt
802
145
17,138
2,686
717
723
1,241
Total available-for-sale securities
$ 25,303
Amortized cost of available-for-sale
securities
$ 25,881
3.0
2.4
3.3
3.3
3.8
3.5
3.1
3.2
12
49
18
1.9
3.1
— —
— —
— —
— —
2.8
2.6
144
223
224
$
$
43
60
2.3
2.3
— —
— —
252
67
2.6
2.4
458
3.4
— —
54
1.9
— —
17,084
2,686
3
478
496
$ 2,357
3.1
3.4
2.9
2.4
46
121
581
$ 1,683
3.9
4.0
3.3
2.8
668
124
20
$ 21,040
$ 2,405
$ 1,743
$ 21,509
Amortized cost of held-to-maturity
securities
Agency mortgage-backed
residential
$ 2,319
3.2% $
— —% $
— —% $
— —% $ 2,319
3.2%
Asset-backed retained notes
43
Total held-to-maturity securities
$ 2,362
2.0
3.2
— —
$
— — $
42
42
2.0
2.0
$
1
1
3.3
3.3
— —
$ 2,319
3.2
December 31, 2017
Fair value of available-for-sale
securities (a)
U.S. Treasury
U.S. States and political
subdivisions
Foreign government
Agency mortgage-backed
residential
Mortgage-backed residential
Mortgage-backed commercial
Asset-backed
Corporate debt
Total available-for-sale securities
$ 22,303
Amortized cost of available-for-sale
securities
$ 22,499
$ 1,777
1.7 % $
— — % $
487
1.7 % $ 1,290
1.8 % $
— — %
854
154
14,291
2,494
541
936
1,256
2.9
2.5
3.1
3.1
3.2
3.1
2.9
3.0
76
1.8
— —
— —
— —
— —
— —
2.6
2.3
140
216
217
$
$
36
80
2.3
2.5
— —
— —
203
74
2.5
2.4
539
3.3
— —
3
2.9
— —
14,288
2,494
30
698
513
$ 1,844
3.1
3.1
2.6
2.5
31
106
564
$ 2,271
3.1
3.1
3.2
2.3
480
132
39
$ 17,972
$ 1,852
$ 2,314
$ 18,116
3.3
3.3
3.8
3.3
5.5
3.3
3.1
3.1
3.2
2.8
4.7
3.1
Amortized cost of held-to-maturity
securities
Agency mortgage-backed
residential
$ 1,863
3.1 % $
— — % $
— — % $
— — % $ 1,863
3.1 %
Asset-backed retained notes
36
Total held-to-maturity securities
$ 1,899
1.7
3.1
— —
$
— — $
35
35
1.7
1.7
$
1
1
3.0
3.0
— —
$ 1,863
3.1
(a) Yield is calculated using the effective yield of each security at the end of the period, weighted based on the market value. The effective yield considers the
contractual coupon and amortized cost, and excludes expected capital gains and losses.
125
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The balances of cash equivalents were $35 million and $10 million at December 31, 2018, and December 31, 2017, respectively, and
were composed primarily of money market accounts and short-term securities, including U.S. Treasury bills.
The following table presents interest and dividends on investment securities.
Year ended December 31, ($ in millions)
Taxable interest
Taxable dividends
Interest and dividends exempt from U.S. federal income tax
Interest and dividends on investment securities
2018
2017
2016
$
$
690
$
534
$
14
25
12
22
729
$
568
$
375
17
19
411
The following table presents gross gains and losses realized upon the sales of available-for-sale securities, and net gains or losses on
equity securities held during the period. There were no other-than-temporary impairments of available-for-sale securities for the periods
presented.
Year ended December 31, ($ in millions)
2018
2017
2016
Available-for-sale securities
Gross realized gains
Gross realized losses (a)
Net realized gains on available-for-sale securities
Net realized gain on equity securities
Net unrealized loss on equity securities (b)
Other (loss) gain on investments, net
$
12
$
106
$
(4)
102
(1)
11
60
(121)
187
(2)
185
$
(50) $
102
$
185
(a) Certain available-for-sale securities were sold at a loss in 2018, 2017, and 2016 as a result of market conditions within these respective periods (e.g., a
downgrade in the rating of a debt security) or based on corporate actions outside of our control (such as a call by the issuer). Any such sales were made in
accordance with our risk-management policies and practices.
(b) As a result of our adoption of ASU 2016-01, beginning January 1, 2018, changes in the fair value of our portfolio of equity securities are recognized in net
income. Prior to adoption, equity securities were included in our available-for-sale portfolio and unrealized changes in fair value were recognized through
other comprehensive (loss) income until realized, at which point we recorded a gain or loss on sale. We adopted ASU 2016-01 on January 1, 2018, on a
modified retrospective basis with a cumulative effect adjustment as of the beginning of the fiscal year of initial adoption. Refer to the section titled
Recently Adopted Accounting Standards in Note 1 for additional information.
126
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The table below summarizes available-for-sale and held-to-maturity securities in an unrealized loss position, which we evaluated for
other than temporary impairment applying the methodology described in Note 1. As of December 31, 2018, we did not have the intent to sell
the available-for-sale or held-to-maturity securities with an unrealized loss position and we do not believe it is more likely than not that we
will be required to sell these securities before recovery of their amortized cost basis. As a result of this evaluation, we believe that the
securities with an unrealized loss position are not considered to be other-than-temporarily impaired at December 31, 2018.
2018
2017
Less than 12 months
12 months or longer
Less than 12 months
12 months or longer
Fair
value
Unrealized
loss
Fair
value
Unrealized
loss
Fair
value
Unrealized
loss
Fair
value
Unrealized
loss
$
31
$
— $ 1,758
$
(60) $
471
$
(8) $ 1,305
$
(46)
259
6
5,537
1,024
347
294
576
(3)
—
(94)
(20)
(1)
(1)
(19)
317
74
7,808
1,360
36
124
569
(14)
(1)
(301)
(91)
(1)
(1)
(27)
242
80
4,066
857
76
220
529
(2)
(1)
(19)
(2)
(1)
(1)
(4)
183
4
5,671
773
21
91
194
(5)
—
(137)
(32)
—
—
(7)
$ 8,074
$
(138) $ 12,046
$
(496) $ 6,541
$
(38) $ 8,242
$
(227)
December 31, ($ in millions)
Available-for-sale securities
Debt securities
U.S. Treasury and federal
agencies
U.S. States and political
subdivisions
Foreign government
Agency mortgage-backed
residential
Mortgage-backed residential
Mortgage-backed commercial
Asset-backed
Corporate debt
Total temporarily impaired
available-for-sale securities
Held-to-maturity securities
Debt securities
Agency mortgage-backed
residential
(32)
—
(32)
$
457
$
(6) $ 1,376
$
(55) $
773
$
(5) $
687
$
Asset-backed retained notes
16
—
19
—
35
—
—
Total held-to-maturity debt
securities
$
473
$
(6) $ 1,395
$
(55) $
808
$
(5) $
687
$
127
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
9. Finance Receivables and Loans, Net
The composition of finance receivables and loans reported at gross carrying value was as follows.
December 31, ($ in millions)
Consumer automotive (a)
Consumer mortgage
Mortgage Finance (b)
Mortgage — Legacy (c)
Total consumer mortgage
Total consumer
Commercial
Commercial and industrial
Automotive
Other
Commercial real estate
Total commercial
2018
2017
$
70,539
$
68,071
15,155
1,546
16,701
87,240
33,672
4,205
4,809
42,686
11,657
2,093
13,750
81,821
33,025
3,887
4,160
41,072
Total finance receivables and loans (d)
$
129,926
$
122,893
(a) Certain finance receivables and loans are included in fair value hedging relationships. Refer to Note 21 for additional information.
(b)
Includes loans originated as interest-only mortgage loans of $18 million and $20 million at December 31, 2018, and December 31, 2017, respectively,
34% of which are expected to start principal amortization in 2019, and 41% in 2020. The remainder of these loans have exited the interest-only period.
Includes loans originated as interest-only mortgage loans of $341 million and $496 million at December 31, 2018, and December 31, 2017, respectively,
of which 99% have exited the interest-only period.
(c)
(d) Totals include net unearned income, unamortized premiums and discounts, and deferred fees and costs of $587 million and $551 million at December 31,
2018, and December 31, 2017, respectively.
The following tables present an analysis of the activity in the allowance for loan losses on finance receivables and loans.
($ in millions)
Allowance at January 1, 2018
Charge-offs (a)
Recoveries
Net charge-offs
Provision for loan losses
Other (b)
Allowance at December 31, 2018
Allowance for loan losses at December 31, 2018
Individually evaluated for impairment
Collectively evaluated for impairment
Finance receivables and loans at gross carrying value
Ending balance
Individually evaluated for impairment
Collectively evaluated for impairment
Consumer
automotive
Consumer
mortgage
Commercial
Total
$
1,066
$
79
$
131
$
1,276
(1,383)
456
(927)
911
(2)
1,048
44
1,004
$
$
$
$
(35)
25
(10)
(15)
(1)
53
23
30
$
$
(15)
7
(8)
22
(4)
141
56
85
$
$
(1,433)
488
(945)
918
(7)
1,242
123
1,119
$
70,539
$
16,701
$
42,686
$
129,926
495
70,044
231
16,470
349
1,075
42,337
128,851
(a) Represents the amount of the gross carrying value directly written off. For consumer and commercial loans, the loss from a charge-off is measured as the
difference between the gross carrying value of a loan and the fair value of the collateral, less costs to sell. Refer to Note 1 for more information regarding
our charge-off policies.
(b) Primarily related to the transfer of finance receivables and loans from held-for-investment to held-for-sale.
128
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
($ in millions)
Allowance at January 1, 2017
Charge-offs (a)
Recoveries
Net charge-offs
Provision for loan losses
Other (b)
Allowance at December 31, 2017
Allowance for loan losses at December 31, 2017
Individually evaluated for impairment
Collectively evaluated for impairment
Finance receivables and loans at gross carrying value
Ending balance
Individually evaluated for impairment
Collectively evaluated for impairment
Consumer
automotive
Consumer
mortgage
Commercial
Total
$
932
$
(1,344)
358
(986)
1,127
(7)
1,066
36
1,030
$
$
$
$
91
$
(30)
24
(6)
(7)
1
79
27
52
$
$
121
$
1,144
(18)
—
(18)
28
—
131
14
117
$
$
(1,392)
382
(1,010)
1,148
(6)
1,276
77
1,199
$
68,071
$
13,750
$
41,072
$
122,893
430
67,641
231
13,519
72
733
41,000
122,160
(a) Represents the amount of the gross carrying value directly written off. For consumer and commercial loans, the loss from a charge-off is measured as the
difference between the gross carrying value of a loan and the fair value of the collateral, less costs to sell. Refer to Note 1 for more information regarding
our charge-off policies.
(b) Primarily related to the transfer of finance receivables and loans from held-for-investment to held-for-sale.
The following table presents information about significant sales of finance receivables and loans and transfers of finance receivables and
loans from held-for-investment to held-for-sale based on net carrying value.
December 31, ($ in millions)
Consumer automotive
Consumer mortgage
Commercial
Total sales and transfers
2018
2017
578
$
1,339
10
238
826
9
—
$
1,348
$
$
The following table presents information about significant purchases of finance receivables and loans based on unpaid principal balance
at the time of purchase.
($ in millions)
Consumer automotive
Consumer mortgage
Commercial
Total purchases of finance receivables and loans
2018
2017
$
$
896
$
4,446
15
865
4,481
—
5,357
$
5,346
129
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table presents an analysis of our past-due finance receivables and loans recorded at gross carrying value.
December 31, ($ in millions)
2018
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer mortgage
Total consumer
Commercial
Commercial and industrial
Automotive
Other
Commercial real estate
Total commercial
Total consumer and commercial
2017
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer mortgage
Total consumer
Commercial
Commercial and industrial
Automotive
Other
Commercial real estate
Total commercial
30–59 days
past due
60–89 days
past due
90 days
or more
past due
Total
past due
Current
Total finance
receivables and
loans
$
2,107
$
537
$
296
$
2,940
$
67,599
$
70,539
67
30
97
2,204
—
—
—
—
$
$
2,204
1,994
$
$
60
43
103
2,097
5
—
—
5
$
$
5
10
15
552
1
4
—
5
557
478
11
25
36
514
—
—
—
—
4
42
46
342
31
16
1
48
390
268
18
62
80
348
3
—
—
3
76
82
158
3,098
32
20
1
53
$
$
3,151
2,740
$
$
89
130
219
2,959
8
—
—
8
$
$
15,079
1,464
16,543
84,142
33,640
4,185
4,808
42,633
126,775
65,331
11,568
1,963
13,531
78,862
33,017
3,887
4,160
41,064
15,155
1,546
16,701
87,240
33,672
4,205
4,809
42,686
129,926
68,071
11,657
2,093
13,750
81,821
33,025
3,887
4,160
41,072
122,893
Total consumer and commercial
$
2,102
$
514
$
351
$
2,967
$
119,926
$
The following table presents the gross carrying value of our finance receivables and loans on nonaccrual status.
December 31, ($ in millions)
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer mortgage
Total consumer
Commercial
Commercial and industrial
Automotive
Other
Commercial real estate
Total commercial
2018
2017
$
664
$
603
9
70
79
743
203
142
4
349
25
92
117
720
27
44
1
72
Total consumer and commercial finance receivables and loans
$
1,092
$
792
130
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Management performs a quarterly analysis of the consumer automotive, consumer mortgage, and commercial portfolios using a range of
credit quality indicators to assess the adequacy of the allowance for loan losses based on historical and current trends. The following tables
present the population of loans by quality indicators for our consumer automotive, consumer mortgage, and commercial portfolios.
The following table presents performing and nonperforming credit quality indicators in accordance with our internal accounting policies
for our consumer finance receivables and loans recorded at gross carrying value. Nonperforming loans include finance receivables and loans
on nonaccrual status when the principal or interest has been delinquent for at least 90 days or when full collection is not expected. Refer to
Note 1 for additional information.
December 31, ($ in millions)
Performing
Nonperforming
Total
Performing
Nonperforming
Total
2018
2017
$
69,875
$
664
$
70,539
$
67,468
$
603
$
68,071
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer mortgage
Total consumer
$
86,497
$
743
$
87,240
$
81,101
$
15,146
1,476
16,622
9
70
79
15,155
1,546
16,701
11,632
2,001
13,633
25
92
117
720
$
11,657
2,093
13,750
81,821
The following table presents pass and criticized credit quality indicators based on regulatory definitions for our commercial finance
receivables and loans recorded at gross carrying value.
December 31, ($ in millions)
Commercial and industrial
Automotive
Other
Commercial real estate
Total commercial
2018
2017
Pass
Criticized (a)
Total
Pass
Criticized (a)
Total
$
30,799
$
2,873
$
33,672
$
30,982
$
2,043
$
33,025
3,373
4,538
832
271
4,205
4,809
2,986
4,023
901
137
3,887
4,160
$
38,710
$
3,976
$
42,686
$
37,991
$
3,081
$
41,072
(a)
Includes loans classified as special mention, substandard, or doubtful. These classifications are based on regulatory definitions and generally represent
loans within our portfolio that have a higher default risk or have already defaulted.
131
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Impaired Loans and Troubled Debt Restructurings
Impaired Loans
Loans are considered impaired when we determine it is probable that we will be unable to collect all amounts due according to the terms
of the loan agreement. For more information on our impaired finance receivables and loans, refer to Note 1.
The following table presents information about our impaired finance receivables and loans.
Unpaid
principal
balance (a)
Gross
carrying
value
Impaired
with no
allowance
Impaired
with an
allowance
Allowance
for impaired
loans
December 31, ($ in millions)
2018
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer mortgage
Total consumer
Commercial
Commercial and industrial
Automotive
Other
Commercial real estate
Total commercial
Total consumer and commercial finance receivables and loans
2017
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer mortgage
Total consumer
Commercial
Commercial and industrial
Automotive
Other
Commercial real estate
Total commercial
$
503
$
495
$
105
$
390
$
$
$
$
$
15
221
236
739
203
159
4
366
1,105
438
8
228
236
674
27
54
1
82
$
$
15
216
231
726
203
142
4
349
1,075
430
8
223
231
661
27
44
1
72
$
$
6
65
71
176
112
40
4
156
332
91
4
58
62
153
9
10
—
19
$
$
9
151
160
550
91
102
—
193
743
339
4
165
169
508
18
34
1
53
Total consumer and commercial finance receivables and loans
$
756
$
733
$
172
$
561
$
(a) Adjusted for charge-offs.
132
44
1
22
23
67
10
46
—
56
123
36
—
27
27
63
3
11
—
14
77
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table presents average balance and interest income for our impaired finance receivables and loans.
Year ended December 31, ($ in millions)
2018
2017
2016
Average
balance
Interest
income
Average
balance
Interest
income
Average
balance
Interest
income
$
478
$
28
$
391
$
21
$
344
$
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer mortgage
Total consumer
Commercial
Commercial and industrial
Automotive
Other
Commercial real estate
Total commercial
11
218
229
707
93
84
5
182
889
1
10
11
39
4
—
1
5
$
44
$
8
234
242
633
49
69
5
123
756
$
—
10
10
31
2
9
—
11
42
$
8
248
256
600
35
60
6
101
701
$
17
—
9
9
26
1
1
—
2
28
Total consumer and commercial finance receivables and loans
$
Troubled Debt Restructurings
TDRs are loan modifications where concessions were granted to borrowers experiencing financial difficulties. For consumer automotive
loans, we may offer several types of assistance to aid our customers, including payment extensions and rewrites of the loan terms.
Additionally, for mortgage loans, as part of certain programs, we offer mortgage loan modifications to qualified borrowers. These programs
are in place to provide support to our mortgage customers in financial distress, including principal forgiveness, maturity extensions,
delinquent interest capitalization, and changes to contractual interest rates. Total TDRs recorded at gross carrying value were $812 million,
$712 million, and $663 million at December 31, 2018, 2017, and 2016, respectively.
Total commitments to lend additional funds to borrowers whose terms had been modified in a TDR were $4 million, $6 million, and $2
million at December 31, 2018, 2017, and 2016, respectively. Refer to Note 1 for additional information.
133
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following tables present information related to finance receivables and loans recorded at gross carrying value modified in connection
with a TDR during the period.
Year ended December 31, ($ in millions)
2018
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer mortgage
Total consumer finance receivables and loans
2017
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer mortgage
Total consumer finance receivables and loans
2016
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer mortgage
Pre-
modification
gross
carrying value
Post-
modification
gross
carrying value
Number of
loans
26,748
$
426
$
$
$
$
$
23
204
227
26,975
26,156
4
122
126
26,282
20,227
7
120
127
$
$
$
$
9
30
39
465
380
1
21
22
402
347
3
18
21
378
9
29
38
416
333
1
21
22
355
293
3
18
21
314
Total consumer finance receivables and loans
20,354
$
368
$
Year ended December 31, ($ in millions)
2018
Commercial and industrial
Automotive
Other
Total commercial finance receivables and loans
2017
Commercial and industrial
Automotive
Other
Commercial real estate
Total commercial finance receivables and loans
2016
Commercial and industrial
Automotive
Total commercial finance receivables and loans
134
Pre-
modification
gross
carrying value
Post-
modification
gross
carrying value
Number of
loans
3
3
6
4
—
2
6
1
1
$
$
$
$
$
$
4
85
89
16
44
3
63
7
7
$
$
$
$
$
$
4
82
86
15
44
3
62
7
7
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table presents information about finance receivables and loans recorded at gross carrying value that have redefaulted
during the reporting period and were within twelve months or less of being modified as a TDR. Redefault is when finance receivables and
loans meet the requirements for evaluation under our charge-off policy (refer to Note 1 for additional information) except for commercial
finance receivables and loans, where redefault is defined as 90 days past due.
Year ended December 31, ($ in millions)
2018
Consumer automotive
Consumer mortgage
Mortgage — Legacy
Total consumer finance receivables and loans
2017
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer finance receivables and loans
2016
Consumer automotive
Consumer mortgage
Mortgage — Legacy
Total consumer finance receivables and loans
Concentration Risk
Consumer
Number of
loans
Gross
carrying
value
Charge-
off amount
9,711
$
111
$
2
9,713
8,829
1
2
8,832
7,800
$
$
$
$
4
7,804
$
—
111
102
1
—
103
94
—
94
$
$
$
$
$
73
—
73
71
—
—
71
56
—
56
We monitor our consumer loan portfolio for concentration risk across the states in which we lend. The highest concentrations of loans are
in California and Texas, which represent an aggregate of 25.4% and 24.7% of our total outstanding consumer finance receivables and loans at
December 31, 2018, and December 31, 2017, respectively.
The following table shows the percentage of total consumer finance receivables and loans recorded at gross carrying value by state
concentration.
December 31,
California
Texas
Florida
Pennsylvania
Illinois
Georgia
North Carolina
New York
Ohio
New Jersey
Other United States
Total consumer loans
2018 (a)
2017
Consumer
automotive
Consumer
mortgage
Consumer
automotive
Consumer
mortgage
8.4%
12.8
8.8
4.5
4.1
4.1
3.9
3.1
3.5
2.7
36.9%
6.2
4.7
1.4
3.0
2.8
1.7
2.4
0.4
2.1
8.2%
13.2
8.5
4.6
4.2
4.2
3.7
3.0
3.4
2.6
34.6%
6.5
4.8
1.5
3.2
2.5
1.8
2.2
0.5
2.1
44.1
38.4
100.0%
100.0%
44.4
100.0%
40.3
100.0%
(a) Presentation is in descending order as a percentage of total consumer finance receivables and loans at December 31, 2018.
135
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Commercial Real Estate
The commercial real estate portfolio consists of finance receivables and loans issued primarily to automotive dealers. The following table
shows the percentage of total commercial real estate finance receivables and loans reported at gross carrying value by state concentration.
December 31,
Texas
Florida
California
Michigan
New York
Georgia
North Carolina
South Carolina
New Jersey
Utah
Other United States
Total commercial real estate finance receivables and loans
Commercial Criticized Exposure
2018
2017
15.5%
11.6
15.7%
10.3
8.3
6.8
4.8
4.0
3.6
3.4
3.1
2.6
8.2
7.7
2.1
4.6
3.6
3.5
3.6
1.6
36.3
39.1
100.0%
100.0%
Finance receivables and loans classified as special mention, substandard, or doubtful are reported as criticized. These classifications are
based on regulatory definitions and generally represent finance receivables and loans within our portfolio that have a higher default risk or
have already defaulted. These finance receivables and loans require additional monitoring and review including specific actions to mitigate
our potential loss.
The following table presents the percentage of total commercial criticized finance receivables and loans reported at gross carrying value
by industry concentrations.
December 31,
Automotive
Services
Health/Medical
Other
Total commercial criticized finance receivables and loans
10. Investment in Operating Leases, Net
Investment in operating leases were as follows.
December 31, ($ in millions)
Vehicles
Accumulated depreciation
Investment in operating leases, net
2018
2017
80.6%
76.3%
5.0
3.7
10.7
6.7
4.9
12.1
100.0%
100.0%
2018
2017
$
$
9,995
(1,578)
8,417
$
$
10,556
(1,815)
8,741
Depreciation expense on operating lease assets includes remarketing gains and losses recognized on the sale of operating lease assets.
The following summarizes the components of depreciation expense on operating lease assets.
