2019
annual report
our business:
a leader in digital
financial services.
Ally Financial Inc. is a leading digital financial-services company with $180.6 billion in assets
as of December 31, 2019. 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, personal lending, 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). 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 over 100 years.
We’re committed to constantly creating and reinventing with the 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.
1.97MM RETAIL DEPOSIT
CUSTOMERS
$3.72 ADJUSTED EPS*
$121B TOTAL DEPOSITS
$36.3B CONSUMER AUTO
ORIGINATIONS
Best FinTechs to Work For
by American Banker
Best Internet Bank and Best
Bank for No-Fee, No-Fuss
by Kiplinger
Best Online Bank by
Money® Magazine
* 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). 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 2019 Financial Tables later in this document for a Reconciliation to GAAP.
“Best Internet Bank” and “Best Bank for No-Fee, No-Fuss” Kiplinger’s Personal Finance, July 2019 © The Kiplinger Washington Editors. Used under License.
From MONEY®, November 2019© 2019 Meredith Corporation All rights reserved. MONEY® is a registered trademark of Meredith Corporation and is used under license.
MONEY® and Meredith Corporation are not affiliated with, and do not endorse products or services of, Ally Bank.
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
1
dear
shareholders,
2019 was a defining year for Ally. Across our company, we
executed on all our strategic priorities, delivering strong and
sustainable returns while solidifying the foundation that will
propel the company moving forward. We achieved numerous
financial and operational milestones during the year, including
the highest total net revenue and Adjusted EPS* since becoming
a public company, while increasing total deposits by $14.6
billion, the strongest annual growth since the inception of Ally
Bank. Importantly, our results were centered around delivering
for our loyal and growing customers.
* 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 2019 Financial Tables later in this document for a Reconciliation to GAAP.
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
2
In my letter to you this year, I will outline why we’re
proud to be different than other banks and how
we are well positioned to support our customers
in an increasingly dynamic and digital world. Our
consistent approach to putting the customer first and
adapting to evolving trends are key drivers supporting
our expectation for continued growth in profitability
and value for our shareholders. Lastly, I’ll address
our unique culture and discuss the steps we’re taking
to support our employees and make a difference in
our communities. Across these topics, you’ll see one
consistent theme – a commitment from everyone at
Ally to ‘Do it Right.’ This has served as the cornerstone
of our success over the past several years and is the
guiding principle that will push us to be even better
moving forward.
In 2019, we celebrated numerous anniversaries,
including 100 years in the auto finance business,
10 years since the creation of Ally Bank, 20 years
in Corporate Finance and 5 years since our IPO.
To commemorate our 5 years as a publicly traded
company, we rang the opening bell at the New York
Stock Exchange. The progress we’ve made since first
ringing the bell in the spring of 2014 is dramatic and
evident in our financial metrics, customer trends
and employee engagement levels. To most of our
stakeholders, Ally’s profile today looks very different
than the Ally of 5 years ago, and even more so,
10 years ago.
Our auto finance business has been completely
transformed from its days of offering primarily
subvented products to GM and Chrysler dealers
under exclusivity agreements. Today, the business
is a leading, market-driven, full product suite, full
credit-spectrum, OEM-agnostic provider employing
sophisticated pricing and risk analytics to optimize
risk-adjusted returns. In 2019, we originated $36.3
billion of consumer loans and leases*, fueled by a
record 12.6 million decisioned applications. This
demonstrates our broad reach across the market
and our national scale. We have been consistent
in our underwriting approach, and our servicing
capabilities give us real-time data and insight into
consumer behavior, affording us the ability to be
nimble and proactive to emerging trends.
Just as remarkable as the transformation of our
auto finance business has been the evolution of
Ally Bank. Ally Bank was created to be more than
* Please see 2019 Financial Tables and Definitions
just a deposit gatherer. It was founded with a vision
of being a consumer-first brand, operating differently
than traditional brick-and-mortar banks. We often
describe our original mission as being centered around
establishing not just another bank, but a better bank.
In 2019, we delivered record results at Ally Bank, growing
our retail deposit customer base by 322,000, to nearly
2 million customers. Our 16% annual retail deposit
growth, which was nearly three times the industry
growth rate, propelled us to $120.8 billion in total
deposits, and we eclipsed $100 billion of retail deposits
during the third quarter. Deposits represent 75% of the
company’s overall funding, serving as the gateway
to customer acquisition while providing stable and
cost-effective funding to support our asset growth.
The formula for our success is viewed by many as the
blueprint for how to expand into direct, digital consumer
banking. We’ve seen many peers imitate our approach
to the customer, but our scale, experience, culture and
brand provide a formidable advantage.
In 2019, our many accomplishments were recognized
externally by two leading rating agencies. Both
S&P and Fitch upgraded Ally’s unsecured credit
rating to investment grade, the first time Ally has
held investment grade credit ratings from these
agencies since 2005. These upgrades strengthen
our funding profile by providing access to a broader
and deeper pool of investors and are a reflection of
our tremendous progress.
Beyond the achievements of our auto finance
and deposit franchises, Ally’s other consumer and
commercial businesses performed well in 2019, building
momentum as we move forward into a new decade.
Ally’s insurance business posted $1.3 billion of written
premiums, the highest level in more than ten years.
Our corporate finance business delivered $1.1 billion
of loan growth while increasing net financing revenue
by 17% versus 2018. Supported by our partnership
with Better.com, Ally Home® direct-to-consumer
originations totaled $2.7 billion for the year, including
$1.0 billion in the fourth quarter alone. Ally Invest
grew self-directed accounts by 15% in 2019 against
a rapidly shifting backdrop in the online brokerage
and investment advisory industry. Lastly, as we looked
to expand our product offerings, we closed on the
acquisition of Health Credit Services (HCS), providing
an entry point into the rapidly growing point-of-sale
financing market.
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
3
A L LY H A S F U N DA M E N TA L LY T R A N S FO R M E D I T S E L F OV E R T H E PA S T 1 0 Y E A R S *
now
publicly traded
investment grade
credit ratings
deposit
funded
$121B
DEPOSITS
comprehensive
consumer banking
product suite
diversified &
market-driven auto
finance business
47%
GROWTH CHANNEL1 ORIGINATIONS
52%
USED ORIGINATIONS
NO EXCLUSIVITY
AGREEMENTS
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
4
* Comparison of FY 2019 versus FY 2009.
1 Growth channel defined as originations from non-GM/Chrysler dealers and direct-to-consumer loans.
thenprivately heldhigh yieldcredit ratingscapital marketsfunded$32BDEPOSITSchecking + savings productsconcentrated & subvented auto finance businessGROWTH CHANNEL1 ORIGINATIONS3%USED ORIGINATIONS11%GM & CHRYSLER EXCLUSIVITY AGREEMENTS
Throughout 2019, Ally Invest rolled out a series of
new, professionally managed portfolio offerings that
were uniquely designed to achieve certain investment
objectives for our customers, such as a tax-optimized
portfolio or a socially responsible alternative that invests
in companies that actively practice sustainability,
energy efficiency or other environmentally-friendly
initiatives. Many of these enhancements were underway
well before we saw continued consolidation across
the industry. Beyond these tailored investment solutions,
we introduced innovative zero-advisory fee managed
portfolios with a high-yield cash allocation. On
the technology front, we made it easier to move
money within the Ally ecosystem, with customers now
able to transfer funds between Invest and Ally Bank
within minutes.
Nearly five years in the making, we implemented one
of the most transformational technology projects in
the history of the company by deploying a new core
technology servicing and accounting platform for our
consumer auto finance business, including more than
4 million customer contracts. Internally referred to as
Ally Auto Advantage, this modern platform is highly
adaptable and scalable, and fully integrates with our
customer-facing and internal platforms. This multi-
year effort represented one of the largest system
conversions in our company’s history and was executed
thanks to the hard work and dedication of thousands
of our employees.
In February 2020, we announced an agreement to
acquire CardWorks, a leading established and scalable
credit card provider, with a full-spectrum unsecured
servicing capability, robust merchant services offering
and complementary recreational lending product.
This transaction marks a significant and exciting new
chapter in Ally’s evolution as a leading full-service
financial services provider. The acquisition meets all
our strategic priorities, centered around a relentless
customer focus, solid financial returns and long-term
value for our shareholders. Most importantly, this
acquisition directly addresses a significant product
gap we had at Ally Bank for our customers. Similar to
our objective 10 years ago with the launch of Ally Bank,
we’re focused on meeting the needs of our customers
and continuing to strengthen the financial profile of
our company.
I N V E S T I N G I N G R OW T H
We undertook several initiatives in 2019 to enhance
and fortify our existing businesses while planting
seeds to support future growth. Within our deposits
business, we introduced significant improvements
to continue providing our customers with a differentiated
online banking experience. We removed friction
from the account opening process, integrated
digital experiences across Ally, redesigned our
online dashboard, and launched external account
aggregation. We also piloted new, transformational
smart savings tools, which we rolled out more broadly
in early 2020, reinventing the way customers think
about their savings. Additionally, we continued to
reduce operational complexity through robotic
process automation and predictive analytics.
In early 2019, our mortgage business announced
a partnership with Better.com to enhance the digital
mortgage origination experience for customers. This
highly scalable and efficient platform allows us to
deliver an end-to-end digital mortgage experience for
our customers that is directly aligned with our mission
to ‘Do it Right.’ Beyond the benefits to the end-user,
this new platform provides a more flexible variable
cost structure that leads to meaningful improvement
in cost per funded account and reduced loan cycle times.
The partnership enables our customers to complete
an application in as little as three minutes and lock
a rate in about 10 minutes. Mortgage is an attractive
and large market opportunity. Our partnership with
Better.com meaningfully expands our ability to grow
in a cost-effective manner in a core banking product
for our customers.
We closed on the acquisition of HCS in late 2019
and immediately began the process of rebranding
the business as Ally Lending. HCS is one of the largest
point-of-sale healthcare lenders in the country, offering
a simplified way for consumers to pay for products
and services not covered by insurance in the form of
an installment loan. Point-of-sale lending is estimated
to be a $130 billion market that is growing at an 18-
20% annual rate* driven by the digitization of financial
services and increased merchant adoption. Away from
the appealing industry characteristics, HCS was built
on a modern and mobile-friendly tech platform and
maintains sound underwriting and risk management
processes. We’re encouraged by the early results in
this product and see strong potential in our ability
to generate sustained growth and incremental profits
to complement our consumer offerings.
* Source: Equifax, McKinsey
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
5
I N V E S T I N G I N O U R S E LV E S
Highlights
In 2019, we returned $1.3 billion of capital to
our shareholders through share repurchases
and common dividends, an 11% increase year over
year. Our capital management strategy remains
focused on ensuring our businesses have the
capital they need to deliver our customers best-
in-class products and service while positioning
the company for strong long-term profitability.
We continuously evaluate internal and external
opportunities. If we believe deploying capital
on a project is both consistent with our strategic
priorities and beneficial to our stakeholders over
the long-term, we will allocate capital to pursue
the project.
However, we remain judicious
stewards of shareholder capital
and are committed to efficiently
and thoughtfully deploying the
capital that we generate.
Since the inception of our dividend and share
repurchase program in the third quarter of
2016, through the end of 2019, we’ve returned
over $3.8 billion to our shareholders. During the
three and a half years we’ve been actively
buying our stock, our outstanding share count
has declined by 22.6%. During this period, our
Adjusted Tangible Book Value per share* has
increased more than 35%, or over $9 per share.
We will continue to deploy capital to support
the long-term growth of Ally, and beyond that,
we have great confidence in the financial and
operating trajectory of our company and believe
repurchasing our stock remains a sound strategy.
2016
2017
2018
2019
O U T S TA N D I N G S H A R E C O U N T
( M I L L I O N S )
374 M M
FYE 2019 Outstanding Share Count
T O TA L C A P I TA L R E T U R N E D
T O S H A R E H O L D E R S
( $ I N B I L L I O N S )
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
6
* 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 2019 Financial Tables later in this document for a Reconciliation
to GAAP.
$1 . 3 B
2019 Total Capital Returned
to Shareholders
C R E AT I N G A L E A D I N G F I N A N C I A L
S E RV I C E S B R A N D
The Ally brand is an invaluable asset that we’ve
carefully cultivated over the past ten years. Our
well-respected brand emphasizes our relentless
focus on our customers and is centered around
three pillars: Do Right, Tirelessly Innovate, and
Obsess Over the Customer.
Given its importance to our customer-centric
strategy, investing in and growing the Ally brand
will continue to be a critical objective of ours
moving forward. In 2019, we achieved all-time
high brand awareness, had a 91%+ customer
satisfaction rate, and were listed on Ad Age’s
list of the top 10 marketing brands in the country.
Additionally, we’ve doubled brand value two
years in a row, resulting in Brand Finance
recognizing Ally as the third fastest growing
U.S. banking brand.
Our partnerships and sponsorships are an integral
component of our brand strategy. In 2019, we
announced a multi-year agreement to be the lead
partner for the new Major League Soccer (MLS)
team in Charlotte. Ally first became involved with
soccer because of the passion and allegiance of
the fans, a passion that Ally shares when it comes
to serving our customers. Moreover, professional
soccer is a great platform to help amplify Ally's
efforts surrounding economic mobility, financial
literacy, and employee engagement. We’re thrilled
about the opportunities we see to leverage our
partnership with the MLS to continue making
a difference in our community.
In 2019, we held our second annual Ally Challenge
golf tournament, a PGA Tour Champions event
held at Warwick Hills Golf & Country Club
near Flint, Michigan. The event, which raised
approximately $1.5 million for local charities,
demonstrated our deep commitment to
supporting the revitalization of a city devastated
by crisis. The tournament was so well received
and impactful to the local community that
we renewed our sponsorship for five years, and we
are excited to support this event moving forward.
As a first mover in digital banking, innovation
is intricately woven into the fabric of who we are
and how we operate. In this vein, we launched
the first-ever augmented reality version of
MONOPOLY® throughout the United States on
National Online Bank Day. Research* has found
that approximately 70% of Americans say that
playing money-related games made them more
comfortable with money concepts and making
real-life financial decisions. As an ally for our
customers’ financial wellbeing, this was a fun
and disruptive way to make the “money talk”
less intimidating for everyone.
In 2019, we extended our full-season primary
sponsorship with Hendrick Motorsports for
an additional three years. As the second most
recognizable sponsor in NASCAR, we’ve
successfully executed numerous marketing
campaigns around this sponsorship and share
a common set of values with the Hendrick team,
which has translated into a strong and mutually
beneficial relationship that has meaningfully
expanded the visibility of our brand.
Our employees are the ultimate representatives
of the Ally Brand. Last year, we launched
FutureFest, Ally’s first enterprise-wide innovation
competition seeking ideas to help us ‘Be Better.’
This team-based, innovation competition was
created to get everyone at Ally to think critically,
creatively and collaboratively for the future. The
inaugural event was an overwhelming success,
with over 1,000 passionate Ally employees
submitting unique and thoughtful ideas to ensure
our brand remains synonymous with innovation.
Since the creation of Ally ten years ago, we’ve
experienced exceptional momentum building
a brand that connects with customers and helps
redefine why and how better is out there and
how we 'Do it Right.' As we look to the future,
we will leverage our leading brand to support
our customers and grow our business.
* This survey was conducted online within the U.S. by The Harris Poll on behalf of Ally in September 2019. This online survey is not based on a probability sample and therefore
no estimate of theoretical sampling error can be calculated.
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
7
10
year
anniversary
Initiate Share Repurchases
& Common Dividend
Launch Ally Home ®
Surpass 1MM
Ally Bank Customers
Ally Initial
Public Offering
Complete exit from
ResCap business
Announce Divestiture of
International Operations
Renamed company
Ally Financial
GMAC Bank transformed
into Ally Bank
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
8
20092010201220132014
year
anniversary
Investment Grade Ratings
from Fitch and S&P
Acquire HCS
Reach $100B
of Total Deposits
Launch Ally Invest
Achieve Regulatory Capital
Requirement Normalization
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
9
201420152016201720182019
M A I N TA I N I N G T H E T R U S T O F
O U R C U S T O M E R S
As a leading digital bank, we are dependent
on our reputation as a safe and secure financial
institution, providing protection of corporate and
consumer data.
In an increasingly complex digital
environment, we are deeply
committed to maintaining a robust
information security program to
manage evolving security threats.
Reducing susceptibility to social engineering
attacks is a critical component of this program.
Ally employees participate in annual
mandatory training across the organization
in addition to continuous training within the IT
organization to educate employees on the newest
security threats. Additionally, we maintain a
mature vulnerability management program to
protect Ally’s applications and infrastructure.
Our information protection and risk management
team maintains a dedicated 24x7 security
operations center to actively monitor for cyber
intrusions and take actions to defend against
active threats. In 2020 and beyond, Ally will
continue investing in our leading-edge information
protection and risk management program to
ensure we maintain the trust of our customers.
O U R S T R AT E G I C P R I O R I T I E S
Our achievements in 2019 were commendable
and I’m energized to build on that momentum
as we execute on our strategic priorities.
We are committed to offering our customers
industry-leading products and services to help
meet their financial needs. We will continue to
obsess over our customers and enhance our
current products and services, while innovating
the user experience to stay ahead of the
competition. Looking forward to 2020, we
are focused on the continued execution of
the following strategic priorities.
1. Ongoing optimization of market leading
Auto and Insurance business lines: We
will leverage our century of experience
and comprehensive product offerings to
support our 18,300 dealers while utilizing
our significant scale and application flow
to drive strong risk-adjusted returns.
2. Sustained growth in customers and
optimization of deposit funding profile:
Following our record deposit balance and
customer growth in 2019, we will deliver a
best-in-class digital banking experience to
maintain existing accounts and establish new
relationships, allowing us to optimally manage
growth and the cost of deposit funding.
3. Expanding consumer product offerings:
We will actively enhance the customer
experience through our expanded set
of consumer offerings, and thoughtfully
evaluate opportunities to continually diversify
our business and improve profitability to
strengthen our financial and operational
profile for the future.
4. Efficient capital deployment & disciplined
risk management: We will be prudent risk
managers and responsibly deploy shareholder
capital, with a focus on growth and ensuring
our businesses have the resources they need
to provide customers with a differentiated
value proposition.
5. Steady execution along earnings growth path:
As a team, we will execute on these strategic
priorities to continue along the impressive
trajectory we’ve experienced since our IPO
to drive long-term value for all our stakeholders.
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
1 0
T H E PAT H FO RWA R D
The Ally of today bears little resemblance to
the Ally of ten years ago. The transformation
of our company reflects our significant financial
achievements and operational milestones.
Culturally, we are a different and better company.
We embrace a customer-centric philosophy
focused on resiliency and adaptability underpinned
by a constant desire to ‘Be Better.’ Our culture
sets us apart and is growing stronger by the day.
Our purpose-driven culture is reflected in our
commitment to work with integrity, accountability,
and uphold our LEAD core values in the workplace
and in the community. These core values shape
our culture and drive our success.
L
E
Look Externally
Execute with Excellence
A
Act with Professionalism
D Deliver Results
Our culture is the backbone of our company
and the driving force in recruiting and retaining
great talent. We’ve created a place where
people enjoy working because they know they
are accepted, valued and supported. In 2019, we
announced an expansion of our holistic benefits
package to minimize the burden of saving and
paying for higher education, including student
loan debt repayment assistance, monthly 529
savings plan contributions, and enhanced tuition
reimbursement. Our benefits and compensation
philosophies make Ally an even more attractive
place to work. Establishing a diverse, inclusive and
comfortable environment for everyone at Ally has
resulted in low turnover, high engagement, and
tremendous energy that our teammates use in
serving our customers.
In recognition of the significant accomplishments
of our employees during a year when we
celebrated so many milestones, in late 2019,
we announced a one-time common equity grant
to every Ally employee. In addition to rewarding
employees for all their efforts, the equity grant
was intended to reinforce a ‘founder’s mentality’
across the company.
Beyond empowering our employees to make
a difference in the lives of our customers,
we empower them to make a difference in our
communities. An integral part of our culture
is a collective desire to give back to the
communities where we live and work. Last year,
our employees delivered on their commitment
to ‘Do It Right’ by volunteering approximately
33,000 hours, a 57% increase from the prior year,
with hundreds of charitable organizations across
the country.
The future of Ally has never been brighter. We
have the right strategy at the right time - a
time of unbelievable innovation, and ubiquitous
digitization in financial services.
Importantly, we have the right team
to execute on our strategy with
dedication and intensity.
As I look forward as CEO of this great company, I’m
confident we have the right ingredients to deliver
results for all our stakeholders over the long-term.
In closing, I’m tremendously proud of our 8,700
teammates who were essential to our success
in 2019 and I want to thank them for their
enthusiasm and commitment. I’m grateful to the
Board of Directors for their continued guidance
and support.
Lastly, thank you to all fellow shareholders for
your confidence and investment in Ally.
Jeffrey J. Brown
Chief Executive Officer
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
11
8
6
.
1
$
0
0
2
$
.
6
1
.
2
$
9
3
.
2
$
4
3
.
3
$
2
7
.
3
$
2019
financial
results
A DJ U S T E D T B V P E R S H A R E *
2019
2018
2017
2016
2015
2014
C O R E R O T C E *
2019
2018
2017
2016
2015
2014
T O TA L D E P O S I T S ( $ I N B )
2019
2018
2017
2016
2015
2014
$35.1
$29.9
$28.1
$26.2
$24.6
$22.7
12.0%
12.3%
9.8%
10.0%
9.4%
7.9%
$120.8
$106.2
$93.3
$79.0
$66.5
$58.2
Adjusted
EPS*
2014
2015
2016
2017
2018
2019
* 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 2019 Financial Tables later in this document for a Reconciliation to GAAP.
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
12
exceptional year successfully balancing growth
while maintaining a consistent and disciplined
risk framework.
The transformation of our funding profile
continued in 2019, with record deposit growth
of $14.6 billion. We ended 2019 with $120.8 billion
of total deposits, more than double the level at the
time of our IPO in 2014. Deposits represented
approximately 75% of Ally’s total funding at the
end of 2019. As we’ve approached our target level
of core deposit funding, we’ve started to test the
elasticity of both marketing spend and rate paid.
We’ve found that our value proposition results in
sticky customer relationships, as evidenced by
a 96% customer retention level during 2019. This
value proposition, which is centered around our
leading brand, fair and transparent offerings,
and exceptional customer service, is a powerful
competitive differentiator and the foundation
from which we’ve expanded into new products.
As deposits have increased over time, we’ve
successfully reduced our wholesale funding
footprint, including $1.6 billion of institutional
unsecured debt maturities in 2019. In 2020,
we have $2.2 billion of unsecured debt maturities
with a weighted average coupon of 6.6%,
with $1.7 billion maturing in the first quarter.
Beyond our core business performance and
liability optimization, our results in 2019
demonstrated our ability to navigate a volatile
interest rate environment and efficiently manage
re-pricing dynamics across our balance sheet.
Our net interest margin, excluding Core OID*, of
2.68% was down only 2 bps in 2019, meaningfully
better than the NIM contraction most regional
bank peers experienced. The maturity of our high
cost unsecured debt and the consistent execution
along our strategic path solidify our confidence
in driving ongoing NIM expansion in 2020.
Jenn LaClair, CFO, named one
of the “Top Women in Finance”
by Auto Finance Journal in 2019
"In 2019, Ally delivered exceptional
financial results as we leveraged our
leading auto finance and deposit
franchises to drive efficiencies on
both sides of the balance sheet."
Our auto business continued to see risk-adjusted
return expansion while our overall funding costs
benefited from record performance within our
deposits business. Last year marked the fifth
consecutive year since becoming a publicly
traded company that Ally achieved the strongest
results across most of its core financial metrics.
Adjusted Total Net Revenue* increased $323
million to $6.3 billion in 2019 due to consistent
operating improvement across our businesses,
continued optimization of our funding profile,
and prudent and disciplined interest rate
risk management. We leveraged our leading
market position to deepen our existing dealer
relationships while continuing to expand
within the growth channel1, benefiting both
our auto finance and insurance platforms. Our
success in increasing application flow provided
us with attractive opportunities to optimize
originations across products, geographies,
and credit attributes, which fueled expansion
of risk-adjusted returns. Beyond our dealer-facing
businesses, Ally Home® established a growing
pipeline of direct-to-consumer originations
through our partnership with Better.com while
our Corporate Finance business had an
* 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 2019 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.
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
13
AU T O M O T I V E F I N A N C E
The auto finance business delivered strong
financial and operational results in 2019,
driven by continued execution at the dealer
level. Pre-tax income increased $250 million to
$1.6 billion as a result of improved risk-adjusted
returns and growth within our retail auto
portfolio. Estimated retail auto originated yield2
for 2019 increased by 37 bps to 7.44% while retail
auto portfolio yield expanded 46 bps to 6.60%.
With estimated retail auto originated yield2
exceeding 7% every quarter since the second
quarter of 2018, asset yields are positioned to
benefit from the roll-down of lower yielding
legacy vintages. Credit performance was very
strong in 2019, owing to our consistent approach
to underwriting, enhancements to our servicing
capabilities, and supportive macroeconomic
conditions. Our 2019 retail auto net charge-off
rate was 1.29%, an improvement of 4 bps relative
to 2018 and exceeding our guidance of the low-
end of 1.4% - 1.6%.
Within our commercial auto business, we
successfully navigated a highly competitive
environment, declining benchmark rates, and
lower GM and Chrysler dealer inventory levels
toward the end of the year to deliver strong
financial results, including total financing revenue
of $1.6 billion. This performance demonstrates
the resiliency of our commercial business as we
overcame various headwinds, including period-
end commercial balances declining $5.6 billion
year-over-year and 1-month LIBOR falling nearly
75 bps during 2019. Away from these exogenous
challenges, the credit performance of this
business remained very attractive, with 2019
representing the eighth consecutive year in which
commercial auto portfolio losses have been less
than or equal to four basis points. Our floorplan
financing capabilities are an important part of
our dealer relationships and our deep industry
expertise, comprehensive product offerings,
and differentiated customer service position us
favorably to maintain our leadership position
within this market.
Automotive Finance Highlights
P R E -TA X I N C O M E
( B I L L I O N S )
E S T I M AT E D R E TA I L A U T O
O R I G I N AT E D Y I E L D 2
Our results in 2019 were a direct
reflection of the strength of our
dealer relationships.
We ended the year by registering our 23rd
consecutive quarter of dealer growth3, and we
now count over 90% of U.S. franchised dealers
as Ally customers. These relationships have
enabled us to successfully increase our application
flow. In 2019, we decisioned a record 12.6 million
applications, which supported a $0.9 billion
increase in full-year origination volume to $36.3
billion, our highest origination volume since 2015.
Our origination strategy was consistent in 2019 as
we built upon our GM and Chrysler relationships
by expanding in the Growth Channel1 while
continuing to find attractive opportunities within
the used vehicle finance space. Overall Growth
Channel1 volume increased $1.0 billion in 2019
to $17.2 billion, while used volume accounted for
52% of total originations, consistent with 2018.
1 Growth channel defined as originations from non-GM/Chrysler dealers and direct-to-
consumer loans.
2 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.
3 Dealer relationships include Ally active dealers, excluding RV Commercial & Consumer
lines of business exited in 2Q 18.
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
14
interview
with doug
timmerman
Doug Timmerman, President, Auto
Finance, 2019 “Auto Executive of
the Year” by Auto Finance News
F I N A N C E S PAC E E VO LV E D
Q : H OW H A S T H E AU T O
OV E R T H E L A S T D E C A D E
A N D W H AT W I L L D R I V E
C H A N G E I N T H E F U T U R E ?
The auto
finance market
remains a highly
competitive
and efficient
marketplace.
Dealers want
to be able to transact as quickly as possible to
ensure a very smooth buying process for their
retail customers. Consumers today are armed
with lots of comparative information before
they step into a dealership, including financing
options and other add-on products (e.g.,
mechanical warranty). While consumers are
much more informed on their choices today,
which is positive for all parties involved, they
still largely transact with their local dealership
primarily because they want to do business
with a trusted dealership that can also service
their vehicle after the sale. The dealership’s
service department is becoming increasingly
important today because of the increased
technology content in vehicles.
Our business revolves around our ability to
be a trusted and reliable finance source for
our dealership customers. An important part
of this is to provide them with a full range of
products as well as consistent and quick turn-
around time on their financing applications. We
have been increasing the number of automatic
approvals of the applications that come to Ally.
However, we are a full-spectrum lender and
always have underwriters that work the more
complex or unique deals with our dealership
customers. Despite increased technology in credit
decisioning, it is still important for the dealer to
talk to an underwriter who understands their retail
consumers and can work with the dealership to
put a deal together. We help our 18,300 dealer
customers improve the quality of that end-user
experience by providing real-time underwriting
decisions and offering a comprehensive suite of
financing and insurance products for consumers.
Outside of the dealership, we’ve also developed
Clearlane, an online portal where customers can
directly refinance auto loans or lease buyouts.
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
1 5
"Throughout
our 100 years in
the auto finance
industry, we’ve
consistently
seen our dealer
customers
adjust their
business models
in response to
challenges and
opportunities."
Q : H OW D O YO U S E E
T H E N AT U R E O F C A R
OW N E R S H I P A N D
U S AG E C H A N G I N G
I N T H E F U T U R E ?
While the transportation
ecosystem is evolving,
the data indicates that
most consumers are still
buying, financing and driving
vehicles largely the same
way they were a decade ago.
– The percentage of new vehicles financed by
a loan or lease has increased over the past
10 years*
– Over 90% of vehicle financing occurs through
the indirect channel – roughly the same as
10 years ago
– Total vehicle miles traveled has increased
~10% over the past decade**
We remain cognizant of emerging trends in the
industry such as ridesharing, electric vehicles and
autonomous vehicles. Ally has been monitoring
these trends for several years, however, the way
consumers purchase and use vehicles remains
fundamentally unchanged. In other words,
consumer adoption has been slow. We believe
the pace of change associated with these
transportation trends will be gradual and orderly,
especially given the significant legal, regulatory,
political and, most notably, technological
challenges involved. Regardless, Ally is poised
to be nimble to react to whatever might change
as a result of the evolution in this ecosystem.
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
16
** Pew Survey
***Experian
* Experian
** US Federal Highway Administration
****US Federal Highway Administration
Select Industry Metrics
~85%
OF NEW VEHICLE PURCHASES
ARE FINANCED
90%+
OF VEHICLE FINANCING
OCCURS THROUGH THE INDIRECT
CHANNEL – ROUGHLY THE
SAME AS 10 YEARS AGO
~10%
INCREASE IN TOTAL VEHICLE
MILES TRAVELED OVER
THE PAST DECADE
Q : H OW H A S
T H E AU T O M O T I V E
D E A L E R S H I P M O D E L
E VO LV E D A N D W H AT
C H A N G E S A R E O N
T H E H O R I Z O N ?
Throughout our 100
years in the auto
finance industry, we’ve
consistently seen our
dealer customers adjust
their business models in
response to challenges
and opportunities. They
are exceptional at ‘Test & Learn’ and reacting
quickly to changes in the automotive landscape.
The most notable trends we’ve seen include:
1. According to a survey by Cox Automotive,
car buyers spend approximately 14 hours
online during their vehicle search. Given this
fact, and the growing population of online
vehicle marketplaces, we continue to see
dealers add functionality to their websites
and enhance the digital and mobile experience
for potential buyers. Most dealerships now
have a department dedicated to pricing,
negotiating and financing vehicles digitally or
via text, allowing dealers to satisfy consumer
preferences and facilitate a quicker and more
efficient closing. We’ve also seen dealers invest
in more innovative showrooms to differentiate
the in-person experience while refining the
F&I process to make financing and insuring
a vehicle easier and more transparent.
2. Dealers have shifted strategies to drive
profitability and growth. On a broader
scale, dealers have emphasized used vehicle
sales as margins have compressed on new
vehicles and consumers become increasingly
comfortable purchasing pre-owned vehicles
given higher quality and price inflation on new
cars and trucks. Ally’s experience in providing
new, used, and lease financing throughout the
credit-spectrum to dealers across nameplates
positions us favorably to support our dealer
customers as they continue to evolve.
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
1 7
I N S U R A N C E
Our insurance business had a terrific year, with
total written premiums up 12% to $1.3 billion, the
highest level in 12 years. Operationally, we saw
encouraging progress in new growth channel1
relationships and experienced steady growth in
vehicle service contract (VSC) volume and the
vehicle inventory insurance portfolio. Notably,
AM Best upgraded Ally Insurance’s credit rating
from B++ to A-, recognizing the substantial
progress the company has made and providing
new potential growth opportunities. Looking
back on 2019, we effectively managed this
business while mitigating underwriting risk from
weather-related loss volatility and increasing
losses on VSC volume given rising repair costs
and growth in the number of older vehicles
on the road.
Relative to our competitors,
the insurance business is a unique
offering that is highly valuable
to dealers and complementary
to our auto finance product suite.
With dealers experiencing margin pressure
on the sale of new vehicles, the products that
Ally Insurance provides to the F&I office are
increasingly important to dealer profitability.
C O R P O R AT E F I N A N C E
Our Corporate Finance business was founded
in 1999 and celebrated its 20th anniversary
in 2019. During this milestone year, the team
delivered exceptional risk-adjusted returns
and solid loan growth. Total net financing
revenue increased 17% to $239 million while
the held-for-investment portfolio grew 23%
to $5.7 billion. The growth in earning assets
was attributable to the sound execution by our
experienced team and the contribution of new
industry verticals that we’ve launched over the
past few years, including a new lender finance
group and expansion into the healthcare real
estate lending space. As the economic cycle
lengthens and structures across the industry
loosen, our approach to credit and underwriting
has remained disciplined and consistent. We
proactively increased our exposure in asset-
based lending given the risk-return dynamics
we experienced relative to cash-flow lending.
While credit performance will ebb and flow in
any particular year, Corporate Finance has a
strong track record, with credit losses averaging
less than 20 bps over the past ten years. As we
enter our third decade in this business, we’re
well positioned to prudently expand returns as
we benefit from the continued optimization in
Ally’s cost of funds and leverage our investments
in people to drive growth.
M O R T G AG E F I N A N C E
Ally Home® posted $2.7 billion of direct-to-
consumer originations in 2019, more than four
times the originated volume in the prior year.
Gain on sale activity helped to increase other
income by $15 million versus 2018. Net financing
revenue was pressured in 2019 given elevated
premium amortization as rates declined and
prepayment activity increased. Accordingly,
2019 pre-tax income for the mortgage business
declined $5 million to $40 million. Total assets
increased $1.1 billion to $16.3 billion as we
reduced bulk mortgage purchase activity given
our success in the direct channel. Looking
forward, the focus of our team and the growing
partnership with Better.com have enabled us to
deliver a meaningfully differentiated, all-digital
experience for our customers, and we remain
excited about the momentum of this business
as we head in to 2020.
1 Growth channel defined as originations from non-GM/Chrysler dealers and direct-to-consumer loans.
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
1 8
investing
i
n
o
u
r
employees
Best Places to Work by
Charlotte Business Journal
Best Places to Work by
Human Rights Campaign
Best Places to Work by
Detroit Free Press
We’re committed to ensuring Ally is a place where
everyone appreciates similarities and embraces
differences. We believe these differences make us
stronger, and we encourage mutual respect, and
value diverse opinions. The ability to learn from
one another is fundamental in driving innovation,
building strong relationships, and delivering the
best products and experiences for our customers.
Employees are the foundation of our culture and
we strive to create an environment where they can
thrive both inside and outside of the workplace.
Last year, we created significant organizational
momentum around the idea that everyone can
'Be Better' with a recognition of our 100 year
history and a mindset toward continuous growth,
creativity, innovation, and inclusion. To celebrate
our 100 year anniversary and inspire employees
to embrace a ‘founders mentality,’ we provided
every Ally associate with a one-time grant of
100 shares of Ally common stock.
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
19
Kathie Patterson, Chief Human
Resources Officer, “Michigan
HR Executive of the Year” by the
American Society of Employers
"The cornerstone of our commitment
to ‘Do it Right’ for our 8,700 associates
is our Total Rewards Program,
a holistic program that provides
employees with industry leading
compensation, health and wellness
benefits, career development, and
retirement benefits."
L E A D I N G B E N E F I T S
Ally is a place where employees feel supported
and connected, both personally and professionally.
The cornerstone of our commitment to ‘Do it
Right’ for our 8,700 associates is our Total Rewards
Program, a holistic program that provides
employees with industry-leading compensation,
health and wellness benefits, career development,
and retirement benefits. Each quarter, we provide
employees with a Total Rewards Statement
that includes a snapshot of their career at Ally,
including salary, savings and retirement details,
health and insurance information, and employee
discounts. In 2019, we continued to evolve the
total rewards ecosystem to provide best in class
options, information, tools and resources to further
educate employees, optimize utilization, help
employees get the most value out of our benefit
offerings, and access support and resources when
needed. Notably, we introduced three new leading
education benefits for our associates, including
student loan paydown support, 529 savings plan
contributions, and expanded tuition reimbursement.
In order to lead by example, we take great pride
in providing an industry-leading retirement
plan, which includes an up to 6% company
matching contribution, a 2% company retirement
contribution, and an up to 2% company
discretionary contribution. According to Fidelity,
the average company 401(k) match in the United
States is just below 5% - we’ve contributed
up to 10% each year over the past decade,
meaningfully supporting our associates as they
plan for the future.
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
2 0
S E L E C T E M P LOY E E B E N E F I T S
– $100 per month 529 contribution
– $100 per month student debt repayment
– $10,000 per year tuition reimbursement
– 8 hours of volunteer time off per year
– Free unlimited consultations with Certified
Financial Planners
– 12 weeks 100% paid parental leave and
2 weeks 100% paid caregiver leave
– 15% discount through employee stock
purchase program
– Generous company 401(k) contributions:
Up to 6% matching + 2% retirement +
up to 2% discretionary
– Up to 10 days bereavement leave
– $1,000 in well-being incentives
$100
per month
529 contribution
4 0 1 K C O M PA R I S O N
Ally
Average U.S. Company
$69K
Ally’s generous retirement
plan makes a difference
for employees
Note: Chart shows incremental value of Ally’s generous company 401(k) contributions for employees who contribute at least 6%. Assumes employee earns $100,000 annually.
Ally matches at 10% while peer regional bank matches at 5%. Assumes S&P returns 7% per year.
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
2 1
3,000
employees participate
in ERGs
Diane Morais, President, Consumer and Commercial Banking
Products, named #8 on American Banker’s list of “Most Powerful
Women in Banking.” Sarah Cherne, President and CEO of Junior
Achievement Central Carolinas.
E M B R AC I N G O U R D I F F E R E N C E S
Our commitment to diversity, collaboration,
and creativity helps strengthen Ally in the
marketplace, makes our company an outstanding
place to work and positions us for continued
success. Ally’s employee resource groups (ERGs)
are an integral part of diversity and inclusion
at Ally and help build an atmosphere where
employees feel accepted, valued and able to
share their unique experiences and interests.
In 2019, ERG participation increased by
approximately 20% to over 3,000 employees,
representing more than one third of our total
employee base. Moving forward, we’re focused
on developing a supplier diversity program,
enhancing our diversity recruiting strategy,
expanding our D&I programming, and exploring
new ways to think about the analytics, reporting,
and accountability of our D&I efforts.
