UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2016,March 31, 2017, or
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¨ | 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)
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| | |
Delaware | | 38-0572512 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
200 RenaissanceAlly Detroit Center
P.O. Box 200,500 Woodward Ave.
Floor 10, Detroit, Michigan
48265-200048226
(Address of principal executive offices)
(Zip Code)
(866) 710-4623
(Registrant’s telephone number, including area code)
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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for a shorter period that the registrant was required to submit and post such files).
Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ | | Accelerated filer o | | Non-accelerated filer o | | Smaller reporting company o |
| | (Do not check if a smaller reporting company) | | Emerging growth company o
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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. o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No þ
At AugustMay 2, 2016,2017, the number of shares outstanding of the Registrant’s common stock was 483,657,867459,193,676 shares.
INDEX
Ally Financial Inc. Ÿ Form 10-Q
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Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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| | PART I — FINANCIAL INFORMATION | | | |
Item 1. Financial Statements
Condensed Consolidated Statement of Comprehensive Income (unaudited)
Ally Financial Inc. • Form 10-Q
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
($ in millions) | | 2016 | | 2015 | | 2016 | | 2015 | | 2017 | | 2016 |
Financing revenue and other interest income | | | | | | | | | | | | |
Interest and fees on finance receivables and loans | | $ | 1,265 |
| | $ | 1,118 |
| | $ | 2,500 |
| | $ | 2,192 |
| | $ | 1,368 |
| | $ | 1,235 |
|
Interest on loans held-for-sale | | — |
| | 14 |
| | — |
| | 38 |
| |
Interest and dividends on investment securities | | 99 |
| | 93 |
| | 201 |
| | 181 |
| |
Interest and dividends on investment securities and other earning assets | | | 134 |
| | 102 |
|
Interest on cash and cash equivalents | | 4 |
| | 2 |
| | 7 |
| | 4 |
| | 5 |
| | 3 |
|
Operating leases | | 701 |
| | 860 |
| | 1,470 |
| | 1,756 |
| | 543 |
| | 769 |
|
Total financing revenue and other interest income | | 2,069 |
| | 2,087 |
| | 4,178 |
| | 4,171 |
| | 2,050 |
| | 2,109 |
|
Interest expense | | | | | | | | | | | | |
Interest on deposits | | 203 |
| | 177 |
| | 396 |
| | 349 |
| | 231 |
| | 193 |
|
Interest on short-term borrowings | | 12 |
| | 12 |
| | 25 |
| | 23 |
| | 27 |
| | 13 |
|
Interest on long-term debt | | 436 |
| | 419 |
| | 878 |
| | 848 |
| | 424 |
| | 442 |
|
Total interest expense | | 651 |
| | 608 |
| | 1,299 |
| | 1,220 |
| | 682 |
| | 648 |
|
Depreciation expense on operating lease assets | | 434 |
| | 563 |
| | 944 |
| | 1,185 |
| |
Net financing revenue | | 984 |
| | 916 |
| | 1,935 |
| | 1,766 |
| |
Net depreciation expense on operating lease assets | | | 389 |
| | 510 |
|
Net financing revenue and other interest income | | | 979 |
| | 951 |
|
Other revenue | | | | | | | | | | | | |
Insurance premiums and service revenue earned | | 236 |
| | 237 |
| | 466 |
| | 470 |
| | 241 |
| | 230 |
|
Gain on mortgage and automotive loans, net | | 3 |
| | 1 |
| | 4 |
| | 47 |
| | 14 |
| | 1 |
|
Loss on extinguishment of debt | | — |
| | (156 | ) | | (4 | ) | | (354 | ) | | (1 | ) | | (4 | ) |
Other gain on investments, net | | 39 |
| | 45 |
| | 93 |
| | 100 |
| | 27 |
| | 54 |
|
Other income, net of losses | | 96 |
| | 84 |
| | 191 |
| | 191 |
| | 115 |
| | 95 |
|
Total other revenue | | 374 |
| | 211 |
| | 750 |
| | 454 |
| | 396 |
|
| 376 |
|
Total net revenue | | 1,358 |
| | 1,127 |
| | 2,685 |
| | 2,220 |
| | 1,375 |
| | 1,327 |
|
Provision for loan losses | | 172 |
| | 140 |
| | 392 |
| | 256 |
| | 271 |
| | 220 |
|
Noninterest expense | | | | | | | | | | | | |
Compensation and benefits expense | | 242 |
| | 236 |
| | 494 |
| | 491 |
| | 285 |
| | 252 |
|
Insurance losses and loss adjustment expenses | | 145 |
| | 122 |
| | 218 |
| | 178 |
| | 88 |
| | 73 |
|
Other operating expenses | | 386 |
| | 366 |
| | 771 |
| | 750 |
| | 405 |
| | 385 |
|
Total noninterest expense | | 773 |
| | 724 |
| | 1,483 |
| | 1,419 |
| | 778 |
| | 710 |
|
Income from continuing operations before income tax expense | | 413 |
| | 263 |
| | 810 |
| | 545 |
| | 326 |
| | 397 |
|
Income tax expense from continuing operations | | 56 |
| | 94 |
| | 206 |
| | 197 |
| | 113 |
| | 150 |
|
Net income from continuing operations | | 357 |
| | 169 |
| | 604 |
| | 348 |
| | 213 |
| | 247 |
|
Income from discontinued operations, net of tax | | 3 |
| | 13 |
| | 6 |
| | 410 |
| | 1 |
| | 3 |
|
Net income | | 360 |
| | 182 |
| | 610 |
| | 758 |
| | 214 |
| | 250 |
|
Other comprehensive income (loss), net of tax | | 120 |
| | (148 | ) | | 266 |
| | (117 | ) | |
Other comprehensive income, net of tax | | | 20 |
| | 146 |
|
Comprehensive income | | $ | 480 |
| | $ | 34 |
| | $ | 876 |
| | $ | 641 |
| | $ | 234 |
|
| $ | 396 |
|
Statement continues on the next page.
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
Condensed Consolidated Statement of Comprehensive Income (unaudited)
Ally Financial Inc. • Form 10-Q
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
(in dollars) (a) | | 2016 | | 2015 | | 2016 | | 2015 | | 2017 | | 2016 |
Basic earnings per common share | | | | | | | | | | | | |
Net income (loss) from continuing operations | | $ | 0.70 |
| | $ | (2.24 | ) | | $ | 1.18 |
| | $ | (2.01 | ) | |
Net income from continuing operations | | | $ | 0.46 |
| | $ | 0.48 |
|
Income from discontinued operations, net of tax | | 0.01 |
| | 0.03 |
| | 0.01 |
| | 0.85 |
| | — |
| | 0.01 |
|
Net income (loss) | | $ | 0.71 |
| | $ | (2.22 | ) | | $ | 1.20 |
| | $ | (1.16 | ) | |
Net income | | | $ | 0.46 |
| | $ | 0.49 |
|
Diluted earnings per common share | | | | | | | | | | | | |
Net income (loss) from continuing operations | | $ | 0.70 |
| | $ | (2.24 | ) | | $ | 1.18 |
| | $ | (2.01 | ) | |
Net income from continuing operations | | | $ | 0.46 |
| | $ | 0.48 |
|
Income from discontinued operations, net of tax | | 0.01 |
| | 0.03 |
| | 0.01 |
| | 0.85 |
| | — |
| | 0.01 |
|
Net income (loss) | | $ | 0.71 |
| | $ | (2.22 | ) | | $ | 1.19 |
| | $ | (1.16 | ) | |
Net income | | | $ | 0.46 |
| | $ | 0.49 |
|
Cash dividends per common share | | | $ | 0.08 |
| | $ | — |
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(a) | Figures in the table may not recalculate exactly due to rounding. Earnings per share is calculated based on unrounded numbers. |
Refer to Note 1817 for additional earnings per share information, including the impact of preferred stock dividends recognized in connection with the partial redemption of the Series G Preferred Stock and the repurchase of the Series A Preferred Stock for the three months and six months ended June 30, 2015.information. The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
Condensed Consolidated Balance Sheet (unaudited)
Ally Financial Inc. • Form 10-Q
| | ($ in millions, except share data) | | June 30, 2016 | | December 31, 2015 | | March 31, 2017 | | December 31, 2016 |
Assets | | | | | | | | |
Cash and cash equivalents | | | | | | | | |
Noninterest-bearing | | $ | 1,790 |
| | $ | 2,148 |
| | $ | 1,513 |
| | $ | 1,547 |
|
Interest-bearing | | 3,941 |
| | 4,232 |
| | 2,789 |
| | 4,387 |
|
Total cash and cash equivalents | | 5,731 |
| | 6,380 |
| | 4,302 |
| | 5,934 |
|
Available-for-sale securities (refer to Note 6 for discussion of investment securities pledged as collateral) | | 18,197 |
| | 17,157 |
| |
Held-to-maturity securities | | 571 |
| | — |
| |
Available-for-sale securities (refer to Note 7 for discussion of investment securities pledged as collateral) | | | 20,308 |
| | 18,926 |
|
Held-to-maturity securities (fair value of $1,063 and $789) | | | 1,104 |
| | 839 |
|
Loans held-for-sale, net | | 15 |
| | 105 |
| | 1 |
| | — |
|
Finance receivables and loans, net | | | | | | | | |
Finance receivables and loans, net of unearned income | | 112,653 |
| | 111,600 |
| | 119,002 |
| | 118,944 |
|
Allowance for loan losses | | (1,089 | ) | | (1,054 | ) | | (1,155 | ) | | (1,144 | ) |
Total finance receivables and loans, net | | 111,564 |
| | 110,546 |
| | 117,847 |
| | 117,800 |
|
Investment in operating leases, net | | 13,755 |
| | 16,271 |
| | 10,461 |
| | 11,470 |
|
Premiums receivable and other insurance assets | | 1,844 |
| | 1,801 |
| | 1,944 |
| | 1,905 |
|
Other assets | | 6,254 |
| | 6,321 |
| | 6,134 |
| | 6,854 |
|
Total assets | | $ | 157,931 |
| | $ | 158,581 |
| | $ | 162,101 |
| | $ | 163,728 |
|
Liabilities | | | | | | | | |
Deposit liabilities | | | | | | | | |
Noninterest-bearing | | $ | 94 |
| | $ | 89 |
| | $ | 102 |
| | $ | 84 |
|
Interest-bearing | | 72,708 |
|
| 66,389 |
| | 84,384 |
|
| 78,938 |
|
Total deposit liabilities | | 72,802 |
| | 66,478 |
| | 84,486 |
| | 79,022 |
|
Short-term borrowings | | 5,994 |
| | 8,101 |
| | 8,371 |
| | 12,673 |
|
Long-term debt | | 61,040 |
| | 66,234 |
| | 51,061 |
| | 54,128 |
|
Interest payable | | 427 |
| | 350 |
| | 382 |
| | 351 |
|
Unearned insurance premiums and service revenue | | 2,465 |
| | 2,434 |
| | 2,514 |
| | 2,500 |
|
Accrued expenses and other liabilities | | 1,592 |
| | 1,545 |
| | 1,922 |
| | 1,737 |
|
Total liabilities | | 144,320 |
| | 145,142 |
| | 148,736 |
| | 150,411 |
|
Contingencies (refer to Note 26) | | | | | |
Contingencies (refer to Note 25) | | | | | |
Equity | | | | | | | | |
Common stock and paid-in capital ($0.01 par value, shares authorized 1,100,000,000; issued 485,417,677 and 482,790,696; and outstanding 483,753,360 and 481,980,111) | | 21,136 |
| | 21,100 |
| |
Preferred stock | | — |
| | 696 |
| |
Common stock and paid-in capital ($0.01 par value, shares authorized 1,100,000,000; issued 488,997,931 and 485,707,644; and outstanding 462,193,424 and 467,000,306) | | | 21,187 |
| | 21,166 |
|
Accumulated deficit | | (7,530 | ) | | (8,110 | ) | | (6,975 | ) | | (7,151 | ) |
Accumulated other comprehensive income (loss) | | 35 |
| | (231 | ) | |
Treasury stock, at cost (1,664,317 and 810,585 shares) | | (30 | ) | | (16 | ) | |
Accumulated other comprehensive loss | | | (321 | ) | | (341 | ) |
Treasury stock, at cost (26,804,507 and 18,707,338 shares) | | | (526 | ) | | (357 | ) |
Total equity | | 13,611 |
| | 13,439 |
| | 13,365 |
| | 13,317 |
|
Total liabilities and equity | | $ | 157,931 |
| | $ | 158,581 |
| | $ | 162,101 |
| | $ | 163,728 |
|
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
Condensed Consolidated Balance Sheet (unaudited)
Ally Financial Inc. • Form 10-Q
The assets of consolidated variable interest entities, presented based upon the legal transfer of the underlying assets in order to reflect legal ownership, 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.
| | ($ in millions) | | June 30, 2016 | | December 31, 2015 | | March 31, 2017 | | December 31, 2016 |
Assets | | | | | | | | |
Finance receivables and loans, net | | | | | | | | |
Finance receivables and loans, net of unearned income | | $ | 26,104 |
| | $ | 27,929 |
| | $ | 22,550 |
| | $ | 24,630 |
|
Allowance for loan losses | | (190 | ) | | (196 | ) | | (154 | ) | | (173 | ) |
Total finance receivables and loans, net | | 25,914 |
| | 27,733 |
| | 22,396 |
| | 24,457 |
|
Investment in operating leases, net | | 3,257 |
| | 4,791 |
| | 1,273 |
| | 1,745 |
|
Other assets | | 1,203 |
| | 1,624 |
| | 914 |
| | 1,390 |
|
Total assets | | $ | 30,374 |
| | $ | 34,148 |
| | $ | 24,583 |
| | $ | 27,592 |
|
Liabilities | | | | | | | | |
Long-term debt | | $ | 16,783 |
| | $ | 20,267 |
| | $ | 13,331 |
| | $ | 13,259 |
|
Accrued expenses and other liabilities | | 18 |
| | 22 |
| | 12 |
| | 12 |
|
Total liabilities | | $ | 16,801 |
| | $ | 20,289 |
| | $ | 13,343 |
| | $ | 13,271 |
|
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
Condensed Consolidated Statement of Changes in Equity (unaudited)
Ally Financial Inc. • Form 10-Q
| | ($ in millions) | Common stock and paid-in capital | | Preferred stock | | Accumulated deficit | | Accumulated other comprehensive (loss) income | | Treasury stock | | Total equity | | Common stock and paid-in capital | | Preferred stock | | Accumulated deficit | | Accumulated other comprehensive loss | | Treasury stock | | Total equity |
Balance at January 1, 2015 | $ | 21,038 |
| | $ | 1,255 |
| | $ | (6,828 | ) | | $ | (66 | ) | | $ | — |
| | $ | 15,399 |
| |
Net income | | | | | 758 |
| | | | | | 758 |
| |
Preferred stock dividends | | | | | (1,318 | ) | (a) | | | | | (1,318 | ) | |
Series A preferred stock repurchase | | | (325 | ) | | | | | | | | (325 | ) | |
Series G preferred stock redemption | | | (117 | ) | | | | | | | | (117 | ) | |
Share-based compensation | 31 |
| | | | | | | | | | 31 |
| |
Other comprehensive loss | | | | | | | (117 | ) | | | | (117 | ) | |
Share repurchases related to employee stock-based compensation awards | | | | | | | | | (16 | ) | | (16 | ) | |
Balance at June 30, 2015 | $ | 21,069 |
| | $ | 813 |
| | $ | (7,388 | ) | | $ | (183 | ) | | $ | (16 | ) | | $ | 14,295 |
| |
Balance at January 1, 2016 | $ | 21,100 |
| | $ | 696 |
| | $ | (8,110 | ) | | $ | (231 | ) | | $ | (16 | ) | | $ | 13,439 |
| | $ | 21,100 |
| | $ | 696 |
| | $ | (8,110 | ) | | $ | (231 | ) | | $ | (16 | ) | | $ | 13,439 |
|
Net income | | | | | 610 |
| | | | | | 610 |
| |
| |
| | 250 |
| |
|
| |
| | 250 |
|
Preferred stock dividends | | | | | (30 | ) | | | | | | (30 | ) | |
| |
| | (15 | ) | |
|
| |
| | (15 | ) |
Series A preferred stock redemption | | | (696 | ) | | | | | | | | (696 | ) | |
Share-based compensation | 36 |
| | | | | | | | | | 36 |
| | 17 |
| |
|
| |
| |
|
| |
|
| | 17 |
|
Other comprehensive income | | | | | | | 266 |
| | | | 266 |
| |
| |
|
| |
| | 146 |
| |
|
| | 146 |
|
Share repurchases related to employee stock-based compensation awards | | | | | | | | | (14 | ) | | (14 | ) | |
| |
|
| |
| |
|
| | (14 | ) | | (14 | ) |
Balance at June 30, 2016 | $ | 21,136 |
| | $ | — |
| | $ | (7,530 | ) | | $ | 35 |
| | $ | (30 | ) | | $ | 13,611 |
| |
Balance at March 31, 2016 | | | $ | 21,117 |
| | $ | 696 |
| | $ | (7,875 | ) | | $ | (85 | ) | | $ | (30 | ) | | $ | 13,823 |
|
Balance at January 1, 2017 | | | $ | 21,166 |
| | $ | — |
| | $ | (7,151 | ) | | $ | (341 | ) | | $ | (357 | ) | | $ | 13,317 |
|
Net income | | |
| |
| | 214 |
| |
|
| |
| | 214 |
|
Share-based compensation | | | 21 |
| |
| |
| |
| |
| | 21 |
|
Other comprehensive income | | |
| |
| |
| | 20 |
| |
| | 20 |
|
Common stock repurchases (a) | | |
| |
| |
| |
| | (169 | ) | | (169 | ) |
Common stock dividends ($0.08 per share) | | |
| |
| | (38 | ) | |
| |
|
| | (38 | ) |
Balance at March 31, 2017 | | | $ | 21,187 |
| | $ | — |
| | $ | (6,975 | ) | | $ | (321 | ) | | $ | (526 | ) | | $ | 13,365 |
|
| |
(a) | Preferred stock dividends include $1,193 million recognized in connection with the partial redemption of the Series G Preferred Stock and the repurchase of the Series A Preferred Stock. These dividends represent an additional returnIncludes shares repurchased related to preferred shareholders calculated as the excess consideration paid over the carrying amount derecognized. Refer to Note 16 for additional preferred stock information.employee stock-based compensation awards. |
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
Condensed Consolidated Statement of Cash Flows (unaudited)
Ally Financial Inc. • Form 10-Q
| | Six months ended June 30, ($ in millions) | | 2016 | | 2015 | |
Three months ended March 31, ($ in millions) | | | 2017 | | 2016 |
Operating activities |
|
|
|
|
|
|
|
|
Net income |
| $ | 610 |
|
| $ | 758 |
|
| $ | 214 |
|
| $ | 250 |
|
Reconciliation of net income to net cash provided by operating activities |
| |
| |
| |
| |
Depreciation and amortization |
| 1,241 |
|
| 1,466 |
|
| 534 |
|
| 653 |
|
Provision for loan losses |
| 392 |
|
| 256 |
|
| 271 |
|
| 220 |
|
Gain on mortgage and automotive loans, net |
| (4 | ) |
| (47 | ) |
| (14 | ) |
| (1 | ) |
Other gain on investments, net |
| (93 | ) |
| (100 | ) |
| (27 | ) |
| (54 | ) |
Loss on extinguishment of debt |
| 4 |
|
| 354 |
|
| 1 |
|
| 4 |
|
Originations and purchases of loans held-for-sale |
| (44 | ) |
| (1,528 | ) |
| (21 | ) |
| (44 | ) |
Proceeds from sales and repayments of loans originated as held-for-sale |
| 144 |
|
| 496 |
|
| 20 |
|
| 104 |
|
Gain on sale of subsidiaries, net |
| — |
|
| (452 | ) | |
Net change in |
| |
| |
| |
| |
Deferred income taxes |
| 193 |
|
| 258 |
|
| 91 |
|
| 147 |
|
Interest payable |
| 76 |
|
| (59 | ) |
| 31 |
|
| 24 |
|
Other assets |
| 17 |
|
| 532 |
|
| 60 |
|
| 46 |
|
Other liabilities |
| (55 | ) |
| (217 | ) |
| (20 | ) |
| (122 | ) |
Other, net |
| (59 | ) |
| 26 |
|
| 35 |
|
| (25 | ) |
Net cash provided by operating activities |
| 2,422 |
|
| 1,743 |
|
| 1,175 |
|
| 1,202 |
|
Investing activities |
|
|
|
|
|
|
|
|
Purchases of available-for-sale securities |
| (8,657 | ) |
| (8,165 | ) |
| (2,833 | ) |
| (4,870 | ) |
Proceeds from sales of available-for-sale securities |
| 6,584 |
|
| 2,865 |
|
| 1,045 |
|
| 4,175 |
|
Proceeds from maturities and repayment of available-for-sale securities |
| 1,536 |
|
| 2,192 |
|
| 589 |
|
| 409 |
|
Purchases of held-to-maturity securities |
| (571 | ) |
| — |
|
| (215 | ) |
| (118 | ) |
Net increase in finance receivables and loans |
| (5,653 | ) |
| (5,471 | ) | |
Proceeds from maturities and repayments of held-to-maturity securities | |
| 5 |
|
| — |
|
Purchases of loans held-for-investment | |
| (405 | ) |
| (1,402 | ) |
Proceeds from sales of finance receivables and loans originated as held-for-investment |
| 4,156 |
|
| 1,582 |
|
| 1,164 |
|
| 2,594 |
|
Originations and repayments of loans held-for-investment and other, net | | | (1,174 | ) | | (684 | ) |
Purchases of operating lease assets |
| (1,472 | ) |
| (2,348 | ) |
| (893 | ) |
| (701 | ) |
Disposals of operating lease assets |
| 3,047 |
|
| 2,709 |
|
| 1,545 |
|
| 1,535 |
|
Acquisitions of subsidiaries, net of cash acquired |
| (288 | ) |
| — |
| |
Proceeds from sale of business unit, net (a) |
| — |
|
| 1,049 |
| |
Net change in restricted cash |
| 482 |
|
| 449 |
|
| 355 |
|
| 48 |
|
Net change in nonmarketable equity investments |
| (354 | ) |
| 88 |
|
| 213 |
|
| (315 | ) |
Other, net |
| (69 | ) |
| (142 | ) |
| (59 | ) |
| (20 | ) |
Net cash used in investing activities |
| (1,259 | ) |
| (5,192 | ) | |
Net cash (used in) provided by investing activities | |
| (663 | ) |
| 651 |
|
Statement continues on the next page.
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
Condensed Consolidated Statement of Cash Flows (unaudited)
Ally Financial Inc. • Form 10-Q
| | Six months ended June 30, ($ in millions) | | 2016 | | 2015 | |
Three months ended March 31, ($ in millions) | | | 2017 | | 2016 |
Financing activities |
|
|
|
|
|
|
|
|
Net change in short-term borrowings |
| (2,112 | ) |
| 2,945 |
|
| (4,303 | ) |
| (2,739 | ) |
Net increase in deposits |
| 6,308 |
|
| 3,713 |
|
| 5,451 |
|
| 3,780 |
|
Proceeds from issuance of long-term debt |
| 9,020 |
|
| 17,818 |
|
| 4,488 |
|
| 4,244 |
|
Repayments of long-term debt |
| (14,305 | ) |
| (18,984 | ) |
| (7,573 | ) |
| (8,490 | ) |
Repurchase and redemption of preferred stock |
| (696 | ) |
| (442 | ) | |
Dividends paid on preferred stock |
| (30 | ) |
| (1,318 | ) | |
Net cash (used in) provided by financing activities |
| (1,815 | ) |
| 3,732 |
| |
Repurchases of common stock | | | (169 | ) | | (14 | ) |
Dividends paid | |
| (38 | ) |
| (15 | ) |
Net cash used in financing activities | |
| (2,144 | ) |
| (3,234 | ) |
Effect of exchange-rate changes on cash and cash equivalents |
| 3 |
|
| (1 | ) |
| — |
|
| 2 |
|
Net (decrease) increase in cash and cash equivalents |
| (649 | ) |
| 282 |
| |
Net decrease in cash and cash equivalents | |
| (1,632 | ) |
| (1,379 | ) |
Cash and cash equivalents at beginning of year |
| 6,380 |
|
| 5,576 |
|
| 5,934 |
|
| 6,380 |
|
Cash and cash equivalents at June 30, |
| $ | 5,731 |
|
| $ | 5,858 |
| |
Cash and cash equivalents at March 31, | |
| $ | 4,302 |
|
| $ | 5,001 |
|
Supplemental disclosures |
| | | |
| | | |
Cash paid for |
| | | |
| | | |
Interest |
| $ | 1,234 |
|
| $ | 1,250 |
|
| $ | 648 |
|
| $ | 626 |
|
Income taxes |
| 12 |
|
| 97 |
|
| 2 |
|
| — |
|
Noncash items |
| | | |
| | | |
Held-to-maturity securities received in consideration for loans sold | | | 56 |
| | — |
|
Finance receivables and loans transferred to loans held-for-sale |
| 4,174 |
|
| 72 |
|
| 1,213 |
|
| 2,599 |
|
Other disclosures |
| | | |
| | | |
Proceeds from sales and repayments of mortgage loans held-for-investment originally designated as held-for-sale |
| 18 |
|
| 54 |
| |
Proceeds from repayments of mortgage loans held-for-investment originally designated as held-for-sale | |
| 8 |
|
| 9 |
|
| |
(a) | Cash flows of discontinued operations are reflected within operating, investing, and financing activities in the Condensed Consolidated Statement of Cash Flows. |
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
1. Description of Business, Basis of Presentation, and Changes in Significant Accounting Policies
Ally Financial Inc. (referred to herein as(together with its consolidated subsidiaries unless the context requires otherwise, Ally, Parent,the Company, or we, our,us, or us)our) is a leading digital financial services company offering diversified financial products for consumers, businesses, automotive dealers and corporate clients. FoundedOur legacy dates back to 1919, and Ally was redesigned in 1919, we2009 with a distinctive brand and relentless focus on our customers. We reconverted to a Delaware corporation in 2009 and are registered as a leading financial servicesbank holding company with over 95 years(BHC) under the Bank Holding Company Act of experience providing a broad array of financial products1956 as amended and services. We operate as a financial holding company (FHC) and a bank holding company (BHC).under the Gramm-Leach-Bliley Act of 1999 as amended. Our banking subsidiary, Ally Bank, is an award-winning online bank, and an indirect, wholly-owned subsidiary of Ally Financial Inc. with a distinct brandCollectively, Ally Financial Inc. and focus on customers, offeringits subsidiaries offer a variety of deposit and other banking products.products including CDs, online savings, money market and checking accounts, IRA products, automotive lending products to customers and dealers, corporate finance lending, insurance products and services, a cash back credit card, mortgage lending offerings, and wealth management solutions.
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. 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 lease assets and residuals, fair value of financial instruments, legal and regulatory reserves, and the determination of the provision for income taxes.
The Condensed Consolidated Financial Statements at June 30, 2016,March 31, 2017, and for the three months ended March 31, 2017, and six months endedJune 30, 2016,, and 2015, are unaudited but reflect all adjustments that are, in management’s opinion, necessary for the fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements (and the related Notes) included in our Annual Report on Form 10-K for the year ended December 31, 2015,2016, as filed on February 24, 2016,27, 2017, with the U.S. Securities and Exchange Commission (SEC), as amended by the Current Report on Form 8-K filed with the SEC on May 5, 2016 (referred to herein as the Annual Consolidated Financial Statements).
Change in Reportable Segments
As a result of a change in how management views and operates our business, during the first quarter of 2016, we made changes in the composition of our operating segments. Financial information related to our Corporate Finance business is presented as a separate reportable segment. Previously, all such activity was included in Corporate and Other. Additionally, only the activity of our ongoing bulk acquisitions of mortgage loans and other originations and refinancing is presented in Mortgage Finance operations. The activity related to the management of our legacy mortgage portfolio is included in Corporate and Other. Our other operating segments, Automotive Finance operations and Insurance operations, were unchanged. Amounts for 2015 have been adjusted to conform to the current management view. In connection with the change in operating segments, we defined additional classes of finance receivables and loans: Mortgage Finance and Mortgage — Legacy. Mortgage Finance includes consumer mortgage loans from our ongoing mortgage operations and Mortgage — Legacy includes consumer mortgage loans originated prior to 2009.
Significant Accounting Policies
Business Combinations
We account for our business acquisitions using the acquisition method of accounting. Under this method we generally record the initial carrying values of purchased assets, including identifiable intangible assets, and assumed liabilities at fair value on the acquisition date. We recognize goodwill when the acquisition price is greater than the fair value of the net assets acquired, including identifiable intangible assets. The initial fair value of recognized assets and liabilities are subject to refinement during the measurement period, a period up to one year after the closing date of an acquisition, as information relative to closing date fair values becomes available. Costs directly related to business combinations are recorded as expenses as they are 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. Refer to Note 2 for further discussion on intangible assets.
Goodwill represents the excess of the cost of an acquisition over the fair value of net assets acquired, including identifiable intangibles. 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. Goodwill is reviewed for impairment utilizing a two-step process. The first step of the impairment test requires us to define the reporting units and compare the fair value of each of the reporting units to their respective carrying value. The fair value of the reporting units in our impairment test 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 higher 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. Refer to Note 2 for further discussion on goodwill.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Income Taxes
In calculating the provision for interim income taxes, in accordance with Accounting Standards Codification (ASC) 740, Income Taxes, we apply an estimated annual effective tax rate to year-to-date ordinary income. At the end of each interim period, we estimate the effective tax rate expected to be applicable for the full fiscal year. This method differs from that described in Note 1 to the Annual Consolidated Financial Statements in our 2016 Annual Report on Form 10-K, which describes our annual significant income tax accounting policy and related methodology.
InvestmentsSecuritizations and Variable Interest Entities
Our portfolioWe securitize, transfer, and service consumer and commercial automotive loans and operating leases. Securitization transactions typically involve the use of investments includes various debtvariable interest entities (VIEs) and marketable equity securitiesare accounted for either as sales or secured borrowings. We may retain economic interests in securitized and nonmarketable equity investments. Debtsold assets, which are generally in the form of senior or subordinated interests, other residual interests, and marketable equity securities are classified based on management’s intentservicing rights.
In order to sellconclude whether or holdnot a VIE is required to be consolidated, careful consideration and judgment must be given to our continuing involvement with the security. We classify debt securities as held-to-maturity only whenvariable interest entity. In circumstances where we have both the intent and abilitypower to holddirect the securities to maturity. We classify debt and marketable equity securities as trading when the securities are acquired for the purpose of selling or holding them for a short period of time. Securities not classified as either held-to-maturity or trading are classified as available-for-sale.
Our debt and marketable equity securities include government securities, corporate bonds, asset-backed securities (ABS), mortgage-backed securities (MBS), equity securities and other investments. Our portfolio includes securities classified as available-for-sale and held-to-maturity. Our available-for-sale securities are carried at fair value with unrealized gains and losses included in accumulated other comprehensive income or loss and are subject to impairment. Our held-to-maturity securities are carried at amortized cost and are subject to impairment.
We amortize premiums and discounts on debt securities as an adjustment to investment yield generally over the stated maturityactivities of the security. For ABSentity that most significantly impact the entity's performance and MBS where prepayments can be reasonably estimated, amortization is adjusted for expected prepayments.
Additionally, we assess our debt and marketable equity 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 and marketable equity securities classified as available-for-sale and held-to-maturity. If the cost of an investment exceeds its fair value, we evaluate, among other factors,obligation to absorb losses or the magnitude and durationright to receive benefits of the decline in fair value. Weentity that could be significant, we would conclude that we would consolidate the entity, which would also evaluatepreclude us from recording an accounting sale on the financial health of and business outlook fortransaction. In the issuer, the performance of the underlying assets for interests in securitized assets, and, for 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 valuecase of a consolidated VIE, the accounting is consistent with a secured borrowing, (e.g., we continue to carry the loans and we record the related securitized debt security ison our Condensed Consolidated Balance Sheet).
In transactions where we are not determined to be other-than-temporary, an impairment chargethe primary beneficiary of the VIE, we must determine whether or not we achieve a sale for accounting purposes. In order to achieve a sale for accounting purposes, the credit component is recordedassets being transferred must be legally isolated, not be constrained by restrictions from further transfer, and be deemed to other gain (loss) on investments, net, inbe beyond our Consolidated Statementcontrol. If we were to fail any of Income, andthe three criteria for sale accounting, the accounting would be consistent with the preceding paragraph (i.e., a new cost basis in the investment is established. Noncredit component losses of a debt security are recorded in other comprehensive income (loss) when we do not intendsecured borrowing). Refer to sell the security and it is not more likely than not that we will have to sell the security priorNote 10 to the security's anticipated recovery. UnrealizedCondensed Consolidated Financial Statements for discussion on VIEs.
Gains or losses that we have determined to be other-than-temporary on equity securities are recorded to other gain (loss) on investments, net in our Consolidated Statement of Income. Subsequent increases and decreases tooff-balance sheet securitizations take into consideration the fair value of available-for-sale debtany retained interests including the value of certain servicing assets or liabilities, if any, which are initially recorded at fair value at the date of sale. The estimate of the fair value of the retained interests and equity securities are included in other comprehensive income (loss), so long as they are not attributableservicing requires us to another other-than-temporary impairment.exercise significant judgment about the timing and amount of future cash flows from the interests. Refer to Note 21 to the Condensed Consolidated Financial Statements for a discussion of fair value estimates.
Realized gains andGains or losses on investment securitiesoff-balance sheet securitizations and sales are reported in gain on mortgage and automotive loans, net, in our Condensed Consolidated Statement of Comprehensive Income. Retained interests are classified as securities or as other gain (loss)assets depending on investments, net,their nature. On December 24, 2016, the risk retention rules under the Dodd-Frank Wall Street Reform and are determined using the specific identification method. For information on our debt and marketable equity securities, refer to Note 6.
In addition to our investments in debt and marketable equity securities, we hold equity positions in other entities. These positions include Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock held to meet regulatory requirements, other equity investments that are not publicly traded and do not have a readily determinable fair value, equity investments in low income housing tax credits, and Community ReinvestmentConsumer Protection Act (CRA) equity investments. Our investments in FHLB and FRB stock and other equity investments are accounted for using the cost method of accounting. Our low income housing tax credit investments are accounted for using the proportionate amortization method of accounting for qualified affordable housing investments. Our CRA investments are accounted for using the equity method of accounting. Our FHLB and FRB stock and other equity investments carried at cost are included in nonmarketable equity investments in other assets. Our investments in low income housing tax credits and CRA are also included in other assets. As conditions warrant, we review our investments carried at cost for impairment and will adjust the carrying value of the investment if it is deemed to be impaired. No impairment was recognized in 2016 or 2015. For more information on our nonmarketable equity investments, refer to Note 22.
Refer to Note 1 to the Annual Consolidated Financial Statements regarding additional significant accounting policies.
Recently Adopted Accounting Standards
Consolidation — Amendments to the Consolidation Analysis (ASU 2015-02)
As of January 1, 2016, we adopted ASU (Accounting Standards Update) 2015-02. The amendments in this update modify the requirements of consolidation with respect to entities that are or are similar in nature to limited partnerships or are variable interest entities (VIEs). For entities that are or are similar to limited partnerships, the guidance clarifies the evaluation of kick-out rights, removes the presumption that the general partner will consolidate and generally states that such entities will be presumed to be VIEs unless proven otherwise. For VIEs, the guidance modifies the analysis related to the evaluation of servicing fees, excludes servicing fees that are deemed commensurate with the level of service required from the determination of the primary beneficiary and clarifies certain considerations related to the consolidation analysis when performing a related party assessment. The amendments in this guidance did not impact our historical VIE(Dodd-
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Frank Act) of 2010 became effective, requiring us to retain at least five percent of the credit risk of the assets underlying asset-backed securitizations. Our note was updated to address this guidance.
We retain servicing responsibilities for all of our consumer and consolidation conclusions. No adjustmentscommercial automotive loan and operating lease securitizations. We may receive servicing fees for off-balance sheet securitizations based on the securitized loan balances and certain ancillary fees, all of which are reported in servicing fees in the Condensed Consolidated Statement of Comprehensive Income. Typically, the fee we are paid for servicing consumer automotive finance receivables represents adequate compensation, and consequently, we do not recognize a servicing asset or liability.
Whether on- or off-balance sheet, the investors in the securitization trusts generally have no recourse to our consolidatedassets outside of protections afforded through customary market representation and warranty repurchase provisions.
Refer to Note 1 to the Consolidated Financial Statements in our 2016 Annual Report on Form 10-K regarding additional significant accounting policies.
Recently Adopted Accounting Standards
Stock Compensation — Improvements to Employee Share-Based Payment Accounting (ASU 2016-09)
As of December 31, 2016, we adopted Accounting Standards Update (ASU) 2016-09. The amendments in this update include changes to several aspects of share-based payment accounting. The amendments allow for an entity-wide accounting policy election to either account for forfeitures as they occur or estimate the number of awards that are expected to vest. We elected to account for forfeitures as they occur. The amendments modify the tax withholding requirements to allow entities to withhold an amount up to the employee’s maximum individual statutory tax rates without resulting in a liability classification of the award as opposed to limiting the withholding to the minimum statutory tax rates as required under previous accounting guidance. The amendments require that all excess tax benefits and tax deficiencies related to share-based payment awards should be recognized in income tax expense or benefit in the income statement in the period in which they occur. The adoption of these amendments did not have a material impact to the financial statements were requiredstatements. The amendments also address the classification and presentation of certain items on the cash flow statement. Specifically, cash flows related to excess tax benefits should be classified as an operating activity instead of a financing activity and cash flows related to cash paid to a tax authority by an employer when withholding shares from an employee’s award for tax withholding purposes should be classified as a resultfinancing activity. The adoption of the amendment requiring excess tax benefits to be classified as an operating activity did not have a material impact to our Condensed Consolidated Statement of Cash Flows. The adoption of this guidance.the amendment requiring amounts paid to a tax authority by an employer when withholding shares from an employee’s award for tax withholding purposes to be classified as a financing activity resulted in the reclassification of cash flows in our Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2016, of $14 million from operating activities to financing activities.
Recently Issued Accounting Standards
Revenue from Contracts with Customers (ASU 2014-09) and Revenue from Contracts with Customers — Deferral of the Effective Date (ASU 2015-14)
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09. The purpose of this guidance is to streamline and consolidate existing revenue recognition principles in GAAP and to converge revenue recognition principles with International Financial Reporting Standards (IFRS). The core principle of the amendments is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. The amendments include a five step process for consideration of the main principle, guidance on the accounting treatment for costs associated with a contract, and disclosure requirements related to the revenue process. As originally issued, the amendments in ASU 2014-09 were to be effective beginning on January 1, 2017. However, in August 2015, the FASB issued ASU 2015-14, which deferred the effective date of the guidance until January 1, 2018, and permitted early adoption as of the original effective date in ASU 2014-09. The FASB created a transition resource group to work with stakeholders and clarify the new guidance as necessary. The FASB has issued and is anticipating issuingseveral additional ASUs to provide clarifyingclarify guidance and provide implementation support for ASU 2014-09. The clarifying guidance elaborates on the key concepts within ASU 2014-09 and clarifies how those concepts interact with other GAAP requirements. Management will considerhas considered these additional ASUs when assessing the overall impact of ASU 2014-09. The amendments to the revenue recognition principles can be applied on adoption either through a full retrospective application or on a modified basis with a cumulative effect adjustment on the date of initial adoption with certain practical expedients. A majority of our revenue streams are not within the scope of this ASU as they are governed by other accounting standards. Management has determined that certain revenue streams and contractual arrangements that are in scope of this guidance, including deposit fees, premiums on certain noninsurance contracts, brokering commissions through our insurance operations, remarketing fee income through SmartAuction, and areinvestment advisory fee income through TradeKing. Management does not expect these amendments to impact current revenue recognition patterns for a majority of the in scope revenue streams and contracts. However, we expect that the application of this guidance to noninsurance contracts within our insurance business will result in the processdeferral of completing a scoping assessment in order to determinecertain amounts we currently recognize as revenue upon the origination of the contract. We do not expect the impact of the adoptionnew guidance to these specific contracts to be material to the financial statements. Management continues to evaluate whether we will adopt this guidance using the full retrospective approach or the modified retrospective approach.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Financial Instruments — Recognition and Measurement of Financial Assets (ASU 2016-01)
In January 2016, the FASB issued ASU 2016-01. The amendments in this update modify the requirements related to the measurement of certain financial instruments in the statement of financial condition and results of operation.operations. For equity investments (other than investments accounted for using the equity method), entities must measure such instruments at fair value with changes in fair value recognized in net income. Changes in fair value for available-for-sale equity securities will no longer be recognized through other comprehensive income. Reporting entities may continue to elect to measure equity investments whichthat do not have a readily determinable fair value at cost with adjustments for impairment and observable changes in price. In addition, for a liability (other than a derivative liability) that an entity measures at fair value, any change in fair value related to the instrument-specific credit risk, that is the entity’s own-credit, should be presented separately in other comprehensive income and not as a component of net income. The amendments are effective on January 1, 2018, with early adoption permitted solely for the provisions pertaining to instrument-specific credit risk for liabilities measured at fair value. The amendments must be applied on a modified retrospective basis with a cumulative effect adjustment as of the beginning of the fiscal year of initial adoption. Management is currently evaluating the impact of the amendments. However, we do expectThe amendment requiring equity investments to be measured at fair value with changes in fair value recognized in net income will create additional volatility in our consolidated results of operations as a result of the requirement to measure equity investments atsince changes in fair value with changes in the fair valuefor available-for-sale securities will be recognized in net income upon adoption.as opposed to other comprehensive income as required under existing accounting guidance. Management continues to evaluate the impact of the other amendments. However, we do not anticipate the other amendments to have a material impact to our financial statements. Management currently plans to adopt these amendments on January 1, 2018, and expects to use the modified retrospective approach as required.
Leases (ASU 2016-02)
In February 2016, the FASB issued ASU 2016-02. The amendments in this update primarily replace the existing accounting requirements for operating leases for lessees. Lessee accounting requirements for finance leases and lessor accounting requirements for both operating leases and sales type and direct financing leases (both of which were previously referred to as capital leases) are largely unchanged. The amendments require the lessee of an operating lease to record a balance sheet gross-up upon lease commencement by recognizing a right-to-useright-of-use asset and lease liability equal to the present value of the lease payments. The right-to-useright-of-use asset and lease liability should be derecognized in a manner whichthat effectively yields a straight line lease expense over the lease term. In addition to the changes to the lessee operating lease accounting requirements, the amendments also change the types of costs that can be capitalized related to a lease agreement for both lessees and lessors for all types of leases. The amendments also require additional disclosures for all lease types for both lessees and lessors. The amendments are effective on January 1, 2019, with early adoption permitted. The amendments must be applied on a modified retrospective basis with a cumulative adjustment to the beginning of the earliest fiscal year presented in the financial statements in the period of adoption. Management is currently evaluating the impact of these amendments. Preliminarily,Upon adoption, we expect to record a balance sheet gross up, in our consolidated statement of financial position upon adoption reflecting our right-to-useright-of-use asset and lease liability for our operating leases where we are the lessee (for example, our facility leases). We are currently evaluatingreviewing our operating lease contracts where we are the lessee to determine the impact of the gross up forand the changes to capitalizable costs. We are also reviewing our operating leases where we are the lessee. We do not believelessor to determine the amendments will have a material impact to leases where we areof the lessor.
Stock Compensation — Improvements to Employee Share-Based Payment Accounting (ASU 2016-09)
In March 2016, the FASB issued ASU 2016-09. The amendments in this update include changes to several aspects of share-based payment accounting. Thecapitalizable costs. Management currently plans to adopt these amendments allow for an entity wide accounting policy election to either account for forfeitures as they occur or estimate the number of awards that are expected to vest. The amendments modify the tax withholding requirements to allow entities to withhold an amount up to the employee’s maximum individual statutory tax rates without resulting in a liability classification of the award as opposed to limiting the withholding to the minimum statutory tax rates. The amendments require that all excess tax benefits and tax deficiencies related to share-based payment awards should be recognized in income tax expense or benefit in the income statement in the period in which they occur. The amendments also address the classification and presentation of certain items on the cash flow statement. The amendments are effective on January 1, 2017, with early adoption permitted. The transition method varies depending on2019, and expects to use the specific amendment. Management is currently evaluating the impact of these amendments.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
modified retrospective approach as required.
Financial Instruments — Credit Losses (ASU 2016-13)
In June 2016, the FASB issued ASU 2016-13. The amendments in this update introduce a new accounting model to measure credit losses for financial assets measured at amortized cost. Credit losses for financial assets measured at amortized cost should be determined based on the total current expected credit losses over the life of the financial asset or group of financial assets. In effect, the financial asset or group of financial assets should be presented at the net amount expected to be collected. Credit losses will no longer be measured as they are incurred for financial assets measured at amortized cost. The amendments also modify the accounting for available-for-sale debt securities whereby credit losses will be recorded through an allowance for credit losses rather than a write-down to the security’s cost basis, which allows for reversals of credit losses when estimated credit losses decline. Credit losses for available-for-sale debt securities should be measured in a manner similar to current GAAP. The amendments are effective on January 1, 2020, with early adoption permitted as of January 1, 2019. The amendments must be applied using a modified retrospective approach with a cumulative-effect adjustment through retained earnings as of the beginning of the fiscal year upon adoption. The new accounting model for credit losses represents a significant departure from existing GAAP, whichand will likely materially increase the allowance for credit losses with a resulting negative adjustment to retained earnings. Management created a formal working group to govern the implementation of these amendments consisting of key stakeholders from finance, risk, and accounting and is currently evaluating the impact of the amendments. Management currently plans to adopt these amendments on January 1, 2020, and expects to use the modified retrospective approach as required.
Statement of Cash Flows — Restricted Cash (ASU 2016-18)
In November 2016, the FASB issued ASU 2016-18. The amendments in this update require that amounts classified as restricted cash and restricted cash equivalents be included within the beginning-of-period and end-of-period amounts along with cash and cash equivalents on the statement of cash flows. Prior to this ASU, specific guidance on the presentation of changes in restricted cash and restricted cash equivalents within the statement of cash flows did not exist. The amendments are effective on January 1, 2018, with early adoption permitted. The amendments must be applied retrospectively to all periods presented within the statement of cash flows upon adoption. Management is currently evaluating the impact of these amendments.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Receivables — Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities (ASU 2017-08)
In March 2017, the FASB issued ASU 2017-08. The amendments in this update require premiums on purchased callable debt securities to be amortized to the security’s earliest call date. Prior to this ASU, premiums and discounts on purchased callable debt securities were generally required to be amortized to the security’s maturity date. The amendments do not require an accounting change for securities held at a discount. The amendments are effective on January 1, 2019, with early adoption permitted. The amendments must be applied using a modified retrospective approach with a cumulative-effect adjustment through retained earnings as of the beginning of the fiscal year upon adoption. Management is currently evaluating the impact of these amendments.
2. Acquisition of TradeKingAcquisitions
On June 1, 2016, we acquired 100% of the equity of TradeKing Group, Inc. (TradeKing), a digital wealth management company with an online broker/dealer,broker-dealer, digital portfolio management platform, and educational content and social collaboration channels, for $298 million in cash. TradeKing, will operatewhich is being rebranded as Ally Invest, operates as a wholly ownedwholly-owned subsidiary of Ally. The addition of brokerage and wealth management is a natural extension of our online banking franchise, creating a full suite of financial products for savings and investments. We applied the acquisition method of accounting to this transaction, which generally requires the initial recognition of assets acquired, including identifiable intangible assets, and liabilities assumed at their respective fair value. Goodwill is recognized as the excess of the acquisition price after the recognition of the net assets, including the identifiable intangible assets. FinancialBeginning in June 2016, financial information related to TradeKing for June 2016 is included within Corporate and Other.
The following table summarizes the allocation of cash consideration paid for TradeKing and the amounts of the identifiable assets acquired and liabilities assumed recognized at the acquisition date.
| | ($ in millions) | | |
Purchase price | | |
Cash consideration | $ | 298 |
| $ | 298 |
|
Allocation of purchase price to net assets acquired | | |
Intangible assets(a) | 82 |
| 82 |
|
Cash and short-term investments (a)(b) | 50 |
| 50 |
|
Other assets | 14 |
| 14 |
|
Deferred tax asset, net | 4 |
| 4 |
|
Employee compensation and benefits | (41 | ) | (41 | ) |
Other liabilities | (4 | ) | (4 | ) |
Goodwill | $ | 193 |
| $ | 193 |
|
| |
(a) | We recorded $3 million of amortization on these intangible assets during the three months ended March 31, 2017. |
| |
(b) | Includes $40 million in cash proceeds from the acquisition transaction in order to pay employee compensation and benefits that vested upon acquisition as a result of the change in control. |
The goodwill of $193 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 technology platform and expand the suite of financial products we offer to our existing growing customer base. None of the goodwill recognized is expected to be deductible for income tax purposes. Refer to Note 1112 for a reconciliation of the carrying amount of goodwill at the beginning and end of the reporting period.
On August 1, 2016, we acquired assets that constitute a business from Blue Yield, an online automotive lender exchange, as we continue to expand our automotive finance offerings to include a direct-to-consumer option. We completed the acquisition for $28 million of total consideration. As a result of the purchase, we recognized $20 million of goodwill within Automotive Finance operations.
3. Discontinued Operations
Prior to the adoption of ASU 2014-08, which was prospectively applied only to newly identified disposals that qualify as discontinued operations beginning after January 1, 2015, we have classified operations as discontinued when operations and cash flows will be eliminated from our ongoing operations and we do not expect to retain any significant continuing involvement in their operations after the respective sale or disposal transactions. For all periods presented, the operating results for these discontinued operations have been removed from continuing operations and presented separately as discontinued operations, net of tax, in the Condensed Consolidated Statement of Comprehensive Income.Income. The Notes to the Condensed Consolidated Financial Statements have been adjusted to exclude discontinued operations unless otherwise noted.
Select Automotive Finance Operations
During the fourth quarter of 2012 we entered into an agreement with General Motors Financial Company Inc. (GMF) to sell our 40% interest in a motor vehicle finance joint venture in China. On January 2, 2015, the sale of our interest in the motor vehicle finance joint
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
venture in China was completed and an after-tax gain of approximately $400 million was recorded. The tax expense included in this gain was reduced by the release of the valuation allowance on our capital loss carryforward deferred tax asset that was utilized to offset capital gains stemming from this sale. The remaining activity relatesOur discontinued operations relate to previous discontinued operations in our Automotive Finance operations, Insurance operations, and Corporate Finance operating segments, and other operations for which we continue to have wind-down, legal, and minimal residualoperational costs.
Other Operations
Other operations relate to previous discontinued operations for which we continue to have minimal residual costs.
Select Financial Information
Select financial information of discontinued operations is summarized below. The pretax income or loss includes direct costs to transact a sale.
|
| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
($ in millions) | 2016 | | 2015 | | 2016 | | 2015 |
Select Automotive Finance operations | | | | | | | |
Pretax (loss) income (a) | $ | (1 | ) | | $ | (5 | ) | | $ | — |
| | $ | 453 |
|
Tax expense (b) | — |
| | — |
| | — |
| | 65 |
|
Other operations | | | | | | | |
Pretax (loss) income | $ | (1 | ) | | $ | 18 |
| | $ | 2 |
| | $ | 20 |
|
Tax benefit | (5 | ) | | — |
| | (4 | ) | | (2 | ) |
|
| | | | | | | |
| Three months ended March 31, |
($ in millions) | 2017 | | 2016 |
Pretax income | $ | 1 |
| | $ | 4 |
|
Tax expense | — |
| | 1 |
|
| |
(a) | Includes certain treasury and other corporate activity recognized by Corporate and Other. |
| |
(b) | Includes certain income tax activity recognized by Corporate and Other. |
4. Other Income, Net of Losses
Details of other income, net of losses, were as follows.
| | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
($ in millions) | 2016 | | 2015 | | 2016 | | 2015 | | 2017 | | 2016 |
Remarketing fees | $ | 25 |
| | $ | 25 |
| | $ | 53 |
| | $ | 53 |
| | $ | 29 |
| | $ | 28 |
|
Late charges and other administrative fees | 22 |
| | 21 |
| | 47 |
| | 43 |
| | 27 |
| | 25 |
|
Servicing fees | 18 |
| | 10 |
| | 31 |
| | 20 |
| | 16 |
| | 13 |
|
Income from equity-method investments | 5 |
| | 4 |
| | 11 |
| | 37 |
| | — |
| | 6 |
|
Other, net | 26 |
| | 24 |
| | 49 |
| | 38 |
| | 43 |
| | 23 |
|
Total other income, net of losses | $ | 96 |
|
| $ | 84 |
|
| $ | 191 |
|
| $ | 191 |
| | $ | 115 |
|
| $ | 95 |
|
5. Reserves for Insurance Losses and Loss Adjustment Expenses
The following table shows a rollforward of our reserves for insurance losses and loss adjustment expenses.
|
| | | | | | |
($ in millions) | 2017 | 2016 |
Total gross reserves for insurance losses and loss adjustment expenses at January 1, | $ | 149 |
| $ | 169 |
|
Less: Reinsurance recoverable | 108 |
| 120 |
|
Net reserves for insurance losses and loss adjustment expenses at January 1, | 41 |
| 49 |
|
Net insurance losses and loss adjustment expenses incurred related to: | | |
Current year | 89 |
| 77 |
|
Prior years (a) | (1 | ) | (4 | ) |
Total net insurance losses and loss adjustment expenses incurred | 88 |
| 73 |
|
Net insurance losses and loss adjustment expenses paid or payable related to: | | |
Current year | (45 | ) | (37 | ) |
Prior years | (23 | ) | (22 | ) |
Total net insurance losses and loss adjustment expenses paid or payable | (68 | ) | (59 | ) |
Foreign exchange and other | 2 |
| 3 |
|
Net reserves for insurance losses and loss adjustment expenses at March 31, | 63 |
| 66 |
|
Plus: Reinsurance recoverable | 112 |
| 118 |
|
Total gross reserves for insurance losses and loss adjustment expenses at March 31, | $ | 175 |
| $ | 184 |
|
| |
(a) | There have been no material adverse changes to the reserve for prior years. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
5.6. Other Operating Expenses
Details of other operating expenses were as follows.
| | | Three months ended June 30, | | Six months ended June 30, | Three months ended March 31, |
($ in millions) | 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 |
Insurance commissions | $ | 97 |
| | $ | 95 |
| | $ | 191 |
| | $ | 188 |
| $ | 99 |
| | $ | 94 |
|
Technology and communications | 67 |
| | 64 |
| | 133 |
| | 133 |
| 69 |
| | 66 |
|
Lease and loan administration | 34 |
| | 32 |
| | 66 |
| | 61 |
| 36 |
| | 32 |
|
Professional services | 26 |
| | 25 |
| | 50 |
| | 45 |
| |
Advertising and marketing | 21 |
| | 23 |
| | 48 |
| | 54 |
| 30 |
| | 27 |
|
Vehicle remarketing and repossession | 22 |
| | 18 |
| | 46 |
| | 37 |
| 28 |
| | 24 |
|
Regulatory and licensing fees | | 27 |
| | 21 |
|
Professional services | | 26 |
| | 24 |
|
Premises and equipment depreciation | 21 |
| | 22 |
| | 42 |
| | 42 |
| 22 |
| | 21 |
|
Regulatory and licensing fees | 21 |
| | 20 |
| | 42 |
| | 41 |
| |
Occupancy | 12 |
| | 13 |
| | 25 |
| | 24 |
| 12 |
| | 13 |
|
Non-income taxes | 8 |
| | 7 |
| | 17 |
| | 15 |
| 8 |
| | 9 |
|
Other | 57 |
| | 47 |
| | 111 |
| | 110 |
| 48 |
| | 54 |
|
Total other operating expenses | $ | 386 |
| | $ | 366 |
| | $ | 771 |
| | $ | 750 |
| $ | 405 |
| | $ | 385 |
|
6.7. Investment Securities
Our portfolio of securities includes bonds, equity securities, asset-asset-backed securities, commercial and residential mortgage-backed securities, and other investments. The cost, fair value, and gross unrealized gains and losses on investment securities were as follows.
| | | | June 30, 2016 | | December 31, 2015 | | March 31, 2017 | | December 31, 2016 |
|
| Amortized cost |
| Gross unrealized |
| Fair value |
| Amortized cost |
| Gross unrealized |
| Fair value |
| Amortized cost |
| Gross unrealized |
| Fair value |
| Amortized cost |
| Gross unrealized |
| Fair value |
($ in millions) |
| gains |
| losses |
| gains |
| losses |
|
| gains |
| losses |
| gains |
| losses |
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies |
| $ | 265 |
|
| $ | 10 |
|
| $ | — |
|
| $ | 275 |
|
| $ | 1,760 |
|
| $ | — |
|
| $ | (19 | ) |
| $ | 1,741 |
| |
U.S. Treasury | |
| $ | 2,276 |
|
| $ | 1 |
|
| $ | (52 | ) |
| $ | 2,225 |
|
| $ | 1,680 |
|
| $ | — |
|
| $ | (60 | ) |
| $ | 1,620 |
|
U.S. States and political subdivisions |
| 701 |
|
| 33 |
|
| (1 | ) |
| 733 |
|
| 693 |
|
| 24 |
|
| (1 | ) |
| 716 |
|
| 803 |
|
| 9 |
|
| (17 | ) |
| 795 |
|
| 794 |
|
| 7 |
|
| (19 | ) |
| 782 |
|
Foreign government |
| 180 |
|
| 11 |
|
| — |
|
| 191 |
|
| 169 |
|
| 8 |
|
| — |
|
| 177 |
|
| 143 |
|
| 3 |
|
| — |
|
| 146 |
|
| 157 |
|
| 5 |
|
| — |
|
| 162 |
|
Mortgage-backed residential (a) |
| 12,446 |
|
| 199 |
|
| (28 | ) |
| 12,617 |
|
| 10,459 |
|
| 52 |
|
| (145 | ) |
| 10,366 |
| |
Agency mortgage-backed residential | |
| 12,054 |
|
| 31 |
|
| (223 | ) |
| 11,862 |
|
| 10,473 |
|
| 29 |
|
| (212 | ) |
| 10,290 |
|
Mortgage-backed residential | | | 2,053 |
| | 4 |
| | (61 | ) | | 1,996 |
| | 2,162 |
| | 5 |
| | (70 | ) | | 2,097 |
|
Mortgage-backed commercial |
| 513 |
|
| 1 |
|
| (8 | ) |
| 506 |
|
| 486 |
|
| — |
|
| (5 | ) |
| 481 |
|
| 533 |
|
| 2 |
|
| (1 | ) |
| 534 |
|
| 537 |
|
| 2 |
|
| (2 | ) |
| 537 |
|
Asset-backed |
| 1,671 |
|
| 6 |
|
| (3 | ) |
| 1,674 |
|
| 1,762 |
|
| 1 |
|
| (8 | ) |
| 1,755 |
|
| 1,046 |
|
| 6 |
|
| (1 | ) |
| 1,051 |
|
| 1,396 |
|
| 6 |
|
| (2 | ) |
| 1,400 |
|
Corporate debt |
| 1,566 |
|
| 39 |
|
| (3 | ) |
| 1,602 |
|
| 1,213 |
|
| 8 |
|
| (17 | ) |
| 1,204 |
|
| 1,262 |
|
| 6 |
|
| (13 | ) |
| 1,255 |
|
| 1,452 |
|
| 7 |
|
| (16 | ) |
| 1,443 |
|
Total debt securities (b) (c) |
| 17,342 |
|
| 299 |
|
| (43 | ) |
| 17,598 |
|
| 16,542 |
|
| 93 |
|
| (195 | ) |
| 16,440 |
| |
Total debt securities (a) (b) | |
| 20,170 |
|
| 62 |
|
| (368 | ) |
| 19,864 |
|
| 18,651 |
|
| 61 |
|
| (381 | ) |
| 18,331 |
|
Equity securities |
| 675 |
|
| 6 |
|
| (82 | ) |
| 599 |
|
| 808 |
|
| 3 |
|
| (94 | ) |
| 717 |
|
| 481 |
|
| 9 |
|
| (46 | ) |
| 444 |
|
| 642 |
|
| 7 |
|
| (54 | ) |
| 595 |
|
Total available-for-sale securities |
| $ | 18,017 |
|
| $ | 305 |
|
| $ | (125 | ) |
| $ | 18,197 |
|
| $ | 17,350 |
|
| $ | 96 |
|
| $ | (289 | ) |
| $ | 17,157 |
|
| $ | 20,651 |
|
| $ | 71 |
|
| $ | (414 | ) |
| $ | 20,308 |
|
| $ | 19,293 |
|
| $ | 68 |
|
| $ | (435 | ) |
| $ | 18,926 |
|
Held-to-maturity securities | | | | | | | | | | | | | | | | | |
Debt securities | | | | | | | | | | | | | | | | | |
Agency mortgage-backed residential (c) | | | $ | 1,052 |
| | $ | 2 |
| | $ | (43 | ) | | $ | 1,011 |
| | $ | 839 |
| | $ | — |
| | $ | (50 | ) | | $ | 789 |
|
Asset-backed retained notes | | | 52 |
| | — |
| | — |
| | 52 |
| | — |
| | — |
| | — |
| | — |
|
Total held-to-maturity securities (d) |
| $ | 571 |
|
| $ | 9 |
|
| $ | (1 | ) |
| $ | 579 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1,104 |
|
| $ | 2 |
|
| $ | (43 | ) |
| $ | 1,063 |
|
| $ | 839 |
| | $ | — |
| | $ | (50 | ) | | $ | 789 |
|
| |
(a) | Residential mortgage-backed securities include agency-backed bonds totaling $9,997 million and $7,544 million at June 30, 2016, and December 31, 2015, respectively.