Year ended December 31, ($ in millions)
Depreciation expense on operating lease assets (excluding remarketing gains)
Remarketing gains, net
Net depreciation expense on operating lease assets
2018
2017
2016
$
$
1,115
(90)
1,025
$
$
1,368
(124)
1,244
$
$
1,982
(213)
1,769
136
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table presents the future lease nonresidual rental payments due from customers for vehicles on operating leases.
Year ended December 31, ($ in millions)
2019
2020
2021
2022
2023 and thereafter
Total
$
1,308
830
297
27
3
$
2,465
11. Securitizations and Variable Interest Entities
Overview
We securitize, transfer, and service consumer and commercial automotive loans, and operating leases. We often securitize these loans and
notes secured by operating leases (collectively referred to as financial assets) using special purpose entities (SPEs). SPEs are often VIEs and
may or may not be included on our Consolidated Balance Sheet.
Securitizations
In executing a securitization, we typically sell pools of financial assets to a wholly owned, bankruptcy-remote SPE, which then transfers
the financial assets to a separate, transaction-specific SPE for cash, and typically, other retained interests. The SPE is funded through the
issuance of beneficial interests, which could take the form of notes or residual interests and can be sold to investors or retained by us. We
typically hold retained beneficial interests in our securitizations including, but not limited to, retained notes, certificated residual interests, as
well as certain noncertificated interests retained from the sale of automotive finance receivables. If sold, the beneficial interests only entitle
the investors to specified cash flows generated from the underlying securitized assets. If retained, the interests provide credit enhancement to
the SPE as they may absorb credit losses or other cash shortfalls and may represent a form of significant continuing economic interests. In
addition to providing a source of liquidity and cost-efficient funding, securitizing these financial assets also reduces our credit exposure to the
borrowers beyond any economic interest we may retain.
The SPEs are limited to specific activities by their respective legal documents, but are generally allowed to acquire the financial assets,
to issue beneficial interests to investors to fund the acquisition of the financial assets, and to enter into interest rate hedges to mitigate certain
risks related to the financial assets or beneficial interests of the entity. A servicer, who is generally us, is appointed pursuant to the underlying
legal documents to service the assets the SPE holds and the beneficial interests it issues. Servicing functions include, but are not limited to,
general collections activity on current and noncurrent accounts, loss mitigation efforts including repossession and sale of collateral, as well as
preparing and furnishing statements summarizing the asset and beneficial interest performance. These servicing responsibilities constitute
continued involvement in the transferred financial assets.
Cash flows from the securitized financial assets represent the sole source for payment of distributions on the beneficial interests issued
by the SPE and for payments to the parties that perform services for the SPE, such as the servicer or the trustee.
We generally hold certain conditional repurchase options specific to securitizations that allow us to repurchase assets from the
securitization entity. The majority of the securitizations provide us, as servicer, with a call option that allows us to repurchase the remaining
transferred financial assets or redeem outstanding beneficial interests at our discretion once the asset pool reaches a predefined level, which
represents the point where servicing becomes administratively burdensome (a clean-up call option). The repurchase price is typically the
discounted securitization balance of the assets plus accrued interest when applicable. We generally have discretion regarding when or if we
will exercise these options, but we would do so only when it is in our best interest.
Other than our customary representation and warranty provisions, these securitizations are nonrecourse to us, thereby transferring the
risk of future credit losses to the extent the beneficial interests in the SPEs are held by third parties. Representation and warranty provisions
generally require us to repurchase assets or indemnify the investor or other party for incurred losses to the extent it is determined that the
assets were ineligible or were otherwise defective at the time of sale. We did not provide any non-contractual financial support to any of these
entities during 2018, 2017, or 2016.
Variable Interest Entities
The VIEs included on the Consolidated Balance Sheet represent separate entities where we are deemed to be the primary beneficiary,
primarily due to our servicing activities and our beneficial interests in the VIE that could be potentially significant. We determine whether we
have a potentially significant beneficial interest in the VIE based on the consideration of both qualitative and quantitative factors regarding
the nature, size, and form of our involvement in the VIE. The third-party investors in the obligations of consolidated VIEs have legal recourse
only to the assets of the VIEs and do not have such recourse to us, except for the customary representation and warranty provisions. In
addition, the cash flows from the assets are restricted only to pay such liabilities. Thus, our economic exposure to loss from outstanding third-
party financing related to consolidated VIEs is limited to the carrying value of the consolidated VIE assets. Generally, all assets of
137
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
consolidated VIEs are restricted for the beneficial interest holders. For additional information regarding our significant accounting policies for
consolidated VIEs, refer to the Securitizations and Variable Interest Entities section of Note 1.
The nature, purpose, and activities of nonconsolidated SPEs are similar to those of our consolidated SPEs with the primary difference
being the nature and extent of our continuing involvement. For nonconsolidated SPEs, the transferred financial assets are removed from our
balance sheet provided the conditions for sale accounting are met. The financial assets obtained from the securitization are primarily reported
as cash or retained interests (if applicable). Liabilities incurred as part of these securitizations, are recorded at fair value at the time of sale and
are reported as accrued expenses and other liabilities on our Consolidated Balance Sheet. Upon the sale of the loans, we recognize a gain or
loss on sale for the difference between the assets recognized, the assets derecognized, and the liabilities recognized as part of the transaction.
With respect to our ongoing right to service the assets we sell, the servicing fee we receive represents adequate compensation, and
consequently, we do not recognize a servicing asset or liability.
The pretax gain on sales of financial assets into nonconsolidated VIEs was $1 million for the year ended December 31, 2018. There was
a pretax gain of $2 million for the year ended December 31, 2017, while there were no pretax gains or losses for the year ended December 31,
2016. For additional information regarding the company’s significant accounting policies for nonconsolidated VIEs, refer to the Variable
Interest Entities and Securitizations section of Note 1.
We provide long-term guarantee contracts to investors in certain nonconsolidated affordable housing entities and have extended a line of
credit to provide liquidity. Since we do not have control over the entities or the power to make decisions, we do not consolidate the entities
and our involvement is limited to the guarantee and the line of credit.
We are involved with various other nonconsolidated equity investments, including affordable housing entities and venture capital funds
and loan funds. We do not consolidate these entities and our involvement is limited to our outstanding investment, additional capital
committed to these funds plus any previously recognized low income housing tax credits that are subject to recapture.
138
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table presents our involvement in consolidated and nonconsolidated VIEs in which we hold variable interests. For
additional detail related to the assets and liabilities of consolidated variable interest entities refer to the Consolidated Balance Sheet.
December 31, ($ in millions)
2018
On-balance sheet variable interest entities
Consumer automotive
Commercial automotive
Off-balance sheet variable interest entities
Consumer automotive (d)
Commercial other
Total
2017
On-balance sheet variable interest entities
Consumer automotive
Commercial automotive
Off-balance sheet variable interest entities
Consumer automotive
Commercial other
Total
Carrying value
of total assets
Carrying value
of total liabilities
Assets sold to
nonconsolidated
VIEs (a)
Maximum exposure to
loss in nonconsolidated
VIEs
$
16,255 (b) $
6,573 (c)
11,089
3,946
45 (e)
806 (g)
—
326 (h)
$
28,195
$
10,845
$
17,597 (b) $
7,677 (c)
12,550
2,558
37 (e)
592 (g)
—
248 (h)
$
30,776
$
10,483
$
$
$
$
1,235
—
1,235
1,964
—
1,964
$
$
$
$
1,280 (f)
1,054 (i)
2,334
2,001 (f)
790 (i)
2,791
(a) Asset values represent the current unpaid principal balance of outstanding consumer finance receivables and loans within the VIEs.
(b)
Includes $8.4 billion and $8.5 billion of assets that were not encumbered by VIE beneficial interests held by third parties at December 31, 2018, and
December 31, 2017, respectively. Ally or consolidated affiliates hold the interests in these assets.
Includes $25 million and $29 million of liabilities that were not obligations to third-party beneficial interest holders at December 31, 2018, and
December 31, 2017, respectively.
In September 2018, we sold residual interests related to an on-balance sheet VIE to an unrelated third party. As a result of this sale, we are no longer the
primary beneficiary of the VIE, and as such have deconsolidated its assets and liabilities from our Consolidated Balance Sheet including $545 million and
$497 million of consumer automotive loans and long-term debt, respectively. We received cash proceeds of $24 million related to this sale, and
recognized a pretax gain on sale of $1 million. We will continue to service the assets previously transferred to the VIE.
(c)
(d)
(e) Represents retained notes and certificated residual interests, of which $43 million and $36 million were classified as held-to-maturity securities at
December 31, 2018, and December 31, 2017, respectively, and $2 million and $1 million were classified as other assets at December 31, 2018, and
December 31, 2017, respectively. These assets represent our compliance with the risk retention rules under the Dodd-Frank Act, requiring us to retain at
least five percent of the credit risk of the assets underlying asset-backed securitizations.
(f) Maximum exposure to loss represents the current unpaid principal balance of outstanding loans, retained notes, certificated residual interests, as well as
certain noncertificated interests retained from the sale of automotive finance receivables. This measure is based on the very unlikely event that all of our
sold loans have defects that would trigger a representation and warranty provision and the underlying collateral supporting the loans becomes worthless.
This required disclosure is not an indication of our expected loss.
(g) Amounts are classified as other assets.
(h) Amounts are classified as accrued expenses and other liabilities.
(i) For certain nonconsolidated affordable housing entities, maximum exposure to loss represents the yield we guaranteed investors through long-term
guarantee contracts. The amount disclosed is based on the unlikely event that the underlying properties cease generating yield to investors and the yield
delivered to investors in the form of low income tax housing credits is recaptured. For nonconsolidated equity investments, maximum exposure to loss
represents our outstanding investment, additional committed capital, and low income housing tax credits subject to recapture. The amount disclosed is
based on the unlikely event that our committed capital is funded, our investments become worthless, and the tax credits previously delivered to us are
recaptured. This required disclosure is not an indication of our expected loss.
139
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
On-balance Sheet Variable Interest Entities
The assets of consolidated VIEs that can be used only to settle obligations of the consolidated VIEs and the liabilities of those entities for
which creditors or beneficial interest holders do not have recourse to our general credit were as follows.
December 31, ($ in millions)
Assets
Finance receivables and loans, net
Consumer
Commercial
Allowance for loan losses
Total finance receivables and loans, net
Investment in operating leases, net
Other assets
Total assets
Liabilities
Long-term debt
Accrued expenses and other liabilities
Total liabilities
2018
2017
$
7,282
$
10,804
(114)
17,972
164
767
18,903
10,482
12
10,494
$
$
$
$
$
$
8,186
12,437
(136)
20,487
444
689
21,620
10,197
9
10,206
Cash Flows with Off-balance Sheet Securitization Entities
The following table summarizes cash flows received and paid related to SPEs and asset-backed financings where the transfer is
accounted for as a sale and we have a continuing involvement with the transferred consumer automotive assets (e.g., servicing) that were
outstanding during the years ended December 31, 2018, 2017, and 2016. Additionally, this table contains information regarding cash flows
received from and paid to nonconsolidated SPEs that existed during each period.
Year ended December 31, ($ in millions)
2018
Cash proceeds from transfers completed during the period
Cash flows received on retained interests in securitization entities
Servicing fees
Cash disbursements for repurchases during the period
Representation and warranty recoveries
2017
Cash proceeds from transfers completed during the period
Cash disbursements for repurchases during the period (a)
Servicing fees
Cash flows received on retained interests in securitization entities
Other cash flows
2016
Cash proceeds from transfers completed during the period
Servicing fees
Other cash flows
Consumer
automotive
Consumer
mortgage
$
$
24
20
18
(4)
—
$
1,187
$
(491)
31
21
4
$
1,715
$
35
8
—
—
—
—
2
—
—
—
—
—
—
—
—
(a) During the second quarter of 2017, we elected to not renew a consumer automotive credit conduit facility and also purchased the related consumer
automotive loans and settled associated retained interests.
140
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Delinquencies and Net Credit Losses
The following tables present quantitative information about delinquencies and net credit losses for off-balance sheet securitizations and
whole-loan sales where we have continuing involvement.
December 31, ($ in millions)
Off-balance sheet securitization entities
Consumer automotive
Whole-loan sales (a)
Consumer automotive
Total
Total amount
Amount 60 days or more
past due
2018
2017
2018
2017
$
$
1,235
$
1,964
$
13
$
634
1,399
1,869
$
3,363
$
3
16
$
(a) Whole-loan sales are not part of a securitization transaction, but represent consumer automotive pools of loans sold to third-party investors.
Year ended December 31, ($ in millions)
Off-balance sheet securitization entities
Consumer automotive
Whole-loan sales (a)
Consumer automotive
Total
Net credit losses
2018
2017
$
$
10
$
2
12
$
(a) Whole-loan sales are not part of a securitization transaction, but represent consumer automotive pools of loans sold to third-party investors.
12. Premiums Receivable and Other Insurance Assets
Premiums receivable and other insurance assets consisted of the following.
16
4
20
13
3
16
December 31, ($ in millions)
Prepaid reinsurance premiums
Reinsurance recoverable on unpaid losses
Reinsurance recoverable on paid losses
Premiums receivable
Deferred policy acquisition costs
2018
2017
$
527
$
96
22
88
1,593
507
108
19
84
1,329
2,047
Total premiums receivable and other insurance assets
$
2,326
$
141
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
13. Other Assets
The components of other assets were as follows.
December 31, ($ in millions)
Property and equipment at cost
Accumulated depreciation
Net property and equipment
Nonmarketable equity investments (a)
Restricted cash held for securitization trusts (b)
Investment in qualified affordable housing projects (c)
Accrued interest, fees, and rent receivables
Net deferred tax assets
Equity method-investments (d)
Goodwill (e)
Other accounts receivable
Restricted cash and cash equivalents (f)
Fair value of derivative contracts in receivable position (g)
Cash collateral placed with counterparties
Other assets
Total other assets
2018
2017
$
1,250
$
1,064
(686)
564
1,410
965
649
599
317
262
240
203
124
41
26
753
$
6,153
$
(608)
456
1,233
923
472
550
461
220
240
116
94
39
29
830
5,663
(a)
(b)
(c)
Includes investments in FHLB stock of $903 million and $745 million at December 31, 2018, and 2017, respectively; FRB stock of $448 million and
$445 million at December 31, 2018, and 2017, respectively; and equity securities without a readily determinable fair value of $59 million at December 31,
2018, measured at cost with adjustments for impairment and observable changes in price. During the year ended December 31, 2018, we recorded $2
million in impairment related to equity securities without a readily determinable fair value.
Includes restricted cash collected from customer payments on securitized receivables, which are distributed by us to investors as payments on the related
secured debt, and cash reserve deposits utilized as a form of credit enhancement for various securitization transactions.
Investment in qualified affordable housing projects are accounted for using the proportional amortization method of accounting and include $319 million
and $240 million of unfunded commitments to provide additional capital contributions to investees at December 31, 2018, and 2017, respectively.
Substantially all of the unfunded commitments at December 31, 2018, are expected to be paid out over the next five years.
(d) Primarily relates to investments made in connection with our CRA program.
(e)
Includes goodwill of $27 million within our Insurance operations at both December 31, 2018, and 2017; $193 million within Corporate and Other at both
December 31, 2018, and 2017; and $20 million within Automotive Finance operations at both December 31, 2018, and 2017. As a result of our acquisition
of TradeKing Group, Inc. (TradeKing), we recognized $193 million of goodwill within Corporate and Other on June 1, 2016. On August 1, 2016, we
purchased assets from Blue Yield and recognized $20 million of goodwill within Automotive Finance operations. No other changes to the carrying
amount of goodwill were recorded during the years ended December 31, 2018, 2017, and 2016.
(f) Primarily represents a number of arrangements with third parties where certain restrictions are placed on balances we hold due to collateral agreements
associated with operational processes with a third-party bank, or letter of credit arrangements and corresponding collateral requirements.
(g) For additional information on derivative instruments and hedging activities, refer to Note 21.
14. Deposit Liabilities
Deposit liabilities consisted of the following.
December 31, ($ in millions)
Noninterest-bearing deposits
Interest-bearing deposits
Savings and money market checking accounts
Certificates of deposit
Dealer deposits
Total deposit liabilities
2018
2017
$
142
$
108
56,050
49,985
1
49,267
43,869
12
$
106,178
$
93,256
At December 31, 2018, and December 31, 2017, certificates of deposit included $21.0 billion and $18.9 billion, respectively, of those in
denominations of $100 thousand or more. At December 31, 2018, and December 31, 2017, certificates of deposit included $6.1 billion and
$5.3 billion, respectively, of those in denominations in excess of $250 thousand federal insurance limits.
142
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table presents the scheduled maturity of total certificates of deposit at December 31, 2018.
($ in millions)
Due in 2019
Due in 2020
Due in 2021
Due in 2022
Due in 2023
Total certificates of deposit
15. Debt
Short-term Borrowings
$
31,518
11,687
4,569
1,493
718
$
49,985
The following table presents the composition of our short-term borrowings portfolio.
2018
2017
December 31, ($ in millions)
Unsecured
Secured (a)
Total
Unsecured
Secured (a)
Total
Demand notes
Federal Home Loan Bank
Securities sold under agreements to repurchase
Total short-term borrowings
Weighted average interest rate (b)
$
$
2,477
$
— $
—
—
6,825
685
2,477
6,825
685
$
3,171
$
— $
—
—
7,350
892
3,171
7,350
892
2,477
$
7,510
$
9,987
$
3,171
$
8,242
$
11,413
2.5%
1.5%
(a) Refer to the section below titled Long-term Debt for further details on assets restricted as collateral for payment of the related debt.
(b) Based on the debt outstanding and the interest rate at December 31 of each year.
We periodically enter into term repurchase agreements, short-term borrowing agreements in which we sell securities to one or more
investors while simultaneously committing to repurchase them at a specified future date, at the stated price plus accrued interest. As of
December 31, 2018, the securities sold under agreements to repurchase consisted of $436 million of U.S. Treasury securities and $249 million
of agency mortgage-backed residential debt securities set to mature as follows: $575 million within 30 days, and $110 million within 31 to 60
days. Refer to Note 8 and Note 25 for further details.
The primary risk associated with these repurchase agreements is that the counterparty will be unable to perform under the terms of the
contract. As the borrower, we are exposed to the excess market value of the securities pledged over the amount borrowed. Daily mark-to-
market collateral management is designed to limit this risk to the initial margin. However, should a counterparty declare bankruptcy or
become insolvent, we may incur additional delays and costs. In some instances, we may place or receive cash collateral with counterparties
under collateral arrangements associated with our repurchase agreements. At December 31, 2018, we did not place any collateral, and we
received cash collateral totaling $8 million and noncash collateral totaling $4 million. At December 31, 2017, we placed cash collateral
totaling $10 million and received cash collateral totaling $1 million.
143
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Long-term Debt
The following tables present the composition of our long-term debt portfolio.
December 31, ($ in millions)
2018
Unsecured debt
Fixed rate (b)
Variable rate
Trust preferred securities (c)
Hedge basis adjustment (d)
Total unsecured debt
Secured debt
Fixed rate
Variable rate (e)
Hedge basis adjustment (d)
Total secured debt (f) (g) (h)
Total long-term debt
2017
Unsecured debt
Fixed rate (b)
Variable rate
Trust preferred securities (c)
Hedge basis adjustment (d)
Total unsecured debt
Secured debt
Fixed rate
Variable rate (e)
Hedge basis adjustment (d)
Total secured debt (f) (g) (h)
Total long-term debt
Amount
Stated
interest rate
Weighted-average
stated interest
rate (a)
Due date
range
$
9,406
1
2,572
128
12,107
2.42–8.40%
6.29% 2019–2049
1.26–4.50%
2.54% 2019–2037
23,514
8,633
(61)
32,086
44,193
12,820
1
2,570
240
15,631
1.48–8.00%
5.68 % 2018–2049
18,845
9,782
(32)
28,595
44,226
0.63–4.50%
1.96 % 2018–2036
$
$
$
Includes subordinated debt of $1.0 billion and $1.4 billion at December 31, 2018, and 2017, respectively.
(a) Based on the debt outstanding and the interest rate at December 31 of each year excluding any impacts of interest rate hedges.
(b)
(c) Refer to the section below titled Trust Preferred Securities for further information.
(d) Represents the basis adjustment associated with the application of hedge accounting on certain of our long-term debt positions. Refer to Note 21 for
additional information.
Includes $5 million and $8 million at December 31, 2018, and 2017, respectively, of long-term debt that does not have a stated interest rate.
Includes $10.5 billion and $10.2 billion of VIE secured debt at December 31, 2018, and 2017, respectively.
Includes $6.7 billion and $8.1 billion of debt outstanding from our automotive committed secured credit facilities at December 31, 2018, and 2017,
respectively.
Includes advances from the FHLB of Pittsburgh of $14.9 billion and $10.3 billion at December 31, 2018, and 2017, respectively.
(e)
(f)
(g)
(h)
December 31, ($ in millions)
Unsecured
Secured
Total
Unsecured
Secured
Total
2018
2017
Long-term debt (a)
Due within one year
Due after one year
Total long-term debt
$
$
1,663
10,444
12,107
$
$
7,313
24,773
32,086
$
$
8,976
35,217
44,193
$
$
3,540
12,091
15,631
$
$
7,497
21,098
28,595
$
$
11,037
33,189
44,226
(a)
Includes basis adjustments related to the application of hedge accounting. Amounts for December 31, 2017, have been updated to conform to this change
in presentation.
144
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
To achieve the desired balance between fixed- and variable-rate debt, we utilize interest rate swap agreements. The use of these
derivative financial instruments had the effect of synthetically converting $3.8 billion of our fixed-rate debt into variable-rate obligations, and
$3.4 billion of our variable-rate debt into fixed-rate obligations at December 31, 2017. We did not have any derivative financial instruments
that synthetically converted fixed-rate debt into variable-rate obligations or variable-rate debt into fixed rate obligations at December 31,
2018.
The following table presents the scheduled remaining maturity of long-term debt at December 31, 2018, assuming no early redemptions
will occur. The amounts below include adjustments to the carrying value resulting from the application of hedge accounting. The actual
payment of secured debt may vary based on the payment activity of the related pledged assets.
($ in millions)
Unsecured
Long-term debt
Original issue discount
Total unsecured
Secured
Long-term debt
Total long-term debt
2019
2020
2021
2022
2023
2024 and
thereafter
Total
$
1,704
$
2,257
$
698
$
1,069
$
12
$
7,502
$
13,242
(41)
1,663
(41)
2,216
(45)
653
(49)
1,020
(56)
(44)
(903)
6,599
(1,135)
12,107
7,313
7,363
10,195
5,321
1,230
664
32,086
$
8,976
$
9,579
$
10,848
$
6,341
$
1,186
$
7,263
$
44,193
The following summarizes assets restricted as collateral for the payment of the related debt obligation primarily arising from
securitization transactions accounted for as secured borrowings and repurchase agreements.
December 31, ($ in millions)
Investment securities (b)
Mortgage assets held-for-investment and lending receivables
Consumer automotive finance receivables
Commercial automotive finance receivables
Operating leases
Total assets restricted as collateral (c) (d)
Secured debt
2018
2017
Total (a)
Ally Bank
Total (a)
Ally Bank
$
$
$
10,280
16,498
17,015
15,563
170
$
9,564
$
16,498
9,715
15,563
—
$
8,371
13,579
19,787
16,567
457
59,526
$
39,596 (e) $
51,340
32,072
$
$
58,761
$
36,837 (e) $
7,443
13,579
6,200
16,472
—
43,694
23,278
(a) Ally Bank is a component of the total column.