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
22
45%
of Ally employees
volunteered
~33,000 hours
supporting our
communities
At Ally, we believe it’s our responsibility as
corporate citizens to make a social impact
on the world around us, and we are driven by
a deep belief in helping people achieve their
financial dreams. This conviction is embedded
in the very fabric of our business and culture.
We are committed to making an impact in
the communities where we live and work –
supporting efforts that increase economic
mobility for individuals, families,
and communities. We do this by giving our
time, expertise, and philanthropic dollars.
In 2019, 45% of Ally employees volunteered
over 33,000 hours, an increase of 57% relative
to 2018. Through charitable grants and
sponsorships, employee giving program,
and community reinvestment act (CRA) efforts,
Ally and its employees collectively made a
$9.8 million impact to a range of worthy non-
profit organizations and causes.
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
2 3
I N N OVAT I N G FO R E C O N O M I C
M O B I L I T Y FO R E V E RYO N E
Last year, we began to implement our new social
impact commitment, “Innovating for Economic
Mobility for Everyone.” As a digital bank without
a brick-and-mortar footprint, Ally seeks to be
accessible to everyone, providing financial
products fairly and transparently from coast
to coast. We strive to improve people’s lives by
promoting economic mobility in the communities
we serve through our customer services,
philanthropy, strategic investments, and our
associates’ volunteer efforts.
We do this through a combination of employee
benefits and approaches that help team members,
as well as through volunteering and philanthropic
giving to our nonprofit partners. We know we
cannot do this all alone, and Ally is committed
to collaborating and working with colleagues,
customers, and nonprofit organizations that
support economic mobility. Accordingly, in
early 2019, Ally, along with two other financial
services firms, announced a commitment to
the largest private-public affordable housing
initiative in the history of Charlotte, a city where
we maintain our primary corporate center.
Additionally, we launched our new economic
mobility signature program with Local Initiatives
Support Corporation. The program represents a
$3 million commitment from Ally and will help fuel
entrepreneurship and homeownership services
for an estimated 4,400 people in Charlotte,
Detroit, Jacksonville, and Philadelphia. It is
structured to help people with low-to-moderate
incomes stabilize their financial outlook, build
their assets, and strengthen their communities.
Ally’s CRA program plays an integral role in
community development and promoting our
corporate citizenship efforts. In 2019, our CRA
program deployed approximately $1 billion
into communities through various loans and
investments that supported affordable housing
development and preservation, invested in
local non-profit partnerships to address critical
services, and provided financing to promote
economic development by investing in small
businesses which help create and retain jobs.
Ally Bank’s recently approved CRA Strategic
Plan commits $3.7 billion in loans and investments
and 2,500 hours of volunteer work to support
low-income communities over the next three
years. Ally Bank continues to maintain an
Outstanding CRA rating.
M O G U L S I N T H E M A K I N G
In collaboration with the Thurgood Marshall
College Fund and the Sean Anderson
Foundation, Ally successfully launched a new
entrepreneurship competition, Moguls in the
Making. This exciting program is our way of
helping to foster a better way forward for young,
up-and-coming entrepreneurs from our nation’s
publicly supported historically black colleges and
universities (HBCU). Among the prizes awarded
at the competition was an internship opportunity
with Ally during the summer of 2019. Rather than
extend just one internship offer, Ally ultimately
extended internship offers to all 50 of the Moguls
in the Making participants, resulting in 16 HBCU
students joining our intern program.
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
2 4
Sean Anderson and Andrea Brimmer, Chief Marketing
Officer, “2019 Marketer of the Year” by the Financial
Communication Society
S U P P O R T T H E AU T O I N D U S T RY
For over 100 years, Ally has been an essential
part of the auto ecosystem, supporting dealers
and financing more than $1 trillion for nearly
200 million vehicles. In 2019 alone, we helped
consumers finance nearly 1.4 million vehicles
through our relationships with more than 90%
of franchised automotive dealers across the
country. We pride ourselves on being more than
just a finance provider to our dealers, and part of
that is reflected in our commitment to supporting
causes that are important to our dealer customers.
In 2019, Ally provided nearly $1 million to more
than 300 charitable organizations in support of
dealer community relationships.
For the eighth year in a row, Ally partnered
with TIME magazine on the “Dealer of the Year”
award, often referred to as the most coveted
honor a dealer can receive. This accolade honors
new-car dealers throughout America who exhibit
exceptional performance in their dealerships
and perform distinguished community service.
Additionally, for the second year in a row, we
sponsored the ‘Ally Sees Her’ award, designed to
recognize promising, young women leaders in the
auto retail industry.
In 2019, Ally’s Chief Executive Officer, Jeffrey
J. Brown, was named CEO of the Year by
the Thurgood Marshall College Fund for his
distinguished leadership and commitment
to diversity and inclusion. Ally’s commitment
to diversity and inclusion is not only one of
the pillars of our culture, it’s essential to our
success as a company. We are dedicated to
identifying talent to nurture, develop and
support in becoming next generation leaders,
and the Moguls in the Making program is one
way that we promote equitable advancement
opportunities while investing in the futures of
aspiring business leaders.
~$1MM
provided to charitable
organizations in support
of dealer community
relationships
Moguls in the Making entrepreneurs with Jeffrey J. Brown
(center), Chief Executive Officer, and 2019 CEO of the Year
by the Thurgood Marshall College Fund
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
2 5
2019 financial tables and definitions
A DJ U S T E D E A R N I N G S P E R S H A R E
($ 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 2019
FY 2018
FY 2017
FY 2016
FY 2015
FY 2014
$4.34
$2.95
0.02
0.06
(0.18)
-
(0.51)
-
-
0.16
0.22
-
-
-
$2.04
(0.01)
0.10
-
-
0.26
-
$3.72
$3.34
$2.39
$2.15
$(2.66)
0.09
0.08
-
0.01
(0.18)
0.00
$2.16
(0.81)
0.08
-
0.48
-
4.90
$2.00
$1.83
(0.47)
0.25
-
0.26
(0.19)
-
$1.68
A DJ U S T E D TA N G I B L E B O O K VA L U E P E R S H A R E
($ per share)
FY 2019
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
$38.5
$32.8
$30.9
$28.5
$27.9
-
(1.2)
37.3
(2.2)
-
-
(0.7)
32.1
(2.1)
-
-
(0.7)
30.2
(2.1)
-
-
(0.6)
27.9
(1.7)
-
(1.4)
(0.1)
26.4
(1.8)
-
$32.1
(2.6)
(0.1)
29.4
(1.9)
(4.9)
Adjusted Tangible Book Value Per Share
$35.1
$29.9
$28.1
$26.2
$24.6
$22.7
O R I G I N A L I S S U E D I S C O U N T A M O R T I Z AT I O N E X P E N S E
($ millions)
FY 2019
FY 2018
FY 2017
FY 2016
FY 2015
FY 2014
Core OID Amortization Expense8
Other OID
GAAP OID Amortization Expense
$29
13
$42
$86
15
$101
$71
20
$90
$57
21
$78
$45
16
$61
$172
11
$183
O U T S TA N D I N G O R I G I N A L I S S U E D I S C O U N T B A L A N C E
($ millions)
FY 2019
FY 2018
FY 2017
FY 2016
FY 2015
FY 2014
Core Outstanding OID Balance (Core OID Balance)
$(1,063)
$(1,092)
$(1,178)
$(1,249)
$(1,304)
$(1,351)
Other Outstanding OID Balance
GAAP Outstanding OID Balance
(37)
(43)
(57)
(77)
(87)
(64)
$(1,100)
$(1,135)
$(1,235)
$(1,326)
$(1,391)
$(1,415)
Unless the context otherwise requires, the following definitions apply. The term “loans” means the following consumer and commercial products associated with our direct and indirect
financing activities: loans, retail installment sales contracts, lines of credit, and other financing products excluding operating leases. The term “operating leases” means consumer-
and commercial-vehicle lease agreements where Ally is the lessor and the lessee is generally not obligated to acquire ownership of the vehicle at lease-end or compensate Ally for the
vehicle’s residual value. The terms “lend,” “finance,” and “originate” mean our direct extension or origination of loans, our purchase or acquisition of loans, or our purchase of operating
leases, as applicable. The term “consumer” means all consumer products associated with our loan and operating-lease activities and all commercial retail installment sales contracts.
The term “commercial” means all commercial products associated with our loan activities, other than commercial retail installment sales contracts.
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
26
C O R E R E T U R N O N TA N G I B L E C O M M O N E Q U I T Y ( R O T C E )
($ millions)
FY 2019
FY 2018
FY 2017
FY 2016
FY 2015
FY 2014
GAAP Net Income Attributable to
Common Shareholders
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
$1,715
$1,263
$929
$1,037
$(1,282)
$882
6
29
(89)
-
13
(201)
-
-
86
121
-
(3)
71
-
-
(43)
(25)
-
-
119
-
44
59
-
11
(24)
(84)
(392)
59
-
349
(139)
(225)
186
-
187
(127)
22
(103)
1
2,372
-
$1,472
$1,427
$1,091
$1,043
$990
$800
$13,842
$13,381
$13,406
$13,378
$14,419
$14,804
-
-
-
(368)
(290)
(293)
(348)
(160)
(976)
(27)
(1,255)
(27)
$13,474
$13,091
$13,112
$12,870
$13,416
$13,522
(1,078)
(158)
(1,135)
(391)
(1,213)
(737)
(1,276)
(1,182)
(1,327)
(1,583)
(1,441)
(1,923)
Normalized Common Equity
$12,239
$11,565
$11,162
$10,412
$10,506
$10,157
Core Return on Tangible Common Equity
12.0%
12.3%
9.8%
10.0%
9.4%
7.9%
A DJ U S T E D T O TA L N E T R E V E N U E
($ millions)
FY 2019
FY 2018
FY 2017
FY 2016
FY 2015
FY 2014
GAAP Net Financing Revenue
$4,633
$4,390
$4,221
$3,907
$3,719
$3,375
Core OID
29
86
71
57
45
172
Net Financing Revenue (ex. Core OID)
$4,662
$4,476
$4,292
$3,964
$3,764
$3,547
GAAP Other Revenue
Accelerated OID & Repo Items3
Change in Fair Value of Equity Securities2
Adjusted Other Revenue
Adjusted Total Net Revenue
$1,761
$1,414
$1,544
$1,530
$1,142
$1,276
-
(89)
-
121
-
-
4
-
356
-
162
-
$1,672
$1,535
$1,544
$1,534
$1,498
$1,438
$6,334
$6,011
$5,836
$5,498
$5,262
$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.
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
2 7
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, 2019, 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:
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
Trading Symbol(s)
ALLY
ALLY PRA
Name of each exchange
on which registered
NYSE
NYSE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
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
No
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
No
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
No
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.
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
No
The aggregate market value of the Registrant’s common stock (Common Stock) held on June 28, 2019 by non-affiliated entities was
approximately $12.2 billion (based on the June 28, 2019 closing price of Common Stock of $30.99 per share as reported on the New York
Stock Exchange). At February 21, 2020, the number of shares outstanding of the Registrant’s common stock was 375,074,939 shares.
Documents incorporated by reference: portions of the Registrant’s Proxy Statement for the annual meeting of stockholders to be held on
April 28, 2020, are incorporated by reference in this Form 10-K in response to Items 10, 11, 12, 13, and 14 of Part III.
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
93
94
94
95
98
100
101
103
104
106
188
188
188
189
191
191
191
191
192
194
195
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 $180.6 billion in assets as of December 31, 2019. 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, personal lending, 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). 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 is composed of 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 Ally Lending (formerly known as Health Credit Services), 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, 2019, Ally Bank had total assets of $167.5 billion and total deposits of $120.8 billion.
Our strategic focus is centered around (1) differentiating our company as a relentless ally for the financial well-being of our customers,
(2) ongoing optimization of our market lending automotive and insurance business lines, (3) sustained growth in customers and optimization
of our deposit funding profile, (4) expanding consumer product offerings, (5) efficient capital deployment and disciplined risk management,
and (6) ensuring that our culture remains aligned with a relentless focus on our customers, communities, associates, and stockholders. We
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 Automotive Finance and Insurance operations, we are also 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 (Clearlane), our participation in other direct-lending platforms, and our work with dealers innovating in digital transactions
—all while maintaining an appropriate level of risk. Within our other banking operations—including Mortgage Finance and Corporate
Finance—we seek to expand our consumer and commercial banking products and services while providing a high level of customer service.
In 2019, Ally acquired Credit Services Corporation, LLC and its subsidiary, Health Credit Services LLC, which has been renamed Ally
Lending and which is strategically exploring ways to expand beyond its historical emphasis on unsecured personal lending for medical
procedures and serve as our point-of-sale personal-lending platform more generally. 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 seek to augment
our securities-brokerage and investment-advisory services to more comprehensively assist our customers in managing their savings and
wealth.
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. We continue to build on this foundation and invest in enhancing the
customer experience with integrated features across product lines on our digital platform. Our expanded product offerings and unique brand
are increasingly gaining traction in the marketplace, as demonstrated by industry recognition of our award-winning direct online bank and
strong retention rates of our growing 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 where 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, mortgage finance, and point-of-sale personal
lending), securities brokerage, and investment-advisory services are highly competitive. We directly compete in the automotive financing
3
Ally Financial Inc. • Form 10-K
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 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
compete with us directly, and 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 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, a Delaware limited liability company (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.
•
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-
4
Ally Financial Inc. • Form 10-K
managed,” in each case 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 rating of satisfactory or better under the Community
Reinvestment Act (CRA).
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. Under rules of the FRB, whether Ally is presumed to have a “controlling
influence” over an entity is determined by applying a framework of tiered presumptions of control that are based on the percentage
of a class of voting securities held by Ally and nine other relationships with the entity. For example, Ally would be presumed to
have such a controlling influence with less than 5% of a class of voting securities and any of the following: a management
agreement with the entity, one-half or more of the directors on the entity’s board, or one-third or more of the total equity in the
entity.
Enhanced Prudential Standards — Ally is currently subject to enhanced prudential standards that have been established by the
FRB 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. In
October 2019, the FRB and other U.S. banking agencies issued final rules implementing these amendments. The final rules
establish four risk-based categories of prudential standards and capital and liquidity requirements for banking organizations with
$100 billion or more in total consolidated assets. The most stringent standards and requirements apply to U.S. global systemically
important BHCs, which are assigned to Category I. The assignment of other banking organizations to the remaining three categories
is based on measures of size and four other risk-based indicators: cross-jurisdictional activity, weighted short-term wholesale
funding (wSTWF), nonbank assets, and off-balance-sheet exposure. Under the final rules, Ally is designated as a Category IV firm
and, as such, is (1) made subject to supervisory stress testing on a two-year cycle rather than the previously required one-year cycle,
(2) required to continue submitting an annual capital plan to the FRB, (3) allowed to continue excluding accumulated other
comprehensive income (AOCI) from regulatory capital, (4) required to continue maintaining a buffer of unencumbered highly
liquid assets to meet projected net stressed cash outflows over a 30-day planning horizon, (5) required to conduct liquidity stress
tests on a quarterly basis rather than the previously required monthly basis, (6) 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, (7) exempted from
company-run capital stress testing, (8) exempted from the modified liquidity coverage ratio (LCR) and the proposed modified net
stable funding ratio provided that wSTWF remains under $50 billion, and (9) allowed to remain exempted from the supplementary
leverage ratio, the countercyclical capital buffer, and single-counterparty credit limits. The final rules went in effect on
December 31, 2019.
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 — Under the final rules described earlier in Enhanced Prudential Standards, Ally is (1) made
subject to supervisory stress testing on a two-year cycle rather than the previously required one-year cycle, (2) required to continue
submitting an annual capital plan to the FRB, (3) allowed to continue excluding AOCI from regulatory capital, (4) exempted from
company-run capital stress testing, and (5) allowed to remain exempted from the supplementary leverage ratio and the
countercyclical capital buffer. Ally’s annual 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 our
capital. The 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 the plan, in whole or in part, or provide a notice of non-objection. If the FRB objects to the plan, or if
certain material events occur after submission of the plan, Ally must submit a revised plan to the FRB within 30 days.
We received a non-objection to our 2018 capital plan in June 2018. We were not required to submit an annual capital plan to
the FRB, participate in the supervisory stress test or the Comprehensive Capital Analysis and Review (CCAR), or conduct
company-run capital stress tests during the 2019 cycle. Instead, our capital actions during this cycle were largely based on the
results from our 2018 supervisory stress test.
•
•
•
•
Resolution Planning — Under rules of the FDIC, Ally Bank is required to periodically submit to the FDIC a resolution plan
(commonly known as a living will) that would enable the FDIC, as receiver, to resolve Ally Bank in the event of its insolvency
under the FDI Act in a manner that ensures that depositors receive access to their insured deposits within one business day of Ally
Bank’s failure (two business days if the failure occurs on a day other than Friday), maximizes the net present value return from the
sale or disposition of its assets, and minimizes the amount of any loss realized by the creditors in the resolution. If the FDIC
5
Ally Financial Inc. • Form 10-K
determines that the resolution plan is not credible and the deficiencies are not adequately remedied in a timely manner, the FDIC
may take formal or informal supervisory, enforcement, and other actions against us. Ally Bank submitted its most recent resolution
plan on July 1, 2018. In April 2019, the FDIC issued an advance notice of proposed rulemaking seeking comment on ways to tailor
and improve its resolution-planning rules and, at the same time, delayed the next round of resolution-plan submissions until the
rulemaking process has been completed. Under the final rules described earlier in Enhanced Prudential Standards, Ally is no longer
required to submit to the FRB and the FDIC a plan 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.
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, if
Ally or IB Finance were to 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. On April 1, 2019, our Board of Directors authorized an increase in our stock-repurchase program, permitting us to
repurchase up to $1.25 billion of our common stock from time to time from the third quarter of 2019 through the second quarter of
2020. For additional information on our capital actions, including our stock-repurchase program and dividends on our common
stock, refer to Note 20 to the Consolidated Financial Statements. 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 and approval by our
Board. The amount and size of any future dividends and share repurchases also will be subject to various factors, including Ally’s
capital and liquidity positions, regulatory considerations, any accounting standards that affect capital or liquidity (including
Accounting Standards Update 2016-13, Financial Instruments - Credit Losses), financial and operational performance, alternative
uses of capital, common-stock price, and general market conditions, and may be suspended at any time.
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
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. 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
6
•
•
•
•
Ally Financial Inc. • Form 10-K
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, any of 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 governmental 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.
In December 2010, the Basel Committee on Banking Supervision (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 subject to a capital conservation buffer of more than 2.5%. 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 (such as 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 (MSAs), 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
7
Ally Financial Inc. • Form 10-K
for calculating RWAs by, among other things, modifying certain risk weights and the methods for calculating RWAs for certain types of assets
and exposures.
In July 2019, the FRB and other U.S. banking agencies issued a final rule to simplify the capital treatment for MSAs, certain DTAs, and
investments in the capital instruments of unconsolidated financial institutions (collectively, threshold items). Under the current capital rule, a
banking organization must deduct from capital amounts of threshold items that individually exceed 10% of Common Equity Tier 1 capital.
The aggregate amount of threshold items not deducted under the 10% threshold deduction but that nonetheless exceeds 15% of Common
Equity Tier 1 capital minus certain deductions from and adjustments to Common Equity Tier 1 capital must also be deducted. Any amount of
these MSAs and certain DTAs not deducted from Common Equity Tier 1 capital are currently risk weighted at 100%. The final rule removes
the individual and aggregate deduction thresholds for threshold items and adopts a single 25% Common Equity Tier 1 capital deduction
threshold for each item individually, and requires that any of the threshold items not deducted be risk weighted at 250%. The final rule also
simplifies the calculation methodology for minority interests. These provisions will take effect for us on April 1, 2020. We do not expect these
provisions to have a significant impact on our capital position.
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, 2019, Ally Bank was well capitalized under the PCA framework.
At December 31, 2019, 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 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. CECL
became effective for us on January 1, 2020, and substantially increased 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 address the impact of CECL on
regulatory capital by allowing BHCs and banks, including Ally, the option to phase in the day-one impact of CECL. For regulatory capital
purposes, this permitted us to phase in 25% of the capital impact of CECL on January 1, 2020, with an additional 25% to be phased in at the
beginning of each subsequent year until fully phased in by the first quarter of 2023. In addition, the FRB announced that, in order to reduce
uncertainty, the FRB 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 issued final rules that 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 large U.S. banking
organizations. 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. At this time, how the FRB proposal and the Basel Committee 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 $167.5 billion and $159.0 billion at December 31, 2019, and 2018, respectively.
8
Ally Financial Inc. • Form 10-K
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.
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. These laws may differ in their purposes, definitions and presumptions of control, and restrictions, which for
example is the case for the BHC Act and the Change in Bank Control Act. Investors are responsible for ensuring that they do not, directly or
indirectly, acquire control of us in contravention of these laws.
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, subject to specified exceptions. Federal regulatory agencies issued final rules implementing this
risk-retention requirement in October 2014, with compliance required for residential-mortgage securitizations beginning December 24, 2015,
and for other securitizations beginning December 24, 2016.
Automotive Finance
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 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.
Insurance Companies
Some of our insurance operations—including in the United States, Canada, and Bermuda—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 laws, 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 and foreign laws generally governing insurance companies,
as well as laws addressing products that are not regulated as insurance, such as vehicle service contracts (VSCs) and guaranteed asset
protection (GAP) waivers.
Mortgage Finance
Our mortgage business is subject to extensive federal, state, and local laws, including related judicial and administrative decisions. These
laws, 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,
9
Ally Financial Inc. • Form 10-K
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 neither clear nor 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.
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 Cboe, 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, conduct of 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. The
firm 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, the firm is subject to a
host of requirements governing investment advisers and their personnel under the Investment Advisers Act of 1940, as amended, and related
rules and regulations, 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.
Other Laws
Ally is subject to numerous federal, state, and local statutes, regulations, and other laws, and the possibility of violating applicable law
presents ongoing compliance, operational, reputation, and other risks to Ally. Some of the other more significant laws to which we are subject
include:
•
•
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. On January 1, 2020, a comprehensive
privacy law went into effect in the State of California, requiring regulated entities to establish measures to identify, manage, secure,
track, produce, and delete personal information.
Volcker Rule — Under the Dodd-Frank Act and implementing regulations of the CFTC, the FDIC, the FRB, the Office of the
Comptroller of the Currency, and the SEC (collectively, 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 limited exceptions. The final rules contain exemptions for market-making, hedging, underwriting, and trading in U.S.
government and agency obligations and also permit the retention of ownership interests in certain types of funds and 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 fund activities. In late 2019, the regulatory agencies amended the Volcker Rule to simplify
and streamline compliance requirements for firms that do not have significant trading activity, such as Ally.
10
Ally Financial Inc. • Form 10-K
•
•
•
•
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.
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.
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 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 in recent years 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.
Sarbanes-Oxley Act — The Sarbanes-Oxley Act of 2002 implemented a broad range of corporate-governance and accounting
measures designed to improve the accuracy, reliability, and transparency of corporate financial reporting and disclosures and to
reinforce the importance of corporate ethical standards. Among other things, this law provided for (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 12 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.
• 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.
•
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. While the CRA does not establish specific lending requirements or programs, banks are rated on their
performance in meeting the needs of their communities. In its most recent performance evaluation in 2017, Ally Bank received an
“Outstanding” rating. In January 2020, Ally Bank began operating under a new three-year CRA strategic plan approved by the FRB.
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. Refer to Bank Holding Company, Financial Holding Company, and
Depository Institution Status earlier in this section.
Employees
We had approximately 8,700 and 8,200 employees at December 31, 2019, and 2018, respectively.
11
Ally Financial Inc. • Form 10-K
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 comply with 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 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 customer or 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 expanding our consumer and commercial lending and increasing our deposit customers and balances while optimizing our
cost of funds. 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
12
Ally Financial Inc. • Form 10-K
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. 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. In October 2019, the FRB and other U.S. banking agencies issued
final rules implementing these amendments, which became effective on December 31, 2019. The final rules establish four risk-based
categories of prudential standards and capital and liquidity requirements for banking organizations with $100 billion or more in total
consolidated assets. The most stringent standards and requirements apply to U.S. global systemically important BHCs, which are assigned to
Category I. The assignment of other banking organizations to the remaining three categories is based on measures of size and four other risk-
based indicators. Under the final rules, Ally is designated as a Category IV firm and, as such, is made subject to supervisory stress testing on a
two-year cycle, and is required to submit an annual capital plan to the FRB. Refer to the section above titled Regulation and Supervision in
Part I, Item 1 of this report. The FRB will either object to the 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 customer or 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 we are 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 customer or 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.
The revised enhanced prudential standards also require Ally, as a Category IV firm, to conduct quarterly liquidity stress tests, to maintain
a buffer of unencumbered highly liquid assets to meet projected net stressed cash outflows over a 30-day planning horizon, 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 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.
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, 2019, which represented 14.0% 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, our smaller
scale relative to other financial institutions, competition from fintech companies and emerging financial-services providers, any failures or
deterioration in our customer service, 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
existing and future 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 U.S. Basel III 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.
Ally and Ally Bank became subject to U.S. Basel III on January 1, 2015. Refer to the section above titled Regulation and Supervision in
Part I, Item 1 of this report. U.S. Basel III subjects Ally and Ally Bank to higher minimum risk-based capital ratios and a capital conservation
13
Ally Financial Inc. • Form 10-K
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, or informal or formal enforcement and other supervisory actions. Such a failure also could irrevocably damage our reputation, prompt a
loss of customer and investor confidence, and even lead to our resolution or receivership. Any of these consequences could have an adverse
effect on our business, results of operations, financial condition, or prospects.
Through its adoption of CECL, the FASB has implemented 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. CECL became
effective for us on January 1, 2020, and substantially increased 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 address 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, in order to reduce uncertainty, the FRB 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 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. How these revisions will be finalized in the
United States and harmonized with other regulatory proposals (such as the stress capital buffer) 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).
14
Ally Financial Inc. • Form 10-K
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 and their governmental agencies, such as the NYDFS, also have adopted or proposed cybersecurity laws
targeting these issues. In addition, a comprehensive privacy law has taken effect in the State of California, requiring regulated entities to
establish measures to identify, manage, secure, track, produce, and delete personal information.
Legislation and regulations on cybersecurity and data privacy may compel us to enhance or modify our systems and infrastructure, invest
in new systems and infrastructure, change our service providers, or alter our business practices or our policies on security, data governance,
and privacy. If any of these outcomes were to occur, our operational costs could increase significantly. In addition, if governmental 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 customer or investor confidence.
Risks Related to Our Business
Weak or deteriorating economic conditions, failures in underwriting, changes in underwriting standards, financial or systemic shocks, or
continued 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 significant 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
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, advisory, and other businesses. Increased delinquencies or defaults could also
result from our failing to appropriately underwrite loans and operating leases that we originate or purchase or from our 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 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. In addition, because of CECL, our financial results may be negatively affected as soon as weak or deteriorating economic
conditions are forecasted and alter our expectations for credit losses. 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. 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 $8.4 billion, or approximately 11.6% of our total consumer automotive loans at
December 31, 2019, as compared to $8.3 billion, or approximately 11.7% of our total consumer automotive loans at December 31, 2018. At
December 31, 2019, and 2018, $214 million and $203 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 $39.7 billion, or approximately 54.9% of our total consumer automotive
loans at December 31, 2019, as compared to $36.3 billion, or approximately 51.5% of our total consumer automotive loans at December 31,
2018. If our exposure to nonprime consumer automotive loans or used vehicle financing continue 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.
15
Ally Financial Inc. • Form 10-K
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.
Through its adoption of CECL, the FASB has implemented 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 this new model, the
allowance is established to reserve for management’s best estimate of expected lifetime losses inherent in our finance receivables and loan
portfolio. This new standard was effective January 1, 2020. 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. On the effective date, CECL substantially increased our allowance for loan
losses with a resulting negative day-one 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 U.S. Basel III 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.
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 and future 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, the
implementation of CECL, new qualitative or quantitative information about existing loans, identification of additional problem loans, changes
in the size or composition of our finance receivables and loan portfolio, changes to our loss estimation techniques including consideration of
forecasted economic assumptions, 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 has resulted in
additional increases in our allowance for loan losses, and could result in additional increases in the future. Any increase in the allowance in
future periods may adversely affect our financial condition or results of operations.
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. While it is not currently clear how
and how quickly these trends may develop, any one or more of them 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 8% as compared to December 31, 2018.
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 influence that captive automotive finance
companies have in the marketplace or 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 continue to diversify our automotive finance and insurance businesses and to expand into other financial services, GM and
Chrysler dealers and their retail customers still constitute a significant portion of our customer base. In 2019, 46% of our new vehicle dealer
inventory financing and 26% of our consumer automotive financing volume were transacted for GM-franchised dealers and customers, and
38% 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 businesses—including, for example, in the production or sale of GM or Chrysler vehicles,
16
Ally Financial Inc. • Form 10-K
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, customer preferences, 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, 2019, approximately 63% 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, the levels of demand for vehicle ownership and use,
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, during the economic crisis that 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
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 expectations. 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, and 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
17
Ally Financial Inc. • Form 10-K
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 increased this benchmark rate on a
number of occasions during 2017 and 2018 and began to end its quantitative-easing program and reduce the size of its balance sheet. During
2019, however, the FRB reversed course and reduced the federal funds rate several times. These past actions, and potential future actions,
exert upward or downward pressure on interest rates and 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 Offered Rate (LIBOR) may adversely affect our business and financial results.
LIBOR meaningfully influences market interest rates around the globe. We have exposure to LIBOR-based contracts through a number
of our finance receivables and loans primarily related to commercial automotive loans, corporate-finance loans, and mortgage loans, as well
as certain investment securities, derivative contracts, and other arrangements. Among our liabilities, we have issued trust preferred securities
with an interest rate linked to LIBOR and also have secured facilities, asset-backed securitizations, and brokered certificates of deposit that
also contain LIBOR-based reference rates.
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 indicated 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 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 derivative 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. 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.
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 to act on our own. No assurance can be provided that our 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
18
Ally Financial Inc. • Form 10-K
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 knowledge, 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
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. As further described in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations, we implemented a new technology platform for our consumer automotive loans and operating leases that is
utilized for customer servicing and financial reporting through the full lifecycle of these loans and leases during the first quarter of 2020.
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 financial, 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
19
Ally Financial Inc. • Form 10-K
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. While we continue to
evolve our risk-management framework to consider changes in business and regulatory expectations, there can be no assurance 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 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.
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. Other contingent exposures and their ultimate resolution are similarly unpredictable for reasons that
can vary based on the circumstances. As a result, we often are unable to determine how or when threatened or pending legal matters and other
contingent exposures will be resolved and what losses may be incrementally and ultimately incurred. Actual losses may be higher or lower
than any amounts accrued or estimated for those matters and other exposures, 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.
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 governmental 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 or that approval
may not be subject to burdensome conditions. 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 inaccurate financial and operational assumptions, incomplete or failed
due diligence, lower-than-expected performance, higher-than-expected costs, difficulties related to integration, diversion of management’s
attention from other business activities, adverse market or other reactions, changes in relationships with customers or counterparties, the
potential loss of key personnel, and the possibility of litigation and other disputes. 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.
20
Ally Financial Inc. • Form 10-K
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.
On February 18, 2020, Ally announced its execution of a definitive agreement to acquire Cardholder Management Services, Inc. and its
subsidiaries, including CardWorks, Inc. and Merrick Bank Corporation (collectively, CardWorks). Refer to Note 31 to the Consolidated
Financial Statements for additional information. This planned acquisition of CardWorks is subject to the risks and uncertainties described in
the preceding paragraphs. In addition, if Ally’s stock price declines by more than 15%, the closing is subject to the exercise of a “fill or kill”
termination right and, if the termination right is exercised, to a possible adjustment to the consideration if Ally elects to “fill” by issuing
additional stock. As a result, if such a decline in our stock price occurs for any reason during the measurement period described in the
definitive agreement we filed with the SEC on February 20, 2020, the planned acquisition may be terminated or may require our issuance of a
larger number of shares.
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, 2019, approximately $2.3 billion in principal
amount of total outstanding consolidated unsecured debt is scheduled to mature in 2020, and approximately $702 million and $1.1 billion is
scheduled to mature in 2021 and 2022, 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, 2019, approximately $2.6 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, 2019, approximately $7.0 billion in principal amount of total outstanding consolidated secured long-
term debt is scheduled to mature in 2020, approximately $9.5 billion is scheduled to mature in 2021, and approximately $5.6 billion is
scheduled to mature in 2022. Furthermore, at December 31, 2019, approximately $41.4 billion in certificates of deposit at Ally Bank are
scheduled to mature in 2020, 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
customer and 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 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, 2019, we had approximately $40.7 billion
in principal amount of indebtedness outstanding (including $25.8 billion in secured indebtedness). Interest expense on our indebtedness
constituted approximately 17.3% of our total financing revenue and other interest income for the year ended December 31, 2019. 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.
21
Ally Financial Inc. • Form 10-K
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.
While some of our credit ratings were raised to investment grade during 2019, future downgrades to our credit ratings or their failure to
meet investor expectations or demands may result in higher borrowing costs, reduced access to the banking and capital markets, more
restrictive terms and conditions being added to any new or replacement financing arrangements, and disadvantageous provisions being
triggered in existing borrowing arrangements.
The markets for automotive financing, insurance, banking (including corporate finance, mortgage finance, and personal lending),
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, mortgage finance, and personal lending),
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.
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.
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.
22
Ally Financial Inc. • Form 10-K
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
allowance for loan losses, 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.
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. For example, the adoption of CECL
effective January 1, 2020, has resulted in a significant increase to our allowance for loan losses. Refer to Note 1 to the Consolidated Financial
Statements for financial accounting standards issued by the FASB, but not yet adopted by the company.
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
23
Ally Financial Inc. • Form 10-K
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.
Our failure to maintain appropriate environmental, social, and governance (ESG) practices and disclosures could result in reputational
harm, a loss of customer and investor confidence, and adverse business and financial results.
Governments, investors, customers, and the general public are increasingly focused on ESG practices and disclosures. For us and others
in the financial-services industry, this focus extends to the practices and disclosures of the customers, counterparties, and service providers
with whom we choose to do business. For example, while we have a relatively smaller carbon footprint as a digital financial services
company and do not have commercial-lending relationships with a host of sensitive industries (such as those whose products are or are
perceived to be harmful to the environment or the public health), the majority of our business and operations are connected to the automotive
industry. Views about ESG are diverse, dynamic, and rapidly changing, and if we were to fail to maintain appropriate ESG practices and
disclosures, we could suffer reputational damage, a loss of customer and investor confidence, and adverse business and financial results.
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
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
24
Ally Financial Inc. • Form 10-K
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 June 2021 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, 2019, we had
374,331,998 shares of common stock outstanding, compared to 404,899,599 shares at December 31, 2018. As of February 21, 2020, we had
approximately 33 holders of record of our common stock.
Securities Authorized for Issuance Under Equity Compensation Plans
For information regarding securities authorized for issuance under our equity compensation plans, see Part III, Item 12.
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 $100 (with reinvestment of all dividends) is assumed to have been made
in our common stock and in each index on December 31, 2014, and its relative performance is tracked through December 31, 2019. The
returns shown are based on historical results and are not intended to suggest future performance.
This performance graph is not deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities
of that section, or incorporated by reference into any filing of Ally under the Securities Act of 1933, as amended, or the Exchange Act, except
as expressly set forth by specific reference in such a filing.
Recent Sales of Unregistered Securities
Ally did not have any sales of unregistered securities in the last three fiscal years.
26
Ally Financial Inc. • Form 10-K
Purchases of Equity Securities by the Issuer
The following table presents repurchases of our common stock, by month, for the three months ended December 31, 2019.
Three months ended December 31, 2019
October 2019
November 2019
December 2019
Total
Total number of
shares
repurchased (a)
(in thousands)
Weighted-average
price paid per
share (a) (b)
(in dollars)
Total number of
shares
repurchased as
part of publicly
announced
program (a) (c)
(in thousands)
Maximum
approximate dollar
value of shares that
may yet be
repurchased under
the program (a) (b) (c)
($ in millions)
3,304
$
3,061
3,189
9,554
31.07
31.44
31.27
31.25
3,304
$
3,061
3,189
9,554
848
751
652
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 April 1, 2019, we announced a common stock-repurchase program of up to $1.25 billion. The program commenced in the third quarter of 2019 and
will expire on June 30, 2020. Refer to Note 20 to the Consolidated Financial Statements for further details.
27
Ally Financial Inc. • Form 10-K
Item 6. Selected Financial Data
The selected historical financial information set forth below should be read in conjunction with Management’s Discussion and Analysis
of Financial Condition and Results of Operations (MD&A) in Part II, Item 7 of this report, and our Consolidated Financial Statements and the
notes thereto. The historical financial information presented may not be indicative of our future performance.
The following table presents selected Consolidated Statement of Income and earnings per common share data.
($ in millions, except per share data; shares in thousands)
2019
2018
2017
2016
2015
Total financing revenue and other interest income
$
9,857
$
9,052
$
8,322
$
8,305
$
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
(Loss) income from discontinued operations, net of tax
Net income
Basic earnings per common share (b):
Net income (loss) from continuing operations
Net income (loss)
Weighted-average common shares outstanding
Diluted earnings per common share (b):
Net income (loss) from continuing operations
Net income (loss)
Weighted-average common shares outstanding (c)
Common share information:
Cash dividends declared per common share
Period-end common shares outstanding
$
$
$
$
4,243
981
4,633
1,761
6,394
998
3,429
1,967
246
1,721
(6)
1,715
4.38
4.36
393,234
4.35
4.34
$
$
$
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
$
$
$
2,629
1,769
3,907
1,530
5,437
917
2,939
1,581
470
1,111
(44)
1,067
2.25
2.15
481,105
2.24
2.15
$
$
$
8,397
2,429
2,249
3,719
1,142
4,861
707
2,761
1,393
496
897
392
1,289
(3.47)
(2.66)
482,873
(3.47)
(2.66)
395,395
427,680
455,350
482,182
482,873
0.68
$
0.56
$
0.40
$
0.16
$
—
374,332
404,900
437,054
467,000
481,980
(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. Additionally, during
(b)
the second quarter of 2019, we realized an income tax benefit of approximately $200 million from the release of valuation allowance on foreign tax credit
carry forwards.
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 $2.4 billion for the year ended December 31, 2015, recognized in connection with the partial redemption of the Series G
Preferred Stock and the repurchase of the Series A Preferred Stock. These dividends represent an additional return to preferred stockholders calculated as
the excess consideration paid over the carrying amount derecognized.
(c) Due to antidilutive effect of the net loss from continuing operations attributable to common stockholders for the year ended December 31, 2015, basic
weighted-average common shares outstanding was used to calculate basic and diluted earnings per share.
28
Ally Financial Inc. • Form 10-K
The following tables present selected Consolidated Balance Sheet and ratio data.