|
| |
(b) | Certain entities related to our Insurance operations are required to deposit securities with state regulatory authorities. These deposited securities totaled $15$12 million and $14 million at June 30, 2016,March 31, 2017, and December 31, 2015.2016, respectively. |
| |
(c)(b) | Investment securities with a fair value of $492$3,235 million and $2,506$4,881 million at June 30, 2016,March 31, 2017, and December 31, 2015,2016, respectively, were pledged to secure advances from the FHLB,Federal Home Loan Bank (FHLB), short-term borrowings or repurchase agreements and for other purposes as required by contractual obligation or law. Under these agreements, Ally has granted the counterparty the right to sell or pledge $492$1,257 million and $745$737 million of the underlying investment securities at June 30, 2016,March 31, 2017, and December 31, 2015,2016, respectively. |
| |
(c) | Agency-backed residential mortgage-backed debt securities are held for liquidity purposes. |
| |
(d) | Held-to-maturity securities are recorded at amortized costcost. Held-to-maturity securities with a fair value of $0 million and consist of agency-backed residential mortgage-backed debt securities for liquidity purposes.$87 million at March 31, 2017, and December 31, 2016, respectively, were pledged to secure advances from the FHLB. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The maturity distribution of investment securities outstanding is summarized in the following tables. Call or prepayment options may cause actual maturities to differ from contractual maturities.
| |
|
| Total |
| Due in one year or less |
| Due after one year through five years |
| Due after five years through ten years |
| Due after ten years |
| Total |
| Due in one year or less |
| Due after one year through five years |
| Due after five years through ten years |
| Due after ten years |
($ in millions) |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
June 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
March 31, 2017 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of available-for-sale debt securities (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies |
| $ | 275 |
|
| 1.8 | % |
| $ | 2 |
|
| 4.2 | % |
| $ | 61 |
|
| 1.5 | % |
| $ | 212 |
|
| 1.9 | % |
| $ | — |
|
| — | % | |
U.S. Treasury | |
| $ | 2,225 |
|
| 1.8 | % |
| $ | — |
|
| — | % |
| $ | 262 |
|
| 1.8 | % |
| $ | 1,963 |
|
| 1.8 | % |
| $ | — |
|
| — | % |
U.S. States and political subdivisions |
| 733 |
|
| 3.1 |
|
| 127 |
|
| 2.4 |
|
| 31 |
|
| 1.9 |
|
| 123 |
|
| 3.0 |
|
| 452 |
|
| 3.4 |
|
| 795 |
|
| 3.1 |
|
| 66 |
|
| 2.4 |
|
| 34 |
|
| 2.5 |
|
| 175 |
|
| 2.9 |
|
| 520 |
|
| 3.3 |
|
Foreign government |
| 191 |
|
| 2.7 |
|
| 9 |
|
| 2.5 |
|
| 85 |
|
| 2.9 |
|
| 97 |
|
| 2.5 |
|
| — |
|
| — |
|
| 146 |
|
| 2.5 |
|
| — |
|
| — |
|
| 66 |
|
| 2.7 |
|
| 80 |
|
| 2.4 |
|
| — |
|
| — |
|
Agency mortgage-backed residential | | | 11,862 |
| | 3.0 |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| | 2.9 |
| | 11,859 |
| | 3.0 |
|
Mortgage-backed residential |
| 12,617 |
|
| 2.9 |
|
| — |
|
| — |
|
| 1 |
|
| 4.5 |
|
| 28 |
|
| 2.5 |
|
| 12,588 |
|
| 2.9 |
|
| 1,996 |
|
| 2.9 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,996 |
|
| 2.9 |
|
Mortgage-backed commercial |
| 506 |
|
| 2.3 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3 |
|
| 2.8 |
|
| 503 |
|
| 2.3 |
|
| 534 |
|
| 2.8 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3 |
|
| 2.8 |
|
| 531 |
|
| 2.8 |
|
Asset-backed |
| 1,674 |
|
| 2.7 |
|
| — |
|
| — |
|
| 992 |
|
| 2.5 |
|
| 444 |
|
| 3.2 |
|
| 238 |
|
| 2.4 |
|
| 1,051 |
|
| 2.9 |
|
| — |
|
| — |
|
| 829 |
|
| 2.9 |
|
| 59 |
|
| 3.2 |
|
| 163 |
|
| 2.6 |
|
Corporate debt |
| 1,602 |
|
| 2.9 |
|
| 73 |
|
| 2.7 |
|
| 919 |
|
| 2.6 |
|
| 575 |
|
| 3.3 |
|
| 35 |
|
| 5.1 |
|
| 1,255 |
|
| 2.9 |
|
| 99 |
|
| 2.1 |
|
| 642 |
|
| 2.6 |
|
| 468 |
|
| 3.2 |
|
| 46 |
|
| 4.7 |
|
Total available-for-sale debt securities |
| $ | 17,598 |
|
| 2.9 |
|
| $ | 211 |
|
| 2.5 |
|
| $ | 2,089 |
|
| 2.5 |
|
| $ | 1,482 |
|
| 3.0 |
|
| $ | 13,816 |
|
| 2.9 |
|
| $ | 19,864 |
|
| 2.8 |
|
| $ | 165 |
|
| 2.2 |
|
| $ | 1,833 |
|
| 2.6 |
|
| $ | 2,751 |
|
| 2.2 |
|
| $ | 15,115 |
|
| 3.0 |
|
Amortized cost of available-for-sale debt securities |
| $ | 17,342 |
|
|
|
| $ | 211 |
|
|
|
| $ | 2,066 |
|
|
|
| $ | 1,439 |
|
|
|
| $ | 13,626 |
|
|
|
| $ | 20,170 |
|
|
|
| $ | 165 |
|
|
|
| $ | 1,826 |
|
|
|
| $ | 2,806 |
|
|
|
| $ | 15,373 |
|
|
|
Amortized cost of held-to-maturity securities |
| $ | 571 |
|
| 2.9 | % |
| $ | — |
|
| — | % |
| $ | — |
|
| — | % |
| $ | — |
|
| — | % |
| $ | 571 |
|
| 2.9 | % | |
|
| | | | | | | | | | | | | | | | | | |
December 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Agency mortgage-backed residential | | | 1,052 |
| | 3.0 | % | | — |
| | — | % | | — |
| | — | % | | — |
| | — | % | | 1,052 |
| | 3.0 | % |
Asset-backed retained notes | | | 52 |
| | 1.5 |
| | 10 |
| | 0.8 |
| | 40 |
| | 1.6 |
| | 2 |
| | 2.7 |
| | — |
| | — |
|
Total held-to-maturity securities | | | $ | 1,104 |
| | 2.9 |
| | $ | 10 |
| | 0.8 |
| | $ | 40 |
| | 1.6 |
| | $ | 2 |
| | 2.7 |
| | $ | 1,052 |
| | 3.0 |
|
December 31, 2016 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of available-for-sale debt securities (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies |
| $ | 1,741 |
|
| 1.8 | % |
| $ | 6 |
|
| 5.1 | % |
| $ | 510 |
|
| 1.2 | % |
| $ | 1,225 |
|
| 2.1 | % |
| $ | — |
|
| — | % | |
U.S. Treasury | |
| $ | 1,620 |
|
| 1.7 | % |
| $ | 2 |
|
| 4.6 | % |
| $ | 60 |
|
| 1.6 | % |
| $ | 1,558 |
|
| 1.7 | % |
| $ | — |
|
| — | % |
U.S. States and political subdivisions |
| 716 |
|
| 3.2 |
|
| 86 |
|
| 1.3 |
|
| 37 |
|
| 2.2 |
|
| 141 |
|
| 2.8 |
|
| 452 |
|
| 3.7 |
|
| 782 |
|
| 3.1 |
|
| 64 |
|
| 1.7 |
|
| 29 |
|
| 2.3 |
|
| 172 |
|
| 2.8 |
|
| 517 |
|
| 3.4 |
|
Foreign government |
| 177 |
|
| 2.6 |
|
| 9 |
|
| 1.9 |
|
| 77 |
|
| 2.8 |
|
| 91 |
|
| 2.6 |
|
| — |
|
| — |
|
| 162 |
|
| 2.6 |
|
| — |
|
| — |
|
| 58 |
|
| 2.8 |
|
| 104 |
|
| 2.4 |
|
| — |
|
| — |
|
Agency mortgage-backed residential | | | 10,290 |
| | 2.9 |
| | — |
| | — |
| | — |
| | — |
| | 29 |
| | 2.6 |
| | 10,261 |
| | 2.9 |
|
Mortgage-backed residential |
| 10,366 |
|
| 2.9 |
|
| — |
|
| — |
|
| 33 |
|
| 2.1 |
|
| 36 |
|
| 2.5 |
|
| 10,297 |
|
| 2.9 |
|
| 2,097 |
|
| 2.9 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 2,097 |
|
| 2.9 |
|
Mortgage-backed commercial |
| 481 |
|
| 2.0 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3 |
|
| 2.7 |
|
| 478 |
|
| 2.0 |
|
| 537 |
|
| 2.6 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3 |
|
| 2.8 |
|
| 534 |
|
| 2.6 |
|
Asset-backed |
| 1,755 |
|
| 2.3 |
|
| 6 |
|
| 1.4 |
|
| 1,027 |
|
| 2.1 |
|
| 518 |
|
| 2.6 |
|
| 204 |
|
| 2.2 |
|
| 1,400 |
|
| 2.8 |
|
| — |
|
| — |
|
| 1,059 |
|
| 2.8 |
|
| 143 |
|
| 3.2 |
|
| 198 |
|
| 2.6 |
|
Corporate debt |
| 1,204 |
|
| 2.9 |
|
| 50 |
|
| 3.0 |
|
| 713 |
|
| 2.5 |
|
| 410 |
|
| 3.4 |
|
| 31 |
|
| 5.4 |
|
| 1,443 |
|
| 2.8 |
|
| 72 |
|
| 2.2 |
|
| 840 |
|
| 2.6 |
|
| 489 |
|
| 3.2 |
|
| 42 |
|
| 4.7 |
|
Total available-for-sale debt securities |
| $ | 16,440 |
|
| 2.7 |
|
| $ | 157 |
|
| 2.0 |
|
| $ | 2,397 |
|
| 2.1 |
|
| $ | 2,424 |
|
| 2.5 |
|
| $ | 11,462 |
|
| 2.9 |
|
| $ | 18,331 |
|
| 2.8 |
|
| $ | 138 |
|
| 2.0 |
|
| $ | 2,046 |
|
| 2.7 |
|
| $ | 2,498 |
|
| 2.2 |
|
| $ | 13,649 |
|
| 2.9 |
|
Amortized cost of available-for-sale debt securities |
| $ | 16,542 |
|
|
|
|
| $ | 156 |
|
|
|
|
| $ | 2,404 |
|
|
|
|
| $ | 2,436 |
|
|
|
|
| $ | 11,546 |
|
|
|
|
| $ | 18,651 |
|
|
|
|
| $ | 138 |
|
|
|
|
| $ | 2,040 |
|
|
|
|
| $ | 2,563 |
|
|
|
|
| $ | 13,910 |
|
|
|
|
Amortized cost of held-to-maturity securities | |
| $ | 839 |
|
| 2.9 | % |
| $ | — |
|
| — | % |
| $ | — |
|
| — | % |
| $ | — |
|
| — | % |
| $ | 839 |
|
| 2.9 | % |
| |
(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 $0.9$1.1 billion and $1.0 billion$291 million at June 30, 2016,March 31, 2017, and December 31, 20152016, respectively, and were composed primarily of money market accounts and short-term securities, including U.S. Treasury bills.
The following table presents interest and dividends on investment securities. |
| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
($ in millions) | 2016 | | 2015 | | 2016 | | 2015 |
Taxable interest | $ | 89 |
|
| $ | 82 |
| | $ | 183 |
| | $ | 162 |
|
Taxable dividends | 5 |
|
| 6 |
| | 9 |
| | 11 |
|
Interest and dividends exempt from U.S. federal income tax | 5 |
|
| 5 |
| | 9 |
| | 8 |
|
Interest and dividends on investment securities | $ | 99 |
|
| $ | 93 |
| | $ | 201 |
| | $ | 181 |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following table presents grossinterest and dividends on investment securities.
|
| | | | | | | |
| Three months ended March 31, |
($ in millions) | 2017 | | 2016 |
Taxable interest | $ | 119 |
|
| $ | 94 |
|
Taxable dividends | 2 |
|
| 4 |
|
Interest and dividends exempt from U.S. federal income tax | 5 |
|
| 4 |
|
Interest and dividends on investment securities | $ | 126 |
|
| $ | 102 |
|
Gross gains
and losses realized upon the sales of available-for-sale securities
were $27 million and
$54 million for the three months ended March 31, 2017, and 2016, respectively. There were no gross realized losses or other-than-temporary
impairment.impairments upon the sales of available-for-sale securities for either period. |
| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
($ in millions) | 2016 | | 2015 | | 2016 | | 2015 |
Gross realized gains | $ | 40 |
|
| $ | 46 |
| | $ | 94 |
| | $ | 106 |
|
Gross realized losses (a) | (1 | ) |
| — |
| | (1 | ) | | (3 | ) |
Other-than-temporary impairment | — |
|
| (1 | ) | | — |
| | (3 | ) |
Other gain on investments, net | $ | 39 |
| | $ | 45 |
| | $ | 93 |
| | $ | 100 |
|
| |
(a) | Certain available-for-sale securities were sold at a loss in 2016 and 2015 as a result of market conditions within these respective periods (e.g., a downgrade in the rating of a debt security). Any such sales were made in accordance with our risk management policies and practices. |
The table below summarizes available-for-sale securities in an unrealized loss position in accumulated other comprehensive income. Based on the assessment of whether such losses were deemed to be other than temporary,other-than-temporary, we believe that the unrealized losses are not indicative of an other-than-temporary impairment of these securities. As of June 30, 2016,March 31, 2017, we did not have the intent to sell the debt securities with an unrealized loss position in accumulated other comprehensive income, it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis, and we expect to recover the entire amortized cost basis of the securities. As of June 30, 2016,March 31, 2017, we had the ability and intent to hold equity securities with an unrealized loss position in accumulated other comprehensive income, and it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis. As a result, we believe that the securities with an unrealized loss position in accumulated other comprehensive income are not considered to be other-than-temporarily impaired at June 30, 2016.March 31, 2017. Refer to Note 1 to the Consolidated Financial Statements in our 2016 Annual Report on Form 10-K for additional information related to investment securities and our methodology for evaluating potential other-than-temporary impairments.
| | | | June 30, 2016 | | December 31, 2015 | | March 31, 2017 | | December 31, 2016 |
|
| Less than 12 months |
| 12 months or longer |
| Less than 12 months |
| 12 months or longer |
| Less than 12 months |
| 12 months or longer |
| Less than 12 months |
| 12 months or longer |
($ in millions) |
| Fair value |
| Unrealized loss |
| Fair value |
| Unrealized loss |
| Fair value |
| Unrealized loss |
| Fair value |
| Unrealized loss | |
$ in millions) | |
| Fair value |
| Unrealized loss |
| Fair value |
| Unrealized loss |
| Fair value |
| Unrealized loss |
| Fair value |
| Unrealized loss |
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1,553 |
|
| $ | (17 | ) |
| $ | 173 |
|
| $ | (2 | ) | |
U.S. Treasury | |
| $ | 2,070 |
|
| $ | (52 | ) |
| $ | — |
|
| $ | — |
|
| $ | 1,612 |
|
| $ | (60 | ) |
| $ | — |
|
| $ | — |
|
U.S. States and political subdivisions |
| 169 |
|
| (1 | ) |
| 10 |
|
| — |
|
| 179 |
|
| (1 | ) |
| — |
|
| — |
|
| 435 |
|
| (16 | ) |
| 26 |
|
| (1 | ) |
| 524 |
|
| (19 | ) |
| — |
|
| — |
|
Foreign government |
| — |
|
| — |
|
| — |
|
| — |
|
| 2 |
|
| — |
|
| — |
|
| — |
|
| 13 |
|
| — |
|
| — |
|
| — |
|
| 38 |
|
| — |
|
| — |
|
| — |
|
Mortgage-backed |
| 676 |
|
| (6 | ) |
| 2,139 |
|
| (30 | ) |
| 4,096 |
|
| (43 | ) |
| 2,453 |
|
| (107 | ) | |
Agency mortgage-backed residential | | | 8,874 |
| | (209 | ) | | 531 |
| | (14 | ) | | 8,052 |
| | (196 | ) | | 587 |
| | (16 | ) |
Mortgage-backed residential | |
| 768 |
|
| (16 | ) |
| 816 |
|
| (45 | ) |
| 813 |
|
| (17 | ) |
| 860 |
|
| (53 | ) |
Mortgage-backed commercial | | | 79 |
| | (1 | ) | | 77 |
| | — |
| | 47 |
| | (1 | ) | | 149 |
| | (1 | ) |
Asset-backed |
| 656 |
|
| (2 | ) |
| 144 |
|
| (1 | ) |
| 1,402 |
|
| (8 | ) |
| 64 |
|
| — |
|
| 175 |
|
| — |
|
| 134 |
|
| (1 | ) |
| 375 |
|
| (2 | ) |
| 127 |
|
| — |
|
Corporate debt |
| 73 |
|
| (1 | ) |
| 63 |
|
| (2 | ) |
| 745 |
|
| (16 | ) |
| 12 |
|
| (1 | ) |
| 565 |
|
| (11 | ) |
| 46 |
|
| (2 | ) |
| 744 |
|
| (14 | ) |
| 46 |
|
| (2 | ) |
Total temporarily impaired debt securities |
| 1,574 |
|
| (10 | ) |
| 2,356 |
|
| (33 | ) |
| 7,977 |
|
| (85 | ) |
| 2,702 |
|
| (110 | ) |
| 12,979 |
|
| (305 | ) |
| 1,630 |
|
| (63 | ) |
| 12,205 |
|
| (309 | ) |
| 1,769 |
|
| (72 | ) |
Temporarily impaired equity securities |
| 268 |
|
| (37 | ) |
| 207 |
|
| (45 | ) |
| 534 |
|
| (54 | ) |
| 96 |
|
| (40 | ) |
| 72 |
|
| (6 | ) |
| 162 |
|
| (40 | ) |
| 151 |
|
| (8 | ) |
| 269 |
|
| (46 | ) |
Total temporarily impaired available-for-sale securities |
| $ | 1,842 |
|
| $ | (47 | ) |
| $ | 2,563 |
|
| $ | (78 | ) |
| $ | 8,511 |
|
| $ | (139 | ) |
| $ | 2,798 |
|
| $ | (150 | ) |
| $ | 13,051 |
|
| $ | (311 | ) |
| $ | 1,792 |
|
| $ | (103 | ) |
| $ | 12,356 |
|
| $ | (317 | ) |
| $ | 2,038 |
|
| $ | (118 | ) |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
7.8. Finance Receivables and Loans, Net
The composition of finance receivables and loans reported at gross carrying value was as follows.
| | ($ in millions) | | June 30, 2016 | | December 31, 2015 | |
($ in millions) | | | March 31, 2017 | | December 31, 2016 |
Consumer automotive (a) | | $ | 63,281 |
| | $ | 64,292 |
| | $ | 65,663 |
| | $ | 65,793 |
|
Consumer mortgage | | | | | | | | |
Mortgage Finance (b) | | 8,009 |
| | 6,413 |
| | 8,331 |
| | 8,294 |
|
Mortgage — Legacy (c) | | 3,075 |
| | 3,360 |
| | 2,606 |
| | 2,756 |
|
Total consumer mortgage | | 11,084 |
| | 9,773 |
| | 10,937 |
| | 11,050 |
|
Total consumer | | 74,365 |
| | 74,065 |
| | 76,600 |
| | 76,843 |
|
Commercial | | | | | | | | |
Commercial and industrial | | | | | | | | |
Automotive | | 31,640 |
| | 31,469 |
| | 34,911 |
| | 35,041 |
|
Other | | 3,037 |
| | 2,640 |
| | 3,499 |
| | 3,248 |
|
Commercial real estate — Automotive | | 3,611 |
| | 3,426 |
| | 3,992 |
| | 3,812 |
|
Total commercial | | 38,288 |
| | 37,535 |
| | 42,402 |
| | 42,101 |
|
Total finance receivables and loans (d) | | $ | 112,653 |
| | $ | 111,600 |
| | $ | 119,002 |
| | $ | 118,944 |
|
| |
(a) | Includes $88$34 million and $66$43 million of fair value adjustment for loans in hedge accounting relationships at June 30, 2016March 31, 2017, and December 31, 20152016, respectively. Refer to Note 2019 for additional information. |
| |
(b) | Includes loans originated as interest-only mortgage loans of $38$26 million and $44$30 million at June 30, 2016,March 31, 2017, and December 31, 2015,2016, respectively, 5%3% of which are expected to start principal amortization in 2016, 2% in 2017, none in 2018, 38%37% in 2019, 42% in 2020, and 38%none thereafter. |
| |
(c) | Includes loans originated as interest-only mortgage loans of $830$653 million and $941$714 million at June 30, 2016,March 31, 2017, and December 31, 2015,2016, respectively, 22%17% of which are expected to start principal amortization in 2016, 22% in 2017, 2% in 2018, none in 2019, none in 2020, and 1% thereafter. |
| |
(d) | Totals include a net increaseincreases of $268$393 million and $110$359 million at June 30, 2016,March 31, 2017, and December 31, 2015,2016, respectively, for unearned income, unamortized premiums and discounts, and deferred fees and costs. |
The following tables present an analysis of the activity in the allowance for loan losses on finance receivables and loans.
|
| | | | | | | | | | | | | | | | |
Three months ended June 30, 2016 ($ in millions) | | Consumer automotive | | Consumer mortgage | | Commercial | | Total |
Allowance at April 1, 2016 |
| $ | 850 |
|
| $ | 115 |
|
| $ | 112 |
|
| $ | 1,077 |
|
Charge-offs |
| (227 | ) |
| (9 | ) |
| (1 | ) |
| (237 | ) |
Recoveries |
| 79 |
|
| 5 |
|
| 1 |
|
| 85 |
|
Net charge-offs |
| (148 | ) |
| (4 | ) |
| — |
|
| (152 | ) |
Provision for loan losses |
| 168 |
|
| (2 | ) |
| 6 |
|
| 172 |
|
Other (a) |
| (8 | ) |
| — |
|
| — |
|
| (8 | ) |
Allowance at June 30, 2016 |
| $ | 862 |
|
| $ | 109 |
|
| $ | 118 |
|
| $ | 1,089 |
|
| |
(a) | Primarily related to the transfer of finance receivables and loans from held-for-investment to held-for-sale. |
|
| | | | | | | | | | | | | | | | |
Three months ended June 30, 2015 ($ in millions) | | Consumer automotive | | Consumer mortgage | | Commercial | | Total |
Allowance at April 1, 2015 |
| $ | 711 |
|
| $ | 119 |
|
| $ | 103 |
|
| $ | 933 |
|
Charge-offs |
| (166 | ) |
| (9 | ) |
| — |
|
| (175 | ) |
Recoveries |
| 70 |
|
| 5 |
|
| — |
|
| 75 |
|
Net charge-offs |
| (96 | ) |
| (4 | ) |
| — |
|
| (100 | ) |
Provision for loan losses |
| 152 |
|
| 3 |
|
| (15 | ) |
| 140 |
|
Other |
| — |
|
| 1 |
|
| — |
|
| 1 |
|
Allowance at June 30, 2015 |
| $ | 767 |
|
| $ | 119 |
|
| $ | 88 |
|
| $ | 974 |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following tables present an analysis of the activity in the allowance for loan losses on finance receivables and loans.
| | Six months ended June 30, 2016 ($ in millions) |
| Consumer automotive |
| Consumer mortgage |
| Commercial |
| Total | |
Allowance at January 1, 2016 |
| $ | 834 |
|
| $ | 114 |
|
| $ | 106 |
|
| $ | 1,054 |
| |
Three months ended March 31, 2017 ($ in millions) | |
| Consumer automotive |
| Consumer mortgage |
| Commercial |
| Total |
Allowance at January 1, 2017 | |
| $ | 932 |
|
| $ | 91 |
|
| $ | 121 |
|
| $ | 1,144 |
|
Charge-offs(a) |
| (480 | ) |
| (19 | ) |
| (1 | ) |
| (500 | ) |
| (341 | ) |
| (9 | ) |
| — |
|
| (350 | ) |
Recoveries |
| 159 |
|
| 9 |
|
| 1 |
|
| 169 |
|
| 90 |
|
| 7 |
|
| — |
|
| 97 |
|
Net charge-offs |
| (321 | ) |
| (10 | ) |
| — |
|
| (331 | ) |
| (251 | ) |
| (2 | ) |
| — |
|
| (253 | ) |
Provision for loan losses |
| 375 |
|
| 5 |
|
| 12 |
|
| 392 |
|
| 267 |
|
| (3 | ) |
| 7 |
|
| 271 |
|
Other (a)(b) |
| (26 | ) |
| — |
|
| — |
|
| (26 | ) |
| (7 | ) |
| — |
|
| — |
|
| (7 | ) |
Allowance at June 30, 2016 |
| $ | 862 |
| | $ | 109 |
| | $ | 118 |
|
| $ | 1,089 |
| |
Allowance for loan losses at June 30, 2016 |
|
|
|
|
|
|
|
| |
Allowance at March 31, 2017 | |
| $ | 941 |
| | $ | 86 |
| | $ | 128 |
|
| $ | 1,155 |
|
Allowance for loan losses at March 31, 2017 | |
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $ | 26 |
|
| $ | 37 |
|
| $ | 23 |
|
| $ | 86 |
|
| $ | 32 |
|
| $ | 33 |
|
| $ | 24 |
|
| $ | 89 |
|
Collectively evaluated for impairment |
| 836 |
|
| 72 |
|
| 95 |
|
| 1,003 |
|
| 909 |
|
| 53 |
|
| 104 |
|
| 1,066 |
|
Loans acquired with deteriorated credit quality |
| — |
|
| — |
|
| — |
|
| — |
| |
Finance receivables and loans at gross carrying value |
| | | | | | | |
| | | | | | | |
Ending balance |
| $ | 63,281 |
|
| $ | 11,084 |
|
| $ | 38,288 |
|
| $ | 112,653 |
|
| $ | 65,663 |
|
| $ | 10,937 |
|
| $ | 42,402 |
|
| $ | 119,002 |
|
Individually evaluated for impairment |
| 348 |
|
| 254 |
|
| 122 |
|
| 724 |
|
| 388 |
|
| 249 |
|
| 120 |
|
| 757 |
|
Collectively evaluated for impairment |
| 62,933 |
|
| 10,830 |
|
| 38,166 |
|
| 111,929 |
|
| 65,275 |
|
| 10,688 |
|
| 42,282 |
|
| 118,245 |
|
Loans acquired with deteriorated credit quality |
| — |
|
| — |
|
| — |
|
| — |
| |
| |
(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 in our 2016 Annual Report on Form 10-K 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. |
| | Six months ended June 30, 2015 ($ in millions) | | Consumer automotive | | Consumer mortgage | | Commercial | | Total | |
Allowance at January 1, 2015 | | $ | 685 |
| | $ | 152 |
| | $ | 140 |
| | $ | 977 |
| |
Three months ended March 31, 2016 ($ in millions) | | | Consumer automotive | | Consumer mortgage | | Commercial | | Total |
Allowance at January 1, 2016 | | | $ | 834 |
| | $ | 114 |
| | $ | 106 |
| | $ | 1,054 |
|
Charge-offs(a) | | (359 | ) | | (31 | ) | | — |
| | (390 | ) | | (253 | ) | | (10 | ) | | — |
| | (263 | ) |
Recoveries | | 131 |
| | 8 |
| | 1 |
| | 140 |
| | 80 |
| | 4 |
| | — |
| | 84 |
|
Net charge-offs | | (228 | ) | | (23 | ) | | 1 |
| | (250 | ) | | (173 | ) | | (6 | ) | | — |
| | (179 | ) |
Provision for loan losses | | 310 |
| | (2 | ) | | (52 | ) | | 256 |
| | 207 |
| | 7 |
| | 6 |
| | 220 |
|
Other (a)(b) | | — |
| | (8 | ) | | (1 | ) | | (9 | ) | | (18 | ) | | — |
| | — |
| | (18 | ) |
Allowance at June 30, 2015 | | $ | 767 |
| | $ | 119 |
| | $ | 88 |
| | $ | 974 |
| |
Allowance for loan losses at June 30, 2015 |
|
|
|
|
|
|
|
| |
Allowance at March 31, 2016 | | | $ | 850 |
| | $ | 115 |
| | $ | 112 |
| | $ | 1,077 |
|
Allowance for loan losses at March 31, 2016 | |
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $ | 22 |
|
| $ | 50 |
|
| $ | 19 |
|
| $ | 91 |
|
| $ | 25 |
|
| $ | 43 |
|
| $ | 18 |
|
| $ | 86 |
|
Collectively evaluated for impairment |
| 745 |
|
| 69 |
|
| 69 |
|
| 883 |
|
| 825 |
|
| 72 |
|
| 94 |
|
| 991 |
|
Loans acquired with deteriorated credit quality |
| — |
|
| — |
|
| — |
|
| — |
| |
Finance receivables and loans at gross carrying value |
| | | | | |
|
|
|
| | | | | |
|
|
|
Ending balance |
| $ | 60,786 |
|
| $ | 9,211 |
|
| $ | 35,175 |
|
| $ | 105,172 |
|
| $ | 63,013 |
|
| $ | 10,675 |
|
| $ | 37,188 |
|
| $ | 110,876 |
|
Individually evaluated for impairment |
| 275 |
|
| 265 |
|
| 99 |
|
| 639 |
|
| 337 |
|
| 261 |
|
| 90 |
|
| 688 |
|
Collectively evaluated for impairment |
| 60,511 |
|
| 8,946 |
|
| 35,076 |
|
| 104,533 |
|
| 62,676 |
|
| 10,414 |
|
| 37,098 |
|
| 110,188 |
|
Loans acquired with deteriorated credit quality |
| — |
|
| — |
|
| — |
|
| — |
| |
| |
(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 in our 2016 Annual Report on Form 10-K 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 the gross carrying value ofinformation about significant sales of finance receivables and loans and transfers of finance receivables and loans from held-for-investment to held-for-sale.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
($ in millions) |
| 2016 |
| 2015 | | 2016 | | 2015 | |
($ in millions) | |
| 2017 |
| 2016 |
Consumer automotive |
| $ | 1,560 |
|
| $ | — |
| | $ | 4,159 |
| | $ | — |
|
| $ | 1,213 |
|
| $ | 2,599 |
|
Consumer mortgage |
| 4 |
|
| 4 |
| | 6 |
| | 73 |
|
| 3 |
|
| 2 |
|
Commercial |
| 28 |
|
| — |
| | 28 |
| | — |
| |
Total sales and transfers |
| $ | 1,592 |
|
| $ | 4 |
| | $ | 4,193 |
| | $ | 73 |
|
| $ | 1,216 |
|
| $ | 2,601 |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following table presents information about significant purchases of finance receivables and loans.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
($ in millions) | | 2016 | | 2015 | | 2016 | | 2015 | | 2017 | | 2016 |
Consumer automotive |
| $ | — |
|
| $ | — |
| | $ | — |
| | $ | — |
|
| $ | 68 |
|
| $ | — |
|
Consumer mortgage |
| 1,018 |
|
| 1,996 |
| | 2,388 |
| | 2,650 |
|
| 327 |
|
| 1,370 |
|
Total purchases of finance receivables and loans |
| $ | 1,018 |
| | $ | 1,996 |
| | $ | 2,388 |
| | $ | 2,650 |
|
| $ | 395 |
| | $ | 1,370 |
|
The following table presents an analysis of our past due finance receivables and loans recorded at gross carrying value.
| | ($ in millions) | | 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 | |
June 30, 2016 | | | | | | | | | | | | | |
($ in millions) | | | 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 |
March 31, 2017 | | | | | | | | | | | | | |
Consumer automotive | | $ | 1,438 |
| | $ | 307 |
| | $ | 226 |
| | $ | 1,971 |
| | $ | 61,310 |
| | $ | 63,281 |
| | $ | 1,346 |
| | $ | 308 |
| | $ | 263 |
| | $ | 1,917 |
| | $ | 63,746 |
| | $ | 65,663 |
|
Consumer mortgage | | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage Finance | | 49 |
| | 5 |
| | 8 |
| | 62 |
| | 7,947 |
| | 8,009 |
| | 30 |
| | 2 |
| | 7 |
| | 39 |
| | 8,292 |
| | 8,331 |
|
Mortgage — Legacy | | 47 |
| | 12 |
| | 62 |
| | 121 |
| | 2,954 |
| | 3,075 |
| | 33 |
| | 14 |
| | 57 |
| | 104 |
| | 2,502 |
| | 2,606 |
|
Total consumer mortgage | | 96 |
| | 17 |
| | 70 |
| | 183 |
| | 10,901 |
| | 11,084 |
| | 63 |
| | 16 |
| | 64 |
| | 143 |
| | 10,794 |
| | 10,937 |
|
Total consumer | | 1,534 |
| | 324 |
| | 296 |
| | 2,154 |
| | 72,211 |
| | 74,365 |
| | 1,409 |
| | 324 |
| | 327 |
| | 2,060 |
| | 74,540 |
| | 76,600 |
|
Commercial | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | | | | | | | | | | | | | |
Automotive | | — |
| | — |
| | — |
| | — |
| | 31,640 |
| | 31,640 |
| | — |
| | — |
| | 6 |
| | 6 |
| | 34,905 |
| | 34,911 |
|
Other | | — |
| | — |
| | — |
| | — |
| | 3,037 |
| | 3,037 |
| | — |
| | — |
| | — |
| | — |
| | 3,499 |
| | 3,499 |
|
Commercial real estate — Automotive | | — |
| | — |
| | — |
| | — |
| | 3,611 |
| | 3,611 |
| | — |
| | — |
| | — |
| | — |
| | 3,992 |
| | 3,992 |
|
Total commercial | | — |
|
| — |
|
| — |
|
| — |
|
| 38,288 |
|
| 38,288 |
| | — |
|
| — |
|
| 6 |
|
| 6 |
|
| 42,396 |
|
| 42,402 |
|
Total consumer and commercial | | $ | 1,534 |
|
| $ | 324 |
|
| $ | 296 |
|
| $ | 2,154 |
|
| $ | 110,499 |
|
| $ | 112,653 |
| | $ | 1,409 |
|
| $ | 324 |
|
| $ | 333 |
|
| $ | 2,066 |
|
| $ | 116,936 |
|
| $ | 119,002 |
|
December 31, 2015 | | | | | | | | | | | | | |
December 31, 2016 | | | | | | | | | | | | | |
Consumer automotive | | $ | 1,618 |
| | $ | 369 |
| | $ | 222 |
| | $ | 2,209 |
| | $ | 62,083 |
| | $ | 64,292 |
| | $ | 1,850 |
| | $ | 428 |
| | $ | 302 |
| | $ | 2,580 |
| | $ | 63,213 |
| | $ | 65,793 |
|
Consumer mortgage | | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage Finance | | 44 |
| | 5 |
| | 10 |
| | 59 |
| | 6,354 |
| | 6,413 |
| | 39 |
| | 6 |
| | 4 |
| | 49 |
| | 8,245 |
| | 8,294 |
|
Mortgage — Legacy | | 53 |
| | 20 |
| | 73 |
| | 146 |
| | 3,214 |
| | 3,360 |
| | 45 |
| | 18 |
| | 57 |
| | 120 |
| | 2,636 |
| | 2,756 |
|
Total consumer mortgage | | 97 |
| | 25 |
| | 83 |
| | 205 |
| | 9,568 |
| | 9,773 |
| | 84 |
| | 24 |
| | 61 |
| | 169 |
| | 10,881 |
| | 11,050 |
|
Total consumer | | 1,715 |
| | 394 |
| | 305 |
| | 2,414 |
| | 71,651 |
| | 74,065 |
| | 1,934 |
| | 452 |
| | 363 |
| | 2,749 |
| | 74,094 |
| | 76,843 |
|
Commercial | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | | | | | | | | | | | | | |
Automotive | | — |
| | — |
| | — |
| | — |
| | 31,469 |
| | 31,469 |
| | 3 |
| | — |
| | 7 |
| | 10 |
| | 35,031 |
| | 35,041 |
|
Other | | — |
| | — |
| | — |
| | — |
| | 2,640 |
| | 2,640 |
| | — |
| | — |
| | — |
| | — |
| | 3,248 |
| | 3,248 |
|
Commercial real estate — Automotive | | — |
| | — |
| | — |
| | — |
| | 3,426 |
| | 3,426 |
| | — |
| | — |
| | — |
| | — |
| | 3,812 |
| | 3,812 |
|
Total commercial | | — |
|
| — |
|
| — |
|
| — |
|
| 37,535 |
|
| 37,535 |
| | 3 |
|
| — |
|
| 7 |
|
| 10 |
|
| 42,091 |
|
| 42,101 |
|
Total consumer and commercial | | $ | 1,715 |
|
| $ | 394 |
|
| $ | 305 |
|
| $ | 2,414 |
|
| $ | 109,186 |
|
| $ | 111,600 |
| | $ | 1,937 |
|
| $ | 452 |
|
| $ | 370 |
|
| $ | 2,759 |
|
| $ | 116,185 |
|
| $ | 118,944 |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following table presents the gross carrying value of our finance receivables and loans on nonaccrual status.
| | ($ in millions) | | June 30, 2016 | | December 31, 2015 | |
($ in millions) | | | March 31, 2017 | | December 31, 2016 |
Consumer automotive | | $ | 505 |
| | $ | 475 |
| | $ | 573 |
| | $ | 598 |
|
Consumer mortgage | | | | | | | | |
Mortgage Finance | | 12 |
| | 15 |
| | 10 |
| | 10 |
|
Mortgage — Legacy | | 95 |
| | 113 |
| | 95 |
| | 89 |
|
Total consumer mortgage | | 107 |
| | 128 |
| | 105 |
| | 99 |
|
Total consumer | | 612 |
| | 603 |
| | 678 |
| | 697 |
|
Commercial | | | | | | | | |
Commercial and industrial | | | | | | | | |
Automotive | | 51 |
| | 25 |
| | 34 |
| | 33 |
|
Other | | 64 |
| | 44 |
| | 81 |
| | 84 |
|
Commercial real estate — Automotive | | 7 |
| | 8 |
| | 5 |
| | 5 |
|
Total commercial | | 122 |
| | 77 |
| | 120 |
| | 122 |
|
Total consumer and commercial finance receivables and loans | | $ | 734 |
|
| $ | 680 |
| | $ | 798 |
|
| $ | 819 |
|
Management performs a quarterly analysis of the consumer automotive, consumer mortgage, and commercial portfolios using a range of credit quality indicators to assess the adequacy of the allowance for loan losses based on historical and current trends. The following tables present the population of loans by quality indicators for our consumer automotive, consumer mortgage, and commercial portfolios.
The following table presents performing and nonperforming credit quality indicators in accordance with our internal accounting policies for our consumer finance receivables and loans recorded at gross carrying value. Nonperforming loans include finance receivables and loans on nonaccrual status when the principal or interest has been delinquent for 90 days or when full collection is not expected. Refer to Note 1 to the Annual Consolidated Financial Statements in our 2016 Annual Report on Form 10-K for additional information.
| | | | June 30, 2016 | | December 31, 2015 | | March 31, 2017 | | December 31, 2016 |
($ in millions) | | Performing | | Nonperforming | | Total | | Performing | | Nonperforming | | Total | |
($ in millions) | | | Performing | | Nonperforming | | Total | | Performing | | Nonperforming | | Total |
Consumer automotive | | $ | 62,776 |
| | $ | 505 |
| | $ | 63,281 |
| | $ | 63,817 |
| | $ | 475 |
| | $ | 64,292 |
| | $ | 65,090 |
| | $ | 573 |
| | $ | 65,663 |
| | $ | 65,195 |
| | $ | 598 |
| | $ | 65,793 |
|
Consumer mortgage | | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage Finance | | 7,997 |
| | 12 |
| | 8,009 |
| | 6,398 |
| | 15 |
| | 6,413 |
| | 8,321 |
| | 10 |
| | 8,331 |
| | 8,284 |
| | 10 |
| | 8,294 |
|
Mortgage — Legacy | | 2,980 |
| | 95 |
| | 3,075 |
| | 3,247 |
| | 113 |
| | 3,360 |
| | 2,511 |
| | 95 |
| | 2,606 |
| | 2,667 |
| | 89 |
| | 2,756 |
|
Total consumer mortgage | | 10,977 |
| | 107 |
| | 11,084 |
| | 9,645 |
| | 128 |
| | 9,773 |
| | 10,832 |
| | 105 |
| | 10,937 |
| | 10,951 |
| | 99 |
| | 11,050 |
|
Total consumer | | $ | 73,753 |
| | $ | 612 |
| | $ | 74,365 |
| | $ | 73,462 |
| | $ | 603 |
| | $ | 74,065 |
| | $ | 75,922 |
| | $ | 678 |
| | $ | 76,600 |
| | $ | 76,146 |
| | $ | 697 |
| | $ | 76,843 |
|
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.
| | | | June 30, 2016 | | December 31, 2015 | | March 31, 2017 | | December 31, 2016 |
($ in millions) | | Pass | | Criticized (a) | | Total | | Pass | | Criticized (a) | | Total | |
($ in millions) | | | Pass | | Criticized (a) | | Total | | Pass | | Criticized (a) | | Total |
Commercial and industrial | | | | | | | | | | | | | | | | | | | | | | | | |
Automotive | | $ | 29,638 |
| | $ | 2,002 |
| | $ | 31,640 |
| | $ | 29,613 |
| | $ | 1,856 |
| | $ | 31,469 |
| | $ | 32,878 |
| | $ | 2,033 |
| | $ | 34,911 |
| | $ | 33,160 |
| | $ | 1,881 |
| | $ | 35,041 |
|
Other | | 2,354 |
| | 683 |
| | 3,037 |
| | 2,122 |
| | 518 |
| | 2,640 |
| | 2,814 |
| | 685 |
| | 3,499 |
| | 2,597 |
| | 651 |
| | 3,248 |
|
Commercial real estate — Automotive | | 3,445 |
| | 166 |
| | 3,611 |
| | 3,265 |
| | 161 |
| | 3,426 |
| | 3,816 |
| | 176 |
| | 3,992 |
| | 3,653 |
| | 159 |
| | 3,812 |
|
Total commercial | | $ | 35,437 |
| | $ | 2,851 |
| | $ | 38,288 |
|
| $ | 35,000 |
| | $ | 2,535 |
| | $ | 37,535 |
| | $ | 39,508 |
| | $ | 2,894 |
| | $ | 42,402 |
|
| $ | 39,410 |
| | $ | 2,691 |
| | $ | 42,101 |
|
| |
(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. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
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 to the Annual Consolidated Financial Statements.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. •in our 2016 Annual Report on Form 10-Q
10-K.
The following table presents information about our impaired finance receivables and loans.
| | ($ in millions) | | Unpaid principal balance (a) | | Gross carrying value | | Impaired with no allowance | | Impaired with an allowance | | Allowance for impaired loans | | Unpaid principal balance (a) | | Gross carrying value | | Impaired with no allowance | | Impaired with an allowance | | Allowance for impaired loans |
June 30, 2016 | | | | | | | | | | | |
March 31, 2017 | | | | | | | | | | | |
Consumer automotive | | $ | 378 |
| | $ | 348 |
| | $ | 121 |
| | $ | 227 |
| | $ | 26 |
| | $ | 422 |
| | $ | 388 |
| | $ | 124 |
| | $ | 264 |
| | $ | 32 |
|
Consumer mortgage | | | | | | | | | | | | | | | | | | | | |
Mortgage Finance | | 8 |
| | 8 |
| | 3 |
| | 5 |
| | — |
| | 8 |
| | 8 |
| | 4 |
| | 4 |
| | — |
|
Mortgage — Legacy | | 250 |
| | 246 |
| | 56 |
| | 190 |
| | 37 |
| | 245 |
| | 241 |
| | 56 |
| | 185 |
| | 33 |
|
Total consumer mortgage | | 258 |
| | 254 |
| | 59 |
| | 195 |
| | 37 |
| | 253 |
| | 249 |
| | 60 |
| | 189 |
| | 33 |
|
Total consumer | | 636 |
| | 602 |
| | 180 |
| | 422 |
| | 63 |
| | 675 |
| | 637 |
| | 184 |
| | 453 |
| | 65 |
|
Commercial | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | | | | | | | | | |
Automotive | | 51 |
| | 51 |
| | 9 |
| | 42 |
| | 3 |
| | 34 |
| | 34 |
| | 7 |
| | 27 |
| | 2 |
|
Other | | 77 |
| | 64 |
| | — |
| | 64 |
| | 17 |
| | 98 |
| | 81 |
| | 19 |
| | 62 |
| | 21 |
|
Commercial real estate — Automotive | | 7 |
| | 7 |
| | 1 |
| | 6 |
| | 3 |
| | 5 |
| | 5 |
| | — |
| | 5 |
| | 1 |
|
Total commercial | | 135 |
| | 122 |
| | 10 |
| | 112 |
| | 23 |
| | 137 |
| | 120 |
| | 26 |
| | 94 |
| | 24 |
|
Total consumer and commercial finance receivables and loans | | $ | 771 |
|
| $ | 724 |
|
| $ | 190 |
|
| $ | 534 |
|
| $ | 86 |
| | $ | 812 |
|
| $ | 757 |
|
| $ | 210 |
|
| $ | 547 |
|
| $ | 89 |
|
December 31, 2015 | | | | | | | | | | | |
December 31, 2016 | | | | | | | | | | | |
Consumer automotive | | $ | 315 |
| | $ | 315 |
| | $ | — |
| | $ | 315 |
| | $ | 22 |
| | $ | 407 |
| | $ | 370 |
| | $ | 131 |
| | $ | 239 |
| | $ | 28 |
|
Consumer mortgage | | | | | | | | | | | | | | | | | | | | |
Mortgage Finance | | 9 |
| | 9 |
| | 5 |
| | 4 |
| | 1 |
| | 8 |
| | 8 |
| | 3 |
| | 5 |
| | — |
|
Mortgage — Legacy | | 260 |
| | 257 |
| | 59 |
| | 198 |
| | 43 |
| | 243 |
| | 239 |
| | 56 |
| | 183 |
| | 34 |
|
Total consumer mortgage | | 269 |
| | 266 |
| | 64 |
| | 202 |
| | 44 |
| | 251 |
| | 247 |
| | 59 |
| | 188 |
| | 34 |
|
Total consumer | | 584 |
| | 581 |
| | 64 |
| | 517 |
| | 66 |
| | 658 |
| | 617 |
| | 190 |
| | 427 |
| | 62 |
|
Commercial | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | | | | | | | | | |
Automotive | | 25 |
| | 25 |
| | 4 |
| | 21 |
| | 3 |
| | 33 |
| | 33 |
| | 7 |
| | 26 |
| | 3 |
|
Other | | 44 |
| | 44 |
| | — |
| | 44 |
| | 15 |
| | 99 |
| | 84 |
| | — |
| | 84 |
| | 19 |
|
Commercial real estate — Automotive | | 8 |
| | 8 |
| | 1 |
| | 7 |
| | 2 |
| | 5 |
| | 5 |
| | 2 |
| | 3 |
| | 1 |
|
Total commercial | | 77 |
| | 77 |
| | 5 |
| | 72 |
| | 20 |
| | 137 |
| | 122 |
| | 9 |
| | 113 |
| | 23 |
|
Total consumer and commercial finance receivables and loans | | $ | 661 |
|
| $ | 658 |
|
| $ | 69 |
|
| $ | 589 |
|
| $ | 86 |
| | $ | 795 |
|
| $ | 739 |
|
| $ | 199 |
|
| $ | 540 |
|
| $ | 85 |
|
| |
(a) | Adjusted for charge-offs. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following tables presenttable presents average balance and interest income for our impaired finance receivables and loans.
|
| | | | | | | | | | | | | | | | |
| | 2016 | | 2015 |
Three months ended June 30, ($ in millions) | | Average balance | | Interest income | | Average balance | | Interest income |
Consumer automotive | | $ | 341 |
| | $ | 4 |
| | $ | 285 |
| | $ | 5 |
|
Consumer mortgage | | | | | | | | |
Mortgage Finance | | 8 |
| | — |
| | 7 |
| | — |
|
Mortgage — Legacy | | 251 |
| | 3 |
| | 252 |
| | 2 |
|
Total consumer mortgage | | 259 |
| | 3 |
| | 259 |
| | 2 |
|
Total consumer | | 600 |
| | 7 |
| | 544 |
| | 7 |
|
Commercial | | | | | | | | |
Commercial and industrial | | | | | | | | |
Automotive | | 35 |
| | — |
| | 41 |
| | 1 |
|
Other | | 65 |
| | — |
| | 31 |
| | — |
|
Commercial real estate — Automotive | | 6 |
| | — |
| | 5 |
| | — |
|
Total commercial | | 106 |
| | — |
| | 77 |
| | 1 |
|
Total consumer and commercial finance receivables and loans | | $ | 706 |
|
| $ | 7 |
|
| $ | 621 |
|
| $ | 8 |
|
| | | | 2016 | | 2015 | | 2017 | | 2016 |
Six months ended June 30, ($ in millions) | | Average balance | | Interest income | | Average balance | | Interest income | |
Three months ended March 31, ($ in millions) | | | Average balance | | Interest income | | Average balance | | Interest income |
Consumer automotive | | $ | 335 |
| | $ | 8 |
| | $ | 287 |
| | $ | 9 |
| | $ | 379 |
| | $ | 5 |
| | $ | 326 |
| | $ | 4 |
|
Consumer mortgage | | | | | | | | | | | | | | | | |
Mortgage Finance | | 8 |
| | — |
| | 7 |
| | — |
| | 8 |
| | — |
| | 9 |
| | — |
|
Mortgage — Legacy | | 253 |
| | 5 |
| | 282 |
| | 4 |
| | 241 |
| | 2 |
| | 255 |
| | 2 |
|
Total consumer mortgage | | 261 |
| | 5 |
| | 289 |
| | 4 |
| | 249 |
| | 2 |
| | 264 |
| | 2 |
|
Total consumer | | 596 |
| | 13 |
| | 576 |
| | 13 |
| | 628 |
| | 7 |
| | 590 |
| | 6 |
|
Commercial | |
|
| |
|
| |
|
| |
|
| | | | | | | | |
Commercial and industrial | |
|
| |
|
| |
|
| |
|
| | | | | | | | |
Automotive | | 32 |
| | — |
| | 38 |
| | 1 |
| | 33 |
| | — |
| | 23 |
| | — |
|
Other | | 56 |
| | 1 |
| | 37 |
| | 3 |
| | 83 |
| | — |
| | 49 |
| | 1 |
|
Commercial real estate — Automotive | | 7 |
| | — |
| | 5 |
| | — |
| | 5 |
| | — |
| | 6 |
| | — |
|
Total commercial | | 95 |
|
| 1 |
|
| 80 |
|
| 4 |
| | 121 |
| | — |
| | 78 |
| | 1 |
|
Total consumer and commercial finance receivables and loans | | $ | 691 |
|
| $ | 14 |
|
| $ | 656 |
|
| $ | 17 |
| | $ | 749 |
|
| $ | 7 |
|
| $ | 668 |
|
| $ | 7 |
|
Troubled Debt Restructurings
Troubled Debt Restructurings (TDRs) are loan modifications where concessions were granted to borrowers experiencing financial difficulties. For automotive loans, we may offer several types of assistance to aid our customers, including extension of the loan maturity date and rewriting the loan terms. Additionally, for mortgage loans, as part of our participation in certain governmental programs, we offer mortgage loan modifications to qualified borrowers. Numerous initiatives 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. Additionally, for automotive loans, we may offer several types of assistance to aid our customers, including extension of the loan maturity date and rewriting the loan terms. Total TDRs recorded at gross carrying value were $644704 million and $625$663 million at June 30, 2016March 31, 2017, and December 31, 20152016, respectively. Commercial commitments to lend additional funds to borrowers owing receivables whose terms had been modified in a TDR were $3 million and $2 million at both June 30, 2016,March 31, 2017, and December 31, 2015.2016, respectively. Refer to Note 1 to the Annual Consolidated Financial Statements in our 2016 Annual Report on Form 10-K for additional information.
The following table presents information related to finance receivables and loans recorded at gross carrying value modified in connection with a TDR during the period.
|
| | | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2016 |
Three months ended March 31, ($ in millions) | Number of loans | | Pre-modification gross carrying value | | Post-modification gross carrying value | | Number of loans | | Pre-modification gross carrying value | | Post-modification gross carrying value |
Consumer automotive | 6,447 |
| | $ | 115 |
| | $ | 99 |
| | 5,622 |
| | $ | 89 |
| | $ | 76 |
|
Consumer mortgage | | | | | | | | | | | |
Mortgage Finance | 1 |
| | — |
| | — |
| | 1 |
| | 1 |
| | 1 |
|
Mortgage — Legacy | 53 |
| | 12 |
| | 12 |
| | 31 |
| | 4 |
| | 4 |
|
Total consumer mortgage | 54 |
| | 12 |
| | 12 |
| | 32 |
| | 5 |
| | 5 |
|
Total consumer | 6,501 |
| | 127 |
| | 111 |
| | 5,654 |
| | 94 |
| | 81 |
|
Commercial | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | |
Automotive | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other | 1 |
| | 23 |
| | 23 |
| | — |
| | — |
| | — |
|
Commercial real estate — Automotive | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total commercial | 1 |
| | 23 |
| | 23 |
| | — |
| | — |
| | — |
|
Total consumer and commercial finance receivables and loans | 6,502 |
| | $ | 150 |
| | $ | 134 |
| | 5,654 |
| | $ | 94 |
| | $ | 81 |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
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. |
| | | | | | | | | | | | | | | | | | | | | | |
|
| 2016 |
| 2015 |
Three months ended June 30, ($ in millions) |
| Number of loans | | Pre-modification gross carrying value | | Post-modification gross carrying value | | Number of loans |
| Pre-modification gross carrying value |
| Post-modification gross carrying value |
Consumer automotive |
| 4,767 |
|
| $ | 79 |
|
| $ | 68 |
|
| 4,096 |
|
| $ | 64 |
|
| $ | 54 |
|
Consumer mortgage |
| | | | | |
| | | | | |
Mortgage Finance |
| 2 |
|
| 1 |
|
| 1 |
|
| — |
|
| — |
|
| — |
|
Mortgage — Legacy |
| 26 |
|
| 4 |
|
| 4 |
|
| 76 |
|
| 22 |
|
| 21 |
|
Total consumer mortgage |
| 28 |
|
| 5 |
|
| 5 |
|
| 76 |
|
| 22 |
|
| 21 |
|
Total consumer |
| 4,795 |
|
| 84 |
|
| 73 |
|
| 4,172 |
|
| 86 |
|
| 75 |
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Other |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Commercial real estate — Automotive |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total commercial |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total consumer and commercial finance receivables and loans |
| 4,795 |
|
| $ | 84 |
|
| $ | 73 |
|
| 4,172 |
|
| $ | 86 |
|
| $ | 75 |
|
|
| | | | | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 |
Six months ended June 30, ($ in millions) | | Number of loans | | Pre-modification gross carrying value | | Post-modification gross carrying value | | Number of loans | | Pre-modification gross carrying value | | Post-modification gross carrying value |
Consumer automotive | | 10,389 |
| | $ | 168 |
| | $ | 144 |
| | 8,151 |
| | $ | 127 |
| | $ | 107 |
|
Consumer mortgage | | | | | | | | | | | | |
Mortgage Finance | | 3 |
| | 2 |
| | 2 |
| | 2 |
| | 1 |
| | 1 |
|
Mortgage — Legacy | | 57 |
| | 8 |
| | 8 |
| | 114 |
| | 28 |
| | 26 |
|
Total consumer mortgage | | 60 |
| | 10 |
| | 10 |
| | 116 |
| | 29 |
| | 27 |
|
Total consumer | | 10,449 |
| | 178 |
| | 154 |
| | 8,267 |
| | 156 |
| | 134 |
|
Commercial | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Commercial and industrial | | | | | | | | | | | | |
Automotive | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Commercial real estate — Automotive | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total commercial | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total consumer and commercial finance receivables and loans | | 10,449 |
| | $ | 178 |
| | $ | 154 |
| | 8,267 |
| | $ | 156 |
| | $ | 134 |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following tables presenttable 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 to the Annual Consolidated Financial Statements in our 2016 Annual Report on Form 10-K for additional information) except for commercial finance receivables and loans, where redefault is defined as 90 days past due.
|
| | | | | | | | | | | | | | | | | | | | | | |
|
| 2016 |
| 2015 |
Three months ended June 30, ($ in millions) |
| Number of loans |
| Gross carrying value |
| Charge-off amount |
| Number of loans |
| Gross carrying value |
| Charge-off amount |
Consumer automotive |
| 1,858 |
|
| $ | 23 |
|
| $ | 13 |
|
| 1,499 |
|
| $ | 18 |
|
| $ | 10 |
|
Consumer mortgage |
| | | | | | | | | | | |
Mortgage Finance |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Mortgage — Legacy |
| 2 |
|
| — |
|
| — |
|
| 3 |
|
| — |
|
| — |
|
Total consumer finance receivables and loans |
| 1,860 |
|
| $ | 23 |
|
| $ | 13 |
|
| 1,502 |
|
| $ | 18 |
|
| $ | 10 |
|
| | | | 2016 | | 2015 | | 2017 | | 2016 |
Six months ended June 30, ($ in millions) | | Number of loans | | Gross carrying value | | Charge-off amount | | Number of loans | | Gross carrying value | | Charge-off amount | |
Three months ended March 31, ($ in millions) | | | Number of loans | | Gross carrying value | | Charge-off amount | | Number of loans | | Gross carrying value | | Charge-off amount |
Consumer automotive | | 3,658 |
| | $ | 46 |
| | $ | 25 |
| | 3,080 |
| | $ | 37 |
| | $ | 21 |
| | 1,989 |
| | $ | 24 |
| | $ | 16 |
| | 1,800 |
| | $ | 23 |
| | $ | 12 |
|
Consumer mortgage | | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage Finance | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | 1 |
| | — |
| | — |
| | — |
| | — |
|
Mortgage — Legacy | | 3 |
| | — |
| | — |
| | 7 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
|
Total consumer finance receivables and loans | | 3,661 |
| | $ | 46 |
| | $ | 25 |
| | 3,087 |
| | $ | 37 |
| | $ | 21 |
| | 1,990 |
| | $ | 25 |
| | $ | 16 |
| | 1,801 |
| | $ | 23 |
| | $ | 12 |
|
8.9. Investment in Operating Leases, Net
Investments in operating leases were as follows.
| | ($ in millions) | | June 30, 2016 | | December 31, 2015 | | March 31, 2017 | | December 31, 2016 |
Vehicles | | $ | 17,418 |
| | $ | 20,211 |
| | $ | 13,240 |
| | $ | 14,584 |
|
Accumulated depreciation | | (3,663 | ) | | (3,940 | ) | | (2,779 | ) | | (3,114 | ) |
Investment in operating leases, net | | $ | 13,755 |
| | $ | 16,271 |
| | $ | 10,461 |
| | $ | 11,470 |
|
Depreciation expense on operating lease assets includes remarketing gains and losses recognized on the sale of operating lease assets.The following summarizes the components of depreciation expense on operating lease assets.
| | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
($ in millions) | 2016 | | 2015 | | 2016 | | 2015 | | 2017 | | 2016 |
Depreciation expense on operating lease assets (excluding remarketing gains) | $ | 520 |
| | $ | 671 |
| | $ | 1,085 |
| | $ | 1,363 |
| |
Remarketing gains | (86 | ) | | (108 | ) | | (141 | ) | | (178 | ) | |
Depreciation expense on operating lease assets (excluding remarketing gains and losses) | | | $ | 386 |
| | $ | 565 |
|
Remarketing losses (gains) | | | 3 |
| | (55 | ) |
Net depreciation expense on operating lease assets | $ | 434 |
| | $ | 563 |
| | $ | 944 |
| | $ | 1,185 |
| | $ | 389 |
| | $ | 510 |
|
9.10. Securitizations and Variable Interest Entities
We are involved in several types of securitization and financing transactions that utilize special-purpose entities (SPEs). A SPE is an entity that is designed to fulfill a specified limited need of the sponsor. Our principal use of SPEs is to obtain liquidity by securitizing certain of our financial assets and operating lease assets.
The transaction-specific SPEs involved in our securitization and other financing transactions are often considered VIEs. VIEs are entities that have either a total equity investment at risk that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors at risk lack the ability to control the entity's activities.
We provide a wide range of consumer and commercial automotive loans, operating leases, and commercial loans to a diverse customer base. We securitize consumer and commercial automotive loans, and operating leases through private-label securitizations. We often securitize these loans and notes secured by operating leases (collectively referred to as financial assets) through the use of securitization entities, which may or may not be consolidated on our Condensed Consolidated Balance Sheet.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
financial assets into nonconsolidated consumer automotive securitization trusts was $2 million for the three months ended March 31, 2017. There was no pretax gain or loss for the three months endedMarch 31, 2016.
We provide long-term guarantee contracts to investors in certain nonconsolidated affordable housing entities and have extended a line of credit to provide liquidity and minimize our exposure under these contracts.liquidity. Since we do not have control over the entities or the power to make decisions, we do not consolidate the entities and our involvement is limited to the guarantee and the line of credit.