(b) A portion of the restricted investment securities at December 31, 2018, and December 31, 2017, were restricted under repurchase agreements. Refer to the
section above titled Short-term Borrowings for information on the repurchase agreements.
(c) Ally Bank has an advance agreement with the FHLB, and had assets pledged to secure borrowings that were restricted as collateral to the FHLB totaling
$30.8 billion and $25.2 billion at December 31, 2018, and December 31, 2017, respectively. These assets were composed primarily of consumer mortgage
finance receivables and loans and investment securities. Ally Bank has access to the FRB Discount Window. Ally Bank had assets pledged and restricted
as collateral to the FRB totaling $2.4 billion and $2.3 billion at December 31, 2018, and December 31, 2017, respectively. These assets were composed of
consumer automotive finance receivables and loans. Availability under these programs is only for the operations of Ally Bank and cannot be used to fund
the operations or liabilities of Ally or its subsidiaries.
(d) Excludes restricted cash and cash reserves for securitization trusts recorded within other assets on the Consolidated Balance Sheet. Refer to Note 13 for
additional information.
Includes $7.5 billion and $8.2 billion of short-term borrowings at December 31, 2018, and December 31, 2017, respectively.
(e)
Trust Preferred Securities
At December 31, 2018, we have issued and outstanding approximately $2.6 billion in aggregate liquidation preference of 8.125% Fixed
Rate/Floating Rate Trust Preferred Securities, Series 2 (Series 2 TRUPS). Each Series 2 TRUPS security has a liquidation amount of $25.
Distributions are cumulative and are payable until redemption at the applicable coupon rate. Distributions are payable at an annual rate equal
to three-month London interbank offer rate plus 5.785% payable quarterly in arrears. Ally has the right to defer payments of interest for a
period not exceeding 20 consecutive quarters. The Series 2 TRUPS have no stated maturity date, but must be redeemed upon the redemption
or maturity of the related debentures (Debentures), which mature on February 15, 2040. Ally at any time may redeem the Series 2 TRUPS at a
redemption price equal to 100% of the principal amount being redeemed, plus accrued and unpaid interest through the date of redemption.
The Series 2 TRUPS are generally nonvoting, other than with respect to certain limited matters. During any period in which any Series 2
TRUPS remain outstanding but in which distributions on the Series 2 TRUPS have not been fully paid, none of Ally or its subsidiaries will be
permitted to (i) declare or pay dividends on, make any distributions with respect to, or redeem, purchase, acquire or otherwise make a
liquidation payment with respect to, any of Ally’s capital stock or make any guarantee payment with respect thereto; or (ii) make any
payments of principal, interest, or premium on, or repay, repurchase or redeem, any debt securities or guarantees that rank on a parity with or
junior in interest to the Debentures with certain specified exceptions in each case.
145
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Covenants and Other Requirements
In secured funding transactions, there are trigger events that could cause the debt to be prepaid at an accelerated rate or could cause our
usage of the committed secured credit facility to be discontinued. The triggers are generally based on the financial health and performance of
the servicer as well as performance criteria for the pool of receivables, such as delinquency ratios, loss ratios, and commercial payment rates.
During 2018, there were no trigger events that resulted in the repayment of debt at an accelerated rate or impacted the usage of our facilities.
Funding Facilities
We utilize both committed secured credit facilities and other collateralized funding vehicles. The debt outstanding under our various
funding facilities is included on our Consolidated Balance Sheet.
As of December 31, 2018, Ally Bank had exclusive access to $4.8 billion of funding capacity from committed credit facilities. Ally
Bank’s credit facilities are complemented by the FRB and FHLB funding programs.
The total capacity in our credit facilities is provided by banks through private transactions. The facilities can be revolving in nature,
generally having an original tenor ranging from 364 days to two years, and allow for additional funding during the commitment period, or
they can be amortizing and not allow for any further funding after the commitment period. At December 31, 2018, all of our $8.6 billion of
capacity was revolving. As of December 31, 2018, we had $7.0 billion of capacity from facilities with a remaining tenor greater than
364 days.
Committed Secured Credit Facilities
December 31, ($ in millions)
2018
2017
2018
2017
2018
2017
Outstanding
Unused capacity (a)
Total capacity
Bank funding
Secured
Parent funding
Secured
Total committed secured credit facilities
$
$
3,500
$
1,785
$
1,300
$
890
$
4,800
$
2,675
3,165
6,330
635
2,920
3,800
9,250
6,665
$
8,115
$
1,935
$
3,810
$
8,600
$
11,925
(a) Funding from committed secured credit facilities is available on request in the event excess collateral resides in certain facilities or the extent incremental
collateral is available and contributed to the facilities.
16. Accrued Expenses and Other Liabilities
The components of accrued expenses and other liabilities were as follows.
December 31, ($ in millions)
Accounts payable
Unfunded commitments for investment in qualified affordable housing projects
Employee compensation and benefits
Reserves for insurance losses and loss adjustment expenses
Cash collateral received from counterparties
Fair value of derivative contracts in payable position (a)
Deferred revenue
Other liabilities
2018
2017
$
$
516
319
255
134
41
37
27
347
746
240
248
140
17
41
32
316
1,780
Total accrued expenses and other liabilities
$
1,676
$
(a) For additional information on derivative instruments and hedging activities, refer to Note 21.
146
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
17. Equity
Common Stock
The following table presents changes in the number of shares issued and outstanding.
Year ended December 31, (shares in thousands) (a)
2018
2017
2016
Common stock
Total issued at January 1,
New issuances
Employee benefits and compensation plans
Total issued at December 31,
Treasury balance at January 1,
Repurchase of common stock (b)
Total treasury stock at December 31,
Total outstanding at December 31,
489,884
485,708
482,791
2,914
4,176
2,917
492,797
489,884
485,708
(52,830)
(35,068)
(87,898)
(18,707)
(34,122)
(52,830)
404,900
437,054
(811)
(17,897)
(18,707)
467,000
(a) Figures in the table may not recalculate exactly due to rounding. Number of shares issued, in treasury, and outstanding are calculated based on unrounded
(b)
numbers.
Includes shares of common stock withheld to cover income taxes owed by participants in our share-based incentive plans. Refer to the section titled
Capital Planning and Stress Tests in Note 20 for additional information regarding our common-stock-repurchase program.
18. Accumulated Other Comprehensive Loss
The following table presents changes, net of tax, in each component of accumulated other comprehensive loss.
($ in millions)
Balance at January 1, 2016
2016 net change
Balance at December 31, 2016
2017 net change
Balance at December 31, 2017, before cumulative effect
of adjustments
Cumulative effect of changes in accounting principles,
net of tax (c)
Adoption of Accounting Standards Update 2016-01
Adoption of Accounting Standards Update 2018-02
Balance at January 1, 2018, after cumulative effect of
adjustments
2018 net change
Unrealized
(losses) gains
on investment
securities (a)
Translation
adjustments and
net investment
hedges (b)
Cash flow
hedges (b)
Defined
benefit
pension
plans
Accumulated
other
comprehensive
loss
$
$
(159) $
(114)
(273)
100
$
9
5
14
2
8
—
8
3
$
(89) $
(1)
(90)
1
(173) $
16
$
11
$
(89) $
27
(40)
(186)
(295)
—
4
20
(2)
—
—
11
8
19
—
(6)
(95)
—
$
(95) $
(231)
(110)
(341)
106
(235)
27
(42)
(250)
(289)
(539)
Balance at December 31, 2018
$
(481) $
18
$
(a) Represents the after-tax difference between the fair value and amortized cost of our available-for-sale securities portfolio.
(b) For additional information on derivative instruments and hedging activities, refer to Note 21.
(c) Refer to the section titled Recently Adopted Accounting Standards in Note 1 for additional information.
147
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following tables present the before- and after-tax changes in each component of accumulated other comprehensive (loss) income.
Year ended December 31, 2018 ($ in millions)
Before tax
Tax effect
After tax
Investment securities
Net unrealized losses arising during the period
$
(375)
$
88
$
(287)
Less: Net realized gains reclassified to income from continuing operations
Net change
Translation adjustments
Net unrealized losses arising during the period
Net investment hedges (c)
Net unrealized gains arising during the period
Cash flow hedges (c)
Net unrealized gains arising during the period
Less: Net realized gains reclassified to income from continuing operations
Net change
Defined benefit pension plans
Net unrealized gains arising during the period
Other comprehensive loss
11 (a)
(386)
(14)
12
12
2 (d)
10
1
$
(377)
$
(3) (b)
91
3
(3)
(2)
—
(2)
(1)
88
8
(295)
(11)
9
10
2
8
—
$
(289)
Includes gains reclassified to other loss on investments, net in our Consolidated Statement of Income.
Includes amounts reclassified to income tax expense from continuing operations in our Consolidated Statement of Income.
(a)
(b)
(c) For additional information on derivative instruments and hedging activities, refer to Note 21.
(d)
Includes gains reclassified to interest on deposits and interest on long-term debt in our Consolidated Statement of Income.
Year ended December 31, 2017 ($ in millions)
Before tax
Tax effect
After tax
Investment securities
Net unrealized gains arising during the period
$
237
$
(45)
$
192
92
100
8
(6)
3
1
$
106
Less: Net realized gains reclassified to income from continuing operations
Net change
Translation adjustments
Net unrealized gains arising during the period
Net investment hedges (c)
Net unrealized losses arising during the period
Cash flow hedges (c)
Net unrealized gains arising during the period
Defined benefit pension plans
Net unrealized gains arising during the period
Other comprehensive income
105 (a)
132
(13) (b)
(32)
12
(10)
5
1
$
140
$
(4)
4
(2)
—
(34)
Includes gains reclassified to other gain on investments, net in our Consolidated Statement of Income.
Includes amounts reclassified to income tax expense from continuing operations in our Consolidated Statement of Income.
(a)
(b)
(c) For additional information on derivative instruments and hedging activities, refer to Note 21.
148
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Year ended December 31, 2016 ($ in millions)
Before tax
Tax effect
After tax
Investment securities
Net unrealized gains arising during the period
$
13
$
20
$
Less: Net realized gains reclassified to income from continuing operations
Net change
Translation adjustments
Net unrealized gains arising during the period
Less: Net realized losses reclassified to income from discontinued operations, net of tax
Net change
Net investment hedges (c)
Net unrealized gains arising during the period
Defined benefit pension plans
Net unrealized losses arising during the period
Less: Net realized losses reclassified to income from continuing operations
185 (a)
(172)
5
(1)
6
1
(5)
(4) (d)
Net change
Other comprehensive loss
(1)
(166)
$
$
(38) (b)
58
(2)
—
(2)
—
2
2 (b)
—
56
Includes gains reclassified to other gain on investments, net in our Consolidated Statement of Income.
Includes amounts reclassified to income tax expense from continuing operations in our Consolidated Statement of Income.
(a)
(b)
(c) For additional information on derivative instruments and hedging activities, refer to Note 21.
(d)
Includes gains reclassified to compensation and benefits expense in our Consolidated Statement of Income.
33
147
(114)
3
(1)
4
1
(3)
(2)
(1)
$
(110)
19. Earnings per Common Share
The following table presents the calculation of basic and diluted earnings per common share.
Year ended December 31, ($ in millions, except per share data; shares in thousands) (a)
2018
2017
2016
Net income from continuing operations
Preferred stock dividends
Net income from continuing operations attributable to common stockholders
Income (loss) from discontinued operations, net of tax
Net income attributable to common stockholders
Basic weighted-average common shares outstanding (b)
Diluted weighted-average common shares outstanding (b)
Basic earnings per common share
Net income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
Diluted earnings per common share
Net income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
$
1,263
$
926
$
1,111
—
1,263
—
—
926
3
(30)
1,081
(44)
$
1,263
$
929
$
1,037
425,165
427,680
453,704
455,350
481,105
482,182
$
$
$
$
2.97
—
2.97
2.95
—
2.95
$
$
$
$
2.04
0.01
2.05
2.03
0.01
2.04
$
$
$
$
2.25
(0.09)
2.15
2.24
(0.09)
2.15
(a) Figures in the table may not recalculate exactly due to rounding. Earnings per share is calculated based on unrounded numbers.
(b)
Includes shares related to share-based compensation that vested but were not yet issued.
20. Regulatory Capital and Other Regulatory Matters
The FRB and other U.S. banking agencies have adopted risk-based and leverage capital standards that establish minimum capital-to-
asset ratios for BHCs, like Ally, and depository institutions, like Ally Bank. The risk-based capital ratios are based on a banking organization’s
risk-weighted assets (RWAs), which are generally determined under the standardized approach applicable to Ally and Ally Bank by (1)
assigning on-balance sheet exposures to broad risk weight categories according to the counterparty or, if relevant, the guarantor or collateral
(with higher risk weights assigned to categories of exposures perceived as representing greater risk), and (2) multiplying off-balance sheet
exposures by specified credit conversion factors to calculate credit equivalent amounts and assigning those credit equivalent amounts to the
relevant risk weight categories. The leverage ratio, in contrast, is based on an institution’s average unweighted on-balance sheet exposures.
149
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Ally and Ally Bank are subject to capital requirements issued by U.S. banking regulators that require us to maintain risk-based and
leverage capital ratios above minimum levels. As of January 1, 2015, Ally and Ally Bank became subject to the rules implementing the 2010
Basel III capital framework in the United States (U.S. Basel III), which generally reflects higher capital requirements, capital buffers, and
changes to regulatory capital definitions, deductions and adjustments, relative to the predecessor requirements implementing the Basel I
capital framework in the United States. Certain aspects of U.S. Basel III, including the capital buffers were subject to a phase-in period
through December 31, 2018.
Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary action by regulators
that, if undertaken, could have a direct material effect on the Consolidated Financial Statements or the results of operations and financial
condition of Ally and Ally Bank. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we and Ally
Bank must meet specific capital guidelines that involve quantitative measures of capital, assets and certain off-balance sheet items. These
measures and related classifications, which are used in the calculation of our risk-based and leverage capital ratios and those of Ally Bank, are
also subject to qualitative judgments by the regulators about the components of capital, the risk-weightings of assets and other exposures, and
other factors. The FRB also uses these ratios and guidelines as part of the capital planning and stress testing processes. In addition, in order
for Ally to maintain its status as an FHC, Ally and its bank subsidiary, Ally Bank, must remain well capitalized and well managed, as defined
under applicable laws. The well capitalized standard for insured depository institutions, such as Ally Bank, reflects the capital requirements
under U.S. Basel III.
Under U.S. Basel III, Ally and Ally Bank must maintain a minimum Common Equity Tier 1 risk-based capital ratio of 4.5%, a minimum
Tier 1 risk-based capital ratio of 6%, and a minimum total risk-based capital ratio of 8%. In addition to these minimum risk-based capital
ratios, Ally and Ally Bank are also subject to a Common Equity Tier 1 capital conservation buffer of more than 2.5%, subject to a phase-in
period from January 1, 2016, through December 31, 2018. Failure to maintain the full amount of the buffer would result in restrictions on the
ability of Ally and Ally Bank to make capital distributions, including dividend payments and stock repurchases and redemptions, and to pay
discretionary bonuses to executive officers. U.S. Basel III also subjects Ally and Ally Bank to a minimum Tier 1 leverage ratio of 4%.
U.S. Basel III also revised the eligibility criteria for regulatory capital instruments and provides for the phase-out of instruments that had
previously been recognized as capital but that do not satisfy these criteria. For example, subject to certain exceptions (e.g., certain debt or
equity issued to the U.S. government under the Emergency Economic Stabilization Act), trust preferred and other hybrid securities were
excluded from a BHC’s Tier 1 capital as of January 1, 2016. Also, subject to a phase-in schedule, certain items are deducted from Common
Equity Tier 1 capital under U.S. Basel III that had not previously been deducted from regulatory capital, and certain other deductions from
regulatory capital have been modified. Among other things, U.S. Basel III requires significant investments in the common stock of
unconsolidated financial institutions, mortgage servicing assets, and certain deferred tax assets that exceed specified individual and aggregate
thresholds to be deducted from Common Equity Tier 1 capital. U.S. Basel III also revised the standardized approach for calculating RWAs by,
among other things, modifying certain risk weights and the methods for calculating RWAs for certain types of assets and exposures.
Ally and Ally Bank are subject to the U.S. Basel III standardized approach for counterparty credit risk, but not to the U.S. Basel III
advanced approaches for credit risk or operational risk. Ally is also not subject to the U.S. market risk capital rule, which applies only to
banking organizations with significant trading assets and liabilities.
In December 2018, the FRB and other U.S. banking agencies approved a final rule to mitigate the impact of CECL on regulatory capital
by allowing BHCs and banks, including Ally, to phase in the day-one impact of CECL over a period of three years for regulatory capital
purposes. In addition, the FRB announced that although BHCs subject to company-run stress tests as part of CCAR must incorporate CECL
beginning in the 2020 cycle, the FRB also further clarified that, in order to reduce uncertainty, it will maintain its current modeling framework
for the allowance for loan losses in supervisory stress tests through the 2021 cycle.
In May 2018, targeted amendments to the Dodd-Frank Act and other financial-services laws were enacted through the Economic
Growth, Regulatory Relief, and Consumer Protection Act (EGRRCP Act), including amendments that affect whether and, if so, how the FRB
applies enhanced prudential standards to BHCs like us with $100 billion or more but less than $250 billion in total consolidated assets. During
the fourth quarter of 2018, the FRB and other U.S. banking agencies issued proposals that would implement these amendments in the
EGRRCP Act and establish risk-based categories for determining the prudential standards and the capital and liquidity requirements that
apply to large U.S. banking organizations. Under the proposals, Ally would be treated as a Category IV firm and, as such, would be (1) made
subject to the FRB’s Comprehensive Capital Analysis and Review (CCAR) on a two-year cycle rather than the current one-year cycle, (2)
made subject to supervisory stress testing on a two-year cycle rather than the current one-year cycle, (3) required to continue submitting an
annual capital plan to the FRB for non-objection, (4) allowed to continue excluding accumulated other comprehensive income (AOCI) from
regulatory capital, (5) required to continue maintaining a buffer of unencumbered highly liquid assets to meet projected net cash outflows for
30 days, (6) required to conduct liquidity stress tests on a quarterly basis rather than the current monthly basis, (7) allowed to engage in more
tailored liquidity risk management, including monthly rather than weekly calculations of collateral positions, the elimination of limits for
activities that are not relevant to the firm, and fewer required elements of monitoring of intraday liquidity exposures, (8) exempted from
company-run stress testing, the modified liquidity coverage ratio (LCR), and the proposed modified net stable funding ratio (NSFR), and (9)
allowed to remain exempted from the supplementary leverage ratio, the countercyclical capital buffer, and single counterparty credit limits.
In April 2018, the FRB issued a proposal to more closely align forward-looking stress testing results with the FRB’s non-stress
regulatory capital requirements for banking organizations with $50 billion or more in total consolidated assets. The proposal would introduce
a stress capital buffer based on firm-specific stress test performance, which would effectively replace the non-stress capital conservation
150
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
buffer. The proposal would also make several changes to the CCAR process, such as eliminating the CCAR quantitative objection, narrowing
the set of planned capital actions assumed to occur in the stress scenario, and eliminating the 30% dividend payout ratio as a criterion for
heightened scrutiny of a firm’s capital plan. In December 2017, the Basel Committee approved revisions to the global Basel III capital
framework (commonly known as Basel IV), many of which—if adopted in the United States—could heighten regulatory capital standards
even more.
At this time, how all of these proposals and revisions will be harmonized and finalized in the United States is not clear or predictable and
we continue to evaluate the impacts these proposals and revisions may have to us.
Compliance with capital requirements is a strategic priority for Ally. We expect to be in compliance with all applicable requirements
within the established timeframes.
The following table summarizes our capital ratios under the U.S. Basel III capital framework.
($ in millions)
Capital ratios
Common Equity Tier 1 (to risk-weighted assets)
Ally Financial Inc.
Ally Bank
Tier 1 (to risk-weighted assets)
Ally Financial Inc.
Ally Bank
Total (to risk-weighted assets)
Ally Financial Inc.
Ally Bank
Tier 1 leverage (to adjusted quarterly average
assets) (c)
Ally Financial Inc.
Ally Bank
December 31, 2018
December 31, 2017
Amount
Ratio
Amount
Ratio
Required
minimum (a)
Well-
capitalized
minimum
$
13,397
9.14% $
13,237
9.53%
16,552
12.61
17,059
15.04
$
15,831
10.80% $
15,628
16,552
12.61
17,059
$
18,046
12.31% $
17,974
17,620
13.42
17,886
11.25%
15.04
12.94%
15.77
4.50%
4.50
6.00%
6.00
8.00%
8.00
(b)
6.50%
6.00%
8.00
10.00%
10.00
$
15,831
9.00% $
15,628
9.53%
16,552
10.69
17,059
12.87
4.00%
4.00
(b)
5.00%
(a)
In addition to the minimum risk-based capital requirements for common equity Tier 1 capital, Tier 1 capital, and total capital ratios, Ally and Ally Bank
were required to maintain a minimum capital conservation buffer of 1.875% and 1.25% at December 31, 2018, and December 31, 2017, respectively,
which increased to 2.5% on January 1, 2019.
(b) Currently, there is no ratio component for determining whether a BHC is “well-capitalized.”
(c) Federal regulatory reporting guidelines require the calculation of adjusted quarterly average assets using a daily average methodology.
At December 31, 2018, Ally and Ally Bank were “well-capitalized” and met all applicable capital requirements to which each was
subject.
Capital Planning and Stress Tests
Pending the adoption of proposals issued by the FRB and other U.S. banking agencies during the fourth quarter of 2018 that would
implement the EGRRCP Act, Ally is required to conduct semi-annual company-run stress tests, is subject to an annual supervisory stress test
conducted by the FRB, and must submit a proposed capital plan to the FRB.
Ally’s proposed capital plan must include an assessment of our expected uses and sources of capital and a description of all planned
capital actions over a nine-quarter planning horizon, including any issuance of a debt or equity capital instrument, any dividend or other
capital distribution, and any similar action that the FRB determines could have an impact on Ally’s capital. The proposed capital plan must
also include a discussion of how Ally, under expected and stressful conditions, will maintain capital commensurate with its risks and above
the minimum regulatory capital ratios, and will serve as a source of strength to Ally Bank. The FRB will either object to Ally’s proposed
capital plan, in whole or in part, or provide a notice of non-objection. If the FRB objects to the proposed capital plan, or if certain material
events occur after approval of the plan, Ally must submit a revised capital plan within 30 days. Even if the FRB does not object to our capital
plan, Ally may be precluded from or limited in paying dividends or other capital distributions without the FRB’s approval under certain
circumstances—for example, when we would not meet minimum regulatory capital ratios and capital buffers after giving effect to the
distributions.
151
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table presents information related to our common stock for each quarter since the commencement of our common-stock-
repurchase programs and initiation of a quarterly cash dividend on common stock.