December 31, ($ in millions)
Selected period-end balance sheet data:
Total assets
Total deposit liabilities
Long-term debt
Preferred stock
Total equity
Year ended December 31,
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)
Net yield on interest-earning assets (a) (d)
2019
2018
2017
2016
2015
$
$
$
$
$
180,644
120,752
34,027
$
$
$
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
14,416
$
13,268
$
13,494
$
13,317
$
13,439
2019
2018
2017
2016
2015
0.95%
12.26%
7.78%
15.60%
2.45%
2.67%
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%
(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) 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. Refer to Note 20 to the Consolidated Financial Statements for further information. The following table presents selected
regulatory capital data under U.S Basel III as subject to transitional provisions primarily related to deductions and adjustments impacting
Common Equity Tier 1 capital and Tier 1 capital.
December 31, ($ in millions)
Common Equity Tier 1 capital ratio
Tier 1 capital ratio
Total capital ratio
Tier 1 leverage ratio (to adjusted quarterly average assets) (a)
Total equity
Preferred stock
Goodwill and certain other intangibles
Deferred tax assets arising from net operating loss and tax credit
carryforwards (b)
Other adjustments
Common Equity Tier 1 capital
Preferred stock
Trust preferred securities
Deferred tax assets arising from net operating loss and tax credit
carryforwards (b)
Other adjustments
Tier 1 capital
Qualifying subordinated debt and other instruments qualifying as
Tier 2
Qualifying allowance for credit losses and other adjustments
Total capital
Risk-weighted assets (c)
2019
2018
2017
2016
2015
9.54%
11.22%
12.76%
9.08%
9.14%
10.80%
12.31%
9.00%
9.53%
11.25%
12.94%
9.53%
9.37%
10.93%
12.57%
9.54%
9.21%
11.10%
12.52%
9.73%
$ 14,416
$
13,268
$
13,494
$
13,317
$
13,439
—
(450)
(25)
(104)
13,837
—
2,496
—
(62)
—
(285)
(143)
557
13,397
—
2,493
—
(59)
—
(283)
(224)
250
13,237
—
2,491
(56)
(44)
—
(272)
(410)
343
12,978
—
2,489
(273)
(47)
(696)
(27)
(392)
183
12,507
696
2,520
(588)
(58)
16,271
15,831
15,628
15,147
15,077
1,033
1,202
1,031
1,184
1,113
1,233
1,174
1,098
932
996
$ 18,506
$
18,046
$
17,974
$
17,419
$
17,005
$ 145,072
$ 146,561
$ 138,933
$ 138,539
$ 135,844
(a) Tier 1 leverage ratio equals Tier 1 capital divided by adjusted quarterly average total assets, which both reflect adjustments for disallowed goodwill,
certain intangible assets, and disallowed deferred tax assets.
(b) Contains deferred tax assets required to be deducted from capital under U.S. Basel III.
(c) Risk-weighted assets are defined by regulation and are generally determined by allocating assets and specified off-balance-sheet exposures to 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 governmental agencies, central banks, or
supranational authorities;
changes in accounting standards or policies, including Accounting Standards Update (ASU) 2016-13, Financial Instruments —
Credit Losses (CECL);
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;
uncertainty about the future of the London Interbank Offered Rate (LIBOR) and any negative impacts that could result;
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, personal lending, brokerage, and wealth
management;
our ability to develop capital plans that will receive non-objection from the Board of Governors of the Federal Reserve System
(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;
31
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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;
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;
our ability to maintain appropriate environmental, social, and governance practices and disclosures; 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 where 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 automotive dealerships and consumers. Our award-winning online bank (Ally Bank, Member FDIC and
Equal Housing Lender) offers mortgage lending, personal lending, 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). Additionally, we offer
32
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
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.
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 business 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 their customers. We have deep dealer relationships that have
been built throughout our over 100-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. At December 31, 2019, our Automotive Finance
operations had $113.9 billion of assets and generated $4.4 billion of total net revenue in 2019. 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,
2019, our CSG had $8.2 billion of loans outstanding. Through our commercial automotive financing operations, we fund dealer purchases of
new and used vehicles through wholesale floorplan financing. We manage commercial account servicing on approximately 3,300 dealers that
utilize our floorplan inventory lending or other commercial loans. We service an $80.6 billion consumer loan and operating lease portfolio at
December 31, 2019, and our commercial automotive loan portfolio was approximately $32.5 billion at December 31, 2019. 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 2019, we
continued to reposition our origination profile to focus on capital optimization and risk-adjusted returns. In 2019, total consumer automotive
originations were $36.3 billion, an increase of $898 million compared to 2018. 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 18,300 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 identify and cultivate relationships with automotive retailers including those with leading eCommerce platforms. 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 LLC
(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 11,800 dealer relationships, of which approximately 88% are franchised dealers
(including brands such as Ford, Nissan, Kia, Hyundai, Toyota, Honda, and others), or used vehicle only retailers with a national presence.
Over the past several years, we have continued to focus on the consumer 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 279 million vehicles in operation, provides
33
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
an attractive opportunity that we believe will further expand and support our dealer relationships and increase our risk-adjusted return on
retail loan originations.
For consumers, we provide automotive loan financing and leasing for new and used vehicles to approximately 4.5 million customers.
Retail financing for the purchase of vehicles by individual consumers generally takes the form of installment sales financing. We originated a
total of approximately 1.4 million automotive loans and operating leases during both the years ended December 31, 2019, and 2018, totaling
$36.3 billion and $35.4 billion, respectively.
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. 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. Refer to the Risk Management section of this MD&A for further discussion
of credit risk and lease residual risk.
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 our
proprietary 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 (for example, 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 2019, we financed an average of
$28.2 billion of dealer vehicle inventory through wholesale floorplan financings. Other commercial automotive lending products, which
averaged $5.7 billion during 2019, consist of automotive dealer revolving lines of credit, 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
2019, Ally and other parties, including dealers, fleet rental companies, and financial institutions, utilized SmartAuction to sell approximately
270,000 vehicles to dealers and other commercial customers. SmartAuction served as the remarketing channel for 53% 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 consumers nationwide across
Finance and Insurance (F&I) and Property and Casualty (P&C) products. In addition, we offer F&I products in Canada, where we serve
approximately 445 thousand consumers and are the VSC and protection plan provider for GM Canada. Our Insurance operations had $8.5
billion of assets at December 31, 2019, and generated $1.3 billion of total net revenue during 2019. As part of our focus on offering dealers a
broad range of consumer financial and insurance products, we offer VSCs, VMCs, and GAP products. 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.
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 advise dealers regarding necessary liability and physical damage
coverages.
Our F&I products are primarily distributed indirectly through the automotive dealer network. We have established approximately 1,800
F&I dealer relationships nationwide and 600 dealer relationships in Canada, with a focus 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 3,400 dealer relationships within our P&C business to whom 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 for our preferred insurance programs. In April
2019, we renewed our annual reinsurance agreement to obtain excess of loss coverage for our vehicle inventory insurance product to manage
our risk of weather-related loss.
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 our direct-to-consumer Ally Home mortgage offering. Our Mortgage Finance operations had $16.3
billion of assets at December 31, 2019, and generated $193 million of total net revenue in 2019.
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,
2019, we purchased $3.5 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. In April of 2019, we announced a strategic partnership with Better.com, which
delivers an enhanced end-to-end digital mortgage experience for our customers through our direct-to-consumer channel. Through this
partnership, Better.com conducts the sales, processing, underwriting, and closing for Ally’s digital mortgage offerings in a highly innovative,
scalable, and cost-efficient manner, while Ally retains control of all the marketing and advertising strategies and loan pricing. Ally and
Better.com launched in 39 states since partnership inception. During the year ended December 31, 2019, we originated $2.7 billion of
mortgage loans through our direct-to-consumer channel.
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 provides senior secured leveraged cash flow and asset-based loans to mostly U.S.-based
middle-market companies owned by private equity sponsors, and loans to asset managers that primarily provide leveraged loans. Our
Corporate Finance operations had $5.8 billion of assets at December 31, 2019, and generated $284 million of total net revenue during 2019,
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, including a greater focus on asset-
based loans. 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. Additionally, our Lender Finance business provides asset
managers with partial funding for their direct-lending activities. Our target commitment hold level for individual exposures ranges from $25
million to $150 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 financing commitments in
excess of 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. We also provide a commercial real estate product focused on lending to skilled nursing
35
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
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 certain equity investments, which primarily consist of Federal Home Loan
Bank (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.
Corporate and Other also includes the results of Ally Invest, our digital brokerage and wealth management offering, which enables us to
complement our competitive deposit products with low-cost investing. 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 asset management and certain other
fees, with minimal balance sheet utilization. This business also provides an additional source of low-cost brokered deposits through
arrangements with Ally Invest’s clearing broker.
Through Ally Invest, we are able to offer a broader array of products through a fully integrated digital consumer platform centered
around self-directed products and digital advisory services. Ally Invest’s suite of commission-free and low-cost investing options serve both
active and passive investors with diverse and evolving financial objectives through a transparent online process. Our digital platform and
broad product offerings are enhanced by 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 50 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 based upon the client’s assets under management. We also offer cash enhanced portfolios that incur
no management fee. 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.
Additionally, beginning in October 2019 with the acquisition of Health Credit Services, financial information related to our point-of-sale
consumer unsecured financing is included within Corporate and Other. The Health Credit Services business has been renamed Ally Lending
and currently serves medical service providers by enabling promotional and fixed rate installment-loan products through a fully digital
application process that offers direct integration with health care provider systems. This platform includes providing underwriting, financing
application and loan processing, servicing and collections. While we currently focus on healthcare-related lending, we believe the market
outlook for point-of-sale lending provides attractive opportunities for future diversification. Point-of-sale lending broadens our capabilities,
expands our product offering into consumer unsecured lending, all while helping to further meet financial needs of our customers. Refer to
Note 2 to the Consolidated Financial Statements for additional details on the acquisition of Health Credit Services.
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 nearly 2.0 million primary deposit customers by
leveraging our compelling brand and strong value proposition. Ally Bank is a direct bank with no branch network that 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 with our customers 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, 2019, Ally Bank had $120.8 billion of total deposits—including $103.7 billion of retail deposits, which grew
$14.6 billion, or 16% during 2019. Over the past several years, the continued growth of our retail-deposit base has contributed to a more
favorable mix of lower cost funding and we continue to focus on efficient deposit growth by continuing to expand the deposit value
proposition beyond competitive deposit rates. Our segment results include cost of funds associated with these deposit-product offerings.
36
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
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 nearly 2.0 million deposit customers and 4.0 million retail bank accounts as of
December 31, 2019, reflect increases from 1.6 million and 3.2 million, respectively, as compared to December 31, 2018. 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 2019 American Bankers
Association survey, 83% 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 approximately 3 percentage points, from 7% to 10%. 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 targets a stable retail deposit base, supplemented by brokered deposits, public and private secured debt, and public
unsecured debt. These diversified funding sources are managed across products, markets, and investors to enhance funding flexibility and
stability, 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, 2019, deposit liabilities totaled $120.8 billion, which reflects an
increase of $14.6 billion as compared to December 31, 2018. Deposits as a percentage of total liability-based funding increased nine
percentage points to 75% at December 31, 2019, as compared to December 31, 2018.
In addition to building a larger deposit base, we continue to remain active in the securitization markets to finance our automotive loan
portfolios. During 2019, we issued $3.6 billion in securitizations backed by consumer automotive loans. Securitizations continue to be a
reliable and cost-effective 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 domestic and foreign investor base and committed secured credit facilities.
As we continue to migrate assets to Ally Bank and grow our bank funding capabilities, our need for funding at the parent company has
been reduced. At December 31, 2019, 93% of Ally’s total assets were within Ally Bank. This compares to approximately 89% as of
December 31, 2018. Longer-term unsecured debt is the primary funding source utilized at the parent company. At December 31, 2019, we had
$2.3 billion and $702 million of unsecured long-term debt principal maturing in 2020 and 2021, respectively. We plan to reduce our reliance
on market-based funding by continuing to focus on stable, lower cost retail deposit funding.
The strategies outlined above have allowed us to build and maintain a conservative liquidity position. Total available liquidity at
December 31, 2019, was $29.9 billion. Absolute levels of liquidity increased during 2019 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, are critical elements of our business. Credit
performance is influenced 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. Consistent with our risk appetite,
our business lines operate under credit standards that consider the borrower’s ability and willingness to repay loans. 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.
37
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
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 achieved through the utilization of robust credit decisioning
processes coupled with granular pricing that is differentiated across our proprietary credit tiers. While we are a full-spectrum automotive
finance lender, the significant majority of our consumer automotive loans are underwritten within the prime-lending segment. The carrying
value of our nonprime consumer automotive loans before allowance for loan losses, as of December 31, 2019, was approximately 11.6%.
During 2019, our strategy for originations was to optimize the deployment of capital by focusing on risk-adjusted returns against available
origination opportunities, which has included a gradual and measured shift toward our Growth channel including used vehicle financings.
The Mortgage Finance team focuses on applicants with stronger credit profiles and with income streams to support repayments of the
loan and operates under credit standards that consider and assess the value of the underlying real estate in accordance with prudent credit
practices and regulatory requirements. 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 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.
As further described in Note 2 to the Consolidated Financial Statements, on October 1, 2019, we acquired Health Credit Services, a
digital payment provider that operates under the name Ally Lending, and offers point-of-sale financing to consumers. This expansion into
digital point-of-sale lending further broadens Ally’s product portfolio to unsecured consumer financing. As of December 31, 2019, our gross
carrying value of finance receivables related to Ally Lending was $212 million.
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 2019, we continued to prudently grow this portfolio with a disciplined
and selective approach to credit quality, which has generally included the avoidance of covenant-light lending arrangements. This includes
growth of our lender finance vertical launched in 2019, which provides senior secured revolving credit facilities to asset managers,
collateralized by a portfolio of loans. Within our commercial automotive business, we continue to offer a variety of dealer-centric lending
products that primarily relate to floorplan financing and 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, as nonperforming finance receivables and loans decreased $134
million from December 31, 2018, to $215 million at December 31, 2019. During the years ended December 31, 2019, and 2018, we
recognized total net charge-offs of $49 million and $8 million, respectively, within our commercial lending portfolios, primarily driven by
partial charge-offs of four exposures within our Corporate Finance portfolio, as well as three accounts within our commercial automotive
portfolio. Despite the increase in net charge-offs, our total commercial net charge-off ratio represented 0.1% of average commercial
receivables and loans for the year ended December 31, 2019. Refer to the Risk Management section of this MD&A for further details.
During 2019, the U.S. economy continued to modestly expand, led by consumer spending. The labor market remained robust during the
year, with the unemployment rate falling to 3.5% as of December 31, 2019. Our credit portfolios will continue to be impacted by household,
business, economic, and market conditions—including used vehicle and housing price levels, and unemployment levels—and their impact to
our borrowers. We expect to experience modest downward pressure on used vehicle values during 2020.
Discontinued Operations
During 2013 and 2012, certain disposal groups met the criteria to be presented as discontinued operations. The remaining activity relates
to previous discontinued operations for which we continue to have wind-down, legal, and minimal operational costs. For all periods
presented, the operating results for these operations have been removed from continuing operations. The MD&A has been adjusted to exclude
discontinued operations unless otherwise noted.
38
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Primary Business Lines
Dealer Financial Services, which includes our Automotive Finance and Insurance operations, Mortgage Finance, and Corporate Finance
are our primary business lines. The following table summarizes the operating results excluding discontinued operations of each business line.
Operating results for each of the business lines are more fully described in the MD&A sections that follow.
Year ended December 31, ($ in millions)
2019
2018
2017
Favorable/
(unfavorable)
2019–2018
% change
Favorable/
(unfavorable)
2018–2017
% 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
n/m = not meaningful
$
4,390
$
4,038
$
1,328
1,035
193
284
199
186
242
303
4,068
1,118
136
212
231
$
6,394
$
5,804
$
5,765
$
1,618
$
1,368
$
1,220
315
40
153
(159)
80
45
144
(15)
168
20
114
(15)
$
1,967
$
1,622
$
1,507
9
28
4
17
(34)
10
18
n/m
(11)
6
n/m
21
(1)
(7)
37
14
31
1
12
(52)
125
26
—
8
39
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. For a discussion
of our fiscal 2018 results compared to fiscal 2017, refer to Part II, Item 7. Management Discussion and Analysis of Financial Condition and
Results of Operation in our 2018 Annual Report on Form 10-K.
Year ended December 31, ($ in millions)
2019
2018
2017
Net financing revenue and other interest income
Total financing revenue and other interest income
$
9,857
$
9,052
$
Total interest expense
Net depreciation expense on operating lease assets
Net financing revenue and other interest income
Other revenue
4,243
981
4,633
3,637
1,025
4,390
Insurance premiums and service revenue earned
1,087
1,022
Gain on mortgage and automotive loans, net
Other gain (loss) 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
28
243
403
1,761
6,394
998
1,222
321
1,886
3,429
1,967
246
25
(50)
417
1,414
5,804
918
1,155
295
1,814
3,264
1,622
359
Net income from continuing operations
$
1,721
$
1,263
$
8,322
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
n/m = not meaningful
2019 Compared to 2018
Favorable/
(unfavorable)
2019–2018
% change
Favorable/
(unfavorable)
2018–2017
% change
9
(17)
4
6
6
12
n/m
(3)
25
10
(9)
(6)
(9)
(4)
(5)
21
31
36
9
(27)
18
4
5
(63)
(149)
4
(8)
1
20
(5)
11
(8)
(5)
8
38
36
We earned net income from continuing operations of $1.7 billion for the year ended December 31, 2019, compared to $1.3 billion for the
year ended December 31, 2018. During the year ended December 31, 2019, results were favorably impacted by higher net financing revenue,
primarily driven by higher yields and growth in earning assets. Results for the year ended December 31, 2019, were also favorably impacted
by a release of valuation allowance on foreign tax credit carryforwards during the second quarter of 2019, and higher market values of equity
investments primarily within our Insurance operations. These items were partially offset by higher provision for loan losses, and higher
noninterest expense for the year ended December 31, 2019.
Net financing revenue and other interest income increased $243 million for the year ended December 31, 2019, compared to the year
ended December 31, 2018. Within our Automotive Finance operations, consumer automotive financing revenue benefited from improved
portfolio yields as a result of our continued focus on expanding risk-adjusted returns, and higher average consumer asset levels resulting from
sustained asset growth. During the year ended December 31, 2019, commercial automotive net financing revenue also increased due primarily
to higher yields resulting from higher average benchmark interest rates. Income from interest and dividends on investment securities and other
earning assets, including cash and cash equivalents, increased $173 million for the year ended December 31, 2019, compared to 2018, 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. 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 opportunities to broaden industry
and product diversification. The increase to financing revenue and other interest income was partially offset by an increase of 17% in total
interest expense for the year ended December 31, 2019, compared to the year ended December 31, 2018.
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
40
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
sources. Additionally, our overall borrowing levels were higher to support the growth in our lending operations. Our total deposit liabilities
increased $14.6 billion to $120.8 billion as of December 31, 2019, as compared to December 31, 2018.
Insurance premiums and service revenue earned was $1.1 billion for the year ended December 31, 2019, respectively, compared to $1.0
billion for 2018. The increase for the year ended December 31, 2019, was primarily due to vehicle inventory insurance portfolio growth and
rate increases.
Other gain on investments, net increased $293 million for the year ended December 31, 2019, compared to the year ended December 31,
2018, due to favorable market conditions during the year ended December 31, 2019. The gain on investments for the year ended
December 31, 2019, includes $92 million of unrealized gains as a result of changes in the fair value of our portfolio of equity securities,
compared to $121 million of unrealized losses in the fair value of our portfolio of equity securities for the year ended December 31, 2018.
The provision for loan losses was $998 million for the year ended December 31, 2019, compared to $918 million in 2018. The increase
in provision for loan losses for the year ended December 31, 2019, was primarily driven by reserve reductions during the year ended
December 31, 2018, associated with hurricane activity experienced during 2017 within our consumer automotive loan portfolio, the
acquisition of the Health Credit Services portfolio, and increases within the corporate finance portfolio due to favorable credit ratings
migration in 2018 and portfolio growth, as well as a $6 million recovery of a previously charged-off loan in the second quarter of 2018 that
did not reoccur. We continue to experience strong overall credit performance driven by favorable macroeconomic conditions including low
unemployment, as well as continued disciplined underwriting and higher recoveries. Refer to the Risk Management section of this MD&A for
further discussion on our provision for loan losses.
Noninterest expense increased $165 million for the year ended December 31, 2019, as compared to 2018. The increase for the year
ended December 31, 2019, was driven by increased expenses to support the growth of our consumer product suite. We continue to make
investments 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, the increase for the year ended December 31, 2019, was driven by
higher insurance losses and loss adjustment expense within our insurance operations primarily related to growth experienced in our portfolio
of products.
We recognized total income tax expense from continuing operations of $246 million for the year ended December 31, 2019, compared to
$359 million in 2018. The decrease in income tax expense for the year ended December 31, 2019, compared to 2018, was primarily due to a
release of valuation allowance on foreign tax credit carryforwards during the second quarter of 2019. The valuation allowance release was
primarily driven by our current capacity to engage in certain foreign securitization transactions and the market demand from investors related
to these transactions, coupled with the anticipated timing of the forecasted expiration of certain foreign tax credit carryforwards. Additionally,
the decrease in income tax expense for the year ended December 31, 2019, compared to 2018, was partially offset by the tax effects of an
increase in pretax earnings and a nonrecurring tax benefit from the release of valuation allowance against state net operating loss
carryforwards as a result of a state tax law enactment in the third quarter of 2018.
41
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Dealer Financial Services
Results for Dealer Financial Services are presented by reportable segment, which includes our Automotive Finance and Insurance
operations.
Automotive Finance
Results of Operations
The following table summarizes the operating results of our Automotive Finance operations. The amounts presented are before the
elimination of balances and transactions with our other reportable segments.
Year ended December 31, ($ in millions)
2019
2018
2017
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
$
4,775
$
4,287
$
1,561
—
1,470
8
7,814
2,692
981
4,141
8
241
249
4,390
962
524
1,286
1,810
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
3,882
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
Income from continuing operations before income tax
expense
Total assets
n/m = not meaningful
$
$
1,618
113,863
$
$
1,368
117,304
$
$
1,220
114,089
Components of net operating lease revenue, included in amounts above, were as follows.
Favorable/
(unfavorable)
2019–2018
% change
Favorable/
(unfavorable)
2018–2017
% change
11
3
(100)
(1)
14
7
(7)
4
10
(64)
(2)
(7)
9
(5)
(4)
(3)
(3)
18
(3)
10
16
n/m
(20)
17
3
(19)
18
2
(71)
(11)
(24)
(1)
19
1
(3)
(2)
12
3
Year ended December 31, ($ in millions)
2019
2018
2017
Favorable/
(unfavorable)
2019–2018
% change
Favorable/
(unfavorable)
2018–2017
% change
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
$
1,470
$
1,489
$
1,867
(1)
1,115
(90)
1,025
464
8,417
$
$
1,368
(124)
1,244
623
8,741
6
(23)
4
5
5
1,050
(69)
981
489
8,864
$
$
42
$
$
(20)
18
(27)
18
(26)
(4)
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 (b)
Consumer automotive (c)
Commercial
Wholesale floorplan
Other commercial automotive (d)
Investment in operating leases, net (e)
2019
2018
2017
Average
balance (a)
Yield
Average
balance (a)
Yield
Average
balance (a)
Yield
$
72,268
6.60% $
69,804
6.14% $
66,502
5.80%
28,200
5,663
8,509
4.60
4.65
5.74
29,455
6,038
8,590
4.21
4.55
5.40
31,586
5,802
9,791
3.37
4.15
6.36
(a) Average balances are calculated using a combination of monthly and daily average methodologies.
(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 $69 million, $90 million, and $124 million for the years ended December 31, 2019, 2018, and
2017, respectively. Excluding these gains on sale, the yield would be 4.93%, 4.35%, and 5.10% for the years ended December 31, 2019, 2018, and 2017,
respectively.
2019 Compared to 2018
Our Automotive Finance operations earned income from continuing operations before income tax expense of $1.6 billion for the year
ended December 31, 2019, compared to $1.4 billion for the year ended December 31, 2018. During the year ended December 31, 2019, we
continued to focus on driving 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 average benchmark interest rates. Growth in finance revenue for the year ended
December 31, 2019, was partially offset by higher interest expense driven by higher funding costs and growth in our consumer loan portfolio
as well as an increase in provision for loan losses.
Consumer automotive loan financing revenue increased $488 million for the year ended December 31, 2019, compared to 2018. The
increase was primarily due to improved portfolio yields as a result of our continued focus on expanding risk-adjusted returns, and higher
average consumer asset levels resulting from sustained asset growth, including a continued focus on the used-vehicle portfolio primarily
through franchised dealers and growth in application volume from our dealer network. Through these actions, we continue to optimize our
origination mix and achieve greater portfolio diversification.
Commercial loan financing revenue increased $45 million for the year ended December 31, 2019, compared to 2018. The increase was
primarily due to higher yields resulting from higher average benchmark interest rates. The increase was partially offset by a decrease in
average outstanding floorplan assets compared to 2018.
Interest expense was $2.7 billion for the year ended December 31, 2019, compared to $2.5 billion for the year in 2018. The increase was
primarily due to higher funding costs and growth in our consumer automotive loan portfolio.
We recorded gains from the sale of consumer automotive loans of $8 million for the year ended December 31, 2019, compared to gains
of $22 million for the year ended December 31, 2018. We continue to selectively 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 2% for the year ended December 31, 2019, compared to 2018. The decrease was primarily due to a decline in
servicing fee income resulting from lower levels of off-balance-sheet consumer automotive serviced loans and also attributable to a decrease
in remarketing fee income resulting from lower operating lease termination volume.
Total net operating lease revenue increased $25 million for the year ended December 31, 2019, compared to 2018. The increase was
primarily due to favorable performance and mix in our outstanding lease portfolio. Additionally, we recognized lower remarketing gains of
$69 million for the year ended December 31, 2019, compared to $90 million in 2018. The decrease was primarily due to a lower number of
terminated units and lower gain per unit. The lower number of terminated units was primarily due to the runoff of our legacy GM operating
lease portfolio, which was substantially wound-down as of June 30, 2018. Refer to the Operating Lease Residual Risk Management section of
this MD&A for further discussion.
43
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
The provision for loan losses was $962 million for the year ended December 31, 2019, respectively, compared to $920 million in 2018.
For the year ended December 31, 2019, the increase in provision for loan losses was primarily driven by reserve reductions during the year
ended December 31, 2018, associated with hurricane activity experienced during 2017 in our consumer automotive loan portfolio. We
continue to experience strong overall credit performance driven by favorable macroeconomic conditions including low unemployment, as
well as continued disciplined underwriting, and higher recoveries. 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.
Acquisition and Underwriting
Our consumer 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
higher-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 for new and used vehicles and operating lease contracts 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 that 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 an 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, if appropriate, 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 1.34% and 1.48% of the portfolio at December 31, 2019, and 2018, 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, 2019, our portfolio yield for consumer automotive loans increased 46 basis points relative to the year
ended December 31, 2018. 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. Over the
past several years, we have continued to focus on optimizing pricing relative to market interest rates as well as 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 $8.4 billion, or approximately 11.6% of our total consumer automotive loans at December 31, 2019, as compared to $8.3 billion, or
approximately 11.7% of our total consumer automotive loans at December 31, 2018.
The following table presents retail loan originations by credit tier and product type.
Credit Tier (a)
Year ended December 31, 2019
S
A
B
C
D
Total retail originations
Year ended December 31, 2018
S
A
B
C
Total retail originations
Year ended December 31, 2017
S
A
B
C
Total retail originations
Used retail
New retail
Volume
($ in billions)
% Share of
volume
Average
FICO®
Volume
($ in billions)
% Share of
volume
Average
FICO®
$
$
$
$
$
$
4.9
8.0
4.6
1.4
0.1
19.0
5.0
7.8
4.3
1.1
18.2
4.1
7.0
3.8
0.8
15.7
26
42
24
7
1
100
27
43
24
6
100
26
45
24
5
100
739
678
645
613
568
681
739
675
644
611
682
749
666
640
606
679
$
$
$
$
$
$
6.0
4.9
1.6
0.4
—
12.9
6.2
4.8
1.8
0.3
13.1
6.8
5.4
2.1
0.4
14.7
46
38
13
3
—
100
47
37
14
2
100
46
37
14
3
100
744
676
643
613
569
700
746
676
645
613
701
757
670
641
610
702
(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 years ended December 31, 2018, and 2017.
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 recreational vehicle (RV) loans. RV lending was discontinued in 2018.
2019
2018
2017
20%
65
15
100%
20%
67
13
100%
20%
66
14
100%
Retail originations with a term of 76 months or more represented 15% of total retail originations for the year ended December 31, 2019,
respectively, compared to 13% for the year ended December 31, 2018, and 14% for the year ended December 31, 2017. Substantially all of
the loans originated with a term of 76 months or more during the years ended December 31, 2019, 2018, and 2017, 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-2015
2015
2016
2017
2018
2019
Total
2019
2018
2017
2%
5%
11%
5
10
17
27
39
11
18
27
39
—
19
30
40
—
—
100%
100%
100%
The 2019, 2018, and 2017 vintages compose 83% of the overall retail portfolio as of December 31, 2019, 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)
2019
2018
2017
2019
2018
2017
Consumer automotive financing
originations
% Share of Ally originations
Used retail
New retail standard
Lease
New retail subvented
$
18,968
$
18,239
$
15,698
12,717
12,752
14,587
4,371
221
4,058
330
4,237
163
Total consumer automotive financing originations (a)
$
36,277
$
35,379
$
34,685
52
35
12
1
100
52
36
11
1
100
45
42
12
1
100
(a)
Includes CSG originations of $4.0 billion, $3.7 billion, and $3.8 billion for the years ended December 31, 2019, 2018, and 2017, respectively, and RV
originations of $238 million and $459 million for the years ended December 31, 2018, and 2017, respectively.
Consumer automotive financing
originations
% Share of Ally originations
Year ended December 31, ($ in millions)
2019
2018
2017
2019
2018
2017
Growth channel
Chrysler dealers
GM dealers
$
17,195
$
16,190
$
13,767
9,692
9,390
9,511
9,678
9,953
10,965
Total consumer automotive financing originations
$
36,277
$
35,379
$
34,685
47
27
26
100
46
27
27
100
40
28
32
100
During the year ended December 31, 2019, total consumer automotive loan and operating lease originations increased $898 million,
compared to 2018. The increase was primarily due to increased originations from the Growth channel, which was partially offset by lower
originations from the GM channel. 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, 2019
740 +
660–739
620–659
540–619
< 540
Unscored (a)
Total consumer automotive financing originations
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)
18%
24%
47%
39
25
13
1
4
34
19
7
1
15
35
11
5
—
2
100%
100%
100%
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
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 11% of total consumer loan and operating lease
originations for the year ended December 31, 2019, compared to 10% for year ended December 31, 2018. Consumer loans and operating
leases with FICO® Scores of less than 540 continued to compose only 1% of total originations for the year ended December 31, 2019.
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. Nonprime applications are subject to more stringent underwriting criteria (for example,
minimum payment-to-income ratio and vehicle mileage, and maximum amount financed), and our nonprime loan portfolio 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
48
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
the customer’s remaining payment obligation. Under most programs, the automotive manufacturer compensates us for a portion of the
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 customers via various channels when an account becomes 3 to 20 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 12-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 us
mitigate financial loss. Extensions may assist in cases where we believe the customer will recover from short-term financial difficulty and
resume regularly scheduled payments. Modifications may also be utilized in cases where we believe customers 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, 2019, 10.6% of the total amount outstanding in the servicing portfolio had been granted an extension or
was rewritten, compared to 11.3% at December 31, 2018.
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.
Our total consumer automotive serviced portfolio was $80.6 billion and $79.7 billion at December 31, 2019, and 2018, respectively,
compared to our consumer automotive on-balance-sheet serviced portfolio of $80.0 billion and $77.8 billion.
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 2019,
approximately 270,000 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 (for example, Manheim, NADA). This analysis includes vehicles sold on our
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 (for example, blanket lien over all dealership assets) or other credit enhancements (for example, personal guarantees
from dealership owners) are generally obtained to further mitigate credit risk. Furthermore, in some cases, we may benefit from situations
where an automotive manufacturer repurchases vehicles. These repurchases 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 offered 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, a 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
2019
2018
2017
40%
42%
50%
33
13
14
31
14
13
25
13
12
100%
100%
100%
$ 28,200
$
29,455
$
31,586
Average commercial wholesale financing receivables outstanding decreased $1.3 billion during the year ended December 31, 2019,
compared to 2018. 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 and reduced dealer inventory levels, 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. Manufacturer production and corresponding dealer stock levels, as
well as dealer penetration levels, may continue to influence our future wholesale balances during 2020.
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. Additionally, we generally also have cross-collateral and cross-default
provisions in place with dealers. 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. The average balances of other commercial automotive loans
decreased 6% to $5.7 billion for the year ended December 31, 2019, compared to the year ended December 31, 2018.
Servicing and Monitoring
We service all of the wholesale credit lines in our portfolio and the wholesale automotive finance receivables that we have securitized. A
statement setting forth billing and account information is distributed on a monthly basis to each dealer. Interest and other nonprincipal charges
are billed in arrears and are required to be paid immediately upon receipt of the monthly billing statement. Generally, dealers remit payments
to us through ACH transactions initiated by the dealer through a secure web application.
We manage risk related to wholesale floorplan financing by assessing dealership borrowers using a proprietary model based on various
factors, including their capital sufficiency, operating performance, and credit and payment history. This model assigns dealership borrowers a
risk rating that affects the amount of the line of credit and the ongoing risk management of the account. We monitor the level of borrowing
under each dealer’s credit line daily. We may adjust the dealer’s credit line if warranted, based on the dealership’s vehicle sales rate, and
temporarily suspend the granting of additional credit, or take other actions following evaluation and analysis of the dealer’s financial
condition.
We periodically inspect and verify the existence of dealer vehicle inventories. The timing of these collateral audits varies, and no
advance notice is given to the dealer. Among other things, audits are intended to assess dealer compliance with the financing agreement and
confirm the status of our collateral.
51
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Insurance
Results of Operations
The following table summarizes the operating results of our Insurance operations. The amounts presented are before the elimination of
balances and transactions with our other reportable segments.
Year ended December 31, ($ in millions)
Insurance premiums and other income
2019
2018
2017
Insurance premiums and service revenue earned
$
1,087
$
1,022
$
973
Interest and dividends on investment securities and cash and
cash equivalents, net (a)
Other gain (loss) on investments, net (b)
Other income
54
175
12
54
(51)
10
59
78
8
Total insurance premiums and other income
1,328
1,035
1,118
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
Income from continuing operations before income tax
expense
Total assets
Insurance premiums and service revenue written
321
80
475
137
692
1,013
315
8,547
1,310
$
$
$
295
75
440
145
660
955
332
73
415
130
618
950
$
$
$
80
7,734
1,174
$
$
$
168
7,464
996
Favorable/
(unfavorable)
2019–2018
% change
Favorable/
(unfavorable)
2018–2017
% change
6
—
n/m
20
28
(9)
(7)
(8)
6
(5)
(6)
n/m
11
12
5
(8)
(165)
25
(7)
11
(3)
(6)
(12)
(7)
(1)
(52)
4
18
Combined ratio (c)
92.2%
92.6%
96.8%
n/m = not meaningful
(a)
(b)
Includes interest expense of $79 million, $67 million, and $50 million for the years ended December 31, 2019, 2018, and 2017, respectively.
Includes net unrealized gains of $88 million for the year ended December 31, 2019, compared to net unrealized losses of $112 million for the year ended
December 31, 2018. These net unrealized gains and losses are included in net income as a result of the adoption of 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.
2019 Compared to 2018
Our Insurance operations earned income from continuing operations before income tax expense of $315 million for the year ended
December 31, 2019, compared to $80 million for the year ended December 31, 2018. The increase for the year ended December 31, 2019,
was primarily driven by $88 million of net unrealized gains on investments due to favorable market conditions within our equity portfolio,
compared to net unrealized losses of $112 million for the year ended December 31, 2018.
Insurance premiums and service revenue earned was $1.1 billion for the year ended December 31, 2019, compared to $1.0 billion for the
year ended December 31, 2018. The increase for the year ended December 31, 2019, was primarily due to vehicle inventory insurance
portfolio growth and rate increases.
Insurance losses and loss adjustment expenses totaled $321 million for the year ended December 31, 2019, compared to $295 million in
2018. The increase for the year ended December 31, 2019, was primarily driven by vehicle inventory insurance portfolio growth and higher
VSC, GAP, and other policies in force. Total acquisition and underwriting expense increased $32 million for the year ended December 31,
2019. The increase for the year ended December 31, 2019, was primarily due to an increase in insurance commissions expense, driven by
growth in our written insurance premiums and service revenue. Growth in insurance premiums and service revenue earned outpaced expense
increases, which led to a decrease in the combined ratio to 92.2% for the year ended December 31, 2019, compared to 92.6% for the year
ended December 31, 2018. In April 2019, we renewed our annual reinsurance program and continue to utilize this coverage to manage our
risk of weather-related loss.
52
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Premium and Service Revenue Written
The following table summarizes premium and service revenue written by product, net of premiums ceded to reinsurers. VSC and GAP
revenue are earned over the life of the service contract on a basis proportionate to the anticipated cost pattern. Refer to Note 3 to the
Consolidated Financial Statements for further discussion of this revenue stream.
Year ended December 31, ($ in millions)
Finance and insurance products
Vehicle service contracts
Guaranteed asset protection and other finance and insurance products (a)
Total finance and insurance products
Property and casualty insurance (b)
Total
(a) Other products include VMCs, ClearGuard, and other ancillary products.
(b) P&C insurance include vehicle inventory insurance and dealer ancillary products.
2019
2018
2017
$
$
901
121
1,022
288
$
856
101
957
217
$
1,310
$
1,174
$
711
94
805
191
996
Insurance premiums and service revenue written was $1.3 billion for the year ended December 31, 2019, compared to $1.2 billion in
2018. The increase for the year ended December 31, 2019, was primarily due to vehicle inventory insurance portfolio growth and rate
increases, and higher vehicle service contract volume.
Cash and Investments
A significant aspect of our Insurance operations is the investment of proceeds from premiums and other revenue sources. We use these
investments to satisfy our obligations related to future claims at the time these claims are settled. Our Insurance operations have an
Investment Committee, which develops guidelines and strategies for these investments. The guidelines established by this committee reflect
our risk appetite, liquidity requirements, regulatory requirements, and rating agency considerations, among other factors.
The following table summarizes the composition of our Insurance operations cash and investment portfolio at fair value.