We have involvement with various other nonconsolidated equity investments, including affordable housing entities and venture capital funds and loan funds. We do not consolidate these entities and our involvement is limited to our outstanding investment, additional capital committed to these funds plus any previously recognized low income housing tax credits that are subject to recapture.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Refer to Note 1011 to the Annual Consolidated Financial Statements included in our 2016 Annual Report on Form 10-K for further description of our securitization activities and our involvement with VIEs.
OurThe following table presents our involvement within consolidated and nonconsolidated VIEs in which we hold variable interests is presented below.interests. For additional detail related to the assets and liabilities of consolidated variable interest entities refer to the Condensed Consolidated Balance Sheet.
| | ($ in millions) | | Involvement with VIEs | Assets of nonconsolidated VIEs (a) | Maximum exposure to loss in nonconsolidated VIEs | | Carrying value of total assets | Carrying value of total liabilities | Assets sold to nonconsolidated VIEs (a) | | Maximum exposure to loss in nonconsolidated VIEs |
June 30, 2016 | | | | | | | | |
March 31, 2017 | | | | | | | | | | |
On-balance sheet variable interest entities | | | | | | | | | | | | | | | | |
Consumer automotive | | $ | 24,557 |
| (b) | | | | | | $ | 19,632 |
| (b) | $ | 8,298 |
| (c) | | | | |
Commercial automotive | | 15,791 |
| | | | | | | 14,113 |
| | 5,109 |
| | | | | |
Off-balance sheet variable interest entities | | | | | | | | | | | | | | | | |
Consumer automotive | | 24 |
| | $ | 3,727 |
| (c) | $ | 3,751 |
| (d) | | 79 |
| (d) | — |
| | $ | 3,571 |
| | $ | 3,650 |
| (e) |
Commercial other | | 246 |
| (e) | — |
| (c) | 537 |
| (f) | | 505 |
| (f) | 205 |
| (g) | — |
| | 695 |
| (h) |
Total | | $ | 40,618 |
| | $ | 3,727 |
| | $ | 4,288 |
| | | $ | 34,329 |
| | $ | 13,612 |
| | $ | 3,571 |
| | $ | 4,345 |
| |
December 31, 2015 | | | | | | | | |
December 31, 2016 | | | | | | | | | | |
On-balance sheet variable interest entities | | | | | | | | | | | | | | | | |
Consumer automotive | | $ | 27,967 |
| (b) | | | | | | $ | 20,869 |
| (b) | $ | 8,557 |
| (c) | | | | |
Commercial automotive | | 16,763 |
| | | | | | | 16,278 |
| | 4,764 |
| | | | | |
Off-balance sheet variable interest entities | | | | | | | | | | | | | | | | |
Consumer automotive | | — |
| | $ | 3,034 |
| | $ | 3,034 |
| (d) | | 24 |
| (d) | — |
| | $ | 2,899 |
| | $ | 2,923 |
| (e) |
Commercial other | | 210 |
| (e) | — |
| (c) | 493 |
| (f) | | 460 |
| (f) | 169 |
| (g) | — |
| | 651 |
| (h) |
Total | | $ | 44,940 |
| | $ | 3,034 |
| | $ | 3,527 |
| | | $ | 37,631 |
| | $ | 13,490 |
| | $ | 2,899 |
| | $ | 3,574 |
| |
| |
(a) | Asset values represent the current unpaid principal balance of outstanding consumer finance receivables and loans within the VIEs. |
| |
(b) | Includes $10.0$9.2 billion and $10.6$9.6 billion of assets that are not encumbered by VIE beneficial interests held by third parties at June 30, 2016,March 31, 2017, and December 31, 2015,2016, respectively. Ally or consolidated affiliates hold the interests in these assets, which eliminate in consolidation. |
| |
(c) | Includes VIEs for which we have no management oversight$64 million and therefore we$50 million of liabilities due to consolidated affiliates at March 31, 2017, and December 31, 2016, respectively. These liabilities are not ableobligations to provide the total assetsthird-party beneficial interest holders. These liabilities are secured by a portion of the VIEs.unencumbered assets and eliminate in consolidation. |
| |
(d) | Includes $52 million classified as held-to-maturity securities and $27 million classified as other assets at March 31, 2017. Of the total amount at March 31, 2017, $53 million represents retained notes and certificated residual interests. These assets represent our compliance with the risk retention rules under the Dodd-Frank Act, requiring us to retain at least five percent of the credit risk of the assets underlying asset-backed securitizations, which became effective on December 24, 2016. Amounts at December 31, 2016, are classified as other assets. |
| |
(e) | Maximum exposure to loss represents the current unpaid principal balance of outstanding loans, based on our customary representation and warranty provisions andretained 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 theour sold loans have underwriting defects or other defects that would trigger a representation and warranty provision and the underlying collateral supporting the loans arebecomes worthless. This required disclosure is not an indication of our expected loss. |
| |
(e)(f) | Includes $254 million and $222 millionAmounts are classified as other assets, offset by $8 million and $12 millionassets. |
| |
(g) | Amounts are classified as accrued expenses and other liabilities at June 30, 2016, and December 31, 2015, respectively.liabilities. |
| |
(f)(h) | For certain nonconsolidated affordable housing entities, maximum exposure to loss represents the yield we guaranteed investors through long termlong-term guarantee contracts. The amount disclosed is based on the unlikely event that the underlying properties cease generating yield to investors and the yield delivered to investors in the form of low income tax housing credits is recaptured. For nonconsolidated equity investments, maximum exposure to loss represents our outstanding investment, additional committed capital, and low income housing tax credits subject to recapture. The amount disclosed is based on the unlikely event that our committed capital is funded, our investments become worthless, and the tax credits previously delivered to us are recaptured. This required disclosure is not an indication of our expected loss. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Cash Flows with Off-balance Sheet Securitization Entities
The following table summarizes cash flows received and paid related to securitization entities and asset-backed financings where the transfer is accounted for as a sale and we have a continuing involvement with the transferred assets (e.g., servicing) that were outstanding during the sixthree months ended June 30, 2016,March 31, 2017, and 20152016. Additionally, this table contains information regarding cash flows received from and paid to nonconsolidated securitization entities that existed during each period.
| | Six months ended June 30, ($ in millions) | | Consumer automotive | |
Three months ended March 31, ($ in millions) | | | Consumer automotive |
2017 | |
|
|
Cash proceeds from transfers completed during the period | |
| $ | 1,138 |
|
Servicing fees | |
| 9 |
|
Other cash flows | |
| 2 |
|
2016 |
|
|
|
|
Cash proceeds from transfers completed during the period |
| $ | 1,604 |
|
| $ | 1,025 |
|
Servicing fees |
| 17 |
|
| 8 |
|
Other cash flows |
| 5 |
| | 2 |
|
2015 |
|
| |
Servicing fees |
| $ | 13 |
| |
Delinquencies and Net Credit Losses
The following tables represent on-balance sheet loans held-for-sale and finance receivablereceivables and loans, off-balance sheet securitizations, and whole-loan sales where we have continuing involvement. The tables present quantitative information about delinquencies and net credit losses.
| |
| | Total Amount | | Amount 60 days or more past due | | Total Amount | | Amount 60 days or more past due |
($ in millions) | | June 30, 2016 | | December 31, 2015 | | June 30, 2016 | | December 31, 2015 | | March 31, 2017 | | December 31, 2016 | | March 31, 2017 | | December 31, 2016 |
On-balance sheet loans | | | | | | | | | | | | | | | | |
Consumer automotive | | $ | 63,281 |
| | $ | 64,292 |
| | $ | 533 |
| | $ | 591 |
| | $ | 65,663 |
| | $ | 65,793 |
| | $ | 571 |
| | $ | 730 |
|
Consumer mortgage | | 11,084 |
| | 9,773 |
| | 87 |
| | 108 |
| | 10,938 |
| | 11,050 |
| | 80 |
| | 85 |
|
Commercial automotive | | 35,251 |
| | 34,895 |
| | — |
| | — |
| | 38,903 |
| | 38,853 |
| | 6 |
| | 7 |
|
Commercial other | | 3,052 |
| | 2,745 |
| | — |
| | — |
| | 3,499 |
| | 3,248 |
| | — |
| | — |
|
Total on-balance sheet loans | | 112,668 |
| | 111,705 |
| | 620 |
| | 699 |
| | 119,003 |
| | 118,944 |
| | 657 |
| | 822 |
|
Off-balance sheet securitization entities | | | | | | | | | | | | | | | | |
Consumer automotive | | 3,220 |
| | 2,529 |
| | 11 |
| | 9 |
| | 3,067 |
| | 2,392 |
| | 12 |
| | 13 |
|
Total off-balance sheet securitization entities | | 3,220 |
| | 2,529 |
| | 11 |
| | 9 |
| | 3,067 |
| | 2,392 |
| | 12 |
| | 13 |
|
Whole-loan sales (a) | | 4,024 |
| | 2,252 |
| | 6 |
| | 13 |
| | 2,787 |
| | 3,164 |
| | 5 |
| | 6 |
|
Total | | $ | 119,912 |
| | $ | 116,486 |
| | $ | 637 |
| | $ | 721 |
| | $ | 124,857 |
| | $ | 124,500 |
| | $ | 674 |
| | $ | 841 |
|
| |
(a) | Whole-loan sales are not part of a securitization transaction, but represent consumer automotive pools of loans sold to third-party investors. |
| | | | Net credit losses | | Net credit losses |
| | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
($ in millions) | | 2016 | | 2015 | | 2016 | | 2015 | | 2017 | | 2016 |
On-balance sheet loans | | | | | | | | | | | | |
Consumer automotive | | $ | 148 |
|
| $ | 96 |
| | $ | 321 |
| | $ | 228 |
| | $ | 251 |
| | $ | 173 |
|
Consumer mortgage | | 4 |
|
| 4 |
| | 10 |
| | 23 |
| | 2 |
| | 6 |
|
Commercial automotive | | — |
|
| 1 |
| | — |
| | — |
| |
Commercial other | | — |
| | (1 | ) | | — |
| | (1 | ) | |
Total on-balance sheet loans | | 152 |
| | 100 |
| | 331 |
| | 250 |
| | 253 |
| | 179 |
|
Off-balance sheet securitization entities | | | | | | | | | | | | |
Consumer automotive | | 2 |
|
| 1 |
| | 4 |
| | 2 |
| | 3 |
| | 2 |
|
Total off-balance sheet securitization entities | | 2 |
| | 1 |
| | 4 |
| | 2 |
| | 3 |
| | 2 |
|
Whole-loan sales | | 1 |
| | — |
| | 1 |
| | — |
| |
Whole-loan sales (a) | | | 1 |
| | — |
|
Total | | $ | 155 |
| | $ | 101 |
| | $ | 336 |
| | $ | 252 |
| | $ | 257 |
| | $ | 181 |
|
| |
(a) | Whole-loan sales are not part of a securitization transaction, but represent consumer automotive pools of loans sold to third-party investors. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
10.11. Servicing Activities
Automotive Finance Servicing Activities
We service consumer automotive contracts. Historically, we have sold a portion of our consumer automotive contracts. With respect to contracts we sell, we generally retain the right to service and earn a servicing fee for our servicing function. We have concluded that the fee we are paid for servicing consumer automotive finance receivables represents adequate compensation, and consequently, we do not recognize a servicing asset or liability. We recognized automotive servicing fee income of $18$16 million and $31$13 million during the three months ended March 31, 2017, and six months ended June 30, 2016, respectively, compared to $10 million and $20 million during the three months and six months ended June 30, 2015.respectively.
Automotive Finance Serviced Assets
The current unpaid principal balance and any related unamortized deferred fees and costs of total serviced automotive finance loans and leases outstanding were as follows.
| | ($ in millions) | June 30, 2016 | | December 31, 2015 | March 31, 2017 | | December 31, 2016 |
On-balance sheet automotive finance loans and leases | | | | | | |
Consumer automotive | $ | 63,113 |
| | $ | 64,067 |
| $ | 65,464 |
| | $ | 65,646 |
|
Commercial automotive | 35,251 |
| | 34,895 |
| 38,903 |
| | 38,853 |
|
Operating leases | 13,527 |
| | 15,965 |
| 10,332 |
| | 11,311 |
|
Other | 61 |
| | 72 |
| 67 |
| | 67 |
|
Off-balance sheet automotive finance loans | | | | | | |
Securitizations | 3,252 |
| | 2,550 |
| 3,103 |
| | 2,412 |
|
Whole-loan | 4,066 |
| | 2,259 |
| 2,824 |
| | 3,191 |
|
Total serviced automotive finance loans and leases | $ | 119,270 |
| | $ | 119,808 |
| $ | 120,693 |
| | $ | 121,480 |
|
11.12. Other Assets
The components of other assets were as follows.
| | ($ in millions) | June 30, 2016 | | December 31, 2015 | | March 31, 2017 | | December 31, 2016 |
Property and equipment at cost | $ | 781 |
| | $ | 691 |
| | $ | 939 |
| | $ | 901 |
|
Accumulated depreciation | (487 | ) | | (456 | ) | | (542 | ) | | (525 | ) |
Net property and equipment | 294 |
| | 235 |
| | 397 |
| | 376 |
|
Restricted cash collections for securitization trusts (a) | 1,597 |
| | 2,010 |
| | 1,359 |
| | 1,694 |
|
Net deferred tax assets | 1,077 |
| | 1,369 |
| | 900 |
| | 994 |
|
Nonmarketable equity investments (b) | 772 |
| | 418 |
| | 833 |
| | 1,046 |
|
Accrued interest and rent receivables | 404 |
| | 402 |
| | 457 |
| | 476 |
|
Goodwill (c) | 220 |
| | 27 |
| | 240 |
| | 240 |
|
Fair value of derivative contracts in receivable position (d) | 209 |
| | 233 |
| |
Other accounts receivable | | | 165 |
| | 100 |
|
Cash reserve deposits held-for-securitization trusts (e)(d) | 197 |
| | 252 |
| | 164 |
| | 184 |
|
Other accounts receivable | 166 |
| | 158 |
| |
Cash collateral placed with counterparties | | | 119 |
|
| 167 |
|
Restricted cash and cash equivalents | 106 |
| | 120 |
| | 111 |
| | 111 |
|
Cash collateral placed with counterparties | 91 |
|
| 125 |
| |
Fair value of derivative contracts in receivable position (e) | | | 80 |
| | 95 |
|
Other assets | 1,121 |
| | 972 |
| | 1,309 |
| | 1,371 |
|
Total other assets | $ | 6,254 |
| | $ | 6,321 |
| | $ | 6,134 |
| | $ | 6,854 |
|
| |
(a) | Represents cash collections from customer payments on securitized receivables. These funds are distributed to investors as payments on the related secured debt. |
| |
(b) | Includes investments in FHLB stock of $310$359 million and $391$577 million at March 31, 2017, and FRBDecember 31, 2016, respectively; and Federal Reserve Bank (FRB) stock of $435 million and $0 million at June 30, 2016,both March 31, 2017, and December 31, 2015, respectively.2016. |
| |
(c) | Includes goodwill of $27 million at our Insurance operations at both June 30, 2016,March 31, 2017, and December 31, 2015, and2016; $193 million and $0 million within Corporate and Other at June 30, 2016,both March 31, 2017, and December 31, 2015, respectively. As a result of our acquisition of TradeKing, we recognized $1932016; and $20 million of goodwill within CorporateAutomotive Finance operations at both March 31, 2017, and Other on June 1,December 31, 2016. No other changes into the carrying amount of goodwill were recorded during the sixthree months ended June 30, 2016. Refer to Note 2 for further discussion. March 31, 2017. |
| |
(d) | For additional information on derivative instruments and hedging activities, refer to Note 20. |
| |
(e) | Represents credit enhancement in the form of cash reserves for various securitization transactions. |
| |
(e) | For additional information on derivative instruments and hedging activities, refer to Note 19. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
12.13. Deposit Liabilities
Deposit liabilities consisted of the following.
| | ($ in millions) | June 30, 2016 | | December 31, 2015 | March 31, 2017 | | December 31, 2016 |
Noninterest-bearing deposits | $ | 94 |
| | $ | 89 |
| $ | 102 |
| | $ | 84 |
|
Interest-bearing deposits | | | | | | |
Savings and money market checking accounts | 42,185 |
| | 36,386 |
| 51,150 |
| | 46,976 |
|
Certificates of deposit | 30,323 |
| | 29,774 |
| 33,148 |
| | 31,795 |
|
Dealer deposits | 200 |
| | 229 |
| 86 |
| | 167 |
|
Total deposit liabilities | $ | 72,802 |
| | $ | 66,478 |
| $ | 84,486 |
| | $ | 79,022 |
|
At June 30, 2016March 31, 2017, and December 31, 20152016, certificates of deposit included $11.5$12.2 billion and $12.1 billion, respectively, of certificates of deposit in denominations of $100 thousand or more. At June 30, 2016,both March 31, 2017, and December 31, 2015,2016, certificates of deposit included $3.1$3.5 billion and $3.2 billion, respectively, in denominations in excess of $250 thousand federal insurance limits.
13. 14. Debt
Short-term Borrowings
The following table presents the composition of our short-term borrowings portfolio.
| | | | June 30, 2016 | | December 31, 2015 | | March 31, 2017 | | December 31, 2016 |
($ in millions) | | Unsecured | | Secured (a) | | Total | | Unsecured | | Secured (a) | | Total | | Unsecured | | Secured (a) | | Total | | Unsecured | | Secured (a) | | Total |
Demand notes | | $ | 3,576 |
| | $ | — |
| | $ | 3,576 |
| | $ | 3,369 |
| | $ | — |
| | $ | 3,369 |
| | $ | 3,652 |
| | $ | — |
| | $ | 3,652 |
| | $ | 3,622 |
| | $ | — |
| | $ | 3,622 |
|
Federal Home Loan Bank | | — |
| | 1,950 |
| | 1,950 |
| | — |
| | 4,000 |
| | 4,000 |
| | — |
| | 1,850 |
| | 1,850 |
| | — |
| | 7,875 |
| | 7,875 |
|
Securities sold under agreements to repurchase | | — |
| | 468 |
| | 468 |
| | — |
| | 648 |
| | 648 |
| |
Financial instruments sold under agreements to repurchase | | | — |
| | 1,620 |
| | 1,620 |
| | — |
| | 1,176 |
| | 1,176 |
|
Other | | — |
| | — |
| | — |
| | 84 |
| | — |
| | 84 |
| | 1,249 |
| (b) | — |
| | 1,249 |
| | — |
| | — |
| | — |
|
Total short-term borrowings | | $ | 3,576 |
| | $ | 2,418 |
| | $ | 5,994 |
| | $ | 3,453 |
| | $ | 4,648 |
| | $ | 8,101 |
| | $ | 4,901 |
| | $ | 3,470 |
| | $ | 8,371 |
| | $ | 3,622 |
| | $ | 9,051 |
| | $ | 12,673 |
|
| |
(a) | Refer to the section below titled Note 14Long-term Debt for further details on assets restricted as collateral for payment of the related debt. |
| |
(b) | Balance represents private unsecured committed credit facility and includes debt issuance costs of $1 million as of March 31, 2017. This debt is scheduled to mature in December 2017. |
We periodically enter into term repurchase agreements, short-term borrowing agreements in which we sell financial instruments 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 June 30, 2016,March 31, 2017, the financial instruments sold under agreement to repurchase consisted of $520 million of mortgage-backed residential securities with the following maturities: $369 millionmaturing within the next 30 days, and $99$0 million within 31 to 60 days, and $626 million within 61 to 90 days. For further details refer to Note 7 and Note 22. Additionally, in December 2016, we sold asset-backed automotive financial instruments, which are our retained interests from certain on-balance sheet securitizations, subject to a repurchase agreement set to mature by July 2017 in exchange for $500 million, which was recorded as a short-term secured borrowing. As of March 31, 2017, the balance was $474 million. The asset-backed automotive financial instruments that we sold subject to the repurchase agreement are secured by finance receivables that we have securitized. Refer to Note 6 and Note 2310 for further detailsadditional information on investment securities sold under agreements to repurchase.our securitization activities.
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. As of June 30, 2016,March 31, 2017, we received cash collateral totaling $1 million and we placed cash collateral totaling $7$5 million with counterparties under these collateral arrangements associated with our repurchase agreements.
14. Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Long-term Debt
The following table presents the composition of our long-term debt portfolio.
| | | | June 30, 2016 | | December 31, 2015 | | March 31, 2017 | | December 31, 2016 |
($ in millions) | | Unsecured | | Secured | | Total | | Unsecured | | Secured | | Total | | Unsecured | | Secured | | Total | | Unsecured | | Secured | | Total |
Long-term debt | | | | | | | | | | | | | | | | | | | | | | | | |
Due within one year | | $ | 4,363 |
| | $ | 10,496 |
| | $ | 14,859 |
| | $ | 1,829 |
| | $ | 9,427 |
| | $ | 11,256 |
| | $ | 2,329 |
| | $ | 9,048 |
| | $ | 11,377 |
| | $ | 4,274 |
| | $ | 10,279 |
| | $ | 14,553 |
|
Due after one year (a) | | 16,683 |
| | 28,961 |
| | 45,644 |
| | 18,803 |
| | 35,844 |
| | 54,647 |
| | 14,893 |
| | 24,492 |
| | 39,385 |
| | 15,450 |
| | 23,810 |
| | 39,260 |
|
Fair value adjustment (b) | | 520 |
| | 17 |
| | 537 |
| | 334 |
| | (3 | ) | | 331 |
| | 308 |
| | (9 | ) | | 299 |
| | 326 |
| | (11 | ) | | 315 |
|
Total long-term debt (c) | | $ | 21,566 |
| | $ | 39,474 |
| | $ | 61,040 |
| | $ | 20,966 |
| | $ | 45,268 |
| | $ | 66,234 |
| | $ | 17,530 |
| | $ | 33,531 |
| | $ | 51,061 |
| | $ | 20,050 |
| | $ | 34,078 |
| | $ | 54,128 |
|
| |
(a) | Includes $2.6 billion of trust preferred securities at both June 30, 2016,March 31, 2017, and December 31, 2015. 2016. |
| |
(b) | Represents the fair value adjustment associated with the application of hedge accounting on certain of our long-term debt positions. Refer to Note 2019 for additional information. |
| |
(c) | Includes advances from the Federal Home Loan BankFHLB of Pittsburgh of $5.4$6.1 billion at both June 30, 2016,March 31, 2017, and December 31, 2015.2016. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following table presents the scheduled remaining maturity of long-term debt at June 30, 2016,March 31, 2017, assuming no early redemptions will occur. The actual payment of secured debt may vary based on the payment activity of the related pledged assets.
| | ($ in millions) | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 and thereafter | | Fair value adjustment | | Total | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 and thereafter | | Fair value adjustment | | Total |
Unsecured | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Long-term debt | | $ | 1,419 |
| | $ | 4,365 |
| | $ | 3,700 |
| | $ | 1,650 |
| | $ | 2,212 |
| | $ | 9,067 |
| | $ | 520 |
| | $ | 22,933 |
| | $ | 1,811 |
| | $ | 3,700 |
| | $ | 1,681 |
| | $ | 2,236 |
| | $ | 638 |
| | $ | 8,460 |
| | $ | 308 |
| | $ | 18,834 |
|
Original issue discount | | (40 | ) | | (88 | ) | | (100 | ) | | (37 | ) | | (37 | ) | | (1,065 | ) | | — |
| | (1,367 | ) | | (69 | ) | | (101 | ) | | (39 | ) | | (39 | ) | | (42 | ) | | (1,014 | ) | | — |
| | (1,304 | ) |
Total unsecured | | 1,379 |
| | 4,277 |
| | 3,600 |
| | 1,613 |
| | 2,175 |
| | 8,002 |
| | 520 |
| | 21,566 |
| | 1,742 |
| | 3,599 |
| | 1,642 |
| | 2,197 |
| | 596 |
| | 7,446 |
| | 308 |
| | 17,530 |
|
Secured | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Long-term debt | | 3,880 |
| | 12,140 |
| | 8,536 |
| | 7,195 |
| | 4,087 |
| | 3,619 |
| | 17 |
| | 39,474 |
| | 7,575 |
| | 8,534 |
| | 8,080 |
| | 5,175 |
| | 2,558 |
| | 1,618 |
| | (9 | ) | | 33,531 |
|
Total long-term debt | | $ | 5,259 |
| | $ | 16,417 |
| | $ | 12,136 |
| | $ | 8,808 |
| | $ | 6,262 |
|
| $ | 11,621 |
|
| $ | 537 |
|
| $ | 61,040 |
| | $ | 9,317 |
| | $ | 12,133 |
| | $ | 9,722 |
| | $ | 7,372 |
| | $ | 3,154 |
|
| $ | 9,064 |
|
| $ | 299 |
|
| $ | 51,061 |
|
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.
| | | | June 30, 2016 | | December 31, 2015 | | March 31, 2017 | | December 31, 2016 |
($ in millions) | | Total | | Ally Bank (a) | | Total | | Ally Bank (a) | | Total (a) | | Ally Bank | | Total (a) | | Ally Bank |
Investment securities (b) | | $ | 437 |
| | $ | — |
| | $ | 2,420 |
| | $ | 1,761 |
| | $ | 3,175 |
| | $ | 1,978 |
| | $ | 4,895 |
| | $ | 4,231 |
|
Mortgage assets held-for-investment and lending receivables | | 11,006 |
| | 11,006 |
| | 9,743 |
| | 9,743 |
| | 10,847 |
| | 10,847 |
| | 10,954 |
| | 10,954 |
|
Consumer automotive finance receivables(b) | | 30,911 |
| | 8,451 |
| | 34,324 |
| | 9,167 |
| | 26,420 |
| | 4,523 |
| | 27,846 |
| | 5,751 |
|
Commercial automotive finance receivables | | 19,194 |
| | 18,878 |
| | 19,623 |
| | 19,177 |
| | 17,901 |
| | 17,709 |
| | 19,487 |
| | 19,280 |
|
Investment in operating leases, net | | 3,777 |
| | 2,059 |
| | 5,539 |
| | 3,205 |
| | 1,412 |
| | 314 |
| | 2,040 |
| | 913 |
|
Other assets (b) | | 46 |
| | — |
| | — |
| | — |
| |
Total assets restricted as collateral (c) (d) | | $ | 65,371 |
| | $ | 40,394 |
| | $ | 71,649 |
| | $ | 43,053 |
| | $ | 59,755 |
| | $ | 35,371 |
| | $ | 65,222 |
| | $ | 41,129 |
|
Secured debt | | $ | 41,892 |
| (e) | $ | 19,960 |
| | $ | 49,916 |
| (e) | $ | 24,787 |
| | $ | 37,001 |
| (e) | $ | 15,120 |
| | $ | 43,129 |
| (e) | $ | 22,149 |
|
| |
(a) | Ally Bank is a component of the total column. |
| |
(b) | CertainA portion of the restricted investment securities and other assetsconsumer automotive finance receivables are restricted under repurchase agreements. Refer to Note 13the 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 $14.616.8 billion and $14.919.0 billion at June 30, 2016,March 31, 2017, and December 31, 2015,2016, respectively. These assets were composed primarily of consumer mortgage finance receivables and loans net and investment securities. Ally Bank has access to the Federal Reserve Bank Discount Window. Ally Bank had assets pledged and restricted as collateral to the Federal Reserve Bank totaling $2.6$2.3 billion and $2.9$2.4 billion at June 30, 2016March 31, 2017, and December 31, 20152016, respectively. These assets were composed of consumer automotive finance receivables and loans net and investment in operating leases, net.lease assets. 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 Condensed Consolidated Balance Sheet.Sheet. Refer to Note 1112 for additional information. |
| |
(e) | Includes $2.43.5 billion and $4.69.1 billion of short-term borrowings at June 30, 2016March 31, 2017, and December 31, 20152016, respectively. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Trust Preferred Securities
At June 30, 2016,March 31, 2017, we have issued and outstanding approximately $2.6 billion in aggregate liquidation preference of 8.125% Fixed Rate / Floating Rate Trust Preferred Securities, Series 2 (Series 2 TRUPS) net of original issue discount and debt issuance costs.. 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 were payable at an annual rate of 8.125% payable quarterly in arrears, through but excluding February 15,��2016. From and including February 15, 2016, to but excluding February 15, 2040, distributions will be payable at an annual rate equal to three-month London interbank offer rate plus 5.785% payable quarterly in arrears, beginning May 15, 2016. 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 on or after February 15, 2016, 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.
Funding Facilities
We utilize both committed credit facilities and other collateralized funding vehicles. The debt outstanding under our various funding facilities is included on our Condensed Consolidated Balance Sheet.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Sheet.
As of June 30, 2016,March 31, 2017, Ally Bank had exclusive access to $4.0$2.4 billion of funding capacity from committed credit facilities. Funding programs supported by the Federal Reserve and the FHLB, together with repurchase agreements, complement Ally Bank’s private collateralized funding vehicles.
The total capacity in our committed funding facilities is provided by banks and other financial institutions through private transactions. The committed secured funding facilities can be revolving in nature and allow for additional funding during the commitment period, or they can be amortizing and not allow for any further funding after the closing date. At June 30, 2016March 31, 2017, all$15.6 billion of our $19.6$16.4 billion of committed capacity was revolving. Our revolving facilities generally have an original tenor ranging from 364 days to two years. As of June 30, 2016March 31, 2017, we had $15.2$3.1 billion of committed funding capacity from revolving facilities with a remaining tenor greater than 364 days.
Committed Funding Facilities
| | | | Outstanding | | Unused capacity (a) | | Total capacity | | Outstanding | | Unused capacity (a) | | Total capacity |
($ in millions) | | June 30, 2016 | | December 31, 2015 | | June 30, 2016 | | December 31, 2015 | | June 30, 2016 | | December 31, 2015 | | March 31, 2017 | | December 31, 2016 | | March 31, 2017 | | December 31, 2016 | | March 31, 2017 | | December 31, 2016 |
Bank funding | | | | | | | | | | | | | | | | | | | | | | | | |
Secured (b) | | $ | 2,950 |
| | $ | 3,250 |
| | $ | 1,050 |
| | $ | — |
| | $ | 4,000 |
| | $ | 3,250 |
| | $ | 2,050 |
| | $ | 3,250 |
| | $ | 350 |
| | $ | 350 |
| | $ | 2,400 |
| | $ | 3,600 |
|
Parent funding | | | | | | | | | | | | | | | | | | | | | | | | |
Secured | | 14,540 |
| | 16,914 |
| | 1,085 |
| | 251 |
| | 15,625 |
| | 17,165 |
| | 12,123 |
| | 11,550 |
| | 652 |
| | 1,975 |
| | 12,775 |
| | 13,525 |
|
Unsecured | | | 1,250 |
| | — |
| | — |
| | 1,250 |
| | 1,250 |
| | 1,250 |
|
Total committed facilities | | $ | 17,490 |
| | $ | 20,164 |
| | $ | 2,135 |
| | $ | 251 |
| | $ | 19,625 |
| | $ | 20,415 |
| | $ | 15,423 |
| | $ | 14,800 |
| | $ | 1,002 |
| | $ | 3,575 |
| | $ | 16,425 |
| | $ | 18,375 |
|
| |
(a) | Funding from committed secured facilities is available on request in the event excess collateral resides in certain facilities or is available to the extent incremental collateral is available and contributed to the facilities. |
| |
(b) | Excludes off-balance sheet credit facility amounts. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
15. Accrued Expenses and Other Liabilities
The components of accrued expenses and other liabilities were as follows.
| | ($ in millions) | June 30, 2016 | | December 31, 2015 | |
($ in millions) | | | March 31, 2017 | | December 31, 2016 |
Accounts payable | $ | 497 |
| | $ | 391 |
| | $ | 851 |
| | $ | 649 |
|
Reserves for insurance losses and loss adjustment expenses | | | 175 |
| | 149 |
|
Employee compensation and benefits | 196 |
| | 242 |
| | 156 |
| | 232 |
|
Reserves for insurance losses and loss adjustment expenses | 164 |
| | 169 |
| |
Cash collateral received from counterparties | 146 |
| | 82 |
| |
Fair value of derivative contracts in payable position (a) | 87 |
| | 145 |
| | 81 |
| | 95 |
|
Deferred revenue | 78 |
| | 108 |
| | 47 |
| | 56 |
|
Cash collateral received from counterparties | | | 12 |
| | 10 |
|
Other liabilities | 424 |
| | 408 |
| | 600 |
| | 546 |
|
Total accrued expenses and other liabilities | $ | 1,592 |
| | $ | 1,545 |
| | $ | 1,922 |
| | $ | 1,737 |
|
| |
(a) | For additional information on derivative instruments and hedging activities, refer to Note 20.19. |
16. Preferred Stock
The following table summarizes information about our Series A Preferred Stock.
|
| | | | | | | | |
| | June 30, 2016 | | December 31, 2015 |
Series A preferred stock | | | | |
Carrying value ($ in millions) | | $ | — |
| | $ | 696 |
|
Par value (per share) | | — |
| | 0.01 |
|
Liquidation preference (per share) | | — |
| | 25 |
|
Number of shares authorized | | — |
| | 40,870,560 |
|
Number of shares issued and outstanding | | — |
| | 27,870,560 |
|
Dividend/coupon | | | | |
Prior to May 15, 2016 | | — | % | | 8.5 | % |
On and after May 15, 2016 | | — | % | | Three month LIBOR + 6.243% |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Series A Preferred Stock
On April 14, 2016, we issued a Notice of Redemption to the holders of the outstanding Series A Preferred Stock to redeem the remaining 27,870,560 shares at a redemption price of $25 per share, plus approximately $0.53 per share of accrued and unpaid dividends through the redemption date. On May 16, 2016, we redeemed the 27,870,560 outstanding shares of Series A Preferred Stock, with an aggregate liquidation preference of $697 million for $712 million in cash, which included $15 million in accrued and unpaid dividends through the redemption date. Upon redemption of the shares of Series A Preferred Stock, we derecognized the carrying value of $696 million. Effective May 16, 2016, the Series A Preferred Stock was retired.
17. Accumulated Other Comprehensive (Loss) IncomeLoss
The following table presents changes, net of tax, in each component of accumulated other comprehensive (loss) income.loss.
|
| | | | | | | | | | | | | | | | | | | |
($ in millions) | Unrealized (losses) gains on investment securities (a) | | Translation adjustments and net investment hedges (b) | | Cash flow hedges | | Defined benefit pension plans | | Accumulated other comprehensive (loss) income |
Balance at December 31, 2014 | $ | (21 | ) | | $ | 36 |
| | $ | 7 |
| | $ | (88 | ) | | $ | (66 | ) |
2015 net change | (97 | ) | | (20 | ) | | — |
| | — |
| | (117 | ) |
Balance at June 30, 2015 | $ | (118 | ) | | $ | 16 |
| | $ | 7 |
| | $ | (88 | ) | | $ | (183 | ) |
Balance at December 31, 2015 | $ | (159 | ) | | $ | 9 |
| | $ | 8 |
| | $ | (89 | ) | | $ | (231 | ) |
2016 net change | 262 |
| | 5 |
| | — |
| | (1 | ) | | 266 |
|
Balance at June 30, 2016 | $ | 103 |
| | $ | 14 |
| | $ | 8 |
| | $ | (90 | ) | | $ | 35 |
|
|
| | | | | | | | | | | | | | | | | | | |
($ in millions) | Unrealized (losses) gains on investment securities (a) | | Translation adjustments and net investment hedges (b) | | Cash flow hedges (b) | | Defined benefit pension plans | | Accumulated other comprehensive loss |
Balance at December 31, 2015 | $ | (159 | ) | | $ | 9 |
| | $ | 8 |
| | $ | (89 | ) | | $ | (231 | ) |
2016 net change | 142 |
| | 5 |
| | — |
| | (1 | ) | | 146 |
|
Balance at March 31, 2016 | $ | (17 | ) | | $ | 14 |
| | $ | 8 |
| | $ | (90 | ) | | $ | (85 | ) |
Balance at December 31, 2016 | $ | (273 | ) | | $ | 14 |
| | $ | 8 |
| | $ | (90 | ) | | $ | (341 | ) |
2017 net change | 21 |
| | — |
| | — |
| | (1 | ) | | 20 |
|
Balance at March 31, 2017 | $ | (252 | ) | | $ | 14 |
| | $ | 8 |
| | $ | (91 | ) | | $ | (321 | ) |
| |
(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 20.19. |
The following tables present the before- and after-tax changes in each component of accumulated other comprehensive (loss) income.loss.
| | Three months ended June 30, 2016 ($ in millions) | Before Tax | | Tax Effect | | After Tax | |
Three months ended March 31, 2017 ($ in millions) | | Before tax | | Tax effect | | After tax |
Investment securities | | | | | | | | | | |
Net unrealized gains arising during the period | $ | 185 |
| | $ | (25 | ) | | $ | 160 |
| $ | 51 |
| | $ | (5 | ) | | $ | 46 |
|
Less: Net realized gains reclassified to income from continuing operations | 39 |
| (a) | 1 |
| (b) | 40 |
| 27 |
| (a) | (2 | ) | (b) | 25 |
|
Net change | 146 |
| | (26 | ) |
| 120 |
| 24 |
| | (3 | ) |
| 21 |
|
Translation adjustments | | | | | | | | | | |
Net unrealized gains arising during the period | | 2 |
| | (1 | ) | | 1 |
|
Net investment hedges (c) | | | | | | |
Net unrealized losses arising during the period | (1 | ) | | — |
| | (1 | ) | (2 | ) | | 1 |
| | (1 | ) |
Less: Net realized losses reclassified to income from discontinued operations, net of tax | (1 | ) | | — |
| | (1 | ) | |
Net change | — |
| | — |
| | — |
| |
Defined benefit pension plans | | | | | | |
Net unrealized losses arising during the period | | (1 | ) | | — |
| | (1 | ) |
Other comprehensive income | $ | 146 |
| | $ | (26 | ) | | $ | 120 |
| $ | 23 |
| | $ | (3 | ) | | $ | 20 |
|
| |
(a) | Includes gains reclassified to other gain on investments, net in our Condensed Consolidated Statement of Comprehensive Income. |
| |
(b) | Includes amounts reclassified to income tax expense from continuing operations in our Condensed Consolidated Statement of Comprehensive Income. |
| |
(c) | For additional information on derivative instruments and hedging activities, refer to Note 19. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
| | Three months ended June 30, 2015 ($ in millions) | Before Tax | | Tax Effect | | After Tax | |
Three months ended March 31, 2016 ($ in millions) | | Before tax | | Tax effect | | After tax |
Investment securities | | | | | | | | | | |
Net unrealized losses arising during the period | $ | (191 | ) | | $ | 71 |
| | $ | (120 | ) | |
Net unrealized gains arising during the period | | $ | 280 |
| | $ | (104 | ) | | $ | 176 |
|
Less: Net realized gains reclassified to income from continuing operations | 45 |
| (a) | (16 | ) | (b) | 29 |
| 54 |
| (a) | (20 | ) | (b) | 34 |
|
Net change | (236 | ) |
| 87 |
|
| (149 | ) | 226 |
|
| (84 | ) |
| 142 |
|
Translation adjustments | | | | | | | | | | |
Net unrealized gains arising during the period | 4 |
| | (1 | ) | | 3 |
| 13 |
| | (5 | ) | | 8 |
|
Less: Net realized gains reclassified to income from discontinued operations, net of tax | 1 |
| | — |
| | 1 |
| |
Net change | 3 |
| | (1 | ) | | 2 |
| |
Net investment hedges | | | | | | |
Net investment hedges (c) | | | | | | |
Net unrealized losses arising during the period | (2 | ) | | 1 |
| | (1 | ) | (6 | ) | | 3 |
| | (3 | ) |
Other comprehensive loss | $ | (235 | ) | | $ | 87 |
|
| $ | (148 | ) | |
Defined benefit pension plans | | | | | | |
Net unrealized losses arising during the period | | (1 | ) | | — |
| | (1 | ) |
Other comprehensive income | | $ | 232 |
| | $ | (86 | ) |
| $ | 146 |
|
| |
(a) | Includes gains reclassified to other gain on investments, net in our Condensed Consolidated Statement of Comprehensive Income. |
| |
(b) | Includes amounts reclassified to income tax expense from continuing operations in our Condensed Consolidated Statement of Comprehensive Income. |
|
| | | | | | | | | | | |
Six months ended June 30, 2016 ($ in millions) | Before Tax | | Tax Effect | | After Tax |
Investment securities | | | | | |
Net unrealized gains arising during the period | $ | 465 |
| | $ | (129 | ) | | $ | 336 |
|
Less: Net realized gains reclassified to income from continuing operations | 93 |
| (a) | (19 | ) | (b) | 74 |
|
Net change | 372 |
| | (110 | ) | | 262 |
|
Translation adjustments | | | | | |
Net unrealized gains arising during the period | 12 |
| | (5 | ) | | 7 |
|
Less: Net realized losses reclassified to income from discontinued operations, net of tax | (1 | ) | | — |
| | (1 | ) |
Net change | 13 |
| | (5 | ) | | 8 |
|
Net investment hedges | | | | | |
Net unrealized losses arising during the period | (6 | ) | | 3 |
| | (3 | ) |
Defined benefit pension plans | | | | | |
Net unrealized losses arising during the period | (1 | ) | | — |
| | (1 | ) |
Other comprehensive income | $ | 378 |
| | $ | (112 | ) | | $ | 266 |
|
| |
(a)(c) | Includes gains reclassifiedFor additional information on derivative instruments and hedging activities, refer to other gain on investments, net in our Condensed Consolidated Statement of Comprehensive Income. |
| |
(b) | Includes amounts reclassified to income tax expense (benefit) from continuing operations in our Condensed Consolidated Statement of Comprehensive Income. |
Note 19.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | | | | |
Six months ended June 30, 2015 ($ in millions) | Before Tax | | Tax Effect | | After Tax |
Investment securities | | | | | |
Net unrealized losses arising during the period | $ | (53 | ) | | $ | 20 |
| | $ | (33 | ) |
Less: Net realized gains reclassified to income from continuing operations | 100 |
| (a) | (36 | ) | (b) | 64 |
|
Net change | (153 | ) | | 56 |
| | (97 | ) |
Translation adjustments | | | | |
|
|
Net unrealized losses arising during the period | (16 | ) | | 6 |
| | (10 | ) |
Less: Net realized gains reclassified to income from discontinued operations, net of tax | 43 |
| | (20 | ) | | 23 |
|
Net change | (59 | ) | | 26 |
| | (33 | ) |
Net investment hedges | | | | |
|
|
Net unrealized gains arising during the period | 16 |
| | (6 | ) | | 10 |
|
Less: Net realized losses reclassified to income from discontinued operations, net of tax | (4 | ) | | 1 |
| | (3 | ) |
Net change | 20 |
| | (7 | ) | | 13 |
|
Other comprehensive loss | $ | (192 | ) | | $ | 75 |
| | $ | (117 | ) |
| |
(a) | Includes gains reclassified to other gain on investments, net in our Condensed Consolidated Statement of Comprehensive Income. |
| |
(b) | Includes amounts reclassified to income tax expense (benefit) from continuing operations in our Condensed Consolidated Statement of Comprehensive Income. |
18.17. Earnings per Common Share
The following table presents the calculation of basic and diluted earnings per common share.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
($ in millions, except share data) (a) | | 2016 | | 2015 | | 2016 | | 2015 | |
($ in millions, except per share data; shares in thousands) (a) | | | 2017 | | 2016 |
Net income from continuing operations | | $ | 357 |
| | $ | 169 |
| | $ | 604 |
| | $ | 348 |
| | $ | 213 |
| | $ | 247 |
|
Preferred stock dividends (b) | | (15 | ) | | (1,251 | ) | | (30 | ) | | (1,318 | ) | | — |
| | (15 | ) |
Net income (loss) from continuing operations attributable to common shareholders | | 342 |
| | (1,082 | ) | | 574 |
| | (970 | ) | |
Net income from continuing operations attributable to common shareholders | | | 213 |
| | 232 |
|
Income from discontinued operations, net of tax | | 3 |
| | 13 |
| | 6 |
| | 410 |
| | 1 |
| | 3 |
|
Net income (loss) attributable to common shareholders | | $ | 345 |
| | $ | (1,069 | ) | | $ | 580 |
| | $ | (560 | ) | |
Net income attributable to common shareholders | | | $ | 214 |
| | $ | 235 |
|
Basic weighted-average common shares outstanding (c)(b) | | 485,370,318 |
| | 482,847,164 |
| | 484,801,782 |
| | 482,550,842 |
| | 465,961 |
| | 484,233 |
|
Diluted weighted-average common shares outstanding (c) (d) | | 486,074,474 |
| | 482,847,164 |
| | 485,364,351 |
| | 482,550,842 |
| |
Diluted weighted-average common shares outstanding (b) | | | 466,829 |
| | 484,654 |
|
Basic earnings per common share | | | | | | | | | | | | |
Net income (loss) from continuing operations | | $ | 0.70 |
| | $ | (2.24 | ) | | $ | 1.18 |
| | $ | (2.01 | ) | |
Net income from continuing operations | | | $ | 0.46 |
| | $ | 0.48 |
|
Income from discontinued operations, net of tax | | 0.01 |
| | 0.03 |
| | 0.01 |
| | 0.85 |
| | — |
| | 0.01 |
|
Net income (loss) | | $ | 0.71 |
| | $ | (2.22 | ) | | $ | 1.20 |
| | $ | (1.16 | ) | |
Net income | | | $ | 0.46 |
| | $ | 0.49 |
|
Diluted earnings per common share | | | | | | | | | | | | |
Net income (loss) from continuing operations | | $ | 0.70 |
| | $ | (2.24 | ) | | $ | 1.18 |
| | $ | (2.01 | ) | |
Net income from continuing operations | | | $ | 0.46 |
| | $ | 0.48 |
|
Income from discontinued operations, net of tax | | 0.01 |
| | 0.03 |
| | 0.01 |
| | 0.85 |
| | — |
| | 0.01 |
|
Net income (loss) | | $ | 0.71 |
| | $ | (2.22 | ) | | $ | 1.19 |
| | $ | (1.16 | ) | |
Net income | | | $ | 0.46 |
| | $ | 0.49 |
|
| |
(a) | Figures in the table may not recalculate exactly due to rounding. Earnings per share is calculated based on unrounded numbers. |
| |
(b) | Preferred stock dividends for the three months and six months ended June 30, 2015, include $1,193 million 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 shareholders calculated as the excess consideration paid over the carrying amount derecognized.
|
| |
(c) | Includes shares related to share-based compensation that vested but were not yet issued for the three months and six months ended June 30,March 31, 2017, and 2016, and 2015, respectively. |
| |
(d) | Due to antidilutive effect of the net loss from continuing operations attributable to common shareholders for the three months and six months ended June 30, 2015, basic weighted-average common shares outstanding were used to calculate basic and diluted earnings per share.
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
19.18. Regulatory Capital and Other Regulatory Matters
As a BHC, we and our wholly-owned state-chartered banking subsidiary, 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. A risk-based capital ratio is a ratio of a banking organization’s regulatory capital to its risk-weighted assets. A leverage capital ratio is a ratio of a banking organization’s regulatory capital to a measure of assets or exposures that is not risk-weighted. 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 reflect new andgenerally reflects higher capital requirements, capital buffers, and newchanges to regulatory capital definitions, deductions and adjustments.adjustments, relative to the predecessor requirements implementing the Basel I capital framework in the United States. Certain aspects of U.S. Basel III, including the new capital buffers and certain regulatory capital deductions, will be phased in over several years.
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 Condensed Consolidated Financial Statements or the results of operations and financial condition of Ally and Ally Bank. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
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 U.S. banking regulatorsFRB also useuses 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 a FHC, Ally and its bank subsidiary, Ally Bank, must remain “well-capitalized” and “well-managed,” as defined under applicable law. Effective January 1, 2015, thelaws. The “well-capitalized” standard for insured depository institutions, such as Ally Bank, was revised to reflectreflects the new and higher capital requirements under U.S. Basel III.
Under U.S. Basel III, Ally 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 requirements, Ally is also subject to a Common Equity Tier 1 capital conservation buffer of more than 2.5%, subject to a phase-in period from January 1, 2016, through December 31, 2018. Failure to maintain the full amount of the buffer will result in restrictions on Ally’s ability to make capital distributions, including dividend payment and stock repurchases and redemptions, and to pay discretionary bonuses to executive officers. In addition to these new risk-based capital standards, U.S. Basel III subjects all U.S. banking organizations, including Ally, to a minimum Tier 1 leverage ratio of 4%, the denominator of which takes into account only on-balance sheet assets.
In addition to introducing new capital ratios, U.S. Basel III revisesalso 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 the newthese criteria. Subject to certain exceptions (e.g., for certain debt or equity issued to the U.S. government under the Emergency Economic Stabilization Act), trust preferred and other “hybrid” securities are no longer included in a BHC's Tier 1 capital as of January 1, 2016. Also, subject to a phase-in schedule, certain new items are deducted from Common Equity Tier 1 capital 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 shares of unconsolidated financial institutions, mortgage servicing rights, and certain deferred tax assets that exceed specified individual and aggregate thresholds to be deducted from Common Equity Tier 1 capital. U.S. Basel III also revisesrevised the standardized approach for calculating risk-weighted assets by, among other things, modifying certain risk weights and introducing newthe methods for calculating risk-weighted assets for certain types of assets and exposures.
Ally is subject to the U.S. Basel III standardized approach for credit risk. It is not subject to the U.S. Basel III advanced approaches for credit risk. Ally is currently not subject to the U.S. market risk capital rule, which applies only to banking organizations with significant trading assets and liabilities.
On March 7, 2016, Ally Bank received approval from the Federal Reserve to become a state member bank. Ally Bank is now regulated by the FRB through the Federal Reserve Bank of Chicago, as well as the Utah Department of Financial Institutions.Institutions (UDFI). In addition, in connection with the application for membership in the Federal Reserve System, Ally Bank made commitments to the FRB relating to capital, liquidity, and business plan requirements thatrequirements. These commitments are consistent with existingthe prior requirements pursuant tounder the now-terminated Capital and Liquidity Maintenance Agreement (CLMA) that was entered into with the Federal Deposit Insurance Corporation (FDIC), including the requirement to maintain capital at a level such that itsAlly Bank’s Tier 1 leverage ratio is at least 15%. For this purpose, the Tier 1 leverage ratio is determined in accordance with the FRB's regulations related to capital maintenance.adequacy. As a requirement of Federal Reserve membership, on March 21, 2016, Ally Bank purchasedwe held $435 million of FRB stock.stock at March 31, 2017.
Compliance with capital requirements is a strategic priority for Ally. We expect to be in compliance with all applicable requirements within the established timeframes.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following table summarizes our capital ratios under the U.S. Basel III capital framework.
| | | June 30, 2016 | | December 31, 2015 | | Required minimum | | Well-capitalized minimum | March 31, 2017 | | December 31, 2016 | | Required minimum | | Well-capitalized minimum |
($ in millions) | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | |
Capital ratios | | | | | | | | | | | | | | | | | | | | | | |
Common Equity Tier 1 (to risk-weighted assets) | | | | | | | | | | | | | | | | | | | | | | |
Ally Financial Inc. | $ | 12,829 |
| | 9.59 | % | | $ | 12,507 |
| | 9.21 | % | | 4.50 | % | | (a) |
| $ | 12,923 |
| | 9.40 | % | | $ | 12,978 |
| | 9.37 | % | | 4.50 | % | | (a) |
|
Ally Bank | 17,209 |
| | 17.64 |
| | 16,594 |
| | 17.05 |
| | 4.50 |
| | 6.50 | % | 18,562 |
| | 17.74 |
| | 17,888 |
| | 16.70 |
| | 4.50 |
| | 6.50 | % |
Tier 1 (to risk-weighted assets) | | | | | | | | | | | | | | | | | | | | | | |
Ally Financial Inc. | $ | 14,959 |
| | 11.18 | % | | $ | 15,077 |
| | 11.10 | % | | 6.00 | % | | 6.00 | % | $ | 15,245 |
| | 11.09 | % | | $ | 15,147 |
| | 10.93 | % | | 6.00 | % | | 6.00 | % |
Ally Bank | 17,209 |
| | 17.64 |
| | 16,594 |
| | 17.05 |
| | 6.00 |
| | 8.00 |
| 18,562 |
| | 17.74 |
| | 17,888 |
| | 16.70 |
| | 6.00 |
| | 8.00 |
|
Total (to risk-weighted assets) | | | | | | | | | | | | | | | | | | | | | | |
Ally Financial Inc. | $ | 17,166 |
| | 12.83 | % | | $ | 17,005 |
| | 12.52 | % | | 8.00 | % | | 10.00 | % | $ | 17,459 |
| | 12.70 | % | | $ | 17,419 |
| | 12.57 | % | | 8.00 | % | | 10.00 | % |
Ally Bank | 17,712 |
| | 18.15 |
| | 17,043 |
| | 17.51 |
| | 8.00 |
| | 10.00 |
| 19,167 |
| | 18.32 |
| | 18,458 |
| | 17.24 |
| | 8.00 |
| | 10.00 |
|
Tier 1 leverage (to adjusted quarterly average assets) (b) | | | | | | | | | | | | | | | | | | | | | | |
Ally Financial Inc. | $ | 14,959 |
| | 9.63 | % | | $ | 15,077 |
| | 9.73 | % | | 4.00 | % | | (a) |
| $ | 15,245 |
| | 9.51 | % | | $ | 15,147 |
| | 9.54 | % | | 4.00 | % | | (a) |
|
Ally Bank | 17,209 |
| | 15.31 |
| | 16,594 |
| | 15.38 |
| | 15.00 |
| (c) | 5.00 | % | 18,562 |
| | 15.38 |
| | 17,888 |
| | 15.21 |
| | 15.00 |
| (c) | 5.00 | % |
| |
(a) | Currently, there is no ratio component for determining whether a BHC is "well-capitalized." |
| |
(b) | Federal regulatory reporting guidelines require the calculation of adjusted quarterly average assets using a daily average methodology. |
| |
(c) | Ally Bank has committed to the FRB to maintain a Tier 1 leverage ratio of at least 15%. |
At June 30, 2016,March 31, 2017, Ally and Ally Bank were “well-capitalized” and met all capital requirements to which each was subject.
Capital Planning and Stress Tests
As a BHC with $50 billion or more of consolidated assets, Ally is required to conduct periodicsemi-annual company-run stress tests, is subject to an annual supervisory stress test conducted by the FRB, and must submit an annual capital plan to the FRB.
Ally’s capital plan must include a description of all planned capital actions over a nine-quarter planning horizon. The capital plan must also include a discussion of how Ally will maintain capital above the minimum regulatory capital ratios under baseline, adverse, and severely adverse economic scenarios, and serve as a source of strength to Ally Bank. The FRB must approve Ally's capital plan before Ally may take any capital action. Even with an approved capital plan, Ally must seek the approval of the FRB before making a capital distribution if, among other factors, Ally would not meet its regulatory capital requirements after making the proposed capital distribution.
In addition to the Series G preferred stock redemptions and Series A preferred stock repurchase that occurred during 2015, asAs part of the 2015 CCAR2016 Comprehensive Capital Analysis and Review (CCAR) process, Ally alsowe received approval to repurchase or redeem the remaining approximately $700 million of Series A preferred stock as well as $500 million of our Trust Preferred Securities. The remaining shares of Series A preferred stock were redeemed on May 16, 2016, but we have indefinitely deferred redemption of the Trust Preferred Securities in support of our acquisition of TradeKing, which closed on June 1, 2016.
On April 5, 2016, we submitted the results of our semi-annual stress test and our annual capital plan to the FRB. On June 23, 2016, we publicly disclosed summary results of the stress test under the most severe scenario in accordance with regulatory requirements. On June 29, 2016, we received a non-objection to our capital plan from the FRB, including the proposedfor capital actions contained in our submission. The planned capital actions includeincluding a quarterly cash dividend of $0.08 per share of our common stock, subject to quarterly approval by the Board of Directors, and the ability to repurchase up to $700 million of our common stock from time to time through the second quarter of 2017. Our first common stock dividend was paid during the third quarter of 2016 and we paid a cash dividend of $0.08 per share on our common stock during each subsequent quarter. On July 18, 2016,April 14, 2017, the Ally Board of Directors declared a quarterly cash dividend payment of $0.08 per share on all common stock. The dividend is payable on August 15, 2016,Refer to shareholders of record at the close of business on August 1, 2016.Note 26 for further information regarding this common share dividend. Additionally, the Ally Board of Directors authorized a common stock repurchase program of up to $700 million beginning in the third quarter of 2016 and continuing through the second quarter of 2017. We had 483,753,360Under this program, we have repurchased $495 million, or 25,140,190 shares of common stock, outstanding atwhich reduced total shares by approximately 5.2% since inception. At March 31, 2017, we had 462,193,424 shares of common stock outstanding.
Ally submitted its 2017 capital plan on April 5, 2017, with capital actions including distributions to common shareholders through share repurchases and cash dividends. 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 of and non-objection to the actions that we propose each year in our annual capital plan. We expect to receive the FRB’s response (either a non-objection or objection) to the capital plan submitted by June 30, 2016.2017.
In January 2017, the FRB finalized a rule amending the capital planning and stress testing rules, effective for the 2017 cycle. The final rule, among other things, revised the capital plan rule to no longer subject large and noncomplex firms, including Ally, to the provisions of the rule whereby the FRB may object to a capital plan on the basis of qualitative deficiencies in the firm’s capital planning process. Under the final rule, the qualitative assessment of Ally’s capital plan is conducted outside of the CCAR process, through the supervisory review process, and Ally’s reporting requirements have been modified to reduce certain reporting burdens related to capital planning and stress testing. The final rule also decreased the de minimis threshold for the amount of capital that Ally could distribute to shareholders outside of an approved capital plan without seeking prior approval of the FRB.
20.Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
19. Derivative Instruments and Hedging Activities
We enter into interest rate, foreign-currency, and equity swaps, futures, forwards, options, and swaptions in connection with our market risk management activities. Derivative instruments are used to manage interest rate risk relating to specific groups of assets and liabilities, including automotive loan assets and debt. We use foreign exchange contracts to mitigate foreign-currency risk associated with foreign-currency-denominated debt, foreign exchange transactions, and our net investment in foreign subsidiaries. In addition, we also enter into equity option contracts to manage our exposure to the equity markets. 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 market risks related to our investment portfolio and certain of our executive share-based compensation plans.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Interest Rate Risk
We monitor our mix of fixed- and variable-rate assets and liabilities. When it is cost-effective to do so, weWe 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 interest rate swaps, forwards, futures, options, and swaptions to modify our exposure to interest rate risk by converting certain fixed-rate instruments to a variable-rate and certain variable-rate instruments to a fixed-rate. We use a mix of both derivatives that qualify for hedge accounting treatment and economic hedges.
Derivatives qualifying for hedge accounting consist of 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 and pay-fixed swaps designated as fair value hedges of specific portfolios of fixed-rate held-for-investment retail automotive loan assets. In 2015, we also had pay-fixed swaps designated as cash flow hedges of the expected future cash flows in the form of interest payments on certain outstanding variable-rate borrowings associated with our secured debt.
We also execute economic hedges, which consist of interest rate swaps and interest rate caps held to mitigate interest rate risk associated with our debt portfolio. We also use interest rate swaps to economically hedge our net fixed-versus-variable interest rate exposure. We enter into economic hedges in the form of short-dated, exchange-traded Eurodollar futures to hedge the interest rate exposure of our fixed-rate automotive loans, as well as forwards, options, and swaptions to economically hedge our net fixed-versus-variable interest rate exposure.
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 investments in foreign subsidiaries. Our equity is impacted by the cumulative translation adjustments resulting from the translation of foreign subsidiary results; this impact is reflected in our accumulated other comprehensive (loss) income.loss. We also periodically enter into foreign-currency forwards to economically hedge our foreign-denominated debt, our centralized lending program, and foreign-denominated third partythird-party loans. These forward currency forwards that are used as economic hedges are recorded at fair value with changes recorded as income offsetting the gains and losses on the associated foreign-currency transactions.
We utilized a cross-currency swap to economically hedge foreign exchange exposure on foreign-currency-denominated debt by converting the funding currency to our functional currency. This swap matured during the second quarter of 2015.
Market Risk
We enter into equity options to economically hedge our exposure to the equity markets. We purchase options to assume a long position on certain equities and write options to assume a short position.
We also enter into prepaid equity forward contracts to economically hedge the price risk associated with certain of our executive share-based compensation plans. The prepaid equity forward contracts are hybrid instruments containing an embedded forward contract, which is considered a derivative instrument. The embedded derivative instrument is bifurcated from the host contract and is recorded at fair value with changes in fair value recorded in compensation and benefits expense. The balance of the prepaid component of these equity forward contracts was $17 million as of June 30, 2016, and was recorded within other assets on the Condensed Consolidated Balance Sheet.
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.
To mitigate the risk of counterparty default, we maintain collateral agreements with certain counterparties. The agreements generally require both parties to post collateral in the event the fair values of the derivative financial instruments meet posting thresholds established under the agreements. In the event that either party defaults on the obligation, the secured party may seize the collateral. Generally, our collateral arrangements are bilateral such that we and the counterparty post collateral for the value of our total obligation to each other. Contractual terms provide for standard and customary exchange of collateral based on changes in the market value of the outstanding derivatives. The securing party posts additional collateral when their obligation rises or removes collateral when it falls.
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 secondfirst quarter of 2017 or 2016.