($ in millions, except per share data; shares in thousands)
2016
Third quarter
Fourth quarter
2017
First quarter
Second quarter
Third quarter
Fourth quarter
2018
First quarter
Second quarter
Third quarter
Fourth quarter
Common stock repurchased
during period (a)
Number of common shares
outstanding
Approximate
dollar value
Number of
shares
Beginning
of period
End of
period
Cash
dividends
declared per
common
share (b)
$
$
$
159
167
169
204
190
190
185
195
250
309
8,298
8,745
8,097
10,485
8,507
7,033
6,473
7,280
9,194
12,121
483,753
475,470
467,000
462,193
452,292
443,796
437,054
432,691
425,752
416,591
475,470
$
467,000
462,193
$
452,292
443,796
437,054
432,691
$
425,752
416,591
404,900
0.08
0.08
0.08
0.08
0.12
0.12
0.13
0.13
0.15
0.15
Includes shares of common stock withheld to cover income taxes owed by participants in our share-based incentive plans.
(a)
(b) On January 14, 2019, the Ally Board of Directors (the Board) declared a quarterly cash dividend of $0.17 per share on all common stock, payable on
February 15, 2019. Refer to Note 31 for further information regarding this common stock dividend.
Ally submitted its 2018 capital plan and company-run stress test results to the FRB on April 5, 2018. On June 21, 2018, we publicly
disclosed summary results of the stress test under the severely adverse scenario in accordance with applicable regulatory requirements. On
June 28, 2018, we received from the FRB a non-objection to our capital plan, which included increases in both our stock-repurchase program
and our planned dividends. Consistent with the capital plan, the Board authorized a 32% increase in our stock-repurchase program, permitting
us to repurchase up to $1.0 billion of our common stock from time to time from the third quarter of 2018 through the second quarter of 2019.
Also consistent with the capital plan, on January 14, 2019, the Board declared a quarterly cash dividend of $0.17 per share of our common
stock. Refer to Note 31 for further information on the most recent dividend. On October 5, 2018, we submitted to the FRB the results of our
company-run mid-cycle stress test and publicly disclosed summary results under the severely adverse scenario in accordance with applicable
regulatory requirements.
During the first quarter of 2019, the FRB announced that a number of large and noncomplex BHCs with $100 billion or more but less
than $250 billion in total consolidated assets, including Ally, will not be required to submit a capital plan to the FRB, participate in the
supervisory stress test or CCAR, or conduct company-run stress tests during the 2019 cycle. Instead, Ally’s capital actions during this cycle
will be largely based on the results from its 2018 supervisory stress test.
Our ability to make capital distributions, including our ability to pay dividends or repurchase shares of our common stock, will continue
to be subject to the FRB’s review. The amount and size of any future dividends and share repurchases also will depend upon our results of
operations, capital levels, future opportunities, consideration and approval by the Board, and other considerations.
In January 2017, the FRB amended its capital planning and stress testing rules, effective for the 2017 cycle and beyond. As a result of
this amendment, the FRB may no longer object to the capital plan of a large and noncomplex BHC, like Ally, on the basis of qualitative
deficiencies in its capital planning process. Instead, the qualitative assessment of Ally’s capital planning process is now conducted outside of
CCAR through the supervisory review process. The amendment also decreased the de minimis threshold for the amount of capital that Ally
could distribute to stockholders outside of an approved capital plan without the FRB’s prior approval, and modified Ally’s reporting
requirements to reduce unnecessary burdens.
Depository Institutions
Ally Bank is a member of the Federal Reserve System and is subject to regulation, supervision, and examination by the FRB and the
UDFI. Ally Bank’s deposits are insured by the Federal Deposit Insurance Corporation (FDIC), and Ally Bank is required to file periodic
reports with the FDIC concerning its financial condition. Total assets of Ally Bank were $159.0 billion and $137.4 billion at December 31,
2018, and 2017, respectively. Federal and Utah law place a number of conditions, restrictions, and limitations on dividends and other capital
distributions that may be paid by Ally Bank to Ally. Dividends or other distributions made by Ally Bank to Ally were $2.6 billion and $3.3
billion in 2018 and 2017, respectively.
152
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The FRB requires banks to maintain minimum average reserve balances. The amount of the required reserve balance for Ally Bank was
$279 million and $370 million at December 31, 2018, and 2017, respectively.
Ally Bank is required to satisfy regulatory net worth requirements. Failure to meet minimum capital requirements can initiate certain
mandatory actions by federal, state, and foreign agencies that could have a material effect on our results of operations and financial condition.
Ally Bank was in compliance with these requirements at December 31, 2018.
Insurance Companies
Certain of our Insurance operations are subject to certain minimum aggregate capital requirements, net asset and dividend restrictions
under applicable state and foreign insurance laws, and the rules and regulations promulgated by various U.S. and foreign regulatory agencies.
Under various state and foreign insurance regulations, dividend distributions may be made only from statutory unassigned surplus, with
approvals required from the regulatory authorities for dividends in excess of certain statutory limitations. At December 31, 2018, the
maximum dividend that could be paid by the U.S. insurance subsidiaries over the next twelve months without prior statutory approval was
$134 million.
21. Derivative Instruments and Hedging Activities
We enter into derivative instruments, which may include interest rate, foreign-currency, and equity swaps, futures, forwards, and options
in connection with our risk-management activities. Our primary objective for utilizing derivative financial instruments is to manage interest
rate risk associated with our fixed- and variable-rate assets and liabilities, foreign exchange risks related to our foreign-currency denominated
assets and liabilities, and other market risks related to our investment portfolio.
Interest Rate Risk
We monitor our mix of fixed- and variable-rate assets and liabilities and may enter into interest rate swaps, forwards, futures, options,
and swaptions to achieve our desired mix of fixed- and variable-rate assets and liabilities. We execute these trades to modify our exposure to
interest rate risk by converting certain fixed-rate instruments to a variable-rate and certain variable-rate instruments to a fixed-rate. We use a
mix of both derivatives that qualify for hedge accounting treatment and economic hedges.
Derivatives qualifying for hedge accounting can include receive-fixed swaps designated as fair value hedges of specific fixed-rate
unsecured debt obligations, receive-fixed swaps designated as fair value hedges of specific fixed-rate FHLB advances, pay-fixed swaps
designated as fair value hedges of securities within our available-for-sale portfolio, and pay-fixed swaps designated as fair value hedges of
closed portfolios of fixed-rate held-for-investment consumer automotive loan assets in which the hedged item is the last layer expected to be
remaining at the end of the hedging relationship. Other derivatives qualifying for hedge accounting consist of pay-fixed swaps designated as
cash flow hedges of the expected future cash flows in the form of interest payments on certain variable-rate borrowings and deposit liabilities.
We may also execute economic hedges, which consist of interest rate swaps, interest rate caps, forwards, futures, options, and swaptions
to mitigate interest rate risk.
We also enter into interest rate lock commitments and forward-sale commitments that are executed as part of our mortgage business that
meet the accounting definition of a derivative.
Foreign Exchange Risk
We enter into derivative financial instrument contracts to mitigate the risk associated with variability in cash flows related to our various
foreign-currency exposures.
We enter into foreign-currency forwards with external counterparties as net investment hedges of foreign exchange exposure on our
investment in foreign subsidiaries. Our equity is impacted by the cumulative translation adjustments resulting from the translation of foreign
subsidiary results; this impact is reflected in our accumulated other comprehensive loss. We also periodically enter into foreign-currency
forwards to economically hedge any foreign-denominated debt, centralized lending, and foreign-denominated third-party loans. These
foreign-currency forwards that are used as economic hedges are recorded at fair value with changes recorded as income offsetting the gains
and losses on the associated foreign-currency transactions.
Equity Risk
We enter into equity options to economically hedge our exposure to the equity markets.
Counterparty Credit Risk
Derivative financial instruments contain an element of credit risk if counterparties are unable to meet the terms of the agreements. Credit
risk associated with derivative financial instruments is measured as the net replacement cost should the counterparties that owe us under the
contract completely fail to perform under the terms of those contracts, assuming no recoveries of underlying collateral as measured by the
market value of the derivative financial instrument.
We manage our risk to financial counterparties through internal credit analysis, limits, and monitoring. Additionally, derivatives and
repurchase agreements are entered into with approved counterparties using industry standard agreements. The agreements generally require
153
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
both parties to post collateral in the event the fair values of the derivative financial instruments meet posting thresholds established under the
agreements. 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. These payments are characterized as
collateral for over-the-counter (OTC) derivatives.
We execute certain derivatives such as interest rate swaps with clearinghouses, which requires us to post and receive collateral. For these
clearinghouse derivatives, these payments are recognized as settlements rather than collateral.
Certain derivative instruments contain provisions that require us to either post additional collateral or immediately settle any outstanding
liability balances upon the occurrence of a specified credit-risk-related event. No such specified credit-risk-related events occurred during the
years ended December 31, 2018, or 2017.
We placed cash collateral totaling $26 million and noncash collateral totaling $105 million supporting our derivative positions at
December 31, 2018, and $20 million and $97 million at December 31, 2017, respectively, in accounts maintained by counterparties. This
amount excludes cash and noncash collateral pledged under repurchase agreements. Refer to Note 15 for details on the repurchase
agreements. The receivables for cash collateral placed are included on our Consolidated Balance Sheet in other assets.
We received cash collateral from counterparties totaling $30 million and noncash collateral totaling $3 million at December 31, 2018,
and $17 million and $2 million at December 31, 2017, respectively, in accounts maintained by counterparties. These amounts exclude cash
and noncash collateral pledged under repurchase agreements. Refer to Note 15 for details on repurchase agreements. The payables for cash
collateral received are included on our Consolidated Balance Sheet in accrued expenses and other liabilities. Included in these amounts is
noncash collateral where we have been granted the right to sell or pledge the underlying assets. We have not sold or pledged any of the
noncash collateral received under these agreements.
154
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Balance Sheet Presentation
The following table summarizes the amounts of derivative instruments reported on our Consolidated Balance Sheet. The amounts are
presented on a gross basis, are segregated by derivatives that are designated and qualifying as hedging instruments or those that are not, and
are further segregated by type of contract within those two categories.
Derivative contracts in a receivable and payable position exclude open trade equity on derivatives cleared through central clearing
counterparties. Any associated collateral exchanged with our central clearing counterparties are treated as settlements of the derivative
exposure, rather than collateral. Such payments are recognized as settlements of the derivatives contracts in a receivable and payable position
on our Consolidated Balance Sheet.
Notional amounts are reference amounts from which contractual obligations are derived and are not recorded on the balance sheet. In our
view, derivative notional is not an accurate measure of our derivative exposure when viewed in isolation from other factors, such as market
rate fluctuations and counterparty credit risk.
December 31, ($ in millions)
Derivatives designated as accounting hedges
Interest rate contracts
Swaps
Foreign exchange contracts
Forwards
Total derivatives designated as accounting hedges
Derivatives not designated as accounting hedges
Interest rate contracts
Futures and forwards
Written options
Purchased options
Total interest rate risk
Foreign exchange contracts
Futures and forwards
Total foreign exchange risk
Total derivatives not designated as accounting
hedges
Total derivatives
$
2018
2017
Derivative contracts in a
Derivative contracts in a
receivable
position
payable
position
Notional
amount
receivable
position
payable
position
Notional
amount
$
— $
— $
24,203
$
— $
— $
6,915
1
1
—
—
37
37
3
3
40
41
$
—
—
—
37
—
37
—
—
37
37
136
24,339
11
6,793
6,742
13,546
181
181
13,727
$
38,066
$
—
—
—
1
38
39
—
—
39
39
$
1
1
—
39
—
39
1
1
40
41
136
7,051
23
8,327
8,237
16,587
124
124
16,711
23,762
$
155
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table presents amounts recorded on our Consolidated Balance Sheet related to cumulative basis adjustments for fair value
hedges.
Carrying amount of the
hedged items
Cumulative amount of fair value hedging adjustment
included in the carrying amount of the hedged items
Total
Discontinued (a)
December 31, ($ in millions)
2018
2017
2018
2017
2018
2017
Assets
Available-for-sale securities (b) (c)
$
1,485
$
173
$
Finance receivables and loans, net (d)
40,850
2,305
— $
24
$
2
18
(5) $
5
2
19
Liabilities
Long-term debt
$
13,001
$
14,640
$
67
$
208
$
67
$
235
(a) Represents the fair value hedging adjustment on qualifying hedges for which the hedging relationship was discontinued. This represents a subset of the
amounts reported in the total hedging adjustment.
(b) The carrying amount of hedged available-for-sale securities is presented above using amortized cost. Refer to Note 8 for a reconciliation of the amortized
(c)
cost and fair value of available-for-sale securities.
Includes the amortized cost basis of closed portfolios used to designate hedging relationships in which the hedged item is the last layer expected to be
remaining at the end of the hedging relationship. At December 31, 2018, the amortized cost basis of the closed portfolios used in these hedging
relationships was $47 million, there was no basis adjustment associated with the last-of-layer relationships, and the amount identified as the last of layer
in the hedge relationship was $28 million. A last-of-layer hedge strategy did not exist at December 31, 2017.
(d) The hedged item represents the carrying value of the hedged portfolio of assets. The amount identified as the last of layer in the hedge relationship was
$21.4 billion as of December 31, 2018. The basis adjustment associated with the last-of-layer relationship was a $19 million asset as of December 31,
2018, which would be allocated across the entire remaining closed pool upon termination or maturity of the hedge relationship. A last-of-layer hedge
strategy did not exist at December 31, 2017.
Statement of Income Presentation
The following table summarizes the location and amounts of gains and losses on derivative instruments not designated as accounting
hedges reported in our Consolidated Statement of Income.
Year ended December 31, ($ in millions)
Gain (loss) recognized in earnings
Interest rate contracts
2018
2017
2016
Gain on mortgage and automotive loans, net
$
— $
1
$
Other income, net of losses
Total interest rate contracts
Foreign exchange contracts
Interest on long-term debt
Other income, net of losses
Total foreign exchange contracts
Gain (loss) recognized in earnings
—
—
—
13
13
13
$
(3)
(2)
—
(7)
(7)
$
(9) $
—
—
—
(2)
1
(1)
(1)
156
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table summarizes the location and amounts of gains and losses on derivative instruments designated as fair value and cash
flow hedges reported in our Consolidated Statement of Income.
Year ended December 31, ($ in millions)
2018
2017
2016
2018
2017
2016
2018
2017
2016
2018
2017
2016
Interest and fees on
finance receivables and
loans
Interest and dividends on
investment securities and
other earning assets
Interest on deposits
Interest on long-term debt
Gain (loss) on fair value hedging
relationships
Interest rate contracts
Hedged fixed-rate unsecured debt
$ — $ — $ — $ — $ — $ — $ — $ — $ — $
62 $
8 $
(78)
Derivatives designated as hedging
instruments on fixed-rate
unsecured debt
Hedged fixed-rate FHLB advances
Derivatives designated as hedging
instruments on fixed-rate FHLB
advances
Hedged available-for-sale securities
Derivatives designated as hedging
instruments on available-for-sale
securities
Hedged fixed-rate consumer
automotive loans
Derivatives designated as hedging
instruments on fixed-rate
consumer automotive loans
Total (loss) gain on fair value hedging
relationships
Gain on cash flow hedging
relationships
Interest rate contracts
Hedged deposit liabilities
Reclassified from accumulated
other comprehensive income into
income
Hedged variable-rate borrowings
Reclassified from accumulated
other comprehensive income into
income
Total gain on cash flow hedging
relationships
Total amounts presented in the
—
—
—
—
—
19
(19)
—
—
—
—
—
—
(3)
1
(2)
—
—
—
—
—
—
(2)
(2)
—
—
—
(3)
3
—
—
—
—
—
—
(1)
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(61)
47
(47)
—
—
—
—
1
(3)
22
(22)
—
—
—
—
5
73
8
(8)
—
—
—
—
(5)
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
—
$ — $ — $ — $ — $ — $ — $
1 $ — $ — $
1 $ — $ —
Consolidated Statement of Income
$ 6,688 $ 5,819 $ 5,162
$
788 $
599 $
418
1,735 $ 1,077 $
830
$ 1,753 $ 1,653 $ 1,742
During the next twelve months, we estimate $15 million will be reclassified into pretax earnings from derivatives designated as cash
flow hedges.
157
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table summarizes the location and amounts of gains and losses related to interest and amortization on derivative
instruments designated as fair value and cash flow hedges reported in our Consolidated Statement of Income.
Year ended December 31, ($ in millions)
2018
2017
2016
2018
2017
2016
2018
2017
2016
2018
2017
2016
Interest and fees on
finance receivables and
loans
Interest and dividends on
investment securities and
other earning assets
Interest on deposits
Interest on long-term debt
Gain (loss) on fair value hedging
relationships
Interest rate contracts
Amortization of deferred unsecured
debt basis adjustments
Interest for qualifying accounting
hedges of unsecured debt
Amortization of deferred secured debt
basis adjustments FHLB advances)
Interest for qualifying accounting
hedges of secured debt
(FHLB advances)
Interest for qualifying accounting
hedges of available-for-sale
securities
Amortization of deferred loan basis
adjustments
Interest for qualifying accounting
hedges of consumer automotive
loans held-for-investment
Total gain (loss) on fair value hedging
relationships
Gain (loss) on cash flow hedging
relationships
Interest rate contracts
Interest for qualifying accounting
hedges of variable-rate borrowings
Interest for qualifying accounting
hedges of deposit liabilities
Total gain (loss) on cash flow hedging
relationships
$ — $ — $ — $ — $ — $ — $ — $ — $ — $
51 $
77 $
84
—
—
—
—
—
—
—
—
—
—
—
—
(14)
(21)
(20)
—
—
—
(1)
—
—
16
2
—
—
(1)
(18)
(22)
(38)
(1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8
24
(17)
(2)
40
—
5
—
—
—
3
—
—
—
102
129
(1)
—
—
—
6
—
—
—
48
8
—
$ — $ — $ — $ — $ — $ — $
3 $ — $ — $
8 $
(1) $ —
The following table summarizes the effect of cash flow hedges on accumulated other comprehensive loss.
Year ended December 31, ($ in millions)
Interest rate contracts
Gain recognized in other comprehensive loss
2018
2017
2016
$
10
$
5
$
—
The following table summarizes the effect of net investment hedges on accumulated other comprehensive loss and the Consolidated
Statement of Comprehensive Income.
Year ended December 31, ($ in millions)
Foreign exchange contracts (a) (b)
2018
2017
2016
Gain (loss) recognized in other comprehensive loss
$
12
$
(10) $
1
(a) There were no amounts excluded from effectiveness testing for the years ended December 31, 2018, 2017, or 2016.
(b) Gains and losses reclassified from accumulated other comprehensive loss are reported as other income, net of losses, in the Consolidated Statement of
Income. There were no amounts reclassified for the years ended December 31, 2018, 2017, or 2016.
158
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
22. Income Taxes
The significant components of income tax expense from continuing operations were as follows.
Total income tax expense from continuing operations
$
A reconciliation of income tax expense from continuing operations with the amounts at the statutory U.S. federal income tax rate is
Year ended December 31, ($ in millions)
Current income tax (benefit) expense
U.S. federal
Foreign
State and local
Total current expense
Deferred income tax expense (benefit)
U.S. federal
State and local
Total deferred expense
shown in the following table.
Year ended December 31, ($ in millions)
Statutory U.S. federal tax expense (a)
Change in tax resulting from
Nondeductible expenses
State and local income taxes, net of federal income tax benefit (b)
Tax law enactment
Changes in unrecognized tax benefits (c)
Tax credits, excluding expirations
Valuation allowance change, excluding expirations
Other, net
2018
2017
2016
$
(12) $
(17) $
5
35
28
328
3
331
359
$
6
53
42
566
(27)
539
581
$
2018
2017
2016
$
340
$
527
$
553
28
26
(23)
22
(20)
(8)
(6)
4
7
119
1
(12)
(49)
(16)
—
8
9
17
423
30
453
470
7
35
—
(161)
(15)
51
—
470
Total income tax expense from continuing operations
$
359
$
581
$
(a) The statutory U.S. federal tax rate was 21% for 2018 and 35% for both 2017 and 2016.
(b) Amount for 2017 includes state deferred tax adjustments primarily offset in the valuation allowance change caption.
(c) Amount for 2016 is primarily the result of a U.S. tax reserve release in the second quarter of 2016 related to a prior-year federal return.
For the year ended December 31, 2018, consolidated income tax expense from continuing operations was largely driven by tax
attributable to pretax earnings for the year. For the year ended December 31, 2017, consolidated income tax expense from continuing
operations was largely driven by tax attributable to pretax earnings for the year and income tax expense attributable to changes to our net
deferred tax assets as a result of the Tax Act, partially offset by changes to our valuation allowance balances related to capital-in-nature
deferred tax assets and foreign tax credit carryforwards. For the year ended December 31, 2016, consolidated income tax expense from
continuing operations was largely driven by tax attributable to pretax earnings for the year and the establishment of a valuation allowance on
capital loss carryforwards, offset by a reduction in the liability for unrecognized tax benefits that resulted from the completion of a U.S.
federal audit related to a prior tax year.
As of each reporting date, we consider existing evidence, both positive and negative, that could impact our view with regard to future
realization of deferred tax assets. We continue to believe it is more likely than not that the benefit for certain foreign tax credit carryforwards
and state net operating loss carryforwards will not be realized. In recognition of this risk, we continue to provide a partial valuation allowance
on the deferred tax assets relating to these carryforwards and it is reasonably possible that the valuation allowance may change in the next
twelve months.
159
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The significant components of deferred tax assets and liabilities are reflected in the following table.
December 31, ($ in millions)
Deferred tax assets
Tax credit carryforwards
Adjustments to loan value
State and local taxes
Unearned insurance premiums
Hedging transactions
Tax loss carryforwards
Other
Gross deferred tax assets
Valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities
Lease transactions
Deferred acquisition costs
Debt transactions
Other
Gross deferred tax liabilities
Net deferred tax assets (a)
2018
2017
$
1,796
$
2,002
366
168
90
27
8
222
2,677
(1,057)
1,620
850
321
93
56
1,320
$
300
$
450
200
85
49
302
108
3,196
(1,123)
2,073
1,212
269
95
44
1,620
453
(a) Amounts include $317 million and $461 million of net deferred tax assets included in other assets on our Consolidated Balance Sheet for tax jurisdictions
in a total net deferred tax asset position at December 31, 2018, and 2017, respectively, and $17 million and $8 million included in accrued expenses and
other liabilities on our Consolidated Balance Sheet for tax jurisdictions in a total net deferred tax liability position.
The following table summarizes net deferred tax assets including related valuation allowances at December 31, 2018.
($ in millions)
Tax credit carryforwards
Foreign tax credits
General business credits
Total tax credit carryforwards
Tax loss carryforwards
Net operating losses — federal
Net operating losses — state
Total federal and state tax loss carryforwards
Other net deferred tax liabilities
Net deferred tax assets
Deferred tax
asset (liability)
Valuation
allowance
Net deferred tax
asset (liability)
Years of
expiration
$
1,522
274
1,796
8
198 (a)
206
(645)
$
(963)
$
—
(963)
—
(94)
(94)
—
$
1,357
$
(1,057)
$
2022–2028
2025–2038
2027–2036
2019–2038
n/a
559
274
833
8
104
112
(645)
300
(a) State net operating loss carryforwards are included in the state and local taxes and other liabilities totals disclosed in our deferred inventory table above.
As of December 31, 2018, we continue to not assert that foreign earnings are indefinitely reinvested outside of the United States.
Deferred tax liabilities for incremental U.S. tax that stem from temporary differences related to investment in foreign subsidiaries or corporate
joint ventures are negligible and have been recognized as of December 31, 2018.
160
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table provides a reconciliation of the beginning and ending amount of unrecognized tax benefits.