December 31, ($ 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
Corporate debt
Total available-for-sale securities
Total cash and securities
2019
2018
$
95
$
1,230
1,325
608
528
530
186
1,132
70
1,363
3,809
$
5,742
$
252
644
896
766
460
691
145
758
135
1,241
3,430
5,092
53
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)
2019
2018
2017
Favorable/
(unfavorable)
2019–2018
% change
Favorable/
(unfavorable)
2018–2017
% 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
2019 Compared to 2018
$
$
577
406
171
20
2
22
193
5
31
117
148
40
16,279
$
$
$
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
19
(34)
(4)
n/m
—
n/m
4
n/m
3
(8)
(6)
(11)
7
57
(73)
36
67
100
75
37
88
(39)
(27)
(30)
125
30
Our Mortgage Finance operations earned income from continuing operations before income tax expense of $40 million for the year
ended December 31, 2019, compared to $45 million for the year ended December 31, 2018. The decrease for the year ended December 31,
2019, was primarily due to higher prepayment activity, an increase in provision for loan losses, and higher noninterest expense driven
primarily by continued asset growth. The decrease was partially offset by growth in our mortgage loan portfolio and an increase in the net
gain on sale of mortgage loans.
Net financing revenue and other interest income was $171 million for the year ended December 31, 2019, compared to $179 million for
the year ended December 31, 2018. The decrease in net financing revenue and other interest income for the year ended December 31, 2019,
was primarily due to accelerated premium amortization on purchased loans due to higher prepayment activity driven by a lower interest rate
environment, partially offset by 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, 2019, we purchased $3.5 billion of mortgage loans that were originated
by third parties and originated $2.0 billion of mortgage loans held-for-investment, compared to $4.4 billion and $401 million, respectively,
during the year ended December 31, 2018.
Gain on sale of mortgage loans, net, was $20 million for the year ended December 31, 2019, compared to $5 million for the year ended
December 31, 2018. The increase was driven by higher direct-to-consumer mortgage originations and the subsequent sale of these loans to
our fulfillment provider, and the execution of whole-loan sales during the year ended December 31, 2019. During the year ended
December 31, 2019, we originated $738 million of loans held-for-sale compared to $302 million during the year ended December 31, 2018.
The provision for loan losses increased $4 million for the year ended December 31, 2019, compared to the year ended December 31,
2018, as a result of reserve releases for the year ended December 31, 2018, that did not reoccur.
Total noninterest expense was $148 million for the year ended December 31, 2019, compared to $140 million for the year ended
December 31, 2018. The increase was primarily driven by continued asset growth.
54
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table presents the total unpaid principal balance (UPB) of purchases and originations of consumer mortgages held-for-
investment, by FICO® Score at the time of acquisition.
FICO® Score
Year ended December 31, 2019
740 +
720–739
700–719
680–699
Total consumer mortgage financing volume
Year ended December 31, 2018
740 +
720–739
700–719
680–699
660–679
Total consumer mortgage financing volume
Year ended December 31, 2017
740 +
720–739
700–719
680–699
660–679
Volume
($ in millions)
% Share of
volume
$
$
$
$
$
4,462
520
397
27
5,406
3,861
520
391
74
1
4,847
3,831
478
288
22
10
83
10
7
—
100
80
11
8
1
—
100
83
10
6
1
—
100
Total consumer mortgage financing volume
$
4,629
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, 2019
Adjustable-rate
Fixed-rate
Total
December 31, 2018
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)
$
$
$
$
1,715
14,200
15,915
2,828
12,042
14,870
11
89
100
19
81
100
3.46% $
4.07
4.01
$
3.40 % $
4.15
4.01
$
22
244
266
37
248
285
51.59%
61.39
60.33
53.69 %
60.97
59.58
774
774
774
775
774
774
(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.
55
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)
2019
2018
2017
Net financing revenue and other interest income
Interest and fees on finance receivables and loans
$
363
$
321
$
Favorable/
(unfavorable)
2019–2018
% change
Favorable/
(unfavorable)
2018–2017
% change
13
—
(6)
17
18
17
n/m
(9)
(12)
(10)
6
24
25
n/m
(43)
22
(16)
14
45
(13)
(14)
(13)
26
17
256
—
89
167
45
212
22
47
29
76
10
134
239
45
284
36
58
37
95
10
127
204
38
242
12
53
33
86
$
$
153
5,787
$
$
144
4,670
$
$
114
3,979
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
2019 Compared to 2018
Our Corporate Finance operations earned income from continuing operations before income tax expense of $153 million for the year
ended December 31, 2019, compared to $144 million for the year ended December 31, 2018. The increase was due primarily to higher net
financing revenue and other interest income resulting from higher asset levels, partially offset by higher provision for loan losses recognized
during the first quarter of 2019.
Net financing revenue and other interest income was $239 million for the year ended December 31, 2019, respectively, compared to
$204 million for the year ended December 31, 2018. The increase was primarily due to the growth of our loan portfolio, represented by a 23%
increase in the gross carrying value of finance receivables and loans. Growth in the portfolio was primarily driven by asset-based lending,
including our lender finance vertical, which provides asset managers with partial funding for their direct lending activities.
Other revenue was $45 million for the year ended December 31, 2019, compared to $38 million for the year ended December 31, 2018.
The increase for the year ended December 31, 2019, was primarily driven by higher unrealized losses on equity securities in 2018, partially
offset by lower fee income.
The provision for loan losses increased $24 million for the year ended December 31, 2019, compared to the year ended December 31,
2018. The increase was primarily driven by higher reserves associated with favorable credit ratings migration in 2018 and portfolio growth, as
well as a $6 million recovery of a previously charged-off loan recognized during the second quarter of 2018 that did not reoccur.
Total noninterest expense was $95 million for the year ended December 31, 2019, respectively, compared to $86 million for the year
ended December 31, 2018. The increase was primarily due to higher compensation and benefits expense and other noninterest costs
associated with growth in the business.
56
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Credit Portfolio
The following table presents loans held-for-sale, the gross carrying value of finance receivables and loans outstanding, unfunded
commitments to lend, and total serviced loans of our Corporate Finance operations.
December 31, ($ in millions)
Loans held-for-sale, net
Finance receivables and loans
Unfunded lending commitments (a)
Total serviced loans
2019
2018
$
$
$
$
100
5,688
2,682
6,380
$
$
$
$
47
4,636
2,141
5,501
(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 unfunded commitments 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
Health services
Services
Financial services
Automotive and transportation
Machinery, equipment, and electronics
Chemicals and metals
Food and beverages
Wholesale
Other manufactured products
Paper, printing, and publishing
Retail trade
Other
Total finance receivables and loans
2019
2018
25.8%
24.5%
19.8
13.0
11.4
7.0
5.9
3.9
3.4
3.1
1.7
1.3
3.7
25.6
—
12.3
6.0
4.9
5.0
7.5
4.7
2.8
1.3
5.4
100.0%
100.0%
57
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 Ally
Lending, and reclassifications and eliminations between the reportable operating segments.
Year ended December 31, ($ in millions)
2019
2018
2017
Favorable/
(unfavorable)
2019–2018
% change
Favorable/
(unfavorable)
2018–2017
% 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
$
$
$
69
2
$
83
2
842
58
(11)
960
42
890
932
28
—
63
108
171
199
(5)
363
677
62
(9)
815
101
530
631
184
(2)
8
113
119
303
(15)
333
(159) $
(15) $
68
—
497
30
(7)
588
90
348
438
150
(11)
24
68
81
231
(16)
262
(15)
36,168
$
33,950
$
29,908
(17)
—
24
(6)
(22)
18
58
(68)
(48)
(85)
100
n/m
(4)
44
(34)
(67)
(9)
n/m
7
22
n/m
36
107
(29)
39
(12)
(52)
(44)
23
82
(67)
66
47
31
(6)
(27)
—
14
n/m = not meaningful
(a) Primarily related to financing revenue from our legacy mortgage portfolio, impacts associated with hedging activities within our consumer automotive
loan portfolio, and consumer unsecured lending activity.
(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 $899 million, $854 million, and $804 million for the years ended December 31, 2019, 2018, and 2017, respectively, related to the
allocation of corporate overhead expenses to other segments. The receiving segments record their allocation of corporate overhead expense within other
operating expense.
The following table presents the scheduled remaining amortization of the original issue discount at December 31, 2019.
Year ended December 31, ($ in millions)
2020
2021
2022
2023
2024
2025 and
thereafter
Total
Original issue discount
Outstanding balance at year end
$
1,056
$
1,009
$
957
$
898
$
833
$
—
Total amortization (b)
44
47
52
59
65
833
$
1,100
(a) The maximum annual scheduled amortization for any individual year is $145 million in 2030.
(b) The amortization is included as interest on long-term debt in the Consolidated Statement of Income.
58
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
2019 Compared to 2018
Corporate and Other incurred a loss from continuing operations before income tax expense of $159 million for the year ended
December 31, 2019, compared to a loss of $15 million for the year ended December 31, 2018. The increase in total financing revenue and
other interest income from our investment securities portfolio and higher other revenue was more than offset by higher funding costs from
higher market rates and deposit growth.
Financing revenue and other interest income was $960 million for the year ended December 31, 2019, compared to $815 million for the
year ended December 31, 2018. The increase was primarily driven by growth in the size of the investment portfolio and higher interest and
dividends from investment securities, primarily as a result of higher balances.
Total interest expense was $932 million for the year ended December 31, 2019, compared to $631 million for the year ended
December 31, 2018. The increase was primarily driven by increased interest on deposits resulting from higher market rates and deposit
growth, partially offset by a decrease in higher-cost secured and unsecured debt borrowings.
Total other revenue was $171 million for the year ended December 31, 2019, compared to $119 million for the year ended December 31,
2018. The increase was primarily due to increased realized investment gains, partially offset by lower income related to certain equity hedges,
and lower commission revenues.
Total assets were $36.2 billion as of December 31, 2019, compared to $34.0 billion as of December 31, 2018. This increase was
primarily the result of growth in our available-for-sale securities portfolio. The increase was partially offset by a decline in our held-to-
maturity securities portfolio and the continued runoff of our legacy mortgage portfolio. At December 31, 2019, the gross carrying value of the
legacy mortgage portfolio was $1.1 billion, compared to $1.5 billion at December 31, 2018.
Cash and Securities
The following table summarizes the composition of the cash and securities portfolio at fair value for Corporate and Other.
December 31, ($ 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
Agency mortgage-backed commercial
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
59
2019
2018
$
501
$
1,706
2,207
1,520
111
20,272
2,780
1,382
42
368
535
3,083
3,618
1,391
111
16,380
2,551
3
714
723
26,475
21,873
1,579
21
1,600
$
30,282
$
2,264
43
2,307
27,798
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Ally Invest
Ally Invest is our digital brokerage and wealth management offering, which enables us to complement our competitive deposit products
with low-cost and commission-free investing. The following table presents trading days and average customer trades per day, the number of
funded accounts, total net customer assets, and total customer cash balances as of the end of each 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
2019
3rd quarter
2019
2nd quarter
2019
1st quarter
2019
4th quarter
2018
63.0
21.2
347
63.5
17.7
346
63.0
18.3
337
61.0
19.5
320
$
$
7,850
1,376
$
$
7,151
1,272
$
$
7,149
1,229
$
$
6,796
1,209
$
$
62.0
19.6
302
5,804
1,159
(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 were flat from the prior quarter, and increased 15% from the fourth quarter of 2018, as our expenditures with third
party marketing channels moderated during the fourth quarter of 2019. Average customer trades per day increased from the prior quarter,
primarily due to customer behavior trends and market dynamics. Additionally, net customer assets increased in the fourth quarter of 2019, as a
result of equity market appreciation.
The competitive environment in the wealth management industry continues to evolve and more recently has led to changes in pricing
models of industry participants. Consistent with recent industry developments, on October 4, 2019, Ally Invest announced that it would offer
commission-free trading for its customers, effective October 9, 2019. Following these developments, we reassessed the goodwill associated
with Ally Invest for impairment during the fourth quarter of 2019 and, based on a revised valuation analysis of the business, concluded that
goodwill was not impaired.
60
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 — Operates independent of the business lines and is 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 (our 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 that movements in market variables such as benchmark interest rates, investors’ required risk premium,
foreign-exchange rates, equity prices, and used car prices may adversely affect our earnings, capital, or economic value. 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 could 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 (for
example, a 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.
61
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
All business lines are subject to full and unrestricted audits by Audit Services. The Chief Audit Executive reports to the Audit Committee
of our Board (AC), as well as administratively to the Chief Executive Officer, and is primarily responsible for assisting the AC in fulfilling its
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 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
2019
2018
$
104,880
$
108,463
16,181
5,688
1,482
15,155
4,636
1,672
128,231
129,926
—
28
100
30
158
210
8
47
49
314
128,389
130,240
417
207
624
1,235
634
1,869
8,864
8,417
$
137,877
$
140,526
(a)
Includes $1.1 billion and $1.5 billion of consumer mortgage loans in our legacy mortgage portfolio at December 31, 2019, and December 31, 2018,
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, which are subject to our customary representation, warranty, and covenant
provisions.
The risks inherent in our loan and operating lease exposures are largely driven by changes in the overall economy, used vehicle and
housing prices, 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 may be more volatile than credit risk in
stressed macroeconomic scenarios. 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
62
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
our product and geographic concentrations. Additionally, we may elect to account for certain loans at fair value. Changes 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, warranty, and covenant 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, warranty and covenant 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 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 (for example, 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 relative to expected credit losses at contract inception. We closely monitor our loan performance and
profitability 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, various segmentations (for example, geographic region, product type,
industry segment), as well as the aggregate portfolio. We perform quarterly analyses of the consumer automotive, consumer mortgage,
consumer other, 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.
63
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 (for example, 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 2019, the U.S. economy continued to
modestly expand, led by consumer spending. The labor market remained robust during the year, with the unemployment rate at 3.5% as of
December 31, 2019. Within the U.S. automotive market, new light vehicle sales have moderated from both historic highs and year-over-year
pace, to a total of 17.0 million for the year ended December 31, 2019. We expect to experience modest downward pressure on used vehicle
values during 2020.
Consumer Credit Portfolio
Our consumer loan portfolio primarily consists of automotive loans, first-lien mortgages, home equity loans and personal 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 important factor in managing consumer credit risk. Servicing activities consist 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, 2019, the credit performance of the consumer loan portfolio reflected our underwriting strategy to
originate a diversified portfolio of consumer automotive loan assets, including new, used, prime 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. We also further diversified our consumer portfolio to include personal lending through the acquisition of Health Credit Services
during the fourth quarter of 2019. The carrying value of our nonprime consumer automotive loans before allowance for loan losses
represented approximately 11.6% of our total consumer automotive loans at December 31, 2019, compared to approximately 11.7% at
December 31, 2018. 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.
64
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
Total consumer mortgage
Consumer other (e)
2019
2018
2019
2018
2019
2018
$
72,390
$
70,539
$
762
$
664
$
— $
16,181
1,141
17,322
201
15,155
1,546
16,701
—
17
40
57
2
9
70
79
—
—
—
—
—
Total consumer finance receivables and loans
$
89,913
$
87,240
$
821
$
743
$
— $
—
—
—
—
—
—
Includes nonaccrual TDR loans of $252 million and $257 million at December 31, 2019, and December 31, 2018, respectively.
(a)
(b) Loans are generally in nonaccrual status when principal or interest has been delinquent for 90 days or more, 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 $8.2 billion and $7.9 billion at December 31, 2019, and December 31, 2018, respectively, and RV loans of $1.3 billion
and $1.7 billion at December 31, 2019, and December 31, 2018, respectively.
(e) Excludes $11 million of finance receivables at December 31, 2019, for which we have elected the fair value option.
Total consumer finance receivables and loans increased $2.7 billion at December 31, 2019, compared with December 31, 2018. The
increase consists of $1.9 billion of consumer automotive finance receivables and loans, $621 million of consumer mortgage finance
receivables and loans, and $201 million of consumer other finance receivables and loans. The increase in consumer automotive finance
receivables and loans was primarily related to continued momentum in our used vehicle lending. The increase in consumer mortgage finance
receivables and loans was primarily due to the execution of bulk loan purchases totaling $3.5 billion and direct-to-consumer held-for-
investment originations of $2.0 billion during the year ended December 31, 2019. These increases were partially offset by portfolio run-off
and the transfer of $940 million of consumer mortgage finance receivables and loans to held-for-sale, of which $864 million were sold during
the year ended December 31, 2019. The increase in consumer other finance receivables and loans was due to the acquisition of Health Credit
Services during the fourth quarter of 2019.
Total consumer nonperforming finance receivables and loans at December 31, 2019, increased $78 million to $821 million from
December 31, 2018, reflecting an increase of $98 million of consumer automotive finance receivables and loans and a decrease of $22 million
of consumer mortgage nonperforming finance receivables and loans. The increase in nonperforming consumer automotive finance receivables
and loans was primarily due to higher delinquency rates as part of our continued diversification strategy and as a result of portfolio growth.
The increase was also modestly impacted by a brief scheduled moratorium on all collections and repossession activities at the end of 2019
prior to the conversion to a new servicing and accounting technology platform during the first quarter of 2020. The decrease in nonperforming
consumer mortgage finance receivables and loans was driven by the continued run-off of our legacy mortgage portfolio. 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, 2019, and December 31, 2018.
Total consumer TDRs outstanding at December 31, 2019, increased $20 million since December 31, 2018, to $746 million. Results
reflect a $42 million increase in our consumer automotive loan portfolio, largely offset by a $22 million decrease in our consumer mortgage
loan portfolio, driven by our legacy mortgage portfolio. Refer to Note 9 to the Consolidated Financial Statements for additional information.
Consumer automotive loans accruing and past due 30 days or more increased $115 million to $2.6 billion at December 31, 2019,
compared to December 31, 2018, driven by growth in the overall size of the consumer automotive loan portfolio, as well as higher
delinquency rates as part of our continued diversification strategy.
65
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table includes consumer net charge-offs from finance receivables and loans at gross carrying value and related ratios.
Year ended December 31, ($ in millions)
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer mortgage
Consumer other
Net charge-offs
(recoveries)
Net charge-off ratios (a)
2019
2018
2019
2018
$
930
$
927
1.3%
1.3%
—
(8)
(8)
5
3
7
10
—
—
(0.6)
—
9.6
1.0
—
0.4
0.1
—
1.1
Total consumer finance receivables and loans
$
927
$
937
(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 $927 million for the year ended December 31, 2019,
compared to $937 million for the year ended December 31, 2018. The decrease in net charge-offs for the year ended December 31, 2019, was
primarily driven by our consumer mortgage loan portfolio where we experienced strong credit performance as the legacy mortgage portfolio
continues to run-off and we continue to grow our Mortgage Finance business. Net charge-offs for our consumer automotive portfolio
increased slightly by $3 million for the year ended December 31, 2019. Results were primarily driven by the relatively consistent credit
profile of our consumer automotive loan portfolio which experienced strong overall credit performance driven by favorable macroeconomic
conditions including low unemployment, as well as continued disciplined underwriting and higher recoveries. Additionally, we experienced a
modest reduction in net charge-offs due to a brief scheduled moratorium on all collections and repossession activities at the end of 2019 prior
to the conversion to a new servicing and accounting technology platform during the first quarter of 2020.
The following table summarizes total consumer loan originations for the periods shown. Total consumer loan originations include loans
classified as finance receivables and loans and loans held-for-sale during the period.
Year ended December 31, ($ in millions)
Consumer automotive
Consumer mortgage (a)
Consumer other (b)
Total consumer loan originations
2019
2018
$
31,906
$
31,321
2,693
67
703
—
$
34,666
$
32,024
(a) Excludes bulk loan purchases associated with our Mortgage Finance operations, and includes $738 million and $302 million of loans originated as held-
for-sale for the years ended December 31, 2019, and 2018, respectively.
(b) Amounts relate to originations from our Ally Lending business, following the acquisition of Health Credit Services during the fourth quarter of 2019.
Total consumer loan originations increased $2.6 billion for the year ended December 31, 2019, compared to the year ended
December 31, 2018, reflecting an increase of $2.0 billion of consumer mortgage loans and an increase of $585 million of consumer
automotive loans. The increase in consumer mortgage loan originations for the year ended December 31, 2019, was primarily due to growth
in the direct-to-consumer mortgage business. The increase in consumer automotive loan originations for the year ended December 31, 2019,
was primarily due to higher used vehicle volume.
66
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table shows the percentage of consumer automotive and consumer mortgage finance receivables and loans by state
concentration based on gross carrying value. Total consumer automotive loans were $72.4 billion and $70.5 billion at December 31, 2019, and
December 31, 2018, respectively. Total consumer mortgage loans were $17.3 billion and $16.7 billion at December 31, 2019, and
December 31, 2018, respectively.
December 31,
California
Texas
Florida
Pennsylvania
Illinois
Georgia
North Carolina
New York
Ohio
New Jersey
Other United States
Total consumer loans
2019 (a)
2018
Consumer
automotive
Consumer
mortgage
Consumer
automotive
Consumer
mortgage
8.5%
12.4
8.8
4.6
4.1
3.9
4.0
3.1
3.6
2.8
35.1%
6.5
5.1
1.9
2.6
2.8
2.0
3.0
0.5
2.3
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
44.2
38.2
44.1
38.4
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, 2019.
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 24.9% and 25.4% of our total outstanding consumer finance
receivables and loans at December 31, 2019, and December 31, 2018, 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 increased $11 million from December 31, 2018, to
$147 million at December 31, 2019. Foreclosed mortgage assets decreased $2 million from December 31, 2018, to $9 million at
December 31, 2019.
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 provides strong collateral
protection in the event of dealership default. Additional collateral (for example, a blanket lien over all dealership assets) or other credit
enhancements (for example, personal guarantees from dealership owners) are typically obtained to further mitigate credit risk. Furthermore, in
some cases, we may benefit from situations where an automotive manufacturer repurchases vehicles. These repurchases 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 proprietary risk rating models that are 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 systems are critical to an effective and consistent credit-risk-management framework.
During the year ended December 31, 2019, the credit performance of the commercial portfolio remained strong as nonperforming
finance receivables and loans decreased, and our net charge-offs remained low. 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.
67
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
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)
2019
2018
2019
2018
2019
2018
December 31, ($ in millions)
Commercial and industrial
Automotive
Other (c)
Commercial real estate
$
28,332
$
33,672
$
73
$
5,014
4,961
4,205
4,809
138
4
203
142
4
$
— $
—
—
—
—
—
—
Total commercial finance receivables and loans
$
38,307
$
42,686
$
215
$
349
$
— $
Includes nonaccrual TDR loans of $114 million and $86 million at December 31, 2019, and December 31, 2018, respectively.
(a)
(b) Loans are generally in nonaccrual status when principal or interest has been delinquent for 90 days or more, 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 and industrial primarily includes senior secured commercial lending largely associated with our Corporate Finance operations.
Total commercial finance receivables and loans outstanding decreased $4.4 billion from December 31, 2018, to $38.3 billion at
December 31, 2019. 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 and reduced dealer inventory levels. This decrease was partially offset by growth in our
Corporate Finance portfolio that was primarily driven by asset-based lending, including our lender finance vertical, which provides asset
managers with partial funding for their direct lending activities.
Total commercial nonperforming finance receivables and loans were $215 million at December 31, 2019, reflecting a decrease of $134
million when compared to December 31, 2018. The decrease was primarily due to reduced exposure to one large automotive dealer group that
was placed into default in the fourth quarter of 2018. Nonperforming commercial finance receivables and loans as a percentage of outstanding
commercial finance receivables and loans decreased to 0.6% at December 31, 2019, compared to 0.8% at December 31, 2018.
Total commercial TDRs outstanding at December 31, 2019, increased $35 million since December 31, 2018, to $121 million, reflecting
an increase of $20 million in our Corporate Finance portfolio and an increase of $15 million in our commercial automotive portfolio. The
increase in our Corporate Finance portfolio was primarily driven by three accounts being classified as TDRs, partially offset by the partial
liquidation and charge-off of two accounts. The increase in our commercial automotive portfolio was primarily driven by TDRs involving one
large automotive dealer group that was placed into default in the fourth quarter of 2018. Refer to Note 9 to the Consolidated Financial
Statements for additional information.
The following table includes total commercial net charge-offs from finance receivables and loans at gross carrying value and related
ratios.
Year ended December 31, ($ in millions)
Commercial and industrial
Automotive
Other
Total commercial finance receivables and loans
Net charge-offs
Net charge-off ratios (a)
2019
2018
2019
2018
$
$
12
37
49
$
$
5
3
8
—%
0.8
0.1
—%
0.1
—
(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 $49 million for the year ended December 31, 2019,
compared to net charge-offs of $8 million for the year ended December 31, 2018. The increase for the year ended December 31, 2019, was
primarily driven by partial charge-offs of four exposures within our Corporate Finance portfolio, as well as three accounts within our
commercial automotive portfolio. Charge-off activity during 2019 was in line with expectations for these businesses.
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 $5.0 billion and $4.8 billion at December 31, 2019, and December 31, 2018, respectively.
68
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table presents the percentage of total commercial real estate finance receivables and loans by state concentration based on
gross carrying value.
December 31,
Texas
Florida
Michigan
California
New York
North Carolina
Georgia
New Jersey
South Carolina
Illinois
Other United States
Total commercial real estate finance receivables and loans
Commercial Criticized Exposure
2019
2018
15.0%
11.6
15.5%
11.6
8.2
7.2
5.9
4.6
3.5
2.9
2.8
2.4
6.8
8.3
4.8
3.6
4.0
3.1
3.4
2.0
35.9
36.9
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 $251 million from December 31, 2018, to $4.2 billion at December 31, 2019. The increase was
primarily due to the downgrade of two dealership groups in December.
The following table presents the percentage of total commercial criticized finance receivables and loans by industry concentration based
on gross carrying value.
December 31,
Industry
Automotive
Services
Electronics
Other
Total commercial criticized finance receivables and loans
Selected Loan Maturity and Sensitivity Data
2019
2018
81.7%
80.6%
5.4
3.7
9.2
5.0
2.3
12.1
100.0%
100.0%
The table below shows the maturity of the commercial finance receivables and loans portfolio and the distribution between fixed and
floating interest rates based on the stated terms of the commercial loan agreements. This portfolio is reported at gross carrying value.
December 31, 2019 ($ 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
Due in one
year or less (a)
Due after one
year through
five years
Due after five
years
Total (b)
$
$
27,762
368
28,130
$
$
$
$
4,693
2,001
6,694
1,504
5,190
6,694
$
$
$
$
$
$
891
2,592
3,483
2,765
718
3,483
33,346
4,961
38,307
Includes loans with revolving terms (for example, wholesale floorplan loans).
(a)
(b) Loan maturities are based on the remaining maturities under contractual terms.
69
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Allowance for Loan Losses
The following tables present an analysis of the activity in the allowance for loan losses on finance receivables and loans.
($ in millions)
Consumer
automotive
Consumer
mortgage
Consumer
other
Total
consumer
Commercial
Total
Allowance at January 1, 2019
$
1,048
$
Charge-offs (a)
Recoveries
Net charge-offs
Provision for loan losses
Other
(1,423)
493
(930)
957
—
Allowance at December 31, 2019
$
1,075
$
53
(13)
21
8
(13)
(2)
46
(5)
—
(5)
14
—
9
$
(1,441)
514
(927)
958
(2)
$
— $
1,101
$
141
(49)
—
(49)
40
1
$
1,242
(1,490)
514
(976)
998
(1)
$
1,130
$
133
$
1,263
Allowance for loan losses to finance receivables
and loans outstanding at December 31,
2019 (b)
Net charge-offs to average finance receivables
and loans outstanding for the year ended
December 31, 2019 (c)
Allowance for loan losses to total nonperforming
finance receivables and loans at December 31,
2019 (b)
Ratio of allowance for loan losses to net charge-
offs at December 31, 2019 (c)
1.5%
0.3%
4.6%
1.3%
0.3%
1.0%
1.3%
—%
9.6%
1.0%
0.1%
0.8%
141.1%
80.5%
606.8%
137.8%
61.6%
121.9%
1.2
(5.9)
0.5
1.2
2.7
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) 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.
(c) Ratios for the consumer other portfolio segment are presented on an annualized basis, as a result of our acquisition of Health Credit Services on
October 1, 2019. Refer to Note 2 to our Consolidated Financial Statements for more information.
($ 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
$
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
Consumer
automotive
Consumer
mortgage
Total
consumer
Commercial
Total
$
1,066
$
(1,383)
456
(927)
911
(2)
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.
The allowance for consumer loan losses at December 31, 2019, increased $29 million compared to December 31, 2018, reflecting an
increase of $27 million in the consumer automotive allowance and an increase of $9 million in the consumer other allowance due to the
acquisition of Health Credit Services, partially offset by a decrease of $7 million in the consumer mortgage allowance. The increase in our
consumer automotive allowance was primarily driven by portfolio growth as finance receivable balances are up $1.9 billion compared to
70
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
2018. The decrease in the consumer mortgage allowance was primarily driven by overall lower net charge-offs resulting from legacy
mortgage portfolio run-off and strong credit performance, partially offset by year-over-year growth of $1.0 billion in our Mortgage Finance
receivables portfolio.
The allowance for commercial loan losses declined $8 million at December 31, 2019, compared to December 31, 2018. The decrease
was primarily driven by our commercial automotive portfolio due to lower reserves associated with a decrease of $5.4 billion in finance
receivable balances. Overall credit performance in our commercial portfolios remains stable.
Allowance for Loan Losses by Type
The following table summarizes the allocation of the allowance for loan losses by product type.
December 31, ($ in millions)
Consumer
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer mortgage
Consumer other
Total consumer loans
Commercial
Commercial and industrial
Automotive
Other
Commercial real estate
Total commercial loans
2019
2018
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
$
1,075
1.5%
85.1% $
1,048
1.5%
84.3%
19
27
46
9
1,130
31
78
24
133
1,263
0.1
2.3
0.3
4.6
1.3
0.1
1.5
0.5
0.3
1.0
1.5
2.2
3.7
0.7
89.5
2.5
6.1
1.9
10.5
100.0% $
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
1.3
3.0
4.3
—
88.6
2.9
6.2
2.3
11.4
100.0%
Total allowance for loan losses
$
Provision for Loan Losses
The following table summarizes the provision for loan losses by product type.
Year ended December 31, ($ in millions)
2019
2018
2017
Consumer
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer mortgage
Consumer other
Total consumer loans
Commercial
Commercial and industrial
Automotive
Other
Commercial real estate
Total commercial loans
Total provision for loan losses
$
957
$
911
$
1,127
5
(18)
(13)
14
958
8
36
(4)
40
1
(16)
(15)
—
896
8
12
2
22
8
(15)
(7)
—
1,120
6
21
1
28
$
998
$
918
$
1,148
The provision for consumer loan losses was $958 million for the year ended December 31, 2019, compared to $896 million for year
ended December 31, 2018. For the year ended December 31, 2019, the increase in provision for loan losses was primarily driven by reserve
71
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
reductions during the year ended December 31, 2018, associated with hurricane activity experienced during 2017 in our consumer automotive
loan portfolio. We continue to experience strong overall credit performance driven by favorable macroeconomic conditions including low
unemployment, as well as continued disciplined underwriting and higher recoveries. Additionally, for the year ended December 31, 2019,
provision expense was incurred in our consumer other portfolio due to the acquisition of Health Credit Services. The provision for consumer
mortgage loan losses increased $2 million during the year ended December 31, 2019, primarily driven by reserve releases for the year ended
December 31, 2018, that did not repeat, partially offset by lower net charge-offs as the legacy mortgage portfolio continues to run-off. We
continue to experience strong overall credit performance in our consumer mortgage portfolio.
The provision for commercial loan losses increased $18 million for the year ended December 31, 2019, compared to the year ended
December 31, 2018. The increase in provision expense for the year ended December 31, 2019, was primarily driven by our Corporate Finance
portfolio which experienced higher reserves associated with favorable credit ratings migration in 2018 and portfolio growth, as well as a $6
million recovery of a previously charged-off loan recognized during the year ended December 31, 2018, that did not reoccur. Overall credit
performance in the Corporate Finance portfolio remains stable.
Implementation of CECL
Ally will adopt CECL on January 1, 2020, as further described in Note 1 to the Consolidated Financial Statements. Upon implementation
of CECL we expect to recognize a reduction to our opening retained earnings balance of approximately $1.0 billion, net of income tax, which
reflects a pre-tax increase to the allowance for loan losses of approximately $1.3 billion. This increase is almost exclusively driven by our
consumer automotive loan portfolio. We plan to phase in the day-one impact of CECL into regulatory capital in accordance with regulatory
capital rules which permit us to phase in 25% of the impact of CECL in 2020 and an additional 25% each subsequent year until fully phased
in by the first quarter of 2023. We estimate that the implementation of CECL will reduce our Common Equity Tier 1 capital ratio by 17 to 19
basis points during the first quarter of 2020.
Under CECL, our modeling process will incorporate the following considerations:
• A single forecast scenario for macroeconomic factors incorporated into the modeling process;
• A 12-month reasonable and supportable forecast period for macroeconomic factors with a reversion to the historical mean on a
straight-line basis over a 24-month period;
• Data from the historical mean will be calculated from January 2008 through the most current period which includes data points
from the most recent recessionary period.
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, loans 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.
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.
72
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
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. We have exposure to equity securities with readily determinable fair
values primarily related to our Insurance operations. For such equity securities, we use equity derivatives to manage our exposure to equity
price fluctuations. In addition, we are exposed to changes in the value of other equity investments without readily determinable fair market
values. Refer to Note 13 to the Consolidated Financial Statements for additional information. We may experience changes in the valuation of
these investments, which may cause volatility in our earnings.
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
controls that 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 additional information.
LIBOR Transition
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. Due to the
uncertainty surrounding the future of LIBOR, it is expected that a transition away from the use of LIBOR to alternative benchmark rates will
occur by the end of 2021.
The discontinuation of LIBOR or LIBOR-based rates will present risks to our business, as further described in the section titled Risk
Factors in Part I, Item 1A of this report. In recognition of these risks and uncertainties, we have established an enterprise-wide LIBOR
transition program to identify, assess, monitor, and mitigate risks that may arise from the potential discontinuation of LIBOR. Our program
spans across impacted business lines and functions to evaluate risks associated with the transition, while taking into account specific
considerations related to our customers, products and instruments, and counterparty exposures. Through this program, we continue to assess
and plan for potential impacts to our existing and future contracts with customers and counterparties, financial forecasts, operational
processes, technology, modeling, and vendor relationships. We also continue to evaluate effective communication strategies to employ with
our stakeholders, including relevant customers, counterparties, and vendors.
We have exposure to LIBOR-based contracts within certain of our finance receivables and loans, primarily related to commercial
automotive loans, corporate finance loans, and mortgage loans, as well as certain investment securities and derivative contracts, among other
arrangements. Our commercial automotive loan portfolio is primarily composed of wholesale floorplan financing to automotive dealers.
Currently, a significant portion of our wholesale floorplan finance receivables are invoiced utilizing a LIBOR-based reference rate and, as
such, represents our largest exposure to LIBOR based on notional dollar amount. Smaller loan portfolios that utilize contracts containing
LIBOR-based reference rates include our corporate finance held-for-investment loans and lending commitments, and our adjustable-rate
mortgage loans. With respect to our liabilities, we have issued trust preferred securities with an interest rate linked to LIBOR and also have
secured facilities, certain asset-backed securitizations, and brokered certificates of deposit that also contain LIBOR-based reference rates.
With respect to selecting an alternative benchmark, we continue to evaluate the most appropriate course of action for each instrument
that currently references LIBOR as well as any future instruments that reference a benchmark. For example, the Alternative Reference Rates
Committee (ARRC), a group convened by the FRB, has identified the Secured Overnight Financing Rate (SOFR) as its preferred alternative
rate for LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on
directly observable U.S. Treasury-backed purchase transactions. We are evaluating SOFR, among other alternatives and actions, as a potential
alternative reference rate to LIBOR, and are taking steps to assess the operational, financial, and various other impacts this change could have
to our business. Additionally, we continue to evaluate inclusion of appropriate fallback provisions to our contracts to adequately address
alternatives in the absence of LIBOR, including evaluating the fallback language proposed by the ARRC for certain contracts. We will
continue to actively monitor industry developments and their potential impact to us.
We are also actively assessing how the discontinuation of LIBOR could impact accounting and financial reporting including, but not
limited to, potential impacts to our hedge accounting, valuation or modeling, or impacts associated with modifying the terms of our loan
agreements or debt instruments with our customers or counterparties. We also continue to monitor the activities of the standard setters such as
the FASB, which has issued proposed guidance and new accounting standard updates that provide certain relief related to the transition away
from LIBOR. For example, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight
Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, which permits the
use of the OIS rate based on the SOFR to be designated as a benchmark interest rate for hedge accounting purposes. In addition, the FASB has
recently issued proposed guidance that would help ease the potential effects of reference rate reform on financial reporting. The proposed
guidance would offer optional expedients and exceptions for applying GAAP to modifications of certain contracts, hedging relationships, or
other transactions that would be driven by reference rate reform. We anticipate this guidance will be issued as a final ASU in the first half of
2020.
Ally recognizes the significance of LIBOR cessation, and has devoted numerous resources throughout all levels of the organization to
actively identify, assess, monitor, and mitigate risks associated with this transition. Our program is also subject to the governance and
oversight of our Board through the RC and certain executive committees including the ALCO and the ERMC.
73
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Fair Value Sensitivity Analysis
The following table 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
2019
2018
(a)
(a)
408
$
(15)
663
$
(66)
(a)
(a)
392
(18)
810
(81)
$
$
(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 to movements in
interest rates and take actions to mitigate adverse impacts these movements may have on future earnings. We use a sensitivity analysis of net
financing revenue as our primary metric to measure and manage the interest rate risk of our financial instruments.
We prepare 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. We continually
monitor industry and competitive repricing activity along with other market factors when contemplating deposit pricing actions.
Simulations are then 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 12
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 12 months would increase by $13 million if interest rates remain unchanged.
The following table presents the pretax dollar impact to forecasted net financing revenue over the next 12 months assuming 100 basis
point and 200 basis point instantaneous parallel and gradual parallel shock increases, and assuming 100 basis point instantaneous parallel and
gradual parallel shock decreases to the implied market forward curve as of December 31, 2019, and December 31, 2018.
December 31, ($ in millions)
Change in interest rates
-100 basis points
+100 basis points
+200 basis points
2019
2018
Gradual (a)
Instantaneous
Gradual (a)
Instantaneous
$
17
$
(1)
2
67
7
(136)
$
(20) $
51
81
(34)
10
(10)
(a) Gradual changes in interest rates are recognized over 12 months.
The implied forward rate curve was lower across all tenors compared to December 31, 2018, and includes one projected rate cut in the
federal funds target rate in the forecast horizon. The impact of this change is reflected in our baseline net financing revenue projections. As of
December 31, 2019, our net interest income sensitivity in the +100 and +200 basis point instantaneous shock scenarios has primarily been
impacted by a net decrease in pay-fixed interest rate swaps, partially offset by funding sources shifting from short-term market-based funding
to deposits.
74
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
The exposure in the downward instantaneous interest rate shock scenario has decreased as of December 31, 2019, primarily due to the
lower pay-fixed interest rate swap notional referenced above as well as the addition of interest rate floor contracts, partially offset by
increased mortgage prepayment risk in a lower interest rate environment.