We placed cash collateral totaling $84$115 million and securities collateral totaling $55$59 million at June 30, 2016,March 31, 2017, and $103$122 million and $86$72 million at December 31, 2015,2016, respectively, in accounts maintained by counterparties. This amount primarily relates to collateral posted to support our derivative positions. This amount also excludes cash and securities pledged as collateral under repurchase agreements. At June 30, 2016,March 31, 2017, and December 31, 2015,2016, we placed cash collateral totaling $7$5 million and $21$45 million, respectively, with counterparties under collateral
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
under collateral arrangements associated with repurchase agreements. Refer to Note 1314 for details on the repurchase agreements. The receivables for cash collateral placed are included in our Condensed Consolidated Balance Sheet in other assets.
We received cash collateral from counterparties totaling $146$12 million and $10 million at June 30,March 31, 2017, and December 31, 2016, respectively, primarily to support these derivative positions. We received cash collateral from counterparties totaling $82 million at December 31, 2015. This amount also excludes cash and securities pledged as collateral under repurchase agreements. At March 31, 2017, we received cash collateral totaling $1 million from counterparties under collateral arrangements associated with repurchase agreements. Refer to Note 1314 for details on the repurchase agreements. The payables for cash collateral received are included on our Condensed Consolidated Balance Sheet in accrued expenses and other liabilities. In certain circumstances, we receive or post securities as collateral with counterparties. We do not record collateral received on our Condensed Consolidated Balance Sheet unless certain conditions are met. At June 30, 2016,March 31, 2017, and December 31, 2015,2016, we received noncash collateral of $2 million and $7 million, respectively.$6 million. Included in these amounts is noncash collateral where we have been granted the right to sell or pledge the underlying assets. We have not sold or pledged any of the noncash collateral received under these agreements.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Balance Sheet Presentation
The following table summarizes the fair value amounts of derivative instruments reported on our Condensed Consolidated Balance Sheet.Sheet. The fair value amounts are presented on a gross basis, are segregated by derivatives that are designated and qualifying as hedging instruments or those that are not, and are further segregated by type of contract within those two categories. Notional amounts are reference amounts from which contractual obligations are derived and are not recorded on the balance sheet. In our view, derivative notional is not an accurate measure of our derivative exposure when viewed in isolation from other factors, such as market rate fluctuations and counterparty credit risk.
| | | | June 30, 2016 | | December 31, 2015 | | March 31, 2017 | | December 31, 2016 |
| | Derivative contracts in a | | Notional amount | | Derivative contracts in a | | Notional amount | | Derivative contracts in a | | Notional amount | | Derivative contracts in a | | Notional amount |
($ in millions) | | receivable position (a) | | payable position (b) | | receivable position (a) | | payable position (b) | | |
($ in millions) | | | receivable position (a) | | payable position (b) | | Notional amount | | receivable position (a) | | payable position (b) | | Notional amount |
Derivatives designated as accounting hedges | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts | | | | | | | | | | | | | | | | | | | | | | | | |
Swaps (c) (d) (e) | | $ | 164 |
| | $ | 22 |
| | $ | 8,101 |
| | $ | 126 |
| | $ | 9 |
| | $ | 14,151 |
| | $ | 18 |
| | $ | 17 |
| | $ | 3,939 |
| | $ | 19 |
| | $ | 21 |
| | $ | 4,731 |
|
Foreign exchange contracts | | | | | | | | | | | | | | | | | | | | | | | | |
Forwards | | 4 |
| | — |
| | 212 |
| | — |
| | 1 |
| | 189 |
| | — |
| | 1 |
| | 150 |
| | 1 |
| | — |
| | 171 |
|
Total derivatives designated as accounting hedges | | 168 |
| | 22 |
| | 8,313 |
| | 126 |
| | 10 |
| | 14,340 |
| | 18 |
| | 18 |
| | 4,089 |
| | 20 |
| | 21 |
| | 4,902 |
|
Derivatives not designated as accounting hedges | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts | | | | | | | | | | | | | | | | | | | | | | | | |
Swaps | | 17 |
| | 39 |
| | 1,461 |
| | 30 |
| | 51 |
| | 6,101 |
| | — |
| | — |
| | 43 |
| | — |
| | — |
| | 137 |
|
Futures and forwards | | 1 |
| | — |
| | 501 |
| | 2 |
| | 2 |
| | 1,905 |
| | — |
| | — |
| | 25 |
| | — |
| | — |
| | — |
|
Written options | | — |
| | 18 |
| | 16,920 |
| | — |
| | 72 |
| | 18,220 |
| | — |
| | 62 |
| | 13,432 |
| | — |
| | 73 |
| | 14,518 |
|
Purchased options | | 18 |
| | — |
| | 16,920 |
| | 73 |
| | — |
| | 18,240 |
| | 62 |
| | — |
| | 13,407 |
| | 73 |
| | — |
| | 14,517 |
|
Total interest rate risk | | 36 |
| | 57 |
| | 35,802 |
| | 105 |
| | 125 |
| | 44,466 |
| | 62 |
| | 62 |
| | 26,907 |
| | 73 |
| | 73 |
| | 29,172 |
|
Foreign exchange contracts | | | | | | | | | | | | | | | | | | | | | | | | |
Futures and forwards | | 3 |
| | 2 |
| | 127 |
| | — |
| | — |
| | 278 |
| | — |
| | 1 |
| | 94 |
| | 1 |
| | — |
| | 92 |
|
Total foreign exchange risk | | 3 |
| | 2 |
| | 127 |
| | — |
| | — |
| | 278 |
| | — |
| | 1 |
| | 94 |
| | 1 |
| | — |
| | 92 |
|
Equity contracts | | | | | | | | | | | | | | | | | | | | | | | | |
Forwards | | — |
| | 5 |
| | 17 |
| | — |
| | 9 |
| | 32 |
| |
Written options | | — |
| | 1 |
| | 1 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
|
Purchased options | | 2 |
| | — |
| | — |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
|
Total equity risk | | 2 |
| | 6 |
| | 18 |
| | 2 |
| | 10 |
| | 32 |
| | — |
| | — |
| | — |
| | 1 |
| | 1 |
| | — |
|
Total derivatives not designated as accounting hedges | | 41 |
| | 65 |
| | 35,947 |
| | 107 |
| | 135 |
| | 44,776 |
| | 62 |
| | 63 |
| | 27,001 |
| | 75 |
| | 74 |
| | 29,264 |
|
Total derivatives | | $ | 209 |
| | $ | 87 |
| | $ | 44,260 |
| | $ | 233 |
| | $ | 145 |
| | $ | 59,116 |
| | $ | 80 |
| | $ | 81 |
| | $ | 31,090 |
| | $ | 95 |
| | $ | 95 |
| | $ | 34,166 |
|
| |
(a) | Derivative contracts in a receivable position are classified as other assets on the Condensed Consolidated Balance Sheet, and includesinclude accrued interest of $153 million and $467 million at June 30, 2016March 31, 2017, and December 31, 20152016, respectively. |
| |
(b) | Derivative contracts in a liability position are classified as accrued expenses and other liabilities on the Condensed Consolidated Balance Sheet, and includesinclude accrued interest of $40 million and $121 million at June 30, 2016March 31, 2017, and December 31, 20152016, respectively. |
| |
(c) | Includes fair value hedges consisting of receive-fixed swaps on fixed-rate unsecured debt obligations with $14611 million and $1128 million in a receivable position, $018 million and $314 million in a payable position, and a $2.6 billion and $6.81.7 billion notional amount at June 30, 2016March 31, 2017, and December 31, 20152016, respectively. The hedge notional amount of $2.6 billion at June 30, 2016,March 31, 2017, is associated with debt maturing in approximately five or more years. |
| |
(d) | Includes fair value hedges consisting of receive-fixed swaps on fixed-rate secured debt obligations (FHLB Advances)advances) with $18$0 million and $1$0 million in a receivable position, $0 million and $2$7 million in a payable position, and a $698$0 million and $500$240 million notional amount at June 30, 2016,March 31, 2017, and December 31, 2015,2016, respectively. |
| |
(e) | Other fair value hedges include pay-fixed swaps on portfolios of held-for-investment automotive loan assets with $07 million and $13$10 million in a receivable position, $220 million and $3$1 million in a payable position, and a $4.81.4 billion and $6.8$2.8 billion notional amount at June 30, 2016March 31, 2017, and December 31, 20152016, respectively. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Statement of Comprehensive Income Presentation
The following table summarizes the location and amounts of gains and losses on derivative instruments reported in our Condensed Consolidated Statement of Comprehensive Income.Income.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
($ in millions) | | 2016 | | 2015 | | 2016 | | 2015 | | 2017 | | 2016 |
Derivatives qualifying for hedge accounting | | | | | | | | | | | | |
(Loss) gain recognized in earnings on derivatives | | | | | | | | | |
Gain (loss) recognized in earnings on derivatives | | | | | |
Interest rate contracts | | | | | | | | | | | | |
Interest and fees on finance receivables and loans (a) | | $ | (6 | ) | | $ | 7 |
| | $ | (34 | ) | | $ | (16 | ) | | $ | 2 |
| | $ | (28 | ) |
Interest on long-term debt (b) (c) | | 51 |
| | (97 | ) | | 242 |
| | (11 | ) | | 4 |
| | 191 |
|
Gain (loss) recognized in earnings on hedged items | | | | | | | | | |
(Loss) gain recognized in earnings on hedged items | | | | | |
Interest rate contracts | | | | | | | | | | | | |
Interest and fees on finance receivables and loans (d) | | 5 |
| | 2 |
| | 33 |
| | 35 |
| | (4 | ) | | 28 |
|
Interest on long-term debt (e) | | (50 | ) | | 94 |
| | (246 | ) | | 7 |
| |
Interest on long-term debt (e) (f) | | | (3 | ) | | (196 | ) |
Total derivatives qualifying for hedge accounting | | — |
| | 6 |
| | (5 | ) | | 15 |
| | (1 | ) | | (5 | ) |
Derivatives not designated as accounting hedges | | | | | | | | | | | | |
Gain (loss) recognized in earnings on derivatives | | | | | | | | | |
(Loss) gain recognized in earnings on derivatives | | | | | |
Interest rate contracts | | | | | | | | | | | | |
Gain on mortgage and automotive loans, net | | — |
| | 2 |
| | — |
| | — |
| |
Other income, net of losses | | 1 |
| | 3 |
| | 3 |
| | (9 | ) | | (2 | ) | | 2 |
|
Total interest rate contracts | | 1 |
| | 5 |
| | 3 |
| | (9 | ) | | (2 | ) | | 2 |
|
Foreign exchange contracts (f) | | | | | | | | | |
Foreign exchange contracts (g) | | | | | |
Interest on long-term debt | | (1 | ) | | 5 |
| | (2 | ) | | (138 | ) | | — |
| | (1 | ) |
Other income, net of losses | | 1 |
| | (3 | ) | | (3 | ) | | 8 |
| | (1 | ) | | (4 | ) |
Total foreign exchange contracts | | — |
| | 2 |
| | (5 | ) | | (130 | ) | | (1 | ) | | (5 | ) |
Equity contracts | | | | | | | | | | | | |
Compensation and benefits expense | | (1 | ) | | 3 |
| | (2 | ) | | (3 | ) | | — |
| | (1 | ) |
Total equity contracts | | (1 | ) | | 3 |
| | (2 | ) | | (3 | ) | | — |
| | (1 | ) |
Gain (loss) recognized in earnings on derivatives | | $ | — |
| | $ | 16 |
| | $ | (9 | ) | | $ | (127 | ) | |
Loss recognized in earnings on derivatives | | | $ | (4 | ) | | $ | (9 | ) |
| |
(a) | Amounts exclude losses related to interest for qualifying accounting hedges of retail automotive loans held-for-investment, which are primarily offset by the fixed coupon payments of the loans. The losses were $5$1 million and $15$7 million for the three months ended June 30,March 31, 2017, and 2016, and 2015, respectively, and $12 million and $32 million for the six months ended June 30, 2016, and 2015, respectively. |
| |
(b) | Amounts exclude gains related to interest for qualifying accounting hedges of unsecured debt, which are primarily offset by the fixed coupon payment on the long-term debt. The gains were $115 million and $2416 million for the three months endedJune 30, March 31, 2017, and 2016, and 2015, respectively, and $27 million and $47 million for the six months ended June 30, 2016, and 2015, respectively. |
| |
(c) | Amounts exclude gains related to interest for qualifying accounting hedges of secured debt (FHLB Advances)advances), which are primarily offset by the fixed coupon payment on the long-term debt. The gains were $2$0 million and $3$1 million for the three months and six months ended June 30, 2016.March 31, 2017, and 2016, respectively. |
| |
(d) | Amounts exclude losses related to amortization of deferred loan basis adjustments on the de-designated hedged item of $45 million and $1 million for both the three months ended June 30, 2016,March 31, 2017, and 20152016, respectively, and $9 million and $1 million for the six months ended June 30, 2016, and 2015, respectively.. |
| |
(e) | Amounts exclude gains related to amortization of deferred debt basis adjustments on the de-designated hedged item of $2120 million and $1618 million for the three months endedJune 30, 2016, March 31, 2017, and 2015, respectively, and $39 million and $44 million for the six months ended June 30, 2016, and 2015, respectively. |
| |
(f) | Amounts exclude losses related to amortization of deferred debt basis adjustments (FHLB advances) on the de-designated hedge item of $1 million and $0 million for the three months ended March 31, 2017, and 2016, respectively. |
| |
(g) | Amounts exclude gains and losses related to the revaluation of the related foreign-denominated debt or receivable. The losses wereGains of $1 million and $4 million were recognized for the three months endedJune 30, 2016, March 31, 2017, and three months ended2015, and the gains were $3 million and $133 million for the six months ended June 30, 2016, and 2015, respectively. |
Losses of $2 million and $6 million were recognized in other comprehensive income for the three months ended March 31, 2017, and 2016, respectively. These amounts represent the effective portion of net investment hedges. There are offsetting amounts recognized in accumulated other comprehensive loss related to the revaluation of the related net investment in foreign operations, including the tax impacts of the hedge and related net investment, as disclosed separately in Note 16. There were gains of $3 million and $11 million for the three months ended March 31, 2017, and 2016, respectively.
20. Income Taxes
We recognized total income tax expense from continuing operations of $113 million for the three months ended March 31, 2017, compared to income tax expense of $150 million for the same period in 2016. The decrease in income tax expense for the three months ended March 31, 2017, compared to the same period in 2016, was primarily driven by a decrease in pretax earnings and a tax benefit for the current quarter related to stock compensation and associated movements in our share price.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following table summarizes derivative instruments used in cash flow and net investment hedge accounting relationships.
|
| | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
($ in millions) | | 2016 | | 2015 | | 2016 | | 2015 |
Foreign exchange contracts | | | | | | | | |
Loss reclassified from accumulated other comprehensive loss to income from discontinued operations, net | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (4 | ) |
Total loss from discontinued operations, net | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (4 | ) |
(Loss) gain recognized in other comprehensive income (a) | | $ | — |
| | $ | (2 | ) | | $ | (6 | ) | | $ | 20 |
|
| |
(a) | The amounts represent the effective portion of net investment hedges. There are offsetting amounts recognized in accumulated other comprehensive income (loss) related to the revaluation of the related net investment in foreign operations, including the tax impacts of the hedge and related net investment, as disclosed separately in Note 17. There were gains of $0 million and losses of $3 million for the three months endedJune 30, 2016, and 2015, respectively.
|
21. Income Taxes
We recognized total income tax expense from continuing operations of $56 million and $206 million for the three months and six months ended June 30, 2016, compared to income tax expense of $94 million and $197 million for the same periods in 2015. The changes in income tax expense for the three months and six months ended June 30, 2016, compared to the same periods in 2015, were primarily driven by a tax benefit that resulted from a U.S. tax reserve release related to a prior year federal return that reduced our liability for unrecognized tax benefits during the three months ended June 30, 2016, by $175 million. This tax benefit was offset by increases in tax expense attributable to higher pretax earnings and the establishment of a valuation allowance on capital loss 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 capital loss carryforwards, certain foreign tax credits, and state net operating loss carryforwards will not be realized. In recognition of this risk, we continue to provide a full valuation allowance on capital loss carryforwards and a partial valuation allowance on the deferred tax assets relating to theseforeign tax credits and state net operating loss carryforwards.
Finally, as a result of the U.S. tax reserve release previously mentioned, we recorded additional capital loss carryforward deferred tax assets of $93 million. After assessing the positive and negative evidence surrounding our ability to realize these carryforwards before expiration, we established a full valuation allowance against these deferred tax assets.
22.21. 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.
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 | 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. |
| |
Level 2 | 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. |
| |
Level 3 | 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. |
| |
Transfers | Transfers into or out of any hierarchy level are recognized at the end of the reporting period in which the transfer occurred. There were no transfers between any levels for the sixthree months ended June 30, 2016.March 31, 2017. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
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.
Available-for-sale securities — All classes of available-for-sale securities are carried at fair value based on observable market prices, when available. If observable market prices are not available, our valuations are based on internally developed discounted cash flow models (an income approach) that use a market-based discount rate and consider recent market transactions, experience with similar securities, current business conditions, and analysis of the underlying collateral, as available. To estimate cash flows, we are required to utilize various significant assumptions including market observable inputs (e.g., forward interest rates) and internally developed inputs (including prepayment speeds, delinquency levels, and credit losses).
Interests retained in financial asset sales — Includes certain noncertificated interests retained from the sale of automotive finance receivables. Due to inactivity in the market, valuations are based on internally developed discounted cash flow models (an income approach) that use a market-based discount rate; therefore, we classified these assets as Level 3. The valuation considers recent market transactions, experience with similar assets, current business conditions, and analysis of the underlying collateral, as available. To estimate cash flows, we utilize various significant assumptions, including market observable inputs (e.g., forward interest rates) and internally developed inputs (e.g., prepayment speeds, delinquency levels, and credit losses).
Derivative instruments — We enter into a variety of derivative financial instruments as part of our risk management strategies. Certain of these derivatives are exchange traded, such as Eurodollar futures, options of Eurodollar futures, and equity options. To determine the fair value of these instruments, we utilize the quoted market prices for the particular derivative contracts; therefore, we classified these contracts as Level 1.
We also execute over-the-counter (OTC) and centrally-cleared derivative contracts, such as interest rate swaps, a cross-currency swap, swaptions, foreign-currency denominated forward contracts, prepaid equity forward contracts, caps, floors, and agency to-be-announced securities. For OTC contracts, we utilize third-party-developed valuation models that are widely accepted in the market to value these OTC 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 OTC derivative contracts as Level 2 because all significant inputs into these models were market observable. For centrally-cleared
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
contracts, we utilize unadjusted prices obtained from the clearing house as the basis for valuation, and they are also classified as Level 2. We did not have any derivative instruments classified as Level 3 as of June 30, 2016,March 31, 2017, or December 31, 2015.2016.
We are required to consider all aspects of nonperformance risk, including our own credit standing, when measuring fair value of a liability. We reduce credit risk on the majority of our derivatives by entering into legally enforceable agreements that enable the posting and receiving of collateral associated with the fair value of our derivative positions on an ongoing basis. In the event that we do not enter into legally enforceable agreements that enable the posting and receiving of collateral, we will consider our credit risk and the credit risk of our counterparties in the valuation of derivative instruments through a credit valuation adjustment (CVA), if warranted. The CVA calculation utilizes the credit default swap spreads of the counterparty.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
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.
| | | | Recurring fair value measurements | | Recurring fair value measurements |
June 30, 2016 ($ in millions) | | Level 1 | | Level 2 | | Level 3 | | Total | |
March 31, 2017 ($ in millions) | | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | | | | | | | | | | |
Investment securities | | | | | | | |
| | | | | | | |
|
Available-for-sale securities | | | | | | | |
| | | | | | | |
|
Debt securities | | | | | | | |
| | | | | | | |
|
U.S. Treasury and federal agencies | | $ | 275 |
| | $ | — |
| | $ | — |
| | $ | 275 |
| |
U.S. Treasury | | | $ | 2,225 |
| | $ | — |
| | $ | — |
| | $ | 2,225 |
|
U.S. States and political subdivisions | | — |
| | 733 |
| | — |
| | 733 |
| | — |
| | 795 |
| | — |
| | 795 |
|
Foreign government | | 11 |
| | 180 |
| | — |
| | 191 |
| | 9 |
| | 137 |
| | — |
| | 146 |
|
Agency mortgage-backed residential | | | — |
| | 11,862 |
| | — |
| | 11,862 |
|
Mortgage-backed residential | | — |
| | 12,617 |
| | — |
| | 12,617 |
| | — |
| | 1,996 |
| | — |
| | 1,996 |
|
Mortgage-backed commercial | | — |
| | 506 |
| | — |
| | 506 |
| | — |
| | 534 |
| | — |
| | 534 |
|
Asset-backed | | — |
| | 1,674 |
| | — |
| | 1,674 |
| | — |
| | 1,051 |
| | — |
| | 1,051 |
|
Corporate debt | | — |
| | 1,602 |
| | — |
| | 1,602 |
| | — |
| | 1,255 |
| | — |
| | 1,255 |
|
Total debt securities | | 286 |
| | 17,312 |
| | — |
| | 17,598 |
| | 2,234 |
| | 17,630 |
| | — |
| | 19,864 |
|
Equity securities (a) | | 599 |
| | — |
| | — |
| | 599 |
| | 444 |
| | — |
| | — |
| | 444 |
|
Total available-for-sale securities | | 885 |
| | 17,312 |
| | — |
| | 18,197 |
| | 2,678 |
| | 17,630 |
| | — |
| | 20,308 |
|
Other assets | | | | | | | |
| |
Mortgage loans held-for-sale | | | — |
| | — |
| | 1 |
| | 1 |
|
Interests retained in financial asset sales | | — |
| | — |
| | 31 |
| | 31 |
| | — |
| | — |
| | 31 |
| | 31 |
|
Derivative contracts in a receivable position (b) | | | | | | | |
| | | | | | | |
|
Interest rate | | 1 |
| | 199 |
| | — |
| | 200 |
| | — |
| | 80 |
| | — |
| | 80 |
|
Foreign currency | | — |
| | 7 |
| | — |
| | 7 |
| |
Other | | 2 |
| | — |
| | — |
| | 2 |
| |
Total derivative contracts in a receivable position | | 3 |
| | 206 |
| | — |
| | 209 |
| | — |
| | 80 |
| | — |
| | 80 |
|
Total assets | | $ | 888 |
| | $ | 17,518 |
| | $ | 31 |
| | $ | 18,437 |
| | $ | 2,678 |
| | $ | 17,710 |
| | $ | 32 |
| | $ | 20,420 |
|
Liabilities | | | | | | | |
| | | | | | | |
|
Accrued expenses and other liabilities | | | | | | | |
| | | | | | | |
|
Derivative contracts in a payable position (b) | | | | | | | |
| | | | | | | |
|
Interest rate | | $ | — |
| | $ | (79 | ) | | $ | — |
| | $ | (79 | ) | | $ | — |
| | $ | (80 | ) | | $ | — |
| | $ | (80 | ) |
Foreign currency | | — |
| | (2 | ) | | — |
| | (2 | ) | | — |
| | (1 | ) | | — |
| | (1 | ) |
Other | | (1 | ) | | (5 | ) | | — |
| | (6 | ) | |
Total derivative contracts in a payable position | | (1 | ) | | (86 | ) | | — |
| | (87 | ) | | — |
| | (81 | ) | | — |
| | (81 | ) |
Total liabilities | | $ | (1 | ) | | $ | (86 | ) | | $ | — |
| | $ | (87 | ) | | $ | — |
| | $ | (81 | ) | | $ | — |
| | $ | (81 | ) |
| |
(a) | Our investment in any one industry did not exceed 18%16%. |
| |
(b) | For additional information on derivative instruments and hedging activities, refer to Note 20.19. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
| | | | Recurring fair value measurements | | Recurring fair value measurements |
December 31, 2015 ($ in millions) | | Level 1 | | Level 2 | | Level 3 | | Total | |
December 31, 2016 ($ in millions) | | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | | | | | | | | | | |
Investment securities | | | | | | | | | | | | | | | | |
Available-for-sale securities | | | | | | | | | | | | | | | | |
Debt securities | | | | | | | | | | | | | | | | |
U.S. Treasury and federal agencies | | $ | 1,469 |
| | $ | 272 |
| | $ | — |
| | $ | 1,741 |
| |
U.S. Treasury | | | $ | 1,620 |
| | $ | — |
| | $ | — |
| | $ | 1,620 |
|
U.S. States and political subdivisions | | — |
| | 716 |
| | — |
| | 716 |
| | — |
| | 782 |
| | — |
| | 782 |
|
Foreign government | | 10 |
| | 167 |
| | — |
| | 177 |
| | 11 |
| | 151 |
| | — |
| | 162 |
|
Agency mortgage-backed residential | | | — |
| | 10,290 |
| | — |
| | 10,290 |
|
Mortgage-backed residential | | — |
| | 10,366 |
| | — |
| | 10,366 |
| | — |
| | 2,097 |
| | — |
| | 2,097 |
|
Mortgage-backed commercial | | — |
| | 481 |
| | — |
| | 481 |
| | — |
| | 537 |
| | — |
| | 537 |
|
Asset-backed | | — |
| | 1,755 |
| | — |
| | 1,755 |
| | — |
| | 1,400 |
| | — |
| | 1,400 |
|
Corporate debt | | — |
| | 1,204 |
| | — |
| | 1,204 |
| | — |
| | 1,443 |
| | — |
| | 1,443 |
|
Total debt securities | | 1,479 |
| | 14,961 |
| | — |
| | 16,440 |
| | 1,631 |
| | 16,700 |
| | — |
| | 18,331 |
|
Equity securities (a) | | 717 |
| | — |
| | — |
| | 717 |
| | 595 |
| | — |
| | — |
| | 595 |
|
Total available-for-sale securities | | 2,196 |
| | 14,961 |
| | — |
| | 17,157 |
| | 2,226 |
| | 16,700 |
| | — |
| | 18,926 |
|
Other assets | | | | | | | |
| | | | | | | |
|
Interests retained in financial asset sales | | — |
| | — |
| | 40 |
| | 40 |
| | — |
| | — |
| | 29 |
| | 29 |
|
Derivative contracts in a receivable position (b) | | | | | | | |
| | | | | | | |
|
Interest rate | | 2 |
| | 229 |
| | — |
| | 231 |
| | — |
| | 92 |
| | — |
| | 92 |
|
Foreign currency | | | — |
| | 2 |
| | — |
| | 2 |
|
Other | | 2 |
| | — |
| | — |
| | 2 |
| | 1 |
| | — |
| | — |
| | 1 |
|
Total derivative contracts in a receivable position | | 4 |
| | 229 |
| | — |
| | 233 |
| | 1 |
| | 94 |
| | — |
| | 95 |
|
Total assets | | $ | 2,200 |
|
| $ | 15,190 |
|
| $ | 40 |
| | $ | 17,430 |
| | $ | 2,227 |
|
| $ | 16,794 |
|
| $ | 29 |
| | $ | 19,050 |
|
Liabilities | | | | | | | |
| | | | | | | |
|
Accrued expenses and other liabilities | | | | | | | |
| | | | | | | |
|
Derivative contracts in a payable position (b) | | | | | | | |
| | | | | | | |
|
Interest rate | | $ | (2 | ) | | $ | (133 | ) | | $ | — |
| | $ | (135 | ) | | $ | — |
| | $ | (94 | ) | | $ | — |
| | $ | (94 | ) |
Foreign currency | | — |
| | (1 | ) | | — |
| | (1 | ) | |
Other | | (1 | ) | | (8 | ) | | — |
| | (9 | ) | | (1 | ) | | — |
| | — |
| | (1 | ) |
Total derivative contracts in a payable position | | (3 | ) | | (142 | ) | | — |
| | (145 | ) | | (1 | ) | | (94 | ) | | — |
| | (95 | ) |
Total liabilities | | $ | (3 | ) |
| $ | (142 | ) |
| $ | — |
|
| $ | (145 | ) | | $ | (1 | ) |
| $ | (94 | ) |
| $ | — |
|
| $ | (95 | ) |
| |
(a) | Our investment in any one industry did not exceed 14%. |
| |
(b) | For additional information on derivative instruments and hedging activities, refer to Note 20.19. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following tables present the reconciliation for all Level 3 assets and liabilities measured at fair value on a recurring basis. We often economically hedge the fair value change of our assets or liabilities with derivatives and other financial instruments. The Level 3 items presented below may be hedged by derivatives and other financial instruments that are classified as Level 1 or Level 2. Thus, the following tables do not fully reflect the impact of our risk management activities.
| | | Level 3 recurring fair value measurements | Level 3 recurring fair value measurements |
| | Net realized/unrealized gains | | Fair value at June 30, 2016 | Net unrealized gains included in earnings still held at June 30, 2016 | | Net realized/unrealized gains | | Fair value at March 31, 2017 | Net unrealized gains included in earnings still held at March 31, 2017 |
($ in millions) | Fair value at April 1, 2016 | included in earnings | | included in OCI | Purchases | Sales | Issuances | Settlements | Fair value at Jan. 1, 2017 | included in earnings | | included in OCI | Purchases | Sales | Issuances | Settlements |
Assets | | | | | | | |
| |
Mortgage loans held-for-sale | | $ | — |
| $ | — |
| | $ | — |
| $ | 3 |
| $ | (2 | ) | $ | — |
| $ | — |
| $ | 1 |
| $ | — |
|
Other assets | | | | | | |
| |
Interests retained in financial asset sales | $ | 31 |
| $ | 1 |
| (a) | $ | — |
| $ | — |
| $ | 2 |
| $ | — |
| $ | (3 | ) | $ | 31 |
| $ | — |
| 29 |
| — |
| | — |
| — |
| 4 |
| — |
| (2 | ) | 31 |
| — |
|
Total assets | $ | 31 |
| $ | 1 |
| | $ | — |
| $ | — |
| $ | 2 |
| $ | — |
| $ | (3 | ) | $ | 31 |
| $ | — |
| $ | 29 |
| $ | — |
|
| $ | — |
| $ | 3 |
| $ | 2 |
| $ | — |
| $ | (2 | ) | $ | 32 |
| $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Level 3 recurring fair value measurements |
| Fair value at Jan. 1, 2016 | Net realized/unrealized gains | Purchases | Sales | Issuances | Settlements | Fair value at March 31, 2016 | Net unrealized gains included in earnings still held at March 31, 2016 |
($ in millions) | included in earnings | | included in OCI |
Assets | | | | | | | | | | |
Other assets | | | | | | | | | | |
Interests retained in financial asset sales | $ | 40 |
| $ | 2 |
| (a) | $ | — |
| $ | — |
| $ | 4 |
| $ | — |
| $ | (15 | ) | $ | 31 |
| $ | — |
|
Total assets | $ | 40 |
| $ | 2 |
| | $ | — |
| $ | — |
| $ | 4 |
| $ | — |
| $ | (15 | ) | $ | 31 |
| $ | — |
|
| |
(a) | Reported as other income, net of losses, in the Condensed Consolidated Statement of Comprehensive Income.Income. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Level 3 recurring fair value measurements |
| Fair value at April 1, 2015 | Net realized/unrealized gains | Purchases | Sales | Issuances | Settlements | Fair value at June 30, 2015 | Net unrealized gains included in earnings still held at June 30, 2015 |
($ in millions) | included in earnings | | included in OCI |
Assets | | | | | | | | | | |
Mortgage loans held-for-sale, net | $ | 3 |
| $ | 1 |
| (a) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 4 |
| $ | 1 |
|
Other assets | | | | | | | | | | |
Interests retained in financial asset sales | 42 |
| 4 |
| (a) | — |
| — |
| — |
| — |
| (14 | ) | 32 |
| — |
|
Total assets | $ | 45 |
| $ | 5 |
| | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | (14 | ) | $ | 36 |
| $ | 1 |
|
42
(a) Reported as other income, net
Notes to Condensed Consolidated Statement of Comprehensive Income.Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Level 3 recurring fair value measurements |
| | Net realized/unrealized gains | | | | | Fair value at June 30, 2016 | Net unrealized gains included in earnings still held at June 30, 2016 |
($ in millions) | Fair value at Jan. 1, 2016 | included in earnings | | included in OCI | Purchases | Sales | Issuances | Settlements |
Assets | | | | | | | | |
| |
Other assets | | | | | | | | |
| |
Interests retained in financial asset sales | $ | 40 |
| $ | 3 |
| (a) | $ | — |
| $ | — |
| $ | 6 |
| $ | — |
| $ | (18 | ) | $ | 31 |
| $ | — |
|
Total assets | $ | 40 |
| $ | 3 |
|
| $ | — |
| $ | — |
| $ | 6 |
| $ | — |
| $ | (18 | ) | $ | 31 |
| $ | — |
|
| |
(a) | Reported as other income, net of losses, in the Condensed Consolidated Statement of Comprehensive Income. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Level 3 recurring fair value measurements |
| Fair value at Jan. 1, 2015 | Net realized/unrealized gains | Purchases | Sales | Issuances | Settlements | Fair value at June 30, 2015 | Net unrealized gains included in earnings still held at June 30, 2015 |
($ in millions) | included in earnings | | included in OCI |
Assets | | | | | | | | | | |
Mortgage loans held-for-sale, net | $ | 3 |
| $ | 1 |
| (a) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 4 |
| $ | 1 |
|
Other assets | | | | | | | | | | |
Interests retained in financial asset sales | 47 |
| 7 |
| (a) | — |
| — |
| — |
| 1 |
| (23 | ) | 32 |
| — |
|
Total assets | $ | 50 |
| $ | 8 |
| | $ | — |
| $ | — |
| $ | — |
| $ | 1 |
| $ | (23 | ) | $ | 36 |
| $ | 1 |
|
(a) Reported as other income, net of losses, in the Condensed Consolidated Statement of Comprehensive Income.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.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following tables display the assets and liabilities measured at fair value on a nonrecurring basis.
| | | | Nonrecurring fair value measurements | | Lower-of-cost or fair value or valuation reserve allowance | | Total gain included in earnings for the three months ended | | Total gain included in earnings for the six months ended | | | Nonrecurring fair value measurements | | Lower-of-cost or fair value or valuation reserve allowance | | Total gain (loss) included in earnings for the three months ended | |
June 30, 2016 ($ in millions) | | Level 1 | | Level 2 | | Level 3 | | Total | | |
March 31, 2017 ($ in millions) | | | Level 1 | | Level 2 | | Level 3 | | Total | | Lower-of-cost or fair value or valuation reserve allowance | | Total gain (loss) included in earnings for the three months ended | |
Assets | | | | | | | | | | | | | | | | | | | | |
Loans held-for-sale, net | | $ | — |
| | $ | — |
| | $ | 15 |
| | $ | 15 |
| | $ | — |
| | n/m | (a) | n/m | (a) | |
Commercial finance receivables and loans, net (b) | | | | | | | | | | | | |
Commercial finance receivables and loans, net (a) | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | |
Automotive | | — |
| | — |
| | 43 |
| | 43 |
| | (6 | ) | | n/m | (a) | n/m | (a) | | $ | — |
| | $ | — |
| | $ | 29 |
| | $ | 29 |
| | $ | (3 | ) | | n/m | (b) |
Other | | — |
| | — |
| | 46 |
| | 46 |
| | (18 | ) | | n/m | (a) | n/m | (a) | | — |
| | — |
| | 61 |
| | 61 |
| | (21 | ) | | n/m | (b) |
Total commercial finance receivables and loans, net | | — |
| | — |
| | 89 |
| | 89 |
| | (24 | ) | | n/m | (a) | n/m | (a) | | — |
| | — |
| | 90 |
| | 90 |
| | (24 | ) | | n/m | (b) |
Other assets | | | | | | | |
| | | | | | | | | | |
| | | |
Repossessed and foreclosed assets (c) | | — |
| | — |
| | 10 |
| | 10 |
| | (3 | ) | | n/m | (a) | n/m | (a) | | — |
| | — |
| | 15 |
| | 15 |
| | (2 | ) | | n/m | (b) |
Other | | — |
| | — |
| | 5 |
| | 5 |
| | — |
| | n/m | (a) | n/m | (a) | | — |
| | — |
| | 4 |
| | 4 |
| | — |
| | n/m | (b) |
Total assets | | $ | — |
| | $ | — |
| | $ | 119 |
| | $ | 119 |
| | $ | (27 | ) | | n/m | | n/m | | | $ | — |
| | $ | — |
| | $ | 109 |
| | $ | 109 |
| | $ | (26 | ) | | n/m | |
n/m = not meaningful
| |
(a) | Represents the portion of the portfolio specifically impaired during 2017. The related valuation allowance represents the cumulative adjustment to fair value of those specific receivables. |
| |
(b) | We consider the applicable valuation or loan loss allowance to be the most relevant indicator of the impact on earnings caused by the fair value measurement. Accordingly, the table above excludes total gains and losses included in earnings for these items. The carrying values are inclusive of the respective valuation or loan loss allowance. |
| |
(b) | Represents the portion of the portfolio specifically impaired during 2016. 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. |
| | | | Nonrecurring fair value measurements | | Lower-of-cost or fair value or valuation reserve allowance | | Total gain included in earnings for the three months ended | | Total gain included in earnings for the six months ended | | | Nonrecurring fair value measurements | | Lower-of-cost or fair value or valuation reserve allowance | | Total gain (loss) included in earnings for the three months ended | |
June 30, 2015 ($ in millions) | | Level 1 | | Level 2 | | Level 3 | | Total | | |
March 31, 2016 ($ in millions) | | | Level 1 | | Level 2 | | Level 3 | | Total | | Lower-of-cost or fair value or valuation reserve allowance | | Total gain (loss) included in earnings for the three months ended | |
Assets | | | | | | | | | | | | | | | | | | | | |
Loans held-for-sale, net | | | | | | | | | | | | | $ | — |
| | $ | — |
| | $ | 39 |
| | $ | 39 |
| | $ | — |
| | n/m | (a) |
Automotive | | $ | — |
| | $ | — |
| | $ | 1,356 |
| | $ | 1,356 |
| | $ | (12 | ) | | n/m | (a) | n/m | (a) | |
Mortgage | | — |
| | — |
| | 10 |
| | 10 |
| | (1 | ) | | n/m | (a) | n/m | (a) | |
Other | | — |
| | — |
| | 36 |
| | 36 |
| | — |
| | n/m | (a) | n/m | (a) | |
Total loans held-for-sale, net | | — |
| | — |
| | 1,402 |
| | 1,402 |
| | (13 | ) | | n/m | (a) | n/m | (a) | |
Commercial finance receivables and loans, net (b) | | | | | | | |
| | | | | | | | | | |
| | | |
Commercial and industrial | | | | | | | | | | | | |
Automotive | | — |
| | — |
| | 24 |
| | 24 |
| | (8 | ) | | n/m | (a) | n/m | (a) | | — |
| | — |
| | 17 |
| | 17 |
| | (3 | ) | | n/m | (a) |
Other | | — |
| | — |
| | 34 |
| | 34 |
| | (11 | ) | | n/m | (a) | n/m | (a) | | — |
| | — |
| | 28 |
| | 28 |
| | (15 | ) | | n/m | (a) |
Total commercial finance receivables and loans, net | | — |
| | — |
| | 58 |
| | 58 |
| | (19 | ) | | n/m | (a) | n/m | (a) | | — |
| | — |
| | 45 |
| | 45 |
| | (18 | ) | | n/m | (a) |
Other assets | | | | | | | |
| | | | | | | | | | |
| | | |
Repossessed and foreclosed assets (c) | | — |
| | — |
| | 10 |
| | 10 |
| | (3 | ) | | n/m | (a) | n/m | (a) | | — |
| | — |
| | 12 |
| | 12 |
| | (3 | ) | | n/m | (a) |
Other | | — |
| | — |
| | 2 |
| | 2 |
| | — |
| | n/m | (a) | n/m | (a) | | — |
| | — |
| | 6 |
| | 6 |
| | — |
| | n/m | (a) |
Total assets | | $ | — |
| | $ | — |
| | $ | 1,472 |
| | $ | 1,472 |
| | $ | (35 | ) | | n/m | | n/m | | | $ | — |
| | $ | — |
| | $ | 102 |
| | $ | 102 |
| | $ | (21 | ) | | n/m | |
n/m = not meaningful
| |
(a) | We consider the applicable valuation or loan loss allowance to be the most relevant indicator of the impact on earnings caused by the fair value measurement. Accordingly, the table above excludes total gains and losses included in earnings for these items. The carrying values are inclusive of the respective valuation or loan loss allowance. |
| |
(b) | Represents the portion of the portfolio specifically impaired during 2015.2016. 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. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following table presents quantitative information regarding the significant unobservable inputs used in significant Level 3 assets measured at fair value on a nonrecurring basis.
|
| | | | | | | | | | |
June 30, 2015 ($ in millions) | | Level 3 nonrecurring measurements | | Valuation technique | | Unobservable input | | Weighted average/range |
Assets | | | | | | | | |
Automotive loans held-for-sale, net | | $ | 1,356 |
| | Discounted cash flow | | Prepayment rate | | 1.30% |
| | | | | | Gross loss | | 0-4.50% |
| | | | | | Credit spread | | 0-6.70% |
Fair Value Option for Financial Assets
We elected the fair value option for an insignificant amount of conforming and government-insured mortgage loans held-for-sale. We elected the fair value option to mitigate earnings volatility by better matching the accounting for the assets with the related hedges. Our intent in electing fair value measurement was to mitigate a divergence between accounting losses and economic exposure for certain assets and liabilities.
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 June 30, 2016March 31, 2017, and December 31, 20152016.
|
| | | | | | | | | | | | | | | | | | | |
| | | Estimated fair value |
($ in millions) | Carrying value | | Level 1 | | Level 2 | | Level 3 | | Total |
June 30, 2016 | | | | | | | | | |
Financial assets | | | | | | | | | |
Held-to-maturity securities | $ | 571 |
| | $ | — |
| | $ | 579 |
| | $ | — |
| | $ | 579 |
|
Loans held-for-sale, net | 15 |
| | — |
| | — |
| | 15 |
| | 15 |
|
Finance receivables and loans, net | 111,564 |
| | — |
| | — |
| | 112,632 |
| | 112,632 |
|
Nonmarketable equity investments | 772 |
| | — |
| | 745 |
| | 43 |
| | 788 |
|
Financial liabilities | | | | | | | | | |
Deposit liabilities | $ | 72,802 |
| | $ | — |
| | $ | — |
| | $ | 73,528 |
| | $ | 73,528 |
|
Short-term borrowings | 5,994 |
| | — |
| | — |
| | 5,996 |
| | 5,996 |
|
Long-term debt | 61,040 |
| | — |
| | 23,407 |
| | 39,574 |
| | 62,981 |
|
December 31, 2015 | | | | | | | | | |
Financial assets | | | | | | | | | |
Loans held-for-sale, net | $ | 105 |
| | $ | — |
| | $ | — |
| | $ | 105 |
| | $ | 105 |
|
Finance receivables and loans, net | 110,546 |
| | — |
| | — |
| | 110,737 |
| | 110,737 |
|
Nonmarketable equity investments | 418 |
| | — |
| | 391 |
| | 42 |
| | 433 |
|
Financial liabilities | | | | | | | | | |
Deposit liabilities | $ | 66,478 |
| | $ | — |
| | $ | — |
| | $ | 66,889 |
| | $ | 66,889 |
|
Short-term borrowings | 8,101 |
| | — |
| | — |
| | 8,102 |
| | 8,102 |
|
Long-term debt | 66,234 |
| | — |
| | 23,018 |
| | 45,157 |
| | 68,175 |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | | | | | | | | | | | | |
| | | Estimated fair value |
($ in millions) | Carrying value | | Level 1 | | Level 2 | | Level 3 | | Total |
March 31, 2017 | | | | | | | | | |
Financial assets | | | | | | | | | |
Held-to-maturity securities | $ | 1,104 |
| | $ | — |
| | $ | 1,063 |
| | $ | — |
| | $ | 1,063 |
|
Finance receivables and loans, net | 117,847 |
| | — |
| | — |
| | 119,420 |
| | 119,420 |
|
Nonmarketable equity investments | 833 |
| | — |
| | 795 |
| | 59 |
| | 854 |
|
Financial liabilities | | | | | | | | | |
Deposit liabilities | $ | 84,486 |
| | $ | — |
| | $ | — |
| | $ | 82,715 |
| | $ | 82,715 |
|
Short-term borrowings | 8,371 |
| | — |
| | — |
| | 8,372 |
| | 8,372 |
|
Long-term debt | 51,061 |
| | — |
| | 19,604 |
| | 33,511 |
| | 53,115 |
|
December 31, 2016 | | | | | | | | | |
Financial assets | | | | | | | | | |
Held-to-maturity securities | $ | 839 |
| | $ | — |
| | $ | 789 |
| | $ | — |
| | $ | 789 |
|
Finance receivables and loans, net | 117,800 |
| | — |
| | — |
| | 118,750 |
| | 118,750 |
|
Nonmarketable equity investments | 1,046 |
| | — |
| | 1,012 |
| | 55 |
| | 1,067 |
|
Financial liabilities | | | | | | | | | |
Deposit liabilities | $ | 79,022 |
| | $ | — |
| | $ | — |
| | $ | 78,469 |
| | $ | 78,469 |
|
Short-term borrowings | 12,673 |
| | — |
| | — |
| | 12,675 |
| | 12,675 |
|
Long-term debt | 54,128 |
| | — |
| | 22,036 |
| | 34,084 |
| | 56,120 |
|
The following describes the methodologies and assumptions used to determine fair value for the significant classes of financial instruments. In addition to the valuation methods discussed below, we also followed guidelines for determining whether a market was not active and a transaction was not distressed. We assumed the price that would be received in an orderly transaction (including a market-based return) and not in forced liquidation or distressed sale.
Cash and cash equivalents — Included in cash and cash equivalents are highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value due to interest rate, quoted price, or penalty on withdrawal. Classified as Level 1 under the fair value hierarchy, cash and cash equivalents generally expose us to limited credit risk and are so near maturity that they present insignificant risk of changes in value because of changes in interest rates. Accordingly, the carrying value approximates the fair value of these instruments.
Held-to-maturity securities — Held-to-maturity securities, which consist of asset-backed retained notes and residential mortgage-backed debt securities issued by government agencies, are carried at amortized cost. For fair value disclosure purposes, held-to-maturity securities are classified as Level 2, with fair value based on observable market prices, when available.
Finance receivables and loans, net — With the exception of mortgage loans held-for-investment, the fair value of finance receivables and loans was based on discounted future cash flows using applicable spreads to approximate current rates applicable to each category of finance receivables and loans (an income approach using Level 3 inputs). The carrying value of commercial receivables in certain markets and certain automotive and other receivables for which interest rates reset on a short-term basis with applicable market indices are assumed to approximate fair value either because of the short-term nature or because of the interest
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
rate adjustment feature. The fair value of commercial receivables in other markets was based on discounted future cash flows using applicable spreads to approximate current rates applicable to similar assets in those markets.
The fair value of mortgage loans held-for-investment was based on a discounted cash flow basis utilizing cash flow projections from internally developed models that utilized prepayment, default, and discount rate assumptions. These valuations consider unique attributes of the loans such as geography, delinquency status, product type, and other factors.
Nonmarketable equity investments — Nonmarketable equity investments primarily include investments in FHLB and FRB stock and other equity investments carried at cost. As a member of the FHLB and FRB, Ally Bank is required to hold FHLB and FRB stock. The stock can be sold only to the FHLB and FRB upon termination of membership, or redeemed at the sole discretion of the FHLB and FRB, respectively. The fair value of FHLB and FRB stock is equal to the stock’s par value since the stock is bought, sold, and/or redeemed at par. FHLB and FRB stock is carried at cost, which generally represents the stock’s par value.
Deposit liabilities — Deposit liabilities represent certain consumer and brokered bank deposits, mortgage escrow deposits, and dealer deposits. The fair value of deposits at Level 3 werewas estimated by discounting projected cash flows based on discount factors derived from the forward interest rate swap curve.
Short-term borrowings and Long-term debt — Level 2 debt was valued using quoted market prices for similar instruments, when available, or other means for substantiation with observable inputs. Debt valued by discounting projected cash flows using internally derived inputs, such as prepayment speeds and discount rates, was classified as Level 3.
Financial instruments for which carrying value approximates fair value — Certain financial instruments that are not carried at fair value on the consolidated balance sheet are carried at amounts that approximate fair value primarily due to their short term nature and limited credit risk. These instruments include restricted cash, cash collateral, accrued interest receivable, accrued interest payable, trade receivables and payables, and other short term receivables and payables.
23.22. 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 (1) 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 (2) 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 value of our total obligation to each other. Contractual terms provide for standard and customary exchange of collateral based on changes in the market value of the outstanding derivatives. The securing party posts additional collateral when their obligation rises or removes collateral when it falls, 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 March 31, 2017, these instruments are reported as gross assets and gross liabilities on the Condensed Consolidated Balance Sheet.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
assets and liabilities subject to a master netting agreement on a net basis if certain qualifying criteria are met. At June 30, 2016, these instruments are reported as gross assets and gross liabilities on the Condensed Consolidated Balance Sheet.
The composition of offsetting derivative instruments, financial assets, and financial liabilities was as follows.
| | | | Gross amounts of recognized assets/(liabilities) | | Gross amounts offset in the Condensed Consolidated Balance Sheet | | Net amounts of assets/(liabilities) presented in the Condensed Consolidated Balance Sheet | | | | | | | | Gross amounts of recognized assets/(liabilities) | | Gross amounts offset in the Condensed Consolidated Balance Sheet | | Net amounts of assets/(liabilities) presented in the Condensed Consolidated Balance Sheet | | | | | | |
| | Gross amounts not offset in the Condensed Consolidated Balance Sheet | | | | Gross amounts not offset in the Condensed Consolidated Balance Sheet | | |
June 30, 2016 ($ in millions) | | Financial instruments | | Collateral (a) (b) (c) | | Net amount | |
March 31, 2017 ($ in millions) | | | Gross amounts of recognized assets/(liabilities) | | Gross amounts offset in the Condensed Consolidated Balance Sheet | | Net amounts of assets/(liabilities) presented in the Condensed Consolidated Balance Sheet | | Financial instruments | | Collateral (a) (b) (c) | | Net amount |
Assets | | | | | | | | | | | | | | | | | | |
Derivative assets in net asset positions | | $ | 207 |
| | $ | — |
| | $ | 207 |
| | $ | (44 | ) | | $ | (143 | ) | | $ | 20 |
| | $ | (5 | ) | | $ | (8 | ) | | $ | 65 |
|
Derivative assets in net liability positions | | 2 |
| | — |
| | 2 |
| | (1 | ) | | — |
| | 1 |
| | 2 |
| | — |
| | 2 |
| | (2 | ) | | — |
| | — |
|
Total assets (d) | | $ | 209 |
|
| $ | — |
|
| $ | 209 |
|
| $ | (45 | ) |
| $ | (143 | ) |
| $ | 21 |
| | $ | 80 |
|
| $ | — |
|
| $ | 80 |
|
| $ | (7 | ) |
| $ | (8 | ) |
| $ | 65 |
|
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative liabilities in net liability positions | | $ | (38 | ) | | $ | — |
| | $ | (38 | ) | | $ | 1 |
| | $ | 21 |
| | $ | (16 | ) | | $ | (76 | ) | | $ | — |
| | $ | (76 | ) | | $ | 2 |
| | $ | 14 |
| | $ | (60 | ) |
Derivative liabilities in net asset positions | | (44 | ) | | — |
| | (44 | ) | | 44 |
| | — |
| | — |
| | (5 | ) | | — |
| | (5 | ) | | 5 |
| | — |
| | — |
|
Derivative liabilities with no offsetting arrangements | | (5 | ) | | — |
| | (5 | ) | | — |
| | — |
| | (5 | ) | |
Total derivative liabilities (d) | | (87 | ) | | — |
| | (87 | ) | | 45 |
| | 21 |
| | (21 | ) | | (81 | ) | | — |
| | (81 | ) | | 7 |
| | 14 |
| | (60 | ) |
Securities sold under agreements to repurchase (e) | | (468 | ) | | — |
| | (468 | ) | | — |
| | 468 |
| | — |
| | (1,146 | ) | | — |
| | (1,146 | ) | | — |
| | 1,146 |
| | — |
|
Total liabilities | | $ | (555 | ) | | $ | — |
| | $ | (555 | ) | | $ | 45 |
| | $ | 489 |
| | $ | (21 | ) | | $ | (1,227 | ) | | $ | — |
| | $ | (1,227 | ) | | $ | 7 |
| | $ | 1,160 |
| | $ | (60 | ) |
| |
(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. $2 $6 million of noncash derivative collateral pledged to us was excluded at June 30, 2016. March 31, 2017. We do not record such collateral received on ourCondensed Consolidated Balance Sheetunless certain conditions are met. |
| |
(c) | Certain agreements grant us the right to sell or pledge the noncash assets we receive as collateral. Noncash collateral pledged to us where the agreement grants us the right to sell or pledge the underlying assets had a fair value of $2$6 million at June 30, 2016.March 31, 2017. We have not sold or pledged any of the noncash collateral received under these agreements as of June 30, 2016.March 31, 2017. |
| |
(d) | For additional information on derivative instruments and hedging activities, refer to Note 20.19. |
| |
(e) | For additional information on securities sold under agreements to repurchase, refer to Note 13.14. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
| | | | Gross amounts of recognized assets/(liabilities) | | Gross amounts offset in the Condensed Consolidated Balance Sheet | | Net amounts of assets/(liabilities) presented in the Condensed Consolidated Balance Sheet | | | | | | | | Gross amounts of recognized assets/(liabilities) | | Gross amounts offset in the Condensed Consolidated Balance Sheet | | Net amounts of assets/(liabilities) presented in the Condensed Consolidated Balance Sheet | | | | | | |
| | Gross amounts not offset in the Condensed Consolidated Balance Sheet | | | | Gross amounts not offset in the Condensed Consolidated Balance Sheet | | |
December 31, 2015 ($ in millions) | | Financial instruments | | Collateral (a) (b) (c) | | Net amount | |
December 31, 2016 ($ in millions) | | | Gross amounts of recognized assets/(liabilities) | | Gross amounts offset in the Condensed Consolidated Balance Sheet | | Net amounts of assets/(liabilities) presented in the Condensed Consolidated Balance Sheet | | Financial instruments | | Collateral (a) (b) (c) | | Net amount |
Assets | | | | | | | | | | | | | | | | | | |
Derivative assets in net asset positions | | $ | 224 |
| | $ | — |
| | $ | 224 |
| | $ | (69 | ) | | $ | (67 | ) | | $ | 88 |
| | $ | (4 | ) | | $ | (9 | ) | | $ | 74 |
|
Derivative assets in net liability positions | | 9 |
| | — |
| | 9 |
| | (9 | ) | | — |
| | — |
| | 8 |
| | — |
| | 8 |
| | (8 | ) | | — |
| | — |
|
Total assets (d) | | $ | 233 |
| | $ | — |
| | $ | 233 |
| | $ | (78 | ) | | $ | (67 | ) | | $ | 88 |
| | $ | 95 |
| | $ | — |
| | $ | 95 |
| | $ | (12 | ) | | $ | (9 | ) | | $ | 74 |
|
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative liabilities in net liability positions | | $ | (68 | ) | | $ | — |
| | $ | (68 | ) | | $ | 9 |
| | $ | 2 |
| | $ | (57 | ) | | $ | (91 | ) | | $ | — |
| | $ | (91 | ) | | $ | 8 |
| | $ | 13 |
| | $ | (70 | ) |
Derivative liabilities in net asset positions | | (69 | ) | | — |
| | (69 | ) | | 69 |
| | — |
| | — |
| | (4 | ) | | — |
| | (4 | ) | | 4 |
| | — |
| | — |
|
Derivative liabilities with no offsetting arrangements | | (8 | ) | | — |
| | (8 | ) | | — |
| | — |
| | (8 | ) | |
Total derivative liabilities (d) | | (145 | ) | | — |
| | (145 | ) | | 78 |
| | 2 |
| | (65 | ) | | (95 | ) | | — |
| | (95 | ) | | 12 |
| | 13 |
| | (70 | ) |
Securities sold under agreements to repurchase (e) | | (648 | ) | | — |
| | (648 | ) | | — |
| | 648 |
| | — |
| | (676 | ) | | — |
| | (676 | ) | | — |
| | 676 |
| | — |
|
Total liabilities | | $ | (793 | ) | | $ | — |
| | $ | (793 | ) | | $ | 78 |
| | $ | 650 |
| | $ | (65 | ) | | $ | (771 | ) | | $ | — |
| | $ | (771 | ) | | $ | 12 |
| | $ | 689 |
| | $ | (70 | ) |
| |
(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. $7 $6 million of noncash derivative collateral pledged to us was excluded at December 31, 2015.2016. We do not record such collateral received on our Condensed Consolidated Balance Sheet unless certain conditions are met. |
| |
(c) | Certain agreements grant us the right to sell or pledge the noncash assets we receive as collateral. Noncash collateral pledged to us where the agreement grants us the right to sell or pledge the underlying assets had a fair value of $7$6 million at December 31, 2015.2016. We have not sold or pledged any of the noncash collateral received under these agreements as of December 31, 2015.2016. |
| |
(d) | For additional information on derivative instruments and hedging activities, refer to Note 20.19. |
| |
(e) | For additional information on securities sold under agreements to repurchase, refer to Note 13.14. |
24.23. Segment and Geographic Information
Operating segments are defined as components of an enterprise that engage in business activity from which revenues are earned and expenses incurred for which discrete financial information is available that is evaluated regularly by our chief operating decision maker in deciding how to allocate resources and in assessing performance.
Change in Reportable Segments
As a result of a change in how management views and operates our business, during the first quarter of 2016, we made changes in the composition of our operating segments. Financial information related to our Corporate Finance business is presented as a separate reportable segment. Previously, all such activity was included in Corporate and Other. Additionally, only the activity of our ongoing bulk acquisitions of mortgage loans and other originations and refinancing is presented in Mortgage Finance operations. The activity related to the management of our legacy mortgage portfolio is included in Corporate and Other. Our other operating segments, Automotive Finance operations and Insurance operations, were unchanged. Amounts for 2015 have been adjusted to conform to the current management view.
We report our results of operations on a line-of-business 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 — Provides U.S.-based automotive financing services to consumers and automotive dealers.dealers, and automotive and equipment financing services to companies and municipalities. Our automotive financingfinance services include providing retail installment sales financing,contracts, loans and leases;leases, offering term loans to dealers, financing dealer floorplans and other lines of credit to dealers;dealers, warehouse lines to companies, fleet financing, providing financing to companies and municipalities for the purchase or lease of vehicles and equipment, and vehicle remarketing services.
Insurance operations — Offers 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 vehicle service contracts, vehicle maintenance coverage,contracts, and guaranteed asset protection products. We also underwrite selectedselect commercial insurance coverages, which primarily insure dealers' wholesale vehicle inventories.inventory.
Mortgage Finance operations — Primarily consists of the management of a held-for-investment consumer mortgage finance loan portfolio, which includes bulk purchases of high-quality jumbo and low-to-moderate income (LMI) mortgage loans originated by third parties. In late 2016, we introduced our direct mortgage offering, named Ally Home, consisting of a variety of jumbo and conforming fixed- and adjustable-rate mortgage products through a third-party fulfillment partner. Under our current arrangement, conforming mortgages are originated as held-for-sale and sold, while jumbo mortgages are originated as held-for-investment. Servicing is performed by a third party and no mortgage servicing rights are created.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Mortgage Finance operations — Includes the management of a held-for-investment consumer mortgage finance loan portfolio and is primarily comprised of high-quality jumbo and low-to-moderate income mortgage loans purchased or originated after January 1, 2009.
Corporate Finance operations — ProvidesPrimarily provides senior secured leveraged cash flow and asset-based loans primarily to mostly U.S.-based middle market companies. TheOur primary focus is on businesses owned by private equity sponsors with loans aretypically used to supportfor leveraged buyouts, mergers and acquisitions, debt refinancing, restructurings, and working capital.
Corporate and Other primarily consists of activity related to 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, the amortization of the discount associated with new debt issuances and bond exchanges, and the residual impacts of our corporate funds-transfer pricing (FTP) and treasury asset liability management (ALM) activities. Corporate and Other also includes certain equity investments which primarily consist of FHLB and FRB stock, the management of our legacy mortgage portfolio which primarily consists of loans originated prior to January 1, 2009, and reclassifications and eliminations between the reportable operating segments. Additionally, beginning in June 2016, financial information related to TradeKing for June 2016 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 and geographic areas tables that follow areis based in part on internal allocations, which involve management judgment.