($ in millions)
Balance at January 1,
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Expiration of statute of limitations
Balance at December 31,
2018
2017
2016
$
185
$
$
15
—
29
—
—
—
44
$
14
—
3
(1)
—
(1)
$
15
$
—
12
—
(182)
(1)
14
Included in the unrecognized tax benefits balances are some items, the recognition of which would not affect the effective tax rate, such
as the tax effect of certain temporary differences and the portion of gross state unrecognized tax benefits that would be offset by the tax
benefit of the associated federal deduction. At December 31, 2018, 2017, and 2016, the balance of unrecognized tax benefits that, if
recognized, would affect our effective tax rate were $34 million, $12 million, and $9 million, respectively.
We recognize accrued interest and penalties related to uncertain income tax positions in interest expense and other operating expenses,
respectively. For the years ended December 31, 2018, 2017, and 2016, the cumulative accrued balance for interest and penalties was less than
$1 million and interest and penalties of $1 million or less were accrued each year.
It is reasonably possible that the unrecognized tax benefits will decrease by up to $41 million over the next twelve months if certain tax
matters ultimately settle with the applicable taxing jurisdictions.
We file tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. Our most significant operations are in the
United States and Canada. The oldest tax years that remain subject to examination for those jurisdictions are 2015 and 2011, respectively.
23. Share-based Compensation Plans
We grant Restricted Stock Units or Awards (RSUs) and Performance Stock Units or Awards (PSUs) to certain employees under the Ally
Financial Inc. Incentive Compensation Plan (AICP). The AICP allows us to grant an array of equity-based and other incentive awards to our
named executive officers and other employees. These awards are structured to align with long-term value creation for our stockholders, to
provide appropriate incentives for participating employees, and to achieve the other objectives of our compensation philosophy. At
December 31, 2018, we had 34,864,368 shares available for future grants of equity-based awards remaining under the AICP.
Our equity-based awards generally settle in Ally common stock and are classified as equity awards under GAAP. The cost of the awards
is ratably charged to compensation and benefits expense in our Consolidated Statement of Income over their applicable service period and are
based on the grant date fair value of Ally common stock. The awards typically include retirement eligibility and qualifying termination
provisions, which fully vest as of the date upon meeting the eligibility requirements and are paid on the original settlement date.
PSUs and RSUs
PSUs are payable contingent upon Ally achieving certain predefined performance objectives over a two-year measurement period and a
three-year service condition. The number of awards payable upon vesting can range from zero to 150% of the grant amount. The PSUs settle
in the form of Ally common stock. We accrue dividend equivalents for our PSUs that are paid upon vesting and based on the number of
awards payable.
161
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
RSUs are awarded to employees at no cost to the recipient upon their grant. The compensation costs related to these awards are ratably
charged to expense over the applicable service period. The majority of the existing RSUs settle in the form of Ally common stock. RSUs
generally vest one third ratably each year over a three-year period starting on the date the award was issued and are converted into shares of
common stock as of the vesting date. We accrue dividend equivalents for our RSUs that are paid upon vesting. Ally has awards that vested but
were not yet distributed for the years ended December 31, 2018, 2017, and 2016.
The following table presents the changes in outstanding non-vested PSUs and RSUs activity during 2018.
(in thousands, except per share data)
RSUs and PSUs
Outstanding non-vested at January 1, 2018
Granted
Vested
Forfeited
Outstanding non-vested at December 31, 2018
Number of
units
Weighted-average
grant date fair
value per share
5,592
$
2,577
(3,167)
(138)
4,864
19.89
29.41
21.61
23.54
23.71
We recognized expense related to PSUs and RSUs of $72 million, $60 million, and $54 million for the years ended December 31, 2018,
2017, and 2016, respectively.
24. Fair Value
Fair Value Measurements
For purposes of this disclosure, fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a
liability (exit price) in the principal or most advantageous market in an orderly transaction between market participants at the measurement
date under current market conditions. Fair value is based on the assumptions we believe market participants would use when pricing an asset
or liability. Additionally, entities are required to consider all aspects of nonperformance risk, including the entity’s own credit standing, when
measuring the fair value of a liability.
Judgment is used in estimating inputs to our internal valuation models used to estimate our Level 3 fair value measurements. Level 3
inputs such as interest rate movements, prepayment speeds, credit losses, and discount rates are inherently difficult to estimate. Changes to
these inputs can have a significant effect on fair value measurements and amounts that could be realized.
GAAP specifies a three-level hierarchy that is used when measuring and disclosing fair value. The fair value hierarchy gives the highest
priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e.,
unobservable inputs). An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its
valuation. The following is a description of the three hierarchy levels.
Level 1
Level 2
Level 3
Inputs are quoted prices in active markets for identical assets or liabilities at the measurement date. Additionally, the entity
must have the ability to access the active market, and the quoted prices cannot be adjusted by the entity.
Inputs are other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or
indirectly. Level 2 inputs include quoted prices in active markets for similar assets or liabilities; quoted prices in inactive
markets for identical or similar assets or liabilities; or inputs that are observable or can be corroborated by observable
market data by correlation or other means for substantially the full term of the assets or liabilities.
Unobservable inputs are supported by little or no market activity. The unobservable inputs represent management’s best
assumptions of how market participants would price the assets or liabilities. Generally, Level 3 assets and liabilities are
valued using pricing models, discounted cash flow methodologies, or similar techniques that require significant judgment
or estimation.
The following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and details of
the valuation models, key inputs to those models, and significant assumptions utilized.
•
•
Equity Securities — Includes various marketable equity securities measured at fair value with changes in fair value recognized in
net income. Measurements based on observable market prices are classified as Level 1.
Available-for-sale securities — All classes of available-for-sale securities are carried at fair value based on observable market
prices, when available. If observable market prices are not available, our valuations are based on internally developed discounted
cash flow models (an income approach) that use a market-based discount rate and consider recent market transactions, experience
with similar securities, current business conditions, and analysis of the underlying collateral, as available. To estimate cash flows,
162
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
we are required to utilize various significant assumptions including market observable inputs (e.g., forward interest rates) and
internally developed inputs (including prepayment speeds, delinquency levels, and credit losses).
•
Interests retained in financial asset sales — Includes certain noncertificated interests retained from the sale of automotive finance
receivables. Due to inactivity in the market, valuations are based on internally developed discounted cash flow models (an income
approach) that use a market-based discount rate; therefore, we classified these assets as Level 3. The valuation considers recent
market transactions, experience with similar assets, current business conditions, and analysis of the underlying collateral, as
available. To estimate cash flows, we utilize various significant assumptions, including market observable inputs (e.g., forward
interest rates) and internally developed inputs (e.g., prepayment speeds, delinquency levels, and credit losses).
• Derivative instruments — We enter into a variety of derivative financial instruments as part of our risk-management strategies.
Certain of these derivatives are exchange traded, such as Eurodollar futures, options of Eurodollar futures, and equity options. To
determine the fair value of these instruments, we utilize the quoted market prices for the particular derivative contracts; therefore,
we classified these contracts as Level 1.
We also execute OTC and centrally-cleared derivative contracts, such as interest rate swaps, swaptions, foreign-currency
denominated forward contracts, caps, floors, and agency to-be-announced securities. We utilize third-party-developed valuation
models that are widely accepted in the market to value these derivative contracts. The specific terms of the contract and market
observable inputs (such as interest rate forward curves, interpolated volatility assumptions, or equity pricing) are used in the model.
We classified these derivative contracts as Level 2 because all significant inputs into these models were market observable.
We also enter into interest rate lock commitments and forward-sale commitments that are executed as part of our mortgage
business, certain of which meet the accounting definition of a derivative and therefore are recorded as derivatives on our
Consolidated Balance Sheet. Because these derivatives are valued using internal pricing models with unobservable inputs, they are
classified as Level 3.
We are required to consider all aspects of nonperformance risk, including our own credit standing, when measuring fair value
of a liability. We reduce credit risk on the majority of our derivatives by entering into legally enforceable agreements that enable the
posting and receiving of collateral associated with the fair value of our derivative positions on an ongoing basis. In the event that we
do not enter into legally enforceable agreements that enable the posting and receiving of collateral, we will consider our credit risk
and the credit risk of our counterparties in the valuation of derivative instruments through a credit valuation adjustment (CVA), if
warranted. The CVA calculation utilizes the credit default swap spreads of the counterparty.
163
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Recurring Fair Value
The following tables display the assets and liabilities measured at fair value on a recurring basis including financial instruments elected
for the fair value option. We often economically hedge the fair value change of our assets or liabilities with derivatives and other financial
instruments. The tables below display the hedges separately from the hedged items; therefore, they do not directly display the impact of our
risk-management activities.
December 31, 2018 ($ in millions)
Assets
Investment securities
Equity securities (a)
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies
U.S. States and political subdivisions
Foreign government
Agency mortgage-backed residential
Mortgage-backed residential
Mortgage-backed commercial
Asset-backed
Corporate debt
Total available-for-sale securities
Mortgage loans held-for-sale (b)
Interests retained in financial asset sales
Derivative contracts in a receivable position
Interest rate
Foreign currency
Total derivative contracts in a receivable position
Total assets
Liabilities
Accrued expenses and other liabilities
Derivative contracts in a payable position
Interest rate
Total derivative contracts in a payable position
Total liabilities
(a) Our investment in any one industry did not exceed 9%.
(b) Carried at fair value due to fair value option elections.
Recurring fair value measurements
Level 1
Level 2
Level 3
Total
$
766
$
— $
7
$
773
1,850
—
7
—
—
—
—
—
1,857
—
—
—
—
—
1
802
138
17,138
2,686
717
723
1,241
23,446
—
—
37
4
41
$
2,623
$
23,487
$
—
—
—
—
—
—
—
—
—
8
4
—
—
—
19
1,851
802
145
17,138
2,686
717
723
1,241
25,303
8
4
37
4
41
$
26,129
$
$
— $
—
— $
37
37
37
$
$
— $
—
— $
37
37
37
164
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
December 31, 2017 ($ in millions)
Assets
Investment securities
Equity securities (a)
Available-for-sale securities
Debt securities
U.S. Treasury
U.S. States and political subdivisions
Foreign government
Agency mortgage-backed residential
Mortgage-backed residential
Mortgage-backed commercial
Asset-backed
Corporate debt
Total available-for-sale securities
Mortgage loans held-for-sale (b)
Interests retained in financial asset sales
Derivative contracts in a receivable position
Interest rate
Total derivative contracts in a receivable position
Total assets
Liabilities
Accrued expenses and other liabilities
Derivative contracts in a payable position
Interest rate
Foreign currency
Total derivative contracts in a payable position
Total liabilities
(a) Our investment in any one industry did not exceed 14%.
(b) Carried at fair value due to fair value option elections.
Recurring fair value measurements
Level 1
Level 2
Level 3
Total
$
518
$
— $
— $
518
1,777
—
8
—
—
—
—
—
1,785
—
—
—
—
—
854
146
14,291
2,494
541
936
1,256
20,518
—
—
38
38
—
—
—
—
—
—
—
—
—
13
5
1
1
1,777
854
154
14,291
2,494
541
936
1,256
22,303
13
5
39
39
$
2,303
$
20,556
$
19
$
22,878
$
$
— $
—
—
— $
39
2
41
41
$
$
— $
—
—
— $
39
2
41
41
165
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following tables present the reconciliation for all Level 3 assets and liabilities measured at fair value on a recurring basis. There
were no transfers into or out of Level 3 in the periods presented. We often economically hedge the fair value change of our assets or liabilities
with derivatives and other financial instruments. The Level 3 items presented below may be hedged by derivatives and other financial
instruments that are classified as Level 1 or Level 2. Thus, the following tables do not fully reflect the impact of our risk-management
activities.
Level 3 recurring fair value measurements
Net realized/unrealized
(losses) gains
Net unrealized losses still
held at December 31, 2018
Fair value at
Jan. 1, 2018
included in
earnings
included
in OCI
Purchases Sales
Issuances Settlements
Fair value at
Dec. 31, 2018
included in
earnings
included in
OCI
($ in millions)
Assets
Equity securities (a)
$
Mortgage loans held-for-sale (c)
Other assets
Interests retained in financial asset
sales
Derivative assets
Total assets
19 $
13
5
1
(7) (b) $
— $
— $ — $
— $
5 (d)
—
(1) (d)
—
—
—
303
(313)
—
—
—
—
—
—
—
(5) $
—
(1)
—
7 $
8
4
—
(10) $
—
—
—
—
—
—
—
—
$
38 $
(3)
$
— $
303 $(313) $
— $
(6) $
19 $
(10) $
(a)
In connection with our adoption of ASU 2016-01 on January 1, 2018, certain of our equity securities previously measured using the cost method of accounting are now
measured at fair value on a recurring basis, and have been categorized as Level 3 within the fair value hierarchy. Accordingly, the fair value of such investments has been
included in the opening balance of the reconciliation above.
(b) Reported as other gain on investments, net, in the Consolidated Statement of Income.
(c) Carried at fair value due to fair value option elections.
(d) Reported as gain on mortgage and automotive loans, net, in the Consolidated Statement of Income.
($ in millions)
Assets
Level 3 recurring fair value measurements
Net realized/unrealized
gains
Fair value at
Jan. 1, 2017
included in
earnings
included
in OCI
Purchases
Sales
Issuances
Settlements
Fair value at
Dec. 31, 2017
Net unrealized
gains included
in earnings
still held at
Dec. 31, 2017
Mortgage loans held-for-sale (a)
Other assets
Interests retained in financial asset sales
Derivative assets
Total assets
$
$
— $
2 (b) $
— $
137 $(126) $
— $
— $
13 $
29
—
1 (c)
1 (b)
—
—
—
—
8
—
—
—
(33)
—
5
1
29 $
4
$
— $
137 $(118) $
— $
(33) $
19 $
—
—
1
1
(a) Carried at fair value due to fair value option elections.
(b) Reported as gain on mortgage and automotive loans, net, in the Consolidated Statement of Income.
(c) Reported as other income, net of losses, in the Consolidated Statement of Income.
166
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Nonrecurring Fair Value
We may be required to measure certain assets and liabilities at fair value from time to time. These periodic fair value measures typically
result from the application of lower-of-cost or fair value accounting or certain impairment measures. These items would constitute
nonrecurring fair value measures.
The following tables display assets and liabilities measured at fair value on a nonrecurring basis and still held at December 31, 2018, and
2017, respectively. The amounts are as of the end of each period presented, which approximate the fair value measurements that occurred
during each period.
December 31, 2018 ($ in millions)
Level 1 Level 2 Level 3
Total
Nonrecurring fair value
measurements
Lower-of-cost
or fair value
or valuation
reserve
allowance
Total gain
(loss)
included in
earnings
Assets
Loans held-for-sale, net
Automotive (a)
Other
Total loans held-for-sale, net
Commercial finance receivables and loans, net (c)
Automotive
Other
Total commercial finance receivables and loans, net
Other assets
Nonmarketable equity investments
Equity-method investments
Repossessed and foreclosed assets (d)
$ — $ — $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
210
96
306
84
55
139
1
3
13
210
96
306
84
55
139
1
3
13
Total assets
$ — $ — $
462
$
462
$
(2)
—
(2)
(10)
(46)
(56)
(1)
—
(1)
(60)
n/m (b)
n/m (b)
n/m (b)
n/m (b)
n/m (b)
n/m (b)
n/m (b)
n/m (b)
n/m (b)
n/m
n/m = not meaningful
(a) Represents loans within our commercial automotive portfolio. Of this amount, $104 million was valued based upon a sales price for a transaction that
closed in January 2019, and $106 million was valued using a discounted cash flow analysis, with a spread over forward interest rates as a significant
unobservable input utilizing a range of 0.08–1.09% and weighted average of 0.72%.
(b) We consider the applicable valuation or loan loss allowance to be the most relevant indicator of the impact on earnings caused by the fair value
measurement. Accordingly, the table above excludes total gains and losses included in earnings for these items. The carrying values are inclusive of the
respective valuation or loan loss allowance.
(c) Represents the portion of the portfolio specifically impaired during 2018. The related valuation allowance represents the cumulative adjustment to fair
value of those specific receivables.
(d) The allowance provided for repossessed and foreclosed assets represents any cumulative valuation adjustment recognized to adjust the assets to fair value.
167
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
December 31, 2017 ($ in millions)
Assets
Loans held-for-sale, net
Commercial finance receivables and loans, net (b)
Automotive
Other
Total commercial finance receivables and loans, net
Other assets
Repossessed and foreclosed assets (c)
Other
Total assets
Nonrecurring fair value measurements
Level 1
Level 2
Level 3
Total
Lower-of-cost
or fair value
or valuation
reserve
allowance
Total gain
(loss)
included in
earnings
$ — $ — $
77
$
77
$
—
—
—
—
—
—
—
—
—
—
20
22
42
14
3
20
22
42
14
3
$ — $ — $
136
$
136
$
—
(3)
(12)
(15)
(1)
—
(16)
n/m (a)
n/m (a)
n/m (a)
n/m (a)
n/m (a)
n/m (a)
n/m
n/m = not meaningful
(a) We consider the applicable valuation or loan loss allowance to be the most relevant indicator of the impact on earnings caused by the fair value
measurement. Accordingly, the table above excludes total gains and losses included in earnings for these items. The carrying values are inclusive of the
respective valuation or loan loss allowance.
(b) Represents the portion of the portfolio specifically impaired during 2017. The related valuation allowance represents the cumulative adjustment to fair
value of those specific receivables.
(c) The allowance provided for repossessed and foreclosed assets represents any cumulative valuation adjustment recognized to adjust the assets to fair value.
Fair Value Option for Financial Assets
We elected the fair value option for an insignificant amount of conforming mortgage loans held-for-sale. We elected the fair value option
to mitigate earnings volatility by better matching the accounting for the assets with the related derivatives. Our intent in electing fair value
measurement was to mitigate a divergence between accounting gains or losses and economic exposure for certain assets and liabilities.
168
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
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 current market data to develop the market assumptions and inputs necessary to estimate fair value. As such, the actual
amount received to sell an asset or the amount paid to settle a liability could differ from our estimates. Fair value information presented herein
was based on information available at December 31, 2018, and December 31, 2017.
($ in millions)
December 31, 2018
Financial assets
Held-to-maturity securities
Loans held-for-sale, net
Finance receivables and loans, net
FHLB/FRB stock (a)
Financial liabilities
Deposit liabilities (b)
Short-term borrowings
Long-term debt
December 31, 2017
Financial assets
Held-to-maturity securities
Loans held-for-sale, net
Finance receivables and loans, net
Nonmarketable equity investments
Financial liabilities
Deposit liabilities (b)
Short-term borrowings
Long-term debt
Carrying
value
Level 1
Level 2
Level 3
Total
Estimated fair value
$
2,362
$
— $
2,307
$
— $
306
128,684
1,351
—
—
—
—
—
1,351
306
2,307
306
130,878
130,878
—
1,351
$
51,985
$
— $
— $
51,997
$
51,997
9,987
44,193
—
—
—
23,846
9,992
21,800
9,992
45,646
$
1,899
$
— $
1,865
$
— $
1,865
95
121,617
1,233
—
—
—
—
—
1,190
95
95
123,302
123,302
49
1,239
$
45,869
$
— $
— $
45,827
$
11,413
44,226
—
—
—
27,807
11,417
18,817
45,827
11,417
46,624
(a)
(b)
Included in other assets (nonmarketable equity investments) on our Consolidated Balance Sheet.
In connection with our adoption of ASU 2016-01 on January 1, 2018, deposit liabilities with no defined or contractual maturities are no longer included in
the table above. Amounts for December 31, 2017, have been adjusted to conform to the current presentation and exclude $47.4 billion and $45.2 billion of
deposit liabilities with no defined or contractual maturities from the carrying value and Level 3 fair value, respectively. Refer to Note 14 for information
regarding the composition of our deposits portfolio, and Note 1 for further information regarding recently adopted accounting standards.
25. Offsetting Assets and Liabilities
Our derivative contracts and repurchase/reverse repurchase transactions are supported by qualifying master netting and master
repurchase agreements. These agreements are legally enforceable bilateral agreements that (i) create a single legal obligation for all individual
transactions covered by the agreement to the nondefaulting entity upon an event of default of the counterparty, including bankruptcy,
insolvency, or similar proceeding, and (ii) provide the nondefaulting 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.
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 obligation. Contractual terms provide for
standard and customary exchange of collateral based on changes in the market value of the outstanding derivatives. A party posts additional
collateral when their obligation rises or removes collateral when it falls, such that the net replacement cost of the nondefaulting party is
covered in the event of counterparty default.
In certain instances as it relates to our derivative instruments, we have the option to report derivative assets and liabilities as well as
assets and liabilities associated with cash collateral received or delivered that is governed by a master netting agreement on a net basis as long
as certain qualifying criteria are met. Similarly, for our repurchase/reverse repurchase transactions, we have the option to report recognized
169
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
assets and liabilities subject to a master netting agreement on a net basis if certain qualifying criteria are met. At December 31, 2018, these
instruments are reported as gross assets and gross liabilities on the Consolidated Balance Sheet.
The composition of offsetting derivative instruments, financial assets, and financial liabilities was as follows.
Gross
amounts of
recognized
assets/
liabilities
Gross
amounts
offset on the
Consolidated
Balance
Sheet
Net amounts
of assets/
liabilities
presented on
the
Consolidated
Balance Sheet
Gross amounts not offset on
the Consolidated Balance
Sheet
Financial
instruments
Collateral
(a) (b) (c)
Net
amount
$
$
$
$
41
41
$
$
37
$
685
722
$
— $
— $
— $
—
— $
41
41
$
$
37
$
685
722
$
— $
— $
— $
—
— $
(4) $
(4) $
— $
(685)
(685) $
37
37
37
—
37
December 31, 2018 ($ in millions)
Assets
Derivative assets in net asset positions (d)
Total assets
Liabilities
Derivative liabilities in net liability
positions (d)
Securities sold under agreements to
repurchase (e)
Total liabilities
(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) Amounts disclosed are limited to the financial asset or liability balance and, accordingly, exclude excess collateral received or pledged and noncash
collateral received. There was $3 million of noncash derivative collateral, and $4 million of noncash collateral associated with our repurchase agreements,
pledged to us that was excluded at December 31, 2018. We do not record such collateral received on our Consolidated Balance Sheet unless certain
conditions are met.
(c) Certain agreements grant us the right to sell or pledge the noncash assets we receive as collateral. Noncash collateral pledged to us where the agreement
grants us the right to sell or pledge the underlying assets had a fair value of $7 million at December 31, 2018. We have not sold or pledged any of the
noncash collateral received under these agreements as of December 31, 2018.
(d) For additional information on derivative instruments and hedging activities, refer to Note 21.
(e) For additional information on securities sold under agreements to repurchase, refer to Note 15.
Gross
amounts of
recognized
assets/
liabilities
Gross
amounts
offset on the
Consolidated
Balance
Sheet
Net amounts
of assets/
liabilities
presented on
the
Consolidated
Balance Sheet
Gross amounts not offset on the
Consolidated Balance Sheet
Financial
instruments
Collateral
(a) (b) (c)
Net
amount
$
$
$
$
38
$
1
39
$
41
$
892
933
$
— $
—
— $
— $
—
— $
38
$
1
39
$
41
$
892
933
$
— $
—
— $
— $
—
— $
— $
—
— $
(1) $
(892)
(893) $
38
1
39
40
—
40
December 31, 2017 ($ in millions)
Assets
Derivative assets in net asset positions
Derivative assets with no offsetting
arrangements
Total assets (d)
Liabilities
Derivative liabilities in net liability
positions (d)
Securities sold under agreements to
repurchase (e)
Total liabilities
(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) Amounts disclosed are limited to the financial asset or liability balance and, accordingly, exclude excess collateral received or pledged and noncash
collateral received. There was $2 million of noncash derivative collateral pledged to us that was excluded at December 31, 2017. We do not record such
collateral received on our Consolidated Balance Sheet unless certain conditions are met.