Our risk position is influenced by the impact of hedging activity which primarily consists of 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. During the year ended December 31, 2019, we initiated a hedging program of interest rate floor contracts
designated as cash flow hedges on certain floating-rate assets. 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, as further described in Note 10 to the Consolidated Financial Statements. Our operating lease portfolio, net of accumulated
depreciation was $8.9 billion and $8.4 billion as of December 31, 2019, and December 31, 2018, respectively. The expected lease residual
value of our operating lease portfolio at scheduled termination was $7.2 billion and $6.8 billion as of December 31, 2019, and December 31,
2018, respectively. 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 uses 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, as well as expert judgment. 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 over the remaining life of the contract as necessary. 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 affects 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.
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
2019
2018
2017
113,114
135,365
268,054
$
607
$
661
$
462
53%
15
32
52%
15
33
56%
13
31
We recognized an average gain per vehicle of $607 for the year ended December 31, 2019, compared to $661 for 2018. The decrease in
average gain per vehicle for the year ended December 31, 2019, compared to 2018, was primarily due to a decline in used vehicle values
75
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
resulting from increased market supply, most notably during the fourth quarter of 2019. The number of off-lease vehicles remarketed during
the year ended December 31, 2019, decreased 16% compared to 2018. The decrease in remarketing volume for the year ended December 31,
2019, was primarily due to the wind down of our legacy GM operating lease portfolio. We expect future termination volume to be more
consistent with trends experienced during the year ended December 31, 2019. 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
2019
2018
2017
58%
32
10
57%
31
12
55%
27
18
As a result of the runoff of our legacy GM operating lease portfolio, our exposure to Chrysler vehicles represented approximately 92%
and 94% of our operating lease units as of December 31, 2019, and 2018, respectively.
Business/Strategic Risk
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 activities that turn out to be unsuccessful due to a variety of both controllable and non-controllable factors. We aim to
mitigate this risk within our business lines through portfolio diversification, product innovations, close monitoring of the execution of our
strategic and capital plan, and ensuring flexibility of the cost base.
Ally’s strategic plan is reviewed and approved annually by our Board, as are the capital plan and financial business plan. With oversight
by our Board, executive management seeks to consistently apply core operating principles while executing our strategic plan within 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 our Board via reporting routines, and implements changes as deemed appropriate.
Significant strategic actions, such as capital actions, material acquisitions or divestitures, and recovery and resolution plans are reviewed
and approved by our Board as required. At the business level, as we introduce new products, we monitor their performance relative to
expectations. With oversight by our Board, executive management evaluates changes to the financial forecast and risk, capital, and liquidity
positions throughout the year.
Reputation Risk
Reputation risk is the risk arising from negative public opinion on our business practices, whether true or not, that could 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 has 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 our 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.
76
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
•
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 (for example, employees) or
externally (for example, 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 (for example,
a system outage) or intentional or accidental unauthorized access, sharing, removal, tampering, or disposal of company and customer data or
records.
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 through the introduction of 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 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. Our 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.
77
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
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
cybersecurity, technology, systems, and infrastructure, refer to the section titled Risk Factors in Part I, Item 1A of this report.
During the first quarter of 2020, we implemented a new technology platform for our consumer automotive loans and operating leases
that is utilized for customer servicing and financial reporting through the full lifecycle of these loans and leases. This new platform replaces
our existing consumer automotive loan and lease technology platform and helps modernize our technology, enhance the flexibility and
capabilities of the platform, and streamline aspects of our servicing operations. While this new platform will help us continue to expand our
capabilities, there are inherent risks in implementing any new system such as this. We will continue to monitor the newly implemented
platform to ensure the system is performing as expected.
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 our 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 is 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.
Business lines are responsible for driving a culture consistent with our “LEAD” core values and “Do it Right” philosophy (otherwise
known as the “Tone from the Top”). Ally maintains an enterprise-wide Conduct Risk Management program that establishes the requirements,
standards, and processes to manage conduct risk.
We manage conduct risk through a variety of enterprise programs, policies, and procedures. Associates complete required training at on-
boarding, and annually thereafter, to affirm their compliance with our Code of Conduct and Ethics. Training programs and other resources set
expectations surrounding appropriate conduct, and behavior, and a culture of compliance with applicable laws, regulations, policies, and
standards. Officers and employees are expected to take personal responsibility for maintaining the highest standards of honesty,
trustworthiness, and ethical behavior; to understand and manage the risks associated with their positions; and to escalate concerns about risk
management (including reporting of potential violations of the Code of Conduct and Ethics, our policies, or other laws and regulations).
Conduct risk is considered through various human resources and management activities including associate recruiting, on-boarding,
performance management, incentive programs and compensation, and corrective action. Oversight of conduct risk is performed by Enterprise
Risk Management.
Employee engagement surveys and risk culture surveys provide valuable insight into employee views and opinions about the company’s
culture and conduct. The Ethics Hotline (independently managed, available to associates 24 hours a day, 7 days a week) and Open-Door
Process provide avenues for employees to report concerns or incidents of potential misconduct. Human Resources, Employee Relations, and
Enterprise Fraud, Security, and Investigations have established processes and procedures for investigating and addressing cases of potential
fraud or employee misconduct.
78
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 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. 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 positions an organization 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), chaired by the Corporate Treasurer, 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, Corporate Treasury prepares periodic forecasts depicting anticipated funding needs and sources of funds, executes
our funding strategies, and manages liquidity under normal as well as more severely stressed macroeconomic environments. Oversight and
monitoring of liquidity risk are provided by Independent Risk Management.
Funding Strategy
Liquidity and ongoing profitability are largely dependent on the timely and cost-effective access to retail deposits and funding in various
segments of the capital markets. We focus on maintaining diversified funding sources across a broad base of depositors, lenders, and investors
to meet liquidity needs throughout different economic 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. Our access to diversified funding sources enhances funding flexibility 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 manage our funding to achieve a well-balanced 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.
Essentially all asset originations are directed to Ally Bank to reduce parent company exposures and funding requirements, and to utilize
our growing consumer deposit-taking capabilities. This allows us to use bank funding for an increasing proportion 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 liquidity risk, manage the liquidity position, identify related trends, and monitor such trends and
metrics against established limits. These metrics include coverage ratios and comprehensive stress tests that measure the sufficiency of the
liquidity portfolio over stressed horizons ranging from overnight to 12 months, 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.
During October 2019, the Federal Reserve finalized revisions to its regulatory framework which tailor regulatory requirements based on
a banking organization’s asset size and other supplementary measures, as further discussed in the section titled Regulation and Supervision in
Part I, Item I, of this report. Those revisions exempt Ally from complying with the LCR and LCR Disclosure Requirements and Ally ceased
publication of this disclosure effective December 31, 2019. We do not anticipate a material change to Ally’s funding and liquidity position as
a result of the changes to the LCR requirement.
79
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Our liquidity stress testing is designed to allow us to operate our businesses and to meet our contractual and contingent obligations,
including unsecured debt maturities, for at least 12 months, assuming our normal access to funding is disrupted by severe market-wide and
enterprise-specific events. We maintain available liquidity in the form of cash, unencumbered highly liquid securities, and available
committed secured credit facility capacity. This available liquidity is held at various legal 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, ($ in millions)
Unencumbered highly liquid U.S. federal government and U.S. agency securities
Liquid cash and equivalents
Committed secured credit facilities
Total capacity
Outstanding
Unused capacity (a)
Total available liquidity
2019
2018
$
24,713
$
12,849
3,136
4,227
2,500
450
2,050
8,600
6,665
1,935
$
29,899
$
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.
Recent Funding Developments
During 2019, we accessed the public and private markets to execute secured funding transactions, an unsecured funding transaction, and
to manage our committed secured credit facility capacity. Key funding highlights from January 1, 2019, to date were as follows:
• During the year ended December 31, 2019, we raised $3.6 billion through securitizations backed by consumer automotive loans.
•
In May 2019, we accessed the unsecured debt capital markets and raised $750 million through the issuance of senior notes.
• Our total capacity in committed secured credit facilities was reduced by $6.1 billion during the year ended December 31, 2019, as
we continue to shift our overall funding toward a greater mix of cost-effective deposit funding.
Funding Sources
The following table summarizes our sources of funding and the amount outstanding under each category for the periods shown.
December 31, ($ in millions)
Deposits
Debt
Secured financings
Institutional term debt
Retail debt programs (a)
Total debt (b)
On-balance-sheet funding
% Share of funding
2019
2018
2019
2018
$
120,752
$
106,178
25,773
10,933
2,852
39,558
39,596
11,760
2,824
54,180
75
16
7
2
25
100
66
25
7
2
34
100
Total on-balance-sheet funding
$
160,310
$
160,358
(a)
(b)
Includes $271 million and $347 million of retail term notes at December 31, 2019, and December 31, 2018, respectively.
Includes hedge basis adjustment as described in Note 21 to the Consolidated Financial Statements.
Refer to Note 15 to the Consolidated Financial Statements for a summary of the scheduled maturity of long-term debt at December 31,
2019.
Deposits
Ally Bank is a direct bank with no branch network that obtains retail deposits directly from customers through internet, telephone,
mobile, and mail channels. These retail deposits provide our Automotive Finance, Mortgage Finance, Corporate Finance operations and Ally
Lending with a stable and low-cost funding source. Retail deposits are a key driver of funding cost optimization and reducing reliance on
capital markets-based funding. We believe retail deposits are less sensitive to interest rate changes, market volatility, or changes in credit
ratings when compared to other funding sources. We have continued to expand our deposit gathering efforts through both direct and indirect
marketing channels. Current retail deposit offerings consist of a variety of products including CDs, savings accounts, money-market accounts,
IRA deposit products, as well as an interest checking product. In addition, we utilize brokered deposits, which are obtained through third-
party intermediaries, including a deposit related to Ally Invest customer cash balances.
80
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table shows Ally Bank’s number of accounts and deposit balances as of the end of each quarter since 2018.
Number of retail bank
accounts (in thousands)
Deposits ($ in millions)
Retail
Brokered (a)
Other (b)
Total deposits
4th quarter
2019
3rd quarter
2019
2nd quarter
2019
1st quarter
2019
4th quarter
2018
3rd quarter
2018
2nd quarter
2018
1st quarter
2018
4,006
3,908
3,712
3,503
3,238
3,079
2,947
2,864
$
103,734 $
101,295 $
98,600 $
95,423 $
89,121 $
84,629 $
81,736 $
81,657
16,898
17,778
17,562
17,734
16,914
16,567
16,839
15,661
120
157
163
142
143
183
159
128
$
120,752 $
119,230 $
116,325 $
113,299 $
106,178 $
101,379 $
98,734 $
97,446
(a) Brokered deposit balances include a deposit related to Ally Invest customer cash balances deposited at Ally Bank by a third party of $1.3 billion as of
December 31, 2019, $1.1 billion as September 30, 2019, June 30, 2019, March 31, 2019, and December 31, 2018, and $1.2 billion as of September 30,
2018, June 30, 2018, and March 31, 2018.
(b) Other deposits include mortgage escrow and other deposits.
During 2019, our total deposit base grew $14.6 billion and we added approximately 322 thousand retail deposit customers, resulting in
1.97 million total retail deposit customers as of December 31, 2019. The recent growth in total deposits has been primarily attributable to our
retail deposit portfolio—particularly within our online savings product and retail CDs. 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, securitizations and secured funding continue to be a 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.
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 activities of the SPEs are generally limited to acquiring the assets, issuing
and making payments on the debt, paying related expenses, and periodically reporting to 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, warranty, and covenant provisions.
We typically agree to service the assets transferred in our securitization transactions for a fee, and we may be entitled to 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 2019, we raised $3.6 billion through the completion of term securitization transactions backed by consumer automotive loans.
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 domestic and foreign investor base and available capacity from
committed secured credit facilities provided by banks. Our ability to access the unused capacity in these facilities depends on the availability
of eligible assets to collateralize the incremental funding and, in some instances, on the execution of interest rate hedges. We maintain
bilateral facilities, 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, 2019, all of our $2.5 billion of capacity was revolving and of
this balance, $1.1 billion was 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 finance
receivables and loans and investment securities. As of December 31, 2019, we had pledged $24.8 billion of assets to the FHLB resulting in
$18.8 billion in total funding capacity with $16.3 billion of debt outstanding.
81
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
At December 31, 2019, $46.2 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 $2.6 billion at December 31, 2019. 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 $271 million of retail term notes outstanding at December 31,
2019. The remainder of our unsecured debt is composed of institutional term debt. In May 2019, we accessed the unsecured debt capital
markets and raised $750 million through the issuance of senior notes. 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, 2019, we had no 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 had assets pledged and restricted as collateral to the FRB totaling $2.4 billion as of December 31, 2019.
We had no debt outstanding with the FRB as of December 31, 2019.
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 helpful 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 $4.1 billion and $4.2 billion for the years ended December 31, 2019, and 2018,
respectively. Activity was largely consistent year-over-year, as cash flows from our consumer and commercial lending activities remained
relatively flat.
Net cash used in investing activities was $3.8 billion for the year ended December 31, 2019, compared to $14.5 billion for the same
period in 2018. The decrease was primarily due to a $9.7 billion net decrease in cash outflows from purchases, sales, originations and
repayments of finance receivables and loans, as repayments outpaced originations. This decrease was also driven by a $835 million increase
in purchases of available-for-sale securities, net proceeds from sales and repayments. This was partially offset by a $778 million increase in
net outflows from purchases of operating lease assets, net of disposals.
Net cash used in financing activities for the year ended December 31, 2019, was $1.5 billion, compared to net cash provided by
financing activities of $10.7 billion for the same period in 2018. The change was primarily attributable to a $11.5 billion decrease in net cash
inflows due to issuance of long-term debt and an increase in net cash outflows related to short-term borrowings of $3.0 billion between the
two periods. This was partially offset by an increase of $1.7 billion from net cash inflows associated with deposits.
Capital Planning and Stress Tests
Under the final rules implementing the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCP Act), as further
described in Note 20 to the Consolidated Financial Statements, we are (1) made subject to supervisory stress testing on a two-year cycle
rather than the previously required one-year cycle, (2) required to continue submitting an annual capital plan to the FRB, (3) allowed to
continue excluding accumulated other comprehensive income from regulatory capital, (4) exempted from company-run capital stress testing,
and (5) allowed to remain exempted from the supplementary leverage ratio and the countercyclical capital buffer.
Our annual 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 our capital. The plan must also include a discussion of
how we, 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 the plan, in whole or in part, or provide a notice of
non-objection. If the FRB objects to the plan, or if certain material events occur after submission of the plan, we must submit a revised plan to
the FRB within 30 days. Even if the FRB does not object to the plan, we 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.
In October 2019, the FRB noted its intent to propose changes to the capital-plan rule, including for the purpose of providing Category IV
firms like us with additional flexibility in developing their annual capital plans. At this time, the impacts that such a potential future proposal
may have on us are not clear.
82
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table presents information related to our common stock and distributions to our common stockholders over the last eight
quarters.
($ in millions, except per share data; shares in thousands)
2018
First quarter
Second quarter
Third quarter
Fourth quarter
2019
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)
$
$
185
195
250
309
211
229
300
299
6,473
7,280
9,194
12,121
8,113
7,775
9,287
9,554
437,054
432,691
425,752
416,591
404,900
399,761
392,775
383,523
432,691
$
425,752
416,591
404,900
399,761
$
392,775
383,523
374,332
0.13
0.13
0.15
0.15
0.17
0.17
0.17
0.17
Includes shares of common stock withheld to cover income taxes owed by participants in our share-based incentive plans.
(a)
(b) On January 13, 2020, our Board declared a quarterly cash dividend of $0.19 per share on all common stock, payable on February 14, 2020. Refer to Note
31 to the Consolidated Financial Statements for further information regarding this common stock dividend.
We received a non-objection to our 2018 capital plan in June 2018. We were not required to submit an annual capital plan to the FRB,
participate in the supervisory stress test or CCAR, or conduct company-run capital stress tests during the 2019 cycle. Instead, our capital
actions during this cycle are largely based on the results from our 2018 supervisory stress test. On April 1, 2019, our Board authorized an
increase in our stock-repurchase program, permitting us to repurchase up to $1.25 billion of our common stock from time to time from the
third quarter of 2019 through the second quarter of 2020, representing a 25% increase over our previously announced program. Additionally,
on January 13, 2020, our Board declared a quarterly cash dividend of $0.19 per share of our common stock. Refer to Note 31 to the
Consolidated Financial Statements for further information on the most recent dividend.
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 and internal governance requirements, including approval by our Board. The amount and size of any future
dividends and share repurchases also will be subject to various factors, including Ally’s capital and liquidity positions, regulatory
considerations, any accounting standards that affect capital or liquidity (including CECL), financial and operational performance, alternative
uses of capital, common-stock price, and general market conditions, and may be suspended at any time.
Regulatory Capital
Refer to Note 20 to the Consolidated Financial Statements and the section titled Selected Financial Data within this MD&A.
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).
83
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
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
F3
Not Prime
A-3
R-3
Senior unsecured
debt
BBB-
Ba1
BBB-
BBB (Low)
Outlook
Stable
Stable
Stable
Positive
Date of last action
August 19, 2019 (a)
December 19, 2019 (b)
October 16, 2019 (c)
May 20, 2019 (d)
(a) Fitch upgraded our senior unsecured debt rating to BBB- from BB+, upgraded our short-term rating to F3 from B, and changed the outlook to Stable from
Positive on August 19, 2019.
(b) Moody’s upgraded our senior unsecured debt rating to Ba1 from Ba2, affirmed our short-term rating of Not Prime, and maintained a Stable outlook on
December 19, 2019. Effective December 1, 2014, we determined to not renew our contractual arrangement with Moody’s related to their providing of our
issuer, senior unsecured 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 upgraded our senior unsecured debt rating to BBB- from BB+, upgraded our short-term rating to A-3 from B, and changed the outlook
to Stable from Positive on October 16, 2019.
(d) DBRS affirmed our senior unsecured debt rating of BBB (Low), affirmed our short-term rating of R-3, and changed the outlook to Positive from Stable on
May 20, 2019.
During 2019, both S&P and Fitch upgraded our senior unsecured credit rating from BB+ to BBB-, which is defined by both rating
agencies as an investment grade credit rating. Following our announcement to acquire CardWorks on February 18, 2020, Fitch, Moody’s,
S&P, and DBRS affirmed our credit ratings for our short-term and senior unsecured debt, with each agency maintaining its respective outlook.
Rating agencies indicate that they base their ratings on many quantitative and qualitative factors, which may include 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.
Insurance Financial Strength Ratings
Substantially all of our Insurance operations have a Financial Strength Rating (FSR) and an Issuer Credit Rating (ICR) from the A.M.
Best Company (A.M. Best). The FSR is intended to be an indicator of the ability of the insurance company to meet its senior most obligations
to policyholders. Lower ratings generally result in fewer opportunities to write business, as insureds, particularly large commercial insureds,
and insurance companies purchasing reinsurance have guidelines requiring high FSR ratings. On August 30, 2019, A.M. Best upgraded the
FSR for Ally Insurance Group to A- (excellent) from B++ (good), and upgraded the ICR to a- from bbb+. The outlook was revised to Stable
from Positive.
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.
84
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, 2019 ($ 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)
Estimated net payments under interest rate swap agreements (b)
Lease commitments (c)
Purchase obligations
Bank certificates of deposit (d) (e)
Deposit liabilities without a stated maturity (e) (f)
Total contractually obligated payments due by period
Total other commitments by expiration period
Lending commitments
Less than
1 year
1–3 years
3–5 years
More than
5 years
Total
$
9,297
$
16,928
$
2,214
$
6,751
$
35,190
989
242
1
50
68
41,425
62,606
$ 114,678
$
2,942
$
$
1,163
442
25
72
78
14,628
—
33,336
845
$
$
685
427
12
32
51
2,125
—
5,546
1,294
1,520
3,172
78
62
27
—
—
4,357
4,283
116
216
224
58,178
62,606
$
$
11,610
$ 165,170
474
$
5,555
(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 $86 million, and a favorable hedge basis adjustment of $24 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, 2019. For additional information on derivative instruments and hedging activities, refer to Note 21 to the Consolidated Financial
Statements.
(c) Excludes a forward-starting lease agreement for a new corporate facility in Charlotte, North Carolina, scheduled to commence in April 2021. The lease
agreement will have a total of $290 million in undiscounted future lease payments over the 15-year term of the lease.
(d) Amounts presented exclude unamortized commissions paid to brokers.
(e) Deposits exclude estimated interest payments.
(f) 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 $122 million at
December 31, 2019. 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, 2019, 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, 2019. Refer to Note 10 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.
85
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
Lending Commitments
We have outstanding lending commitments with customers. The amounts presented represent the unused portion of those commitments
at December 31, 2019. Refer to Note 28 to the Consolidated Financial Statements for additional information.
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 our 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, Mortgage
Finance operations, and consumer unsecured lending included within Corporate and Other. Excluding certain loans that are identified as
individually impaired, the allowance for each consumer portfolio segment (automotive, mortgage, and other) 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 for our automotive and mortgage portfolio segments, and a vintage analysis for our other portfolio segment. 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
86
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
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 could be influenced by situations in which automotive
manufacturers may repurchase vehicles used as collateral to secure the loans in default situations. 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 review 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 2019, 2018, or 2017.
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, which can result in 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
governs 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
87
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
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
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. Following the sale of our legacy international operations in 2012 and 2013, we continue to hold unexpired
foreign tax credits subject to a partial valuation allowance. 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 12 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.
88
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
2019
Interest
income/
interest
expense
2018
Interest
income/
interest
expense
2017
Interest
income/
interest
expense
Yield/
rate
Average
balance (a)
Yield/
rate
Average
balance (a)
Interest-bearing cash and cash equivalents
$
3,837
$
Investment securities (b)
Loans held-for-sale, net
31,176
375
78
887
17
Finance receivables and loans, net (b) (c)
128,654
7,337
2.85
4.60
5.70
5.74
5.68
5.11
2.02% $
4,365
$
1.65% $
3,086
$
2.78
5.23
5.35
5.40
4.99
4.85
26,217
287
72
729
15
124,932
6,688
8,590
1,182
464
59
165,573
8,027
493
6,267
(1,266)
22,784
5
37
568
—
119,040
5,819
9,791
908
623
31
155,614
7,078
827
7,686
(1,208)
8,509
1,181
489
68
173,732
8,876
418
6,864
(1,274)
$
179,740
$
171,067
$ 162,919
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
Yield/
rate
1.20%
2.49
—
4.89
6.36
3.41
4.55
Interest-bearing deposit liabilities (b)
$
115,244
$ 2,538
2.20% $
99,056
$ 1,735
1.75% $
86,631
$ 1,077
1.24%
Short-term borrowings
Long-term debt (b)
Total interest-bearing liabilities
Noninterest-bearing deposit liabilities
5,686
38,466
159,396
141
135
1,570
4,243
2.38
4.08
2.66
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
Total funding sources
159,537
4,243
2.66
152,756
3,637
2.38
144,776
2,857
1.97
Other liabilities
Total liabilities
Total equity
6,215
165,752
13,988
Total liabilities and equity
$
179,740
Net financing revenue and other interest
income
Net interest spread (e)
Net yield on interest-earning assets (f)
5,222
157,978
13,089
$
171,067
4,652
149,428
13,491
$ 162,919
$ 4,633
$ 4,390
$ 4,221
2.45%
2.67%
2.47%
2.65%
2.58%
2.71%
(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 $69 million, $90 million, and $124 million, for the years ended December 31, 2019, 2018, and 2017, respectively.
Excluding these gains on sale, the yield would be 4.93%, 4.35%, and 5.10% for the years ended December 31, 2019, 2018, and 2017, respectively.
(e) Net interest spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities.
(f) Net yield on interest-earning assets represents net financing revenue and other interest income as a percentage of total interest-earning assets.
89
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table presents an analysis of the changes in net financing revenue and other interest income, volume, and rate.
Year ended December 31, ($ in millions)
Volume
Yield/rate
Total
Volume
Yield/rate
Total
2019 vs. 2018
(Decrease) increase due to (a)
2018 vs. 2017
Increase (decrease) due to (a)
Assets
Interest-bearing cash and cash equivalents
$
(9) $
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
138
5
199
(4)
—
Interest-bearing deposit liabilities
$
284
$
Short-term borrowings
Long-term debt
Total interest-bearing liabilities
Net financing revenue and other interest
income
(39)
(284)
15
20
(3)
450
29
9
519
25
101
$
$
$
$
$
6
$
158
2
649
25
9
849
$
15
86
15
288
(76)
9
803
$
154
$
(19)
(104)
(14)
(183)
606
243
20
75
—
581
(83)
19
504
41
204
$
$
$
$
$
35
161
15
869
(159)
28
949
658
22
100
780
169
(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
Consumer other
Total consumer
Commercial
Commercial and industrial
Automotive
Other
Commercial real estate
Total commercial loans
Total finance receivables and loans
Loans held-for-sale
2019
2018
2017
2016
2015
$
72,390
$
70,539
$
68,071
$
65,793
$
64,292
16,181
1,141
17,322
212
89,924
15,155
1,546
16,701
—
11,657
2,093
13,750
—
8,294
2,756
11,050
—
6,413
3,360
9,773
—
87,240
81,821
76,843
74,065
28,332
5,014
4,961
38,307
128,231
158
$
$
33,672
4,205
4,809
42,686
129,926
314
$
$
33,025
3,887
4,160
41,072
122,893
108
$
$
35,041
3,248
3,812
42,101
31,469
2,640
3,426
37,535
$
$
118,944
$
111,600
— $
105
90
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
Consumer other
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
2019
2018
2017
2016
2015
$
762
$
664
$
603
$
598
$
475
17
40
57
2
821
73
138
4
215
1,036
9
147
9
70
79
—
743
203
142
4
349
1,092
11
136
$
1,192
$
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
(a)
(b)
Interest revenue that would have been accrued on total consumer finance receivables and loans at original contractual rates was $67 million during the
year ended December 31, 2019. Interest income recorded for these loans was $31 million during the year ended December 31, 2019.
Interest revenue that would have been accrued on total commercial finance receivables and loans at original contractual rates was $18 million during the
year ended December 31, 2019. Interest income recorded for these loans was $5 million during the year ended December 31, 2019.
(c) Repossessed assets exclude repossessed operating leases of $6 million at both December 31, 2019, and 2018, $9 million at December 31, 2017, and $8
million at both December 31, 2016, and 2015.
Accruing Finance Receivables and Loans Past Due 90 Days or More
Loans are generally placed on nonaccrual status when principal or interest has been delinquent for at least 90 days, or when full
collection is not expected. Refer to Note 1 to the Consolidated Financial Statements for a description of our accounting policies for finance
receivables and loans. We had no consumer or commercial on-balance-sheet accruing finance receivables and loans or loans held-for-sale past
due 90 days or more as to principal and interest as of December 31, 2019, 2018, 2017, 2016, and 2015.
Allowance for Loan Losses
The following table presents an analysis of the activity in the allowance for loan losses on finance receivables and loans.
($ in millions)
Balance at January 1,
Charge-offs (a)
Recoveries
Net charge-offs
Provision for loan losses
Other (b)
Balance at December 31,
2019
2018
2017
2016
2015
$
1,242
$
1,276
$
1,144
$
1,054
$
(1,490)
(1,433)
514
(976)
998
(1)
488
(945)
918
(7)
(1,392)
382
(1,010)
1,148
(6)
(1,142)
341
(801)
917
(26)
977
(892)
283
(609)
707
(21)
$
1,263
$
1,242
$
1,276
$
1,144
$
1,054
(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.
91
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
2019
2018
2017
2016
2015
Consumer
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer mortgage
Consumer other
Total consumer loans
Commercial
Commercial and industrial
Automotive
Other
Commercial real estate
Total commercial loans
$
1,075
85.1
$
1,048
84.3
$
1,066
83.5
$
932
81.4
$
834
79.1
19
27
46
9
1.5
2.2
3.7
0.7
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
—
1,130
89.5
1,101
88.6
1,145
89.7
1,023
89.4
31
78
24
2.5
6.1
1.9
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
133
10.5
141
11.4
131
10.3
121
10.6
106
10.1
Total allowance for loan losses
$
1,263
100.0
$
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
2019
2018
2017
Average
balance (a)
Average
deposit rate
Average
balance (a)
Average
deposit rate
Average
balance (a)
Average
deposit rate
$
141
—% $
133
—% $
101
—%
Savings and money market checking accounts
Certificates of deposit
Other deposits
60,464
54,779
1
Total domestic deposit liabilities
$
115,385
1.93
2.51
4.85
2.20
51,427
47,624
5
$
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
(a) Average balances are calculated using a combination of monthly and daily average methodologies.
The following table presents the amounts of certificates of deposit in denominations of $100 thousand or more and $250 thousand or
more, segregated by time remaining until maturity.
December 31, 2019 ($ 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)
$
6,141
$
Certificates of deposit ($250,000 or more)
1,922
5,344
$
1,679
9,468
$
4,647
$ 25,600
3,212
1,371
8,184
92
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.
93
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, 2019, 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, 2019, as stated in its report, which is
included herein.
/S/ JEFFREY J. BROWN
Jeffrey J. Brown
Chief Executive Officer
February 25, 2020
/S/ JENNIFER A. LACLAIR
Jennifer A. LaClair
Chief Financial Officer
February 25, 2020
94
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, 2019 and 2018, 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, 2019, 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, 2019
and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, 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, 2019, 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 25, 2020, 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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit
matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical
audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Allowance for Loan Losses - Consumer Automotive Portfolio - Refer to Notes 1 and 9 to the Financial Statements
Critical Audit Matter Description
The allowance for loan losses (“allowance”) is management’s estimate of incurred losses in the lending portfolio. The consumer
automotive portfolio represents 56% of the total finance receivables and loans balance and the amount of the allowance required for the
consumer automotive loan portfolio is based on its relevant risk characteristics and represents 85% of the total allowance of the Company.
The determination of the appropriate level of the allowance for the consumer automotive portfolio inherently involves a high degree of
subjectivity and requires significant estimates of current credit risks using both quantitative and qualitative analyses.
The Company uses a model to estimate the quantitative component of the consumer automotive allowance using borrower, collateral,
and macroeconomic risk characteristics. Additionally, management takes into consideration relevant qualitative factors that have occurred but
are not yet reflected in the model estimate. Qualitative adjustments are documented, reviewed, and approved through the Company’s
established risk governance processes.
Auditing certain aspects of the allowance, including the (1) model methodology, (2) model accuracy, (3) selection of relevant risk
characteristics and assumptions, (4) interpretation of the results, and (5) use of qualitative adjustments, involved especially subjective and
complex judgment. Given the calculation of the allowance requires significant judgment in determining the estimate, performing audit
procedures to evaluate the reasonableness of management’s estimate of the allowance required a high degree of auditor judgment and an
increased extent of effort, including the need to involve our credit specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the specific aspects of the consumer automotive allowance described above included the following,
among others:
• We tested the effectiveness of controls over the Company’s (1) model methodology, (2) model accuracy, (3) selection of relevant
risk characteristics and assumptions, (4) interpretation of results, and (5) use of qualitative adjustments.
• With the assistance of our credit specialists, we evaluated the reasonableness of the (1) model methodology, (2) model accuracy, (3)
selection of relevant risk characteristics and assumptions, (4) interpretation of the results, and (5) use of qualitative adjustments.
• We tested the Company’s model performance evaluation methods and computational accuracy of the model.
95
Report of Independent Registered Public Accounting Firm
• We tested the Company’s loss emergence period analysis.
• We tested the accuracy and completeness of key risk characteristics input into the model by agreeing to source information.
• We evaluated the Company’s method for determining qualitative adjustments to the model estimate by testing on a sample basis
(and, where applicable, recalculating) the (1) key assumptions, (2) input data, and (3) the reasonableness of any changes in
assumptions compared to prior periods made by management.
Financial Instruments - Credit Losses (ASU 2016-13) - Consumer Automotive Portfolio - Refer to Note 1 to the Financial Statements
Critical Audit Matter Description
On January 1, 2020, the Company will adopt ASU 2016-13, Financial Instruments - Credit Losses, which introduces a forward-looking
“expected loss” model (the “Current Expected Credit Losses (CECL)” model) to estimate credit losses over the remaining expected life of the
Company’s loan portfolio upon adoption, rather than the incurred loss model under current accounting principles generally accepted in the
United States of America. Estimates of expected credit losses under the CECL model are based on relevant information about past events,
current conditions, and reasonable and supportable forward-looking forecasts regarding the collectability of the loan portfolio.
The Company’s consumer automotive portfolio represents 56% of the total finance receivables and loans balance and the amount of the
allowance required for the consumer automotive portfolio is based on its relevant risk characteristics and represents substantially all of the
total transition impact disclosed in Note 1.
The Company disclosed that it expected an increase of approximately $1.3 billion to the allowance for loan losses upon adoption of
CECL on January 1, 2020, primarily driven by the Company’s consumer automotive loan portfolio. The CECL standard requires management
to make estimates of the expected credit losses over the expected life of the loans, including using estimates of future economic conditions
that will impact the amount of such future losses. In order to estimate the expected credit losses, the existing model used to estimate the
allowance for loan losses for consumer automotive loans was updated to reflect the requirements under CECL.
Given the estimation of credit losses significantly changes under the CECL model, including the application of new accounting policies,
the use of new subjective judgments, and changes made to the loss estimation model, performing audit procedures to evaluate the disclosure
of ASU 2016-13 adoption involved a high degree of auditor judgment and required an increased extent of effort, including the need to involve
our credit specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s disclosure of its ASU 2016-13 adoption included the following, among others:
• We tested the effectiveness of management’s controls over (1) key assumptions and judgments, (2) the CECL estimation model for
consumer automotive loans, (3) selection and application of new accounting policies, and (4) disclosure of the estimated impact of
adoption disclosed in Note 1 to the Financial Statements.
• We evaluated the completeness of the Company’s disclosure related to the adoption of ASU 2016-13.
• We evaluated the appropriateness of the Company’s accounting policies, methodologies, and elections involved in the adoption of
the CECL standard.
• We tested the CECL estimation model for consumer automotive loans, including the inputs, and the reconciliation of relevant inputs
to the general ledger.
• We involved credit specialists to assist us in evaluating the reasonableness and conceptual soundness of the methodology, as applied
in the CECL estimation model for consumer automotive loans, including key assumptions and judgments in estimating expected
credit losses.
/S/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Detroit, Michigan
February 25, 2020
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,
2019, 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, 2019, 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, 2019, of the Company and our report dated February 25,
2020, 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 25, 2020
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 gain (loss) 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
(Loss) income 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.
2019
2018
2017
$
7,337
$
6,688
$
5,819
17
955
78
1,470
9,857
2,538
135
1,570
4,243
981
4,633
15
788
72
1,489
9,052
1,735
149
1,753
3,637
1,025
4,390
1,087
1,022
28
243
403
1,761
6,394
998
1,222
321
1,886
3,429
1,967
246
1,721
(6)
25
(50)
417
1,414
5,804
918
1,155
295
1,814
3,264
1,622
359
1,263
—
$
1,715
$
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
929
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
(Loss) income from discontinued operations, net of tax
Net income
Diluted earnings per common share
Net income from continuing operations
(Loss) income from discontinued operations, net of tax
Net income
Cash dividends declared per common share
2019
2018
2017
$
$
$
$
$
4.38
(0.02)
4.36
4.35
(0.02)
4.34
0.68
$
$
$
$
$
2.97
—
2.97
2.95
—
2.95
0.56
$
$
$
$
$
2.04
0.01
2.05
2.03
0.01
2.04
0.40
(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 income (loss), net of tax
Investment securities
Net unrealized gains (losses) arising during the period
Less: Net realized gains reclassified to net income
Net change
Translation adjustments
Net unrealized gains (losses) arising during the period
Net investment hedges
Net unrealized (losses) gains arising during the period
Translation adjustments and net investment hedges, net change
Cash flow hedges
Net unrealized (losses) gains arising during the period
Less: Net realized gains reclassified to net income
Net change
Defined benefit pension plans
Net unrealized (losses) gains arising during the period
Other comprehensive income (loss), net of tax
Comprehensive income
The Notes to the Consolidated Financial Statements are an integral part of these statements.
2019
2018
2017
$
1,715
$
1,263
$
929
741
60
681
5
(4)
1
(7)
10
(17)
(11)
654
(287)
8
(295)
(11)
9
(2)
10
2
8
—
(289)
$
2,369
$
974
$
192
92
100
8
(6)
2
3
—
3
1
106
1,035
100
Consolidated Balance Sheet
Ally Financial Inc. • Form 10-K
December 31, ($ in millions, except share data)
2019
2018
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 $1,600 and $2,307)
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 496,957,805 and
492,797,409; and outstanding 374,331,998 and 404,899,599)
Accumulated deficit
Accumulated other comprehensive income (loss)
Treasury stock, at cost (122,625,807 and 87,897,810 shares)
Total equity
Total liabilities and equity
Statement continues on the next page.
The Notes to the Consolidated Financial Statements are an integral part of these statements.
$
619
$
2,936
3,555
616
30,284
1,568
158
810
3,727
4,537
773
25,303
2,362
314
128,231
129,926
(1,263)
(1,242)
126,968
128,684
8,864
2,558
6,073
8,417
2,326
6,153
$
180,644
$
178,869
$
119
$
142
120,633
120,752
5,531
34,027
641
3,305
1,972
106,036
106,178
9,987
44,193
523
3,044
1,676
166,228
165,601
21,438
(4,057)
123
(3,088)
14,416
21,345
(5,489)
(539)
(2,049)
13,268
$
180,644
$
178,869
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
2019
2018
Finance receivables and loans, net of unearned income
$
18,710
$
18,086
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.
(153)
18,557
—
787
19,344
9,087
11
9,098
$
$
$
(114)
17,972
164
767
18,903
10,482
12
10,494
$
$
$
102
Consolidated Statement of Changes in Equity
Ally Financial Inc. • Form 10-K
($ in millions)
Balance at January 1, 2017
Net income
Share-based compensation
Other comprehensive income
Common stock repurchases
Common stock dividends ($0.40 per share)
Common
stock and
paid-in
capital
Accumulated
deficit
Accumulated
other
comprehensive
income (loss)
Treasury
stock
Total
equity
$
21,166
$
(7,151) $
(341) $
(357) $
13,317
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
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
Net income
Share-based compensation
Other comprehensive loss
Common stock repurchases
Common stock dividends ($0.56 per share)
(126)
(20)
42
27
(42)
(126)
7
—
$
21,245
$
(6,510) $
(250) $
(1,110) $
13,375
100
1,263
(242)
(289)
(939)
1,263
100
(289)
(939)
(242)
Balance at December 31, 2018
$
21,345
$
(5,489) $
(539) $
(2,049) $
13,268
Cumulative effect of changes in accounting principles, net
of tax (a)
Adoption of Accounting Standards Update 2017-08
(10)
8
(2)
Balance at January 1, 2019
Net income
Share-based compensation
Other comprehensive income
Common stock repurchases
Common stock dividends ($0.68 per share)
$
21,345
$
(5,499) $
(531) $
(2,049) $
13,266
93
1,715
(273)
654
(1,039)
1,715
93
654
(1,039)
(273)
Balance at December 31, 2019
$
21,438
$
(4,057) $
123
$
(3,088) $
14,416
(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)
2019
2018
2017
$
1,715
$
1,263
$
929
1,555
998
(28)
(243)
(1,276)
1,288
179
118
(28)
(177)
(51)
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
4,050
4,150
4,079
(498)
814
(1,076)
787
(899)
1,049
(15,199)
(7,868)
(10,335)
7,079
5,154
(514)
302
852
3,215
(578)
147
1,038
4,252
(4,023)
2,625
(171)
190
(379)
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)
(3,769)
(14,509)
(8,727)
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 (gain) loss 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
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.