Financial information for our reportable operating segments is summarized as follows.
| | Three months ended June 30, ($ in millions) |
| Automotive Finance operations |
| Insurance operations |
| Mortgage Finance operations |
| Corporate Finance operations |
| Corporate and Other |
| Consolidated (a) | |
2016 |
| | | | | | | | | | | | |
Net financing revenue (loss) |
| $ | 929 |
|
| $ | 16 |
|
| $ | 26 |
|
| $ | 29 |
|
| $ | (16 | ) |
| $ | 984 |
| |
Three months ended March 31, ($ in millions) | | | Automotive Finance operations | | Insurance operations | | Mortgage Finance operations | | Corporate Finance operations | | Corporate and Other | | Consolidated (a) |
2017 | | | | | | | | | | | | | |
Net financing revenue and other interest income | | | $ | 892 |
| | $ | 15 |
| | $ | 34 |
| | $ | 34 |
| | $ | 4 |
| | $ | 979 |
|
Other revenue |
| 77 |
|
| 259 |
|
| — |
|
| 4 |
|
| 34 |
|
| 374 |
| | 101 |
| | 264 |
| | — |
| | 18 |
| | 13 |
| | 396 |
|
Total net revenue |
| 1,006 |
|
| 275 |
|
| 26 |
|
| 33 |
|
| 18 |
|
| 1,358 |
| | 993 |
| | 279 |
| | 34 |
| | 52 |
| | 17 |
| | 1,375 |
|
Provision for loan losses |
| 170 |
|
| — |
|
| — |
|
| 3 |
|
| (1 | ) |
| 172 |
| | 268 |
| | — |
| | 1 |
| | 6 |
| | (4 | ) | | 271 |
|
Total noninterest expense |
| 410 |
|
| 293 |
|
| 17 |
|
| 16 |
|
| 37 |
|
| 773 |
| | 437 |
| | 239 |
| | 24 |
| | 21 |
| | 57 |
| | 778 |
|
Income (loss) from continuing operations before income tax expense |
| $ | 426 |
|
| $ | (18 | ) |
| $ | 9 |
|
| $ | 14 |
|
| $ | (18 | ) |
| $ | 413 |
| | $ | 288 |
| | $ | 40 |
| | $ | 9 |
| | $ | 25 |
| | $ | (36 | ) | | $ | 326 |
|
Total assets |
| $ | 112,356 |
|
| $ | 7,193 |
|
| $ | 8,014 |
|
| $ | 2,989 |
|
| $ | 27,379 |
|
| $ | 157,931 |
| | $ | 115,154 |
| | $ | 7,230 |
| | $ | 8,362 |
| | $ | 3,438 |
| | $ | 27,917 |
| | $ | 162,101 |
|
2015 |
| | | | | | | | | |
|
| |
Net financing revenue |
| $ | 850 |
|
| $ | 14 |
|
| $ | 11 |
|
| $ | 22 |
|
| $ | 19 |
|
| $ | 916 |
| |
Other revenue (loss) |
| 55 |
|
| 268 |
|
| — |
|
| 6 |
|
| (118 | ) |
| 211 |
| |
Total net revenue (loss) |
| 905 |
|
| 282 |
|
| 11 |
|
| 28 |
|
| (99 | ) |
| 1,127 |
| |
2016 | | | | | | | | | | | | |
|
Net financing revenue and other interest income (loss) | | | $ | 896 |
| | $ | 14 |
| | $ | 20 |
| | $ | 28 |
| | $ | (7 | ) | | $ | 951 |
|
Other revenue | | | 77 |
| | 254 |
| | — |
| | 6 |
| | 39 |
| | 376 |
|
Total net revenue | | | 973 |
| | 268 |
| | 20 |
| | 34 |
| | 32 |
| | 1,327 |
|
Provision for loan losses |
| 132 |
|
| — |
|
| 4 |
|
| 4 |
|
| — |
|
| 140 |
| | 209 |
| | — |
| | 3 |
| | 6 |
| | 2 |
| | 220 |
|
Total noninterest expense |
| 400 |
|
| 267 |
|
| 10 |
|
| 14 |
|
| 33 |
|
| 724 |
| | 427 |
| | 218 |
| | 15 |
| | 17 |
| | 33 |
| | 710 |
|
Income (loss) from continuing operations before income tax expense |
| $ | 373 |
|
| $ | 15 |
|
| $ | (3 | ) |
| $ | 10 |
|
| $ | (132 | ) |
| $ | 263 |
| | $ | 337 |
| | $ | 50 |
| | $ | 2 |
| | $ | 11 |
| | $ | (3 | ) | | $ | 397 |
|
Total assets |
| $ | 113,607 |
|
| $ | 7,260 |
|
| $ | 5,623 |
|
| $ | 2,132 |
|
| $ | 27,656 |
|
| $ | 156,278 |
| | $ | 112,289 |
| | $ | 7,194 |
| | $ | 7,493 |
| | $ | 2,839 |
| | $ | 26,690 |
| | $ | 156,505 |
|
| |
(a) | Net financing revenue and other interest income after the provision for loan losses totaled $812$708 million and $776$731 million for the three months ended June 30,March 31, 2017, and 2016, and 2015, respectively. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Six months ended June 30, ($ in millions) | | Automotive Finance operations | | Insurance operations | | Mortgage Finance operations | | Corporate Finance operations | | Corporate and Other | | Consolidated (a) |
2016 | | | | | | | | | | | | |
Net financing revenue (loss) | | $ | 1,825 |
| | $ | 30 |
| | $ | 46 |
| | $ | 57 |
| | $ | (23 | ) | | $ | 1,935 |
|
Other revenue | | 154 |
| | 513 |
| | — |
| | 10 |
| | 73 |
| | 750 |
|
Total net revenue | | 1,979 |
| | 543 |
| | 46 |
| | 67 |
| | 50 |
| | 2,685 |
|
Provision for loan losses | | 379 |
| | — |
| | 3 |
| | 9 |
| | 1 |
| | 392 |
|
Total noninterest expense | | 837 |
| | 511 |
| | 32 |
| | 33 |
| | 70 |
| | 1,483 |
|
Income (loss) from continuing operations before income tax expense | | $ | 763 |
| | $ | 32 |
| | $ | 11 |
| | $ | 25 |
| | $ | (21 | ) | | $ | 810 |
|
Total assets | | $ | 112,356 |
| | $ | 7,193 |
| | $ | 8,014 |
| | $ | 2,989 |
| | $ | 27,379 |
| | $ | 157,931 |
|
2015 | | | | | | | | | | | |
|
Net financing revenue | | $ | 1,659 |
| | $ | 26 |
| | $ | 22 |
| | $ | 42 |
| | $ | 17 |
| | $ | 1,766 |
|
Other revenue (loss) | | 107 |
| | 536 |
| | — |
| | 12 |
| | (201 | ) | | 454 |
|
Total net revenue (loss) | | 1,766 |
| | 562 |
| | 22 |
| | 54 |
| | (184 | ) | | 2,220 |
|
Provision for loan losses | | 259 |
| | — |
| | 6 |
| | (1 | ) | | (8 | ) | | 256 |
|
Total noninterest expense | | 828 |
| | 469 |
| | 18 |
| | 28 |
| | 76 |
| | 1,419 |
|
Income (loss) from continuing operations before income tax expense | | $ | 679 |
| | $ | 93 |
| | $ | (2 | ) | | $ | 27 |
| | $ | (252 | ) | | $ | 545 |
|
Total assets | | $ | 113,607 |
| | $ | 7,260 |
| | $ | 5,623 |
| | $ | 2,132 |
| | $ | 27,656 |
| | $ | 156,278 |
|
| |
(a) | Net financing revenue after the provision for loan losses totaled $1,543 million and $1,510 million for the six months ended June 30, 2016, and 2015, respectively.
|
Information concerning principal geographic areas was as follows.
|
| | | | | | | | | | | | |
Three months ended June 30, ($ in millions) | | Revenue (a) | | Income from continuing operations before income tax expense | | Net income (loss) (b) |
2016 | | | | | | |
Canada | | $ | 24 |
| | $ | 12 |
| | $ | 10 |
|
Europe | | — |
| | — |
| | (2 | ) |
Total foreign (c) | | 24 |
| | 12 |
| | 8 |
|
Total domestic (d) | | 1,334 |
| | 401 |
| | 352 |
|
Total | | $ | 1,358 |
| | $ | 413 |
| | $ | 360 |
|
2015 | | | | | | |
Canada | | $ | 28 |
| | $ | 13 |
| | $ | 13 |
|
Europe | | — |
| | — |
| | 17 |
|
Total foreign (c) | | 28 |
| | 13 |
| | 30 |
|
Total domestic (d) | | 1,099 |
| | 250 |
| | 152 |
|
Total | | $ | 1,127 |
| | $ | 263 |
| | $ | 182 |
|
| |
(a) | Revenue consists of net financing revenue and total other revenue as presented in our Condensed Consolidated Financial Statements.
|
| |
(b) | Gain (loss) realized on sale of discontinued operations are allocated to the geographic area in which the business operated. |
| |
(c) | Our foreign operations as of June 30, 2016, and June 30, 2015, consist of our ongoing Insurance operations in Canada and our remaining international entities in wind-down. |
| |
(d) | Amounts include eliminations between our domestic and foreign operations. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | | | | | |
Six months ended June 30, ($ in millions) | | Revenue (a) | | Income from continuing operations before income tax expense | | Net income (loss) (b) |
2016 | | | | | | |
Canada | | $ | 45 |
| | $ | 22 |
| | $ | 18 |
|
Europe | | — |
| | — |
| | (3 | ) |
Total foreign (c) | | 45 |
| | 22 |
| | 15 |
|
Total domestic (d) | | 2,640 |
| | 788 |
| | 595 |
|
Total | | $ | 2,685 |
| | $ | 810 |
| | $ | 610 |
|
2015 | | | | | | |
Canada | | $ | 52 |
| | $ | 24 |
| | $ | 21 |
|
Europe | | 1 |
| | 4 |
| | 28 |
|
Asia-Pacific | | — |
| | — |
| | 452 |
|
Total foreign (c) | | 53 |
| | 28 |
| | 501 |
|
Total domestic (d) | | 2,167 |
| | 517 |
| | 257 |
|
Total | | $ | 2,220 |
| | $ | 545 |
| | $ | 758 |
|
| |
(a) | Revenue consists of net financing revenue and total other revenue as presented in our Condensed Consolidated Financial Statements.
|
| |
(b) | Gain (loss) realized on sale of discontinued operations are allocated to the geographic area in which the business operated. |
| |
(c) | Our foreign operations as of June 30, 2016, and June 30, 2015, consist of our ongoing Insurance operations in Canada and our remaining international entities in wind-down. |
| |
(d) | Amounts include eliminations between our domestic and foreign operations. |
25.24. Parent and Guarantor Condensed 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 June 30, 2016March 31, 2017, 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) an elimination column for adjustments to arrive at (v) the information for the parent company, the Guarantors, and nonguarantors on a consolidated basis.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Investments in subsidiaries are 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, investments in subsidiaries, and intercompany balances and transactions between the parent, the Guarantors, and nonguarantors.
Condensed Consolidating Statements of Comprehensive Income
|
| | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2017 ($ in millions) | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated |
Financing (loss) revenue and other interest income | | | | | | | | | | |
Interest and fees on finance receivables and loans | | $ | (35 | ) | | $ | — |
| | $ | 1,403 |
| | $ | — |
| | $ | 1,368 |
|
Interest and fees on finance receivables and loans — intercompany | | 4 |
| | — |
| | 3 |
| | (7 | ) | | — |
|
Interest and dividends on investment securities and other earning assets | | — |
| | — |
| | 135 |
| | (1 | ) | | 134 |
|
Interest on cash and cash equivalents | | 2 |
| | — |
| | 3 |
| | — |
| | 5 |
|
Interest-bearing cash — intercompany | | — |
| | — |
| | 1 |
| | (1 | ) | | — |
|
Operating leases | | 3 |
| | — |
| | 540 |
| | — |
| | 543 |
|
Total financing (loss) revenue and other interest income | | (26 | ) | | — |
| | 2,085 |
| | (9 | ) | | 2,050 |
|
Interest expense | | | | | | | | | |
|
Interest on deposits | | 1 |
| | — |
| | 230 |
| | — |
| | 231 |
|
Interest on short-term borrowings | | 17 |
| | — |
| | 10 |
| | — |
| | 27 |
|
Interest on long-term debt | | 281 |
| | — |
| | 143 |
| | — |
| | 424 |
|
Interest on intercompany debt | | 4 |
| | — |
| | 4 |
| | (8 | ) | | — |
|
Total interest expense | | 303 |
| | — |
| | 387 |
| | (8 | ) | | 682 |
|
Net depreciation expense on operating lease assets | | 2 |
| | — |
| | 387 |
| | — |
| | 389 |
|
Net financing revenue | | (331 | ) | | — |
| | 1,311 |
| | (1 | ) | | 979 |
|
Cash dividends from subsidiaries | | | | | | | | | |
|
Nonbank subsidiaries | | 41 |
| | — |
| | — |
| | (41 | ) | | — |
|
Other revenue | | | | | | | | | |
|
Insurance premiums and service revenue earned | | — |
| | — |
| | 241 |
| | — |
| | 241 |
|
(Loss) gain on mortgage and automotive loans, net | | (2 | ) | | — |
| | 16 |
| | — |
| | 14 |
|
Loss on extinguishment of debt | | — |
| | — |
| | (1 | ) | | — |
| | (1 | ) |
Other gain on investments, net | | — |
| | — |
| | 27 |
| | — |
| | 27 |
|
Other income, net of losses | | 268 |
| | — |
| | 224 |
| | (377 | ) | | 115 |
|
Total other revenue | | 266 |
| | — |
| | 507 |
| | (377 | ) | | 396 |
|
Total net revenue | | (24 | ) | | — |
| | 1,818 |
| | (419 | ) | | 1,375 |
|
Provision for loan losses | | 107 |
| | — |
| | 164 |
| | — |
| | 271 |
|
Noninterest expense | | | | | | | | | |
|
Compensation and benefits expense | | 122 |
| | — |
| | 163 |
| | — |
| | 285 |
|
Insurance losses and loss adjustment expenses | | — |
| | — |
| | 88 |
| | — |
| | 88 |
|
Other operating expenses | | 288 |
| | — |
| | 494 |
| | (377 | ) | | 405 |
|
Total noninterest expense | | 410 |
| | — |
| | 745 |
| | (377 | ) | | 778 |
|
(Loss) income from continuing operations before income tax (benefit) expense and undistributed income (loss) of subsidiaries | | (541 | ) |
| — |
|
| 909 |
|
| (42 | ) | | 326 |
|
Income tax (benefit) expense from continuing operations | | (134 | ) | | — |
| | 247 |
| | — |
| | 113 |
|
Net (loss) income from continuing operations | | (407 | ) | | — |
| | 662 |
| | (42 | ) | | 213 |
|
Income (loss) from discontinued operations, net of tax | | 2 |
| | — |
| | (1 | ) | | — |
| | 1 |
|
Undistributed income of subsidiaries | | | | | | | | | |
|
Bank subsidiary | | 389 |
| | 389 |
| | — |
| | (778 | ) | | — |
|
Nonbank subsidiaries | | 230 |
| | — |
| | — |
| | (230 | ) | | — |
|
Net income | | 214 |
| | 389 |
| | 661 |
| | (1,050 | ) | | 214 |
|
Other comprehensive income, net of tax | | 20 |
| | 5 |
| | 19 |
| | (24 | ) | | 20 |
|
Comprehensive income | | $ | 234 |
| | $ | 394 |
| | $ | 680 |
| | $ | (1,074 | ) | | $ | 234 |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Condensed Consolidating Statements of Comprehensive Income
| | Three months ended June 30, 2016 ($ in millions) | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated | |
Financing revenue and other interest income | | | | | | | | | | | |
Three months ended March 31, 2016 ($ in millions) | | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated |
Financing (loss) revenue and other interest income | | | | | | | | | | | |
Interest and fees on finance receivables and loans | | $ | (28 | ) | | $ | — |
| | $ | 1,293 |
| | $ | — |
| | $ | 1,265 |
| | $ | (38 | ) | | $ | — |
| | $ | 1,273 |
| | $ | — |
| | $ | 1,235 |
|
Interest and fees on finance receivables and loans — intercompany | | 3 |
| | — |
| | 2 |
| | (5 | ) | | — |
| | 3 |
| | — |
| | 2 |
| | (5 | ) | | — |
|
Interest and dividends on investment securities | | — |
| | — |
| | 99 |
| | — |
| | 99 |
| |
Interest and dividends on investment securities and other earning assets | | | — |
| | — |
| | 102 |
| | — |
| | 102 |
|
Interest on cash and cash equivalents | | 1 |
| | — |
| | 3 |
| | — |
| | 4 |
| | 1 |
| | — |
| | 2 |
| | — |
| | 3 |
|
Interest-bearing cash — intercompany | | — |
| | — |
| | 2 |
| | (2 | ) | | — |
| | — |
| | — |
| | 2 |
| | (2 | ) | | — |
|
Operating leases | | 5 |
| | — |
| | 696 |
| | — |
| | 701 |
| | 5 |
| | — |
| | 764 |
| | — |
| | 769 |
|
Total financing revenue and other interest income | | (19 | ) | | — |
| | 2,095 |
| | (7 | ) | | 2,069 |
| |
Total financing (loss) revenue and other interest income | | | (29 | ) | | — |
| | 2,145 |
| | (7 | ) | | 2,109 |
|
Interest expense | | | | | | | | | |
| | | | | | | | | |
|
Interest on deposits | | 2 |
| | — |
| | 201 |
| | — |
| | 203 |
| | 2 |
| | — |
| | 191 |
| | — |
| | 193 |
|
Interest on short-term borrowings | | 10 |
| | — |
| | 2 |
| | — |
| | 12 |
| | 10 |
| | — |
| | 3 |
| | — |
| | 13 |
|
Interest on long-term debt | | 290 |
| | — |
| | 146 |
| | — |
| | 436 |
| | 289 |
| | — |
| | 153 |
| | — |
| | 442 |
|
Interest on intercompany debt | | 4 |
| | — |
| | 3 |
| | (7 | ) | | — |
| | 4 |
| | — |
| | 3 |
| | (7 | ) | | — |
|
Total interest expense | | 306 |
| | — |
| | 352 |
| | (7 | ) | | 651 |
| | 305 |
| | — |
| | 350 |
| | (7 | ) | | 648 |
|
Depreciation expense on operating lease assets | | 3 |
| | — |
| | 431 |
| | — |
| | 434 |
| |
Net financing (loss) revenue | | (328 | ) | | — |
| | 1,312 |
| | — |
| | 984 |
| |
Net depreciation expense on operating lease assets | | | 4 |
| | — |
| | 506 |
| | — |
| | 510 |
|
Net financing revenue | | | (338 | ) | | — |
| | 1,289 |
| | — |
| | 951 |
|
Cash dividends from subsidiaries | | | | | | | | | |
| | | | | | | | | |
|
Nonbank subsidiaries | | 148 |
| | — |
| | — |
| | (148 | ) | | — |
| | 482 |
| | — |
| | — |
| | (482 | ) | | — |
|
Other revenue | | | | | | | | | |
| | | | | | | | | |
|
Insurance premiums and service revenue earned | | — |
| | — |
| | 236 |
| | — |
| | 236 |
| | — |
| | — |
| | 230 |
| | — |
| | 230 |
|
(Loss) gain on mortgage and automotive loans, net | | (2 | ) | | — |
| | 5 |
| | — |
| | 3 |
| | (3 | ) | | — |
| | 4 |
| | — |
| | 1 |
|
Loss on extinguishment of debt | | | (2 | ) | | — |
| | (2 | ) | | — |
| | (4 | ) |
Other gain on investments, net | | — |
| | — |
| | 39 |
| | — |
| | 39 |
| | — |
| | — |
| | 54 |
| | — |
| | 54 |
|
Other income, net of losses | | 317 |
| | — |
| | 214 |
| | (435 | ) | | 96 |
| | 374 |
| | — |
| | 217 |
| | (496 | ) | | 95 |
|
Total other revenue | | 315 |
| | — |
| | 494 |
| | (435 | ) | | 374 |
| | 369 |
| | — |
| | 503 |
| | (496 | ) | | 376 |
|
Total net revenue | | 135 |
| | — |
| | 1,806 |
| | (583 | ) | | 1,358 |
| | 513 |
| | — |
| | 1,792 |
| | (978 | ) | | 1,327 |
|
Provision for loan losses | | 88 |
| | — |
| | 84 |
| | — |
| | 172 |
| | 60 |
| | — |
| | 160 |
| | — |
| | 220 |
|
Noninterest expense | | | | | | | | | |
| | | | | | | | | |
|
Compensation and benefits expense | | 139 |
| | — |
| | 103 |
| | — |
| | 242 |
| | 147 |
| | — |
| | 105 |
| | — |
| | 252 |
|
Insurance losses and loss adjustment expenses | | — |
| | — |
| | 145 |
| | — |
| | 145 |
| | — |
| | — |
| | 73 |
| | — |
| | 73 |
|
Other operating expenses | | 317 |
| | — |
| | 502 |
| | (433 | ) | | 386 |
| | 340 |
| | — |
| | 542 |
| | (497 | ) | | 385 |
|
Total noninterest expense | | 456 |
| | — |
| | 750 |
| | (433 | ) | | 773 |
| | 487 |
| | — |
| | 720 |
| | (497 | ) | | 710 |
|
(Loss) income from continuing operations before income tax (benefit) expense and undistributed income (loss) of subsidiaries | | (409 | ) | | — |
| | 972 |
| | (150 | ) | | 413 |
| | (34 | ) | | — |
| | 912 |
| | (481 | ) | | 397 |
|
Income tax (benefit) expense from continuing operations | | (65 | ) | | (82 | ) | | 203 |
| | — |
| | 56 |
| | (43 | ) | | — |
| | 193 |
| | — |
| | 150 |
|
Net (loss) income from continuing operations | | (344 | ) | | 82 |
| | 769 |
| | (150 | ) | | 357 |
| | 9 |
| | — |
| | 719 |
| | (481 | ) | | 247 |
|
Income from discontinued operations, net of tax | | 3 |
| | — |
| | — |
| | — |
| | 3 |
| |
Income (loss) from discontinued operations, net of tax | | | 6 |
| | — |
| | (3 | ) | | — |
| | 3 |
|
Undistributed income (loss) of subsidiaries | | | | | | | | | |
| | | | | | | | | |
|
Bank subsidiary | | 336 |
| | 336 |
| | — |
| | (672 | ) | | — |
| | 270 |
| | 270 |
| | — |
| | (540 | ) | | — |
|
Nonbank subsidiaries | | 365 |
| | (2 | ) | | — |
| | (363 | ) | | — |
| | (35 | ) | | — |
| | — |
| | 35 |
| | — |
|
Net income | | 360 |
| | 416 |
| | 769 |
| | (1,185 | ) | | 360 |
| | 250 |
| | 270 |
| | 716 |
| | (986 | ) | | 250 |
|
Other comprehensive income, net of tax | | 120 |
| | 62 |
| | 91 |
| | (153 | ) | | 120 |
| | 146 |
| | 84 |
| | 151 |
| | (235 | ) | | 146 |
|
Comprehensive income | | $ | 480 |
| | $ | 478 |
| | $ | 860 |
| | $ | (1,338 | ) | | $ | 480 |
| | $ | 396 |
| | $ | 354 |
| | $ | 867 |
| | $ | (1,221 | ) | | $ | 396 |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | | | | | | | | | | | | | |
Three months ended June 30, 2015 ($ in millions) | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated |
Financing revenue and other interest income | | | | | | | | | | |
Interest and fees on finance receivables and loans | | $ | (16 | ) | | $ | — |
| | $ | 1,134 |
| | $ | — |
| | $ | 1,118 |
|
Interest and fees on finance receivables and loans — intercompany | | 2 |
| | — |
| | 5 |
| | (7 | ) | | — |
|
Interest on loans held-for-sale | | — |
| | — |
| | 14 |
| | — |
| | 14 |
|
Interest and dividends on investment securities | | — |
| | — |
| | 93 |
| | — |
| | 93 |
|
Interest on cash and cash equivalents | | 1 |
| | — |
| | 1 |
| | — |
| | 2 |
|
Interest-bearing cash — intercompany | | — |
| | — |
| | 2 |
| | (2 | ) | | — |
|
Operating leases | | — |
| | — |
| | 860 |
| | — |
| | 860 |
|
Total financing revenue and other interest income | | (13 | ) | | — |
| | 2,109 |
| | (9 | ) | | 2,087 |
|
Interest expense | | | | | | | | | |
|
Interest on deposits | | 2 |
| | — |
| | 175 |
| | — |
| | 177 |
|
Interest on short-term borrowings | | 10 |
| | — |
| | 2 |
| | — |
| | 12 |
|
Interest on long-term debt | | 292 |
| | — |
| | 127 |
| | — |
| | 419 |
|
Interest on intercompany debt | | 6 |
| | — |
| | 3 |
| | (9 | ) | | — |
|
Total interest expense | | 310 |
| | — |
| | 307 |
| | (9 | ) | | 608 |
|
Depreciation expense on operating lease assets | | — |
| | — |
| | 563 |
| | — |
| | 563 |
|
Net financing (loss) revenue | | (323 | ) | | — |
| | 1,239 |
| | — |
| | 916 |
|
Cash dividends from subsidiaries | | | | | | | | | |
|
Bank subsidiaries | | 400 |
| | 400 |
| | — |
| | (800 | ) | | — |
|
Nonbank subsidiaries | | 248 |
| | — |
| | — |
| | (248 | ) | | — |
|
Other revenue | | | | | | | | | |
|
Insurance premiums and service revenue earned | | — |
| | — |
| | 237 |
| | — |
| | 237 |
|
Gain on mortgage and automotive loans, net | | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
Loss on extinguishment of debt | | (156 | ) | | — |
| | — |
| | — |
| | (156 | ) |
Other gain on investments, net | | — |
| | — |
| | 45 |
| | — |
|
| 45 |
|
Other income, net of losses | | 327 |
| | — |
| | 334 |
| | (577 | ) | | 84 |
|
Total other revenue | | 171 |
| | — |
| | 617 |
| | (577 | ) | | 211 |
|
Total net revenue | | 496 |
| | 400 |
| | 1,856 |
| | (1,625 | ) | | 1,127 |
|
Provision for loan losses | | (36 | ) | | — |
| | 176 |
| | — |
| | 140 |
|
Noninterest expense | | | | | | | | | |
|
Compensation and benefits expense | | 139 |
| | — |
| | 197 |
| | (100 | ) | | 236 |
|
Insurance losses and loss adjustment expenses | | — |
| | — |
| | 122 |
| | — |
| | 122 |
|
Other operating expenses | | 310 |
| | — |
| | 533 |
| | (477 | ) | | 366 |
|
Total noninterest expense | | 449 |
| | — |
| | 852 |
| | (577 | ) | | 724 |
|
Income from continuing operations before income tax (benefit) expense and undistributed (loss) income of subsidiaries | | 83 |
| | 400 |
| | 828 |
| | (1,048 | ) | | 263 |
|
Income tax (benefit) expense from continuing operations | | (87 | ) | | — |
| | 181 |
| | — |
| | 94 |
|
Net income from continuing operations | | 170 |
| | 400 |
| | 647 |
| | (1,048 | ) | | 169 |
|
(Loss) income from discontinued operations, net of tax | | (15 | ) | | — |
| | 28 |
| | — |
| | 13 |
|
Undistributed (loss) income of subsidiaries | | | | | | | | | |
|
Bank subsidiary | | (132 | ) | | (132 | ) | | — |
| | 264 |
| | — |
|
Nonbank subsidiaries | | 159 |
| | — |
| | — |
| | (159 | ) | | — |
|
Net income | | 182 |
| | 268 |
| | 675 |
| | (943 | ) | | 182 |
|
Other comprehensive loss, net of tax | | (148 | ) | | (67 | ) | | (166 | ) | | 233 |
| | (148 | ) |
Comprehensive income | | $ | 34 |
| | $ | 201 |
| | $ | 509 |
| | $ | (710 | ) | | $ | 34 |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | | | | | | | | | | | | | |
Six months ended June 30, 2016 ($ in millions) | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated |
Financing revenue and other interest income | | | | | | | | | | |
Interest and fees on finance receivables and loans | | $ | (66 | ) | | $ | — |
| | $ | 2,566 |
| | $ | — |
| | $ | 2,500 |
|
Interest and fees on finance receivables and loans — intercompany | | 6 |
| | — |
| | 4 |
| | (10 | ) | | — |
|
Interest and dividends on investment securities | | — |
| | — |
| | 201 |
| | — |
| | 201 |
|
Interest on cash and cash equivalents | | 2 |
| | — |
| | 5 |
| | — |
| | 7 |
|
Interest-bearing cash — intercompany | | — |
| | — |
| | 5 |
| | (5 | ) | | — |
|
Operating leases | | 10 |
| | — |
| | 1,460 |
| | — |
| | 1,470 |
|
Total financing revenue and other interest income | | (48 | ) | | — |
| | 4,241 |
| | (15 | ) | | 4,178 |
|
Interest expense | | | | | | | | | |
|
Interest on deposits | | 4 |
| | — |
| | 392 |
| | — |
| | 396 |
|
Interest on short-term borrowings | | 20 |
| | — |
| | 5 |
| | — |
| | 25 |
|
Interest on long-term debt | | 578 |
| | — |
| | 300 |
| | — |
| | 878 |
|
Interest on intercompany debt | | 9 |
| | — |
| | 6 |
| | (15 | ) | | — |
|
Total interest expense | | 611 |
| | — |
| | 703 |
| | (15 | ) | | 1,299 |
|
Depreciation expense on operating lease assets | | 7 |
| | — |
| | 937 |
| | — |
| | 944 |
|
Net financing (loss) revenue | | (666 | ) | | — |
| | 2,601 |
| | — |
| | 1,935 |
|
Cash dividends from subsidiaries | | | | | | | | | |
|
Nonbank subsidiaries | | 629 |
| | — |
| | — |
| | (629 | ) | | — |
|
Other revenue | | | | | | | | | |
|
Insurance premiums and service revenue earned | | — |
| | — |
| | 466 |
| | — |
| | 466 |
|
(Loss) gain on mortgage and automotive loans, net | | (5 | ) | | — |
| | 9 |
| | — |
| | 4 |
|
Loss on extinguishment of debt | | (2 | ) | | — |
| | (2 | ) | | — |
| | (4 | ) |
Other gain on investments, net | | — |
| | — |
| | 93 |
| | — |
| | 93 |
|
Other income, net of losses | | 690 |
| | — |
| | 430 |
| | (929 | ) | | 191 |
|
Total other revenue | | 683 |
| | — |
| | 996 |
| | (929 | ) | | 750 |
|
Total net revenue | | 646 |
| | — |
| | 3,597 |
| | (1,558 | ) | | 2,685 |
|
Provision for loan losses | | 148 |
| | — |
| | 244 |
| | — |
| | 392 |
|
Noninterest expense | | | | | | | | | |
|
Compensation and benefits expense | | 286 |
| | — |
| | 208 |
| | — |
| | 494 |
|
Insurance losses and loss adjustment expenses | | — |
| | — |
| | 218 |
| | — |
| | 218 |
|
Other operating expenses | | 656 |
| | — |
| | 1,044 |
| | (929 | ) | | 771 |
|
Total noninterest expense | | 942 |
| | — |
| | 1,470 |
| | (929 | ) | | 1,483 |
|
(Loss) income from continuing operations before income tax (benefit) expense and undistributed income (loss) of subsidiaries | | (444 | ) |
| — |
|
| 1,883 |
|
| (629 | ) | | 810 |
|
Income tax (benefit) expense from continuing operations | | (108 | ) | | (82 | ) | | 396 |
| | — |
| | 206 |
|
Net (loss) income from continuing operations | | (336 | ) | | 82 |
| | 1,487 |
| | (629 | ) | | 604 |
|
Income (loss) from discontinued operations, net of tax | | 9 |
| | — |
| | (3 | ) | | — |
| | 6 |
|
Undistributed income (loss) of subsidiaries | | | | | | | | | |
|
Bank subsidiary | | 607 |
| | 607 |
| | — |
| | (1,214 | ) | | — |
|
Nonbank subsidiaries | | 330 |
| | (2 | ) | | — |
| | (328 | ) | | — |
|
Net income | | 610 |
| | 687 |
| | 1,484 |
| | (2,171 | ) | | 610 |
|
Other comprehensive income, net of tax | | 266 |
| | 145 |
| | 243 |
| | (388 | ) | | 266 |
|
Comprehensive income | | $ | 876 |
| | $ | 832 |
| | $ | 1,727 |
| | $ | (2,559 | ) | | $ | 876 |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | | | | | | | | | | | | | |
Six months ended June 30, 2015 ($ in millions) | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated |
Financing revenue and other interest income | | | | | | | | | | |
Interest and fees on finance receivables and loans | | $ | (12 | ) | | $ | — |
| | $ | 2,204 |
| | $ | — |
| | $ | 2,192 |
|
Interest and fees on finance receivables and loans — intercompany | | 12 |
| | — |
| | 21 |
| | (33 | ) | | — |
|
Interest on loans held-for-sale | | — |
| | — |
| | 38 |
| | — |
| | 38 |
|
Interest and dividends on investment securities | | — |
| | — |
| | 181 |
| | — |
| | 181 |
|
Interest on cash and cash equivalents | | 1 |
| | — |
| | 3 |
| | — |
| | 4 |
|
Interest-bearing cash — intercompany | | — |
| | — |
| | 4 |
| | (4 | ) | | — |
|
Operating leases | | — |
| | — |
| | 1,756 |
| | — |
| | 1,756 |
|
Total financing revenue and other interest income | | 1 |
| | — |
| | 4,207 |
| | (37 | ) | | 4,171 |
|
Interest expense | | | | | | | | | |
|
Interest on deposits | | 5 |
| | — |
| | 344 |
| | — |
| | 349 |
|
Interest on short-term borrowings | | 20 |
| | — |
| | 3 |
| | — |
| | 23 |
|
Interest on long-term debt | | 584 |
| | — |
| | 264 |
| | — |
| | 848 |
|
Interest on intercompany debt | | 25 |
| | — |
| | 12 |
| | (37 | ) | | — |
|
Total interest expense | | 634 |
| | — |
| | 623 |
| | (37 | ) | | 1,220 |
|
Depreciation expense on operating lease assets | | — |
| | — |
| | 1,185 |
| | — |
| | 1,185 |
|
Net financing (loss) revenue | | (633 | ) | | — |
| | 2,399 |
| | — |
| | 1,766 |
|
Cash dividends from subsidiaries | | | | | | | | | |
|
Bank subsidiaries | | 525 |
| | 525 |
| | — |
| | (1,050 | ) | | — |
|
Nonbank subsidiaries | | 486 |
| | — |
| | — |
| | (486 | ) | | — |
|
Other revenue | | | | | | | | | |
|
Insurance premiums and service revenue earned | | — |
| | — |
| | 470 |
| | — |
| | 470 |
|
(Loss) gain on mortgage and automotive loans, net | | (8 | ) | | — |
| | 55 |
| | — |
| | 47 |
|
Loss on extinguishment of debt | | (353 | ) | | — |
| | (1 | ) | | — |
| | (354 | ) |
Other gain on investments, net | | — |
| | — |
| | 100 |
| | — |
| | 100 |
|
Other income, net of losses | | 678 |
| | — |
| | 690 |
| | (1,177 | ) | | 191 |
|
Total other revenue | | 317 |
| | — |
| | 1,314 |
| | (1,177 | ) | | 454 |
|
Total net revenue | | 695 |
| | 525 |
| | 3,713 |
| | (2,713 | ) | | 2,220 |
|
Provision for loan losses | | 64 |
| | — |
| | 192 |
| | — |
| | 256 |
|
Noninterest expense | | | | | | | | | |
|
Compensation and benefits expense | | 293 |
| | — |
| | 422 |
| | (224 | ) | | 491 |
|
Insurance losses and loss adjustment expenses | | — |
| | — |
| | 178 |
| | — |
| | 178 |
|
Other operating expenses | | 620 |
| | — |
| | 1,083 |
| | (953 | ) | | 750 |
|
Total noninterest expense | | 913 |
| | — |
| | 1,683 |
| | (1,177 | ) | | 1,419 |
|
(Loss) income from continuing operations before income tax (benefit) expense and undistributed income of subsidiaries | | (282 | ) | | 525 |
| | 1,838 |
| | (1,536 | ) | | 545 |
|
Income tax (benefit) expense from continuing operations | | (202 | ) | | — |
| | 399 |
| | — |
| | 197 |
|
Net (loss) income from continuing operations | | (80 | ) | | 525 |
| | 1,439 |
| | (1,536 | ) | | 348 |
|
Income from discontinued operations, net of tax | | 372 |
| | — |
| | 38 |
| | — |
| | 410 |
|
Undistributed income of subsidiaries | | | | | | | | | |
|
Bank subsidiary | | 48 |
| | 48 |
| | — |
| | (96 | ) | | — |
|
Nonbank subsidiaries | | 418 |
| | — |
| | — |
| | (418 | ) | | — |
|
Net income | | 758 |
| | 573 |
| | 1,477 |
| | (2,050 | ) | | 758 |
|
Other comprehensive loss, net of tax | | (117 | ) | | (25 | ) | | (119 | ) | | 144 |
| | (117 | ) |
Comprehensive income | | $ | 641 |
| | $ | 548 |
| | $ | 1,358 |
| | $ | (1,906 | ) | | $ | 641 |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Condensed Consolidating Balance Sheet | | June 30, 2016 ($ in millions) | | Parent (a) | | Guarantors | | Nonguarantors (a) | | Consolidating adjustments | | Ally consolidated | |
March 31, 2017 ($ in millions) | | | Parent (a) | | Guarantors | | Nonguarantors (a) | | Consolidating adjustments | | Ally consolidated |
Assets | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | | | | | | | | | | | | | | | | | | |
Noninterest-bearing | | $ | 796 |
| | $ | — |
| | $ | 994 |
| | $ | — |
| | $ | 1,790 |
| | $ | 690 |
| | $ | — |
| | $ | 823 |
| | $ | — |
| | $ | 1,513 |
|
Interest-bearing | | 700 |
| | — |
| | 3,241 |
| | — |
| | 3,941 |
| | 800 |
| | — |
| | 1,989 |
| | — |
| | 2,789 |
|
Interest-bearing — intercompany | | — |
| | — |
| | 839 |
| | (839 | ) | | — |
| | — |
| | — |
| | 641 |
| | (641 | ) | | — |
|
Total cash and cash equivalents | | 1,496 |
|
| — |
|
| 5,074 |
|
| (839 | ) |
| 5,731 |
| | 1,490 |
|
| — |
|
| 3,453 |
|
| (641 | ) |
| 4,302 |
|
Available-for-sale securities | | — |
| | — |
| | 18,197 |
| | — |
| | 18,197 |
| | 6 |
| | — |
| | 20,308 |
| | (6 | ) | | 20,308 |
|
Held-to-maturity securities | | — |
| | — |
| | 571 |
| | — |
| | 571 |
| | — |
| | — |
| | 1,155 |
| | (51 | ) | | 1,104 |
|
Loans held-for-sale, net | | — |
| | — |
| | 15 |
| | — |
| | 15 |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
Finance receivables and loans, net | | | | | | | | | | | | | | | | | | | | |
Finance receivables and loans, net | | 3,162 |
| | — |
| | 109,491 |
| | — |
| | 112,653 |
| | 4,864 |
| | — |
| | 114,138 |
| | — |
| | 119,002 |
|
Intercompany loans to | | | | | | | | | | | | | | | | | | | | |
Bank subsidiary | | 1,400 |
| | — |
| | — |
| | (1,400 | ) | | — |
| | 425 |
| | — |
| | — |
| | (425 | ) | | — |
|
Nonbank subsidiaries | | 2,319 |
| | — |
| | 561 |
| | (2,880 | ) | | — |
| | 1,376 |
| | — |
| | 456 |
| | (1,832 | ) | | — |
|
Allowance for loan losses | | (76 | ) | | — |
| | (1,013 | ) | | — |
| | (1,089 | ) | | (121 | ) | | — |
| | (1,034 | ) | | — |
| | (1,155 | ) |
Total finance receivables and loans, net | | 6,805 |
| | — |
| | 109,039 |
| | (4,280 | ) | | 111,564 |
| | 6,544 |
| | — |
| | 113,560 |
| | (2,257 | ) | | 117,847 |
|
Investment in operating leases, net | | 59 |
| | — |
| | 13,696 |
| | — |
| | 13,755 |
| | 35 |
| | — |
| | 10,426 |
| | — |
| | 10,461 |
|
Intercompany receivables from | | | | | | | | | | | | | | | | | | | | |
Bank subsidiary | | 293 |
| | — |
| | — |
| | (293 | ) | | — |
| | 32 |
| | — |
| | — |
| | (32 | ) | | — |
|
Nonbank subsidiaries | | 91 |
| | — |
| | 124 |
| | (215 | ) | | — |
| | 46 |
| | — |
| | 255 |
| | (301 | ) | | — |
|
Investment in subsidiaries | | | | | | | | | | | | | | | | | | | | |
Bank subsidiary | | 17,257 |
| | 17,257 |
| | — |
| | (34,514 | ) | | — |
| | 18,405 |
| | 18,405 |
| | — |
| | (36,810 | ) | | — |
|
Nonbank subsidiaries | | 10,837 |
| | 1 |
| | — |
| | (10,838 | ) | | — |
| | 9,680 |
| | — |
| | — |
| | (9,680 | ) | | — |
|
Premiums receivable and other insurance assets | | — |
| | — |
| | 1,868 |
| | (24 | ) | | 1,844 |
| | — |
| | — |
| | 1,974 |
| | (30 | ) | | 1,944 |
|
Other assets | | 4,537 |
| | — |
| | 4,612 |
| | (2,895 | ) | | 6,254 |
| | 4,275 |
| | — |
| | 4,764 |
| | (2,905 | ) | | 6,134 |
|
Total assets | | $ | 41,375 |
|
| $ | 17,258 |
|
| $ | 153,196 |
|
| $ | (53,898 | ) |
| $ | 157,931 |
| | $ | 40,513 |
|
| $ | 18,405 |
|
| $ | 155,896 |
|
| $ | (52,713 | ) |
| $ | 162,101 |
|
Liabilities | | | | | | | | | | | | | | | | | | | | |
Deposit liabilities | | | | | | | | | | | | | | | | | | | | |
Noninterest-bearing | | $ | — |
| | $ | — |
| | $ | 94 |
| | $ | — |
| | $ | 94 |
| | $ | — |
| | $ | — |
| | $ | 102 |
| | $ | — |
| | $ | 102 |
|
Interest-bearing | | 200 |
| | — |
| | 72,508 |
| | — |
| | 72,708 |
| | 85 |
| | — |
| | 84,299 |
| | — |
| | 84,384 |
|
Total deposit liabilities | | 200 |
| | — |
| | 72,602 |
| | — |
| | 72,802 |
| | 85 |
| | — |
| | 84,401 |
| | — |
| | 84,486 |
|
Short-term borrowings | | 3,576 |
| | — |
| | 2,418 |
| | — |
| | 5,994 |
| | 4,901 |
| | — |
| | 3,470 |
| | — |
| | 8,371 |
|
Long-term debt | | 21,625 |
| | — |
| | 39,415 |
| | — |
| | 61,040 |
| | 20,156 |
| | — |
| | 30,905 |
| | — |
| | 51,061 |
|
Intercompany debt to | | | | | | | | | | | | | | | | | | | | |
Bank subsidiary | | | 51 |
| | — |
| | — |
| | (51 | ) | | — |
|
Nonbank subsidiaries | | 1,400 |
| | — |
| | 3,719 |
| | (5,119 | ) | | — |
| | 1,097 |
| | — |
| | 1,807 |
| | (2,904 | ) | | — |
|
Intercompany payables to | | | | | | | | | | | | | | | | | | | | |
Bank subsidiary | | 203 |
| | — |
| | — |
| | (203 | ) | | — |
| | 127 |
| | — |
| | — |
| | (127 | ) | | — |
|
Nonbank subsidiaries | | 164 |
| | — |
| | 165 |
| | (329 | ) | | — |
| | 180 |
| | — |
| | 57 |
| | (237 | ) | | — |
|
Interest payable | | 251 |
| | — |
| | 176 |
| | — |
| | 427 |
| | 231 |
| | — |
| | 151 |
| | — |
| | 382 |
|
Unearned insurance premiums and service revenue | | — |
| | — |
| | 2,465 |
| | — |
| | 2,465 |
| | — |
| | — |
| | 2,514 |
| | — |
| | 2,514 |
|
Accrued expenses and other liabilities | | 345 |
| | — |
| | 4,142 |
| | (2,895 | ) | | 1,592 |
| | 320 |
| | — |
| | 4,506 |
| | (2,904 | ) | | 1,922 |
|
Total liabilities | | 27,764 |
| | — |
| | 125,102 |
| | (8,546 | ) | | 144,320 |
| | 27,148 |
| | — |
| | 127,811 |
| | (6,223 | ) | | 148,736 |
|
Total equity | | 13,611 |
| | 17,258 |
| | 28,094 |
| | (45,352 | ) | | 13,611 |
| | 13,365 |
| | 18,405 |
| | 28,085 |
| | (46,490 | ) | | 13,365 |
|
Total liabilities and equity | | $ | 41,375 |
| | $ | 17,258 |
| | $ | 153,196 |
| | $ | (53,898 | ) | | $ | 157,931 |
| | $ | 40,513 |
| | $ | 18,405 |
| | $ | 155,896 |
| | $ | (52,713 | ) | | $ | 162,101 |
|
| |
(a) | Amounts presented are based upon the legal transfer of the underlying assets to VIEs in order to reflect legal ownership. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
| | December 31, 2015 ($ in millions) | | Parent (a) | | Guarantors | | Nonguarantors (a) | | Consolidating adjustments | | Ally consolidated | |
December 31, 2016 ($ in millions) | | | Parent (a) | | Guarantors | | Nonguarantors (a) | | Consolidating adjustments | | Ally consolidated |
Assets | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | | | | | | | | | | | | | | | | | | |
Noninterest-bearing | | $ | 1,234 |
| | $ | — |
| | $ | 914 |
| | $ | — |
| | $ | 2,148 |
| | $ | 720 |
| | $ | — |
| | $ | 827 |
| | $ | — |
| | $ | 1,547 |
|
Interest-bearing | | 401 |
| | — |
| | 3,831 |
| | — |
| | 4,232 |
| | 100 |
| | — |
| | 4,287 |
| | — |
| | 4,387 |
|
Interest-bearing — intercompany | | — |
| | — |
| | 850 |
| | (850 | ) | | — |
| | — |
| | — |
| | 401 |
| | (401 | ) | | — |
|
Total cash and cash equivalents | | 1,635 |
| | — |
| | 5,595 |
| | (850 | ) | | 6,380 |
| | 820 |
| | — |
| | 5,515 |
| | (401 | ) | | 5,934 |
|
Trading securities | | | — |
| | — |
| | 82 |
| | (82 | ) | | — |
|
Available-for-sale securities | | — |
| | — |
| | 17,157 |
| | — |
| | 17,157 |
| | — |
| | — |
| | 19,253 |
| | (327 | ) | | 18,926 |
|
Loans held-for-sale, net | | — |
| | — |
| | 105 |
| | — |
| | 105 |
| |
Held-to-maturity securities | | | — |
| | — |
| | 839 |
| | — |
| | 839 |
|
Finance receivables and loans, net | | | | | | | | | | | | | | | | | | | | |
Finance receivables and loans, net | | 2,636 |
| | — |
| | 108,964 |
| | — |
| | 111,600 |
| | 4,705 |
| | — |
| | 114,239 |
| | — |
| | 118,944 |
|
Intercompany loans to | | | | | | | | | | | | | | | | | | | | |
Bank subsidiary | | 600 |
| | — |
| | — |
| | (600 | ) | | — |
| | 1,125 |
| | — |
| | — |
| | (1,125 | ) | | — |
|
Nonbank subsidiaries | | 3,277 |
| | — |
| | 559 |
| | (3,836 | ) | | — |
| | 1,779 |
| | — |
| | 626 |
| | (2,405 | ) | | — |
|
Allowance for loan losses | | (72 | ) | | — |
| | (982 | ) | | — |
| | (1,054 | ) | | (115 | ) | | — |
| | (1,029 | ) | | — |
| | (1,144 | ) |
Total finance receivables and loans, net | | 6,441 |
| | — |
| | 108,541 |
| | (4,436 | ) | | 110,546 |
| | 7,494 |
| | — |
| | 113,836 |
| | (3,530 | ) | | 117,800 |
|
Investment in operating leases, net | | 81 |
| | — |
| | 16,190 |
| | — |
| | 16,271 |
| | 42 |
| | — |
| | 11,428 |
| | — |
| | 11,470 |
|
Intercompany receivables from | | | | | | | | | | | | | | | | | | | | |
Bank subsidiary | | 186 |
| | — |
| | — |
| | (186 | ) | | — |
| | 299 |
| | — |
| | — |
| | (299 | ) | | — |
|
Nonbank subsidiaries | | 259 |
| | — |
| | 282 |
| | (541 | ) | | — |
| | 107 |
| | — |
| | 67 |
| | (174 | ) | | — |
|
Investment in subsidiaries | | | | | | | | | | | | | | | | | | | | |
Bank subsidiary | | 16,496 |
| | 16,496 |
| | — |
| | (32,992 | ) | | — |
| | 17,727 |
| | 17,727 |
| | — |
| | (35,454 | ) | | — |
|
Nonbank subsidiaries | | 10,902 |
| | 11 |
| | — |
| | (10,913 | ) | | — |
| | 10,318 |
| | — |
| | — |
| | (10,318 | ) | | — |
|
Premiums receivable and other insurance assets | | — |
| | — |
| | 1,827 |
| | (26 | ) | | 1,801 |
| | — |
| | — |
| | 1,936 |
| | (31 | ) | | 1,905 |
|
Other assets | | 4,785 |
| | — |
| | 4,488 |
| | (2,952 | ) | | 6,321 |
| | 4,347 |
| | — |
| | 5,085 |
| | (2,578 | ) | | 6,854 |
|
Total assets | | $ | 40,785 |
| | $ | 16,507 |
| | $ | 154,185 |
| | $ | (52,896 | ) | | $ | 158,581 |
| | $ | 41,154 |
| | $ | 17,727 |
| | $ | 158,041 |
| | $ | (53,194 | ) | | $ | 163,728 |
|
Liabilities | | | | | | | | | | | | | | | | | | | | |
Deposit liabilities | | | | | | | | | | | | | | | | | | | | |
Noninterest-bearing | | $ | — |
| | $ | — |
| | $ | 89 |
| | $ | — |
| | $ | 89 |
| | $ | — |
| | $ | — |
| | $ | 84 |
| | $ | — |
| | $ | 84 |
|
Interest-bearing | | 229 |
| | — |
| | 66,160 |
| | — |
| | 66,389 |
| | 167 |
| | — |
| | 78,771 |
| | — |
| | 78,938 |
|
Total deposit liabilities | | 229 |
| | — |
| | 66,249 |
| | — |
| | 66,478 |
| | 167 |
| | — |
| | 78,855 |
| | — |
| | 79,022 |
|
Short-term borrowings | | 3,453 |
| | — |
| | 4,648 |
| | — |
| | 8,101 |
| | 3,622 |
| | — |
| | 9,051 |
| | — |
| | 12,673 |
|
Long-term debt | | 21,048 |
| | — |
| | 45,186 |
| | — |
| | 66,234 |
| | 21,798 |
| | — |
| | 32,330 |
| | — |
| | 54,128 |
|
Intercompany debt to | | | | | | | | | | | | | | | | | | | | |
Bank subsidiary | | | 330 |
| | — |
| | — |
| | (330 | ) | | — |
|
Nonbank subsidiaries | | 1,409 |
| | — |
| | 3,877 |
| | (5,286 | ) | | — |
| | 1,027 |
| | — |
| | 2,903 |
| | (3,930 | ) | | — |
|
Intercompany payables to | | | | | | | | | | | | | | | | | | | | |
Bank subsidiary | | 142 |
| | — |
| | — |
| | (142 | ) | | — |
| |
Nonbank subsidiaries | | 420 |
| | — |
| | 191 |
| | (611 | ) | | — |
| | 153 |
| | — |
| | 351 |
| | (504 | ) | | — |
|
Interest payable | | 258 |
| | — |
| | 92 |
| | — |
| | 350 |
| | 253 |
| | — |
| | 98 |
| | — |
| | 351 |
|
Unearned insurance premiums and service revenue | | — |
| | — |
| | 2,434 |
| | — |
| | 2,434 |
| | — |
| | — |
| | 2,500 |
| | — |
| | 2,500 |
|
Accrued expenses and other liabilities | | 387 |
| | 82 |
| | 4,028 |
| | (2,952 | ) | | 1,545 |
| | 487 |
| | — |
| | 3,911 |
| | (2,661 | ) | | 1,737 |
|
Total liabilities | | 27,346 |
| | 82 |
| | 126,705 |
| | (8,991 | ) | | 145,142 |
| | 27,837 |
| | — |
| | 129,999 |
| | (7,425 | ) | | 150,411 |
|
Total equity | | 13,439 |
| | 16,425 |
| | 27,480 |
| | (43,905 | ) | | 13,439 |
| | 13,317 |
| | 17,727 |
| | 28,042 |
| | (45,769 | ) | | 13,317 |
|
Total liabilities and equity | | $ | 40,785 |
| | $ | 16,507 |
| | $ | 154,185 |
| | $ | (52,896 | ) | | $ | 158,581 |
| | $ | 41,154 |
| | $ | 17,727 |
| | $ | 158,041 |
| | $ | (53,194 | ) | | $ | 163,728 |
|
| |
(a) | Amounts presented are based upon the legal transfer of the underlying assets to VIEs in order to reflect legal ownership. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Condensed Consolidating Statement of Cash Flows
| | Six months ended June 30, 2016 ($ in millions) | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated | |
Three months ended March 31, 2017 ($ in millions) | | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated |
Operating activities | | | | | | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | $ | 132 |
| | $ | — |
| | $ | 2,919 |
| | $ | (629 | ) | | $ | 2,422 |
| |
Net cash (used in) provided by operating activities | | | $ | (149 | ) | | $ | — |
| | $ | 1,284 |
| | $ | 40 |
| | $ | 1,175 |
|
Investing activities | | | | | | | | | |
|
| | | | | | | | | |
|
|
Purchases of available-for-sale securities | | — |
| | — |
| | (8,657 | ) | | — |
| | (8,657 | ) | | — |
| | — |
| | (2,833 | ) | | — |
| | (2,833 | ) |
Proceeds from sales of available-for-sale securities | | — |
| | — |
| | 6,584 |
| | — |
| | 6,584 |
| | — |
| | — |
| | 1,045 |
| | — |
| | 1,045 |
|
Proceeds from maturities and repayments of available-for-sale securities | | — |
| | — |
| | 1,536 |
| | — |
| | 1,536 |
| | — |
| | — |
| | 589 |
| | — |
| | 589 |
|
Purchases of held-to-maturity securities | | — |
| | — |
| | (571 | ) | | — |
| | (571 | ) | | — |
| | — |
| | (215 | ) | | — |
| | (215 | ) |
Net increase in finance receivables and loans | | (834 | ) | | — |
| | (4,819 | ) | | — |
| | (5,653 | ) | |
Proceeds from maturities and repayments of held-to-maturity securities | | | — |
| | — |
| | 5 |
| | — |
| | 5 |
|
Net change in investment securities — intercompany | | | 1 |
| | — |
| | 261 |
| | (262 | ) | | — |
|
Purchases of loans held-for-investment | | | (15 | ) | | — |
| | (390 | ) | | — |
| | (405 | ) |
Proceeds from sales of finance receivables and loans originated as held-for-investment | | — |
| | — |
| | 4,156 |
| | — |
| | 4,156 |
| | — |
| | — |
| | 1,164 |
| | — |
| | 1,164 |
|
Originations and repayments of loans held-for-investment and other | | | 931 |
| | — |
| | (1,145 | ) | | (960 | ) | | (1,174 | ) |
Net change in loans — intercompany | | 61 |
| | — |
| | (2 | ) | | (59 | ) | | — |
| | 1,146 |
| | — |
| | 170 |
| | (1,316 | ) | | — |
|
Purchases of operating lease assets | | — |
| | — |
| | (1,472 | ) | | — |
| | (1,472 | ) | | — |
| | — |
| | (893 | ) | | — |
| | (893 | ) |
Disposals of operating lease assets | | 9 |
| | — |
| | 3,038 |
| | — |
| | 3,047 |
| | 1 |
| | — |
| | 1,544 |
| | — |
| | 1,545 |
|
Acquisitions of subsidiaries, net of cash acquired | | (288 | ) | | — |
| | — |
| | — |
| | (288 | ) | |
Capital contributions to subsidiaries | | (988 | ) | | — |
| | — |
| | 988 |
| | — |
| | (83 | ) | | — |
| | — |
| | 83 |
| | — |
|
Returns of contributed capital | | 1,971 |
| | 8 |
| | — |
| | (1,979 | ) | | — |
| | 645 |
| | — |
| | — |
| | (645 | ) | | — |
|
Net change in restricted cash | | 1 |
| | — |
| | 481 |
| | — |
| | 482 |
| | (27 | ) | | — |
| | 385 |
| | (3 | ) | | 355 |
|
Net change in nonmarketable equity investments | | — |
| | — |
| | (354 | ) | | — |
| | (354 | ) | | — |
| | — |
| | 213 |
| | — |
| | 213 |
|
Other, net | | (82 | ) | | — |
| | 13 |
| | — |
| | (69 | ) | | (26 | ) | | — |
| | 58 |
| | (91 | ) | | (59 | ) |
Net cash (used in) provided by investing activities | | (150 | ) | | 8 |
| | (67 | ) | | (1,050 | ) | | (1,259 | ) | |
Net cash provided by (used in) investing activities | | | 2,573 |
| | — |
| | (42 | ) | | (3,194 | ) | | (663 | ) |
Financing activities | | | | | | | | | | | | | | | | | | | | |
Net change in short-term borrowings — third party | | 123 |
| | — |
| | (2,235 | ) | | — |
| | (2,112 | ) | | 1,278 |
| | — |
| | (5,581 | ) | | — |
| | (4,303 | ) |
Net (decrease) increase in deposits | | (29 | ) | | — |
| | 6,337 |
| | — |
| | 6,308 |
| | (82 | ) | | — |
| | 5,533 |
| | — |
| | 5,451 |
|
Proceeds from issuance of long-term debt — third party | | 1,115 |
| | — |
| | 7,905 |
| | — |
| | 9,020 |
| | 330 |
| | — |
| | 3,196 |
| | 962 |
| | 4,488 |
|
Repayments of long-term debt — third party | | (596 | ) | | — |
| | (13,709 | ) | | — |
| | (14,305 | ) | | (2,870 | ) | | — |
| | (4,703 | ) | | — |
| | (7,573 | ) |
Net change in debt — intercompany | | (8 | ) | | — |
| | (62 | ) | | 70 |
| | — |
| | (203 | ) | | — |
| | (1,146 | ) | | 1,349 |
| | — |
|
Redemption of preferred stock | | (696 | ) | | — |
| | — |
| | — |
| | (696 | ) | |
Repurchase of common stock | | | (169 | ) | | — |
| | — |
| | — |
| | (169 | ) |
Dividends paid — third party | | (30 | ) | | — |
| | — |
| | — |
| | (30 | ) | | (38 | ) | | — |
| | — |
| | — |
| | (38 | ) |
Dividends paid and returns of contributed capital — intercompany | | — |
| | (8 | ) | | (2,600 | ) | | 2,608 |
| | — |
| | — |
| | — |
| | (686 | ) | | 686 |
| | — |
|
Capital contributions from parent | | — |
| | — |
| | 988 |
| | (988 | ) | | — |
| | — |
| | — |
| | 83 |
| | (83 | ) | | — |
|
Net cash used in financing activities | | (121 | ) | | (8 | ) | | (3,376 | ) | | 1,690 |
| | (1,815 | ) | | (1,754 | ) | | — |
| | (3,304 | ) | | 2,914 |
| | (2,144 | ) |
Effect of exchange-rate changes on cash and cash equivalents | | — |
| | — |
| | 3 |
| | — |
| | 3 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net decrease in cash and cash equivalents | | (139 | ) | | — |
| | (521 | ) | | 11 |
| | (649 | ) | |
Net increase (decrease) in cash and cash equivalents | | | 670 |
| | — |
| | (2,062 | ) | | (240 | ) | | (1,632 | ) |
Cash and cash equivalents at beginning of year | | 1,635 |
| | — |
| | 5,595 |
| | (850 | ) | | 6,380 |
| | 820 |
| | — |
| | 5,515 |
| | (401 | ) | | 5,934 |
|
Cash and cash equivalents at June 30, | | $ | 1,496 |
| | $ | — |
| | $ | 5,074 |
| | $ | (839 | ) | | $ | 5,731 |
| |
Cash and cash equivalents at March 31, | | | $ | 1,490 |
| | $ | — |
| | $ | 3,453 |
| | $ | (641 | ) | | $ | 4,302 |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
| | Six months ended June 30, 2015 ($ in millions) | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated | |
Three months ended March 31, 2016 ($ in millions) | | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated |
Operating activities | | | | | | | | | | | | | | | | | | | | |
Net cash (used in) provided by operating activities | | $ | (64 | ) | | $ | 525 |
| | $ | 2,817 |
| | $ | (1,535 | ) | | $ | 1,743 |
| | $ | (24 | ) | | $ | — |
| | $ | 1,708 |
| | $ | (482 | ) | | $ | 1,202 |
|
Investing activities | | | | | | | | | |
| | | | | | | | | |
|
Purchases of investment securities | | — |
| | — |
| | (8,165 | ) | | — |
| | (8,165 | ) | |
Purchases of available-for-sale securities | | | — |
| | — |
| | (4,870 | ) | | — |
| | (4,870 | ) |
Proceeds from sales of available-for-sale securities | | — |
| | — |
| | 2,865 |
| | — |
| | 2,865 |
| | — |
| | — |
| | 4,175 |
| | — |
| | 4,175 |
|
Proceeds from maturities and repayments of available-for -sale securities | | — |
| | — |
| | 2,192 |
| | — |
| | 2,192 |
| |
Net decrease (increase) in finance receivables and loans | | 787 |
| | — |
| | (6,258 | ) | | — |
| | (5,471 | ) | |
Proceeds from maturities and repayments of available-for-sale securities | | | — |
| | — |
| | 409 |
| | — |
| | 409 |
|
Purchases of held-to-maturity securities | | | — |
| | — |
| | (118 | ) | | — |
| | (118 | ) |
Purchases of loans held-for-investment | | | — |
| | — |
| | (1,402 | ) | | — |
| | (1,402 | ) |
Proceeds from sales of finance receivables and loans originated as held-for-investment | | — |
| | — |
| | 1,582 |
| | — |
| | 1,582 |
| | — |
| | — |
| | 2,594 |
| | — |
| | 2,594 |
|
Originations and repayments of loans held-for-investment and other | | | (292 | ) | | — |
| | (392 | ) | | — |
| | (684 | ) |
Net change in loans — intercompany | | 2,598 |
| | — |
| | 1,259 |
| | (3,857 | ) | | — |
| | 683 |
| | — |
| | (44 | ) | | (639 | ) | | — |
|
Purchases of operating lease assets | | — |
| | — |
| | (2,348 | ) | | — |
| | (2,348 | ) | | — |
| | — |
| | (701 | ) | | — |
| | (701 | ) |
Disposals of operating lease assets | | — |
| | — |
| | 2,709 |
| | — |
| | 2,709 |
| | 2 |
| | — |
| | 1,533 |
| | — |
| | 1,535 |
|
Capital contributions to subsidiaries | | (169 | ) | | (1 | ) | | 1 |
| | 169 |
| | — |
| | (128 | ) | | — |
| | — |
| | 128 |
| | — |
|
Returns of contributed capital | | 602 |
| | — |
| | — |
| | (602 | ) | | — |
| | 223 |
| | — |
| | — |
| | (223 | ) | | — |
|
Proceeds from sale of business unit, net | | 1,049 |
| | — |
| | — |
| | — |
| | 1,049 |
| |
Net change in restricted cash | | — |
| | — |
| | 449 |
| | — |
| | 449 |
| | — |
| | — |
| | 48 |
| | — |
| | 48 |
|
Net change in nonmarketable equity investments | | — |
| | — |
| | 88 |
| | — |
| | 88 |
| | — |
| | — |
| | (315 | ) | | — |
| | (315 | ) |
Other, net | | (10 | ) | | — |
| | (132 | ) | | — |
| | (142 | ) | | (32 | ) | | — |
| | 12 |
| | — |
| | (20 | ) |
Net cash provided by (used in) investing activities | | 4,857 |
| | (1 | ) | | (5,758 | ) | | (4,290 | ) | | (5,192 | ) | |
Net cash provided by investing activities | | | 456 |
| | — |
| | 929 |
| | (734 | ) | | 651 |
|
Financing activities | | | | | | | | | |
| | | | | | | | | |
|
Net change in short-term borrowings — third party | | 121 |
| | — |
| | 2,824 |
| | — |
| | 2,945 |
| | 187 |
| | — |
| | (2,926 | ) | | — |
| | (2,739 | ) |
Net (decrease) increase in deposits | | (72 | ) | | — |
| | 3,785 |
| | — |
| | 3,713 |
| | (10 | ) | | — |
| | 3,790 |
| | — |
| | 3,780 |
|
Proceeds from issuance of long-term debt — third party | | 3,780 |
| | — |
| | 14,038 |
| | — |
| | 17,818 |
| | 178 |
| | — |
| | 4,066 |
| | — |
| | 4,244 |
|
Repayments of long-term debt — third party | | (5,837 | ) | | — |
| | (13,147 | ) | | — |
| | (18,984 | ) | | (580 | ) | | — |
| | (7,910 | ) | | — |
| | (8,490 | ) |
Net change in debt — intercompany | | (1,131 | ) | | — |
| | (2,597 | ) | | 3,728 |
| | — |
| | (68 | ) | | — |
| | (684 | ) | | 752 |
| | — |
|
Repurchase and redemption of preferred stock | | (442 | ) | | — |
| | — |
| | — |
| | (442 | ) | |
Repurchase of common stock | | | (14 | ) | | — |
| | — |
| | — |
| | (14 | ) |
Dividends paid — third party | | (1,318 | ) | | — |
| | — |
| | — |
| | (1,318 | ) | | (15 | ) | | — |
| | — |
| | — |
| | (15 | ) |
Dividends paid and returns of contributed capital — intercompany | | — |
| | (525 | ) | | (1,612 | ) | | 2,137 |
| | — |
| | — |
| | — |
| | (705 | ) | | 705 |
| | — |
|
Capital contributions from parent | | — |
| | 1 |
| | 168 |
| | (169 | ) | | — |
| | — |
| | — |
| | 128 |
| | (128 | ) | | — |
|
Net cash (used in) provided by financing activities | | (4,899 | ) | | (524 | ) | | 3,459 |
| | 5,696 |
| | 3,732 |
| |
Net cash used in financing activities | | | (322 | ) | | — |
| | (4,241 | ) | | 1,329 |
| | (3,234 | ) |
Effect of exchange-rate changes on cash and cash equivalents | | — |
| | — |
| | (1 | ) | | — |
| | (1 | ) | | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Net (decrease) increase in cash and cash equivalents | | (106 | ) | | — |
| | 517 |
| | (129 | ) | | 282 |
| |
Net increase (decrease) in cash and cash equivalents | | | 110 |
| | — |
| | (1,602 | ) | | 113 |
| | (1,379 | ) |
Cash and cash equivalents at beginning of year | | 2,286 |
| | — |
| | 3,905 |
| | (615 | ) | | 5,576 |
| | 1,635 |
| | — |
| | 5,595 |
| | (850 | ) | | 6,380 |
|
Cash and cash equivalents at June 30, | | $ | 2,180 |
| | $ | — |
| | $ | 4,422 |
| | $ | (744 | ) | | $ | 5,858 |
| |
Cash and cash equivalents at March 31, | | | $ | 1,745 |
| | $ | — |
| | $ | 3,993 |
| | $ | (737 | ) | | $ | 5,001 |
|
26.25. Contingencies and Other Risks
In the normal course of business, we enter into transactions that expose us to varying degrees of risk.Legal Matters
Legal Proceedings
WeAlly and its subsidiaries, including Ally Bank, are or may be subject to potential liability under various governmental proceedings, claims, and legal actions that are pending or otherwise asserted against us. We are named as defendants in a number of legal actions, and we are involved in governmental proceedings arising in connection with our respective businesses. Some of the pending actions purport toor 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 certainregulatory or other governmental information-gathering requests, examinations, investigations, and enforcement proceedings. Our legal actions include claimsmatters exist in varying stages of adjudication, arbitration, negotiation, or investigation and span our lines of business and operations. Claims may be based in law or equity—such as those arising under contracts or in tort and those involving banking, consumer-protection, securities, tax, employment, and other laws—and some can present novel legal theories and allege substantial or indeterminate damages.