(c) Certain agreements grant us the right to sell or pledge the noncash assets we receive as collateral. Noncash collateral pledged to us where the agreement
grants us the right to sell or pledge the underlying assets had a fair value of $2 million at December 31, 2017. We have not sold or pledged any of the
noncash collateral received under these agreements as of December 31, 2017.
(d) For additional information on derivative instruments and hedging activities, refer to Note 21.
(e) For additional information on securities sold under agreements to repurchase, refer to Note 15.
170
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
26. Segment 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 business-line basis through four operating segments: Automotive Finance operations, Insurance
operations, Mortgage Finance operations, and Corporate Finance 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 — One of the largest full service automotive finance operations in the United States providing
automotive financing services to consumers, automotive dealers, companies, and municipalities. Our automotive finance services
include providing retail installment sales contracts, loans and operating leases, offering term loans to dealers, financing dealer
floorplans and other lines of credit to dealers, warehouse lines to automotive retailers, fleet financing, providing financing to
companies and municipalities for the purchase or lease of vehicles, and vehicle-remarketing services.
Insurance operations — A complementary automotive-focused business offering both consumer finance protection and insurance
products sold primarily through the automotive dealer channel, and commercial insurance products sold directly to dealers. As part
of our focus on offering dealers a broad range of consumer financial and insurance products, we provide VSCs, VMCs, and GAP
products. We also underwrite select commercial insurance coverages, which primarily insure dealers’ vehicle inventory.
Mortgage Finance operations — Primarily consists of the management of a held-for-investment consumer mortgage finance loan
portfolio, which includes bulk purchases of high-quality jumbo and LMI mortgage loans originated by third parties. In late 2016, we
introduced our direct-to-consumer mortgage offering, named Ally Home, consisting of a variety of jumbo and conforming fixed-
and adjustable-rate mortgage products with the assistance of a third-party fulfillment provider. Jumbo mortgage loans are generally
held on our balance sheet and are accounted for as held-for-investment. Conforming mortgage loans are generally originated as
held-for-sale and then sold to the fulfillment provider, and we retain no mortgage servicing rights associated with those loans that
are sold.
Corporate Finance operations — Primarily provides senior secured leveraged cash flow and asset-based loans to mostly U.S.-
based middle-market companies. Our primary focus is on businesses owned by private equity sponsors with loans typically used for
leveraged buyouts, mergers and acquisitions, debt refinancing, restructurings, and working capital. In 2017, we introduced a
commercial real estate product to serve companies in the healthcare industry.
Corporate and Other primarily consists of centralized corporate treasury activities such as management of the cash and corporate
investment securities and loan portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative instruments, original
issue discount, and the residual impacts of our corporate funds-transfer pricing (FTP) and treasury asset liability management (ALM)
activities. Corporate and Other also includes certain equity investments, which primarily consist of FHLB and FRB stock, the management of
our legacy mortgage portfolio, which primarily consists of loans originated prior to January 1, 2009, and reclassifications and eliminations
between the reportable operating segments. Additionally, financial results related to Ally Invest are currently included within Corporate and
Other.
We utilize an FTP methodology for the majority of our business operations. The FTP methodology assigns charge rates and credit rates
to classes of assets and liabilities based on expected duration and the benchmark rate curve plus an assumed credit spread. Matching duration
allocates interest income and interest expense to these reportable segments so their respective results are insulated from interest rate risk. This
methodology is consistent with our ALM practices, which includes managing interest rate risk centrally at a corporate level. The net residual
impact of the FTP methodology is included within the results of Corporate and Other.
The information presented in our reportable operating segments is based in part on internal allocations, which involve management
judgment.
171
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Financial information for our reportable operating segments is summarized as follows.
Year ended December 31, ($ in millions)
2018
Net financing revenue and other interest
income
Other revenue
Total net revenue
Provision for loan losses
Total noninterest expense
Income (loss) from continuing operations
before income tax expense
Total assets
2017
Net financing revenue and other interest
income
Other revenue
Total net revenue
Provision for loan losses
Total noninterest expense
Income (loss) from continuing operations
before income tax expense
Total assets
2016
Net financing revenue and other interest
income (loss)
Other revenue
Total net revenue
Provision for loan losses
Total noninterest expense
$
$
$
$
$
$
Automotive
Finance
operations
Insurance
operations
Mortgage
Finance
operations
Corporate
Finance
operations
Corporate
and Other
Consolidated (a)
$
3,769
$
54
$
179
$
204
$
269
4,038
920
1,750
981
1,035
—
955
1,368
117,304
$
$
80
7,734
$
$
7
186
1
140
45
15,211
38
242
12
86
$
184
119
303
(15)
333
4,390
1,414
5,804
918
3,264
$
$
144
4,670
$
$
(15) $
33,950
$
1,622
178,869
3,713
$
59
$
132
$
167
$
150
$
355
4,068
1,134
1,714
1,059
1,118
—
950
1,220
114,089
$
$
168
7,464
$
$
3,665
$
61
$
306
3,971
924
1,667
1,036
1,097
—
940
4
136
8
108
20
11,708
97
—
97
(4)
67
34
8,307
$
$
$
$
$
4,221
1,544
5,765
1,148
3,110
3,907
1,530
5,437
917
2,939
45
212
22
76
81
231
(16)
262
114
3,979
$
$
(15) $
29,908
$
1,507
167,148
121
$
(37) $
162
125
(13)
199
26
147
10
66
71
3,183
$
$
(61) $
28,719
$
1,581
163,728
Income (loss) from continuing operations
before income tax expense
Total assets
$
$
1,380
116,347
$
$
157
7,172
$
$
(a) Net financing revenue and other interest income after the provision for loan losses totaled $3.5 billion, $3.1 billion, and $3.0 billion for the years ended
December 31, 2018, 2017, and 2016, respectively.
27. Parent and Guarantor Consolidating Financial Statements
Certain of our senior notes issued by the parent are guaranteed by 100% directly owned subsidiaries of Ally (the Guarantors). As of
December 31, 2018, the Guarantors include Ally US LLC and IB Finance Holding Company, LLC (IB Finance), each of which fully and
unconditionally guarantee the senior notes on a joint and several basis.
The following financial statements present condensed consolidating financial data for (i) Ally Financial Inc. (on a parent company-only
basis); (ii) the Guarantors; (iii) the nonguarantor subsidiaries (all other subsidiaries); and (iv) a column for adjustments to arrive at (v) the
information for the parent company, the Guarantors, and nonguarantors on a consolidated basis.
Investment in subsidiaries is accounted for by the parent company and the Guarantors using the equity method for this presentation.
Results of operations of subsidiaries are therefore classified in the parent company’s and Guarantors’ investment in subsidiaries accounts. The
elimination entries set forth in the following condensed consolidating financial statements eliminate distributed and undistributed income of
subsidiaries, investment in subsidiaries, and intercompany balances and transactions between the parent, the Guarantors, and nonguarantors.
172
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Condensed Consolidating Statements of Comprehensive Income
Year ended December 31, 2018 ($ in millions)
Financing revenue and other interest income
Parent
Guarantors Nonguarantors
Consolidating
adjustments
Ally
consolidated
Interest and fees on finance receivables and loans
$
(40) $
— $
6,728
$
— $
6,688
Interest and fees on finance receivables and loans — intercompany
Interest on loans held-for-sale
Interest and dividends on investment securities and other earning assets
Interest on cash and cash equivalents
Interest-bearing cash — intercompany
Operating leases
Total financing (loss) revenue and other interest income
Interest expense
Interest on deposits
Interest on short-term borrowings
Interest on long-term debt
Interest on intercompany debt
Total interest expense
Net depreciation expense on operating lease assets
Net financing (loss) revenue
Cash dividends from subsidiaries
Bank subsidiary
Nonbank subsidiaries
Other revenue
Insurance premiums and service revenue earned
Gain on mortgage and automotive loans, net
Other gain on investments, net
Other income, net of losses
Total other revenue
Total net revenue
Provision for loan losses
Noninterest expense
Compensation and benefits expense
Insurance losses and loss adjustment expenses
Other operating expenses
Total noninterest expense
Income from continuing operations before income tax (benefit)
expense and undistributed (loss) income of subsidiaries
Income tax (benefit) expense from continuing operations
Net income from continuing operations
(Loss) income from discontinued operations, net of tax
Undistributed (loss) income of subsidiaries
Bank subsidiary
Nonbank subsidiaries
Net income
Other comprehensive loss, net of tax
Comprehensive income
—
15
788
72
—
1,489
9,052
1,735
149
1,753
—
3,637
1,025
4,390
—
—
1,022
25
(50)
417
1,414
5,804
918
1,155
295
1,814
3,264
1,622
359
1,263
—
—
—
1,263
(289)
974
12
—
—
8
8
5
(7)
—
44
1,009
15
1,068
8
(1,083)
2,600
443
—
70
—
411
481
2,441
176
83
—
681
764
1,501
(300)
1,801
(2)
(614)
78
1,263
(289)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,600
—
—
—
—
—
—
2,600
—
—
—
—
—
2,600
—
2,600
—
(614)
—
1,986
(243)
5
15
789
64
9
1,484
9,094
1,735
105
744
20
2,604
1,017
5,473
—
—
1,022
9
(50)
770
1,751
7,224
796
1,072
295
1,897
3,264
3,164
659
2,505
2
—
—
2,507
(308)
(17)
—
(1)
—
(17)
—
(35)
—
—
—
(35)
(35)
—
—
(5,200)
(443)
—
(54)
—
(764)
(818)
(6,461)
(54)
—
—
(764)
(764)
(5,643)
—
(5,643)
—
1,228
(78)
(4,493)
551
$
974
$
1,743
$
2,199
$
(3,942) $
173
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Year ended December 31, 2017 ($ in millions)
Financing revenue and other interest income
Parent
Guarantors
Nonguarantors
Consolidating
adjustments
Ally
consolidated
Interest and fees on finance receivables and loans
$
(27) $
— $
5,846
$
— $
5,819
Interest and fees on finance receivables and loans — intercompany
Interest and dividends on investment securities and other earning assets
Interest on cash and cash equivalents
Interest-bearing cash — intercompany
Operating leases
Total financing revenue and other interest income
Interest expense
Interest on deposits
Interest on short-term borrowings
Interest on long-term debt
Interest on intercompany debt
Total interest expense
Net depreciation expense on operating lease assets
Net financing (loss) revenue
Cash dividends from subsidiaries
Bank subsidiary
Nonbank subsidiaries
Other revenue
Insurance premiums and service revenue earned
Gain on mortgage and automotive loans, net
Other gain on investments, net
Other income, net of losses
Total other revenue
Total net revenue
Provision for loan losses
Noninterest expense
Compensation and benefits expense
Insurance losses and loss adjustment expenses
Other operating expenses
Total noninterest expense
Income from continuing operations before income tax expense and
undistributed (loss) income of subsidiaries
Income tax expense from continuing operations
Net income from continuing operations
Income (loss) from discontinued operations, net of tax
Undistributed (loss) income of subsidiaries
Bank subsidiary
Nonbank subsidiaries
Net income
Other comprehensive income, net of tax
Comprehensive income
12
—
7
4
11
7
3
60
1,101
15
1,179
11
(1,183)
3,300
752
—
40
—
675
715
3,584
465
180
—
899
1,079
2,040
337
1,703
7
—
—
—
—
—
—
—
—
—
—
—
—
—
3,300
—
—
—
—
—
—
3,300
—
—
—
—
—
3,300
—
3,300
—
(1,168)
(1,168)
387
929
106
—
2,132
65
6
601
30
7
1,856
8,346
1,078
67
552
12
1,709
1,233
5,404
—
—
973
28
102
834
1,937
7,341
683
915
332
1,892
3,139
3,519
244
3,275
(4)
—
—
3,271
104
(18)
(2)
—
(11)
—
(31)
(4)
—
—
(27)
(31)
—
—
(6,600)
(752)
—
—
—
(1,108)
(1,108)
(8,460)
—
—
—
(1,108)
(1,108)
(7,352)
—
(7,352)
—
2,336
(387)
(5,403)
(169)
—
599
37
—
1,867
8,322
1,077
127
1,653
—
2,857
1,244
4,221
—
—
973
68
102
401
1,544
5,765
1,148
1,095
332
1,683
3,110
1,507
581
926
3
—
—
929
106
$
1,035
$
2,197
$
3,375
$
(5,572) $
1,035
174
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Year ended December 31, 2016 ($ in millions)
Financing revenue and other interest income
Parent
Guarantors
Nonguarantors
Consolidating
adjustments
Ally
consolidated
Interest and fees on finance receivables and loans
$
(104) $
— $
5,266
$
— $
5,162
Interest and fees on finance receivables and loans — intercompany
Interest and dividends on investment securities and other earning assets
Interest on cash and cash equivalents
Interest-bearing cash — intercompany
Operating leases
Total financing (loss) revenue and other interest income
Interest expense
Interest on deposits
Interest on short-term borrowings
Interest on long-term debt
Interest on intercompany debt
Total interest expense
Net depreciation expense on operating lease assets
Net financing (loss) revenue
Cash dividends from subsidiaries
Nonbank subsidiaries
Other revenue
Insurance premiums and service revenue earned
(Loss) gain on mortgage and automotive loans, net
Other gain on investments, net
Other income, net of losses
Total other revenue
Total net revenue
Provision for loan losses
Noninterest expense
Compensation and benefits expense
Insurance losses and loss adjustment expenses
Other operating expenses
Total noninterest expense
(Loss) income from continuing operations before income tax
(benefit) expense and undistributed income (loss) of subsidiaries
Income tax (benefit) expense from continuing operations
Net (loss) income from continuing operations
Loss from discontinued operations, net of tax
Undistributed income (loss) of subsidiaries
Bank subsidiary
Nonbank subsidiaries
Net income
Other comprehensive loss, net of tax
Comprehensive income
11
—
5
—
17
(71)
8
40
1,161
20
1,229
14
(1,314)
965
—
(11)
—
1,250
1,239
890
408
573
—
1,261
1,834
(1,352)
(279)
(1,073)
(39)
1,273
906
1,067
(110)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(82)
82
—
1,273
(2)
1,353
(63)
8
421
9
9
2,694
8,407
822
17
581
11
1,431
1,755
5,221
—
945
22
176
935
2,078
7,299
509
419
342
2,130
2,891
3,899
831
3,068
(5)
—
—
3,063
(106)
(19)
(3)
—
(9)
—
(31)
—
—
—
(31)
(31)
—
—
(965)
—
—
9
(1,796)
(1,787)
(2,752)
—
—
—
(1,786)
(1,786)
(966)
—
(966)
—
(2,546)
(904)
(4,416)
169
$
957
$
1,290
$
2,957
$
(4,247) $
—
418
14
—
2,711
8,305
830
57
1,742
—
2,629
1,769
3,907
—
945
11
185
389
1,530
5,437
917
992
342
1,605
2,939
1,581
470
1,111
(44)
—
—
1,067
(110)
957
175
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Condensed Consolidating Balance Sheet
December 31, 2018 ($ in millions)
Parent
Guarantors Nonguarantors
Consolidating
adjustments
Ally
consolidated
Assets
Cash and cash equivalents
Noninterest-bearing
Interest-bearing
Interest-bearing — intercompany
Total cash and cash equivalents
Equity securities
Available-for-sale securities
Held-to-maturity securities
Loans held-for-sale, net
Finance receivables and loans, net
Finance receivables and loans, net
Intercompany loans to
Nonbank subsidiaries
Allowance for loan losses
Total finance receivables and loans, net
Investment in operating leases, net
Intercompany receivables from
Bank subsidiary
Nonbank subsidiaries
Investment in subsidiaries
Bank subsidiary
Nonbank subsidiaries
Premiums receivable and other insurance assets
Other assets
Total assets
Liabilities and equity
Deposit liabilities
Noninterest-bearing
Interest-bearing
Interest-bearing — intercompany
Total deposit liabilities
Short-term borrowings
Long-term debt
Intercompany debt to
Bank subsidiary
Nonbank subsidiaries
Intercompany payables to
Bank subsidiary
Nonbank subsidiaries
Interest payable
Unearned insurance premiums and service revenue
Accrued expenses and other liabilities
Total liabilities
Total equity
Total liabilities and equity
$
— $
755
$
$
55
5
1,249
1,309
—
—
—
—
2,349
882
(55)
3,176
5
158
45
—
—
—
—
—
—
—
—
—
—
—
—
—
—
16,213
6,928
—
2,226
16,213
—
—
—
3,722
521
4,998
773
25,303
2,382
314
— $
—
(1,770)
(1,770)
—
—
(20)
—
810
3,727
—
4,537
773
25,303
2,362
314
127,577
—
129,926
397
(1,187)
126,787
8,412
—
129
—
—
2,326
5,453
(1,279)
—
(1,279)
—
(158)
(174)
(32,426)
(6,928)
—
(1,526)
—
(1,242)
128,684
8,417
—
—
—
—
2,326
6,153
$
30,060
$
16,213
$
176,877
$
(44,281) $
178,869
$
— $
— $
142
$
1
—
1
2,477
12,774
20
918
45
124
159
—
274
16,792
13,268
—
—
—
—
—
—
—
—
—
—
—
—
—
16,213
106,035
1,249
107,426
7,510
31,419
—
882
—
129
364
3,044
2,962
153,736
23,141
— $
—
(1,249)
(1,249)
—
—
(20)
(1,800)
(45)
(253)
—
—
(1,560)
(4,927)
(39,354)
142
106,036
—
106,178
9,987
44,193
—
—
—
—
523
3,044
1,676
165,601
13,268
$
30,060
$
16,213
$
176,877
$
(44,281) $
178,869
176
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
December 31, 2017 ($ in millions)
Parent
Guarantors
Nonguarantors
Consolidating
adjustments
Ally
consolidated
Assets
Cash and cash equivalents
Noninterest-bearing
Interest-bearing
Interest-bearing — intercompany
Total cash and cash equivalents
Equity securities
Available-for-sale securities
Held-to-maturity securities
Loans held-for-sale, net
Finance receivables and loans, net
Finance receivables and loans, net
Intercompany loans to
Nonbank subsidiaries
Allowance for loan losses
Total finance receivables and loans, net
Investment in operating leases, net
Intercompany receivables from
Bank subsidiary
Nonbank subsidiaries
Investment in subsidiaries
Bank subsidiary
Nonbank subsidiaries
Premiums receivable and other insurance assets
Other assets
Total assets
Liabilities and equity
Deposit liabilities
Noninterest-bearing
Interest-bearing
Interest-bearing — intercompany
Total deposit liabilities
Short-term borrowings
Long-term debt
Intercompany debt to
Bank subsidiary
Nonbank subsidiaries
Intercompany payables to
Bank subsidiary
Nonbank subsidiaries
Interest payable
Unearned insurance premiums and service revenue
Accrued expenses and other liabilities
Total liabilities
Total equity
Total liabilities and equity
$
— $
770
$
$
74
5
1,138
1,217
—
—
—
—
7,434
879
(185)
8,128
19
80
71
—
—
—
—
—
—
—
—
—
—
—
—
—
—
16,962
8,111
—
2,207
16,962
—
—
—
3,403
695
4,868
518
22,303
1,973
108
— $
—
(1,833)
(1,833)
—
—
(74)
—
844
3,408
—
4,252
518
22,303
1,899
108
115,459
—
122,893
408
(1,091)
114,776
8,722
—
77
—
—
2,082
5,105
(1,287)
—
(1,287)
—
(80)
(148)
(33,924)
(8,111)
(35)
(1,649)
—
(1,276)
121,617
8,741
—
—
—
—
2,047
5,663
$
36,795
$
16,962
$
160,532
$
(47,141) $
167,148
$
— $
— $
108
$
12
—
12
3,171
17,966
74
1,103
4
132
200
—
639
23,301
13,494
—
—
—
—
—
—
—
—
—
—
—
—
—
16,962
93,136
1,139
94,383
8,242
26,260
—
879
—
127
175
2,604
2,790
135,460
25,072
— $
—
(1,139)
(1,139)
—
—
(74)
(1,982)
(4)
(259)
—
—
(1,649)
(5,107)
(42,034)
108
93,148
—
93,256
11,413
44,226
—
—
—
—
375
2,604
1,780
153,654
13,494
$
36,795
$
16,962
$
160,532
$
(47,141) $
167,148
177
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Condensed Consolidating Statement of Cash Flows
Year ended December 31, 2018 ($ in millions)
Parent
Guarantors Nonguarantors
Consolidating
adjustments
Ally
consolidated
Operating activities
Net cash provided by operating activities
$
1,659
$
2,600
$
5,536
$
(5,645) $
4,150
Investing activities
Purchases of equity securities
Proceeds from sales of equity securities
Purchases of available-for-sale securities
Proceeds from sales of available-for-sale securities
Proceeds from repayments of available-for-sale securities
Purchases of held-to-maturity securities
Proceeds from repayments of held-to-maturity securities
Net change in investment securities — intercompany
Purchases of finance receivables and loans held-for-investment
Proceeds from sales of finance receivables and loans initially held-for-
investment
Originations and repayments of finance receivables and loans held-for-
investment and other, net
Net change in loans — intercompany
Purchases of operating lease assets
Disposals of operating lease assets
Capital contributions to subsidiaries
Returns of contributed capital
Net change in nonmarketable equity investments
Other, net
Net cash provided by (used in) investing activities
Financing activities
Net change in short-term borrowings — third party
Net (decrease) increase in deposits
Proceeds from issuance of long-term debt — third party
Repayments of long-term debt — third party
Net change in debt — intercompany
Repurchase of common stock
Dividends paid — third party
Dividends paid and returns of contributed capital — intercompany
Capital contributions from parent
—
—
—
—
—
—
—
—
(131)
1,596
3,489
(20)
—
10
(61)
266
(16)
—
5,133
(694)
(11)
69
(4,774)
(198)
(939)
(242)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(6)
—
—
—
(6)
—
—
—
—
—
—
—
(2,600)
6
Net cash (used in) provided by financing activities
(6,789)
(2,594)
Effect of exchange-rate changes on cash and cash equivalents and
restricted cash
Net increase in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of year
—
3
1,395
—
—
—
(1,076)
787
(7,868)
852
3,215
(578)
147
54
(7,101)
—
—
—
—
—
—
—
(54)
1,539
(1,076)
787
(7,868)
852
3,215
(578)
147
—
(5,693)
34
(1,539)
91
(6,734)
(2)
(3,709)
3,079
—
—
(165)
(340)
—
22
—
—
67
(266)
—
—
(3,245)
—
(3,709)
3,089
—
—
(181)
(340)
(19,405)
(231)
(14,509)
(732)
12,989
18,332
(13,166)
(10)
—
—
(3,309)
61
14,165
(5)
291
5,707
—
(111)
—
—
208
—
—
5,909
(67)
5,939
—
63
(1,833)
(1,426)
12,867
18,401
(17,940)
—
(939)
(242)
—
—
10,721
(5)
357
5,269
5,626
Cash and cash equivalents and restricted cash at end of year
$
1,398
$
— $
5,998
$
(1,770) $
The following table provides a reconciliation of cash and cash equivalents and restricted cash from the Condensed Consolidated Balance
Sheet to the Condensed Consolidated Statement of Cash Flows.