104
Purchases of finance receivables and loans held-for-investment
(4,439)
(5,693)
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 of common stock
Dividends paid
Net cash (used in) provided by financing activities
Effect of exchange-rate changes on cash and cash equivalents and restricted cash
Net (decrease) increase 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
Loans held-for-sale transferred to finance receivables and loans held-for-investment
Finance receivables and loans held-for-investment transferred to loans held-for-sale
Held-to-maturity securities transferred to available-for-sale
2019
2018
2017
(4,456)
14,547
6,915
(1,426)
12,867
18,401
(1,263)
14,172
17,969
(17,224)
(17,940)
(27,908)
(1,039)
(273)
(1,530)
3
(1,246)
5,626
(939)
(242)
10,721
(5)
357
5,269
4,380
$
5,626
$
(753)
(184)
2,033
3
(2,612)
7,881
5,269
4,034
$
3,380
$
2,829
64
—
242
960
943
36
26
—
815
—
51
56
—
1,339
—
$
$
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
2019
2018
$
$
3,555
825
4,380
$
$
4,537
1,089
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.
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 automotive dealerships and consumers. Our award-winning online bank (Ally Bank, Member FDIC and
Equal Housing Lender) offers mortgage lending, personal lending, 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). 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. Refer to Note 11 for further details on our VIEs. 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. 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. Other than our Canadian Insurance
operations, the majority of our international operations have ceased and are included in discontinued operations.
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 assessed for potential
impairment. Our held-to-maturity debt securities are carried at amortized cost and are assessed for potential 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.
Premiums on debt securities that have noncontingent call features that are callable at fixed prices on preset dates are amortized to the
earliest call date as an adjustment to investment yield. All other premiums and discounts on debt securities are amortized over the stated
maturity of the security as an adjustment to investment yield.
Our investments in equity securities include 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 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. We also hold certain equity investments that do not have a readily determinable fair value and are not eligible to be recognized
using other measurement principles that are held at fair value. Refer to Note 8 for further information on these 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 investments in qualified
affordable housing projects and equity-method investments, respectively, 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. 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. As conditions warrant, we review these investments
for impairment and adjust the carrying value of the investment if it is deemed to be impaired.
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
107
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
gain on mortgage and automotive loans, net in our Consolidated Statement of 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.
We have also elected the fair value option for certain loans acquired within our consumer other portfolio segment. Changes in fair value
related to these loans are reported through other income, net of losses in our Consolidated Statement of Income.
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, consumer other, 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.
Consumer other — Consists of unsecured consumer lending from point-of-sale financing.
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, revolving
lines, 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 primarily secured by 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 at least 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.
108
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
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.
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 (for example, 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 12 months of the modification, we are required to disclose the instances of
109
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
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
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. Loans in our consumer other segment are charged off at 120 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 and consumer other 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 written down to the estimated fair value of the collateral less costs to sell when
collectability of the recorded balance is in doubt. 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 four portfolio segments: consumer automotive,
consumer mortgage, consumer other, and commercial. The allowance consists of the combination of a quantitative assessment component
based on statistical models for consumer automotive, consumer mortgage, and commercial, and a vintage analysis for consumer other, 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 Income. Refer to Note 28 for information on our unfunded loan commitments.
During 2019, 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. However, during 2019, we acquired
110
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Health Credit Services and assumed their lending operations, which created our consumer other portfolio segment. The methodology used for
the consumer other portfolio segment is described below.
Refer to Note 9 for information on the allowance for loan losses.
Consumer Loans
Our consumer automotive, consumer mortgage, and consumer other 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.
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.
Consumer Other Portfolio Segment
The allowance for loan losses within the consumer other portfolio segment is calculated by using a vintage analysis that analyzes charge-
offs in pools where the loans share the same origination period and similar risk characteristics to arrive at an estimate of incurred losses in the
portfolio.
The forecasted losses consider monthly vintage level historical balance paydown rates, delinquency and roll rate behaviors by risk tier
and product type. The risk tier segmentation is based upon borrower risk characteristics at the time of origination.
The quantitative assessment component of the allowance may be supplemented by 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 vintage analysis, and may affect the performance of the
portfolio.
111
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
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 could be influenced by situations in which automotive manufacturers may repurchase vehicles
used as collateral to secure the loans in default situations.
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.
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.
112
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
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 of the loan at the time of repossession or foreclosure or the
fair value of the asset less estimated costs to sell. Losses on the initial 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.
Lease Accounting
On January 1, 2019, we adopted Accounting Standards Update (ASU) 2016-02, Leases, using the modified retrospective approach, as
further described in the section below titled Recently Adopted Accounting Standards. At contract inception, we determine whether the contract
is or contains a lease based on the terms and conditions of the contract. Refer to Investments in Operating Leases below for leases in which
we are the lessor. Lease contracts for which we are the lessee are recognized on our Consolidated Balance Sheet as right-of-use (ROU) assets
and lease liabilities. Lease liabilities and their corresponding ROU assets are recorded based on the present value of the future lease payments
over the expected lease term. We utilize our incremental borrowing rate, which is the rate we would incur to borrow on a collateralized basis
over a similar term on an amount equal to the lease payments in a similar economic environment since the interest rate implicit in the lease
contract is typically not readily determinable. The ROU asset also includes initial direct costs paid less lease incentives received from the
lessor. Our lease contracts are generally classified as operating and, as a result, we recognize a single lease cost within other operating
expenses on the income statement on a straight-line basis over the lease term.
Our leases primarily consist of property-leases and fleet vehicle leases. Our property-lease agreements generally contain a lease
component, which includes the right to use the real estate, and non-lease components, which generally include utilities and common area
maintenance services. We elected the practical expedient to account for the lease and non-lease components in our property leases as a single
lease component for recognition and measurement of our ROU assets and lease liabilities. Our property leases include variable-rent payments
made during the lease term which are not based on a rate or index and are excluded from the measurement of the ROU assets and lease
liabilities are recognized as a component of variable lease expense as incurred. We have elected not to recognize ROU assets and lease
liabilities on property-leases with terms of one year or less. Our fleet vehicle leases also include a lease component, which includes the right
to use the vehicle, and non-lease components, which include maintenance, fuel, and administrative services. However, we’ve elected to
account for the lease and non-lease components in our fleet vehicle leases separately. As such, the non-lease components are excluded from
the measurement of the ROU asset and lease liability and are recognized as other operating expenses as incurred.
Investment in Operating Leases
Investment in operating leases, net, represents the vehicles 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 elected to exclude
sales taxes collected from the lessee from our consideration in the lease contract and from variable lease payments not included in contract
consideration.
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
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 2019, 2018, or
2017. 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
113
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
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 2019, 2018, or 2017.
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 (for example, the asset is planned to be disposed of within 12 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.
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
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
114
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
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 while the 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, 2019.
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
have not been designated as accounting hedges. In accordance with applicable accounting standards, all derivative instruments, whether
designated as accounting hedges or not, are 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 qualifying 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
115
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
hedged items, as well as the risk management objectives for undertaking such 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, the hedge designation is removed, or
the derivative instrument is 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.
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
Leases (ASU 2016-02)
In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02. The amendments in this update primarily
replaced the existing accounting requirements for operating leases for lessees. Lessee accounting requirements for finance leases (previously
116
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
referred to as capital leases) and lessor accounting requirements for operating leases and sales type and direct financing leases were largely
unchanged. The amendments require the lessee of an operating lease to record a balance sheet gross-up upon lease commencement by
recognizing a ROU asset and lease liability equal to the present value of the lease payments. The ROU 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 changed 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
issued additional ASUs to clarify the guidance and provide certain practical expedients and an additional transition option. We adopted ASU
2016-02 and the subsequent ASUs that modified ASU 2016-02 (collectively, the amendments) on January 1, 2019. This includes the early
adoption of ASU 2019-01, which was issued in March 2019 to amend certain provisions included in ASU 2016-02.
We adopted this guidance using the modified retrospective approach on January 1, 2019, and have not adjusted prior period comparative
information and will continue to disclose prior period financial information in accordance with the previous lease accounting guidance. We
have elected certain practical expedients permitted within the amendments that allowed 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. We made an accounting policy election to
calculate the impact of adoption using the remaining minimum lease payments and remaining lease term for each contract that was identified
as a lease, discounted at our incremental borrowing rate as of the adoption date. The adoption of the amendments resulted in a ROU asset of
approximately $161 million from operating leases 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. The adoption
did not change our previously reported Consolidated Statements of Comprehensive Income and did not result in a cumulative catch-up
adjustment to opening retained earnings.
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. We adopted the amendments on January 1, 2019, on a modified retrospective basis, which resulted in an increase to our
accumulated deficit of $10 million, net of income taxes, partially offset by an $8 million decrease to accumulated other comprehensive loss,
net of income taxes.
Recently Issued Accounting Standards
Financial Instruments — Credit Losses (ASU 2016-13)
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (CECL). The amendments in this update introduce a
new accounting model to measure credit losses for financial assets measured at amortized cost. The FASB has also issued additional ASUs to
clarify the scope and provide additional guidance for ASU 2016-13. 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, and 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 as required. While the standard modifies the
measurement of the allowance for credit losses, it does not alter the credit risk of our finance receivables and loan portfolio.
Upon adoption of the amendments on January 1, 2020, we expect to recognize a reduction to our opening retained earnings of
approximately $1.0 billion, net of income taxes, resulting from a pretax increase to our allowance for credit losses of approximately $1.3
billion, primarily driven by our consumer automotive loan portfolio. The increase is primarily related to the difference between loss
emergence periods currently utilized, as compared to estimating lifetime credit losses as required by the CECL standard and we do not expect
a material impact to the allowance for loan losses from any of our other lending portfolios. Additionally, we do not expect the adoption of
CECL to result in a material impact to our held-to-maturity securities portfolio, which is primarily composed of agency-backed mortgage
securities, or our available-for-sale debt securities portfolio. We currently expect to phase in the day-one impact of CECL into regulatory
capital as prescribed by regulatory capital rules which permit us to phase in 25% of the capital impact of CECL in 2020 and an additional
25% each subsequent year until fully phased in by the first quarter of 2023.
Our quantitative allowance for credit loss estimates under CECL are impacted by certain forecasted economic factors. In order to
estimate the quantitative portion of our allowance for credit losses under CECL, our modeling processes rely on a single forecast scenario for
each macroeconomic factor incorporated. To derive macroeconomic assumptions in this single scenario, we have elected to forecast these
macroeconomic factors over a 12-month period which we have determined to be reasonable and supportable. After the 12-month reasonable
and supportable forecast period, we have elected to revert on a straight-line basis over a 24-month period to a historical mean for each
macroeconomic factor. The mean is calculated from historical data spanning from January 2008 through the most current period, and as a
117
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
result, includes data points from the last recessionary period. In addition to our quantitative allowance for credit losses, we also incorporate
qualitative adjustments that may relate to idiosyncratic risks, changes in current economic conditions that may not be reflected in
quantitatively derived results, or other relevant factors to further inform our estimate of the allowance for credit losses.
Additionally, due to the expansion of the time horizon over which we are required to estimate future credit losses, we may experience
increased volatility in our future provisions for credit losses. Factors that could contribute to such volatility include, but are not limited to,
changes in the composition and credit quality of our financing receivables and loan portfolio and investment securities portfolios, economic
conditions and forecasts, the allowance for credit loss models that are used, the data that is included in the models, the associated qualitative
allowance framework, and our estimation techniques.
2. Acquisitions
On October 1, 2019, we acquired 100% of the equity of Credit Services Corporation, LLC, including its wholly owned subsidiary,
Health Credit Services LLC (collectively Health Credit Services), a digital point-of-sale payment provider that offers financing to consumers
for various healthcare procedures or services, for $177 million in cash. Health Credit Services operates as a wholly owned subsidiary of Ally.
We applied the acquisition method of accounting to this transaction, which generally requires the initial recognition of assets acquired,
including identifiable intangible assets, and liabilities assumed at their respective fair value. Goodwill is recognized as the excess of the
acquisition price after the recognition of the net assets, including the identifiable intangible assets. Beginning in October 2019, financial
information related to Health Credit Services, which we renamed Ally Lending, is included within Corporate and Other.
The following table summarizes the allocation of cash consideration paid for Health Credit Services and the amounts of the identifiable
assets acquired and liabilities assumed recognized at the acquisition date.
($ in millions)
Purchase price
Cash consideration
Allocation of purchase price to net assets acquired
Finance receivables and loans
Intangible assets (a)
Cash and short-term investments
Other assets
Debt
Employee compensation and benefits
Other liabilities
Goodwill
$
177
75
23
6
6
(62)
(5)
(19)
153
$
(a) The weighted average amortization period on the acquired intangible assets was 3 years. Refer to Note 1 for further information on our intangible assets.
The goodwill of $153 million arising from the acquisition consists largely of expected growth of the business as we leverage the Ally
brand and our marketing capabilities to scale the acquired point-of-sale payment provider and expand the suite of financial products we offer
to our existing growing customer base. The goodwill recognized is expected to be amortized for income tax purposes over a 15-year period.
Refer to Note 13 for the carrying amount of goodwill at the beginning and end of the reporting period.
3. Revenue from Contracts with Customers
Our primary revenue sources, which include financing revenue and other interest income, are addressed by other GAAP and are not in
the scope of ASC Topic 606, Revenue from Contracts with Customers. 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 this standard. 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 this standard. 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 amortized over the terms of the related policies and service contracts on the same basis as premiums and service revenue
are earned, and all advertising costs are recognized as expense when incurred.
The following is a description of our primary revenue sources that are derived from contracts with customers. 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 Topic 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
118
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
•
•
•
•
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.
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 low-
priced securities, option contracts, other security types, 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
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.
119
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
• Other revenue — Other revenue primarily includes service revenue related to various account management functions and fee
income derived from third-party loans arranged through Clearlane—our online automotive lender exchange. 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 revenue recognition principles of ASC Topic 606, Revenue from Contracts with Customers.
Year ended December 31, ($ in millions)
2019
Revenue from contracts with customers
Automotive
Finance
operations
Insurance
operations
Mortgage
Finance
operations
Corporate
Finance
operations
Corporate
and Other
Consolidated
Noninsurance contracts (a) (b) (c)
$
— $
542
$
— $
— $
— $
542
Remarketing fee income
Brokerage commissions and other revenue
Deposit account and other banking fees
Brokered/agent commissions
Other
Total revenue from contracts with customers
All other revenue
Total other revenue (d)
2018
Revenue from contracts with customers
Noninsurance contracts (a) (b) (c)
Remarketing fee income
Brokerage commissions and other revenue
Deposit account and other banking fees
Brokered/agent commissions
Other
Total revenue from contracts with customers
All other revenue
Total other revenue (d)
$
$
$
74
—
—
—
19
93
156
249
—
—
—
14
1
557
717
$
1,274
$
—
—
—
—
—
—
22
22
$
—
—
—
—
—
—
45
45
—
61
16
—
—
77
94
$
171
$
74
61
16
14
20
727
1,034
1,761
— $
506
$
— $
— $
— $
506
79
—
—
—
13
92
177
269
$
—
—
—
15
1
522
459
981
$
—
—
—
—
—
—
7
7
$
—
—
—
—
—
—
38
38
—
62
13
—
—
75
44
$
119
$
79
62
13
15
14
689
725
1,414
(a) We had opening balances of $2.6 billion and $2.5 billion in unearned revenue associated with outstanding contracts at January 1, 2019, and January 1,
2018, respectively, and $816 million and $786 million of these balances were recognized as insurance premiums and service revenue earned in our
Consolidated Statement of Income during the year ended December 31, 2019, and December 31, 2018.
(b) At December 31, 2019, we had unearned revenue of $2.9 billion associated with outstanding contracts, and with respect to this balance we expect to
recognize revenue of $768 million in 2020, $682 million in 2021, $569 million in 2022, $433 million in 2023, and $417 million thereafter. At
December 31, 2018, we had unearned revenue of $2.6 billion associated with outstanding contracts.
(c) We had deferred insurance assets of $1.5 billion and $1.7 billion at January 1, 2019, and December 31, 2019, respectively, and recognized $463 million of
expense during the year ended December 31, 2019. We had deferred insurance assets of $1.4 billion and $1.5 billion at January 1, 2018, and
December 31, 2018, respectively, and recognized $427 million of expense during the year ended December 31, 2018.
(d) 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 $69 million for the year ended December 31, 2019, and $90 million for the year ended December 31, 2018, on the sale
of off-lease vehicles. These gains are included in depreciation expense on operating lease assets in our Consolidated Statement of Income.
120
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
4.
Insurance Premiums and Service Revenue
The following table is a summary of insurance premiums and service revenue written and earned.
Year ended December 31, ($ in millions)
Written
Earned
Written
Earned
Written
Earned
2019
2018
2017
Insurance premiums
Direct
Assumed
Gross insurance premiums
Ceded
Net insurance premiums
Service revenue
$
491
$
464
$
420
$
414
$
384
$
—
491
(232)
259
1,051
2
466
(209)
257
830
—
420
(219)
201
973
4
418
(197)
221
801
2
386
(254)
132
864
Insurance premiums and service revenue written
and earned
$
1,310
$
1,087
$
1,174
$
1,022
$
996
$
364
5
369
(188)
181
792
973
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
2019
2018
2017
$
114
$
110
$
74
62
17
136
403
$
79
46
27
155
417
$
$
102
104
14
51
130
401
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, 2019 ($ in millions)
Accident year (a) 2012 (b) 2013 (b) 2014 (b) 2015 (b)
2016
2017
2018
2019
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
2019
Total
$
435 $
430 $
423 $
423 $
423 $
376
365
390
370
389
274
370
388
271
326
422
369
388
272
327
310
422 $
368
388
272
328
314
271
$
421
368
388
272
328
315
272
303
$ 2,667
—
—
—
—
—
—
—
23
772,549
672,278
525,298
342,267
476,034
481,646
505,982
515,689
(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 GAP products, one repair for VSCs and VMCs, one dealership for dealer
inventory products, and per individual/coverage for run-off personal automotive products.
121
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
2019
For the years ended December 31, ($ in millions)
2012
2013
2014
2015
2016
2017
2018
2019
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 $
416 $
418 $
419 $
421 $
421 $
347
364
369
366
388
252
368
388
272
302
368
388
272
327
289
368
388
272
328
315
245
421
368
388
272
328
315
273
278
$ 2,643
8
32
$
(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
8
Percentage payout of incurred claims
92.6%
6.6%
0.4%
0.2%
0.1%
0.1%
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
2019
2018
2017
$
$
$
32
88
2
$
35
96
3
122
$
134
$
30
108
2
140
122
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table shows a rollforward of our reserves for insurance losses and loss adjustment expenses.
($ in millions)
2019
2018
2017
Total gross reserves for insurance losses and loss adjustment expenses at January 1,
$
134
$
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
96
38
321
—
321
(295)
(30)
(325)
34
88
$
140
108
32
291
4
295
(263)
(26)
(289)
38
96
Total gross reserves for insurance losses and loss adjustment expenses at December 31,
$
122
$
134
$
(a) There have been no material adverse changes to the reserve for prior years.
7. Other Operating Expenses
Details of other operating expenses were as follows.
149
108
41
332
—
332
(309)
(32)
(341)
32
108
140
Year ended December 31, ($ in millions)
2019
2018
2017
Insurance commissions
Technology and communications
Advertising and marketing
Lease and loan administration
Professional services
Regulatory and licensing fees
Vehicle remarketing and repossession
Property and equipment depreciation
Occupancy
Non-income taxes
Amortization of intangible assets
Other
Total other operating expenses
$
$
475
311
180
172
126
115
105
96
57
34
13
202
$
440
299
172
164
133
121
111
87
45
29
11
202
$
1,886
$
1,814
$
415
284
133
159
113
113
110
89
46
21
11
189
1,683
123
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
8.
Investment Securities
Our investment portfolio includes various debt and equity securities. Our debt securities, which are classified as available-for-sale or
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
2019
2018
Amortized
cost
Gross unrealized
gains
losses
Fair
value
Amortized
cost
Gross unrealized
gains
losses
Fair
value
U.S. Treasury and federal agencies
$
2,059
$
U.S. States and political subdivisions
Foreign government
Agency mortgage-backed
residential (a)
Mortgage-backed residential
Agency mortgage-backed commercial
Mortgage-backed commercial
Asset-backed
Corporate debt
623
184
21,183
2,841
1,344
41
365
1,327
6
19
3
257
20
44
1
3
37
$
(17) $ 2,048
$
1,911
$ — $
(60) $ 1,851
(1)
(1)
(36)
(11)
(6)
—
—
(1)
641
186
21,404
2,850
1,382
42
368
1,363
816
145
17,486
2,796
3
715
723
1,286
3
1
47
1
—
1
2
1
(17)
(1)
802
145
(395)
(111)
17,138
2,686
—
(2)
(2)
3
714
723
(46)
1,241
Total available-for-sale securities (b) (c) (d)
$
29,967
$
390
$
(73) $ 30,284
$
25,881
$
56
$
(634) $ 25,303
Held-to-maturity securities
Debt securities
Agency mortgage-backed
residential (a) (e)
Asset-backed retained notes
Total held-to-maturity securities
$
$
1,547
21
1,568
$
$
38
—
38
$
$
(6) $ 1,579
—
21
(6) $ 1,600
$
$
2,319
43
2,362
$
$
6
—
6
$
$
(61) $ 2,264
—
43
(61) $ 2,307
(a) During the year ended December 31, 2019, agency mortgage-backed residential securities with an amortized cost of $943 million and a fair value of $945
million were transferred from held-to-maturity to available-for-sale, which resulted in the establishment of a $2 million net unrealized gain at the time of
transfer. The transfer was made following the issuance of the final rules by banking agencies implementing provisions of the Economic Growth,
Regulatory Relief, and Consumer Protection Act (EGRRCP Act) as further described in the section titled Regulation and Supervision in Part I, Item 1, of
this report. Under the final rules, Ally is no longer subject to liquidity coverage ratio requirements.
(b) 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, 2019, and December 31, 2018.
(c) Certain available-for-sale securities are included in fair value hedging relationships. Refer to Note 21 for additional information.
(d) Available-for-sale securities with a fair value of $1.9 billion and $9.2 billion at December 31, 2019, and December 31, 2018, 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 granted the counterparty the right to sell or pledge $118 million and $821 million of the underlying investment securities at
December 31, 2019, and December 31, 2018, respectively.
(e) Held-to-maturity securities with a fair value of $915 million and $1.2 billion at December 31, 2019, and December 31, 2018, respectively, were pledged
to secure advances from the FHLB.
124
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The maturity distribution of debt securities outstanding is summarized in the following tables based upon contractual maturities. Call or
prepayment options may cause actual maturities to differ from contractual maturities.
Total
Due in one year or
less
Due after one year
through five years
Due after five
years through ten
years
Due after ten
years
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
($ in millions)
December 31, 2019
Fair value of available-for-sale
securities (a)
U.S. Treasury and federal agencies
$
2,048
1.5% $
1.7% $
U.S. States and political subdivisions
Foreign government
Agency mortgage-backed residential
Mortgage-backed residential
Agency mortgage-backed commercial
Mortgage-backed commercial
Asset-backed
Corporate debt
641
186
21,404
2,850
1,382
42
368
1,363
Total available-for-sale securities
$ 30,284
3.1
1.9
3.2
3.2
2.9
3.5
3.5
3.2
3.1
$
$
Amortized cost of available-for-sale
securities
Amortized cost of held-to-maturity
securities
Agency mortgage-backed residential
Asset-backed retained notes
Total held-to-maturity securities
December 31, 2018
Fair value of available-for-sale
securities (a)
$ 29,967
$
$
1,547
3.2% $
21
1,568
2.2
3.2
$
U.S. Treasury and federal agencies
$
1,851
1.9 % $
U.S. States and political subdivisions
Foreign government
Agency mortgage-backed residential
Mortgage-backed residential
Agency mortgage-backed commercial
Mortgage-backed commercial
Asset-backed
Corporate debt
Total available-for-sale securities
Amortized cost of available-for-sale
securities
Amortized cost of held-to-maturity
securities
Agency mortgage-backed residential
Asset-backed retained notes
Total held-to-maturity securities
3.0
2.4
3.3
3.3
3.1
3.8
3.5
3.1
3.2
802
145
17,138
2,686
3
714
723
1,241
$ 25,303
$ 25,881
$
$
$
$
2,319
3.2 % $
43
2,362
2.0
3.2
$
65
22
35
—
—
—
—
—
125
247
246
—
—
—
12
49
18
—
—
—
—
—
144
223
224
—
—
—
2.1% $
1,590
1.4% $
2.7
0.4
—
—
—
—
—
2.9
2.3
75
65
—
—
3
—
317
580
2,630
2,624
$
$
2.3
2.3
—
—
3.2
—
3.6
3.0
2.1
$
$
—% $
—
— $
—
21
21
—% $
2.2
2.2
$
1.0 % $
1,277
1.8 % $
1.9
3.1
—
—
—
—
—
2.8
2.6
43
60
—
—
3
—
478
496
2,357
2,405
$
$
2.3
2.3
—
—
3.1
—
3.4
2.9
2.4
393
159
86
47
—
1,109
—
5
649
2,448
2,378
—
—
—
562
252
67
54
—
—
46
121
581
1,683
1,743
$
$
2.8
2.3
2.0
—
3.0
—
2.7
3.4
2.8
2.6
2.4
1.9
—
—
3.9
4.0
3.3
2.8
—
385
—
21,357
2,850
270
42
46
9
$ 24,959
$ 24,719
—
458
—
17,084
2,686
—
668
124
20
$ 21,040
$ 21,509
—% $
1,547
3.2%
—
—
— $
1,547
—
3.2
2.0 % $
—%
3.4
—
3.2
3.2
2.4
3.5
3.0
3.3
3.2
— %
3.4
—
3.3
3.3
—
3.8
3.3
5.5
3.3
— % $
—
— $
—
42
42
— % $
2.0
2.0
$
—
1
1
— % $
2,319
3.2 %
3.3
3.3
—
$
2,319
—
3.2
(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.
The balances of cash equivalents were $73 million and $35 million at December 31, 2019, and December 31, 2018, respectively, and
were composed primarily of money-market accounts and short-term securities, including U.S. Treasury bills.
125
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table presents interest and dividends on investment securities.
Year ended December 31, ($ in millions)
Taxable interest
Taxable dividends
Interest and dividends exempt from U.S. federal income tax
Interest and dividends on investment securities
2019
2018
2017
$
$
858
$
690
$
14
15
14
25
887
$
729
$
534
12
22
568
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)
2019
2018
2017
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 gain (loss) on equity securities
Other gain (loss) on investments, net
$
82
$
12
$
(4)
78
73
92
(1)
11
60
(121)
106
(4)
102
$
243
$
(50) $
102
(a) Certain available-for-sale securities were sold at a loss in 2019, 2018, and 2017 as a result of identifiable market or credit events, or a loss was realized
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.
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. For additional information on our methodology, refer to Note 1. As of December 31, 2019, 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, 2019.
2019
2018
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
$ 1,267
$
(11) $
279
$
(6) $
31
$
— $ 1,758
$
72
40
4,606
613
335
—
8
71
(1)
(1)
(23)
(4)
(6)
—
—
—
5
3
908
203
—
—
11
41
—
—
(13)
(7)
—
—
—
(1)
259
6
5,537
1,024
—
347
294
576
(3)
—
(94)
(20)
—
(1)
(1)
(19)
317
74
7,808
1,360
—
36
124
569
(60)
(14)
(1)
(301)
(91)
—
(1)
(1)
(27)
$ 7,012
$
(46) $ 1,450
$
(27) $ 8,074
$
(138) $ 12,046
$
(496)
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
Agency mortgage-backed
commercial
Mortgage-backed commercial
Asset-backed
Corporate debt
Total temporarily impaired
available-for-sale securities
Held-to-maturity securities
Debt securities
Agency mortgage-backed
residential
(55)
—
(55)
$
283
$
(6) $
— $
— $
457
$
(6) $ 1,376
$
Asset-backed retained notes
—
—
Total held-to-maturity debt
securities
$
283
$
(6) $
3
3
—
16
—
19
$
— $
473
$
(6) $ 1,395
$
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
Consumer other (d)
Total consumer
Commercial
Commercial and industrial
Automotive
Other
Commercial real estate
Total commercial
2019
2018
$
72,390
$
70,539
16,181
1,141
17,322
212
89,924
28,332
5,014
4,961
38,307
15,155
1,546
16,701
—
87,240
33,672
4,205
4,809
42,686
Total finance receivables and loans (e)
$
128,231
$
129,926
(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 $11 million and $18 million at December 31, 2019, and December 31, 2018, respectively,
47% of which are expected to start principal amortization in 2020. The remainder of these loans have exited the interest-only period.
Includes loans originated as interest-only mortgage loans of $212 million and $341 million at December 31, 2019, and December 31, 2018, respectively,
of which 99% have exited the interest-only period.
Includes $11 million of finance receivables at December 31, 2019, for which we have elected the fair value option.
(d)
(e) Totals include net unearned income, unamortized premiums and discounts, and deferred fees and costs of $503 million and $587 million at December 31,
(c)
2019, and December 31, 2018, respectively.
The following tables present an analysis of the activity in the allowance for loan losses on finance receivables and loans.
($ in millions)
Allowance at January 1, 2019
Charge-offs (b)
Recoveries
Net charge-offs
Provision for loan losses
Other
Allowance at December 31, 2019
Allowance for loan losses at December 31, 2019
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
Consumer
other (a)
Commercial
Total
$
1,048
$
53
$
— $
141
$
1,242
(1,423)
493
(930)
957
—
1,075
38
1,037
$
$
$
$
(13)
21
8
(13)
(2)
46
18
28
$
$
(5)
—
(5)
14
—
9
$
— $
9
(49)
—
(49)
40
1
133
33
100
$
$
(1,490)
514
(976)
998
(1)
1,263
89
1,174
$
72,390
$
17,322
$
201
$
38,307
$
128,220
538
71,852
208
17,114
—
201
215
961
38,092
127,259
(a) Excludes $11 million of finance receivables at December 31, 2019, for which we have elected the fair value option.
(b) Represents the amount of the gross carrying value directly written off. For consumer and commercial loans, the loss from a charge-off is measured as the
difference between the gross carrying value of a loan and the fair value of the collateral, less costs to sell. Refer to Note 1 for more information regarding
our charge-off policies.
128
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
($ 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.
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.
Year ended December 31, ($ in millions)
Consumer automotive
Consumer mortgage
Commercial
Total sales and transfers (a)
2019
2018
$
$
20
$
940
—
960
$
578
10
238
826
(a) During the year ended December 31, 2019, we also sold $131 million of loans held-for-sale that were initially classified as finance receivables and loans
held-for-investment and were transferred to held-for-sale during 2018, and transferred $79 million of finance receivables from held-for-sale to held-for-
investment, both relating to equipment finance receivables from our commercial automotive business.
The following table presents information about significant purchases of finance receivables and loans based on unpaid principal balance
at the time of purchase.
Year ended December 31, ($ in millions)
Consumer automotive
Consumer mortgage
Consumer other (a)
Commercial
Total purchases of finance receivables and loans
2019
2018
$
531
$
3,451
117
46
896
4,446
—
15
$
4,145
$
5,357
(a) During the year ended December 31, 2019, we also obtained $75 million of finance receivables and loans from our acquisition of Health Credit Services.
For additional information on our acquisition, refer to Note 2.
129
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table presents an analysis of our past-due finance receivables and loans recorded at gross carrying value.
December 31, ($ in millions)
2019
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer mortgage
Consumer other (a)
Total consumer
Commercial
Commercial and industrial
Automotive
Other
Commercial real estate
Total commercial
Total consumer and commercial
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
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
$
2,185
$
590
$
367
$
3,142
$
69,248
$
72,390
56
25
81
3
2,269
34
—
—
34
$
$
2,303
2,107
$
$
67
30
97
2,204
—
—
—
—
11
8
19
2
611
—
—
—
—
611
537
5
10
15
552
1
4
—
5
$
$
9
28
37
2
406
28
17
4
49
455
296
4
42
46
342
31
16
1
48
76
61
137
7
3,286
62
17
4
83
$
$
3,369
2,940
$
$
76
82
158
3,098
32
20
1
53
16,105
1,080
17,185
194
86,627
28,270
4,997
4,957
38,224
124,851
67,599
15,079
1,464
16,543
84,142
33,640
4,185
4,808
42,633
$
$
16,181
1,141
17,322
201
89,913
28,332
5,014
4,961
38,307
128,220
70,539
15,155
1,546
16,701
87,240
33,672
4,205
4,809
42,686
129,926
Total consumer and commercial
$
2,204
$
557
$
390
$
3,151
$
126,775
$
(a) Excludes $11 million of finance receivables at December 31, 2019, for which we have elected the fair value option.
130
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table presents the gross carrying value of our finance receivables and loans on nonaccrual status.
December 31, ($ in millions)
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer mortgage
Consumer other
Total consumer
Commercial
Commercial and industrial
Automotive
Other
Commercial real estate
Total commercial
2019
2018
$
762
$
664
17
40
57
2
821
73
138
4
215
9
70
79
—
743
203
142
4
349
Total consumer and commercial finance receivables and loans
$
1,036
$
1,092
Management performs a quarterly analysis of the consumer automotive, consumer mortgage, consumer other, 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 90 days or more, or when full collection is not expected. Refer to
Note 1 for additional information.
December 31, ($ in millions)
Performing
Nonperforming
Total
Performing
Nonperforming
Total
2019
2018
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer mortgage
Consumer other (a)
Total consumer
$
71,628
$
762
$
72,390
$
69,875
$
664
$
70,539
16,164
1,101
17,265
199
17
40
57
2
16,181
1,141
17,322
201
15,146
1,476
16,622
—
9
70
79
—
15,155
1,546
16,701
—
$
89,092
$
821
$
89,913
$
86,497
$
743
$
87,240
(a) Excludes $11 million of finance receivables at December 31, 2019, for which we have elected the fair value option.
The following table presents pass and criticized credit quality indicators based on regulatory definitions for our commercial finance
receivables and loans recorded at gross carrying value.
December 31, ($ in millions)
Commercial and industrial
Automotive
Other
Commercial real estate
Total commercial
2019
2018
Pass
Criticized (a)
Total
Pass
Criticized (a)
Total
$
25,235
$
3,097
$
28,332
$
30,799
$
2,873
$
33,672
4,225
4,620
789
341
5,014
4,961
3,373
4,538
832
271
4,205
4,809
$
34,080
$
4,227
$
38,307
$
38,710
$
3,976
$
42,686
(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.
December 31, ($ in millions)
2019
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
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
Unpaid
principal
balance (a)
Gross
carrying
value
Impaired
with no
allowance
Impaired
with an
allowance
Allowance
for impaired
loans
$
553
$
538
$
113
$
425
$
$
$
$
$
14
199
213
766
73
170
4
247
1,013
503
15
221
236
739
203
159
4
366
$
$
14
194
208
746
73
138
4
215
961
495
15
216
231
726
203
142
4
349
$
$
6
64
70
183
1
73
4
78
261
105
6
65
71
176
112
40
4
156
332
$
$
$
8
130
138
563
72
65
—
137
700
390
9
151
160
550
91
102
—
193
743
38
—
18
18
56
12
21
—
33
89
44
1
22
23
67
10
46
—
56
$
123
Total consumer and commercial finance receivables and loans
$
1,105
$
1,075
$
(a) Adjusted for charge-offs.
132
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)
2019
2018
2017
Average
balance
Interest
income
Average
balance
Interest
income
Average
balance
Interest
income
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
Troubled Debt Restructurings
$
510
$
35
$
478
$
28
$
391
$
14
206
220
730
113
121
5
239
1
9
10
45
2
—
—
2
11
218
229
707
93
84
5
182
1
10
11
39
4
—
1
5
8
234
242
633
49
69
5
123
$
969
$
47
$
889
$
44
$
756
$
21
—
10
10
31
2
9
—
11
42
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 $867 million,
$812 million, and $712 million at December 31, 2019, 2018, and 2017, respectively.
Total commitments to lend additional funds to borrowers whose terms had been modified in a TDR were $17 million, $4 million, and $6
million at December 31, 2019, 2018, and 2017, respectively. Refer to Note 1 for additional information.
133
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following tables present information related to finance receivables and loans recorded at gross carrying value modified in connection
with a TDR during the period.
Year ended December 31, ($ in millions)
2019
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Total consumer mortgage
Total consumer finance receivables and loans
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
Pre-
modification
gross
carrying value
Post-
modification
gross
carrying value
Number of
loans
27,623
$
476
$
413
$
$
$
$
8
61
69
27,692
26,748
23
204
227
26,975
26,156
4
122
126
$
$
$
$
1
8
9
485
426
9
30
39
465
380
1
21
22
1
8
9
422
378
9
29
38
416
333
1
21
22
355
Total consumer finance receivables and loans
26,282
$
402
$
Year ended December 31, ($ in millions)
2019
Commercial and industrial
Automotive
Other
Total commercial finance receivables and loans
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
134
Pre-
modification
gross
carrying value
Post-
modification
gross
carrying value
Number of
loans
7
3
10
3
3
6
4
—
2
6
$
$
$
$
$
$
46
82
128
4
85
89
16
44
3
63
$
$
$
$
$
$
46
46
92
4
82
86
15
44
3
62
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 12 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)
2019
Consumer automotive
Total consumer finance receivables and loans
2018
Consumer automotive
Consumer mortgage
Mortgage — Legacy
Total consumer finance receivables and loans
2017
Consumer automotive
Consumer mortgage
Mortgage Finance
Mortgage — Legacy
Number of
loans
Gross
carrying
value
Charge-
off amount
$
$
$
$
$
7,215
7,215
9,711
2
9,713
8,829
1
2
$
$
$
$
$
81
81
111
—
111
102
1
—
52
52
73
—
73
71
—
—
71
Total consumer finance receivables and loans
8,832
$
103
$
Concentration Risk
Consumer
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 24.9% and 25.4% of our total outstanding consumer finance
receivables and loans at December 31, 2019, and December 31, 2018, respectively.
The following table shows the percentage of consumer automotive and consumer mortgage finance receivables and loans by state
concentration based on gross carrying value.
December 31,
California
Texas
Florida
Pennsylvania
Illinois
Georgia
North Carolina
New York
Ohio
New Jersey
Other United States
Total consumer loans
2019 (a)
2018
Consumer
automotive
Consumer
mortgage
Consumer
automotive
Consumer
mortgage
8.5%
12.4
8.8
4.6
4.1
3.9
4.0
3.1
3.6
2.8
35.1%
6.5
5.1
1.9
2.6
2.8
2.0
3.0
0.5
2.3
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
44.2
38.2
44.1
38.4
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, 2019.