We accrue for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. We establish reserves fora legal claimsmatter when payments associated with the claims becomea loss becomes probable and the paymentsamount of loss can be reasonably estimated. GivenAccruals 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 inherent difficulty of predicting thefuture.
The course and outcome of litigation andlegal 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
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
uncertainties exist, a request to certify a proceeding as a class action is outstanding or granted, multiple parties are named, or regulatory or other governmental entities are involved. As a result, we cannot state with confidence how or when threatened or pending legal matters it is generally very difficult to predict what the eventual outcome will be resolved and when the matter willwhat losses may be resolved. The actual costs of resolving legal claimsincurred. Actual losses may be higher or lower than any amounts reservedaccrued for the claims.those matters, possibly to a significant degree.
On the basis of information currently available, advice of counsel, available insurance coverage, and established reserves, it is the opinion of management that, except as described in the next paragraph, the eventual outcome of the current actions against usour existing legal matters will not have a material adverse effect on our consolidated financial condition, results of operations, or cash flows. However, itIt is possible, however, that the ultimatean unfavorable resolution of legal matters if unfavorable, may be material to our consolidated financial condition, results of operations, or cash flows in a particular period.
Descriptions of our material legal matters follow. In each case, the matter could have material adverse consequences for us, including substantial damages or settlements, injunctions, governmental fines or penalties, and reputational or operational risks. We do not believe, however, that an estimate of reasonably possible losses or a range of reasonably possible losses in excess of established reserves—whether in excess of any related accrual or where no accrual exists—can be made for any of these matters.
Notes to Condensed Consolidated Financial Statements (unaudited)
In October 2016, a purported class action—Bucks County Employees Retirement Fund v. Ally Financial Inc. • Form 10-Q
Regulatory Matters
Ally and its subsidiaries, including Ally Bank, are or may become involved from timeet al.—was filed in the Circuit Court for Wayne County in the State of Michigan. This matter was removed to time in formal and informal reviews, investigations, examinations, proceedings, and information-gathering requests by federal and state government and self-regulatory agencies, including, among others, the U.S. DepartmentDistrict Court for the Eastern District of Justice (DOJ), the SEC, Consumer Financial Protection Bureau (CFPB), the FRB, the FDIC, the Utah Department of Financial Institutions,Michigan on November 18, 2016, and the Federal Trade Commission regarding their respective operations.
Mortgage Matters
We have received subpoenas from the DOJ that include a broad request for documentationis currently pending there as Case No. 2:16-CV-14104. The complaint alleges material misstatements and other information relating to residential mortgage-backed securities issued by our former mortgage subsidiary, Residential Capital, LLC and its subsidiaries (ResCap RMBS). In connection with these requests, the DOJ is investigating potential fraud and other potential legal claims related to ResCap RMBS, including its investigation of potential claims under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. The DOJ is also investigating potential claims under the False Claims Act (FCA) related to representations made by usomissions in connection with investmentsAlly’s initial public offering in April 2014, including a failure to adequately disclose the severity of rising subprime automotive loan delinquency rates, deficient underwriting measures employed in the origination of subprime automotive loans, and aggressive tactics used with low-income borrowers. The request for relief includes an indeterminate amount of damages, fees, and costs and other remedies. In January 2017, another purported class action—National Shopmen Pension Fund v. Ally made byFinancial Inc. et al.—was filed in the United States DepartmentCircuit Court for Oakland County in the State of the Treasury pursuantMichigan. This matter was removed to the Troubled Asset Relief ProgramU.S. District Court for the Eastern District of Michigan on January 30, 2017, and is currently pending there as Case No. 2:17-CV-10289. In March 2017, a third purported class action—James McIntire v. Ally Financial Inc. et al.—was filed in 2008the Circuit Court for Wayne County in the State of Michigan. This matter was removed to the U.S. District Court for the Eastern District of Michigan on March 15, 2017, and 2009 regarding certain claimsis currently pending there as Case No. 2:17-CV-10833. The allegations and requested relief in the National Shopmen Pension Fund and James McIntire complaints are substantially similar to those included in the complaint filed by Bucks County Employees Retirement Fund. We intend to vigorously defend against Residential Capital, LLC or its subsidiaries at that time. We continue to engage in discussions with the DOJ with respect to legal and factual aspectseach of their investigations and potential claims. As previously disclosed, at the request of the DOJ, we entered into an agreement to voluntarily extend the statutes of limitations related to potential FCA claims. This agreement expired at the end of January 2016.
We have separately received subpoenas and document requests from the SEC that include information covering a wide range of mortgage-related matters.
These matters could result in material adverse consequences including, without limitation, adverse judgments, significant settlements, fines, penalties, injunctions, or otherthese actions.
Automotive Subprime Matters
In October 2014, we received a document request from the SEC in connection with its investigation related to subprime automotive finance and related securitization activities. Separately, in December 2014, we received a subpoena from the DOJ requesting similar information. In May 2015 and December 2016, we received an information requestrequests from the New York Department of Financial Services requesting similar information. We have cooperated with each of these agencies with respect to these matters. These matters could result in material adverse consequences including, without limitation, adverse judgments, significant settlements, fines, penalties, injunctions, or other actions.
CFPBIndirect Automotive Finance Matters
In December 2013, Ally Financial Inc. and Ally Bank entered into a Consent OrdersOrder issued by the CFPBU.S. Consumer Financial Protection Bureau (CFPB) and a Consent Order jointly submitted with the DOJ and entered by the U.S. District Court for the Eastern District of Michigan (United States v. Ally Financial Inc. and Ally Bank, Civil Action No. 13-15180), in each case, pertaining to the allegationallegations of disparate impact indiscrimination involving the automotive finance business. The Consent Orders require Ally to create a compliance plan addressing, at a minimum, the communication of Ally’s expectations of Equal Credit Opportunity Act (ECOA) compliance to dealers,our automotive dealer clients, maintenance of Ally’s existing limits on dealer finance income for contracts acquired by Ally, and monitoring for potential discrimination both at the dealer level and within our portfolio of contracts acquired across all dealers.of our automotive dealer clients. Ally formed a compliance committee consisting of certain Ally Financial Inc. and Ally Bank directors to oversee Ally’s execution of the Consent Orders’ terms. Ally is required to meet certain stipulations under the Consent Orders, including a requirement to make monetary payments when ongoing remediation targets are not attained. These matters
Since 2013, Ally has recognized expenses of approximately $240 million for judgments, fines, and monetary remuneration payments to customers related to the Consent Orders. The Consent Orders terminate, according to their terms, in 2017, and preclude the CFPB and the DOJ from pursuing any potential violations of the ECOA against Ally Financial Inc. or Ally Bank for conduct undertaken pursuant to the Consent Orders during the period of the Consent Orders. If the CFPB or the DOJ were to assert that Ally Financial Inc. or Ally Bank is violating the ECOA after the Consent Orders terminate, further legal proceedings could result in material adverse consequences including, without limitation, adverse judgments, significant settlements, fines, penalties, injunctions, or other actions.occur.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Other Contingencies
WeAlly and its subsidiaries, including Ally Bank, are or may be subject to potential liability under various other contingent exposures, including indemnification, tax, nonrecourse loans, self-insurance, and other miscellaneous contingencies. We establish reservesaccrue for these contingenciesa contingent exposure when thea loss becomes probable and the amount of loss can be reasonably estimated. The actual costs of resolving these itemsAccruals are evaluated each quarter and may be substantiallyadjusted, upward or downward, based on our best judgment. No assurance exists that our accruals will not need to be adjusted in the future, and actual losses may be higher or lower than any amounts accrued for those exposures, possibly to a significant degree. On the amounts reserved for any one item. Based onbasis of information currently available, available insurance coverage, and established reserves, it is the opinion of management that the eventual outcome of these itemsour other contingent exposures will not have a material adverse impacteffect on our consolidated financial condition, results of operations, financial position, or cash flows. Refer to Note 1 to the Consolidated Financial Statements included in our 2016 Annual Report on Form 10-K for additional information related to our policy for establishing reserves for legal and regulatory matters.
27.26. Subsequent Events
Declaration of Quarterly Dividend Payment and Authorization of Stock Repurchase Program
On July 18, 2016,April 14, 2017, the Ally Board of Directors declared a quarterly cash dividend payment of $0.08 per share on all common stock. The dividend is payable on AugustMay 15, 2016,2017, to shareholders of record at the close of business on AugustMay 1, 2016. Additionally, the Ally Board of Directors authorized a common stock repurchase program of up to $700 million beginning in the third quarter of 2016 and continuing through the second quarter of 2017.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Selected Financial Data
The selected historical financial information set forth below should be read in conjunction with Management’s Discussion and Analysis (MD&A) of Financial Condition and Results of Operations, and our Condensed Consolidated Financial Statements, and the Notes to Condensed Consolidated Financial Statements.notes thereto. The historical financial information presented may not be indicative of our future performance.
The following table presents selected Condensed Consolidated Statement of Comprehensive Income and market price data.
| |
|
| Three months ended June 30, |
| Six months ended June 30, |
| Three months ended March 31, |
($ in millions, except per share and share data) |
| 2016 |
| 2015 |
| 2016 |
| 2015 | |
($ in millions, except per share data; shares in thousands) | |
| 2017 |
| 2016 |
Total financing revenue and other interest income |
| $ | 2,069 |
|
| $ | 2,087 |
|
| $ | 4,178 |
|
| $ | 4,171 |
|
| $ | 2,050 |
|
| $ | 2,109 |
|
Total interest expense |
| 651 |
|
| 608 |
|
| 1,299 |
|
| 1,220 |
|
| 682 |
|
| 648 |
|
Depreciation expense on operating lease assets |
| 434 |
|
| 563 |
|
| 944 |
|
| 1,185 |
| |
Net financing revenue |
| 984 |
|
| 916 |
|
| 1,935 |
|
| 1,766 |
| |
Net depreciation expense on operating lease assets | |
| 389 |
|
| 510 |
|
Net financing revenue and other interest income | |
| 979 |
|
| 951 |
|
Total other revenue |
| 374 |
|
| 211 |
|
| 750 |
|
| 454 |
|
| 396 |
|
| 376 |
|
Total net revenue |
| 1,358 |
|
| 1,127 |
|
| 2,685 |
|
| 2,220 |
|
| 1,375 |
|
| 1,327 |
|
Provision for loan losses |
| 172 |
|
| 140 |
|
| 392 |
|
| 256 |
|
| 271 |
|
| 220 |
|
Total noninterest expense |
| 773 |
|
| 724 |
|
| 1,483 |
|
| 1,419 |
|
| 778 |
|
| 710 |
|
Income from continuing operations before income tax expense |
| 413 |
|
| 263 |
|
| 810 |
|
| 545 |
|
| 326 |
|
| 397 |
|
Income tax expense from continuing operations |
| 56 |
|
| 94 |
|
| 206 |
|
| 197 |
|
| 113 |
|
| 150 |
|
Net income from continuing operations |
| 357 |
|
| 169 |
|
| 604 |
|
| 348 |
|
| 213 |
|
| 247 |
|
Income from discontinued operations, net of tax |
| 3 |
|
| 13 |
|
| 6 |
|
| 410 |
|
| 1 |
|
| 3 |
|
Net income |
| $ | 360 |
|
| $ | 182 |
|
| $ | 610 |
|
| $ | 758 |
|
| $ | 214 |
|
| $ | 250 |
|
Basic earnings per common share: |
|
|
|
|
|
|
|
| |
Net income (loss) from continuing operations |
| $ | 0.70 |
|
| $ | (2.24 | ) |
| $ | 1.18 |
|
| $ | (2.01 | ) | |
Net income (loss) |
| 0.71 |
|
| (2.22 | ) |
| 1.20 |
|
| (1.16 | ) | |
Weighted-average common shares outstanding (a) | | 485,370,318 |
| | 482,847,164 |
| | 484,801,782 |
| | 482,550,842 |
| |
Diluted earnings per common share: | | | | | | | | | |
Net income (loss) from continuing operations | | $ | 0.70 |
| | $ | (2.24 | ) | | $ | 1.18 |
| | $ | (2.01 | ) | |
Net income (loss) | | 0.71 |
| | (2.22 | ) | | 1.19 |
| | (1.16 | ) | |
Weighted-average common shares outstanding (a) (b) | | 486,074,474 |
| | 482,847,164 |
| | 485,364,351 |
| | 482,550,842 |
| |
Basic earnings per common share (a): | |
|
|
|
|
Net income from continuing operations | |
| $ | 0.46 |
|
| $ | 0.48 |
|
Net income | |
| 0.46 |
|
| 0.49 |
|
Weighted-average common shares outstanding | | | 465,961 |
| | 484,233 |
|
Diluted earnings per common share (a): | | | | | |
Net income from continuing operations | | | $ | 0.46 |
| | $ | 0.48 |
|
Net income | | | 0.46 |
| | 0.49 |
|
Weighted-average common shares outstanding | | | 466,829 |
| | 484,654 |
|
Market price per common share: | | | | | | | | | | | | |
High closing | | $ | 18.66 |
| | $ | 23.66 |
| | $ | 18.88 |
| | $ | 23.88 |
| | $ | 23.48 |
| | $ | 18.88 |
|
Low closing | | 14.90 |
| | 19.95 |
| | 14.90 |
| | 18.71 |
| | 19.13 |
| | 15.33 |
|
Period-end closing | | 17.07 |
| | 22.43 |
| | 17.07 |
| | 22.43 |
| | 20.33 |
| | 18.72 |
|
Cash dividends per common share | | | $ | 0.08 |
| | $ | — |
|
Period-end common shares outstanding | | 483,753,360 |
| | 481,750,247 |
| | 483,753,360 |
| | 481,750,247 |
| | 462,193 |
| | 483,475 |
|
| |
(a) | Includes shares related to share-based compensation that vested but were not yet issued for the three months and six months ended June 30,March 31, 2017, and 2016, and 2015, respectively. |
| |
(b) | Due to antidilutive effect of the net loss from continuing operations attributable to common shareholders for the three months and six months ended June 30, 2015, basic weighted-average common shares outstanding were used to calculate basic and diluted earnings per share.
|
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
The following table presents selected balance sheetCondensed Consolidated Balance Sheet and ratio data.
| | | | At and for the three months ended June 30, | | At and for the six months ended June 30, | | At and for the three months ended March 31, |
($ in millions) | | 2016 | | 2015 | | 2016 | | 2015 | |
($ in millions) | | | 2017 | | 2016 |
Selected period-end balance sheet data: | | | | | | | | | | | | |
Total assets | | $ | 157,931 |
| | $ | 156,278 |
| | $ | 157,931 |
| | $ | 156,278 |
| | $ | 162,101 |
| | $ | 156,505 |
|
Total deposit liabilities | | $ | 72,802 |
| | $ | 61,930 |
| | $ | 72,802 |
| | $ | 61,930 |
| | $ | 84,486 |
| | $ | 70,265 |
|
Long-term debt | | $ | 61,040 |
| | $ | 65,675 |
| | $ | 61,040 |
| | $ | 65,675 |
| | $ | 51,061 |
| | $ | 62,044 |
|
Preferred stock | | $ | — |
| | $ | 813 |
| | $ | — |
| | $ | 813 |
| | $ | — |
| | $ | 696 |
|
Total equity | | $ | 13,611 |
| | $ | 14,295 |
| | $ | 13,611 |
| | $ | 14,295 |
| | $ | 13,365 |
| | $ | 13,823 |
|
Financial ratios: | | | | | | | | | | | | |
Return on average assets (a) | | 0.93 | % | | 0.48 | % | | 0.78 | % | | 1.01 | % | | 0.54 | % | | 0.64 | % |
Return on average equity (a) | | 10.61 | % | | 4.98 | % | | 8.98 | % | | 10.08 | % | | 6.46 | % | | 7.38 | % |
Return on average tangible common equity (non-GAAP) (b) | | 9.72 | % | | (30.43 | )% | | 8.93 | % | | (8.13 | )% | |
Equity to assets (a) | | 8.72 | % | | 9.58 | % | | 8.71 | % | | 9.98 | % | | 8.35 | % | | 8.66 | % |
Net interest spread (a) (c) | | 2.57 | % | | 2.43 | % | | 2.53 | % | | 2.37 | % | |
Net yield on interest-earning assets (a) (d) | | 2.68 | % | | 2.55 | % | | 2.64 | % | | 2.49 | % | |
Common dividend payout ratio | | | 17.39 | % | | — | % |
Net interest spread (a) (b) (c) | | | 2.47 | % | | 2.48 | % |
Net yield on interest-earning assets (a) (c) (d) | | | 2.60 | % | | 2.59 | % |
| |
(a) | The ratios were based on average assets and average equity using a combination of monthly and daily average methodologies. |
| |
(b) | Return on average tangible common equity (ROTCE) is a non-GAAP measure that management believes is important to the reader of the Condensed Consolidated Financial Statements but should be supplemental to, and not a substitute for, primary measures of accounting principles generally accepted in the United States of America (GAAP). It is computed as net income available to common shareholders under GAAP and includes preferred dividends and premiums paid, divided by a two-period average of tangible common equity (non-GAAP). Tangible common equity is calculated as average total shareholder's equity, $13,717 million and $15,114 million for the three months ended June 30, 2016, and 2015, respectively, and $13,525 million and $14,847 million for the six months ended June 30, 2016, and 2015, respectively, less preferred equity, goodwill, and identifiable intangibles net of deferred tax liabilities of $498 million and $1,061 million for the three months ended June 30, 2016, and 2015, respectively, and $498 million and $1,061 million for the six months ended June 30, 2016, and 2015, respectively. Other companies may define or calculate this measure differently. We believe this measure is useful to investors, analysts, and banking regulators because, by removing the effect of preferred stock, goodwill, and identifiable intangibles net of deferred tax liabilities from shareholder’s equity, it allows investors, analysts, and banking regulators to more easily compare our return on equity to other companies in the industry who present a similar measure. We also believe that removing preferred stock, goodwill, and identifiable intangibles net of deferred tax liabilities from shareholder’s equity, and including the impact of preferred dividends and premiums paid in net income is a more relevant measure of the return on our common shareholders' equity. |
| |
(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. |
| |
(c) | Amounts for the three months ended March 31, 2016, were adjusted to include previously excluded equity investments and related income on equity investments. Refer to the section titled Statistical Table for additional information. |
| |
(d) | Net yield on interest-earning assets represents net financing revenue and other interest income as a percentage of total interest-earning assets. |
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
As of January 1, 2015, Ally became subject to the rules implementing the 2010 Basel III capital framework in the United States (U.S. Basel III), which reflect new and higher capital requirements, capital buffers, and new regulatory capital definitions, deductions and adjustments. Certain aspects of U.S. Basel III, including the new capital buffers and regulatory capital deductions, will be phased in over several years. To assess our capital adequacy against the full impact of U.S. Basel III, we also present "fully phased-in" information that reflects regulatory capital rules that will take effect as of January 1, 2019. Refer to Note 1918 to the Condensed Consolidated Financial Statements for further information. The following table presents selected regulatory capital data.
| |
| | June 30, 2016 | | June 30, 2015 | | March 31, 2017 | | March 31, 2016 |
($ in millions) | | Transitional | | Fully Phased-in (a) | | Transitional | | Fully Phased-in (a) | |
($ in millions) | | | Transitional | | Fully Phased-in (a) | | Transitional | | Fully Phased-in (a) |
Common Equity Tier 1 capital ratio | | 9.59 | % | | 9.31 | % | | 9.83 | % | | 9.29 | % | | 9.40 | % | | 9.28 | % | | 9.47 | % | | 9.20 | % |
Tier 1 capital ratio | | 11.18 | % | | 11.13 | % | | 11.74 | % | | 11.65 | % | | 11.09 | % | | 11.05 | % | | 11.57 | % | | 11.54 | % |
Total capital ratio | | 12.83 | % | | 12.77 | % | | 12.63 | % | | 12.56 | % | | 12.70 | % | | 12.66 | % | | 13.00 | % | | 12.96 | % |
Tier 1 leverage ratio (to adjusted quarterly average assets) (b) | | 9.63 | % | | 9.61 | % | | 10.35 | % | | 10.33 | % | | 9.51 | % | | 9.50 | % | | 9.87 | % | | 9.87 | % |
Total equity | | $ | 13,611 |
| | $ | 13,611 |
| | $ | 14,295 |
| | $ | 14,295 |
| | $ | 13,365 |
| | $ | 13,365 |
| | $ | 13,823 |
| | $ | 13,823 |
|
Preferred stock | | — |
| | — |
| | (813 | ) | | (813 | ) | | — |
| | — |
| | (696 | ) | | (696 | ) |
Goodwill and certain other intangibles | | (252 | ) | | (273 | ) | | (27 | ) | | (27 | ) | | (281 | ) | | (291 | ) | | (27 | ) | | (27 | ) |
Deferred tax assets arising from net operating loss and tax credit carryforwards (c) | | (466 | ) | | (777 | ) | | (440 | ) | | (1,100 | ) | | (493 | ) | | (616 | ) | | (496 | ) | | (826 | ) |
Other adjustments | | (64 | ) | | (64 | ) | | 166 |
| | 166 |
| | 332 |
| | 332 |
| | 52 |
| | 52 |
|
Common Equity Tier 1 capital | | 12,829 |
| | 12,497 |
| | 13,181 |
| | 12,521 |
| | 12,923 |
| | 12,790 |
| | 12,656 |
| | 12,326 |
|
Preferred stock | | — |
| | — |
| | 725 |
| | 696 |
| | — |
| | — |
| | 696 |
| | 696 |
|
Trust preferred securities | | 2,488 |
| | 2,488 |
| | 2,546 |
| | 2,546 |
| | 2,489 |
| | 2,489 |
| | 2,487 |
| | 2,487 |
|
Deferred tax assets arising from net operating loss and tax credit carryforwards | | (311 | ) | | — |
| | (660 | ) | | — |
| | (123 | ) | | — |
| | (330 | ) | | — |
|
Other adjustments | | (47 | ) | | (47 | ) | | (58 | ) | | (58 | ) | | (44 | ) | | (44 | ) | | (47 | ) | | (47 | ) |
Tier 1 capital | | 14,959 |
| | 14,938 |
| | 15,734 |
| | 15,705 |
| | 15,245 |
| | 15,235 |
|
| 15,462 |
|
| 15,462 |
|
Qualifying subordinated debt and other instruments qualifying as Tier 2 | | 1,165 |
| | 1,165 |
| | 275 |
| | 304 |
| | 1,103 |
| | 1,103 |
| | 871 |
| | 871 |
|
Qualifying allowance for credit losses | | 1,089 |
| | 1,089 |
| | 975 |
| | 975 |
| |
Other adjustments | | (47 | ) | | (47 | ) | | (58 | ) | | (58 | ) | |
Qualifying allowance for credit losses and other adjustments | | | 1,111 |
| | 1,111 |
| | 1,030 |
| | 1,030 |
|
Total capital | | $ | 17,166 |
| | $ | 17,145 |
| | $ | 16,926 |
| | $ | 16,926 |
| | $ | 17,459 |
| | $ | 17,449 |
| | $ | 17,363 |
| | $ | 17,363 |
|
Risk-weighted assets (d) | | $ | 133,787 |
| | $ | 134,225 |
| | $ | 134,023 |
| | $ | 134,791 |
| | $ | 137,438 |
| | $ | 137,859 |
| | $ | 133,586 |
| | $ | 134,018 |
|
| |
(a) | Our fully phased-in capital ratios are non-GAAP financial measures that management believes are important to the reader of the Condensed Consolidated Financial Statements but should be supplemental to, and not a substitute for, primary GAAP measures. The fully phased-in capital ratios are compared to the transitional capital ratios above. We believe these capital ratios are important because we believe investors, analysts, and banking regulators may assess our capital utilization and adequacy using these ratios. Additionally, presentation of these ratios allows readers to compare certain aspects of our capital utilization and adequacy on the same basis to other companies in the industry. |
| |
(b) | Tier 1 leverage ratio equals Tier 1 capital divided by adjusted quarterly average total assets (which reflects adjustments for disallowed goodwill, certain intangible assets, and disallowed deferred tax assets). |
| |
(c) | Contains disallowed deferred tax assets required to be deducted from capital under andU.S. Basel III as applicable.III. |
| |
(d) | Risk-weighted assets are defined by regulation and are generally determined by allocating assets and specified off-balance sheet financial instrumentsexposures into various risk categories. |
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Overview
Ally Financial Inc. (referred to herein as(together with its consolidated subsidiaries unless the context requires otherwise, Ally, Parent,the Company, or we, our,us, or us)our) is a leading digital financial services company offering diversified financial products for consumers, businesses, automotive dealers and corporate clients. FoundedOur legacy dates back to 1919, and Ally was redesigned in 1919, we2009 with a distinctive brand and relentless focus on our customers. We reconverted to a Delaware corporation in 2009 and are registered as a leading financial servicesbank holding company with over 95 years(BHC) under the Bank Holding Company Act of experience providing a broad array of financial products1956 as amended and services. We operate as a financial holding company (FHC) and a bank holding company (BHC).under the Gramm-Leach-Bliley Act of 1999 as amended. Our banking subsidiary, Ally Bank, is an award-winning online bank, and an indirect, wholly-owned subsidiary of Ally Financial Inc. with a distinct brandCollectively, Ally Financial Inc. and focus on customers, offeringits subsidiaries offer a variety of deposit and other banking products.products including CDs, online savings, money market and checking accounts, IRA products, automotive lending products to customers and dealers, corporate finance lending, insurance products and services, a cash back credit card, mortgage lending offerings, and wealth management solutions.
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 residualoperational costs. For all periods presented, the operating results for these operations have been removed from continuing operations. Refer to Note 3 to the Condensed Consolidated Financial Statements for more details. The MD&A has been adjusted to exclude discontinued operations unless otherwise noted.
Change in Reportable Segments
As a result of a change in how management views and operates our business, during the first quarter of 2016, we made changes in the composition of our operating segments. Financial information related to our Corporate Finance business is presented as a separate reportable segment. Previously, all such activity was included in Corporate and Other. Additionally, only the activity of our ongoing bulk acquisitions of mortgage loans and other originations and refinancing is presented in Mortgage Finance operations. The activity related to the management of our legacy mortgage portfolio is included in Corporate and Other. Our other operating segments, Automotive Finance operations and Insurance operations, were unchanged. Amounts for 2015 have been adjusted to conform to the current management view. In connection with the change in operating segments, we defined additional classes of finance receivables and loans: Mortgage Finance and Mortgage — Legacy. Mortgage Finance includes consumer mortgage loans from our ongoing mortgage operations and Mortgage — Legacy includes consumer mortgage loans originated prior to 2009.
Primary Lines of Business
Dealer Financial Services, which includes our Automotive Finance and Insurance operations, Mortgage Finance, and Corporate Finance are our primary lines of business. The following table summarizes the operating results excluding discontinued operations of each line of business. Operating results for each of the lines of business are more fully described in the MD&A sections that follow.
Segment results include cost of funds associated with product offerings. For products originated at Ally Bank, the cost of funds is more beneficial than products originated at other entities as Ally Bank is a deposit gathering organization, which helps fund assets at a lower cost. Noninterest costs associated with deposit gathering activities were $57$65 million and $125$68 million during the three and six months ended June 30,March 31, 2017, and 2016, respectively, and are allocated to each segment based on their relative balance sheet. Ally Bank's assets and operating results are included within our Automotive Finance, Mortgage Finance, and Corporate Finance segments based on its underlying business activities.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
($ in millions) | | 2016 | | 2015 | | Favorable/ (unfavorable) % change | | 2016 | | 2015 | | Favorable/ (unfavorable) % change | | 2017 | | 2016 | | Favorable/(unfavorable) % change |
Total net revenue (loss) | | | | | | | | | | |
Total net revenue | | | | | | |
Dealer Financial Services | | | | | | | | | | | | | | |
Automotive Finance | | $ | 1,006 |
| | $ | 905 |
| | 11 | | $ | 1,979 |
| | $ | 1,766 |
| | 12 | | $ | 993 |
| | $ | 973 |
| | 2 |
Insurance | | 275 |
| | 282 |
| | (2) | | 543 |
| | 562 |
| | (3) | | 279 |
| | 268 |
| | 4 |
Mortgage Finance | | 26 |
| | 11 |
| | 136 | | 46 |
| | 22 |
| | 109 | | 34 |
| | 20 |
| | 70 |
Corporate Finance | | 33 |
| | 28 |
| | 18 | | 67 |
| | 54 |
| | 24 | | 52 |
| | 34 |
| | 53 |
Corporate and Other | | 18 |
| | (99 | ) | | 118 | | 50 |
| | (184 | ) | | 127 | | 17 |
| | 32 |
| | (47) |
Total | | $ | 1,358 |
| | $ | 1,127 |
| | 20 | | $ | 2,685 |
| | $ | 2,220 |
| | 21 | | $ | 1,375 |
| | $ | 1,327 |
| | 4 |
Income (loss) from continuing operations before income tax expense | | | | | | | | | | | | | | |
Dealer Financial Services | | | | | | | | | | �� | | | | | |
Automotive Finance | | $ | 426 |
| | $ | 373 |
| | 14 | | $ | 763 |
| | $ | 679 |
| | 12 | | $ | 288 |
| | $ | 337 |
| | (15) |
Insurance | | (18 | ) | | 15 |
| | n/m | | 32 |
| | 93 |
| | (66) | | 40 |
| | 50 |
| | (20) |
Mortgage Finance | | 9 |
| | (3 | ) | | n/m | | 11 |
| | (2 | ) | | n/m | | 9 |
| | 2 |
| | n/m |
Corporate Finance | | 14 |
| | 10 |
| | 40 | | 25 |
| | 27 |
| | (7) | | 25 |
| | 11 |
| | 127 |
Corporate and Other | | (18 | ) | | (132 | ) | | 86 | | (21 | ) | | (252 | ) | | 92 | | (36 | ) | | (3 | ) | | n/m |
Total | | $ | 413 |
| | $ | 263 |
| | 57 | | $ | 810 |
| | $ | 545 |
| | 49 | | $ | 326 |
| | $ | 397 |
| | (18) |
n/m = not meaningful
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Our Dealer Financial Services operations offer a wide range of financial services and insurance products to over 18,000 automotive dealerships and approximately 4.3 million of their customers. Dealer Financial Services consistconsists of two separate reportable segments — segments—Automotive Finance and Insurance operations.
Our automotive finance services include providing retail installment sales contracts, loans and leases, offering term loans to dealers, financing dealer floorplans and other lines of credit to dealers, warehouse lines to companies, fleet financing, providing financing to companies and municipalities for the purchase or lease of vehicles and equipment, and vehicle remarketing services. The businessOur success as an automotive finance provider is centered on our strongdriven by the consistent and longstanding relationships with automotive broad range of products and services we offer to
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
dealers who originate loans and serves the financial needs of 18,000 dealers in the United States, including over 11,000 dealers outside of the General Motors Company (GM) and Fiat Chrysler Automobiles US LLC (Chrysler) channels, and approximately 4.4 million ofleases to their retail customers with a wide range of financial serviceswho are acquiring new and insurance products. We believe our dealer-focused business model, with a focus on premium serviceused vehicles. Ally and deep relationships, value added products and services, and full credit spectrum expertise proven over many credit cycles, makes us the preferred automotive finance company for thousands of our automotive dealer customers. We have developed particularly strong relationships with thousands of dealers resulting from our longstanding relationship with GM as well as relationships with other manufacturers, including Chrysler, providing us with an extensive understanding of the operating needs of these dealers relative to other automotive finance companies. Duringproviders purchase these loans and leases from automotive dealers. As the marketplace evolves, our growth strategy continues to focus on diversifying the franchise by expanding into different products, responding to the growing trends for a more streamlined and digital automotive financing process to serve both dealers and consumers, and continuing to strengthen and expand our network of dealer relationships. In the first quarter of 2017, we built upon the platform acquired from the 2016 we completed the national roll-outpurchase of Blue Yield and introduced Clearlane, an online automotive lender exchange, expanding our used lease product.direct-to-consumer capabilities and providing an end-to-end digital platform for consumers seeking financing and dealers looking to drive online sales.
We have established relationships with thousands of Growth channel (non-GM/Chrysler) dealers through our customer-centric approach and specialized incentive programs. The Growth channel was established as a formal channel in 2012 to focus on developing dealer relationships beyond our existing relationships that primarily were developed through our role as a captive finance company historically for GMthe General Motors Company (GM) and moreFiat Chrysler Automobiles US LLC (Chrysler) brands, and was recently for Chrysler brands.expanded to include our direct-to-consumer lending offering. We have established relationships with thousands of Growth channel dealers through our customer-centric approach and specialized incentive programs. 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 11,00011,500 dealer relationships, of which approximately 10,00010,500 are franchised dealers from brands such as Ford, Nissan, Kia, Hyundai, Toyota, Honda and others; RV dealers; and used vehicle only retailers, which have a national presence.
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. As part of our focus on offering dealers a broad range of consumer financial and insurance products, we provide vehicle service contracts (VSC)(VSCs), vehicle maintenance coverage, andcontracts (VMCs), guaranteed asset protection (GAP) products.products, and other ancillary products desired by consumers. We also underwrite selectedselect commercial insurance coverages, which primarily insure dealers' wholesale vehicle inventory. As part ofAlly Premier Protection is our continued efforts to diversify, our Insurance operations launched its new flagship vehicle service contract offering Ally Premier Protection, nationwideand provides coverage for new and used vehicles of virtually all makes and models in June 2015. Ally Premier Protection is replacing the General Motors Protection Plan nameplate, which will be discontinued in November 2016.models.
Our Mortgage Finance operations are limited toprimarily consist of the management of a held-for-investment consumer mortgage finance loan portfolio, and is primarily comprisedwhich includes bulk purchases of high-quality jumbo and low-to-moderate income (LMI) mortgage loans purchased or originated after January 1, 2009.by third parties. During the three months and six months ended June 30, 2016, March 31, 2017, we continued to execute bulk purchasespurchased $327 million of mortgage loans that were originated by third parties. Year-to-date purchases have totaled $2.4 billion.In late 2016, we introduced our direct mortgage offering, named Ally Home, consisting of a variety of jumbo and conforming fixed- and adjustable-rate mortgage products through a third-party fulfillment partner. Under our current arrangement, conforming mortgages are originated as held-for-sale and sold, while jumbo mortgages are originated as held-for-investment. Servicing is performed by a third party and no mortgage servicing rights are created. In addition to our core product offerings through Ally Home, in March 2017, we broadened our product suite with the addition of the HomeReady® mortgage loan, a Fannie Mae product designed to serve creditworthy, low- to moderate-income borrowers.
Our Corporate Finance operations primarily provide senior secured leveraged cash flow and asset-based loans primarily to mostly U.S.-based middle market companies. The Corporate Finance portfolio is almost entirely comprised 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, restructurings, and working capital. The portfolio is well diversified across multiple industries including retail, manufacturing, distribution, service companies, and other specialty sectors. These specialty sectors such asinclude our Technology Finance and Healthcare verticals. Our Technology Finance vertical provides financing solutions to venture-backed, technology-based companies. The Healthcare vertical provides financing across the healthcare spectrum including services, pharmaceuticals, biotechnology, manufacturing, and technology.medical devices and supplies. In addition, during the first quarter of 2017, we hired an experienced team in the healthcare real estate space in order to continue to make strategic investments in sectors with strong competitive dynamics and attractive returns.
Corporate and Other primarily consists of activity related to 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, the amortization of the discount associated with new debt issuances and bond exchanges, and the residual impacts of our corporate funds-transfer pricing (FTP) and treasury asset liability management (ALM) activities. Corporate and Other also includes activity related to the Ally CashBack Credit Card, certain equity investments which primarily consist of Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock, the management of our legacy mortgage portfolio which primarily consists of loans originated prior to January 1, 2009, and reclassifications and eliminations between the reportable operating segments. OnAdditionally, beginning in June 1, 2016 we completedwith the acquisition of TradeKing Group, Inc. (TradeKing), a digital wealth management company with an online broker/dealer, digital portfolio management platform, and educational content and social collaboration channels. Financialfinancial information related to TradeKing for June 2016 is included within Corporate and Other.
During the second quarter of 2016, we launched the Ally CashBack Credit Card. This offering will generate fee revenue with no direct credit risk exposure due to the structure of the co-brand relationship, and the related activity will be included in Corporate and Other.
In addition, as we look ahead, we are well positioned as the marketplace continues to evolve and are working to build on our existing foundation of approximately 5.55.6 million consumer automotive financing and primary deposit customers, strong brand, innovative culture, and leading digital platform to expand our products and services and to create an integrated customer experience. In 2016, we launched our first ever enterprise-wide campaign themed "Do It Right." The campaign introduces a broad audience to our full suite of digital financial services and helps crystallize our culture for consumers.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
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 line of business.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
($ in millions) |
| 2016 |
| 2015 |
| Favorable/ (unfavorable) % change | | 2016 | | 2015 | | Favorable/ (unfavorable) % change |
| 2017 |
| 2016 |
| Favorable/(unfavorable) % change |
Net financing revenue |
|
|
|
|
| | | | | | |
Net financing revenue and other interest income | |
|
|
|
|
|
Total financing revenue and other interest income |
| $ | 2,069 |
|
| $ | 2,087 |
|
| (1) | | $ | 4,178 |
| | $ | 4,171 |
| | — |
| $ | 2,050 |
|
| $ | 2,109 |
|
| (3) |
Total interest expense |
| 651 |
|
| 608 |
|
| (7) | | 1,299 |
| | 1,220 |
| | (6) |
| 682 |
|
| 648 |
|
| (5) |
Depreciation expense on operating lease assets |
| 434 |
|
| 563 |
|
| 23 | | 944 |
| | 1,185 |
| | 20 | |
Net financing revenue |
| 984 |
|
| 916 |
|
| 7 | | 1,935 |
| | 1,766 |
| | 10 | |
Net depreciation expense on operating lease assets | |
| 389 |
|
| 510 |
|
| 24 |
Net financing revenue and other interest income | |
| 979 |
|
| 951 |
|
| 3 |
Other revenue |
|
|
|
|
|
| | | | | |
|
|
|
|
| |
Insurance premiums and service revenue earned |
| 236 |
|
| 237 |
|
| — | | 466 |
| | 470 |
| | (1) |
| 241 |
|
| 230 |
|
| 5 |
Gain on mortgage and automotive loans, net |
| 3 |
|
| 1 |
|
| n/m | | 4 |
| | 47 |
| | (91) |
| 14 |
|
| 1 |
|
| n/m |
Loss on extinguishment of debt |
| — |
|
| (156 | ) |
| 100 | | (4 | ) | | (354 | ) | | 99 |
| (1 | ) |
| (4 | ) |
| 75 |
Other gain on investments, net |
| 39 |
|
| 45 |
|
| (13) | | 93 |
| | 100 |
| | (7) |
| 27 |
|
| 54 |
|
| (50) |
Other income, net of losses |
| 96 |
|
| 84 |
|
| 14 | | 191 |
| | 191 |
| | — |
| 115 |
|
| 95 |
|
| 21 |
Total other revenue |
| 374 |
|
| 211 |
|
| 77 | | 750 |
| | 454 |
| | 65 |
| 396 |
|
| 376 |
|
| 5 |
Total net revenue |
| 1,358 |
|
| 1,127 |
|
| 20 | | 2,685 |
| | 2,220 |
| | 21 |
| 1,375 |
|
| 1,327 |
|
| 4 |
Provision for loan losses |
| 172 |
|
| 140 |
|
| (23) | | 392 |
| | 256 |
| | (53) |
| 271 |
|
| 220 |
|
| (23) |
Noninterest expense |
|
|
|
|
|
| | | | | |
|
|
|
|
| |
Compensation and benefits expense |
| 242 |
|
| 236 |
|
| (3) | | 494 |
| | 491 |
| | (1) |
| 285 |
|
| 252 |
|
| (13) |
Insurance losses and loss adjustment expenses |
| 145 |
|
| 122 |
|
| (19) | | 218 |
| | 178 |
| | (22) |
| 88 |
|
| 73 |
|
| (21) |
Other operating expenses |
| 386 |
|
| 366 |
|
| (5) | | 771 |
| | 750 |
| | (3) |
| 405 |
|
| 385 |
|
| (5) |
Total noninterest expense |
| 773 |
|
| 724 |
|
| (7) | | 1,483 |
| | 1,419 |
| | (5) |
| 778 |
|
| 710 |
|
| (10) |
Income from continuing operations before income tax expense |
| 413 |
|
| 263 |
|
| 57 | | 810 |
| | 545 |
| | 49 |
| 326 |
|
| 397 |
|
| (18) |
Income tax expense from continuing operations |
| 56 |
|
| 94 |
|
| 40 | | 206 |
| | 197 |
| | (5) |
| 113 |
|
| 150 |
|
| 25 |
Net income from continuing operations |
| $ | 357 |
|
| $ | 169 |
|
| 111 | | $ | 604 |
| | $ | 348 |
| | 74 |
| $ | 213 |
|
| $ | 247 |
|
| (14) |
n/m = not meaningful
We earned net income from continuing operations of $357 million and $604 million for the three months and six months ended June 30, 2016, respectively, compared to $169 million and $348$213 million for the three months and six months ended June 30, 2015, respectively. The increases were primarily dueMarch 31, 2017, compared to lower losses on the extinguishment of debt due to debt tender offers in 2015, and an increase in net financing revenue. The increase$247 million for the three months ended June 30, 2016,March 31, 2016. The decrease was driven by higher noninterest expense due to higher weather-related insurance losses, as well as incremental costs related to the roll-out of new product offerings including wealth management, direct-to-consumer automotive (Clearlane), and mortgage lending. While results were unfavorably impacted by lower net operating lease revenue as a result of less favorable lease remarketing activity and runoff of our GM lease portfolio as well as higher provision expense driven by higher charge-offs in our consumer automotive portfolio, these declines were largely offset by growth in the commercial and retail automotive portfolios and our strategic shift to originate a more profitable mix of business with appropriate risk-adjusted returns. Net income from continuing operations was also favorably impacted by lower income tax expense, higher gains on the sale of automotive loans, and higher insurance premiums earned.
Net financing revenue and other interest income increased $28 million for the three months ended March 31, 2017, compared to the three months ended June 30, 2015, was partially offset by an increase in the provision for loan losses, and an increase in insurance losses and loss adjustment expenses as a result of higher weather-related losses in the second quarter ofMarch 31, 2016. The increase for the six months ended June 30, 2016, compared to the six months ended June 30, 2015, was partially offset by an increase in the provision for loan losses, a decrease in gain on mortgage and automotive loans, and an increase in insurance losses and loss adjustment expenses.
Total financing revenue and other interest income remained relatively flat for the three months and six months ended June 30, 2016, compared to the same periods in 2015. TotalNet financing revenue and other interest income at our Automotive Finance operations was favorably impacted by higher consumer financing revenue primarily due to an increase in retail portfolio yields from the successful execution of our continued strategic focus on expanding risk adjustedrisk-adjusted returns, as well as higher commercial financing revenue primarily resulting from an increase in dealer floorplan assets. These trendsThe increases were offset theby a decrease in operating lease revenue, net of depreciation, primarily resulting from the runoff of our GM lease portfolio as well as less favorable remarketing activity for the three months ended March 31, 2017, compared to the same period in 2016 as a result of GM's decision to provide subvention programs for their products exclusively through a wholly-owned subsidiary. Totallower used vehicle prices. Net financing revenue and other interest income at our Mortgage Finance operations was favorably impacted due to portfolio growthby increased loan balances as a result of bulk acquisitionspurchases of high-quality jumbo and LMI mortgage loans.
Net financing revenue and other interest income at our Corporate Finance operations was favorably impacted by continued asset growth across all business segments in line with our growth strategy. Total interest expense increased 7% and 6%5% for the three months and six months ended June 30, 2016, respectively,March 31, 2017, compared to the same periodsperiod in 2015. Interest on deposits2016. While we continue to shift borrowings toward more cost-effective deposit funding and continue to reduce higher-cost unsecured debt, interest expense increased $26 million and $47 million for the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015, due to continued deposit growth. Interest on debt increased $17 million and $32 million for the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015, primarily as a result of higher funding costs associated with increased LIBOR rates on secured debt. Additionally,borrowings and higher borrowing levels to support the increase in interest on debt for the six months ended June 30, 2016, was unfavorably impacted by derivative activity driven primarily by declines in interest rate and exchange rate hedging, and a decrease in deferred debt amortization income resultingbusiness.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
from accelerated amortization in 2015 related to debt tender offers. The increases were partially offset by the repayment of higher-cost legacy debt, and lower unsecured debt due to refinancing activity.
Net gainGain on mortgage and automotive loans increased $2$13 million and decreased $43 million and for the three months and sixended March 31, 2017, compared to the three months endedJune 30, March 31, 2016. We continued to opportunistically utilize whole-loan sales and off-balance sheet securitizations as sources of funding during the three months ended March 31, 2017.
Other gain on investments was $27 million for the three months ended March 31, 2017, compared to $54 million for the three months ended March 31, 2016. The decrease was due primarily to higher sales of investment securities in 2016, respectively, resulting from favorable market conditions that did not repeat in the current period.
Other income increased $20 million for the three months ended March 31, 2017, compared to the same periodsperiod in 2015. The gain for the six months ended June 30, 2015, was2016, primarily due to a salecontributions from operations of a portfolioTradeKing included in our results subsequent to acquisition in the second quarter of troubled debt restructuring (TDR) loans from2016, and an equity investment gain at our consumer mortgage portfolio.
Loss on extinguishment of debt decreased $156 million and $350 million for the three months and six months ended June 30, 2016, respectively, compared to the same periods in 2015. The decreases were primarily due to the execution of tender offers for legacy, high-cost debt in 2015.Corporate Finance operations.
The provision for loan losses was $172 million and $392$271 million for the three months and six months ended June 30, 2016, respectively,March 31, 2017, compared to $140 million and $256$220 million for the same periods in 2015.three months ended March 31, 2016. The increase in provision for loan losses iswas primarily due to the changehigher net charge-offs in our consumer automotive portfolio composition as we continued the executiona result of our underwriting strategy to originate consumer automotive assets across a broad risk spectrum. The increase is also partly attributablemore profitable mix of business by focusing on risk-adjusted returns. This was partially offset by lower portfolio growth in our Mortgage Finance portfolio, and lower net charge-offs in our Mortgage Legacy portfolio. Refer to continued growth within our commercial loan portfolio combined with reserve releases within the commercial automotive portfolio duringRisk Management section of this MD&A for further discussion.
Noninterest expense was $778 million for the three months and six months ended June 30, 2015, that did not repeat inMarch 31, 2017, compared to $710 million for the same periodsperiod in 2016.
Insurance The increase was primarily due to an increase in insurance losses and loss adjustment expenses increased $23 million and $40of $15 million for the three months and six months ended June 30, 2016, respectively,March 31, 2017, compared to the same periods in 2015.three months ended March 31, 2016. The increases wereincrease was primarily due to severe hailstorms, particularly in late March, which drove higher weather-related insurance losses. Also contributing to the increase to noninterest expense was the addition and integration of TradeKing and Clearlane, as well as the growth of our direct-to-consumer mortgage offering as we continue to enhance our digital wealth management franchise, expand our product suite, and grow digital platforms for consumers and dealers.
We recognized total income tax expense from continuing operations of $56 million and $206$113 million for the three months and six months ended June 30, 2016,March 31, 2017, compared to income tax expense of $94 million and $197$150 million for the same periods in 2015.three months ended March 31, 2016. The changesdecrease in income tax expense for the three months and six months ended June 30, 2016,March 31, 2017, compared to the same periodsperiod in 2015, were2016, was primarily driven by a tax benefit that resulted from a U.S. tax reserve release related to a prior year federal return that reduced our liability for unrecognized tax benefits during the three months ended June 30, 2016, by $175 million. This tax benefit was offset by increasesdecrease in tax expense attributable to higher pretax earnings and a tax benefit for the establishment of a valuation allowance on capital loss carryforwards. The U.S. tax reserve releasecurrent quarter related to stock compensation and establishment of a valuation allowance cause significant differencesassociated movements in the usual relationship of income tax expense to pretax earnings.
In calculating the provision for income taxes from continuing operations, we apply an estimated annual effective tax rate to year-to-date ordinary income on an interim basis. Refer to Note 1 to the Condensed Consolidated Financial Statements for further details.our share price.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Dealer Financial Services
Results for Dealer Financial Services are presented by reportable segment, which includes our Automotive Finance and Insurance operations.
Automotive Finance
Results of Operations
The following table summarizes the operating results of our Automotive Finance operations. The amounts presented are before the elimination of balances and transactions with our other reportable segments.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
($ in millions) | | 2016 | | 2015 | | Favorable/ (unfavorable) % change | | 2016 | | 2015 | | Favorable/ (unfavorable) % change | | 2017 | | 2016 | | Favorable/(unfavorable) % change |
Net financing revenue | | | | | | | | | | |
Net financing revenue and other interest income | | | | | | |
Consumer | | $ | 877 |
| | $ | 785 |
| | 12 | | $ | 1,743 |
| | $ | 1,530 |
| | 14 | | $ | 924 |
| | $ | 866 |
| | 7 |
Commercial | | 262 |
| | 235 |
| | 11 | | 514 |
| | 473 |
| | 9 | | 304 |
| | 252 |
| | 21 |
Loans held-for-sale | | — |
| | 14 |
| | (100) | | — |
| | 33 |
| | (100) | |
Operating leases | | 701 |
| | 860 |
| | (18) | | 1,470 |
| | 1,756 |
| | (16) | | 543 |
| | 769 |
| | (29) |
Other interest income | | 2 |
| | 2 |
| | — | | 5 |
| | 4 |
| | 25 | | 2 |
| | 3 |
| | (33) |
Total financing revenue and other interest income | | 1,842 |
| | 1,896 |
| | (3) | | 3,732 |
| | 3,796 |
| | (2) | | 1,773 |
| | 1,890 |
| | (6) |
Interest expense | | 479 |
| | 483 |
| | 1 | | 963 |
| | 952 |
| | (1) | | 492 |
| | 484 |
| | (2) |
Depreciation expense on operating lease assets | | 434 |
| | 563 |
| | 23 | | 944 |
| | 1,185 |
| | 20 | |
Net financing revenue | | 929 |
| | 850 |
| | 9 | | 1,825 |
| | 1,659 |
| | 10 | |
Net depreciation expense on operating lease assets | | | 389 |
| | 510 |
| | 24 |
Net financing revenue and other interest income | | | 892 |
| | 896 |
| | — |
Other revenue | | | | | | | | | | | | | | |
Gain (loss) on automotive loans, net | | 5 |
| | (6 | ) | | 183 | | 10 |
| | (21 | ) | | (148) | |
Gain on automotive loans, net | | | 24 |
| | 5 |
| | n/m |
Other income | | 72 |
| | 61 |
| | 18 | | 144 |
| | 128 |
| | 13 | | 77 |
| | 72 |
| | 7 |
Total other revenue | | 77 |
| | 55 |
| | 40 | | 154 |
| | 107 |
| | 44 | | 101 |
| | 77 |
| | 31 |
Total net revenue | | 1,006 |
| | 905 |
| | 11 | | 1,979 |
| | 1,766 |
| | 12 | | 993 |
| | 973 |
| | 2 |
Provision for loan losses | | 170 |
| | 132 |
| | (29) | | 379 |
| | 259 |
| | (46) | | 268 |
| | 209 |
| | (28) |
Noninterest expense | | | | | | | | | | | | | | |
Compensation and benefits expense | | 118 |
| | 123 |
| | 4 | | 244 |
| | 249 |
| | 2 | | 129 |
| | 126 |
| | (2) |
Other operating expenses | | 292 |
| | 277 |
| | (5) | | 593 |
| | 579 |
| | (2) | | 308 |
| | 301 |
| | (2) |
Total noninterest expense | | 410 |
| | 400 |
| | (3) | | 837 |
| | 828 |
| | (1) | | 437 |
| | 427 |
| | (2) |
Income from continuing operations before income tax expense | | $ | 426 |
| | $ | 373 |
| | 14 | | $ | 763 |
| | $ | 679 |
| | 12 | | $ | 288 |
| | $ | 337 |
| | (15) |
Total assets | | $ | 112,356 |
| | $ | 113,607 |
| | (1) | | $ | 112,356 |
| | $ | 113,607 |
| | (1) | | $ | 115,154 |
| | $ | 112,289 |
| | 3 |
n/m = not meaningful
Components of net operating lease revenue, included in amounts above, were as follows.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
($ in millions) | | 2016 | | 2015 | | Favorable/ (unfavorable) % change | | 2016 | | 2015 | | Favorable/ (unfavorable) % change | | 2017 | | 2016 | | Favorable/(unfavorable) % change |
Net operating lease revenue | | | | | | | | | | | | | | |
Operating lease revenue | | $ | 701 |
| | $ | 860 |
| | (18) | | $ | 1,470 |
| | $ | 1,756 |
| | (16) | | $ | 543 |
| | $ | 769 |
| | (29) |
Depreciation expense | | | | | | | | | | | | | | |
Depreciation expense on operating lease assets (excluding remarketing gains) | | 520 |
| | 671 |
| | 23 | | 1,085 |
| | 1,363 |
| | 20 | |
Remarketing gains | | (86 | ) | | (108 | ) | | (20) | | (141 | ) | | (178 | ) | | (21) | |
Total depreciation expense on operating lease assets | | 434 |
| | 563 |
| | 23 | | 944 |
| | 1,185 |
| | 20 | |
Depreciation expense on operating lease assets (excluding remarketing gains and losses) | | | 386 |
| | 565 |
| | 32 |
Remarketing losses (gains) | | | 3 |
| | (55 | ) | | (105) |
Net depreciation expense on operating lease assets | | | 389 |
| | 510 |
| | 24 |
Total net operating lease revenue | | $ | 267 |
| | $ | 297 |
| | (10) | | $ | 526 |
| | $ | 571 |
| | (8) | | $ | 154 |
| | $ | 259 |
| | (41) |
Investment in operating leases, net | | | $ | 10,461 |
| | $ | 14,958 |
| | (30) |
Our Automotive Finance operations earned income from continuing operations before income tax expense of $426 million and $763$288 million for the three months and six months endedJune 30, 2016, respectively, March 31, 2017, compared to $373 million and $679$337 million for the three months ended March 31, 2016. Results for the three months ended
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
months and sixMarch 31, 2017, were unfavorably impacted by a decrease in net operating lease revenue primarily resulting from the runoff of our GM lease portfolio as well as less favorable remarketing activity for the three months endedJune 30, 2015, respectively. Results March 31, 2017, compared to the same period in 2016 as a result of lower used vehicle prices. The decrease was also due to an increase in provision for loan losses primarily resulting from higher net charge-offs driven by the changing composition of our portfolio to a more profitable mix of business consistent with our underwriting strategy. The decrease for the three months and six months endedJune 30, 2016, were favorably impacted March 31, 2017, was partially offset by higher consumer financing revenue primarily due to an increase in retail portfolio yields from the successful execution of our continued strategic focus on expanding risk adjustedrisk-adjusted returns, and an increase in consumer assets, as well as higher commercial financing revenue primarily resulting from an increase in dealer floorplan assets and higher benchmark rates. These increases were partially offset by an increase in provision for loan losses primarily due to the change in our portfolio composition as we continued the execution of our underwriting strategy to originate consumer automotive assets across a broad risk spectrum, as well as a decrease in net operating lease revenue primarily resulting from run-off of our GM lease portfolio.assets.