December 31, 2018 ($ in millions)
Parent
Guarantors Nonguarantors
Consolidating
adjustments
Ally
consolidated
Cash and cash equivalents on the Consolidated Balance Sheet
Restricted cash included in other assets on the Consolidated Balance
Sheet (a)
Total cash and cash equivalents and restricted cash in the Consolidated
Statement of Cash Flows
$
$
1,309
$
— $
4,998
$
(1,770) $
4,537
89
—
1,000
—
1,089
1,398
$
— $
5,998
$
(1,770) $
5,626
(a) Restricted cash balances relate primarily to Ally securitization arrangements. Refer to Note 13 for additional details describing the nature of restricted cash balances.
178
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Year ended December 31, 2017 ($ in millions)
Parent
Guarantors
Nonguarantors
Consolidating
adjustments
Ally
consolidated
Operating activities
Net cash provided by operating activities
$
4,591
$
3,300
$
3,466
$
(7,278) $
4,079
Investing activities
Purchases of equity securities
Proceeds from sales of equity securities
Purchases of available-for-sale securities
Proceeds from sales of available-for-sale securities
Proceeds from repayments of available-for-sale securities
Purchases of held-to-maturity securities
Proceeds from repayments of held-to-maturity securities
Net change in investment securities — intercompany
Purchases of finance receivables and loans held-for-investment
Proceeds from sales of finance receivables and loans initially held-for-
investment
Originations and repayments of finance receivables and loans held-for-
investment and other, net
Net change in loans — intercompany
Purchases of operating lease assets
Disposals of operating lease assets
Capital contributions to subsidiaries
Returns of contributed capital
Net change in nonmarketable equity investments
Other, net
Net cash provided by (used in) investing activities
Financing activities
Net change in short-term borrowings — third party
Net (decrease) increase in deposits
Proceeds from issuance of long-term debt — third party
Repayments of long-term debt — third party
Net change in debt — intercompany
Repurchase of common stock
Dividends paid — third party
Dividends paid and returns of contributed capital — intercompany
Capital contributions from parent
—
—
—
—
—
—
—
7
(35)
106
860
2,068
—
13
(1,212)
1,567
—
(31)
3,343
(453)
(156)
354
(6,111)
(225)
(753)
(184)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(5)
—
—
—
(5)
—
—
—
—
—
—
—
(3,300)
5
Net cash (used in) provided by financing activities
(7,528)
(3,295)
Effect of exchange-rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of year
—
406
989
—
—
—
(899)
1,049
(10,335)
3,584
2,899
(1,026)
68
291
(5,417)
1,233
33
217
(4,052)
5,554
—
—
(187)
(99)
(7,087)
(810)
15,466
15,654
(21,797)
(2,074)
—
—
(5,619)
1,212
2,032
3
(1,586)
7,293
—
—
—
—
—
—
—
(298)
—
—
(1,956)
(2,285)
—
—
1,217
(1,567)
—
(89)
(4,978)
—
(1,138)
1,961
—
2,299
—
—
8,919
(1,217)
10,824
—
(1,432)
(401)
Cash and cash equivalents and restricted cash at end of year
$
1,395
$
— $
5,707
$
(1,833) $
(899)
1,049
(10,335)
3,584
2,899
(1,026)
68
—
(5,452)
1,339
(1,063)
—
(4,052)
5,567
—
—
(187)
(219)
(8,727)
(1,263)
14,172
17,969
(27,908)
—
(753)
(184)
—
—
2,033
3
(2,612)
7,881
5,269
The following table provides a reconciliation of cash and cash equivalents and restricted cash from the Condensed Consolidated Balance
Sheet to the Condensed Consolidated Statement of Cash Flows.
December 31, 2017 ($ in millions)
Parent
Guarantors
Nonguarantors
Consolidating
adjustments
Ally
consolidated
Cash and cash equivalents on the Consolidated Balance Sheet
Restricted cash included in other assets on the Consolidated Balance
Sheet (a)
Total cash and cash equivalents and restricted cash in the Consolidated
Statement of Cash Flows
$
$
1,217
$
— $
4,868
$
(1,833) $
4,252
178
—
839
—
1,017
1,395
$
— $
5,707
$
(1,833) $
5,269
(a) Restricted cash balances relate primarily to Ally securitization arrangements. Refer to Note 13 for additional details describing the nature of restricted cash balances.
179
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Year ended December 31, 2016 ($ in millions)
Parent
Guarantors
Nonguarantors
Consolidating
adjustments
Ally
consolidated
Operating activities
Net cash provided by operating activities
$
241
$
6
$
5,383
$
(1,063) $
4,567
Investing activities
Purchases of equity securities
Proceeds from sales of equity securities
Purchases of available-for-sale securities
Proceeds from sales of available-for-sale securities
Proceeds from repayments of available-for-sale securities
Purchases of held-to-maturity securities
Purchases of finance receivables and loans held-for-investment
Proceeds from sales of finance receivables and loans initially held-for-
investment
Originations and repayments of finance receivables and loans held-for-
investment and other, net
Net change in loans — intercompany
Purchases of operating lease assets
Disposals of operating lease assets
Acquisitions, net of cash acquired
Capital contributions to subsidiaries
Returns of contributed capital
Net change in nonmarketable equity investments
Other, net
Net cash provided by (used in) investing activities
Financing activities
Net change in short-term borrowings — third party
Net (decrease) increase in deposits
Proceeds from issuance of long-term debt — third party
Repayments of long-term debt — third party
Net change in debt — intercompany
Redemption of preferred stock
Repurchase of common stock
Dividends paid — third party
Dividends paid and returns of contributed capital — intercompany
Capital contributions from parent
Net cash (used in) provided by financing activities
Effect of exchange-rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of year
—
—
—
—
—
—
(4)
—
2,013
877
—
25
(309)
(3,908)
3,678
—
(206)
2,166
169
(61)
979
(2,662)
(382)
(696)
(341)
(108)
—
—
(3,102)
—
(695)
1,684
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8
—
—
8
—
—
—
—
—
—
—
—
(14)
—
(14)
—
—
—
(470)
680
(15,561)
10,356
3,379
(841)
(3,855)
4,285
(10,839)
(67)
(3,274)
6,279
—
—
—
(628)
(191)
(10,747)
4,395
12,569
13,176
(23,750)
(877)
—
—
—
(4,644)
3,908
4,777
1
(586)
7,879
—
—
—
—
—
—
—
—
—
(810)
—
—
—
3,908
(3,686)
—
91
(497)
—
—
—
—
1,259
—
—
—
4,658
(3,908)
2,009
—
449
(850)
Cash and cash equivalents and restricted cash at end of year
$
989
$
— $
7,293
$
(401) $
(470)
680
(15,561)
10,356
3,379
(841)
(3,859)
4,285
(8,826)
—
(3,274)
6,304
(309)
—
—
(628)
(306)
(9,070)
4,564
12,508
14,155
(26,412)
—
(696)
(341)
(108)
—
—
3,670
1
(832)
8,713
7,881
180
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
28. Guarantees and Commitments
Guarantees
Guarantees are defined as contracts or indemnification agreements that contingently require us to make payments to third parties based
on changes in the underlying agreements with the guaranteed parties. The following summarizes our outstanding guarantees, including those
of our discontinued operations, made to third parties on our Consolidated Balance Sheet, for the periods shown.
December 31, ($ in millions)
2018
2017
Maximum
liability
Carrying value
of liability
Maximum
liability
Carrying value
of liability
Standby letters of credit and other guarantees
$
218
$
7
$
227
$
8
Corporate Finance has exposure to standby letters of credit that represent irrevocable guarantees of payment of specified financial
obligations. Third-party beneficiaries primarily accept standby letters of credit as insurance in the event of nonperformance by our borrowers.
Our borrowers may request letters of credit under their revolving loan facility up to a certain sub-limit amount. We may also require collateral
to be posted by our borrowers. As of December 31, 2018, we received $2 million of cash collateral related to these letters of credit. Expiration
dates on letters of credit range from certain ongoing commitments that will expire during the upcoming year to terms of several years for
certain letters of credit. If the beneficiary draws under a letter of credit, we will be liable to the beneficiary for payment of the amount drawn
under such letter of credit, with our recourse being a charge to the borrower’s loan facility or transfer of ownership to us of the related
collateral. As many of these commitments are subject to borrowing base agreements and other restrictive covenants or may expire without
being fully drawn, the stated amounts of the letters of credit are not necessarily indicative of future cash requirements.
In connection with our Ally Invest wealth management business, we introduce customer securities accounts to a clearing broker, which
clears and maintains custody of all customer assets and account activity. We are responsible for obtaining from each customer such funds or
securities as are required to be deposited or maintained in their accounts. As a result, we are liable for any loss, liability, damage, cost, or
expense incurred or sustained by the clearing broker as a result of the failure of any customer to timely make payments or deposits of
securities to satisfy their contractual obligations. In addition, customer securities activities are transacted on either a cash or margin basis. In
margin transactions, we may extend credit to the customer, through our clearing broker, subject to various regulatory rules and margin lending
practices, collateralized by cash and securities in the customer’s account. In connection with these activities, we also execute customer
transactions involving the sale of securities not yet purchased. Such transactions may expose us to credit risk in the event the customer’s
assets are not sufficient to fully cover losses, which the customer may incur. In the event the customer fails to satisfy its obligations, we will
purchase or sell financial instruments in the customer’s account in order to fulfill the customer’s obligations. The maximum potential
exposure under these arrangements is difficult to estimate; however, the potential for us to incur material losses pursuant to these
arrangements is remote.
Commitments
Financing Commitments
The contractual commitments were as follows.
December 31, ($ in millions)
Unused revolving credit line commitments and other (a)
Commitments to provide capital to investees (b)
Home equity lines of credit (c)
Mortgage loan origination commitments (d)
Construction-lending commitments (e)
2018
2017
$
3,435
$
2,341
394
253
171
85
283
318
95
144
(a) The unused portion of revolving lines of credit reset at prevailing market rates and, as such, approximate market value.
(b) We are committed to contribute capital to certain investees.
(c) We are committed to fund the remaining unused balances on home equity lines of credit.
(d) Commitments with mortgage loan applicants in which the loan terms, including interest rate and price, are guaranteed for a designated period of time
subject to the completion of underwriting procedures.
(e) We are committed to fund the remaining unused balance while loans are in the construction period.
Revolving credit line commitments contain an element of credit risk. We manage the credit risk for unused revolving credit line
commitments by applying the same credit policies in making commitments as we do for extending loans.
181
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Lease Commitments
Future minimum rental payments required under operating leases, primarily for real property, with noncancelable lease terms expiring
after December 31, 2018, are as follows.
Year ended December 31, ($ in millions)
2019
2020
2021
2022
2023
2024 and thereafter
Total minimum payment required
$
$
48
47
46
37
31
294
503
Certain of the leases contain escalation clauses and renewal or purchase options. Rental expenses under operating leases were $45
million, $46 million, and $51 million for the years ended December 31, 2018, 2017, and 2016, respectively.
Contractual Commitments
We have entered into multiple agreements for information technology, voice and communication technology, and related maintenance.
Many of the agreements are subject to variable price provisions, fixed or minimum price provisions, and termination or renewal provisions.
Year ended December 31, ($ in millions)
2019
2020 and 2021
2022 and thereafter
Total future payment obligations
29. Contingencies and Other Risks
Concentration with GM and Chrysler
$
$
70
47
—
117
While we are continuing to diversify our automotive finance and insurance businesses and to expand into other financial services,
General Motors Company (GM) and Fiat Chrysler Automobiles US LLC (Chrysler) dealers and their retail customers continue to constitute a
significant portion of our customer base. GM, Chrysler, and their captive finance companies compete vigorously with us and could take
further actions that negatively impact the amount of business that we do with GM and Chrysler dealers and their customers. Further, a
significant adverse change in GM’s or Chrysler’s business—including, for example, in the production or sale of GM or Chrysler vehicles, the
quality or resale value of GM or Chrysler vehicles, GM’s or Chrysler’s relationships with its key suppliers, or the rate or volume of recalls of
GM or Chrysler vehicles—could negatively impact our GM and Chrysler dealer and retail customer bases and the value of collateral securing
our extensions of credit to them. Any future reductions in GM and Chrysler business that we are not able to offset could adversely affect our
business and financial results.
Legal Matters
Ally and its subsidiaries, including Ally Bank, are or may be subject to potential liability in connection with pending or threatened legal
proceedings and other matters. These legal matters may be formal or informal and include litigation and arbitration with one or more
identified claimants, certified or purported class actions with yet-to-be-identified claimants, and regulatory or other governmental
information-gathering requests, examinations, investigations, and enforcement proceedings. Our legal matters exist in varying stages of
adjudication, arbitration, negotiation, or investigation and span our business lines and operations. Claims may be based in law or equity—
such as those arising under contracts or in tort and those involving banking, consumer-protection, securities, tax, employment, and other laws
—and some can present novel legal theories and allege substantial or indeterminate damages.
We accrue for a legal matter when a loss becomes probable and the amount of loss can be reasonably estimated. Accruals are evaluated
each quarter and may be adjusted, upward or downward, based on our best judgment after consultation with counsel. No assurance exists that
our accruals will not need to be adjusted in the future. When a probable or reasonably possible loss on a legal matter could be material to our
consolidated financial condition, results of operations, or cash flows, we provide disclosure in this note as prescribed by ASC 450,
Contingencies.
The course and outcome of legal matters are inherently unpredictable. This is especially so when a matter is still in its early stages, the
damages sought are indeterminate or unsupported, significant facts are unclear or disputed, novel questions of law or other meaningful legal
uncertainties exist, a request to certify a proceeding as a class action is outstanding or granted, multiple parties are named, or regulatory or
other governmental entities are involved. As a result, we often are unable to determine how or when threatened or pending legal matters will
182
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
be resolved and what losses may be incurred. Actual losses may be higher or lower than any amounts accrued or estimated for those matters,
possibly to a significant degree.
Descriptions of our material legal matters follow. We do not believe, however, that an estimate of reasonably possible losses or a range of
reasonably possible losses—whether in excess of any related accrual or where no accrual exists—can be made for any of these matters for
some or all of the reasons identified in the preceding paragraph.
Securities Litigation
In October 2016, a purported class action—Bucks County Employees Retirement Fund v. Ally Financial Inc. et al.—was filed in the
Circuit Court for Wayne County in the State of Michigan (Case No. 16-013616-CZ). The complaint alleged material misstatements and
omissions in connection with Ally’s initial public offering in April 2014, including a failure to adequately disclose the severity of rising
subprime automotive loan delinquency rates, deficient underwriting measures employed in the origination of subprime automotive loans, and
aggressive tactics used with low-income borrowers. The request for relief included an indeterminate amount of damages, fees, and costs and
other remedies. In January 2017, another purported class action—National Shopmen Pension Fund v. Ally Financial Inc. et al.—was filed in
the Circuit Court for Oakland County in the State of Michigan (Case No. 2017-156719-CB). In March 2017, a third purported class action—
James McIntire v. Ally Financial Inc. et al.—was filed in the Circuit Court for Wayne County in the State of Michigan (Case No. 17-003811-
CZ). The allegations and requested relief in the National Shopmen Pension Fund and James McIntire complaints were substantially similar to
those included in the complaint filed by Bucks County Employees Retirement Fund. All three matters were initially removed to the U.S.
District Court for the Eastern District of Michigan, were then remanded back to the state circuit courts, and were consolidated for discovery in
Wayne County Circuit Court as In re Ally Financial, Inc. Securities Litigation (Case No. 16-013616-CB). In November 2017, the plaintiffs
filed a consolidated amended complaint. In January 2019, the Wayne County Circuit Court entered an order granting a motion by the
defendants to dismiss the complaint. The order was not appealed, and the case has been closed.
Other Contingencies
Ally and its subsidiaries, including Ally Bank, are or may be subject to potential liability under various other contingent exposures,
including indemnification, tax, self-insurance, and other miscellaneous contingencies. We accrue for a contingent exposure when a loss
becomes probable and the amount of loss can be reasonably estimated. Accruals are evaluated each quarter and may be adjusted, upward or
downward, based on our best judgment. No assurance exists that our accruals will not need to be adjusted in the future, and actual losses may
be higher or lower than any amounts accrued or estimated for those exposures, possibly to a significant degree. On the basis of information
currently available, we do not believe that these other contingent exposures will be material to our consolidated financial condition, results of
operations, or cash flows. Refer to Note 1 for additional information related to our policy for establishing reserves for legal and regulatory
matters.
183
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
30. Quarterly Financial Statements (unaudited)
($ in millions)
2018
First
quarter
Second
quarter
Third
quarter
Fourth
quarter
Net financing revenue and other interest income
$
1,049
$
1,094
$
1,107
$
Other revenue
Total net revenue
Provision for loan losses
Total noninterest expense
Income from continuing operations before income tax expense
Income tax expense from continuing operations
Net income from continuing operations
(Loss) income from discontinued operations, net of tax
Net income
Basic earnings per common share (a)
Net income from continuing operations
Net income
Diluted earnings per common share (a)
Net income from continuing operations
Net income
Cash dividends declared per common share
2017
Net financing revenue and other interest income
Other revenue
Total net revenue
Provision for loan losses
Total noninterest expense
Income from continuing operations before income tax expense
Income tax expense from continuing operations (b)
Net income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
Basic earnings per common share (a)
Net income from continuing operations
Net income
Diluted earnings per common share (a)
Net income from continuing operations
Net income
Cash dividends declared per common share
354
1,403
364
1,458
398
1,505
261
814
328
76
252
(2)
250
0.58
0.57
0.57
0.57
0.13
979
396
1,375
271
778
326
113
213
1
214
0.46
0.46
0.46
0.46
0.08
$
$
$
$
$
$
$
$
$
158
839
461
113
348
1
349
0.81
0.81
0.80
0.81
0.13
1,067
388
1,455
269
810
376
122
254
(2)
252
0.55
0.55
0.55
0.55
0.08
$
$
$
$
$
$
$
$
$
233
807
465
91
374
—
374
0.89
0.89
0.88
0.88
0.15
1,081
381
1,462
314
753
395
115
280
2
282
0.62
0.63
0.62
0.63
0.12
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,140
298
1,438
266
804
368
79
289
1
290
0.70
0.70
0.70
0.70
0.15
1,094
379
1,473
294
769
410
231
179
2
181
0.40
0.41
0.40
0.41
0.12
(a) Earnings per share is calculated quarterly on an independent basis, therefore the total of the amounts presented for each year above may not reconcile to
the annual amounts presented in Note 19.
(b) Amount for the fourth quarter of 2017 includes $119 million of tax expense attributable to tax reform enacted on December 22, 2017.
31. Subsequent Events
Declaration of Quarterly Dividend
On January 14, 2019, the Board declared a quarterly cash dividend of $0.17 per share on all common stock, a $0.02 per share increase
relative to our prior quarterly cash dividend. The dividend was paid on February 15, 2019, to stockholders of record at the close of business
on February 1, 2019.
184
Ally Financial Inc. • Form 10-K
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended
(the Exchange Act), designed to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded,
processed, summarized, and reported within the specified time periods. Our disclosure controls and procedures are also designed to ensure
that information required to be disclosed in the reports we file and submit under the Exchange Act is accumulated and communicated to
management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), to
allow for timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of internal control
including the possibility of human error or the circumvention or overriding of controls through individual actions or collusion. A control
system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives
will be met.
As of the end of the period covered by this report, our Principal Executive Officer and Principal Financial Officer evaluated, with the
participation of our management, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Exchange Act) and concluded that our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
In the normal course of business, we review our controls and procedures and make enhancements or modifications intended to support
the quality of our financial reporting. There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of
the Exchange Act) that occurred during the quarter ended December 31, 2018, that have materially affected, or were reasonably likely to
materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management’s Report on Internal Control over Financial Reporting is included in Item 8, Financial Statements and Supplementary Data,
and is incorporated herein by reference. The Report of Independent Registered Public Accounting Firm on Internal Control over Financial
Reporting also is included in Item 8, Financial Statements and Supplementary Data, and incorporated herein by reference.
Item 9B. Other Information
None.
185
Part III
Ally Financial Inc. • Form 10-K
Item 10. Directors, Executive Officers, and Corporate Governance
Executive Officers and Other Significant Employees
Jeffrey J. Brown — Chief Executive Officer of Ally since February 2015 and also serves on its Board since February 2015. Mr. Brown,
45, is driving Ally’s evolution as a leading digital financial services company. Under his leadership, Ally is building on its strengths in
automotive financing, retail deposits, and corporate financing, as well as diversifying its offerings to include digital wealth management and
online brokerage, a credit card, and mortgage products. Mr. Brown has deep financial services experience, having previously served in a
variety of key leadership roles at Ally. Prior to being named CEO, Mr. Brown was president and CEO of Ally’s Dealer Financial Services
business, where he oversaw the company’s automotive finance, insurance, and automotive servicing operations. Mr. Brown joined Ally in
March 2009 as corporate treasurer and, in 2011, was named executive vice president of finance and corporate planning, where he oversaw the
company’s finance, treasury, and corporate strategy initiatives. Prior to joining Ally, Mr. Brown was the corporate treasurer for Bank of
America, where he had responsibility for the core treasury functions, including funding and managing interest rate risk. Mr. Brown spent ten
years at Bank of America, beginning his career in finance and later joining the balance sheet management division. During his tenure at Bank
of America, he also served as the bank’s deputy treasurer and oversaw balance sheet management and the company’s corporate funding
division. Mr. Brown received a bachelor’s degree in economics from Clemson University and an executive master’s degree in business from
Queens University in Charlotte. He serves on the Board of the Clemson University Foundation, an independent, not-for-profit entity that
promotes the welfare and future development of Clemson University. He also serves on the Board of Trustees for Queens University in
Charlotte where he chairs the compensation committee. In 2018, Mr. Brown was appointed by the Board of Directors of the Federal Reserve
Bank of Chicago to serve as the Federal Advisory Council representative for the Seventh Federal Reserve District. Mr. Brown was recognized
for his commitment to family, career, and community with a 2016 Father of the Year award by the Father’s Day Council and benefiting the
American Diabetes Association.
David J. DeBrunner — Vice President, Controller, and Chief Accounting Officer of Ally since September 2007. In this role, Mr.
DeBrunner, 52, is responsible for all accounting, tax, financial controls, Securities and Exchange Commission and regulatory reporting,
accounting policy, Sarbanes-Oxley compliance, strategic sourcing and supply chain, and finance shared services. Prior to joining Ally, Mr.
DeBrunner spent fifteen years at Fifth Third Bancorp, where he most recently held the title of senior vice president, chief accounting officer,
and controller. His responsibilities included accounting, financial controls, financial systems, external reporting, and accounting policy. Prior
to serving as the chief accounting officer, he served as the chief financial officer of their commercial division and held various finance and
operational leadership positions throughout the company beginning in 1992. Prior to joining Fifth Third, he worked in audit services for
Deloitte and Touche in their Chicago and Cincinnati offices. Mr. DeBrunner earned a bachelor’s degree in accounting from Indiana
University. He is a member of the Ohio Society of Public Accountants and the American Institute of Certified Public Accountants. He also
serves as a board member and was the Immediate Past Chairman of the board of directors for the Detroit Institute of Children, which provides
a passionate approach to services for Michigan’s children with special needs and their families.