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
presents the percentage of total commercial real estate finance receivables and loans by state concentration based on gross carrying value.
December 31,
Texas
Florida
Michigan
California
New York
North Carolina
Georgia
New Jersey
South Carolina
Illinois
Other United States
Total commercial real estate finance receivables and loans
Commercial Criticized Exposure
2019
2018
15.0%
11.6
15.5%
11.6
8.2
7.2
5.9
4.6
3.5
2.9
2.8
2.4
6.8
8.3
4.8
3.6
4.0
3.1
3.4
2.0
35.9
36.9
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 by industry concentration based
on gross carrying value.
December 31,
Automotive
Services
Electronics
Other
Total commercial criticized finance receivables and loans
10. Leasing
2019
2018
81.7%
80.6%
5.4
3.7
9.2
5.0
2.3
12.1
100.0%
100.0%
On January 1, 2019, we adopted the amendments to the lease accounting principles. Refer to the section titled Recently Adopted
Accounting Standards in Note 1 for additional information.
Ally as the Lessee
We have operating leases for our corporate facilities, which have remaining lease terms of 8 months to 12 years. Most of the property
leases have fixed payment terms with annual fixed-escalation clauses and include options to extend the leases for periods that range from 3
months to 15 years. Some of those lease agreements also include options to terminate the leases in periods that range from 2 to 6 years after
the commencement of the leases. We have not included any of these term extensions or termination provisions in our estimates of the lease
term, as we do not consider it reasonably certain that the options will be exercised.
136
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
We also have operating leases for a fleet of vehicles that is used by our sales force for business purposes, with noncancelable lease terms
of 367 days. Thereafter, the leases are month-to-month, up to a maximum of 48 months from inception.
The following table details our total investment in operating leases.
($ in millions)
Assets
Operating lease right-of-use assets (b)
Liabilities
Operating lease liabilities (c)
December 31,
2019
January 1,
2019 (a)
$
$
168
196
$
$
161
190
(a) Date of adoption.
(b)
(c)
Included in other assets on our Consolidated Balance Sheet.
Included in accrued expenses and other liabilities on our Consolidated Balance Sheet.
During the year ended December 31, 2019, we paid $49 million, in cash for amounts included in the measurement of lease liabilities at
December 31, 2019. This amount is included in net cash provided by operating activities in the Consolidated Statement of Cash Flows.
During the year ended December 31, 2019, we obtained $52 million of ROU assets in exchange for new operating lease liabilities. As of
December 31, 2019, the weighted-average remaining lease term of our operating lease portfolio was 7 years, and the weighted-average
discount rate was 2.85%.
The following table presents future minimum rental payments we are required to make under operating leases that have commenced as
of December 31, 2019, and that have noncancelable lease terms expiring after December 31, 2019.
Year ended December 31, ($ in millions)
2020
2021
2022
2023
2024
2025 and thereafter
Total undiscounted cash flows
Difference between undiscounted cash flows and discounted cash flows
Total lease liability
$
$
50
43
29
18
14
62
216
(20)
196
In addition to the above, we entered into a forward-starting lease agreement in September 2017, for a new corporate facility in Charlotte,
North Carolina, where we plan to consolidate several existing facilities into that location. The lessor and their agents are currently
constructing the facilities at this location, with the lease scheduled to commence in April 2021 after construction is completed. The lease
agreement will have a total of $290 million in undiscounted future lease payments over the 15-year term of the lease. We also have an option
to purchase this facility after construction is completed, subject to certain terms and conditions.
Future minimum rental payments required under operating leases as of December 31, 2018, prior to the date of adoption and as defined
by the previous lease accounting guidance, with noncancelable lease terms expiring after December 31, 2018, were as follows.
Year ended December 31, ($ in millions)
2019
2020
2021
2022
2023
2024 and thereafter
Total minimum payments required
137
$
$
48
47
46
37
31
294
503
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table details the components of total net operating lease expense.
Year ended December 31, ($ in millions)
Operating lease expense
Variable lease expense
Total lease expense, net (a)
(a) Included in other operating expenses in our Consolidated Statement of Income
Ally as the Lessor
Investment in Operating Leases
2019
2018
2017
$
$
45
8
53
$
$
43
7
50
$
$
42
7
49
We purchase consumer 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
vehicle trade-in, down payment from the consumer, and 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 available manufacturer incentives) exceeds the contract residual value (including residual support) of the
vehicle at lease termination, plus operating lease rental charges. The customer can terminate the lease at any point after commencement,
subject to additional charges and fees. Both the consumer and the dealership have the option to purchase the vehicle at the end of the lease
term, which can range from 24 to 60 months, at the residual value of the vehicle, however it is not reasonably certain this option will be
exercised and accordingly our consumer leases are classified as operating leases. In addition to the charges described above, the consumer is
generally responsible for certain charges related to excess mileage or excessive wear and tear on the vehicle. These charges are deemed
variable lease payments and, as these payments are not based on a rate or index, they are recognized as net depreciation expense on operating
lease assets in our Consolidated Statement of Income as incurred.
When we acquire a consumer operating lease, we assume ownership of the vehicle from the dealer. We require that property damage,
bodily injury, collision, and comprehensive insurance be obtained by the lessee on all consumer operating leases. 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. 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, which is included
in net depreciation expense on operating lease assets in our Consolidated Statement of Income. Excessive mileage or excessive wear and tear
on the vehicle during the lease may impact the sales proceeds received upon remarketing. As of December 31, 2019, consumer operating
leases with a carrying value, net of accumulated depreciation, of $352 million were covered by a residual value guarantee of 15% of the
manufacturer’s suggested retail price.
The following table details our investment in operating leases.
Year ended December 31, ($ in millions)
Vehicles
Accumulated depreciation
Investment in operating leases, net
2019
2018
$
$
10,426
(1,562)
8,864
$
$
9,995
(1,578)
8,417
The following table presents future minimum rental payments we have the right to receive under operating leases with noncancelable
lease terms expiring after December 31, 2019.
Year ended December 31, ($ in millions)
2020
2021
2022
2023
2024
2025 and thereafter
Total lease payments from operating leases
138
$
1,339
851
383
86
6
—
$
2,665
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
We recognized operating lease revenue of $1.5 billion for both the years ended December 31, 2019, and 2018, and $1.9 billion for the
year ended December 31, 2017. Depreciation expense on operating lease assets includes remarketing gains and losses recognized on the sale
of operating lease assets. The following table summarizes the components of depreciation expense on operating lease assets.
Year ended December 31, ($ in millions)
Depreciation expense on operating lease assets (excluding remarketing gains) (a)
Remarketing gains, net
Net depreciation expense on operating lease assets
2019
2018
2017
$
$
1,050
(69)
981
$
$
1,115
(90)
1,025
$
$
1,368
(124)
1,244
(a) Includes variable lease payments related to excess mileage and excessive wear and tear on vehicles of $19 million during the year ended December 31,
2019, $24 million during the year ended December 31, 2018, and $32 million during the year ended December 31, 2017.
Finance Leases
Our total gross investment in finance leases, which is included in finance receivables and loans, net, on our Consolidated Balance Sheet
was $472 million and $439 million as of December 31, 2019, and December 31, 2018, respectively. This includes lease payment receivables
of $459 million and $425 million at December 31, 2019, and December 31, 2018, respectively, and unguaranteed residual assets of $13
million and $14 million at December 31, 2019, and December 31, 2018, respectively. Interest income on finance lease receivables was $25
million for the year ended December 31, 2019, $22 million for the year ended December 31, 2018, and $22 million for the year ended
December 31, 2017, and is included in interest and fees on finance receivables and loans in our Consolidated Statement of Income.
The following table presents future minimum rental payments we have the right to receive under finance leases with noncancelable lease
terms expiring after December 31, 2019.
Year ended December 31, ($ in millions)
2020
2021
2022
2023
2024
2025 and thereafter
Total undiscounted cash flows
Difference between undiscounted cash flows and discounted cash flows
Present value of lease payments recorded as lease receivable
11. Securitizations and Variable Interest Entities
Overview
$
$
167
142
94
60
32
19
514
(55)
459
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.
139
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
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, warranty, and covenant 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, warranty,
and certain covenant 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, or otherwise not in compliance with the
ongoing covenant obligations. We did not provide any non-contractual financial support to any of these entities during 2019, 2018, or 2017.
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, warranty, and covenant 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
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.
There were no sales of financial assets into nonconsolidated VIEs for the year ended December 31, 2019. There was a pretax gain of $1
million for the year ended December 31, 2018, and a pretax gain of $2 million for the year ended December 31, 2017, from sales of financial
assets into nonconsolidated VIEs. For additional information regarding the company’s significant accounting policies for nonconsolidated
VIEs, refer to the Variable Interest Entities and Securitizations section of Note 1.
We provide long-term guarantee contracts to investors in certain nonconsolidated affordable housing entities and have extended a line of
credit to provide liquidity. Since we do not have control over the entities or the power to make decisions, we do not consolidate the entities
and our involvement is limited to the guarantee and the line of credit.
We are involved with various other nonconsolidated equity investments, including affordable housing entities and venture capital funds
and loan funds. We do not consolidate these entities and our involvement is limited to our outstanding investment, additional capital
committed to these funds plus any previously recognized low-income housing tax credits that are subject to recapture.
140
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table presents our involvement in consolidated and nonconsolidated VIEs in which we hold variable interests. For
additional detail related to the assets and liabilities of consolidated variable interest entities refer to the Consolidated Balance Sheet.
December 31, ($ in millions)
2019
On-balance sheet variable interest entities
Consumer automotive
Commercial automotive
Off-balance-sheet variable interest entities
Consumer automotive (d)
Commercial other
Total
2018
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
$
20,376 (b) $
6,070 (c)
8,009
3,049
23 (e)
1,079 (g)
—
$
378 (h)
$
29,487
$
9,497
$
417
$
—
417 $
440 (f)
1,397 (i)
1,837
$
16,255 (b) $
6,573 (c)
11,089
3,946
45 (e)
806 (g)
—
326 (h)
$
28,195
$
10,845
$
$
1,235
—
1,235
$
$
1,280 (f)
1,054 (i)
2,334
(a) Asset values represent the current unpaid principal balance of outstanding consumer finance receivables and loans within the VIEs.
(b)
Includes $9.0 billion and $8.4 billion of assets that were not encumbered by VIE beneficial interests held by third parties at December 31, 2019, and
December 31, 2018, respectively. Ally or consolidated affiliates hold the interests in these assets.
Includes $21 million and $25 million of liabilities that were not obligations to third-party beneficial interest holders at December 31, 2019, and
December 31, 2018, respectively.
(c)
(d) During the year ended December 31, 2019, we indicated our intent to exercise clean-up call option related to a nonconsolidated securitization-related VIE.
The option enables us to repurchase the remaining transferred financial assets at our discretion once the asset pool declines to a predefined level and
redeem the related outstanding debt. As a result of this event, we became the primary beneficiary of the VIE, which included $48 million of consumer
automotive loans and $45 million of related debt, and the VIE was consolidated on our Consolidated Balance Sheet. The related amounts were removed
from assets sold to nonconsolidated VIEs and maximum exposure to loss in nonconsolidated VIEs.
(e) Represents retained notes and certificated residual interests, of which $21 million and $43 million were classified as held-to-maturity securities at
December 31, 2019, and December 31, 2018, respectively, and $2 million were classified as other assets at both December 31, 2019, and December 31,
2018. These assets represent our five percent interest in 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, warranty, and covenant 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 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.
141
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
2019
2018
$
10,791
$
7,919
(153)
18,557
—
787
19,344
9,087
11
9,098
$
$
$
$
$
$
7,282
10,804
(114)
17,972
164
767
18,903
10,482
12
10,494
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 (for example, servicing) that
were outstanding during the years ended December 31, 2019, 2018, and 2017. 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)
2019
Cash flows received on retained interests in securitization entities
Servicing fees
Cash disbursements for repurchases during the period
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
Consumer
automotive
Consumer
mortgage
$
$
$
$
23
10
(2)
24
20
18
(4)
—
$
1,187
$
(491)
31
21
4
—
—
—
—
—
—
—
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.
142
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.
13
3
16
10
2
12
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
2019
2018
2019
2018
$
$
417
$
1,235
$
207
624
634
$
1,869
$
6
2
8
$
$
(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
2019
2018
$
$
6
1
7
$
$
(a) Whole-loan sales are not part of a securitization transaction, but represent consumer automotive pools of loans sold to third-party investors.
Affordable Housing Investments
We have investments in various limited partnerships that sponsor affordable housing projects, which meet the definition of a VIE. The
purpose of these investments is to achieve a satisfactory return on capital through the receipt of low-income housing tax credits (LIHTC) and
to assist us in achieving goals associated with the CRA. Our affordable housing investments are accounted for using the proportional
amortization method of accounting, which recognizes the amortized cost of the investment as a component of income tax expense.
The following table summarizes information about our affordable housing investments.
Year ended December 31, ($ in millions)
Affordable housing tax credits and other tax benefits (a)
Tax credit amortization expense recognized as a component of income tax expense
2019
2018
2017
$
$
86
72
$
61
51
43
44
(a) There were no impairment losses recognized during the years ended December 31, 2019, 2018, and 2017, resulting from the forfeiture or ineligibility of
tax credits or other circumstances.
Our investment in qualified affordable housing projects was $830 million and $649 million at December 31, 2019, and 2018,
respectively, and is included within other assets on our Consolidated Balance Sheet. Additionally, unfunded commitments to provide
additional capital to investees in qualified affordable housing projects were $372 million and $319 million at December 31, 2019, and 2018,
respectively, and are included within accrued expenses and other liabilities on our Consolidated Balance Sheet. Substantially all of the
unfunded commitments at December 31, 2019, are expected to be paid out within the next five years.
12. Premiums Receivable and Other Insurance Assets
Premiums receivable and other insurance assets consisted of the following.
December 31, ($ in millions)
Prepaid reinsurance premiums
Reinsurance recoverable on unpaid losses
Reinsurance recoverable on paid losses
Premiums receivable
Deferred policy acquisition costs
2019
2018
$
551
$
88
23
105
1,791
527
96
22
88
1,593
2,326
Total premiums receivable and other insurance assets
$
2,558
$
143
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)
Investment in qualified affordable housing projects
Restricted cash held for securitization trusts (b)
Accrued interest, fees, and rent receivables
Goodwill (c)
Equity-method investments (d)
Other accounts receivable
Restricted cash and cash equivalents (e)
Net intangible assets (f)
Fair value of derivative contracts in receivable position (g)
Net deferred tax assets
Other assets
Total other assets
2019
2018
$
1,332
$
1,250
(686)
646
1,232
(686)
564
1,410
830
738
589
393
358
117
87
69
64
58
892
649
965
599
240
262
203
124
59
41
317
720
$
6,073
$
6,153
(a)
(b)
(c)
Includes investments in FHLB stock of $701 million and $903 million at December 31, 2019, and 2018, respectively; FRB stock of $449 million and
$448 million at December 31, 2019, and 2018, respectively; and equity securities without a readily determinable fair value of $82 million and $59 million
at December 31, 2019, and 2018, respectively, measured at cost with adjustments for impairment and observable changes in price. During the year ended
December 31, 2019, we recorded $9 million of upward adjustments and $3 million of impairments and downward adjustments related to equity securities
without a readily determinable fair value. Through December 31, 2019, we recorded $10 million of cumulative upward adjustments and $6 million of
cumulative impairments and downward adjustments 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.
Includes goodwill of $27 million within our Insurance operations at both December 31, 2019, and 2018; $20 million within Automotive Finance
operations at both December 31, 2019, and 2018; and $346 million and $193 million within Corporate and Other at December 31, 2019, and 2018,
respectively. The increase in goodwill within Corporate and Other of $153 million was attributable to our acquisition of Health Credit Services, as further
described in Note 2. No other changes to the carrying amount of goodwill were recorded during the years ended December 31, 2019, and 2018.
(d) Primarily relates to investments made in connection with our CRA program.
(e) Primarily represents a number of arrangements with third parties where certain restrictions are placed on balances we hold due to collateral agreements
(f)
associated with operational processes with a third-party bank, or letter of credit arrangements and corresponding collateral requirements.
Includes gross intangible assets of $111 million and $88 million at December 31, 2019, and 2018, respectively, and accumulated depreciation of $42
million and $29 million at December 31, 2019, and 2018.
(g) For additional information on derivative instruments and hedging activities, refer to Note 21.
14. Deposit Liabilities
Deposit liabilities consisted of the following.
December 31, ($ in millions)
Noninterest-bearing deposits
Interest-bearing deposits
Savings and money-market checking accounts
Certificates of deposit
Other deposits
Total deposit liabilities
2019
2018
$
119
$
142
62,486
58,146
1
56,050
49,985
1
$
120,752
$
106,178
At December 31, 2019, and December 31, 2018, certificates of deposit included $25.6 billion and $21.0 billion, respectively, of those in
denominations of $100 thousand or more. At December 31, 2019, and December 31, 2018, certificates of deposit included $8.2 billion and
$6.1 billion, respectively, of those in denominations in excess of $250 thousand federal insurance limits.
144
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table presents the scheduled maturity of total certificates of deposit at December 31, 2019.
($ in millions)
Due in 2020
Due in 2021
Due in 2022
Due in 2023
Due in 2024
Total certificates of deposit
15. Debt
Short-term Borrowings
$
41,419
10,541
4,061
996
1,129
$
58,146
The following table presents the composition of our short-term borrowings portfolio.
2019
2018
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)
$
$
2,581
$
— $
—
—
2,950
—
2,581
2,950
—
$
2,477
$
— $
—
—
6,825
685
2,477
6,825
685
2,581
$
2,950
$
5,531
$
2,477
$
7,510
$
9,987
1.8%
2.5%
(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, 2019, Ally had no securities sold under agreements to repurchase. 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, 2019, we placed no cash collateral and did not
receive cash or noncash collateral. At December 31, 2018, we did not place any collateral, and we received cash collateral totaling $8 million
and noncash collateral totaling $4 million.
145
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Long-term Debt
The following tables present the composition of our long-term debt portfolio.
December 31, ($ in millions)
Amount
Interest rate
Weighted average
stated interest
rate (a)
Due date
range
2019
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
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
$
8,566
1
2,575
62
11,204
1.71–8.00%
6.34%
2020–2049
1.35–4.03%
2.44%
2020–2027
21,477
1,384
(38)
22,823
34,027
9,406
1
2,572
128
12,107
2.42–8.40%
6.29 %
2019–2049
23,514
8,633
(61)
32,086
44,193
1.26–4.50%
2.54 %
2019–2037
$
$
$
Includes subordinated debt of $1.0 billion at both December 31, 2019, and 2018.
(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 $92 million and $5 million at December 31, 2019, and 2018, respectively, of long-term debt that does not have a stated interest rate.
Includes $9.1 billion and $10.5 billion of VIE secured debt at December 31, 2019, and 2018, respectively.
Includes $450 million and $6.7 billion of debt outstanding from our committed secured credit facilities at December 31, 2019, and 2018, respectively.
Includes advances from the FHLB of Pittsburgh of $13.3 billion and $14.9 billion at December 31, 2019, and 2018, respectively.
(e)
(f)
(g)
(h)
December 31, ($ in millions)
Unsecured
Secured
Total
Unsecured
Secured
Total
2019
2018
Long-term debt (a)
Due within one year
Due after one year
Total long-term debt (b) (c)
$
$
2,214
8,990
11,204
$
$
7,005
15,818
22,823
$
$
9,219
24,808
34,027
$
$
1,663
10,444
12,107
$
$
7,313
24,773
32,086
$
$
8,976
35,217
44,193
(a)
Includes basis adjustments related to the application of hedge accounting.
To achieve the desired balance between fixed- and variable-rate debt, we may utilize interest rate swap agreements. The use of these
derivative financial instruments had the effect of converting $7.0 billion of our fixed-rate debt into variable-rate obligations at December 31,
2019. We did not have any derivative financial instruments that converted fixed-rate debt into variable-rate obligations or variable-rate debt
into fixed rate obligations at December 31, 2018.
146
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table presents the scheduled remaining maturity of long-term debt at December 31, 2019, assuming no early redemptions
will occur. The amounts below include adjustments to the carrying value resulting from the application of hedge accounting. The actual
payment of secured debt may vary based on the payment activity of the related pledged assets.
($ in millions)
Unsecured
Long-term debt
Original issue discount
Total unsecured
Secured
Long-term debt
Total long-term debt
2020
2021
2022
2023
2024
2025 and
thereafter
Total
$
2,258
$
697
$
1,121
$
(9) $
1,470
$
6,767
$
12,304
(44)
2,214
(47)
650
(52)
1,069
7,005
9,530
5,552
$
9,219
$
10,180
$
6,621
$
(59)
(68)
627
559
(65)
1,405
(833)
5,934
107
2
$
1,512
$
5,936
$
(1,100)
11,204
22,823
34,027
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
2019
2018
Total (a)
Ally Bank
Total (a)
Ally Bank
$
$
$
2,698
17,135
13,481
12,890
—
$
2,698
$
17,135
11,534
12,890
—
$
10,280
16,498
17,015
15,563
170
46,204
$
25,773 (e) $
44,257
24,069
$
$
59,526
$
39,596 (e) $
9,564
16,498
9,715
15,563
—
51,340
32,072
(a) Ally Bank is a component of the total column.
(b) A portion of the restricted investment securities at December 31, 2018, was 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
$24.8 billion and $30.8 billion at December 31, 2019, and December 31, 2018, 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 and had assets pledged and restricted as
collateral to the FRB totaling $2.4 billion at both December 31, 2019, and December 31, 2018. 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 $3.0 billion and $7.5 billion of short-term borrowings at December 31, 2019, and December 31, 2018, respectively.
(e)
Trust Preferred Securities
At both December 31, 2019, and December 31, 2018, we had 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 offered 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. The Series 2 TRUPS were issued
prior to October 4, 2010, under the Emergency Economic Stabilization Act of 2008 and are not subject to phase-out from additional Tier 1
capital into Tier 2 capital. The amount of Series 2 TRUPS included in Ally’s Tier 1 capital was $2.5 billion at December 31, 2019. The
amount represents the carrying amount of the Series 2 TRUPS less our common stock investment in the trust.
147
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 2019, 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.
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, 2019, all of our $2.5 billion of
capacity was revolving and of this balance, $1.1 billion was from facilities with a remaining tenor greater than 364 days.
Committed Secured Credit Facilities
December 31, ($ in millions)
2019
2018
2019
2018
2019
2018
Outstanding
Unused capacity (a)
Total capacity
Bank funding
Secured
Parent funding
Secured
Total committed secured credit facilities
$
$
— $
3,500
$
— $
1,300
$
— $
4,800
450
450
3,165
2,050
635
2,500
$
6,665
$
2,050
$
1,935
$
2,500
$
3,800
8,600
(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
Net deferred tax liabilities
Cash collateral received from counterparties
Deferred revenue
Fair value of derivative contracts in payable position (a)
Other liabilities
Total accrued expenses and other liabilities
(a) For additional information on derivative instruments and hedging activities, refer to Note 21.
2019
2018
$
$
535
372
296
122
67
48
36
5
491
$
1,972
$
516
319
255
134
17
41
27
37
330
1,676
148
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.
(shares in thousands) (a)
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,
2019
2018
2017
492,797
489,884
485,708
4,160
496,958
(87,898)
(34,728)
(122,626)
2,914
4,176
492,797
489,884
(52,830)
(35,068)
(87,898)
(18,707)
(34,122)
(52,830)
374,332
404,900
437,054
(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 Income (Loss)
The following table presents changes, net of tax, in each component of accumulated other comprehensive income (loss).
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
income (loss)
$
(273) $
($ in millions)
Balance at January 1, 2017
Net change
Balance at December 31, 2017
Cumulative effect of changes in accounting principles,
net of tax
Adoption of Accounting Standards Update 2016-01
Adoption of Accounting Standards Update 2018-02
Balance at January 1, 2018
Net change
Balance at December 31, 2018
Cumulative effect of changes in accounting principles,
net of tax (c)
Adoption of Accounting Standards Update 2017-08
Balance at January 1, 2019
Net change
Balance at December 31, 2019
$
100
(173)
27
(40)
(186)
(295)
(481)
8
(473)
681
208
$
14
2
16
—
4
20
(2)
18
—
18
1
19
$
8
3
11
—
—
11
8
19
—
19
(17)
$
(90) $
1
(89)
—
(6)
(95)
—
(95)
—
(95)
(11)
$
2
$
(106) $
(341)
106
(235)
27
(42)
(250)
(289)
(539)
8
(531)
654
123
(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.
149
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 income (loss).
Year ended December 31, 2019 ($ in millions)
Before tax
Tax effect
After tax
Investment securities
Net unrealized gains arising during the period
$
968
$
(227)
$
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 losses arising during the period
Less: Net realized gains reclassified to income from continuing operations
Net change
Defined benefit pension plans
Net unrealized losses arising during the period
Other comprehensive income
78 (a)
890
(18) (b)
(209)
7
(6)
(11)
12 (d)
(23)
(14)
854
$
(2)
2
4
(2) (b)
6
3
$
(200)
$
741
60
681
5
(4)
(7)
10
(17)
(11)
654
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 interest on deposits and interest on long-term debt in our Consolidated Statement of 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 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 interest on deposits and interest on long-term debt in our Consolidated Statement of Income.
150
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Year ended December 31, 2017 ($ in millions)
Before tax
Tax effect
After tax
Investment securities
Net unrealized gains arising during the period
$
237
$
(45)
$
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)
192
92
100
8
(6)
3
1
$
106
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.
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)
2019
2018
2017
Net income from continuing operations
(Loss) income 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
(Loss) income from discontinued operations, net of tax
Net income
Diluted earnings per common share
Net income from continuing operations
(Loss) income from discontinued operations, net of tax
Net income
$
$
$
$
$
1,721
(6)
1,715
393,234
395,395
1,263
—
1,263
$
$
926
3
929
425,165
427,680
453,704
455,350
4.38
$
2.97
$
(0.02)
4.36
4.35
(0.02)
—
2.97
2.95
—
$
4.34
$
2.95
$
2.04
0.01
2.05
2.03
0.01
2.04
(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
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.
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
151
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
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, Ally 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 subject to a capital conservation buffer of more than 2.5%. 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 (for example, 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 (MSAs), 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 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, 2019
December 31, 2018
Amount
Ratio
Amount
Ratio
Required
minimum (a)
Well-
capitalized
minimum
$
13,837
9.54% $
13,397
9.14%
16,627
12.30
16,552
12.61
$
16,271
11.22% $
15,831
16,627
12.30
16,552
$
18,506
12.76% $
18,046
17,854
13.21
17,620
10.80%
12.61
12.31%
13.42
4.50%
4.50
6.00%
6.00
8.00%
8.00
(b)
6.50%
6.00%
8.00
10.00%
10.00
$
16,271
9.08% $
15,831
9.00%
16,627
10.01
16,552
10.69
4.00%
4.00
(b)
5.00%
(a)
In addition to the minimum risk-based capital requirements for the 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 2.5% and 1.875% at December 31, 2019, and December 31, 2018, respectively.
(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.
152
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
At December 31, 2019, and 2018, Ally and Ally Bank were “well-capitalized” and met all applicable capital requirements to which each
was subject.
Recent Regulatory Developments
In October 2019, the FRB and other U.S. banking agencies issued final rules implementing targeted amendments to the Dodd-Frank Act
and other financial-services laws that had been enacted in May 2018 through the EGRRCP Act. The final rules establish four risk-based
categories of prudential standards and capital and liquidity requirements for banking organizations with $100 billion or more in total
consolidated assets. The most stringent standards and requirements apply to U.S. global systemically important BHCs, which are assigned to
Category I. The assignment of other banking organizations to the remaining three categories is based on measures of size and four other risk-
based indicators: cross-jurisdictional activity, weighted short-term wholesale funding (wSTWF), nonbank assets, and off-balance-sheet
exposure. Under the final rules, Ally is designated as a Category IV firm and, as such, is (1) made subject to supervisory stress testing on a
two-year cycle rather than the previously required one-year cycle, (2) required to continue submitting an annual capital plan to the FRB, (3)
allowed to continue excluding accumulated other comprehensive income from regulatory capital, (4) required to continue maintaining a
buffer of unencumbered highly liquid assets to meet projected net stressed cash outflows over a 30-day planning horizon, (5) required to
conduct liquidity stress tests on a quarterly basis rather than the previously required monthly basis, (6) 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, (7) exempted from company-run
capital stress testing, (8) exempted from the modified liquidity coverage ratio (LCR) and the proposed modified net stable funding ratio
provided that wSTWF remains under $50 billion, and (9) allowed to remain exempted from the supplementary leverage ratio, the
countercyclical capital buffer, and single-counterparty credit limits. The final rules went in effect on December 31, 2019. Relatedly, in April
2019, the Federal Deposit Insurance Corporation (FDIC) extended the date by which all covered insured depository institutions (CIDIs),
including Ally Bank, must submit their next resolution plans to the date or dates specified by the FDIC in the future in connection with its
final determination on amendments to the rule governing CIDI resolution planning, which have not yet been issued. At this time, the impacts
that such a potential future proposal may have on us are not clear.
In July 2019, the FRB and other U.S. banking agencies issued a final rule to simplify the capital treatment for MSAs, certain DTAs, and
investments in the capital instruments of unconsolidated financial institutions (collectively, threshold items). Under the current capital rule, a
banking organization must deduct from capital amounts of threshold items that individually exceed 10% of Common Equity Tier 1 capital.
The aggregate amount of threshold items not deducted under the 10% threshold deduction but that nonetheless exceeds 15% of Common
Equity Tier 1 capital minus certain deductions from and adjustments to Common Equity Tier 1 capital must also be deducted. Any amount of
these MSAs and certain DTAs not deducted from Common Equity Tier 1 capital are currently risk weighted at 100%. The final rule removes
the individual and aggregate deduction thresholds for threshold items and adopts a single 25% Common Equity Tier 1 capital deduction
threshold for each item individually, and requires that any of the threshold items not deducted be risk weighted at 250%. The final rule also
simplifies the calculation methodology for minority interests. These provisions will take effect for us on April 1, 2020. We do not expect these
provisions to have a material impact on our capital position.
In December 2018, the FRB and other U.S. banking agencies approved a final rule to address the impact of CECL on regulatory capital
by allowing BHCs and banks, including Ally, the option to phase in the day-one impact of CECL. For regulatory capital purposes, this
permitted us to phase in 25% of the capital impact of CECL on January 1, 2020, with an additional 25% to be phased in at the beginning of
each subsequent year until fully phased in by the first quarter of 2023. In addition, the FRB announced that, in order to reduce uncertainty, the
FRB will maintain its current modeling framework for the allowance for loan losses in supervisory stress tests through the 2021 cycle.
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
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. At
this time, how the FRB proposal and the Basel Committee 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 on 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.
Capital Planning and Stress Tests
Under the final rules implementing the EGRRCP Act, we are (1) made subject to supervisory stress testing on a two-year cycle rather
than the previously required one-year cycle, (2) required to continue submitting an annual capital plan to the FRB, (3) allowed to continue
excluding accumulated other comprehensive income from regulatory capital, (4) exempted from company-run capital stress testing, and (5)
allowed to remain exempted from the supplementary leverage ratio and the countercyclical capital buffer.
Our annual 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
153
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
distribution, and any similar action that the FRB determines could have an impact on our capital. The plan must also include a discussion of
how we, 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 the plan, in whole or in part, or provide a notice of
non-objection. If the FRB objects to the plan, or if certain material events occur after submission of the plan, we must submit a revised plan to
the FRB within 30 days. Even if the FRB does not object to the plan, we 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.
In October 2019, the FRB noted its intent to propose changes to the capital-plan rule, including for the purpose of providing Category IV
firms like us with additional flexibility in developing their annual capital plans. At this time, the impacts that such a potential future proposal
may have on us are not clear.
The following table presents information related to our common stock and distributions to our common stockholders over the last eight
quarters.
($ in millions, except per share data; shares in thousands)
2018
First quarter
Second quarter
Third quarter
Fourth quarter
2019
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)
$
$
185
195
250
309
211
229
300
299
6,473
7,280
9,194
12,121
8,113
7,775
9,287
9,554
437,054
432,691
425,752
416,591
404,900
399,761
392,775
383,523
432,691
$
425,752
416,591
404,900
399,761
$
392,775
383,523
374,332
0.13
0.13
0.15
0.15
0.17
0.17
0.17
0.17
Includes shares of common stock withheld to cover income taxes owed by participants in our share-based incentive plans.
(a)
(b) On January 13, 2020, the Ally Board of Directors (our Board) declared a quarterly cash dividend of $0.19 per share on all common stock, payable on
February 14, 2020. Refer to Note 31 for further information regarding this common stock dividend.
We received a non-objection to our 2018 capital plan in June 2018. We were not required to submit an annual capital plan to the FRB,
participate in the supervisory stress test or CCAR, or conduct company-run capital stress tests during the 2019 cycle. Instead, our capital
actions during this cycle are largely based on the results from our 2018 supervisory stress test. On April 1, 2019, our Board authorized an
increase in our stock-repurchase program, permitting us to repurchase up to $1.25 billion of our common stock from time to time from the
third quarter of 2019 through the second quarter of 2020, representing a 25% increase over our previously announced program. Additionally,
on January 13, 2020, our Board declared a quarterly cash dividend of $0.19 per share of our common stock. Refer to Note 31 for further
information on the most recent dividend.
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 and internal governance requirements, including approval by our Board. The amount and size of any future
dividends and share repurchases also will be subject to various factors, including Ally’s capital and liquidity positions, regulatory
considerations, any accounting standards that affect capital or liquidity (including CECL), financial and operational performance, alternative
uses of capital, common-stock price, and general market conditions, and may be suspended at any time.
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 FDIC, and Ally Bank is required to file periodic reports with the FDIC concerning its financial
condition. Total assets of Ally Bank were $167.5 billion and $159.0 billion at December 31, 2019, and 2018, 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 $2.0 billion and $2.6 billion in 2019 and 2018, respectively.
The FRB requires banks to maintain minimum average reserve balances. The amount of the required reserve balance for Ally Bank was
$416 million and $279 million at December 31, 2019, and 2018, 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, 2019.
154
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
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, 2019, the
maximum dividend that could be paid by the U.S. insurance subsidiaries over the next 12 months without prior statutory approval was $129
million.
21. Derivative Instruments and Hedging Activities
We enter into derivative instruments, which may include interest rate swaps, foreign-currency forwards, equity options, futures, and
interest rate 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 (which do not qualify for hedge accounting
treatment).
Derivatives qualifying for hedge accounting treatment 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,
receive-fixed swaps designated as cash flow hedges of the expected future cash flows in the form of interest receipts on certain securities
within our available-for-sale portfolio, as well as interest rate floor contracts designated as cash flow hedges of the expected future cash flows
in the form of interest receipts on a portion of our dealer floorplan commercial loans.
We execute economic hedges, which may 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 income (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 or expense
offsetting the gains and losses on the associated foreign-currency transactions.
Investment Risk
We enter into equity options to mitigate the risk associated with 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.
We execute certain over-the-counter (OTC) derivatives such as interest rate caps and floors using bilateral agreements with financial
counterparties. Bilateral agreements generally require both parties to post collateral in the event the fair values of the derivative financial
155
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
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. Payments related to the exchange of collateral for OTC derivatives are recognized as collateral.
We also 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, 2019, 2018, or 2017.
We placed noncash collateral totaling $118 million supporting our derivative positions at December 31, 2019, compared to $26 million
and $105 million of cash and noncash collateral, respectively, at December 31, 2018, in accounts maintained by counterparties. These
amounts include collateral placed at clearinghouses and exclude 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 and noncash collateral from counterparties totaling $40 million and $29 million, respectively, in accounts maintained
by counterparties at December 31, 2019, compared to $30 million and $3 million of cash and noncash collateral at December 31, 2018. These
amounts include collateral received from clearinghouses and 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.
156
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.
2019
2018
Derivative contracts in a
Derivative contracts in a
receivable
position
payable
position
Notional
amount
receivable
position
payable
position
Notional
amount
$
— $
— $
17,101
$
December 31, ($ in millions)
Derivatives designated as accounting hedges
Interest rate contracts
Swaps
Purchased options
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
$
— $
—
1
1
—
—
37
37
3
3
40
41
$
— $
24,203
—
—
—
—
37
—
37
—
—
37
37
—
136
24,339
11
6,793
6,742
13,546
181
181
13,727
38,066
$
62
—
62
—
2
—
2
—
—
2
64
$
—
14,100
3
3
—
—
—
—
2
2
2
5
157
31,358
81
522
416
1,019
112
112
1,131
$
32,489
$
157
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)
2019
2018
2019
2018
2019
2018
Assets
Available-for-sale securities (b) (c)
$
1,217
$
1,485
$
18
$
Finance receivables and loans, net (d)
33,312
40,850
135
— $
24
$
18
44
(5)
5
Liabilities
Long-term debt
$
11,995
$
13,001
$
24
$
67
$
127
$
67
(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, 2019, the amortized cost basis of the closed portfolios used in these hedging
relationships was $230 million, the amount identified as the last of layer in the discontinued hedge relationship was $200 million, and the basis adjustment
associated with the discontinued last-of-layer relationships was a $2 million asset, which was allocated across the entire remaining pool upon termination
of the hedge relationship. There were no open last-of-layer relationships at December 31, 2019. At December 31, 2018, the amortized cost basis of the
closed portfolios used in these hedging relationships was $47 million, the amount identified as the last of layer in the hedge relationship was $28 million,
and there was no basis adjustment associated with the last-of-layer relationships.
(d) The hedged item represents the carrying value of the hedged portfolio of assets. The amount identified as the last of layer in the open hedge relationship
was $10.2 billion as of December 31, 2019, and $21.4 billion as of December 31, 2018. The basis adjustment associated with the open last-of-layer
relationship was a $91 million asset as of December 31, 2019, and 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. The amount that is identified as the last of layer in the discontinued
hedge relationship was $12.8 billion at December 31, 2019. The basis adjustment associated with the discontinued last-of-layer relationship was a $43
million asset as of December 31, 2019, which was allocated across the entire remaining pool upon termination of the hedge relationship.
Statement of Income Presentation
The following table summarizes the location and amounts of gains and losses on derivative instruments not designated as accounting
hedges reported in our Consolidated Statement of Income.