Consumer financing revenue (combined with interest income on consumer loans held-for-sale) increased $78 million and $180$58 million for the three months and six months ended June 30, 2016, respectively, March 31, 2017, compared to the same periodsperiod in 2015.2016. The increases areincrease was primarily due to higher average retail asset levels and improved portfolio yields as a result of the successful execution of our continued strategic focus on expanding risk adjusted returns, as well as continued asset growth in the Growth and Chrysler channels. Consumer originations in both the Growth and Chrysler channelsrisk-adjusted returns.
Commercial financing revenue increased by 11%$52 million for the sixthree months ended June 30, 2016,March 31, 2017, compared to the same period in 2015.2016. The increase was primarily due to an increase in floorplan assets resulting from growing dealer vehicle inventories and higher average vehicle prices. The increase was also due to higher benchmark rates and an increase in non-floorplan dealer loan balances.
Commercial financing revenue increased $27 million and $41We recognized gains from the sale of automotive loans of $24 million for the three months ended March 31, 2017, compared to $5 million for the same period in 2016 as we continued to opportunistically utilize whole-loan sales and sixoff-balance sheet securitizations as sources of funding during the three months ended June 30, 2016, respectively, compared to the same March 31, 2017. A portion of these gains recognized for both periods in 2015, primarily due to higher floorplan assets driven by higher average vehicle priceswas partially offset within Corporate and Other as a shift in vehicle mix towards trucks and sport utility vehicles.result of our FTP methodology.
Total net operating lease revenue decreased 10% and 8%41% for the three months and six months ended June 30, 2016, respectively,March 31, 2017, compared to the same periodsperiod in 2015.2016. The decreases were primarily driven by lowerdecrease in net operating lease revenue was due to the runoff of our GM lease portfolio as well as less favorable remarketing activity in 2017 compared to the same period in 2016 as a result of GM portfolio run-off outpacing originations, which were partially offset by a corresponding decrease in depreciation expense on operating lease assets. The decreases were also due to lower lease remarketing gains driven by lower gain per unit, partially offset by an increase in termination volume.used vehicle prices. We recognized remarketing gainslosses of $86 million and $141 million for the three months and six months ended June 30, 2016, respectively, compared to $108 million and $178 million for the same periods in 2015.
Other income increased $11 million and $16$3 million for the three months and six months ended June 30, 2016, respectively,March 31, 2017, compared to gains of $55 million for the same periodsperiod in 2015, primarily due to an increase in servicing fee income resulting from higher levels of off-balance sheet retail serviced assets.2016.
The provision for loan losses was $170 million and $379$268 million for the three months and six months endedJune 30, 2016, respectively, March 31, 2017, compared to $132 million and $259$209 million for the same periodsperiod in 2015.2016. The increases wereincrease in provision for loan losses was primarily due to the changehigher net charge-offs in our consumer automotive portfolio composition as we continued the executiona result of our underwriting strategy to originate consumer automotive assets across a broad risk spectrum, as well as reserve releases withinmore profitable mix of business. Refer to the commercial automotive portfolio in the three months and six months ended June 30, 2015, that did not repeat in the same periods in 2016.Risk Management section of this MD&A for further discussion.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Automotive Financing Volume
Consumer Automotive Financing Volume
During the three months ended March 31, 2017, the average buy rate for retail originations increased 32 basis points relative to the three months ended March 31, 2016. We set our buy rates using a granular, risk-based methodology factoring in several variables such as interest costs, projected net average annualized loss rates (NAALR) at the time of origination, anticipated operating costs, and targeted return on equity. The increase in our average buy rate was primarily the result of an increase to interest rates and our strategy to increase our targeted return on equity and more focused deployment of shareholder capital. While we have seen an increase in provision expense and charge-offs in our consumer automotive loan portfolio over the past year in part due to deteriorating credit performance in our lower credit tiers, this increase was also a result of a deliberate shift in origination mix designed to achieve a higher risk-adjusted return. The carrying value of our nonprime consumer automotive loans before allowance for loan losses was $9.0 billion, or approximately 13.7% of our total consumer automotive loans at March 31, 2017, as compared to $9.1 billion, or approximately 13.8% of our total consumer automotive loans at December 31, 2016.
The following tables present retail loan originations by credit tier, average buy rate, and NAALR.tier.
| | Credit Tier (a) | | Volume ($ in billions) | | % Share of volume | | Average buy rate (b) | | NAALR (c) | | Average FICO® | | Volume ($ in billions) | | % Share of volume | | Average FICO® |
Three months ended June 30, 2016 | | | | | | | | | |
Three months ended March 31, 2017 | | | | | |
S | | $ | 2.7 |
| | 32 | | 3.55 | % | | (0.12 | )% | | 757 |
| | $ | 2.6 |
| | 33 | | 762 |
|
A | | 3.7 |
| | 43 | | 5.87 |
| | (0.78 | ) | | 669 |
| | 3.3 |
| | 42 | | 666 |
|
B | | 1.7 |
| | 20 | | 9.51 |
| | (2.75 | ) | | 642 |
| | 1.7 |
| | 22 | | 641 |
|
C | | 0.4 |
| | 5 | | 13.53 |
| | (5.68 | ) | | 607 |
| | 0.3 |
| | 3 | | 608 |
|
Total retail originations | | $ | 8.5 |
| | 100 | | 6.33 |
| | (1.24 | ) | | 686 |
| | $ | 7.9 |
| | 100 | | 689 |
|
Three months ended June 30, 2015 | | | | | | | | | |
Three months ended March 31, 2016 | | | | | |
S | | $ | 3.4 |
| | 35 | | 3.20 | % | | (0.16 | )% | | 748 |
| | $ | 2.5 |
| | 30 | | 758 |
|
A | | 3.7 |
| | 38 | | 5.15 |
| | (0.80 | ) | | 673 |
| | 3.6 |
| | 44 | | 667 |
|
B | | 2.0 |
| | 20 | | 8.53 |
| | (2.14 | ) | | 636 |
| | 1.6 |
| | 20 | | 640 |
|
C | | 0.7 |
| | 7 | | 12.13 |
| | (3.74 | ) | | 599 |
| | 0.5 |
| | 6 | | 604 |
|
Total retail originations | | $ | 9.8 |
| | 100 | | 5.75 |
| | (1.12 | ) | | 685 |
| | $ | 8.2 |
| | 100 | | 684 |
|
Six months ended June 30, 2016 | | | | | | | | | | |
S | | $ | 5.2 |
| | 31 | | 3.52 | % | | (0.13 | )% | | 757 |
| |
A | | 7.2 |
| | 43 | | 5.79 |
| | (0.79 | ) | | 668 |
| |
B | | 3.3 |
| | 20 | | 9.43 |
| | (2.61 | ) | | 641 |
| |
C | | 0.9 |
| | 5 | | 13.50 |
| | (5.14 | ) | | 606 |
| |
D | | 0.1 |
| | 1 | | 18.03 |
| | (8.17 | ) | | 576 |
| |
Total retail originations | | $ | 16.7 |
| | 100 | | 6.32 |
| | (1.20 | ) | | 685 |
| |
Six months ended June 30, 2015 | | | | | | | | | |
S | | $ | 6.1 |
| | 34 | | 3.13 | % | | (0.15 | )% | | 752 |
| |
A | | 6.9 |
| | 38 | | 5.09 |
| | (0.81 | ) | | 674 |
| |
B | | 3.6 |
| | 20 | | 8.58 |
| | (2.21 | ) | | 636 |
| |
C | | 1.3 |
| | 7 | | 12.19 |
| | (3.82 | ) | | 600 |
| |
D | | 0.1 |
| | 1 | | 17.51 |
| | (5.89 | ) | | 572 |
| |
Total retail originations | | $ | 18.0 |
| | 100 | | 5.74 |
| | (1.12 | ) | | 686 |
| |
| |
(a) | Represents Ally's internal credit score, incorporating numerous borrower and structure attributes including: FICO® Score; severity and aging of delinquency; number of credit inquiries; loan-to-value ratio; and payment-to-income ratio. We originated an insignificant amount of retail loans classified as Tier D during the three months ended June 30, 2016, and 2015, and Tier E during the three months and six months ended June 30,March 31, 2017, and March 31, 2016, and 2015.respectively. |
| |
(b) | Simple weighted average rate at which Ally purchases a retail loan contract from a dealer. |
| |
(c) | Projected Net Average Annualized Loss Rate. |
ForRetail originations in Tier S represented 33% of originations during the three months ended June 30, 2016, asMarch 31, 2017, compared to projections a year ago for30% during the three months ended June 30, 2015, the increase in NAALR was 12 basis points,March 31, 2016, while the average buy rate for retail originations increased by 58 basis points.
The following table presents the total retail and lease origination dollars and percentage mix by product type.
|
| | | | | | | | | | | | |
| | Consumer automotive financing originations | | % Share of Ally originations |
Three months ended June 30, ($ in millions) | | 2016 | | 2015 | | 2016 | | 2015 |
New retail standard | | $ | 4,364 |
| | $ | 5,192 |
| | 47 | | 48 |
Used retail | | 4,024 |
| | 3,961 |
| | 43 | | 37 |
Lease | | 871 |
| | 961 |
| | 9 | | 9 |
New retail subvented | | 128 |
| | 690 |
| | 1 | | 6 |
Total consumer automotive financing originations (a) | | $ | 9,387 |
| | $ | 10,804 |
| | 100 | | 100 |
| |
(a) | Includes Commercial Services Group (CSG) originations of $849 million and $958 million for the three months ended June 30, 2016, and 2015, respectively, and RV originations of $147 million and $123 million for the three months ended June 30, 2016, and 2015, respectively.
|
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | | | | | |
| | Consumer automotive financing originations | | % Share of Ally originations |
Six months ended June 30, ($ in millions) | | 2016 | | 2015 | | 2016 | | 2015 |
New retail standard | | $ | 8,404 |
| | $ | 9,279 |
| | 46 | | 45 |
Used retail | | 8,116 |
| | 7,547 |
| | 44 | | 36 |
Lease | | 1,704 |
| | 2,604 |
| | 9 | | 13 |
New retail subvented | | 204 |
| | 1,218 |
| | 1 | | 6 |
Total consumer automotive financing originations (a) | | $ | 18,428 |
| | $ | 20,648 |
| | 100 | | 100 |
| |
(a) | Includes Commercial Services Group (CSG) originations of $1,684 million and $1,929 million for the six months ended June 30, 2016, and 2015, respectively, and RV originations of $276 million and $230 million for the six months ended June 30, 2016, and 2015, respectively. |
The following table presents the total retail and lease origination dollars and percentage mix by channel.
|
| | | | | | | | | | | | |
|
| Consumer automotive financing originations | | % Share of Ally originations |
Three months ended June 30, ($ in millions) | | 2016 | | 2015 | | 2016 | | 2015 |
Growth | | $ | 3,434 |
| | $ | 3,405 |
| | 37 | | 31 |
GM | | 3,304 |
| | 4,854 |
| | 35 | | 45 |
Chrysler | | 2,649 |
| | 2,545 |
| | 28 | | 24 |
Total consumer automotive financing originations | | $ | 9,387 |
| | $ | 10,804 |
| | 100 | | 100 |
|
| | | | | | | | | | | | |
| | Consumer automotive financing originations | | % Share of Ally originations |
Six months ended June 30, ($ in millions) | | 2016 | | 2015 | | 2016 | | 2015 |
Growth | | $ | 6,801 |
| | $ | 6,149 |
| | 37 | | 30 |
GM | | 6,633 |
| | 9,984 |
| | 36 | | 48 |
Chrysler | | 4,994 |
| | 4,515 |
| | 27 | | 22 |
Total consumer automotive financing originations | | $ | 18,428 |
| | $ | 20,648 |
| | 100 | | 100 |
During the three months and six months ended June 30, 2016, total consumer originations decreased $1.4 billion and $2.2 billion, respectively, comparedTier C declined to 3% from 6% during the same periodsperiod. Our overall origination mix continues to be in 2015. The decreases, as expected, were dueline with our strategy to lower GM volume and the successful execution of our continued strategic focus on expanding risk adjustedoptimize risk-adjusted returns. The decreases were partially offset by higher volume in the Growth and Chrysler channels. Growth and Chrysler volume increased 1% and 4%, respectively, for the three months ended June 30, 2016, compared to the same period in 2015. Volume in both the Growth and Chrysler channels increased 11% for the six months ended June 30, 2016, compared to the same period in 2015. The increases were driven by expanded offerings and new dealer relationships.
The following table presents the percentage of total retail loan originations, in dollars, by the loan term in months.
| | | | Three months ended June 30, | | Six months ended June 30, | |
| | 2016 | | 2015 | | 2016 | | 2015 | |
0-71 | | 17 | % | | 21 | % | | 18 | % | | 22 | % | |
72-75 | | 68 |
| | 68 |
| | 68 |
| | 69 |
| |
Three months ended March 31, | | | 2017 | | 2016 |
0–71 | | | 20 | % | | 19 | % |
72–75 | | | 67 |
| | 68 |
|
76 + | | 15 |
| | 11 |
| | 14 |
| | 9 |
| | 13 |
| | 13 |
|
Total retail originations (a) | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
As we continue the execution of our disciplinedtargeted underwriting strategy to originate consumer automotive assets across a broad risk spectrum, retail originations with a term of 76 months or more represented 15% and 14%13% of total retail originations for both the three months ended March 31, 2017, and six months ended June 30, 2016, respectively, compared to 11% and 9% for the same periods in 2015.2016. Substantially all of the loans originated with a term of 76 months or more during the three months ended June 30,March 31, 2017, and 2016, and 2015, were considered to be prime.prime and in credit tiers S, A, or B. We define prime retail automotive loans primarily as those loans with a FICO® Score (or an equivalent score) at origination of 620 or greater.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
The following table presents the percentage of total outstanding retail loans by origination year.
|
| | | | | | |
Three months ended March 31, | | 2017 | | 2016 |
Pre-2013 | | 3 | % | | 10 | % |
2013 | | 6 |
| | 12 |
|
2014 | | 12 |
| | 21 |
|
2015 | | 27 |
| | 44 |
|
2016 | | 40 |
| | 13 |
|
2017 | | 12 |
| | — |
|
Total | | 100 | % | | 100 | % |
The 2017, 2016, and 2015 vintages comprise 79% of the overall retail portfolio for the three months ended March 31, 2017, and have higher average buy rates and expected losses than older vintages. The increases in average buy rate and expected loss were due to the execution of our targeted underwriting strategy to originate consumer automotive assets across a broad risk spectrum, and our continued strategic focus on expanding risk-adjusted returns.
The following tables present the total retail loan and lease origination dollars and percentage mix by product type and by channel.
|
| | | | | | | | | | | | |
| | Consumer automotive financing originations | | % Share of Ally originations |
Three months ended March 31, ($ in millions) | | 2017 | | 2016 | | 2017 | | 2016 |
New retail standard | | $ | 3,693 |
| | $ | 4,040 |
| | 42 | | 45 |
Used retail | | 4,211 |
| | 4,092 |
| | 48 | | 45 |
Lease | | 924 |
| | 833 |
| | 10 | | 9 |
New retail subvented | | 37 |
| | 76 |
| | — | | 1 |
Total consumer automotive financing originations (a) | | $ | 8,865 |
| | $ | 9,041 |
| | 100 | | 100 |
| |
(a) | Includes Commercial Services Group (CSG) originations of $989 million and $835 million for the three months ended March 31, 2017, and 2016, respectively, and RV originations of $130 million and $128 million for the three months ended March 31, 2017, and 2016, respectively. |
|
| | | | | | | | | | | | |
| | Consumer automotive financing originations | | % Share of Ally originations |
Three months ended March 31, ($ in millions) | | 2017 | | 2016 | | 2017 | | 2016 |
Growth (a) | | $ | 3,502 |
| | $ | 3,367 |
| | 40 | | 37 |
GM | | 2,867 |
| | 3,329 |
| | 32 | | 37 |
Chrysler | | 2,496 |
| | 2,345 |
| | 28 | | 26 |
Total consumer automotive financing originations | | $ | 8,865 |
| | $ | 9,041 |
| | 100 | | 100 |
| |
(a) | Includes Carvana purchased originations of $68 million for the three months ended March 31, 2017. |
During the three months ended March 31, 2017, total consumer originations decreased $176 million compared to the same period in 2016. The decrease was due to lower volume from the GM channel and our continued strategic focus on profitable originations over volume levels. The decrease in GM volume during the three months ended March 31, 2017, was partially offset by higher volume in the Growth and Chrysler channels.
We have included origination metrics by loan term and FICO® Score. However, the proprietary way we evaluate risk is based on multiple inputs as described in the section titled Automotive Financing Volume — Acquisition and Underwriting within the MD&A included in our 2016 Annual Report on Form 10-K.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
The following table presents the percentage of total retail loan and lease originations, in dollars, by FICO® Score.
| | | | Three months ended June 30, | | Six months ended June 30, | |
| | 2016 | | 2015 | | 2016 | | 2015 | |
Three months ended March 31, | | | 2017 | | 2016 |
740 + | | 23 | % | | 24 | % | | 22 | % | | 26 | % | | 25 | % | | 22 | % |
739-660 | | 37 |
| | 34 |
| | 37 |
| | 34 |
| |
659-620 | | 24 |
| | 23 |
| | 25 |
| | 22 |
| |
619-540 | | 10 |
| | 13 |
| | 10 |
| | 12 |
| |
739–660 | | | 35 |
| | 36 |
|
659–620 | | | 24 |
| | 25 |
|
619–540 | | | 9 |
| | 11 |
|
< 540 | | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
|
Unscored (a) | | 5 |
| | 5 |
| | 5 |
| | 5 |
| | 6 |
| | 5 |
|
Total consumer automotive financing originations | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
| |
(a) | Unscored are primarily CSG contracts with entities that have no FICO® Score. |
Originations with a FICO® Score of less than 620 (considered nonprime) represented 11%10% and 14%12% of total consumer originations for the three months ended June 30,March 31, 2017, and 2016, and 2015, respectively, and 11% and 13% for the six months ended June 30, 2016, and 2015, respectively. Consumer loans and leases with FICO® Scores of less than 540 continued to comprise only 1% of total originations for the three months ended March 31, 2017. Nonprime applications that are not automatically declined by our proprietary credit-scoring models for risk reasons are manually reviewed and sixdecisioned by an experienced underwriting team. The nonprime portfolio is subject to more stringent underwriting criteria for certain loan attributes (e.g., payment-to-income, mileage, and maximum amount financed) and generally does not include any loans with a term of 76 months ended June 30, 2016.or more. For discussion of our credit risk management practices and performance, refer to the section titled Risk Management within this MD&A..
For discussion of manufacturingmanufacturer marketing incentives, refer to our Annual Report on Form 10-K for the year ended December 31, 2015, as filed on February 24, 2016, with the U.S. Securities and Exchange Commission (SEC), as amended by the Current Report on Form 8-K filed with the SEC on May 5, 2016 (referred to herein as the Annual Consolidated Financial Statements), Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Automotive Finance Operations.
Commercial Wholesale Financing Volume
The following table summarizes the average balances of our commercial wholesale floorplan finance receivables of new and used vehicles.
| | | | Average balance | | Average balance | | Average balance |
| | Three months ended June 30, | | Six months ended June 30, | |
($ in millions) | | 2016 | | 2015 | | 2016 | | 2015 | |
Three months ended March 31, ($ in millions) | | | 2017 | | 2016 |
GM new vehicles | | $ | 15,056 |
| | $ | 15,246 |
| | $ | 14,692 |
| | $ | 15,405 |
| | $ | 17,455 |
| | $ | 14,290 |
|
Chrysler new vehicles | | 8,991 |
| | 8,150 |
| | 9,117 |
| | 8,148 |
| | 9,283 |
| | 9,217 |
|
Growth new vehicles | | 4,275 |
| | 3,469 |
| | 4,181 |
| | 3,449 |
| | 4,536 |
| | 4,108 |
|
Used vehicles | | 3,812 |
| | 3,379 |
| | 3,845 |
| | 3,367 |
| | 4,180 |
| | 3,870 |
|
Total commercial wholesale finance receivables | | $ | 32,134 |
| | $ | 30,244 |
| | $ | 31,835 |
| | $ | 30,369 |
| | $ | 35,454 |
| | $ | 31,485 |
|
Commercial wholesale financing average volume increased $1.9 billion and $1.5$4.0 billion during the three months and six months ended June 30, 2016,March 31, 2017, compared to the same periodsperiod in 20152016, primarily due to higher floorplan assets driven by higher average vehicle pricesdealer inventory levels and a shiftan increase in vehicle mix towards trucks and sport utility vehicles. The increases in Growth new, Chrysler new,vehicles, which have higher average prices than cars. Dealer inventory levels are dependent on a number of factors including manufacturer production schedules and Usedvehicle mix, sales incentives, and industry sales—all of which can influence future wholesale balances.
Other Commercial Automotive Financing
We also provide other forms of commercial wholesale financing volume were partially offsetfor the automotive industry including automotive dealer term loans and automotive fleet financing. Automotive dealer term loans are loans that we make to dealers to finance other aspects of the dealership business, including acquisitions. These loans are usually secured by a decrease in GM new vehicles.real estate and/or other dealership assets, and are typically personally guaranteed by the individual owners of the dealership. Automotive dealer loans, inclusive of our commercial lease portfolio, increased $0.5 billion to an average of $5.6 billion for the three months ended March 31, 2017, compared to an average of $5.1 billion for the three months ended March 31, 2016. Automotive fleet financing credit lines may be obtained by dealers, their affiliates, and other independent companies that are used to purchase vehicles, which they lease or rent to others. In 2016, we began offering collateralized financing to mid-market companies, corporations, and municipalities for the acquisition of transportation assets including tractors and trailers, among other things.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Insurance
Results of Operations
The following table summarizes the operating results of our Insurance operations. The amounts presented are before the elimination of balances and transactions with our other reportable segments.
|
| | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
($ in millions) | | 2016 | | 2015 | | Favorable/ (unfavorable) % change | | 2016 | | 2015 | | Favorable/ (unfavorable) % change |
Insurance premiums and other income | | | | | | | | | | | | |
Insurance premiums and service revenue earned | | $ | 236 |
| | $ | 237 |
| | — | | $ | 466 |
| | $ | 470 |
| | (1) |
Investment income, net (a) | | 34 |
| | 41 |
| | (17) | | 68 |
| | 84 |
| | (19) |
Other income | | 5 |
| | 4 |
| | 25 | | 9 |
| | 8 |
| | 13 |
Total insurance premiums and other income | | 275 |
| | 282 |
| | (2) | | 543 |
| | 562 |
| | (3) |
Expense | | | | | | | | | | | | |
Insurance losses and loss adjustment expenses | | 145 |
| | 122 |
| | (19) | | 218 |
| | 178 |
| | (22) |
Acquisition and underwriting expense | | | | | | | | | | | | |
Compensation and benefits expense | | 17 |
| | 16 |
| | (6) | | 35 |
| | 35 |
| | — |
Insurance commissions expense | | 97 |
| | 95 |
| | (2) | | 191 |
| | 188 |
| | (2) |
Other expenses | | 34 |
| | 34 |
| | — | | 67 |
| | 68 |
| | 1 |
Total acquisition and underwriting expense | | 148 |
| | 145 |
| | (2) | | 293 |
| | 291 |
| | (1) |
Total expense | | 293 |
| | 267 |
| | (10) | | 511 |
| | 469 |
| | (9) |
(Loss) income from continuing operations before income tax expense | | $ | (18 | ) | | $ | 15 |
| | n/m | | $ | 32 |
| | $ | 93 |
| | (66) |
Total assets | | $ | 7,193 |
| | $ | 7,260 |
| | (1) | | $ | 7,193 |
| | $ | 7,260 |
| | (1) |
Insurance premiums and service revenue written | | $ | 237 |
| | $ | 262 |
| | (10) | | $ | 459 |
| | $ | 501 |
| | (8) |
Combined ratio (b) | | 122.8 | % | | 112.2 | % | | | | 108.7 | % | | 99.1 | % | | |
n/m = not meaningful |
| | | | | | | | | |
| | Three months ended March 31, |
($ in millions) | | 2017 | | 2016 | Favorable/ (unfavorable) % change |
Insurance premiums and other income | | | | | |
Insurance premiums and service revenue earned | | $ | 241 |
| | $ | 230 |
| 5 |
Investment income, net (a) | | 35 |
| | 34 |
| 3 |
Other income | | 3 |
| | 4 |
| (25) |
Total insurance premiums and other income | | 279 |
| | 268 |
| 4 |
Expense | | | | | |
Insurance losses and loss adjustment expenses | | 88 |
| | 73 |
| (21) |
Acquisition and underwriting expense | | | | | |
Compensation and benefits expense | | 19 |
| | 18 |
| (6) |
Insurance commissions expense | | 99 |
| | 94 |
| (5) |
Other expenses | | 33 |
| | 33 |
| — |
Total acquisition and underwriting expense | | 151 |
| | 145 |
| (4) |
Total expense | | 239 |
| | 218 |
| (10) |
Income from continuing operations before income tax expense | | $ | 40 |
| | $ | 50 |
| (20) |
Total assets | | $ | 7,230 |
| | $ | 7,194 |
| 1 |
Insurance premiums and service revenue written | | $ | 240 |
| | $ | 222 |
| 8 |
Combined ratio (b) | | 98.1 | % | | 94.0 | % | |
| |
(a) | Includes realized gains on investments of $21 million and $43$22 million for the three months and six months ended June 30,March 31, 2017, and 2016, respectively,respectively; and $29interest expense of $11 million and $62$12 million for the three months and six months ended June 30, 2015, respectively;March 31, 2017, and interest expense of $12 million and $24 million, for the three months and six months ended June 30, 2016, respectively, and $13 million and $26 million for the three months and six months ended June 30, 2015, respectively. |
| |
(b) | 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 fee income. |
Our Insurance operations incurred a lossearned income from continuing operations before income tax expense of $18 million and income of $32$40 million for the three months and six months ended June 30, 2016, respectively,March 31, 2017, compared to income of $15 million and $93$50 million for the three months and six months ended June 30, 2015, respectively.March 31, 2016. The decreasesdecrease for the three months and six months ended June 30, 2016, wereMarch 31, 2017, was primarily due to severe hailstorms, which drove higher weather-related losses and lower investment income.driven by severe hailstorms.
Insurance premiums and service revenue earned was $236 million and $466$241 million for the three months and six months ended June 30, 2016, respectively,March 31, 2017, compared to $237 million and $470 million for the same periods in 2015. The decreases for the three months and six months ended June 30, 2016, were due primarily to increased dealer reinsurance participation and lower earned revenue on used VSC products as a result of discontinuation of the agent sales channel, partially offset by increased wholesale and GAP earned premium.
Net investment income was $34 million and $68$230 million for the three months and six months ended June 30, 2016, respectively, compared to $41 million and $84 millionMarch 31, 2016. The increase for the three months ended March 31, 2017, was primarily due to vehicle inventory insurance rate increases and six months ended June 30, 2015, respectively. The decreases for the three months and six months ended June 30, 2016, were due primarily to lower realized investment gains as compared to the same periods in 2015.higher dealer floorplan balances.
Insurance losses and loss adjustment expenses totaled $145 million and $218$88 million for the three months and six months ended June 30, 2016, respectively,March 31, 2017, compared to $122 million and $178$73 million for the same periodsperiod in 2015.2016. The increases were primarilyincrease was due to higher weather-related losses driven by severe hailstorms, which droveparticularly in late March. The same higher weather-related losses. Higher weather-related losses primarily drove the increase in the combined ratio to 122.8% and 108.7% during the three months and six months ended June 30, 2016, respectively, compared to 112.2% and 99.1%98.1% for the three months and sixended March 31, 2017, compared to 94.0% for the three months ended June 30, 2015, respectively.March 31, 2016. During the three months ended March 31, 2017, weather losses increased $16 million compared to the prior year and represented the worst performing first quarter for weather losses in over 20 years. Effective in April 2017, we entered into a one-year reinsurance agreement to reduce volatility associated with weather-related losses on vehicle inventory insurance. Management believes that despite the costs associated with such reinsurance coverage, anticipated pricing actions to raise premiums in states most severely impacted by weather losses combined with the purchase of reinsurance should reduce volatility in our results and contribute to profitability.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
The following table shows premium and service revenue written by insurance product.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
($ in millions) | | 2016 | | 2015 | | 2016 | | 2015 | | 2017 | | 2016 |
Vehicle service contracts |
|
|
|
| | | | |
|
|
|
|
New retail |
| $ | 112 |
|
| $ | 114 |
| | $ | 208 |
| | $ | 211 |
|
| $ | 103 |
|
| $ | 96 |
|
Used retail |
| 109 |
|
| 135 |
| | 218 |
| | 265 |
|
| 113 |
|
| 109 |
|
Reinsurance (a) |
| (48 | ) |
| (44 | ) | | (89 | ) | | (84 | ) |
| (49 | ) |
| (41 | ) |
Total vehicle service contracts (b) |
| 173 |
|
| 205 |
| | 337 |
| | 392 |
|
| 167 |
|
| 164 |
|
Wholesale |
| 45 |
|
| 41 |
| | 86 |
| | 78 |
| |
Vehicle inventory insurance | |
| 52 |
|
| 41 |
|
Other finance and insurance (c) |
| 19 |
|
| 16 |
| | 36 |
| | 31 |
|
| 21 |
|
| 17 |
|
Total |
| $ | 237 |
|
| $ | 262 |
| | $ | 459 |
| | $ | 501 |
|
| $ | 240 |
|
| $ | 222 |
|
| |
(a) | Reinsurance represents the transfer of premiums and risk from an Ally insurance company to a third partythird-party insurance company. |
| |
(b) | VSC revenue is earned over the life of the service contract on a basis proportionate to the anticipated cost pattern. |
| |
(c) | Other finance and insurance includes GAP coverage, excess wear and tear, wind-down of Canadian personal lines, and other ancillary products. |
Insurance premiums and service revenue written was $237 million and $459$240 million for the three months and six months ended June 30, 2016,March 31, 2017, compared to $262$222 million in 2016. The increase was primarily due to vehicle inventory insurance rate increases and $501 million for the same periods in 2015. The decreases for the three months and six months ended June 30, 2016, were due primarily to increasedhigher dealer reinsurance participation and lower VSC volume as a result of the discontinuation of the agent sales channel,floorplan balances, partially offset by an increase in wholesale premiums.dealer reinsurance participation.
Cash and Investments
A significant aspect of our Insurance operations is the investment of proceeds from premiums and other revenue sources. We use these investments to satisfy our obligations related to future claims at the time these claims are settled. Our Insurance operations have an Investment Committee, which develops guidelines and strategies for these investments. The guidelines established by this committee reflect our risk tolerance, liquidity requirements, regulatory requirements, and rating agency considerations, among other factors.
The following table summarizes the composition of our Insurance operations cash and investment portfolio at fair value.
| | ($ in millions) |
| June 30, 2016 |
| December 31, 2015 |
| March 31, 2017 | | December 31, 2016 |
Cash |
|
|
|
|
|
|
|
|
Noninterest-bearing cash |
| $ | 370 |
|
| $ | 293 |
|
| $ | 227 |
|
| $ | 273 |
|
Interest-bearing cash |
| 999 |
|
| 995 |
|
| 970 |
|
| 612 |
|
Total cash |
| 1,369 |
|
| 1,288 |
|
| 1,197 |
|
| 885 |
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
Debt securities |
| | | |
| | | |
U.S. Treasury and federal agencies |
| 17 |
|
| 269 |
| |
U.S. Treasury | |
| 374 |
|
| 299 |
|
U.S. States and political subdivisions |
| 718 |
|
| 698 |
|
| 762 |
|
| 744 |
|
Foreign government |
| 191 |
|
| 177 |
|
| 146 |
|
| 162 |
|
Mortgage-backed |
| 639 |
|
| 694 |
| |
Agency mortgage-backed residential | | | 622 |
| | 633 |
|
Mortgage-backed residential | |
| 209 |
|
| 227 |
|
Mortgage-backed commercial | | | 39 |
| | 39 |
|
Asset-backed |
| 5 |
|
| 6 |
|
| — |
|
| 6 |
|
Corporate debt |
| 1,602 |
|
| 1,204 |
|
| 1,255 |
|
| 1,443 |
|
Total debt securities |
| 3,172 |
|
| 3,048 |
|
| 3,407 |
|
| 3,553 |
|
Equity securities |
| 599 |
|
| 717 |
|
| 444 |
|
| 595 |
|
Total available-for-sale securities |
| 3,771 |
|
| 3,765 |
|
| 3,851 |
|
| 4,148 |
|
Total cash and securities |
| $ | 5,140 |
|
| $ | 5,053 |
|
| $ | 5,048 |
|
| $ | 5,033 |
|
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Mortgage Finance
Results of Operations
The following table summarizes the operating results foractivities of our Mortgage Finance operations, which is primarily comprised of high-quality jumbo and LMI mortgage loans purchased or originated after January 1, 2009.operations. The amounts presented are before the elimination of balances and transactions with our other reportable segments.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
($ in millions) | | 2016 | | 2015 | | Favorable/ (unfavorable) % change | | 2016 | | 2015 | | Favorable/ (unfavorable) % change | | 2017 | | 2016 | | Favorable/(unfavorable) % change |
Net financing revenue | | | | | | | | | | |
Net financing revenue and other interest income | | | | | | |
Total financing revenue and other interest income | | $ | 64 |
| | $ | 39 |
| | 64 | | $ | 121 |
| | $ | 72 |
| | 68 | | $ | 71 |
| | $ | 57 |
| | 25 |
Interest expense | | 38 |
| | 28 |
| | (36) | | 75 |
| | 50 |
| | (50) | | 37 |
| | 37 |
| | — |
Net financing revenue | | 26 |
| | 11 |
| | 136 | | 46 |
| | 22 |
| | 109 | |
Net financing revenue and other interest income | | | 34 |
| | 20 |
| | 70 |
Provision for loan losses | | — |
| | 4 |
| | 100 | | 3 |
| | 6 |
| | 50 | | 1 |
| | 3 |
| | 67 |
Noninterest expense | | | | | | | | | | | | | | |
Compensation and benefits expense | | 3 |
| | 1 |
| | n/m | | 6 |
| | 2 |
| | n/m | | 5 |
| | 3 |
| | (67) |
Other operating expenses | | 14 |
| | 9 |
| | (56) | | 26 |
| | 16 |
| | (63) | | 19 |
| | 12 |
| | (58) |
Total noninterest expense | | 17 |
| | 10 |
| | (70) | | 32 |
| | 18 |
| | (78) | | 24 |
| | 15 |
| | (60) |
Income (loss) from continuing operations before income tax expense | | $ | 9 |
| | $ | (3 | ) | | n/m | | $ | 11 |
| | $ | (2 | ) | | n/m | |
Income from continuing operations before income tax expense | | | $ | 9 |
| | $ | 2 |
| | n/m |
Total assets | | $ | 8,014 |
| | $ | 5,623 |
| | 43 | | $ | 8,014 |
| | $ | 5,623 |
| | 43 | | $ | 8,362 |
| | $ | 7,493 |
| | 12 |
n/m = not meaningful
Our Mortgage Finance operations earned income from continuing operations before income tax expense of $9 million and $11 million for the three months and six months ended June 30, 2016, respectively,March 31, 2017, compared to losses of $3 million and $2 million for the three months and six months ended June 30, 2015, respectively.March 31, 2016. The increases wereincrease was primarily due to an increase in net financing revenue and other interest income driven by portfolio growthincreased loan balances as a result of bulk acquisitionspurchases of high-quality jumbo and LMI mortgage loans. In addition, the provision for loan losses was favorable due to lower portfolio growth. The increases wereincrease in income from continuing operations before income tax expense was partially offset by an increase inhigher noninterest expense.expense to support our bulk acquisition strategy and the launch of direct mortgage originations.
Net financing revenue and other interest income was $26 million and $46$34 million for the three months and six months ended June 30, 2016, respectively,March 31, 2017, compared to $11 million and $22$20 million for the three months and six months ended June 30, 2015, respectively.March 31, 2016. The increasesincrease in net financing revenue wereand other interest income was primarily due to portfolio growthincreased loan balances as a result of bulk purchases of high-quality jumbo and LMI mortgage loans. During the sixthree months ended June 30, 2016,March 31, 2017, we purchased $2.4 billion$327 million of mortgage loans that were originated by third parties. parties compared to purchases of $1.4 billion in 2016.
The increases were partially offset by higher funding costs also driven byprovision for loan losses decreased $2 million for the three months ended March 31, 2017, compared to the same period in 2016. The decrease was primarily due to lower portfolio growth.growth compared to the same period in 2016.
Total noninterest expense was $17 million and $32$24 million for the three months and six months ended June 30, 2016, respectively,March 31, 2017, compared to $10 million and $18$15 million for the three months and six months ended June 30, 2015.March 31, 2016. The increases wereincrease was primarily due to increased expenseshigher noninterest expense to support our bulk acquisition strategy and the growthlaunch of the business.direct mortgage originations.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
The following table presents the net unpaid principal balance (UPB), net UPB as a percentage of total, weighted average coupon (WAC), premium net of discounts, loan-to-value (LTV), and FICO® Scores for the products in our Mortgage Finance held-for-investment loan portfolio.
| | Product | | Net UPB (a) ($ in millions) | | % of total net UPB | | WAC | | Net premium ($ in millions) | | Average refreshed LTV (b) | | Average refreshed FICO® (c) | | Net UPB (a) ($ in millions) | | % of total net UPB | | WAC | | Net premium ($ in millions) | | Average refreshed LTV (b) | | Average refreshed FICO® (c) |
June 30, 2016 | | | | | | | | | | | |
March 31, 2017 | | | | | | | | | | | |
Adjustable-rate | | $ | 2,466 |
| | 31 | | 3.35 | % | | $ | 41 |
| | 58.39 | % | | 772 |
| | $ | 2,489 |
| | 31 | | 3.34 | % | | $ | 41 |
| | 57.22 | % | | 771 |
|
Fixed-rate | | 5,382 |
| | 69 | | 4.07 |
| | 120 |
| | 62.37 |
| | 770 |
| | 5,669 |
| | 69 | | 4.01 |
| | 132 |
| | 59.89 |
| | 770 |
|
Total | | $ | 7,848 |
| | 100 | | 3.85 |
| | $ | 161 |
| | 61.12 |
| | 771 |
| | $ | 8,158 |
| | 100 | | 3.81 |
| | $ | 173 |
| | 59.08 |
| | 770 |
|
December 31, 2015 | | | | | | | | | | | |
December 31, 2016 | | | | | | | | | | | |
Adjustable-rate | | $ | 2,268 |
| | 36 | | 3.35 | % | | $ | 37 |
| | 58.52 | % | | 771 |
| | $ | 2,488 |
| | 31 | | 3.34 | % | | $ | 42 |
| | 57.94 | % | | 773 |
|
Fixed-rate | | 4,021 |
| | 64 | | 4.10 |
| | 87 |
| | 61.42 |
| | 768 |
| | 5,633 |
| | 69 | | 4.02 |
| | 131 |
| | 60.47 |
| | 772 |
|
Total | | $ | 6,289 |
| | 100 | | 3.83 |
| | $ | 124 |
| | 60.37 |
| | 769 |
| | $ | 8,121 |
| | 100 | | 3.81 |
| | $ | 173 |
| | 59.69 |
| | 772 |
|
| |
(a) | Represents UPB net of charge-offs. |
| |
(b) | Updated home values were derived using a combination of appraisals, broker price opinions, automated valuation models, and metropolitan statistical area level house price indices. |
| |
(c) | Updated to reflect changes in credit score since loan origination. |
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
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.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
($ in millions) | | 2016 | | 2015 | | Favorable/ (unfavorable) % change | | 2016 | | 2015 | | Favorable/ (unfavorable) % change | | 2017 | | 2016 | | Favorable/(unfavorable) % change |
Net financing revenue | | | | | | | | | | |
Net financing revenue and other interest income | | | | | | |
Interest and fees on finance receivables and loans | | $ | 46 |
| | $ | 35 |
| | 31 | | $ | 90 |
| | $ | 68 |
| | 32 | | $ | 54 |
| | $ | 44 |
| | 23 |
Interest expense | | 17 |
| | 13 |
| | (31) | | 33 |
| | 26 |
| | (27) | | 20 |
| | 16 |
| | (25) |
Net financing revenue | | 29 |
| | 22 |
| | 32 | | 57 |
| | 42 |
| | 36 | |
Net financing revenue and other interest income | | | 34 |
| | 28 |
| | 21 |
Total other revenue | | 4 |
| | 6 |
| | (33) | | 10 |
| | 12 |
| | (17) | | 18 |
| | 6 |
| | n/m |
Total net revenue | | 33 |
| | 28 |
| | 18 | | 67 |
| | 54 |
| | 24 | | 52 |
| | 34 |
| | 53 |
Provision for loan losses | | 3 |
| | 4 |
| | 25 | | 9 |
| | (1 | ) | | n/m | | 6 |
| | 6 |
| | — |
Noninterest expense | |
|
| |
|
| |
|
| |
|
| | |
|
| | | |
Compensation and benefits expense | | 10 |
| | 8 |
| | (25) | | 20 |
| | 16 |
| | (25) | | 14 |
| | 10 |
| | (40) |
Other operating expenses | | 6 |
| | 6 |
| | — | | 13 |
| | 12 |
| | (8) | | 7 |
| | 7 |
| | — |
Total noninterest expense | | 16 |
| | 14 |
| | (14) | | 33 |
| | 28 |
| | (18) | | 21 |
| | 17 |
| | (24) |
Income from continuing operations before income tax expense | | $ | 14 |
| | $ | 10 |
| | 40 | | $ | 25 |
| | $ | 27 |
| | (7) | | $ | 25 |
| | $ | 11 |
| | 127 |
Total assets | | $ | 2,989 |
| | $ | 2,132 |
| | 40 | | $ | 2,989 |
| | $ | 2,132 |
| | 40 | | $ | 3,438 |
| | $ | 2,839 |
| | 21 |
n/m = not meaningful
Our Corporate Finance operations earned income from continuing operations before income tax expense of $14 million and $25 million for the three months and six months ended June 30, 2016, respectively,March 31, 2017, compared to $10 million and $27$11 million for the three months and six months ended June 30, 2015.March 31, 2016. The increase for the three months ended June 30, 2016, was a result of higher net financing revenue and other interest income due primarily to asset growth. These favorable items were partially offset by a decrease ingrowth, and higher other revenue primarily driven bydue to a decline in loan syndication income, andgain on an increase in noninterest expense.equity investment. The decrease for the six months ended June 30, 2016, was primarily driven by lower recoveries on nonaccrual loan exposures compared to 2015, increased portfolio level reserves due primarily to higher asset growth, an increase in noninterest expense, and a decrease in other revenue. The decrease for the six months ended June 30, 2016, was partially offset by higher net financing revenue primarily duecompensation and benefits expense to asset growth.support the growth of the business.
Net financing revenue and other interest income was $29 million and $57$34 million for the three months and six months ended June 30, 2016, respectively,March 31, 2017, compared to $22 million and $42$28 million for the same periods in 2015.three months ended March 31, 2016. The increases wereincrease was primarily due to asset growth across all business segments in line with our growth strategy, which resulted in a 42%23% increase in the gross carrying value of finance receivables and loans as of June 30, 2016,March 31, 2017, compared to June 30, 2015. This was partially offset by higher funding costs also driven by asset growth.March 31, 2016.
Other revenue was $4 million and $10 million for the three and six months ended June 30, 2016, respectively, compared to $6 million and $12 million for the same periods in 2015. The decreases were due to a decline in loan syndication income, partially offset by an increase in investment income.
The provision for loan losses decreased $1 million and increased $10$18 million for the three months and six months ended June 30, 2016, respectively,March 31, 2017, compared to the three months and six months ended June 30, 2015. The decrease$6 million for the three months ended June 30, 2016,March 31, 2016. The increase was primarily due to a decline in the provision for individually impaired loans during the three months ended June 30, 2016, compared to the same period in 2015, partially offsetdriven by an increase in non-specific loan loss reserves due to asset growth. The increase for$11 million gain on the six months ended June 30, 2016, was primarily due to higher recoveries on nonaccrual loan exposures insale of an equity investment during the first quarter of 2015 and increased reserves primarily due to asset growth. This was partially offset by lower provisions for individually impaired loans in 2016.2017.
Total noninterest expense was $16 million and $33$21 million for the three months and six months ended June 30, 2016, respectively,March 31, 2017, compared to $14 million and $28$17 million for the same periods in 2015.three months ended March 31, 2016. The increases were primarilyincrease was due to increasedhigher compensation and benefit expenses to support the growth of the business.
Credit Portfolio
The following table presents the gross carrying value of finance receivables and loans outstanding, and unfunded commitments to lend of our Corporate Finance operations.
|
| | | | | | | | |
($ in millions) | | March 31, 2017 | | December 31, 2016 |
Finance receivables and loans | | $ | 3,432 |
| | $ | 3,180 |
|
Unfunded lending commitments (a) | | $ | 1,485 |
| | $ | 1,483 |
|
| |
(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 should the client fail to fulfill a contractual commitment. |
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
The following table presents loans held-for-sale, the gross carrying value of finance receivables and loans outstanding, and unfunded commitments to lend of our Corporate Finance operations as of the end of each quarter since 2015.
|
| | | | | | | | | | | | | | | | | | |
($ in millions) | 2nd Quarter 2016 | 1st Quarter 2016 | 4th Quarter 2015 | 3rd Quarter 2015 | 2nd Quarter 2015 | 1st Quarter 2015 |
Loans held-for-sale, net | $ | 15 |
| $ | 39 |
| $ | 105 |
| $ | 37 |
| $ | 36 |
| $ | 17 |
|
Finance receivables and loans | $ | 2,975 |
| $ | 2,795 |
| $ | 2,568 |
| $ | 2,228 |
| $ | 2,088 |
| $ | 1,945 |
|
Unfunded lending commitments (a) | $ | 1,054 |
| $ | 1,083 |
| $ | 1,136 |
| $ | 1,153 |
| $ | 1,024 |
| $ | 1,005 |
|
| |
(a) | Includes unused revolving credit line commitments for loans held-for-sale and finance receivables and loans, and standby letters of credit facilities, which are issued on behalf of clients and may contingently require us to make payments to a third party beneficiary should the client fail to fulfill a contractual commitment. |
The following table presents the percentage of total finance receivables and loans of our Corporate Finance operations by industry concentrations.concentration. The finance receivables and loans are reported at gross carrying value.
| | | | June 30, 2016 | | December 31, 2015 | | March 31, 2017 | | December 31, 2016 |
Industry | | | | | | | | |
Services | | 24.4 | % | | 22.8 | % | | 28.4 | % | | 27.4 | % |
Automotive and transportation | | 15.2 |
| | 7.1 |
| | 11.7 |
| | 13.5 |
|
Health services | | 11.1 |
| | 13.4 |
| | 11.1 |
| | 12.0 |
|
Machinery, equipment, and electronics | | | 9.0 |
| | 6.6 |
|
Wholesale | | 9.8 |
| | 9.7 |
| | 8.7 |
| | 8.9 |
|
Other manufactured products | | 8.5 |
| | 10.2 |
| | 8.1 |
| | 8.8 |
|
Chemicals and metals | | 8.2 |
| | 13.4 |
| | 5.7 |
| | 5.8 |
|
Machinery, equipment, and electronics | | 7.3 |
| | 8.5 |
| |
Retail trade | | 4.5 |
| | 3.8 |
| | 4.7 |
| | 5.1 |
|
Food and beverages | | | 4.0 |
| | 4.2 |
|
Paper, printing, and publishing | | 4.4 |
| | 3.6 |
| | 3.0 |
| | 3.2 |
|
Food and beverages | | 2.6 |
| | 2.8 |
| |
Other | | 4.0 |
| | 4.7 |
| | 5.6 |
| | 4.5 |
|
Total finance receivables and loans | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Corporate and Other
The following table summarizes the activities of Corporate and Other. Corporate and Other primarily consists of activity related to 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, the amortization of the discount associated with new debt issuances and bond exchanges, 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 TradeKing since acquisition, and reclassifications and eliminations between the reportable operating segments.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
($ in millions) | | 2016 | | 2015 | | Favorable/ (unfavorable) % change | | 2016 | | 2015 | | Favorable/ (unfavorable) % change | | 2017 | | 2016 | | Favorable/(unfavorable) % change |
Net financing (loss) revenue | | | | | | | | | | |
Net financing revenue and other interest income | | | | | | |
Total financing revenue and other interest income | | $ | 89 |
| | $ | 90 |
| | (1) | | $ | 181 |
| | $ | 183 |
| | (1) | | $ | 126 |
| | $ | 92 |
| | 37 |
Interest expense | | | | | | | | | | | | | | |
Original issue discount amortization | | 18 |
| | 15 |
| | (20) | | 36 |
| | 29 |
| | (24) | | 21 |
| | 18 |
| | (17) |
Other interest expense | | 87 |
| | 56 |
| | (55) | | 168 |
| | 137 |
| | (23) | | 101 |
| | 81 |
| | (25) |
Total interest expense | | 105 |
| | 71 |
| | (48) | | 204 |
| | 166 |
| | (23) | | 122 |
| | 99 |
| | (23) |
Net financing (loss) revenue (a) | | (16 | ) | | 19 |
| | (184) | | (23 | ) | | 17 |
| | n/m | |
Other revenue (expense) | | | | | | | | | | |
(Loss) gain on mortgage and automotive loans, net | | (2 | ) | | 7 |
| | (129) | | (6 | ) | | 68 |
| | (109) | |
Net financing revenue and other interest income (a) | | | 4 |
| | (7 | ) | | 157 |
Other revenue | | | | | | |
Loss on mortgage and automotive loans, net | | | (10 | ) | | (4 | ) | | (150) |
Loss on extinguishment of debt | | — |
| | (156 | ) | | 100 | | (4 | ) | | (354 | ) | | 99 | | (1 | ) | | (4 | ) | | 75 |
Other gain on investments, net | | 18 |
| | 16 |
| | 13 | | 50 |
| | 38 |
| | 32 | | 6 |
| | 32 |
| | (81) |
Other income, net of losses | | 18 |
| | 15 |
| | 20 | | 33 |
| | 47 |
| | (30) | | 18 |
| | 15 |
| | 20 |
Total other revenue (expense) | | 34 |
| | (118 | ) | | 129 | | 73 |
| | (201 | ) | | 136 | |
Total net revenue (loss) | | 18 |
| | (99 | ) | | 118 | | 50 |
| | (184 | ) | | 127 | |
Total other revenue | | | 13 |
| | 39 |
| | (67) |
Total net revenue | | | 17 |
| | 32 |
| | (47) |
Provision for loan losses | | (1 | ) | | — |
| | — | | 1 |
| | (8 | ) | | (113) | | (4 | ) | | 2 |
| | n/m |
Total noninterest expense (b) | | 37 |
| | 33 |
| | (12) | | 70 |
| | 76 |
| | 8 | | 57 |
| | 33 |
| | (73) |
Loss from continuing operations before income tax expense | | $ | (18 | ) | | $ | (132 | ) | | 86 | | $ | (21 | ) | | $ | (252 | ) | | 92 | | $ | (36 | ) | | $ | (3 | ) | | n/m |
Total assets | | $ | 27,379 |
| | $ | 27,656 |
| | (1) | | $ | 27,379 |
| | $ | 27,656 |
| | (1) | | $ | 27,917 |
| | $ | 26,690 |
| | 5 |
n/m = not meaningful
| |
(a) | Refer to the table that follows for further details on the components of net financing (loss) revenue.revenue and other interest income. |
| |
(b) | Includes a reduction of $186$212 million and $388$202 million, for both the three months and six months ended June 30,March 31, 2017, and 2016, and the three months and six months ended June 30, 2015, respectively, related to the allocation of corporate overhead expenses to other segments. The receiving segments record their allocation of corporate overhead expense within other operating expense. |
The following table summarizes the components of net financing (loss) revenue and other interest income for Corporate and Other.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
($ in millions) | | 2016 | | 2015 | | 2016 | | 2015 | | 2017 | | 2016 |
Original issue discount amortization (a) | | $ | (18 | ) | | $ | (15 | ) | | $ | (36 | ) | | $ | (29 | ) | | $ | (21 | ) | | $ | (18 | ) |
Net impact of the funds-transfer pricing methodology | | (6 | ) | | 26 |
| | (3 | ) | | 30 |
| | 15 |
| | 3 |
|
Other (including legacy mortgage net financing revenue) | | 8 |
| | 8 |
| | 16 |
| | 16 |
| |
Total net financing (loss) revenue for Corporate and Other | | $ | (16 | ) | | $ | 19 |
| | $ | (23 | ) | | $ | 17 |
| |
Outstanding original issue discount balance | | $ | 1,367 |
| | $ | 1,416 |
| | $ | 1,367 |
| | $ | 1,416 |
| |
Other (including legacy mortgage net financing revenue and other interest income) | | | 10 |
| | 8 |
|
Net financing revenue and other interest income for Corporate and Other | | | $ | 4 |
| | $ | (7 | ) |
| |
(a) | Amortization is included as interest on long-term debt in the Condensed Consolidated Statement of Comprehensive Income. |
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
The following table presents the scheduled remaining amortization of the original issue discount at June 30, 2016.March 31, 2017.
| | Year ended December 31, ($ in millions) | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 and thereafter (a) | | Total | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 and thereafter (a) | | Total |
Original issue discount | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Outstanding balance | | $ | 1,327 |
| | $ | 1,239 |
| | $ | 1,139 |
| | $ | 1,102 |
| | $ | 1,065 |
| | $ | 1,024 |
| | | |
Outstanding balance at year end | | | $ | 1,235 |
| | $ | 1,134 |
| | $ | 1,095 |
| | $ | 1,056 |
| | $ | 1,014 |
| | $ | — |
| | |
Total amortization (b) | | 40 |
| | 88 |
| | 100 |
| | 37 |
| | 37 |
| | 1,065 |
| | $ | 1,367 |
| | 69 |
| | 101 |
| | 39 |
| | 39 |
| | 42 |
| | 1,014 |
| | $ | 1,304 |
|
| |
(a) | The maximum annual scheduled amortization for any individual year is $158$153 million in 2030. |
| |
(b) | The amortization is included as interest on long-term debt on the Condensed Consolidated Statement of Comprehensive Income. |
Loss from continuing operations before income tax expense for Corporate and Other was $18 million and $21$36 million for the three months and six months endedJune 30, 2016, respectively, March 31, 2017, compared to $132 million and $252$3 million for the three months and six months endedJune 30, 2015, respectively. March 31, 2016. The decreasesincrease in loss for the three months and six months ended June 30, 2016, were March 31, 2017, was primarily due to decreases in loss on extinguishment of debt due to debt tender offers in 2015. The decreases were partially offset by an increase in other interest expense due to an increase in interest expense driven by increased interest on deposits resulting from deposit growth and increased LIBOR rates on secured borrowings, partially offset by a decrease in gainunsecured debt as maturities have been refinanced with lower cost funding. Additionally, the increase in loss was driven by lower gains on mortgage and automotive loans due to sales of investment securities. The increase in loss was partially offset by an increase in financing revenue and other interest income driven by increased interest and dividends on investment securities and other earning assets and a decrease in the provision for loan losses resulting from lower net charge-offs as the legacy TDR mortgage loans in 2015.portfolio continues to runoff.
OtherFinancing revenue and other interest expenseincome was $87 million and $168$126 million for the three months and six months ended respectively,March 31, 2017, compared to $56 million and $137$92 million for the three months ended March 31, 2016. The increase was primarily driven by increased interest and sixdividends on investment securities and other earning assets compared to the same periods in 2016.
Interest expense was $122 million for the three months ended June 30, 2015, respectively.March 31, 2017, compared to $99 million for the three months ended March 31, 2016. The increases wereincrease was primarily due to an increase indriven by increased interest on deposits resulting from deposit growth.growth and increased LIBOR rates on borrowings. The increase was partially offset by a decrease in borrowings including higher-cost unsecured debt as maturities are refinanced with lower cost funding.
We recognized a net lossOther gain on mortgage and automotive loans of $2 million andinvestments was $6 million for the three months and six months ended June 30, 2016, respectively,March 31, 2017, compared to a net gain of $7 million and $68$32 million for the three months and six months ended June 30, 2015, respectively.March 31, 2016. The decreases in gain weredecrease was due primarily due to nonrecurringhigher sales of legacy TDR mortgage loansinvestment securities in 2015, which totaled $614 million of unpaid principal balance.2016 resulting from favorable market conditions that did not repeat in the current period.
Loss on extinguishment of debt was $0 million and $4The provision for loan losses decreased $6 million for the three months and six months ended June 30, 2016, respectively,March 31, 2017, compared to $156 million and $354the same period in 2016, as a result of lower net charge-offs as the legacy mortgage portfolio continues to runoff.
Noninterest expense was $57 million for the three months and sixended March 31, 2017, compared to $33 million for the three months ended June 30, 2015.March 31, 2016. The decreases in loss wereincrease was primarily due to nonrecurring debt tender offersincreased expenses from the TradeKing integration and operations included in 2015. During the first quarter of 2015, we completed tender offersour results subsequent to buy back $950 million of our high-coupon debt, resultingacquisition in a total loss on extinguishment of debt of $197 million related to these transactions. During the second quarter of 2015, we completed a tender offer to buy back $875 million of our high-coupon debt, resulting in a total loss on extinguishment of debt of $148 million.2016.
Total assets were $27.4$27.9 billion as of June 30, 2016,March 31, 2017, compared to $27.7$26.7 billion as of June 30, 2015.March 31, 2016. The declineincrease was primarily the result of growth of our available-for-sale and held-to-maturity securities portfolios as well as the June 1, 2016, acquisition of TradeKing, which had total assets of $285 million as of March 31, 2017. The increase was partially offset by the continued runoff of our legacy mortgage portfolio, offset by $298 million in net assets of TradeKing as of June 30, 2016.portfolio. At June 30, 2016,March 31, 2017, the gross carrying value of the legacy mortgage portfolio was $3.1$2.6 billion, compared to $3.6$3.2 billion at June 30, 2015.March 31, 2016.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Cash and Securities
The following table summarizes the composition of the cash and securities portfolio at fair value for Corporate and Other.
| | ($ in millions) | | June 30, 2016 | | December 31, 2015 | | March 31, 2017 | | December 31, 2016 |
Cash | | | | | | | | |
Noninterest-bearing cash | | $ | 1,395 |
| | $ | 1,829 |
| | $ | 1,261 |
| | $ | 1,249 |
|
Interest-bearing cash | | 2,937 |
| | 3,232 |
| | 1,814 |
| | 3,770 |
|
Total cash | | 4,332 |
| | 5,061 |
| | 3,075 |
| | 5,019 |
|
Available-for-sale securities | | | | | | | | |
Debt securities | | | | | | | | |
U.S. Treasury and federal agencies | | 258 |
| | 1,472 |
| |
U.S. Treasury | | | 1,851 |
| | 1,321 |
|
U.S. States and political subdivisions | | 15 |
| | 18 |
| | 33 |
| | 38 |
|
Mortgage-backed | | 12,484 |
| | 10,153 |
| |
Agency mortgage-backed residential | | | 11,240 |
| | 9,657 |
|
Mortgage-backed residential | | | 1,787 |
| | 1,870 |
|
Mortgage-backed commercial | | | 495 |
| | 498 |
|
Asset-backed | | 1,669 |
| | 1,749 |
| | 1,051 |
| | 1,394 |
|
Total debt securities | | 14,426 |
| | 13,392 |
| |
Total available-for-sale securities | | 14,426 |
| | 13,392 |
| | 16,457 |
| | 14,778 |
|
Held-to-maturity securities | | | | | |
Debt securities | | | | | |
Agency mortgage-backed residential | | | 1,011 |
| | 789 |
|
Asset-backed retained notes | | | 52 |
| | — |
|
Total held-to-maturity securities | | 579 |
| | — |
| | 1,063 |
| | 789 |
|
Total cash and securities | | $ | 19,337 |
| | $ | 18,453 |
| | $ | 20,595 |
| | $ | 20,586 |
|
TradeKing
On June 1, 2016, we acquired 100% of the equity of TradeKing a digital wealth management company with an online broker-dealer, digital portfolio management platform, and educational content. The addition of brokerage and wealth management is a natural extension of our online banking franchise, creating a full suite of financial products for savings and investments. The following table presents the trading days and average customer trades per day during each respective quarter and the number of funded accounts, total net customer assets, and total customer cash balances as of the end of each full quarter since acquisition for TradeKing's online broker-dealer.
|
| | | | | | | | | | | | |
| | 1st Quarter 2017 | | 4th Quarter 2016 | | 3rd Quarter 2016 |
Trading days (a) | | 62 |
| | 62.5 |
| | 64 |
|
Average customer trades per day (in thousands) | | 19 |
| | 18 |
| | 17 |
|
Funded accounts (b) (in thousands) | | 251 |
| | 244 |
| | 240 |
|
Total net customer assets ($ in millions) | | $ | 4,987 |
| | $ | 4,771 |
| | $ | 4,678 |
|
Total customer cash balances ($ in millions) | | $ | 1,232 |
| | $ | 1,253 |
| | $ | 1,177 |
|
| |
(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. |
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Risk Management
Managing the risk/reward trade-off is a fundamental component of operating our businesses. Our risk management program is overseen by the Ally Board of Directors (the Board), various risk committees, the executive leadership team, and our associates. The Risk and Compliance Committee of the Board (RCC), together with the Board, sets the risk appetite across our company while the risk committees, executive leadership team, and our associates identify and monitor current and emerging risks and manageensure those risks are managed to be within our risk appetite. Ally's primary types of risk include credit, lease residual, market, operational, insurance/underwriting, business/strategic, reputation, and liquidity. For more information on our risk management process, refer to the Risk Management MD&A section of our 2016 Annual Consolidated Financial Statements.Report on Form 10-K.