Jennifer A. LaClair — Chief Financial Officer of Ally Financial since March 2018. In this role, she is responsible for the oversight of the
company’s finance, accounting, modeling and analytics, supply chain, treasury and capital market activities. Prior to joining Ally, Ms.
LaClair, 47, spent ten years at PNC Financial Services. Most recently, she served as the head of the business bank where she was charged with
setting strategy, driving performance, and managing risk. Before that, she served as chief financial officer for all of PNC’s lines of business.
Earlier in her career, Ms. LaClair was a consultant with McKinsey and Company where she specialized in strategy, efficiency improvement,
and operational transformations. She began her career in international development in Eastern Europe, the Middle East, and West Africa. Ms.
LaClair has a Master of Business Administration from the Case Western Reserve University where she was the Class of 2001 Alumni Scholar
and earned the Scott S. Cowen Outstanding Leadership award. She graduated summa cum laude from the State University of New York at
Buffalo.
Diane E. Morais — President, Consumer & Commercial Banking Products at Ally Bank since March 2017. Ms. Morais, 53, is
responsible for driving the growth, profitability, and digital evolution of Ally’s consumer and commercial banking products. She has oversight
of the Deposits, Online Brokerage and Wealth Management, Mortgage, Credit Card, and Corporate Finance businesses. In addition, Ms.
Morais oversees the company’s digital and customer care channels, as well as the Community Reinvestment Act program. Ms. Morais joined
Ally in 2008, and was instrumental in the creation and launch of the Ally brand in 2009. Under her leadership, Ally Bank has achieved
double-digit retail deposit growth each year, and now has more than 1.6 million customers and nearly $90 billion in retail deposits. Ally has
received numerous third-party accolades, including being named “Best Online Bank” in America by Money® Magazine, as well as “Best
Internet Bank” and “Best for Millennials” by Kiplinger’s Personal Finance. Prior to holding key leadership positions of increasing
responsibility at Ally, Ms. Morais achieved a number of significant professional accomplishments in the financial services sector. During a
career spanning twelve years at Bank of America, she served in senior roles in deposit and debit products, national customer experience, card
services marketing, and consumer mortgage vendor management. Ms. Morais also spent nine years at Citibank’s credit card division in a
variety of marketing, risk, and finance roles. A native of Pittsburgh, PA, Ms. Morais holds a bachelor’s degree from Pennsylvania State
University. She is a member of the board of directors for Junior Achievement of Central Carolinas and Charlotte Center City Partners. In
September 2018, Ms. Morais was named to American Banker Magazine’s “25 Most Powerful Women in Banking” list for the third
consecutive year. Ms. Morais was also named one of the top 25 outstanding business women in the Charlotte Business Journal’s 2018 Women
in Business Awards. She is active in the Charlotte community, serving as an ‘Executive in Residence” for Queens University and volunteer for
Habitat for Humanity, Charlotte Catholic schools, and Dress for Success.
186
Ally Financial Inc. • Form 10-K
Jason E. Schugel — Chief Risk Officer of Ally since April 2018. In this role, Mr. Schugel, 45, has overall responsibility for execution of
Ally’s independent risk management. He has the responsibility of the risk management framework, establishment of risk management
processes and ensuring that Ally targets an appropriate balance between risk and return, mitigating unnecessary risk, and protecting the
company’s financial returns. Mr. Schugel was previously deputy chief risk officer for the company since 2017, leading various risk-
management activities. Prior to that role, he was general auditor for Ally, responsible for the company’s internal audit function as well as
administrative oversight for Ally’s loan review function. He joined Ally in 2009, overseeing the company’s financial planning and analysis
team, which is responsible for Ally’s financial performance reporting, enterprise-wide forecasting, and planning. He also served as lead
finance executive for Ally’s global functions. Before joining Ally, he was vice president of financial planning and analysis, and investor
relations at LendingTree, LLC. Prior to that, he worked in investment banking for Wachovia and began his career at First Plus Financial,
specializing in mergers and acquisitions. He earned a bachelor’s degree in business administration from Southern Methodist University in
Dallas and a master’s degree in business administration from the Babcock Graduate School of Management at Wake Forest University. Mr.
Schugel is the Chairman of the board of the Allegro Foundation, an organization that is a champion for children with disabilities. He also
volunteers regularly with Charlotte Rescue Mission organization, which helps people struggling with the disease of addiction achieve long-
term sobriety, find employment and stable housing.
Scott A. Stengel — General Counsel of Ally since May 2016. Mr. Stengel, 47, oversees all of Ally’s legal affairs and is also responsible
for Ally’s corporate-secretarial, government-affairs, records-management, and licensing functions. He joined Ally from Kansas City, Mo.-
based UMB Financial Corporation, where he served as executive vice president, general counsel, and corporate secretary. Before that, he was
a partner at King & Spalding LLP and Orrick, Herrington & Sutcliffe LLP in Washington, DC, with a practice focused on banking, capital
markets, and government relations. He began his career as a law clerk to the Honorable Douglas O. Tice, Jr. in Richmond, Va. He received a
bachelor’s degree in economics, with highest honors, from the University of Notre Dame and a juris doctorate, magna cum laude, from the
Notre Dame Law School.
Douglas R. Timmerman — President of Automotive Finance of Ally since April 2018. In this role, Mr. Timmerman, 56, is responsible for
developing strategy and driving performance for the company’s automotive business, which offers a full suite of innovative automotive
finance products and services. He is also charged with leading the effort to diversify and expand the company’s dealer network and drive
digital innovation. Previously, Mr. Timmerman had been the president of Ally Insurance since 2014. Mr. Timmerman had responsibility for all
insurance operations, which included consumer products such as vehicle service contracts, maintenance contracts, and GAP coverage, as well
as commercial property and casualty products for dealers. Mr. Timmerman’s thirty-one years at Ally, spanning leadership positions across the
automotive finance and insurance business, make his understanding of this dynamic industry unparalleled. Prior to leading the insurance
business, Mr. Timmerman was Vice President of Automotive Finance for the southeast region in Atlanta. In that capacity, he was responsible
for sales, risk management, and portfolio management for more than 4,000 dealer relationships across 11 states. Since joining Ally in 1986, he
has held a variety of leadership roles in different areas including commercial lending, consumer lending, collections, sales, and marketing. His
experience also includes a broad geographical reach, holding assignments that have touched nearly every state. The Nebraska native began his
career with Ally shortly after earning his master’s degree in business administration from the University of Nebraska. He also holds a
bachelor’s degree from the University of Nebraska. Mr. Timmerman supports several organizations and research efforts associated with
finding a cure for Type 1 diabetes. He is an active volunteer and supporter of Children’s Hospital of Atlanta and the Juvenile Diabetes
Research Foundation.
Additional Information
Additional information in response to this Item 10 can be found in the Company’s 2019 Proxy Statement under “Proposal 1 — Election
of Directors,” “The Board’s Leadership Structure,” and “Code of Conduct and Ethics and Review, Approval or Ratification of Transactions
with Related Persons.” That information is incorporated into this item by reference.
187
Ally Financial Inc. • Form 10-K
Item 11. Executive Compensation
Items in response to this Item 11 can be found in the Company’s 2019 Proxy Statement under “Executive Compensation.” That
information is incorporated into this item by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Items in response to this Item 12 can be found in the Company’s 2019 Proxy Statement under “Security Ownership of Certain Beneficial
Owners,” and “Executive Compensation.” That information is incorporated into this item by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Items in response to this Item 13 can be found in the Company’s 2019 Proxy Statement under “Director Qualifications and
Responsibilities” and “Code of Conduct and Ethics and Review, Approval, or Ratification of Transactions with Related Persons.” That
information is incorporated into this item by reference.
Item 14. Principal Accountant Fees and Services
Items in response to this Item 14 can be found in the Company’s 2019 Proxy Statement under “Audit Committee Report.” That
information is incorporated into this item by reference.
188
Part IV
Ally Financial Inc. • Form 10-K
Item 15. Exhibits, Financial Statement Schedules
The exhibits listed on the accompanying Index of Exhibits are filed or incorporated by reference as a part of this report. This Index is
incorporated herein by reference. Certain financial statements schedules have been omitted because prescribed information has been
incorporated into our Consolidated Financial Statements or notes thereto.
Exhibit
3.1
Description
Form of Amended and Restated Certificate of Incorporation
3.2
4.1
4.1.1
4.1.2
4.1.3
4.1.4
4.1.5
4.2
4.2.1
4.2.2
4.2.3
4.2.4
4.3
4.3.1
4.3.2
4.3.3
Ally Financial Inc. Amended and Restated Bylaws
Form of Indenture dated as of July 1, 1982, between the
Company and Bank of New York (Successor Trustee to
Morgan Guaranty Trust Company of New York), relating to
Debt Securities
Form of First Supplemental Indenture dated as of
April 1, 1986, supplementing the Indenture designated as
Exhibit 4.1
Form of Second Supplemental Indenture dated as of
June 15, 1987, supplementing the Indenture designated as
Exhibit 4.1
Form of Third Supplemental Indenture dated as of
September 30, 1996, supplementing the Indenture
designated as Exhibit 4.1
Form of Fourth Supplemental Indenture dated as of
January 1, 1998, supplementing the Indenture designated as
Exhibit 4.1
Form of Fifth Supplemental Indenture dated as of
September 30, 1998, supplementing the Indenture
designated as Exhibit 4.1
Form of Indenture dated as of September 24, 1996, between
the Company and The Chase Manhattan Bank, Trustee,
relating to Term Notes
Form of First Supplemental Indenture dated as of
January 1, 1998, supplementing the Indenture designated as
Exhibit 4.2
Method of Filing
Filed as Exhibit 3.1 to the Company’s Current Report on
Form 8-K dated as of March 14, 2014, (File No. 1-3754),
incorporated herein by reference.
Filed as Exhibit 3.1 to the Company’s Current Report on
Form 8-K dated as of March 22, 2016, (File No. 1-3754),
incorporated herein by reference.
Filed as Exhibit 4(a) to the Company’s Registration
Statement No. 2-75115, incorporated herein by reference.
Filed as Exhibit 4(g) to the Company’s Registration
Statement No. 33-4653, incorporated herein by reference.
Filed as Exhibit 4(h) to the Company’s Registration
Statement No. 33-15236, incorporated herein by reference.
Filed as Exhibit 4(i) to the Company’s Registration
Statement No. 333-33183, incorporated herein by reference.
Filed as Exhibit 4(j) to the Company’s Registration
Statement No. 333-48705, incorporated herein by reference.
Filed as Exhibit 4(k) to the Company’s Registration
Statement No. 333-75463, incorporated herein by reference.
Filed as Exhibit 4 to the Company’s Registration Statement
No. 333-12023, incorporated herein by reference.
Filed as Exhibit 4(a)(1) to the Company’s Registration
Statement No. 333-48207, incorporated herein by reference.
Form of Second Supplemental Indenture dated as of
June 20, 2006, supplementing the Indenture designated as
Exhibit 4.2
Filed as Exhibit 4(a)(2) to the Company’s Registration
Statement No. 333-136021, incorporated herein by
reference.
Form of Third Supplemental Indenture dated as of August
24, 2012, supplementing the Indenture designated as
Exhibit 4.2
Filed as Exhibit 4.1.3 to the Company’s Registration
Statement No. 333-183535, incorporated herein by
reference.
Form of Fourth Supplemental Indenture dated as of August
24, 2012, supplementing the Indenture designated as
Exhibit 4.2
Filed as Exhibit 4.1.4 to the Company’s Registration
Statement No. 333-183535, incorporated herein by
reference.
Form of Indenture dated as of October 15, 1985, between
the Company and U.S. Bank Trust (Successor Trustee to
Comerica Bank), relating to Demand Notes
Form of First Supplemental Indenture dated as of
April 1, 1986, supplementing the Indenture designated as
Exhibit 4.3
Form of Second Supplemental Indenture dated as of
June 24, 1986, supplementing the Indenture designated as
Exhibit 4.3
Form of Third Supplemental Indenture dated as of
February 15, 1987, supplementing the Indenture designated
as Exhibit 4.3
Filed as Exhibit 4 to the Company’s Registration Statement
No. 2-99057, incorporated herein by reference.
Filed as Exhibit 4(a) to the Company’s Registration
Statement No. 33-4661, incorporated herein by reference.
Filed as Exhibit 4(b) to the Company’s Registration
Statement No. 33-6717, incorporated herein by reference.
Filed as Exhibit 4(c) to the Company’s Registration
Statement No. 33-12059, incorporated herein by reference.
189
Ally Financial Inc. • Form 10-K
4.3.5
4.3.6
4.3.7
4.3.8
4.4
4.4.1
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
10.1
Exhibit
4.3.4
Description
Form of Fourth Supplemental Indenture dated as of
December 1, 1988, supplementing the Indenture designated
as Exhibit 4.3
Form of Fifth Supplemental Indenture dated as of
October 2, 1989, supplementing the Indenture designated as
Exhibit 4.3
Form of Sixth Supplemental Indenture dated as of
January 1, 1998, supplementing the Indenture designated as
Exhibit 4.3
Form of Seventh Supplemental Indenture dated as of
June 9, 1998, supplementing the Indenture designated as
Exhibit 4.3
Method of Filing
Filed as Exhibit 4(d) to the Company’s Registration
Statement No. 33-26057, incorporated herein by reference.
Filed as Exhibit 4(e) to the Company’s Registration
Statement No. 33-31596, incorporated herein by reference.
Filed as Exhibit 4(f) to the Company’s Registration
Statement No. 333-56431, incorporated herein by reference.
Filed as Exhibit 4(g) to the Company’s Registration
Statement No. 333-56431, incorporated herein by reference.
Form of Eighth Supplemental Indenture dated as of January
4, 2012, supplementing the Indenture designated as
Exhibit 4.3
Filed as Exhibit 4.1.8 to the Company’s Registration
Statement No. 333-178919, incorporated herein by
reference.
Form of Indenture dated as of December 1, 1993, between
the Company and Citibank, N.A., Trustee, relating to
Medium Term Notes
Form of First Supplemental Indenture dated as of
January 1, 1998, supplementing the Indenture designated as
Exhibit 4.4
Indenture, dated as of December 31, 2008, between the
Company and The Bank of New York Mellon, Trustee
Filed as Exhibit 4 to the Company’s Registration Statement
No. 33-51381, incorporated herein by reference.
Filed as Exhibit 4(a)(1) to the Company’s Registration
Statement No. 333-59551, incorporated herein by reference.
Filed as Exhibit 4.2 to the Company’s Current Report on
Form 8-K dated as of January 2, 2009, (File No. 1-3754),
incorporated herein by reference.
Amended and Restated Indenture, dated March 1, 2011,
between the Company and The Bank of New York Mellon,
Trustee
Filed as Exhibit 4.2 to the Company’s Current Report on
Form 8-K dated as of March 4, 2011 (File No. 1-3754),
incorporated herein by reference.
Form of Guarantee Agreement related to Ally Financial Inc.
Senior Unsecured Guaranteed Notes
Form of Fixed Rate Senior Unsecured Note
Form of Floating Rate Senior Unsecured Note
Form of Subordinated Indenture to be entered into between
the Company and The Bank of New York Mellon, as Trustee
Filed as Exhibit 4.10 to the Company’s Registration
Statement No. 333-193070, incorporated herein by
reference.
Filed as Exhibit 4.8 to the Company’s Registration
Statement No. 333-193070, incorporated herein by
reference.
Filed as Exhibit 4.9 to the Company’s Registration
Statement No. 333-193070, incorporated herein by
reference.
Filed as Exhibit 4.11 to the Company’s Registration
Statement No. 333-193070, incorporated herein by
reference.
Form of Subordinated Note
Included in Exhibit 4.10.
Second Amended and Restated Declaration of Trust by and
between the trustees of each series of GMAC Capital Trust
I, Ally Financial Inc., as Sponsor, and by the holders, from
time to time, of undivided beneficial interests in the relevant
series of GMAC Capital Trust I, dated as of March 1, 2011
Series 2 Trust Preferred Securities Guarantee Agreement
between Ally Financial Inc. and The Bank of New York
Mellon, dated as of March 1, 2011
Indenture, dated as of November 20, 2015, between the
Company and The Bank of New York Mellon, Trustee
Filed as Exhibit 4.1 to the Company’s Current Report on
Form 8-K dated as of March 4, 2011 (File No. 1-3754),
incorporated herein by reference.
Filed as Exhibit 4.3 to the Company’s Current Report on
Form 8-K dated as of March 4, 2011 (File No. 1-3754),
incorporated herein by reference.
Filed as Exhibit 4.1 to the Company’s Current Report on
Form 8-K dated as of November 20, 2015,
(File No. 1-3754), incorporated herein by reference.
Form of Subordinated Note
Included in Exhibit 4.14.
Ally Financial Inc. Executive Performance Plan
Filed as Exhibit 10.1 to the Company’s Annual Report for
the period ended December 31, 2017, on Form 10-K (File
No. 1-3754), incorporated herein by reference.
Filed as Exhibit 10.2 to the Company’s Annual Report for
the period ended December 31, 2017, on Form 10-K (File
No. 1-3754), incorporated herein by reference.
10.2
Ally Financial Inc. Incentive Compensation Plan
10.3
Ally Financial Inc. Annual Incentive Plan
Filed herewith.
190
Ally Financial Inc. • Form 10-K
Exhibit
10.4
Description
Ally Financial Inc. Employee Stock Purchase Plan
10.5
10.6
10.7
10.8
10.9
Ally Financial Inc. Non-Employee Directors Equity
Compensation Plan
Ally Financial Inc. Severance Plan, Plan Document and
Summary Plan Description
Ally Financial Inc. Non-Employee Directors Deferred
Compensation Plan
Form of Award Agreement related to the issuance of
Performance Stock Units
Form of Award Agreement related to the issuance of
Restricted Stock Units
10.10
Form of Award Agreement related to the issuance of Key
Contributor Stock Units
Method of Filing
Filed as Exhibit 3.7 to the Company's Current Report on
Form 8-K dated as of March 14, 2014 (File No. 1-3754),
incorporated herein by reference.
Filed as Exhibit 10.4 to the Company’s Annual Report for
the period ended December 31, 2017, on Form 10-K (File
No. 1-3754), incorporated herein by reference.
Filed herewith.
Filed as Exhibit10.6 to the Company’s Annual Report for
the period ended December 31, 2017 (File No. 1-3754),
incorporated herein by reference.
Filed herewith.
Filed herewith.
Filed herewith.
21
23.1
31.1
31.2
32
101
Ally Financial Inc. Subsidiaries as of December 31, 2018
Filed herewith.
Consent of Independent Registered Public Accounting Firm
Filed herewith.
Certification of Principal Executive Officer pursuant to
Rule 13a-14(a)/15d-14(a)
Certification of Principal Financial Officer pursuant to
Rule 13a-14(a)/15d-14(a)
Certification of Principal Executive Officer and Principal
Financial Officer pursuant to 18 U.S.C. Section 1350
The following information from our 2018 Annual Report on
Form 10-K, formatted in eXtensible Business Reporting
Language: (i) Consolidated Statement of Income, (ii)
Consolidated Statement of Comprehensive Income, (iii)
Consolidated Balance Sheet, (iv) Consolidated Statement of
Changes in Equity, (v) Consolidated Statement of Cash
Flows, and (vi) the Notes to the Consolidated Financial
Statements.
Filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
Item 16. Form 10-K Summary
None.
191
Signatures
Ally Financial Inc. • Form 10-K
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, this 20th day of February, 2019.
Ally Financial Inc.
(Registrant)
/S/ JEFFREY J. BROWN
Jeffrey J. Brown
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the
following persons on behalf of the Registrant and in the capacities indicated, this 20th day of February, 2019.
/S/ JEFFREY J. BROWN
Jeffrey J. Brown
Chief Executive Officer
/S/ DAVID J. DEBRUNNER
David J. DeBrunner
Vice President, Chief Accounting Officer, and
Corporate Controller
/S/ JENNIFER A. LACLAIR
Jennifer A. LaClair
Chief Financial Officer
192
Signatures
Ally Financial Inc. • Form 10-K
/S/ FRANKLIN W. HOBBS
Franklin W. Hobbs
Ally Chairman
/S/ KENNETH J. BACON
Kenneth J. Bacon
Director
/S/ KATRYN SHINEMAN BLAKE
Katryn Shineman Blake
Director
/S/ MAUREEN A. BREAKIRON-EVANS
Maureen A. Breakiron-Evans
Director
/S/ JEFFREY J. BROWN
Jeffrey J. Brown
Chief Executive Officer and Director
/S/ WILLIAM H. CARY
William H. Cary
Director
/S/ MAYREE C. CLARK
Mayree C. Clark
Director
/S/ KIM S. FENNEBRESQUE
Kim S. Fennebresque
Director
/S/ MARJORIE MAGNER
Marjorie Magner
Director
/S/ BRIAN H. SHARPLES
Brian H. Sharples
Director
/S/ JACK J. STACK
John J. Stack
Director
/S/ MICHAEL F. STEIB
Michael F. Steib
Director
193
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2018 ANNUAL REPORT
ALLY FINANCIAL
29
our leadership
BOARD OF DIRECTORS
Franklin W. Hobbs
Current President and CEO,
Ribbon Communications
Kenneth J. Bacon
Former Executive Officer,
Fannie Mae
Katryn (Trynka) Shineman
Blake
Former CEO,
Vistaprint
Maureen A. Breakiron-
Evans
Former CFO,
Towers Perrin
William H. Cary
Former Executive Officer,
General Electric
Mayree C. Clark
Former Executive Officer,
Morgan Stanley
Kim S. Fennebresque
Former Chairman and CEO,
Cowen Group
John J. Stack
Former Chairman and CEO,
Ceska Sporitelna, A.S.
Marjorie Magner
Former Executive Officer,
Citigroup
Brian H. Sharples
Former Chairman and CEO,
HomeAway
Michael F. Steib
Current Vice Chair and
Director,
WeddingWire
Jeffrey J. Brown
Current CEO,
Ally Financial
EXECUTIVE MANAGEMENT
Jeffrey J. Brown
Chief Executive Officer
Renato Derraik
Chief Digital Officer
Michael Baresich
Chief Information Officer
Andrea Brimmer
Chief Marketing and
Public Relations Officer
William Hall, Jr.
Co-President,
Corporate Finance
Kathleen L. Patterson
Chief Human Resources
Officer
Dan Soto
Chief Compliance
Officer
Stephanie Richard
Chief Audit Executive
Scott Stengel
General Counsel
Jennifer LaClair
Chief Financial Officer
Jason Schugel
Chief Risk Officer
Bradley Brown
Corporate Treasurer
Mark Manzo
President, Insurance
Dinesh Chopra
Chief Strategy Officer
David DeBrunner
Controller and
Chief Accounting Officer
Diane Morais
President,
Consumer and
Commercial
Banking Products
David Shevsky
Chief Operating Officer,
Auto Finance
Alison Summerville
Business
Administration
Executive
Douglas Timmerman
President, Auto Finance
COMPANY INFORMATION
Headquarters
Ally Financial Inc.
Ally Detroit Center
500 Woodward Ave.
Detroit, MI 48226
www.ally.com
Corporate Center
Charlotte, NC
Investor Relations
1-866-710-4623
investor.relations@ally.com
ally.com/about/investor
Daniel Eller
Executive Director
Investor Relations
704-444-5216
daniel.eller@ally.com
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P.O. Box 505000
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