Year ended December 31, ($ in millions)
Gain (loss) recognized in earnings
Interest rate contracts
2019
2018
2017
Gain on mortgage and automotive loans, net
$
1
$
— $
Other income, net of losses
Total interest rate contracts
Foreign exchange contracts
Other income, net of losses
Other operating expenses
Total foreign exchange contracts
Total (loss) gain recognized in earnings
(11)
(10)
—
(4)
(4)
$
(14) $
—
—
13
—
13
13
$
1
(3)
(2)
(7)
—
(7)
(9)
158
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)
2019
2018
2017
2019
2018
2017
2019
2018
2017
2019
2018
2017
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
$ — $ — $ — $ — $ — $ — $ — $ — $ — $
41 $
62 $
8
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
(Loss) 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 (loss) gain on cash flow hedging
relationships
Total amounts presented in the
—
—
—
—
—
138
—
—
—
—
—
19
(138)
(19)
—
—
—
—
—
—
—
(3)
1
(2)
—
—
—
28
(28)
—
—
—
—
—
—
(3)
3
—
—
—
—
—
—
(1)
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(41)
—
—
—
—
—
—
—
(61)
47
(47)
—
—
—
—
1
(3)
22
(22)
—
—
—
—
5
—
—
—
—
—
—
(4)
1
—
—
—
—
—
—
—
—
—
—
—
—
—
15
1
—
$ — $ — $ — $ — $ — $ — $
(4) $
1 $ — $
15 $
1 $ —
Consolidated Statement of Income
$ 7,337 $ 6,688 $ 5,819
$
955 $
788 $
599
$ 2,538 $ 1,735 $ 1,077
$ 1,570 $ 1,753 $ 1,653
During the next 12 months, we estimate $19 million of losses will be reclassified into pretax earnings from derivatives designated as
cash flow hedges.
159
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table summarizes the location and amounts of gains and losses related to interest and amortization on derivative
instruments designated as fair value and cash flow hedges reported in our Consolidated Statement of Income.
Interest and fees on
finance receivables
and loans
Interest and dividends
on investment
securities and other
earning assets
Interest on deposits
Interest on long-term
debt
2019
2018
2017
2019
2018
2017
2019
2018
2017
2019
2018
2017
Year ended December 31,
($ in millions)
Gain (loss) on fair value hedging
relationships
Interest rate contracts
Amortization of deferred unsecured
debt basis adjustments
$ — $ — $ — $ — $ — $ — $ — $ — $ — $
25 $
51 $
77
Amortization of deferred loan basis
adjustments
(28)
(14)
(21)
—
—
—
2
—
(1)
—
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)
Amortization of deferred basis
adjustments of available-for-sale
securities
Interest for qualifying
accounting hedges of
available-for-sale securities
Interest for qualifying
accounting hedges of
consumer automotive loans
held-for-investment
Total (loss) gain 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
Interest for qualifying accounting
hedges of variable-rate
commercial loans
Total gain (loss) on cash flow
hedging relationships
—
—
—
—
—
—
—
—
—
—
8
24
—
—
—
—
—
—
—
—
—
(23)
(17)
(2)
—
—
—
—
—
—
—
—
—
—
6
3
—
—
—
(3)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1)
—
—
—
—
—
3
—
—
—
—
—
—
—
—
—
2
—
—
—
—
—
48
8
—
—
—
—
102
(1)
—
22
16
(1)
—
—
(6)
2
(22)
(1)
(1)
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
$
1 $ — $ — $ — $ — $ — $
(1) $
3 $ — $ — $
8 $
(1)
The following table summarizes the effect of cash flow hedges on accumulated other comprehensive income (loss).
Year ended December 31, ($ in millions)
Interest rate contracts
2019
2018
2017
(Loss) gain recognized in other comprehensive income (loss)
$
(23) $
10
$
5
160
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table summarizes the effect of net investment hedges on accumulated other comprehensive income (loss) and the
Consolidated Statement of Income.
Year ended December 31, ($ in millions)
Foreign exchange contracts (a) (b)
2019
2018
2017
(Loss) gain recognized in other comprehensive income (loss)
$
(6) $
12
$
(10)
(a) There were no amounts excluded from effectiveness testing for the years ended December 31, 2019, 2018, or 2017.
(b) Gains and losses reclassified from accumulated other comprehensive income (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, 2019, 2018, or 2017.
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
Foreign
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
Valuation allowance change, excluding expirations
State and local income taxes, net of federal income tax benefit (b)
Nondeductible expenses
Tax credits, excluding expirations
Changes in unrecognized tax benefits
Tax law enactment
Other, net
2019
2018
2017
$
(2) $
(12) $
(17)
4
65
67
178
2
(1)
179
246
$
5
35
28
328
—
3
331
359
$
6
53
42
566
—
(27)
539
581
2019
2018
2017
$
413
$
340
$
527
(219)
50
29
(27)
5
(1)
(4)
(8)
26
28
(20)
22
(23)
(6)
(49)
7
4
(12)
1
119
(16)
581
Total income tax expense from continuing operations
$
246
$
359
$
(a) The statutory U.S. federal tax rate was 21% for both the years ended December 31, 2019, and 2018, and 35% for year ended December 31, 2017.
(b) Amount for 2017 includes state deferred tax adjustments primarily offset in the valuation allowance change caption.
For the year ended December 31, 2019, consolidated income tax expense from continuing operations was driven by tax attributable to
pretax earnings for the year, partially offset by a release of valuation allowance on foreign tax credit carryforwards during the second quarter
of 2019. The valuation allowance release was primarily driven by our current capacity to engage in certain foreign securitization transactions
and the market demand from investors related to these transactions, coupled with the anticipated timing of the forecasted expiration of certain
foreign tax credit carryforwards. 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 Cuts and Jobs Act of 2017 (Tax Act), partially offset by changes to our valuation
allowance balances related to capital-in-nature deferred tax assets and foreign tax credit carryforwards.
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
161
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
on the deferred tax assets relating to these carryforwards and it is reasonably possible that the valuation allowance may change in the next 12
months.
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
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 (liabilities) assets (a)
2019
2018
$
1,784
$
1,796
448
153
98
214
2,697
(837)
1,860
1,325
366
91
87
1,869
$
(9) $
366
168
90
257
2,677
(1,057)
1,620
850
321
93
56
1,320
300
(a) Amounts include $58 million and $317 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, 2019, and 2018, respectively, and $67 million and $17 million included in accrued expenses and
other liabilities on our Consolidated Balance Sheet for tax jurisdictions in a total net deferred tax liability position.
The following table summarizes net deferred tax assets including related valuation allowances at December 31, 2019.
($ 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
Deferred tax
asset (liability)
Valuation
allowance
Net deferred tax
asset (liability)
Years of
expiration
$
1,433
351
1,784
7 (a)
176 (b)
183
(1,139)
$
(737)
$
—
(737)
—
(100)
(100)
—
696
351
1,047
7
76
83
(1,139)
(9)
2022–2029
2025–2039
2027–2036
2020–2039
n/a
Net deferred tax assets (liabilities)
$
828
$
(837)
$
(a) Federal net operating loss carryforwards are included in the other assets total disclosed in our deferred inventory table above.
(b) 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, 2019, 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, 2019.
162
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,
2019
2018
2017
$
$
44
—
11
(5)
(2)
—
48
$
$
15
—
29
—
—
—
44
$
$
14
—
3
(1)
—
(1)
15
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, 2019, 2018, and 2017, the balance of unrecognized tax benefits that, if
recognized, would affect our effective tax rate were $38 million, $34 million, and $12 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, 2019, 2018, and 2017, 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 $36 million over the next 12 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 2016 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, 2019, we had 30,703,972 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 three- year measurement period for
2019 granted awards, or a two-year measurement period for 2018, 2017, and 2016 granted awards. All PSUs granted have 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.
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, 2019, 2018, and 2017.
163
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table presents the changes in outstanding non-vested PSUs and RSUs activity during 2019.
(in thousands, except per share data)
RSUs and PSUs
Outstanding non-vested at January 1, 2019
Granted
Vested
Forfeited
Outstanding non-vested at December 31, 2019
Number of
units
Weighted-average
grant date fair
value per share
4,864
$
3,007
(3,411)
(93)
4,367
23.71
26.29
22.37
26.28
26.48
We recognized expense related to PSUs and RSUs of $67 million, $72 million, and $60 million for the years ended December 31, 2019,
2018, and 2017, 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 — We hold 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 — We carry our available-for-sale securities at fair value based on external pricing sources. We
classify our securities as Level 1 when fair value is determined using quoted prices available for the same instruments trading in
active markets. We classify our securities as Level 2 when fair value is determined using prices for similar instruments trading in
active markets. We perform pricing validation procedures for our available-for-sale securities.
Interests retained in financial asset sales — We retain 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 (for
164
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
example, forward interest rates) and internally developed inputs (for example, 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 equity options. To determine the fair value of these instruments, we utilize
the quoted market prices for those 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 would utilize the credit default swap spreads of the counterparty.
165
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, 2019 ($ 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
Agency mortgage-backed commercial
Mortgage-backed commercial
Asset-backed
Corporate debt
Total available-for-sale securities
Mortgage loans held-for-sale (b)
Finance receivables and loans, net
Consumer other (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
Foreign currency
Total derivative contracts in a payable position
Total liabilities
(a) Our investment in any one industry did not exceed 13%.
(b) Carried at fair value due to fair value option elections.
Recurring fair value measurements
Level 1
Level 2
Level 3
Total
$
608
$
— $
8
$
616
2,047
—
15
—
—
—
—
—
—
2,062
—
—
—
—
—
1
639
171
21,404
2,850
1,382
42
368
1,363
28,220
—
—
—
62
62
—
2
—
—
—
—
—
—
—
2
30
11
2
2
2
2,048
641
186
21,404
2,850
1,382
42
368
1,363
30,284
30
11
2
64
64
$
2,670
$
28,282
$
55
$
31,007
$
$
— $
—
— $
5
5
5
$
$
— $
—
— $
5
5
5
166
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
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
Agency mortgage-backed commercial
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
3
714
723
1,241
23,446
—
—
37
4
41
$
2,623
$
23,487
$
—
—
—
—
—
—
—
—
—
—
8
4
—
—
—
19
1,851
802
145
17,138
2,686
3
714
723
1,241
25,303
8
4
37
4
41
$
26,129
$
$
— $
—
— $
37
37
37
$
$
— $
—
— $
37
37
37
167
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.
Net realized/unrealized
gains
Fair value at
Jan. 1, 2019
included
in
earnings
included
in OCI
Level 3 recurring fair value measurements
Net unrealized gains still
held at December 31, 2019
Purchases Sales
Issuances Settlements
Fair value at
Dec. 31, 2019
included in
earnings
included in
OCI
$
7 $
5 (a) $
— $
— $ — $
— $
(4) $
8 $
5 $
—
8
—
4
—
—
12 (c)
1 (d)
—
2 (c)
—
—
—
—
—
2
—
742
(732)
15
—
—
—
—
—
—
—
—
—
—
—
—
(5)
(2)
—
2
30
11
2
2
—
—
—
—
2
$
19 $
20
$
— $
759 $(732) $
— $
(11) $
55 $
7 $
—
—
—
—
—
—
—
($ in millions)
Assets
Investment securities
Equity securities
Available-for-sale securities
Mortgage loans held-for-sale (b)
Finance receivables and loans, net (b)
Other assets
Interests retained in financial asset
sales
Derivative assets, net of derivative
liabilities
Total assets
(a) Reported as other gain on investments, net, in the Consolidated Statement of Income.
(b) Carried at fair value due to fair value option elections.
(c) Reported as gain on mortgage and automotive loans, net, in the Consolidated Statement of Income.
(d) Reported as interest and fees on finance receivables and loans in the Consolidated Statement of Income.
Level 3 recurring fair value measurements
Net realized/unrealized
(losses) gains
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
Net unrealized losses still
held at December 31, 2018
($ in millions)
Assets
Equity securities
Mortgage loans held-for-sale (b)
13
5 (c)
Other assets
Interests retained in financial asset
sales
Derivative assets
Total assets
$
19 $
(7) (a)
$
— $
— $ — $
— $
—
—
—
303
(313)
—
—
—
—
—
—
—
5
1
—
(1) (c)
(5) $
—
(1)
—
7 $
8
4
—
(10) $
—
—
—
$
38 $
(3)
$
— $
303 $(313) $
— $
(6) $
19 $
(10) $
—
—
—
—
—
(a) Reported as other gain on investments, net, in the Consolidated Statement of Income.
(b) Carried at fair value due to fair value option elections.
(c) Reported as gain on mortgage and automotive loans, net, in the Consolidated Statement of Income.
168
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, 2019, and
December 31, 2018, 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, 2019 ($ in millions)
Level 1 Level 2 Level 3
Total
Nonrecurring fair value
measurements
Lower-of-cost
or fair value
reserve,
valuation
reserve, or
cumulative
adjustments
Total gain
(loss)
included in
earnings
Assets
Loans held-for-sale, net
Commercial finance receivables and loans, net (b)
Automotive
Other
Total commercial finance receivables and loans, net
Other assets
Nonmarketable equity investments
Equity-method investments
Repossessed and foreclosed assets (c)
$ — $ — $
128
$
128
$
—
—
—
—
—
—
—
—
—
5
—
—
5
64
45
109
7
4
12
64
45
109
12
4
12
$
260
$
265
$
—
(12)
(21)
(33)
—
(6)
(1)
(40)
n/m (a)
n/m (a)
n/m (a)
n/m (a)
n/m (a)
n/m (a)
n/m (a)
n/m
Total assets
$ — $
n/m = not meaningful
(a) We consider the applicable valuation allowance, loan loss allowance, or cumulative impairment 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 allowance, loan loss allowance, or cumulative impairment.
(b) Represents the portion of the portfolio specifically impaired during 2019. 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.
169
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
December 31, 2018 ($ in millions)
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)
Nonrecurring fair value measurements
Level 1
Level 2
Level 3
Total
Lower-of-cost
or fair value
reserve,
valuation
reserve, or
cumulative
adjustments
Total gain
(loss)
included in
earnings
$ — $ — $
210
$
210
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
96
306
84
55
139
1
3
13
96
306
84
55
139
1
3
13
(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
Total assets
$ — $ — $
462
$
462
$
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 allowance, loan loss allowance, or cumulative impairment 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 allowance, loan loss allowance, or cumulative impairment.
(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.
Fair Value Option for Financial Assets
We elected the fair value option for an insignificant amount of conforming mortgage loans held-for-sale and certain acquired unsecured
consumer finance receivables. We elected the fair value option for conforming mortgage loans held-for-sale to mitigate earnings volatility by
better matching the accounting for the assets with the related derivatives. We elected the fair value option for certain acquired unsecured
consumer finance receivables to mitigate the complexities of recording these loans at amortized cost. 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.
170
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, 2019, and December 31, 2018.
($ in millions)
December 31, 2019
Financial assets
Held-to-maturity securities
Loans held-for-sale, net
Finance receivables and loans, net
FHLB/FRB stock (a)
Financial liabilities
Deposit liabilities
Short-term borrowings
Long-term debt
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
Short-term borrowings
Long-term debt
Carrying
value
Level 1
Level 2
Level 3
Total
Estimated fair value
$
1,568
$
— $
1,600
$
— $
128
126,957
1,150
—
—
—
—
—
1,150
128
1,600
128
130,837
130,837
—
1,150
$
60,146
$
— $
— $
60,678
$
60,678
5,531
34,027
—
—
—
22,789
5,532
14,138
5,532
36,927
$
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
(a)
Included in other assets on our Consolidated Balance Sheet.
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
assets and liabilities subject to a master netting agreement on a net basis if certain qualifying criteria are met. At December 31, 2019, these
instruments are reported as gross assets and gross liabilities on the Consolidated Balance Sheet.
171
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
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
December 31, ($ in millions)
2019
Assets
Derivative assets in net asset positions (d)
$
62
$
Derivative assets with no offsetting
arrangements
Total assets
Liabilities
Derivative liabilities in net liability
positions (d)
Total liabilities
2018
Assets
Derivative assets in net asset positions
Total assets (d)
Liabilities
Derivative liabilities in net liability
positions (d)
Securities sold under agreements to
repurchase (e)
Total liabilities
$
$
$
$
$
$
$
2
64
5
5
41
41
$
$
$
$
$
37
$
685
722
$
— $
—
— $
— $
— $
— $
— $
— $
—
— $
62
$
2
64
5
5
41
41
$
$
$
$
$
37
$
685
722
$
— $
—
— $
— $
— $
— $
— $
— $
—
— $
(36) $
—
(36) $
(4) $
(4) $
(4) $
(4) $
— $
(685)
(685) $
26
2
28
1
1
37
37
37
—
37
(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 $29 million and $3 million of noncash derivative collateral pledged to us that was excluded at December 31, 2019, and
2018, respectively, 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 $29 million and $7 million at December 31, 2019, and 2018, respectively. We
have not sold or pledged any of the noncash collateral received under these agreements as of both December 31, 2019, and 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.
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.
172
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Mortgage Finance operations — Consists of the management of held-for-investment and held-for sale consumer mortgage loan
portfolios. Our held-for-investment loan portfolio includes bulk purchases of high-quality jumbo and LMI mortgage loans
originated by third parties. Our direct-to-consumer mortgage offering, referred to as Ally Home, consists 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, with a focus on businesses owned by private equity sponsors. These loans are typically used for
leveraged buyouts, mergers and acquisitions, debt refinancing, restructurings, and working capital. We also provide non-bank
wholesale-funded managers with partial funding for their direct-lending activities, which is principally leveraged loans.
Additionally, we offer 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. Financial results related to Ally Invest, our online brokerage operations, are currently included
within Corporate and Other. Additionally, beginning in October 2019 with the acquisition of Health Credit Services, financial information
related to Ally Lending, our point-of-sale financing business, is 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.
173
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)
2019
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
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
$
$
$
$
$
$
Automotive
Finance
operations
Insurance
operations
Mortgage
Finance
operations
Corporate
Finance
operations
Corporate
and Other
Consolidated (a)
$
4,141
$
54
$
171
$
239
$
28
$
249
4,390
962
1,810
1,274
1,328
—
1,013
1,618
113,863
$
$
315
8,547
$
$
22
193
5
148
40
16,279
45
284
36
95
171
199
(5)
363
$
$
153
5,787
$
$
(159) $
36,168
$
1,967
180,644
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
4,633
1,761
6,394
998
3,429
4,221
1,544
5,765
1,148
3,110
3,713
$
59
$
132
$
167
$
150
$
355
4,068
1,134
1,714
1,059
1,118
—
950
45
212
22
76
81
231
(16)
262
4
136
8
108
20
11,708
Income (loss) from continuing operations
before income tax expense
Total assets
$
$
1,220
114,089
$
$
168
7,464
$
$
$
$
114
3,979
$
$
(15) $
29,908
$
1,507
167,148
(a) Net financing revenue and other interest income after the provision for loan losses totaled $3.6 billion, $3.5 billion, and $3.1 billion for the years ended
December 31, 2019, 2018, and 2017, respectively.
27. Parent and Guarantor Consolidating Financial Statements
Certain of our senior notes issued by the parent are guaranteed by 100% directly owned subsidiaries of Ally (the Guarantors). As of
December 31, 2019, the Guarantors include Ally US LLC and IB Finance Holding Company, LLC (IB Finance), each of which fully and
unconditionally guarantee the senior notes on a joint and several basis.
The following financial statements present condensed consolidating financial data for (i) Ally Financial Inc. (on a parent company-only
basis); (ii) the Guarantors; (iii) the nonguarantor subsidiaries (all other subsidiaries); and (iv) a column for adjustments to arrive at (v) the
information for the parent company, the Guarantors, and nonguarantors on a consolidated basis.
Investment in subsidiaries is accounted for by the parent company and the Guarantors using the equity method for this presentation.
Results of operations of subsidiaries are therefore classified in the parent company’s and Guarantors’ investment in subsidiaries accounts. The
elimination entries set forth in the following condensed consolidating financial statements eliminate distributed and undistributed income of
subsidiaries, investment in subsidiaries, and intercompany balances and transactions between the parent, the Guarantors, and nonguarantors.
174
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Condensed Consolidating Statements of Comprehensive Income
Year ended December 31, 2019 ($ in millions)
Financing revenue and other interest income
Parent
Guarantors Nonguarantors
Consolidating
adjustments
Ally
consolidated
Interest and fees on finance receivables and loans
$
(225) $
— $
7,570
$
(8) $
7,337
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 on cash and cash equivalents — intercompany
Operating leases
11
—
—
10
14
2
Total financing (loss) revenue and other interest income
(188)
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 and other interest income
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 income of subsidiaries
Income tax (benefit) expense from continuing operations
Net income from continuing operations
Loss from discontinued operations, net of tax
Undistributed income of subsidiaries
Bank subsidiary
Nonbank subsidiaries
Net income
Other comprehensive income, net of tax
Comprehensive income
—
—
—
—
—
—
—
—
—
—
—
—
1,950
—
—
—
—
—
—
—
53
849
23
925
3
(1,116)
1,950
436
—
4
2
337
343
1,613
1,950
35
36
—
590
626
952
(566)
1,518
(6)
210
(7)
1,715
654
—
—
—
—
—
1,950
—
1,950
—
210
—
2,160
492
6
17
955
68
17
1,468
10,101
2,538
82
721
25
3,366
978
5,757
—
—
1,087
24
241
611
1,963
7,720
981
1,186
321
1,841
3,348
3,391
812
2,579
—
—
—
2,579
685
(17)
—
—
—
(31)
—
(56)
—
—
—
(48)
(48)
—
(8)
(3,900)
(436)
—
—
—
(545)
(545)
(4,889)
(18)
—
—
(545)
(545)
(4,326)
—
(4,326)
—
(420)
7
(4,739)
(1,177)
—
17
955
78
—
1,470
9,857
2,538
135
1,570
—
4,243
981
4,633
—
—
1,087
28
243
403
1,761
6,394
998
1,222
321
1,886
3,429
1,967
246
1,721
(6)
—
—
1,715
654
2,369
$
2,369
$
2,652
$
3,264
$
(5,916) $
175
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
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 on cash and cash equivalents — 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 and other interest income
Cash dividends from subsidiaries
Bank subsidiary
Nonbank subsidiaries
Other revenue
Insurance premiums and service revenue earned
Gain on mortgage and automotive loans, net
Other loss 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
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) $
—
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
176
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 on cash and cash equivalents — 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 and other interest income
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
177
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Condensed Consolidating Balance Sheet
December 31, 2019 ($ 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
$
— $
570
$
$
49
5
2,051
2,105
—
—
—
—
2,167
161
(22)
2,306
1
94
50
—
—
—
—
—
—
—
—
—
—
—
—
—
—
16,954
6,535
—
2,193
16,954
—
—
—
2,931
1,087
4,588
616
30,284
1,578
158
— $
—
(3,138)
(3,138)
—
—
(10)
—
619
2,936
—
3,555
616
30,284
1,568
158
126,054
10
128,231
110
(1,241)
124,923
8,863
—
77
—
—
2,558
5,690
(271)
—
(261)
—
(94)
(127)
(33,908)
(6,535)
—
(1,810)
—
(1,263)
126,968
8,864
—
—
—
—
2,558
6,073
$
30,238
$
16,954
$
179,335
$
(45,883) $
180,644
$
— $
— $
119
$
1
—
1
2,581
11,389
10
1,197
18
98
145
—
383
15,822
14,416
—
—
—
—
—
—
—
—
—
—
—
—
—
16,954
120,632
2,051
122,802
2,950
22,638
—
161
—
133
496
3,305
3,371
155,856
23,479
— $
—
(2,051)
(2,051)
—
—
(10)
(1,358)
(18)
(231)
—
—
(1,782)
(5,450)
(40,433)
119
120,633
—
120,752
5,531
34,027
—
—
—
—
641
3,305
1,972
166,228
14,416
$
30,238
$
16,954
$
179,335
$
(45,883) $
180,644
178
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
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
179
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Condensed Consolidating Statement of Cash Flows
Year ended December 31, 2019 ($ in millions)
Parent
Guarantors Nonguarantors
Consolidating
adjustments
Ally
consolidated
Operating activities
Net cash provided by operating activities
$
1,818
$
1,950
$
4,628
$
(4,346) $
4,050
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
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 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
Net cash used in 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
—
—
—
—
—
—
—
—
—
548
(253)
718
—
3
—
(2)
259
(13)
(4)
1,256
104
—
801
(2,173)
271
(1,039)
(273)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,950)
—
(2,309)
(1,950)
—
765
1,398
—
—
—
(498)
814
(15,199)
7,079
5,154
(514)
302
10
(4,974)
1,025
4,497
284
(4,023)
2,622
(171)
—
—
203
(375)
(3,764)
(4,560)
15,349
6,114
(15,051)
(718)
—
—
(2,646)
2
(1,510)
3
(643)
5,998
—
—
—
—
—
—
—
(10)
535
(498)
814
(15,199)
7,079
5,154
(514)
302
—
(4,439)
(535)
1,038
8
(1,002)
—
—
—
2
(259)
—
—
(1,261)
—
(802)
—
—
447
—
—
4,596
(2)
4,239
—
(1,368)
(1,770)
4,252
—
(4,023)
2,625
(171)
—
—
190
(379)
(3,769)
(4,456)
14,547
6,915
(17,224)
—
(1,039)
(273)
—
—
(1,530)
3
(1,246)
5,626
4,380
Cash and cash equivalents and restricted cash at end of year
$
2,163
$
— $
5,355
$
(3,138) $
180
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table provides a reconciliation of cash and cash equivalents and restricted cash from the Condensed Consolidating Balance Sheet to the
Condensed Consolidating Statement of Cash Flows.
December 31, 2019 ($ in millions)
Parent
Guarantors Nonguarantors
Consolidating
adjustments
Ally
consolidated
Cash and cash equivalents on the Condensed Consolidating Balance
Sheet
Restricted cash included in other assets on the Condensed
Consolidating Balance Sheet (a)
Total cash and cash equivalents and restricted cash in the Condensed
Consolidating Statement of Cash Flows
$
$
2,105
$
— $
4,588
$
(3,138) $
3,555
58
—
767
—
825
2,163
$
— $
5,355
$
(3,138) $
4,380
(a) Restricted cash balances relate primarily to Ally securitization arrangements. Refer to Note 13 for additional details describing the nature of restricted cash balances.
181
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
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 Consolidating Balance Sheet to the
Condensed Consolidating Statement of Cash Flows.
December 31, 2018 ($ in millions)
Parent
Guarantors
Nonguarantors
Consolidating
adjustments
Ally
consolidated
Cash and cash equivalents on the Condensed Consolidating Balance
Sheet
Restricted cash included in other assets on the Condensed
Consolidating Balance Sheet (a)
Total cash and cash equivalents and restricted cash in the Condensed
Consolidating 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.
182
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 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
—
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
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)
2019
2018
Maximum
liability
Carrying value
of liability
Maximum
liability
Carrying value
of liability
Standby letters of credit and other guarantees
$
249
$
6
$
218
$
7
183
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Our Corporate Finance operations 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. We received no cash collateral related to these letters of credit at December 31, 2019.
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)
Mortgage loan origination commitments (c)
Home equity lines of credit (d)
Construction-lending commitments (e)
2019
2018
$
4,384
$
3,435
504
314
226
127
394
171
253
85
(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) 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.
(d) We are committed to fund the remaining unused balances on home equity lines of credit.
(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.
Lease Commitments
For details about our future minimum payments under operating leases with noncancelable lease terms, refer to Note 10.
Contractual Commitments
We have entered into multiple agreements for sponsorship, 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)
2020
2021
2022
2023
2024
2025 and thereafter
Total future payment obligations
184
$
68
38
40
37
14
27
$
224
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
29. Contingencies and Other Risks
Concentration with GM and Chrysler
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 and Other Contingencies
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.
Ally and its subsidiaries, including Ally Bank, also are or may be subject to potential liability under other contingent exposures,
including indemnification, tax, self-insurance, and other miscellaneous contingencies.
We accrue for a legal matter or other 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 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 or other contingent exposure could be material to our consolidated financial condition, results of operations, or cash flows, we
provide disclosure in this note as prescribed by ASC Topic 450, Contingencies. Refer to Note 1 to the Consolidated Financial Statements for
additional information on our policy for establishing accruals.
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. Other contingent exposures and their ultimate resolution are similarly unpredictable for reasons that
can vary based on the circumstances.
As a result, we often are unable to determine how or when threatened or pending legal matters and other contingent exposures will be
resolved and what losses may be incrementally and ultimately incurred. Actual losses may be higher or lower than any amounts accrued or
estimated for those matters and other exposures, possibly to a significant degree.
Subject to the foregoing, based on our current knowledge and after consultation with counsel, we do not believe that the ultimate
outcomes of currently threatened or pending legal matters and other contingent exposures are likely to be material to our consolidated
financial condition after taking into account existing accruals. In light of the uncertainties inherent in these matters and other exposures,
however, one or more of them could be material to our results of operations or cash flows during a particular reporting period, depending on
factors such as the amount of the loss or liability and the level of our income for that period.
Descriptions of our potentially 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 paragraphs.
Purported and Certified Class Actions
In March 2016, Ally filed an action against two buyers of a motor vehicle—Ally Financial Inc. v. Alberta Haskins and David Duncan,
Case No. 16JE-AC01713-01 in the Circuit Court of Jefferson County, Missouri—for the purpose of collecting the deficiency that remained
due under the retail installment sales contract after the buyers had defaulted and the vehicle had been repossessed and disposed of. In March
2017, the buyers filed a second amended answer and counterclaim on behalf of nationwide and Missouri classes, arguing that Ally’s pre- and
post-disposition notices had violated Article 9 of the Uniform Commercial Code as adopted in each jurisdiction. The request for relief
includes an indeterminate amount of actual, statutory, and punitive damages as well as fees, costs, interest, and other remedies. In May 2018,
the circuit court certified the nationwide and Missouri classes and denied Ally’s motion for partial summary judgment. In September 2018, the
case was reassigned to a different circuit-court judge, and in February 2019, Ally filed a motion to decertify the nationwide and Missouri
classes. In November 2019, the circuit court denied Ally’s motion to decertify. In December 2019, Ally filed a petition with the Missouri
Court of Appeals for a writ prohibiting the circuit court from taking further action other than vacating the order denying decertification—State
of Missouri, ex. rel. Ally Financial Inc. v. Hon. Katherine Hardy Senkel, Case No. ED 108501—which was denied that same month. Later in
185
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
December 2019, Ally filed a petition with the Missouri Supreme Court for an equivalent writ of prohibition—State of Missouri, ex rel. Ally
Financial Inc. v. Hon. Katherine Hardy Senkel, Case No. SC 98285—which remains pending. We intend to vigorously defend against this
counterclaim.
30. Quarterly Financial Statements (unaudited)
($ in millions)
2019
First
quarter
Second
quarter
Third
quarter
Fourth
quarter
Net financing revenue and other interest income
$
1,132
$
1,157
$
1,188
$
Other revenue
Total net revenue
Provision for loan losses
Total noninterest expense
Income from continuing operations before income tax expense
Income tax expense (benefit) from continuing operations
Net income from continuing operations
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
2018
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
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
466
1,598
395
1,552
413
1,601
282
830
486
111
375
(1)
374
0.93
0.93
0.92
0.92
0.17
1,049
354
1,403
261
814
328
76
252
(2)
250
0.58
0.57
0.57
0.57
0.13
$
$
$
$
$
$
$
177
881
494
(90)
584
(2)
582
1.47
1.46
1.46
1.46
0.17
1,094
364
1,458
158
839
461
113
348
1
349
0.81
0.81
0.80
0.81
0.13
$
$
$
$
$
$
$
263
838
500
119
381
—
381
0.98
0.97
0.97
0.97
0.17
1,107
398
1,505
233
807
465
91
374
—
374
0.89
0.89
0.88
0.88
0.15
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,156
487
1,643
276
880
487
106
381
(3)
378
1.00
0.99
0.99
0.99
0.17
1,140
298
1,438
266
804
368
79
289
1
290
0.70
0.70
0.70
0.70
0.15
(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.
186
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
31. Subsequent Events
Declaration of Quarterly Dividend
On January 13, 2020, our Board declared a quarterly cash dividend of $0.19 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 14, 2020, to stockholders of record at the close of business
on January 31, 2020.
CardWorks Acquisition
On February 18, 2020, Ally announced its execution of a definitive agreement to acquire Cardholder Management Services, Inc. and its
subsidiaries, including CardWorks, Inc. and Merrick Bank Corporation (collectively, CardWorks). CardWorks is a nonprime credit-card and
consumer-finance provider in the United States with servicing and merchant-service capabilities across the credit spectrum. The acquisition is
valued at approximately $2.65 billion, with approximately $1.35 billion in cash and approximately $1.30 billion in common stock of Ally. The
consideration is subject to closing equity and other adjustments and to “fill or kill” rights. A possible “fill or kill” adjustment may arise if
Ally’s stock price declines by more than 15%, a “fill or kill” termination right is exercised, and Ally elects to “fill” by issuing additional
stock. The acquisition is expected to close in the third quarter of 2020 and is subject to the receipt of customary regulatory approvals and the
satisfaction of other closing conditions. We filed a copy of the definitive agreement with the SEC on February 20, 2020.
187
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, 2019, 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.
188
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 — Named Chief Executive Officer of Ally in February 2015, and also serves on its Board of Directors, Mr. Brown, 46,
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, mortgage products, and point-of-sale lending. Mr. Brown has deep financial services experience, having previously served in a
variety of executive leadership positions at Ally and other leading financial institutions. 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. 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 is deeply committed to advancing education and continual learning at Ally and in our communities. 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. In November 2019, Mr. Brown was announced as chairman-elect of the Queens University of Charlotte Board of Trustees and will
succeed the Board’s current chair on July 1, 2020. Mr. Brown has served on the Queens University Board since 2015. 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 (FAC)
representative for the Seventh Federal Reserve District. Mr. Brown will serve as vice president of FAC in 2020.
David J. DeBrunner — Vice President, Controller, and Chief Accounting Officer of Ally since September 2007. In this role, Mr.
DeBrunner, 53, 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 15 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.
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, 48, 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, 54, 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, Ally Lending, and Corporate-Finance businesses. In addition, Ms.
Morais oversees the company’s digital and customer care channels, as well as the Community Reinvestment Act (CRA) program. Ms. Morais
was instrumental in the creation and launch of the Ally brand in 2009. Under Ms. Morais’ leadership, Ally Bank has achieved double-digit
retail deposit growth each year, and now has nearly 2 million customers and over $100 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 12 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.
Jason E. Schugel — Chief Risk Officer of Ally since April 2018. In this role, Mr. Schugel, 46, 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
189
Ally Financial Inc. • Form 10-K
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, 48, 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. He sits on the board of directors of MadaKids Inc. and actively supports and volunteers with the Charlotte Center
for Urban Ministry.
Douglas R. Timmerman — President of Automotive Finance of Ally since April 2018. In this role, Mr. Timmerman, 57, 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-three 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 2020 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.
190
Ally Financial Inc. • Form 10-K
Item 11. Executive Compensation
Items in response to this Item 11 can be found in the Company’s 2020 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
The following table provides information about the securities authorized for issuance under our equity compensation plans as of
December 31, 2019.
(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)
6,890
6,890
—
—
23,813
23,813
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 22,011,576 securities available for issuance under the plans identified in (a) above and 1,801,925 securities available for issuance under Ally’s
Employee Stock Purchase Plan.
Additional items required by this Item 12 can be found in the Company’s 2020 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 2020 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 2020 Proxy Statement under “Audit Committee Report.” That
information is incorporated into this item by reference.
191
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
2.1
Description
Agreement and Plan of Merger, dated as of February 18,
2020
Form of Amended and Restated Certificate of Incorporation
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 2.1 to the Company’s Current Report on
Form 8-K, dated as of February 20, 2020, (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 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 October 11, 2019, (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.
192
3.1
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. • Form 10-K
4.3.5
4.3.6
4.3.7
4.3.8
4.4
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.
Indenture, dated as of December 31, 2008, 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 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 4.9.
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
Form of Subordinated Note
Description of Securities
Ally Financial Inc. Executive Performance Plan
10.2
Ally Financial Inc. Incentive Compensation Plan
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.
Included in Exhibit 4.13.
Filed herewith.
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.
10.3
10.4
10.5
Ally Financial Inc. Annual Incentive Plan
Filed herewith.
Ally Financial Inc. Employee Stock Purchase Plan
Ally Financial Inc. Non-Employee Directors Equity
Compensation Plan
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.
193
Ally Financial Inc. • Form 10-K
Exhibit
10.6
Description
Ally Financial Inc. Severance Plan, Plan Document and
Summary Plan Description
Ally Financial Inc. Non-Employee Directors Deferred
Compensation Plan
Method of Filing
Filed as Exhibit 10.6 to the Company’s Annual Report for
the period ended December 31, 2018, on Form 10-K (File
No. 1-3754), incorporated herein by reference.
Filed as Exhibit 10.6 to the Company’s Annual Report for
the period ended December 31, 2017 (File No. 1-3754),
incorporated herein by reference.
10.7
10.8
10.9
10.10
21
23.1
31.1
31.2
32
101
Form of Award Agreement related to the issuance of
Performance Stock Units
Form of Award Agreement related to the issuance of
Restricted Stock Units
Form of Award Agreement related to the issuance of Key
Contributor Stock Units
Filed herewith.
Filed herewith.
Filed herewith.
Ally Financial Inc. Subsidiaries as of December 31, 2019
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 2019 Annual Report on
Form 10-K, formatted in Inline XBRL: (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.
104
The cover page of our 2019 Annual Report on Form 10-K,
(formatted in Inline XBRL and contained in Exhibit 101)
Filed herewith.
Item 16. Form 10-K Summary
None.
194
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 25th day of February, 2020.
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 25th day of February, 2020.
/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
195
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
196
our leadership
B OA R D O F D I R E C T O R S
E X E C U T I V E M A N AG E M E N T
Franklin W. Hobbs
Former 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
Marjorie Magner
Former Executive Officer,
Citigroup
Brian H. Sharples
Former Chairman and CEO,
HomeAway
John J. Stack
Former Chairman and CEO,
Ceska Sporitelna, A.S.
Michael F. Steib
Current CEO, Artsy
Jeffrey J. Brown
Current CEO,
Ally Financial
Jeffrey J. Brown
Chief Executive Officer
Andrea Brimmer
Chief Marketing and
Public Relations Officer
Bradley Brown
Corporate Treasurer
Dinesh Chopra
Chief Strategy and Corporate
Development Officer
David DeBrunner
Controller and
Chief Accounting Officer
Renato Derraik
Chief Digital Officer
William Hall, Jr.
Co-President,
Corporate Finance
Jennifer LaClair
Chief Financial Officer
Mark Manzo
President, Insurance
Diane Morais
President,
Consumer and Commercial
Banking Products
Sathish Muthukrishnan
Chief Information,
Data and Digital Officer
Kathleen L. Patterson
Chief Human Resources Officer
Stephanie Richard
Chief Audit Executive
Jason Schugel
Chief Risk Officer
David Shevsky
Chief Operating Officer,
Auto Finance
Dan Soto
Chief Compliance Officer
Scott Stengel
General Counsel
Alison Summerville
Business Administration
Executive
Douglas Timmerman
President, Auto Finance
C O M PA N Y I N F O R M AT I O N
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
First Class/Registered/
Certified Mail
Computershare Investor Services
P.O. Box 505000
Louisville, KY
40233-5000
Courier Services
Computershare Investor Services
462 South 4th St
Suite 1600
Louisville, KY 40202
Media Relations
media.ally.com
Twitter: @ally
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
—
Y
L
L
A
©2009-2019 Ally Financial Inc. All rights reserved.