Loan and Lease Exposure
The following table summarizes the exposures from our loan and lease activities.
| | ($ in millions) | | June 30, 2016 | | December 31, 2015 | | March 31, 2017 | | December 31, 2016 |
Finance receivables and loans | | | | | | | | |
Automotive Finance | | $ | 98,532 |
| | $ | 99,187 |
| | $ | 104,566 |
| | $ | 104,646 |
|
Mortgage Finance | | 8,009 |
| | 6,413 |
| | 8,331 |
| | 8,294 |
|
Corporate Finance | | 2,976 |
| | 2,568 |
| | 3,432 |
| | 3,180 |
|
Corporate and Other (a) | | 3,136 |
| | 3,432 |
| | 2,673 |
| | 2,824 |
|
Total finance receivables and loans | | 112,653 |
| | 111,600 |
| | 119,002 |
| | 118,944 |
|
Loans held-for-sale | | | | | | | | |
Corporate Finance | | 15 |
| | 105 |
| |
Mortgage Finance (b) | | | 1 |
| | — |
|
Total on-balance sheet loans | | 112,668 |
| | 111,705 |
| | 119,003 |
| | 118,944 |
|
Off-balance sheet securitized loans | | | | | | | | |
Automotive Finance (b)(c) | | 3,220 |
| | 2,529 |
| | 3,067 |
| | 2,392 |
|
Total off-balance sheet securitized loans | | 3,220 |
| | 2,529 |
| |
Whole-loan sales | | | | | |
Automotive Finance (c) | | | 2,787 |
| | 3,164 |
|
Operating lease assets | | | | | | | | |
Automotive Finance | | 13,755 |
| | 16,271 |
| | 10,461 |
| | 11,470 |
|
Total operating lease assets | | 13,755 |
| | 16,271 |
| |
Total loan and lease exposure | | $ | 129,643 |
| | $ | 130,505 |
| | $ | 135,318 |
| | $ | 135,970 |
|
Serviced loans and leases | | | | | | | | |
Automotive Finance (c) | | $ | 119,270 |
| | $ | 119,808 |
| |
Automotive Finance | | | $ | 120,693 |
| | $ | 121,480 |
|
Mortgage Finance | | 8,009 |
| | 6,413 |
| | 8,332 |
| | 8,294 |
|
Corporate Finance | | 2,760 |
| | 2,532 |
| | 3,231 |
| | 2,991 |
|
Corporate and Other | | 3,075 |
| | 3,360 |
| | 2,606 |
| | 2,757 |
|
Total serviced loans and leases | | $ | 133,114 |
| | $ | 132,113 |
| | $ | 134,862 |
| | $ | 135,522 |
|
| |
(a) | Includes $3.1$2.6 billion and $3.4$2.8 billion of consumer mortgage loans in our Mortgage — Legacy portfolio at June 30, 2016,March 31, 2017, and December 31, 2015,2016, respectively. |
| |
(b) | Represents the current balance of conforming mortgages originated directly to the held-for-sale portfolio. |
| |
(c) | Represents the current unpaid principal balance of outstanding loans based on our customary representation and warranty provisions. |
| |
(c) | Includes $4.1 billion and $2.3 billion of off-balance sheet whole-loan sales at June 30, 2016, and December 31, 2015, respectively. |
The risks inherent in our loan and lease exposures are largely driven by changes in the overall economy, used vehicle and housing price levels, unemployment levels, and their impact to 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 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 lease residual risk, which may be more volatile than credit risk in stressed macroeconomic scenarios, has declined with the decrease in the lease portfolio.
OverSince the past year,end of 2014, we have experienced growth in our consumer retail automotive loan portfolio and a significant reduction in lease originations.assets. This shift in our portfolio mix has contributed to an increase in provision expense for loan losses. Consumer lease residuals are not included in the allowance for loan losses as changes in the expected residual values on consumer leases are included in depreciation expense over the remaining life of the lease. However, ourOur risk to future fluctuations in used vehicle prices has diminishedvalues is diminishing as our lease assets have declined materially and will continue to decline as the number of leases terminating currently is significantly larger than the number of new leases being originated.lease terminations continues to outpace lease originations. All leases are exposed to potential reductions in used vehicle prices,values, while only those loans that default, and where we take possession of the vehicle are affected by potential reductions in used vehicle prices.values. Operating lease assets, net of accumulated depreciation decreased $2.5$1.0 billion to $13.8$10.5 billion at June 30, 2016,March 31, 2017, from $16.3$11.5 billion at December 31, 2015.2016.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Credit Risk Management
Credit risk is defined as the potential failure to receive payments duerisk of loss arising from an obligor in accordance withnot meeting its contractual obligations.obligations to Ally. Therefore, credit risk is a major source of potential economic loss to us. Credit risk is monitored by several groups and functions throughout the organization, including enterprise and line of business committees and the risk management function. Together, they oversee the credit decisioning, account servicing activities, and credit risk management processes, and monitor credit risk exposures to ensure they are managed in a safe-and-sound manner and are within our risk appetite. In addition, our Loan Review Group provides an independent assessment of the quality of our credit portfolios and credit risk management practices, and directly reports its findings to the RiskRCC and Compliance Committee of the BoardAlly Financial Inc. General Auditor on a regular basis.
To mitigate risk, we have implemented specific policies and practices across all lines of business, utilizing both qualitative and quantitative analyses. This reflects our commitment to maintain 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 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 leases with potential credit weaknesses, and the assessment of the adequacy of internal credit risk policies and procedures to ensure and monitor compliance with relevant laws and regulations. Our consumer and commercial loan and lease portfolios are subject to regular stress tests that are based on plausible, but unexpected, economic scenarios to ensure that we can withstand a severe economic downturn. In addition, we establish and maintain underwriting policies and volume based limitsguardrails across our portfolios and higher risk segments (e.g., nonprime) in supportbased 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 to ensure that we generate appropriate risk-adjusted returns and are adequately compensated for the risk appetite.we are taking. When considering pricing, various granular risk-based factors are considered such as expected loss rates, loss volatility, anticipated operating costs, and targeted returns on equity. We carefully monitor credit losses and trends in credit losses in conjunction with pricing at contract inception. While we have seen an increase in provision expense and charge-offs in our consumer automotive loan portfolio over the past year in part due to deteriorating credit performance in our lower credit tiers, this increase was also a result of a deliberate shift in origination mix designed to achieve a higher risk-adjusted return. We continue to closely monitor our loan performance and profitability performance in light of forecasted economic conditions, and manage credit risk and expectations of losses in the portfolio.
We manage credit risk based on the risk profile of the borrower, the source of repayment, the underlying collateral, and current market conditions. We monitor the credit risk profile of individual borrowers and the aggregate portfolio of borrowers either within a designated geographic region or a particular product or industry segment. We perform quarterly analyses of the consumer automotive, consumer mortgage, and commercial portfolios using a range of indicators to assess the adequacy of the allowance for loan losses based on historical and current trends. Refer to Note 78 to the Condensed Consolidated Financial Statements for additional information.
Additionally, we utilize numerous collection strategies to mitigate loss and provide ongoing support to customers in financial distress. For 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 extension of the loan maturity date and rewriting the loan terms. For mortgage loans, as part of our participation in certain governmental programs, we offer mortgage loan modifications to qualified borrowers. Numerous initiatives 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 counterparty credit exposure based on the risk profile of the counterparty. Within our policies, we have established standards and requirements for managing counterparty risk exposures in a safe-and-sound manner. Counterparty credit risk is derived from multiple exposure types, including derivatives, securities trading, securities financing transactions, financial futures, cash balances (e.g., due from depository institutions, restricted accounts, and cash equivalents), and investment in debt securities. For more information on derivative counterparty credit risk, refer to Note 2019 to the Condensed Consolidated Financial Statements.
We closely monitor macro-economic trends given the nature of our business and the potential impacts on our exposure to credit risk. During the three months and six months ended June 30, 2016,March 31, 2017, the U.S. economy continued to expand.modestly expand and consumer confidence remained strong. The labor market recovered furtherremained healthy during the period, with nonfarm payrolls increasing and the annual unemployment rate falling to 4.9%4.5% as of June 30, 2016.March 31, 2017. Within the U.S. automotive market, new light vehicle sales flattened, resulting inremained at historic highs, but were relatively flat year over year at a 17.1Seasonally Adjusted Annual Rate of 17.2 million annual pace for the three months ended June 30, 2016.March 31, 2017. We continue to experience downward pressure on used vehicle values and expect that to continue throughout 2017.
On-balance Sheet Portfolio
Our on-balance sheet portfolio includes both finance receivables and loans and loans held-for-sale. At June 30, 2016March 31, 2017, this primarily included $98.5104.6 billion of automotive finance receivables and loans and $11.110.9 billion of consumer mortgage finance receivables and loans. Our ongoing Mortgage Finance operations are limited toconsist of the management of our held-for-investment mortgage loan portfolio. During the three months and six months ended June 30, 2016, we continued to executeportfolio which includes bulk purchases of high-quality jumbo and LMI mortgage loans. In late 2016, we introduced direct mortgage originations consisting of jumbo mortgage loans that are originated as held-for-investment and conforming mortgage loans that are originated as held-for-sale.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
The following table presents our total on-balance sheet consumer and commercial finance receivables and loans.
| | | | Outstanding | | Nonperforming (a) | | Accruing past due 90 days or more | | Outstanding | | Nonperforming (a) | | Accruing past due 90 days or more |
($ in millions) | | June 30, 2016 | | December 31, 2015 | | June 30, 2016 | | December 31, 2015 | | June 30, 2016 | | December 31, 2015 | | March 31, 2017 | | December 31, 2016 | | March 31, 2017 | | December 31, 2016 | | March 31, 2017 | | December 31, 2016 |
Consumer | | | | | | | | | | | | | | | | | | | | | | | | |
Finance receivables and loans | | | | | | | | | | | | | | | | | | | | | | | | |
Loans at gross carrying value | | $ | 74,365 |
| | $ | 74,065 |
| | $ | 612 |
| | $ | 603 |
| | $ | — |
| | $ | — |
| | $ | 76,600 |
| | $ | 76,843 |
| | $ | 678 |
| | $ | 697 |
| | $ | — |
| | $ | — |
|
Loans at fair value | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Total finance receivables and loans | | 74,365 |
| | 74,065 |
| | 612 |
| | 603 |
| | — |
| | — |
| |
Loans held-for-sale | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total consumer loans (b) | | 74,365 |
| | 74,065 |
| | 612 |
| | 603 |
| | — |
| | — |
| | 76,601 |
| | 76,843 |
| | 678 |
| | 697 |
| | — |
| | — |
|
Commercial | | | | | | | | | | | | | | | | | | | | | | | | |
Finance receivables and loans | | | | | | | | | | | | | | | | | | | | | | | | |
Loans at gross carrying value | | 38,288 |
| | 37,535 |
| | 122 |
| | 77 |
| | — |
| | — |
| | 42,402 |
| | 42,101 |
| | 120 |
| | 122 |
| | — |
| | — |
|
Loans held-for-sale | | 15 |
| | 105 |
| | — |
| | — |
| | — |
| | — |
| |
Total commercial loans | | 38,303 |
|
| 37,640 |
|
| 122 |
|
| 77 |
|
| — |
|
| — |
| | 42,402 |
|
| 42,101 |
|
| 120 |
|
| 122 |
|
| — |
|
| — |
|
Total on-balance sheet loans | | $ | 112,668 |
| | $ | 111,705 |
| | $ | 734 |
| | $ | 680 |
| | $ | — |
| | $ | — |
| | $ | 119,003 |
| | $ | 118,944 |
| | $ | 798 |
| | $ | 819 |
| | $ | — |
| | $ | — |
|
| |
(a) | Includes nonaccrual TDR loans of $269$310 million and $277$286 million at June 30, 2016March 31, 2017, and December 31, 20152016, respectively. |
| |
(b) | Includes outstanding CSG loans of $6.2$6.8 billion and $6.7 billion at both June 30, 2016March 31, 2017, and December 31, 20152016, respectively, and RV loans of $1.6 billion and $1.5$1.7 billion at both June 30, 2016March 31, 2017, and December 31, 20152016, respectively.. |
Total on-balance sheet loans outstanding at June 30, 2016March 31, 2017, increased $96359 million to $112.7119.0 billion from December 31, 20152016, reflecting an increase of $663$301 million in the commercial portfolio and an increasea decrease of $300$242 million in the consumer portfolio. The increase in commercial on-balance sheet loans outstanding was primarily driven bydue to the growth in our Corporate Finance portfolio in line with our business strategy.strategy, as well as the ongoing demand for automotive dealer term loans. The increasedecrease in consumer on-balance sheet loans was primarily drivendue to the completion of $1.2 billion in loan sales and off-balance sheet securitizations of consumer automotive assets, mostly offset by the execution of bulk purchases of high-quality jumbo and LMI mortgage loans totaling $2.4 billionour loan originations that outpaced portfolio runoff during the sixthree months ended June 30, 2016.March 31, 2017.
Total TDRs outstanding at June 30, 2016,March 31, 2017, increased $19$41 million to $644$704 million from December 31, 20152016. Refer to Note 78 to the Condensed Consolidated Financial Statements for additional information.
Total nonperforming loans at June 30, 2016March 31, 2017, increaseddecreased $5421 million to $734798 million from December 31, 20152016, reflecting an increasea decrease of $45$19 million of consumer nonperforming loans and a decrease of $2 million of commercial nonperforming loans and an increase of $9 million of consumer nonperforming loans. The increasedecrease in total nonperforming loans from December 31, 2015,2016, was primarily due to the downgradeseasonality of three accounts within the commercial and industrialconsumer automotive portfolio. Nonperforming loans include finance receivables and loans on nonaccrual status when the principal or interest has been delinquent for 90 days or when full collection is determined not to be probable. Refer to Note 1 to the Annual Consolidated Financial Statements included in our 2016 Annual Report on Form 10-K for additional information.
The following table includes consumer and commercial net charge-offs from finance receivables and loans at gross carrying value and related ratios.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
| | Net charge-offs (recoveries) | | Net charge-off ratios (a) | | Net charge-offs (recoveries) | | Net charge-off ratios (a) | | Net charge-offs (recoveries) | | Net charge-off ratios (a) |
($ in millions) | | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 | |
($ in millions) | | | 2017 | | 2016 | | 2017 | | 2016 |
Consumer | | $ | 152 |
| | $ | 100 |
| | 0.8 | % | | 0.6 | % | | $ | 331 |
| | $ | 251 |
| | 0.9 | % | | 0.8 | % | | $ | 253 |
| | $ | 179 |
| | 1.3 | % | | 1.0 | % |
Commercial | | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total finance receivables and loans at gross carrying value | | $ | 152 |
| | $ | 100 |
| | 0.5 | % | | 0.4 | % | | $ | 331 |
| | $ | 250 |
| | 0.6 | % | | 0.5 | % | | $ | 253 |
| | $ | 179 |
| | 0.9 |
| | 0.6 |
|
| |
(a) | Net charge-off ratios are calculated as annualized 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. |
Net charge-offs were $152253 million and $331 million for the three months and six months ended June 30, 2016March 31, 2017, compared to $100179 million and $250 million for the three months and six months ended June 30, 2015March 31, 2016. The increasesincrease during the three months and six months ended June 30, 2016March 31, 2017, werewas driven primarily by the change in our consumer automotive portfolio composition as we continued the executionseasoning of recent vintages reflecting our underwriting strategy to originate consumer automotive assets across a broad risk spectrum.
Management's Discussionspectrum and Analysis
Ally Financial Inc. • Form 10-Q
expand our risk-adjusted returns, as well as lower average sales proceeds on repossessed vehicles.
The following discussions titled Consumer Credit Portfolio and Commercial Credit Portfolio discussions that follow relate to consumer and commercial finance receivables and loans recorded at gross carrying value. Finance receivables and loans recorded at gross carrying value have an associated allowance for loan losses.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Consumer Credit Portfolio
During the three months and six months endedJune 30, 2016, March 31, 2017, the credit performance of the consumer portfolio remained strong and reflectsreflected both the continued execution of our underwriting strategy to originate consumer automotive assets across a broad risk spectrum, including used, higher LTV, used, nonprime, extended term, Growth channel, nonprime, and nonsubvented finance receivables and loans, and our continued execution of bulk purchases of high-quality jumbo and LMI mortgage loans. Within our consumer automotive portfolio, we have observed deteriorating performance in the lower credit tiers of the portfolio versus expectations. The carrying value of our nonprime consumer automotive loans before allowance for loan losses represented approximately 13.7% of our total consumer automotive loans at March 31, 2017, compared to approximately 13.8% at December 31, 2016. For information on our consumer credit risk practices and policies regarding delinquencies, nonperforming status, and charge-offs, refer to Note 1 to the Annual Consolidated Financial Statements. included in our 2016 Annual Report on 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 | | Outstanding | | Nonperforming (a) | | Accruing past due 90 days or more |
($ in millions) | | June 30, 2016 | | December 31, 2015 | | June 30, 2016 | | December 31, 2015 | | June 30, 2016 | | December 31, 2015 | |
($ in millions) | | | March 31, 2017 | | December 31, 2016 | | March 31, 2017 | | December 31, 2016 | | March 31, 2017 | | December 31, 2016 |
Consumer automotive (b) (c) | | $ | 63,281 |
| | $ | 64,292 |
| | $ | 505 |
| | $ | 475 |
| | $ | — |
| | $ | — |
| | $ | 65,663 |
| | $ | 65,793 |
| | $ | 573 |
| | $ | 598 |
| | $ | — |
| | $ | — |
|
Consumer mortgage | | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage Finance | | 8,009 |
| | 6,413 |
| | 12 |
| | 15 |
| | — |
| | — |
| | 8,331 |
| | 8,294 |
| | 10 |
| | 10 |
| | — |
| | — |
|
Mortgage — Legacy | | 3,075 |
| | 3,360 |
| | 95 |
| | 113 |
| | — |
| | — |
| | 2,606 |
| | 2,756 |
| | 95 |
| | 89 |
| | — |
| | — |
|
Total consumer finance receivables and loans | | $ | 74,365 |
| | $ | 74,065 |
| | $ | 612 |
| | $ | 603 |
| | $ | — |
| | $ | — |
| | $ | 76,600 |
| | $ | 76,843 |
| | $ | 678 |
| | $ | 697 |
| | $ | — |
| | $ | — |
|
| |
(a) | Includes nonaccrual TDR loans of $227$243 million and $233$240 million at June 30, 2016March 31, 2017, and December 31, 20152016, respectively. |
| |
(b) | Includes $88$34 million and $66$43 million of fair value adjustment for loans in hedge accounting relationships at June 30, 2016,March 31, 2017, and December 31, 2015,2016, respectively. Refer to Note 2019 to the Condensed Consolidated Financial Statements for additional information. |
| |
(c) | Includes outstanding CSG loans of $6.2$6.8 billion and $6.7 billion at both June 30, 2016March 31, 2017, and December 31, 20152016, respectively, and RV loans of $1.6 billion and $1.5$1.7 billion at both June 30, 2016March 31, 2017, and December 31, 20152016. |
Total consumer outstanding finance receivables and loans increaseddecreased $300243 million at June 30, 2016March 31, 2017, compared with December 31, 20152016. The increase in consumer mortgage finance receivables and loans was primarily due to growth in the Mortgage Finance portfolio due to the execution of bulk loan purchases, which outpaced total consumer mortgage portfolio runoff. The decrease in consumer automotive finance receivables and loans was primarily related to the completion of $4.2$1.2 billion in loan sales and off-balance sheet securitizations, of higher quality prime assets, largelywhich was mostly offset by our loan originations whichthat outpaced portfolio runoff.runoff during the three months ended March 31, 2017. The decrease in consumer mortgage finance receivables and loans was primarily due to runoff in the legacy mortgage loan portfolio.
Total consumer nonperforming finance receivables and loans at June 30, 2016March 31, 2017, increaseddecreased $919 million to $612678 million from December 31, 20152016, reflecting an increasea decrease of $30$25 million of consumer automotive finance receivables and loans and a decreasean increase of $21$6 million of consumer mortgage nonperforming finance receivables and loans. The increasedecrease in nonperforming consumer automotive finance receivables and loans was primarily due to the change in our portfolio composition as we continued the execution of our underwriting strategy to expand our originations across a broad risk spectrum.seasonality. The decreaseincrease in nonperforming consumer mortgage finance receivables and loans was primarily due to fewer accounts deteriorating into nonperforming status due to continued improvementthe increase in TDRs during the macroeconomic environment, and the liquidation of certain nonperforming accounts.period. Refer to Note 78 to the Condensed Consolidated Financial Statements for additional information. Nonperforming consumer finance receivables and loans as a percentage of total outstanding consumer finance receivables and loans were 0.8%0.9% at both June 30, 2016March 31, 2017, and December 31, 20152016.
Consumer automotive loans accruing and past due 30 days or more decreased $243$608 million to $1.6 billion at June 30, 2016March 31, 2017, compared with December 31, 20152016, primarily resulting from seasonality but also due to our collections efforts (e.g., customer contact strategies and tools such as email, text messaging and chat as well as loan extensions and rewrites).seasonality.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
The following table includes consumer net charge-offs from finance receivables and loans at gross carrying value and related ratios.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
| | Net charge-offs | | Net charge-off ratios (a) | | Net charge-offs | | Net charge-off ratios (a) | | Net charge-offs | | Net charge-off ratios (a) |
($ in millions) | | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 | |
($ in millions) | | | 2017 | | 2016 | | 2017 | | 2016 |
Consumer automotive | | $ | 148 |
| | $ | 96 |
| | 0.9 | % | | 0.6 | % | | $ | 321 |
| | $ | 228 |
| | 1.0 | % | | 0.8 | % | | $ | 251 |
| | $ | 173 |
| | 1.5 | % | | 1.1 | % |
Consumer mortgage | | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage Finance | | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | 0.1 |
| | — |
| | — |
| | — |
| | — |
|
Mortgage — Legacy | | 4 |
| | 4 |
| | 0.5 |
| | 0.4 |
| | 10 |
| | 22 |
| | 0.6 |
| | 1.2 |
| | 2 |
| | 6 |
| | 0.2 |
| | 0.7 |
|
Total consumer finance receivables and loans | | $ | 152 |
| | $ | 100 |
| | 0.8 | % | | 0.6 | % | | $ | 331 |
| | $ | 251 |
| | 0.9 | % | | 0.8 | % | | $ | 253 |
| | $ | 179 |
| | 1.3 |
| | 1.0 |
|
| |
(a) | Net charge-off ratios are calculated as annualized 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 $152 million and $331$253 million for the three months and six months ended June 30, 2016March 31, 2017, compared to $100 million and $251$179 million for the three months and six months ended June 30, 2015March 31, 2016. The increasesincrease during the three months and six months ended June 30, 2016, were March 31, 2017, was
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
driven primarily by the change in our automotive portfolio composition as we continued the executionseasoning of recent vintages reflecting our underwriting strategy to originate consumer automotive assets across a broad risk spectrum.spectrum and expand our risk-adjusted returns, as well as lower average sales proceeds on repossessed vehicles.
The following table summarizes the unpaid principal balance of total consumer loan originations for the periods shown. Total consumer loan originations include loans classified as finance receivables and loans and loans held-for-sale during the period.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
($ in millions) | | 2016 | | 2015 | | 2016 | | 2015 | |
($ in millions) | | | 2017 | | 2016 |
Consumer automotive (a) | | $ | 8,516 |
| | $ | 9,843 |
| | $ | 16,724 |
| | $ | 18,044 |
| | $ | 7,941 |
| | $ | 8,208 |
|
Consumer mortgage(a) | | 3 |
| | — |
| | 7 |
| | — |
| | 3 |
| | 4 |
|
Total consumer loan originations | | $ | 8,519 |
| | $ | 9,843 |
| | $ | 16,731 |
| | $ | 18,044 |
| | $ | 7,944 |
| | $ | 8,212 |
|
| |
(a) | Includes $1.2 billion$3 million of loans originated as held-for-sale during the first quarter of 2015.held-for-sale. |
Total automotive-originated loans decreased $267 million for the three months ended March 31, 2017, compared to 2016, as we continued to execute our strategic focus of selective originations based on improved risk-adjusted returns.
The following table shows the percentage of total consumer finance receivables and loans recorded at gross carrying value by state concentration. Total consumer automotive loans were $63.365.7 billion and $64.365.8 billion at June 30, 2016March 31, 2017, and December 31, 20152016, respectively. Total mortgage and home equity loans were $11.1$10.9 billion and $9.8$11.1 billion at June 30, 2016March 31, 2017, and December 31, 20152016, respectively.
| |
|
| June 30, 2016 (a) |
| December 31, 2015 |
| March 31, 2017 (a) |
| December 31, 2016 |
|
| Consumer automotive |
| Consumer mortgage |
| Consumer automotive |
| Consumer mortgage |
| Consumer automotive |
| Consumer mortgage |
| Consumer automotive |
| Consumer mortgage |
Texas |
| 13.7 | % |
| 6.4 | % |
| 13.7 | % |
| 6.2 | % |
| 13.5 | % |
| 6.6 | % |
| 13.6 | % |
| 6.6 | % |
California |
| 7.6 |
|
| 34.4 |
|
| 7.3 |
|
| 33.6 |
|
| 7.9 |
|
| 34.4 |
|
| 7.8 |
|
| 34.2 |
|
Florida |
| 8.0 |
|
| 4.1 |
|
| 7.7 |
|
| 4.1 |
| | 8.2 |
| | 4.4 |
| | 8.2 |
| | 4.4 |
|
Pennsylvania |
| 4.8 |
|
| 1.5 |
|
| 5.0 |
|
| 1.5 |
|
| 4.7 |
|
| 1.4 |
|
| 4.7 |
|
| 1.5 |
|
Illinois |
| 4.3 |
|
| 3.5 |
|
| 4.4 |
|
| 4.1 |
|
| 4.3 |
|
| 3.4 |
|
| 4.3 |
|
| 3.4 |
|
Georgia |
| 4.4 |
|
| 2.2 |
|
| 4.4 |
|
| 2.2 |
|
| 4.3 |
|
| 2.3 |
|
| 4.3 |
|
| 2.2 |
|
North Carolina |
| 3.6 |
|
| 1.6 |
|
| 3.6 |
|
| 1.8 |
|
| 3.7 |
|
| 1.5 |
|
| 3.6 |
|
| 1.6 |
|
Ohio |
| 3.6 |
|
| 0.5 |
|
| 3.7 |
|
| 0.6 |
|
| 3.5 |
|
| 0.5 |
|
| 3.5 |
|
| 0.5 |
|
New York |
| 3.3 |
|
| 1.8 |
|
| 3.5 |
|
| 1.9 |
|
| 3.1 |
|
| 1.9 |
|
| 3.2 |
|
| 1.9 |
|
Michigan |
| 2.8 |
|
| 2.0 |
|
| 3.1 |
|
| 2.4 |
| |
Missouri | |
| 2.8 |
|
| 1.2 |
|
| 2.8 |
|
| 1.2 |
|
Other United States |
| 43.9 |
|
| 42.0 |
|
| 43.6 |
|
| 41.6 |
|
| 44.0 |
|
| 42.4 |
|
| 44.0 |
|
| 42.5 |
|
Total consumer loans | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 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 June 30, 2016March 31, 2017. |
We monitor our consumer loan portfolio for concentration risk across the geographiesstates in which we lend. The highest concentrations of consumer loans are in Texas and California, which represented an aggregate of 24.2%24.3% and 23.5%24.2% of our total outstanding consumer finance receivables and loans at June 30, 2016March 31, 2017, and December 31, 20152016, 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.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Repossessed and Foreclosed Assets
We classify an asset as repossessed or foreclosed (included in other assets on the Condensed Consolidated Balance Sheet)Sheet) when physical possession of the collateral is taken, which includes the transfer of title through foreclosure or other similar proceedings.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 Annual Consolidated Financial Statements. included in our 2016 Annual Report on Form 10-K.
Repossessed consumer automotive loan assets in our Automotive Finance operations at June 30, 2016March 31, 2017, decreased $4$14 million to $118$121 million from December 31, 20152016. Foreclosed mortgage assets at June 30, 2016March 31, 2017, decreased $1remained flat at $13 million as compared to $9 million from December 31, 20152016.
Commercial Credit Portfolio
During the three months and six months endedJune 30, 2016, March 31, 2017, the credit performance of the commercial portfolio remained strong, as nonperforming finance receivables and loans remained lowrelatively stable and no net charge-offs were realized. For information on our commercial credit risk practices and policies regarding delinquencies, nonperforming status, and charge-offs, refer to Note 1 to the Annual Consolidated Financial Statements. included in our 2016 Annual Report on Form 10-K.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
The following table includes total commercial finance receivables and loans reported at gross carrying value.
| | | | Outstanding | | Nonperforming (a) | | Accruing past due 90 days or more | | Outstanding | | Nonperforming (a) | | Accruing past due 90 days or more |
($ in millions) | | June 30, 2016 | | December 31, 2015 | | June 30, 2016 | | December 31, 2015 | | June 30, 2016 | | December 31, 2015 | |
($ in millions) | | | March 31, 2017 | | December 31, 2016 | | March 31, 2017 | | December 31, 2016 | | March 31, 2017 | | December 31, 2016 |
Commercial and industrial | | | | | | | | | | | | | | | | | | | | | | | | |
Automotive | | $ | 31,640 |
| | $ | 31,469 |
| | $ | 51 |
|
| $ | 25 |
|
| $ | — |
|
| $ | — |
| | $ | 34,911 |
| | $ | 35,041 |
| | $ | 34 |
|
| $ | 33 |
|
| $ | — |
|
| $ | — |
|
Other (b) | | 3,037 |
| | 2,640 |
| | 64 |
|
| 44 |
|
| — |
|
| — |
| | 3,499 |
| | 3,248 |
| | 81 |
|
| 84 |
|
| — |
|
| — |
|
Commercial real estate — Automotive | | 3,611 |
| | 3,426 |
| | 7 |
|
| 8 |
|
| — |
|
| — |
| | 3,992 |
| | 3,812 |
| | 5 |
|
| 5 |
|
| — |
|
| — |
|
Total commercial finance receivables and loans | | $ | 38,288 |
| | $ | 37,535 |
| | $ | 122 |
| | $ | 77 |
| | $ | — |
| | $ | — |
| | $ | 42,402 |
| | $ | 42,101 |
| | $ | 120 |
| | $ | 122 |
| | $ | — |
| | $ | — |
|
| |
(a) | Includes nonaccrual TDR loans of $42$67 million and $44$46 million at June 30, 2016March 31, 2017, and December 31, 20152016, respectively. |
| |
(b) | Other commercial primarily includes senior secured commercial lending. |
Total commercial finance receivables and loans outstanding increased $753301 million from December 31, 20152016, to $38.3$42.4 billion at June 30, 2016March 31, 2017. The increase was primarily due to the growth in our Corporate Finance portfolio in line with our business strategy, as well as the ongoing demand for automotive dealer term loans and growth of wholesale floorplan finance receivables.loans.
Total commercial nonperforming finance receivables and loans were $122$120 million at June 30, 2016,March 31, 2017, reflecting an increasea decrease of $45$2 million when compared to December 31, 2015.2016. The increasedecrease was primarily due to the downgrade of three accountspayments received on loans within the commercialCorporate Finance portfolio. Credit performance within the Corporate Finance portfolio remains strong as impaired loans declined to 2.4% of the portfolio at March 31, 2017, as compared to 2.6% at December 31, 2016. Additionally, there were no net charge-offs within the Corporate Finance portfolio during both the three months ended March 31, 2017, and industrial portfolio. However, nonperforming2016. Nonperforming commercial finance receivables and loans as a percentage of outstanding commercial finance receivables and loans remained stableflat at 0.3% at both June 30, 2016March 31, 2017, compared to 0.2% atand December 31, 20152016.
The following table includes total commercialOur net charge-offs from total commercial finance receivables and loans at gross carrying valueresulted in no net charge-offs for both the three months ended March 31, 2017, and related ratios.March 31, 2016.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
| | Net charge-offs (recoveries) | | Net charge-off ratios (a) | | Net (recoveries) charge-offs | | Net charge-off ratios (a) |
($ in millions) | | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 |
Commercial and industrial |
|
|
|
|
|
|
|
| | | | | | | | |
Automotive |
| $ | — |
|
| $ | 1 |
|
| — | % |
| — | % | | $ | — |
| | $ | — |
| | — | % | | — | % |
Other |
| — |
|
| (1 | ) |
| — |
|
| (0.1 | ) | | — |
| | (1 | ) | | — |
| | (0.1 | ) |
Total commercial finance receivables and loans |
| $ | — |
|
| $ | — |
|
| — | % |
| — | % | | $ | — |
| | $ | (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. |
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 $3.6$4.0 billion and $3.4$3.8 billion at June 30, 2016March 31, 2017, and December 31, 20152016, respectively.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
The following table presents the percentage of total commercial real estate finance receivables and loans by state concentration. These finance receivables and loans are reported at gross carrying value.
| | | | June 30, 2016 | | December 31, 2015 | | March 31, 2017 | | December 31, 2016 |
Texas | | 17.3 | % | | 17.7 | % | | 15.7 | % | | 16.1 | % |
Florida | | 10.3 |
| | 10.0 |
| | 10.4 |
| | 10.2 |
|
California | | 8.1 |
| | 8.7 |
| | 8.3 |
| | 7.9 |
|
Michigan | | 7.7 |
| | 8.9 |
| | 7.6 |
| | 7.6 |
|
New Jersey | | 4.5 |
| | 2.1 |
| | 3.9 |
| | 4.2 |
|
South Carolina | | | 3.9 |
| | 2.7 |
|
North Carolina | | | 3.6 |
| | 3.6 |
|
Georgia | | 3.7 |
| | 3.6 |
| | 3.5 |
| | 3.6 |
|
North Carolina | | 3.6 |
| | 3.8 |
| |
Pennsylvania | | 3.4 |
| | 3.4 |
| | 3.0 |
| | 3.1 |
|
New York | | 2.7 |
| | 3.1 |
| |
South Carolina | | 2.7 |
| | 2.2 |
| |
Missouri | | | 2.6 |
| | 2.5 |
|
Other United States | | 36.0 |
| | 36.5 |
| | 37.5 |
| | 38.5 |
|
Total commercial real estate finance receivables and loans | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Commercial Criticized Exposure
Finance receivables and loans classified as special mention, substandard, or doubtful are deemedreported 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 $203 million from December 31, 2016, to $2.9 billion at March 31, 2017. The increase was primarily due to the downgrade of one account within the commercial automotive portfolio.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
The following table presents the percentage of total commercial criticized finance receivables and loans by industry concentrations.concentration. These finance receivables and loans within our automotive and Corporate Finance portfolios are reported at gross carrying value.
| |
|
| June 30, 2016 |
| December 31, 2015 |
| March 31, 2017 | | December 31, 2016 |
Industry |
|
|
|
|
|
|
|
|
Automotive |
| 78.7 | % |
| 80.5 | % |
| 81.6 | % |
| 81.2 | % |
Manufacturing |
| 8.2 |
|
| 7.8 |
| |
Services |
| 5.0 |
|
| 5.3 |
|
| 6.6 |
|
| 6.3 |
|
Electronics | |
| 2.5 |
|
| 4.2 |
|
Other |
| 8.1 |
|
| 6.4 |
|
| 9.3 |
|
| 8.3 |
|
Total commercial criticized finance receivables and loans | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Total criticized exposures increased $316 million from December 31, 2015, to $2.9 billion at June 30, 2016. The increase was primarily due to the overall growth of the Corporate Finance portfolio and the downgrade of one account within the commercial automotive portfolio.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Allowance for Loan Losses
The following tables present an analysis of the activity in the allowance for loan losses on finance receivables and loans.
|
| | | | | | | | | | | | | | | | | | | | |
Three months ended June 30, 2016 ($ in millions) |
| Consumer automotive |
| Consumer mortgage |
| Total consumer |
| Commercial |
| Total |
Allowance at April 1, 2016 |
| $ | 850 |
|
| $ | 115 |
|
| $ | 965 |
|
| $ | 112 |
|
| $ | 1,077 |
|
Charge-offs |
| (227 | ) |
| (9 | ) |
| (236 | ) |
| (1 | ) |
| (237 | ) |
Recoveries |
| 79 |
|
| 5 |
|
| 84 |
|
| 1 |
|
| 85 |
|
Net charge-offs |
| (148 | ) |
| (4 | ) |
| (152 | ) |
| — |
|
| (152 | ) |
Provision for loan losses |
| 168 |
|
| (2 | ) |
| 166 |
|
| 6 |
|
| 172 |
|
Other (a) |
| (8 | ) |
| — |
|
| (8 | ) |
| — |
|
| (8 | ) |
Allowance at June 30, 2016 |
| $ | 862 |
|
| $ | 109 |
|
| $ | 971 |
|
| $ | 118 |
|
| $ | 1,089 |
|
Allowance for loan losses to finance receivables and loans outstanding at June 30, 2016 (b) |
| 1.4 | % |
| 1.0 | % |
| 1.3 | % |
| 0.3 | % |
| 1.0 | % |
Net charge-offs to average finance receivables and loans outstanding for the three months ended June 30, 2016 (b) |
| 0.9 | % |
| 0.1 | % |
| 0.8 | % |
| — | % |
| 0.5 | % |
Allowance for loan losses to total nonperforming finance receivables and loans at June 30, 2016 (b) |
| 170.7 | % |
| 102.1 | % |
| 158.7 | % |
| 96.8 | % |
| 148.4 | % |
Ratio of allowance for loan losses to net charge-offs at June 30, 2016 |
| 1.5 |
|
| 7.6 |
|
| 1.6 |
|
| n/m |
|
| 1.8 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2017 ($ in millions) |
| Consumer automotive |
| Consumer mortgage |
| Total consumer |
| Commercial |
| Total |
Allowance at January 1, 2017 |
| $ | 932 |
|
| $ | 91 |
|
| $ | 1,023 |
|
| $ | 121 |
|
| $ | 1,144 |
|
Charge-offs (a) |
| (341 | ) |
| (9 | ) |
| (350 | ) |
| — |
|
| (350 | ) |
Recoveries |
| 90 |
|
| 7 |
|
| 97 |
|
| — |
|
| 97 |
|
Net charge-offs |
| (251 | ) |
| (2 | ) |
| (253 | ) |
| — |
|
| (253 | ) |
Provision for loan losses |
| 267 |
|
| (3 | ) |
| 264 |
|
| 7 |
|
| 271 |
|
Other (b) |
| (7 | ) |
| — |
|
| (7 | ) |
| — |
|
| (7 | ) |
Allowance at March 31, 2017 |
| $ | 941 |
|
| $ | 86 |
|
| $ | 1,027 |
|
| $ | 128 |
|
| $ | 1,155 |
|
Allowance for loan losses to finance receivables and loans outstanding at March 31, 2017 (c) |
| 1.4 | % |
| 0.8 | % |
| 1.3 | % |
| 0.3 | % |
| 1.0 | % |
Net charge-offs to average finance receivables and loans outstanding for the three months ended March 31, 2017 |
| 1.5 | % |
| 0.1 | % |
| 1.3 | % |
| — | % |
| 0.9 | % |
Allowance for loan losses to total nonperforming finance receivables and loans at March 31, 2017 (c) |
| 164.3 | % |
| 82.2 | % |
| 151.6 | % |
| 106.2 | % |
| 144.8 | % |
Ratio of allowance for loan losses to net charge-offs at March 31, 2017 |
| 0.9 |
|
| 10.2 |
|
| 1.0 |
|
| n/m |
|
| 1.1 |
|
n/m = not meaningful
| |
(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 included in our 2016 Annual Report on Form 10-K 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. |
| |
(b)(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 unpaid principal balance, net of premiums and discounts.gross carrying value. |
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | | | | | | | | | | | | | |
Three months ended June 30, 2015 ($ in millions) |
| Consumer automotive |
| Consumer mortgage |
| Total consumer |
| Commercial |
| Total |
Allowance at April 1, 2015 |
| $ | 711 |
|
| $ | 119 |
|
| $ | 830 |
|
| $ | 103 |
|
| $ | 933 |
|
Charge-offs |
| (166 | ) |
| (9 | ) |
| (175 | ) |
| — |
|
| (175 | ) |
Recoveries |
| 70 |
|
| 5 |
|
| 75 |
|
| — |
|
| 75 |
|
Net charge-offs |
| (96 | ) |
| (4 | ) |
| (100 | ) |
| — |
|
| (100 | ) |
Provision for loan losses |
| 152 |
|
| 3 |
|
| 155 |
|
| (15 | ) |
| 140 |
|
Other |
| — |
|
| 1 |
|
| 1 |
|
| — |
|
| 1 |
|
Allowance at June 30, 2015 |
| $ | 767 |
|
| $ | 119 |
|
| $ | 886 |
|
| $ | 88 |
|
| $ | 974 |
|
Allowance for loan losses to finance receivables and loans outstanding at June 30, 2015 (a) |
| 1.3 | % |
| 1.3 | % |
| 1.3 | % |
| 0.3 | % |
| 0.9 | % |
Net charge-offs to average finance receivables and loans outstanding for the three months ended June 30, 2015 (a) |
| 0.6 | % |
| 0.2 | % |
| 0.6 | % |
| — | % |
| 0.4 | % |
Allowance for loan losses to total nonperforming finance receivables and loans at June 30, 2015 (a) |
| 198.5 | % |
| 75.8 | % |
| 163.1 | % |
| 89.0 | % |
| 151.6 | % |
Ratio of allowance for loan losses to net charge-offs at June 30, 2015 |
| 2.0 |
|
| 7.5 |
|
| 2.2 |
|
| n/m |
|
| 2.4 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2016 ($ in millions) |
| Consumer automotive |
| Consumer mortgage |
| Total consumer |
| Commercial |
| Total |
Allowance at January 1, 2016 |
| $ | 834 |
|
| $ | 114 |
|
| $ | 948 |
|
| $ | 106 |
|
| $ | 1,054 |
|
Charge-offs (a) |
| (253 | ) |
| (10 | ) |
| (263 | ) |
| — |
|
| (263 | ) |
Recoveries |
| 80 |
|
| 4 |
|
| 84 |
|
| — |
|
| 84 |
|
Net charge-offs |
| (173 | ) |
| (6 | ) |
| (179 | ) |
| — |
|
| (179 | ) |
Provision for loan losses |
| 207 |
|
| 7 |
|
| 214 |
|
| 6 |
|
| 220 |
|
Other (b) |
| (18 | ) |
| — |
|
| (18 | ) |
| — |
|
| (18 | ) |
Allowance at March 31, 2016 |
| $ | 850 |
|
| $ | 115 |
|
| $ | 965 |
|
| $ | 112 |
|
| $ | 1,077 |
|
Allowance for loan losses to finance receivables and loans outstanding at March 31, 2016 (c) |
| 1.3 | % |
| 1.1 | % |
| 1.3 | % |
| 0.3 | % |
| 1.0 | % |
Net charge-offs to average finance receivables and loans outstanding for the three months ended March 31, 2016 |
| 1.1 | % |
| 0.3 | % |
| 1.0 | % |
| — | % |
| 0.6 | % |
Allowance for loan losses to total nonperforming finance receivables and loans at March 31, 2016 (c) |
| 172.9 | % |
| 99.0 | % |
| 158.8 | % |
| 123.3 | % |
| 154.2 | % |
Ratio of allowance for loan losses to net charge-offs at March 31, 2016 |
| 1.2 |
|
| 4.4 |
|
| 1.3 |
|
| n/m |
|
| 1.5 |
|
n/m = not meaningful
| |
(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 included in our 2016 Annual Report on Form 10-K 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 unpaid principal balance, net of premiums and discounts.gross carrying value. |
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | | | | | | | | | | | | | |
Six months ended June 30, 2016 ($ in millions) | | Consumer automotive | | Consumer mortgage | | Total consumer | | Commercial | | Total |
Allowance at January 1, 2016 | | $ | 834 |
| | $ | 114 |
| | $ | 948 |
| | $ | 106 |
| | $ | 1,054 |
|
Charge-offs | | (480 | ) | | (19 | ) | | (499 | ) | | (1 | ) | | (500 | ) |
Recoveries | | 159 |
| | 9 |
| | 168 |
| | 1 |
| | 169 |
|
Net charge-offs | | (321 | ) | | (10 | ) | | (331 | ) | | — |
| | (331 | ) |
Provision for loan losses | | 375 |
| | 5 |
| | 380 |
| | 12 |
| | 392 |
|
Other (a) | | (26 | ) | | — |
| | (26 | ) | | — |
| | (26 | ) |
Allowance at June 30, 2016 | | $ | 862 |
| | $ | 109 |
| | $ | 971 |
| | $ | 118 |
| | $ | 1,089 |
|
Allowance for loan losses to finance receivables and loans outstanding at June 30, 2016 (b) | | 1.4 | % | | 1.0 | % | | 1.3 | % | | 0.3 | % | | 1.0 | % |
Net charge-offs to average finance receivables and loans outstanding for the six months ended June 30, 2016 (b) | | 1.0 | % | | 0.2 | % | | 0.9 | % | | — | % | | 0.6 | % |
Allowance for loan losses to total nonperforming finance receivables and loans at June 30, 2016 (b) | | 170.7 | % | | 102.1 | % | | 158.7 | % | | 96.8 | % | | 148.4 | % |
Ratio of allowance for loan losses to annualized net charge-offs at June 30, 2016 | | 1.3 |
| | 5.6 |
| | 1.5 |
| | n/m |
| | 1.6 |
|
n/m = not meaningful
| |
(a) | Primarily related to the transfer of finance receivables and loans from held-for-investment to held-for-sale. |
| |
(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 unpaid principal balance, net of premiums and discounts. |
|
| | | | | | | | | | | | | | | | | | | | |
Six months ended June 30, 2015 ($ in millions) | | Consumer automotive | | Consumer mortgage | | Total consumer | | Commercial | | Total |
Allowance at January 1, 2015 | | $ | 685 |
| | $ | 152 |
| | $ | 837 |
| | $ | 140 |
| | $ | 977 |
|
Charge-offs | | (359 | ) | | (31 | ) | | (390 | ) | | — |
| | (390 | ) |
Recoveries | | 131 |
| | 8 |
| | 139 |
| | 1 |
| | 140 |
|
Net charge-offs | | (228 | ) | | (23 | ) | | (251 | ) | | 1 |
| | (250 | ) |
Provision for loan losses | | 310 |
| | (2 | ) | | 308 |
| | (52 | ) | | 256 |
|
Other (a) | | — |
| | (8 | ) | | (8 | ) | | (1 | ) | | (9 | ) |
Allowance at June 30, 2015 | | $ | 767 |
| | $ | 119 |
| | $ | 886 |
| | $ | 88 |
| | $ | 974 |
|
Allowance for loan losses to finance receivables and loans outstanding at June 30, 2015 (b) | | 1.3 | % | | 1.3 | % | | 1.3 | % | | 0.3 | % | | 0.9 | % |
Net charge-offs to average finance receivables and loans outstanding for the six months ended June 30, 2015 (b) | | 0.8 | % | | 0.6 | % | | 0.8 | % | | — | % | | 0.5 | % |
Allowance for loan losses to total nonperforming finance receivables and loans at June 30, 2015 (b) | | 198.5 | % | | 75.8 | % | | 163.1 | % | | 89.0 | % | | 151.6 | % |
Ratio of allowance for loan losses to net charge-offs at June 30, 2015 | | 1.7 |
| | 2.6 |
| | 1.8 |
| | (35.3 | ) | | 2.0 |
|
| |
(a) | Primarily related to the transfer of finance receivables and loans from held-for-investment to held-for-sale. |
| |
(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 unpaid principal balance, net of premiums and discounts. |
The allowance for consumer loan losses at June 30, 2016, March 31, 2017, increased$85 $62 million compared to June 30, 2015.March 31, 2016. The increase was primarily due to higher reserve requirements reflecting the changechanging composition of the consumer automotive portfolio to a more profitable mix of business consistent with Ally’s underwriting strategy and higher loan balances in our automotive portfolio composition as we continued the execution ofconsumer portfolios. This increase was partially offset by lower reserve balances in our underwriting strategy to originate consumer automotive assets across a broad risk spectrum.mortgage portfolios.
The allowance for commercial loan losses increased$30 $16 million at June 30, 2016,March 31, 2017, compared to June 30, 2015, primarily due to portfolio growth.March 31, 2016, driven by higher loan balances within our commercial portfolios.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Allowance for Loan Losses by Type
The following table summarizes the allocation of the allowance for loan losses by product type.
|
| | | | | | | | | | | | | | | | | | | | |
|
| 2016 |
| 2015 |
June 30, ($ in millions) |
| 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 |
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer automotive |
| $ | 862 |
|
| 1.4 | % |
| 79.2 | % |
| $ | 767 |
|
| 1.3 | % |
| 78.7 | % |
Consumer mortgage |
| | | | | | | | | | | |
Mortgage Finance |
| 18 |
|
| 0.2 |
|
| 1.7 |
|
| 15 |
|
| 0.3 |
|
| 1.5 |
|
Mortgage — Legacy |
| 91 |
|
| 2.9 |
|
| 8.3 |
|
| 104 |
|
| 2.9 |
|
| 10.7 |
|
Total consumer mortgage |
| 109 |
|
| 1.0 |
|
| 10.0 |
|
| 119 |
|
| 1.3 |
|
| 12.2 |
|
Total consumer loans |
| 971 |
|
| 1.3 |
|
| 89.2 |
|
| 886 |
|
| 1.3 |
|
| 90.9 |
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive |
| 31 |
|
| 0.1 |
|
| 2.8 |
|
| 26 |
|
| 0.1 |
|
| 2.7 |
|
Other |
| 61 |
|
| 2.0 |
|
| 5.6 |
|
| 40 |
|
| 1.9 |
|
| 4.1 |
|
Commercial real estate — Automotive |
| 26 |
|
| 0.7 |
|
| 2.4 |
|
| 22 |
|
| 0.7 |
|
| 2.3 |
|
Total commercial loans |
| 118 |
|
| 0.3 |
|
| 10.8 |
|
| 88 |
|
| 0.3 |
|
| 9.1 |
|
Total allowance for loan losses |
| $ | 1,089 |
|
| 1.0 | % |
| 100.0 | % |
| $ | 974 |
|
| 0.9 | % |
| 100.0 | % |
Provision for Loan Losses
The following table summarizes the provision for loan losses by product type.
|
| | | | | | | | | | | | | | | | |
|
| Three months ended June 30, | | Six months ended June 30, |
($ in millions) |
| 2016 |
| 2015 | | 2016 | | 2015 |
Consumer |
|
|
|
| | | | |
Consumer automotive |
| $ | 168 |
|
| $ | 152 |
| | $ | 375 |
| | $ | 310 |
|
Consumer mortgage |
|
|
|
| | | | |
Mortgage Finance |
| — |
|
| 4 |
| | 3 |
| | 6 |
|
Mortgage — Legacy |
| (2 | ) |
| (1 | ) | | 2 |
| | (8 | ) |
Total consumer mortgage |
| (2 | ) |
| 3 |
| | 5 |
| | (2 | ) |
Total consumer loans |
| 166 |
|
| 155 |
| | 380 |
| | 308 |
|
Commercial |
|
|
|
| | | | |
Commercial and industrial |
|
|
|
| | | | |
Automotive |
| 1 |
|
| (18 | ) | | 2 |
| | (40 | ) |
Other |
| 4 |
|
| 5 |
| | 8 |
| | (1 | ) |
Commercial real estate — Automotive |
| 1 |
|
| (2 | ) | | 2 |
| | (11 | ) |
Total commercial loans |
| 6 |
|
| (15 | ) | | 12 |
| | (52 | ) |
Total provision for loan losses |
| $ | 172 |
|
| $ | 140 |
| | $ | 392 |
| | $ | 256 |
|
The provision for consumer loan losses increased $11 million and $72 million for the three months and six months endedJune 30, 2016, respectively, compared to the same periods in 2015. The increases in the consumer automotive portfolio were primarily due to the change in our portfolio composition as we continued the execution of our underwriting strategy to originate consumer automotive assets across a broad risk spectrum. The decrease during the three months ended June 30, 2016, in the consumer mortgage portfolio was primarily due to the continued shift in the portfolio as the run-off of loans within the Mortgage — Legacy portfolio is being replaced by higher quality loans within the Mortgage Finance portfolio. The increase during the six months ended June 30, 2016, in the consumer mortgage portfolio was primarily due to reserve releases in the prior year that did not repeat. The reserve releases in the prior year period were driven by lower reserve requirements due to favorable macroeconomic factors in the Mortgage — Legacy portfolio. |
| | | | | | | | | | | | | | | | | | | | |
|
| 2017 |
| 2016 |
March 31, ($ in millions) |
| 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 |
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer automotive |
| $ | 941 |
|
| 1.4 | % |
| 81.5 | % |
| $ | 850 |
|
| 1.3 | % |
| 78.9 | % |
Consumer mortgage |
| | | | | | | | | | | |
Mortgage Finance |
| 11 |
|
| 0.1 |
|
| 1.0 |
|
| 18 |
|
| 0.2 |
|
| 1.7 |
|
Mortgage — Legacy |
| 75 |
|
| 2.9 |
|
| 6.4 |
|
| 97 |
|
| 3.0 |
|
| 9.0 |
|
Total consumer mortgage |
| 86 |
|
| 0.8 |
|
| 7.4 |
|
| 115 |
|
| 1.1 |
|
| 10.7 |
|
Total consumer loans |
| 1,027 |
|
| 1.3 |
|
| 88.9 |
|
| 965 |
|
| 1.3 |
|
| 89.6 |
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive |
| 33 |
|
| 0.1 |
|
| 2.8 |
|
| 31 |
|
| 0.1 |
|
| 2.9 |
|
Other |
| 70 |
|
| 2.0 |
|
| 6.1 |
|
| 57 |
|
| 2.0 |
|
| 5.3 |
|
Commercial real estate — Automotive |
| 25 |
|
| 0.6 |
|
| 2.2 |
|
| 24 |
|
| 0.7 |
|
| 2.2 |
|
Total commercial loans |
| 128 |
|
| 0.3 |
|
| 11.1 |
|
| 112 |
|
| 0.3 |
|
| 10.4 |
|
Total allowance for loan losses |
| $ | 1,155 |
|
| 1.0 |
|
| 100.0 | % |
| $ | 1,077 |
|
| 1.0 |
|
| 100.0 | % |
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Provision for Loan Losses
The following table summarizes the provision for loan losses by product type.
|
| | | | | | | | |
|
| Three months ended March 31, |
($ in millions) |
| 2017 |
| 2016 |
Consumer |
|
|
|
|
Consumer automotive |
| $ | 267 |
|
| $ | 207 |
|
Consumer mortgage |
|
|
|
|
Mortgage Finance |
| 1 |
|
| 3 |
|
Mortgage — Legacy |
| (4 | ) |
| 4 |
|
Total consumer mortgage |
| (3 | ) |
| 7 |
|
Total consumer loans |
| 264 |
|
| 214 |
|
Commercial |
|
|
|
|
Commercial and industrial |
|
|
|
|
Automotive |
| — |
|
| 1 |
|
Other |
| 6 |
|
| 4 |
|
Commercial real estate — Automotive |
| 1 |
|
| 1 |
|
Total commercial loans |
| 7 |
|
| 6 |
|
Total provision for loan losses |
| $ | 271 |
|
| $ | 220 |
|
The provision for consumer loan losses increased $50 million for the three months endedMarch 31, 2017, compared to 2016. The increase during the three months ended March 31, 2017, is primarily due to higher net charge-offs in our consumer automotive portfolio as a result of our strategy to originate a more profitable mix of business consistent with Ally’s underwriting strategy. The increase was partially offset by lower reserve requirements in our consumer automotive portfolio, lower portfolio growth in our Mortgage Finance portfolio, and lower net charge-offs in our legacy mortgage portfolio.
The provision for commercial loan losses was $6 million and $12$7 million for the three months and six months ended June 30, 2016, respectively,March 31, 2017, compared to net credits of $15 million and $52$6 million for the same periodsperiod in 2015. The increases were primarily due to reserve releases that did not repeat.2016.
Lease Residual Risk Management
We are exposed to residual risk on vehicles in the consumer lease portfolio. This lease residual risk represents the possibility that the actual proceeds realized upon the sale of returned vehicles will be lower than the projection of these values used in establishing the pricing at lease inception. For information on our valuation of automotive lease residuals including periodic revisions through adjustments to depreciation expense based on current and forecasted market conditions, refer to the section titled Critical Accounting Estimates — Valuation of Automotive Lease Assets and Residuals within the MD&A included in our 2016 Annual Consolidated Financial Statements.Report on Form 10-K.
Lease Vehicle Terminations and Remarketing
The following table summarizes the volume of lease terminations and average gain or loss per vehicle, over recent periods, as well as our methods of vehicle sales at lease termination, stated as a percentage of total lease vehicle disposals. The actual gain per vehicle on lease terminations varies based upon the type of vehicle.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended March 31, |
| | 2016 | | 2015 | | 2016 | | 2015 | | 2017 | | 2016 |
Off-lease vehicles terminated (in units) |
| 76,001 |
|
| 64,123 |
| | 154,821 |
| | 129,183 |
|
| 77,761 |
|
| 78,820 |
|
Average gain (loss) per vehicle ($ per unit) |
| $ | 1,126 |
|
| $ | 1,686 |
| | $ | 909 |
| | $ | 1,374 |
| |
Average (loss) gain per vehicle ($ per unit) | |
| $ | (45 | ) |
| $ | 700 |
|
Method of vehicle sales |
|
|
|
| | | | |
|
|
|
|
Auction |
|
|
|
| | | | |
|
|
|
|
Internet |
| 53 | % |
| 46 | % | | 55 | % | | 49 | % |
| 57 | % |
| 57 | % |
Physical |
| 12 |
|
| 11 |
| | 12 |
| | 11 |
|
| 13 |
|
| 13 |
|
Sale to dealer, lessee, and other |
| 35 |
|
| 43 |
| | 33 |
| | 40 |
|
| 30 |
|
| 30 |
|
The number of off-lease vehicles remarketed during the three months and six months endedJune 30, 2016, increased 19% and 20%, March 31, 2017, decreased slightly compared to the same periodsperiod in 2015.2016. The increases inresidual risk associated with our operating lease portfolio should continue to decline as the number of off-lease vehicles remarketed during the three months and six months ended June 30, 2016, reflect a shift of incentive programs from two-year leases in 2012 towards three-year leases in 2013. We expect termination volumeslease terminations continues to increase during the second half of 2016 as three-year leases continue to terminate. In 2018 and beyond, our termination volumes, and therefore our residual risk, should decrease significantly as a direct result of lower GMoutpace lease originations.
Average gain per vehicle decreased for the three months and six months ended June 30, 2016, compared to the same periods in 2015. The decreases for the three months and six months ended June 30, 2016, were primarily due to lower lifetime depreciation recognized on terminated lease vehiclesoriginations as a result of higher anticipated proceeds based on recent market conditions. This trend is expectedthe runoff of our GM lease portfolio.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
We recognized an average loss per vehicle of $45 during the three months ended March 31, 2017, due to declining used vehicle values, which were more pronounced in the car market. We expect used vehicle values to continue to decline in the near term.term, and also expect the mix of trucks and sport utility vehicles in our future lease terminations to increase. For more information on our investment in operating leases, refer to Note 89 to the Condensed Consolidated Financial Statements,, and Note 1 to the Annual Consolidated Financial Statements.Statements in our 2016 Annual Report on Form 10-K.
Lease Portfolio Mix
We monitor the concentration of our outstanding operating leases. The following table presents the mix of leased vehicles by type, based on volume of units.
| | June 30, |
| 2016 |
| 2015 | |
March 31, | |
| 2017 |
| 2016 |
Car |
| 36 | % |
| 40 | % |
| 28 | % |
| 37 | % |
Truck |
| 15 |
|
| 13 |
|
| 19 |
|
| 14 |
|
Sport utility vehicle |
| 49 |
|
| 47 |
|
| 53 |
|
| 49 |
|
Market Risk
Our automotive financing, mortgage, and insurance activities give rise to market risk representing the potential loss in the fair value of assets or liabilities and earnings caused by movements in market variables, such as interest rates, foreign-exchange rates, equity prices, market perceptions of credit risk, and other market fluctuations that affect the value of securities, assets held-for-sale, and operating leases. We are exposed to interest rate risk arising from changes in interest rates related to financing, investing, and cash management activities. More specifically, we have entered into contracts to provide financing and to retain various assets related to securitization activities all of which are exposed in varying degrees to changes in value due to movements in interest rates. Interest rate risk arises from the mismatch between assets and the related liabilities used for funding. We enter into various financial instruments, including derivatives, to maintain the desired level of exposure to the risk of interest rate and other fluctuations. Refer to Note 2019 to the Condensed Consolidated Financial Statements for further information.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
We are also exposed to some 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 equity price risk, primarily in our Insurance operations, which invests in equity securities that are subject to price risk influenced by capital market movements. We enter into equity options to economically hedge our exposure to the equity markets. Additionally, we have exposure to equity price risk related to certain share-based compensation programs. We enter into prepaid equity forward contracts to economically hedge a portion of this exposure.
Although the diversity of our activities from our complementary lines of business may partially mitigate market risk, we also actively manage this risk. We maintain risk management control systems to monitor interest rates, foreign-currency exchange rates, equity price risks, and any of their related hedge positions. Positions are monitored using a variety of analytical techniques including market value, sensitivity analysis, and value at risk models.
Net Financing Revenue Sensitivity Analysis
Interest rate risk represents our most significant exposure to market risk. We actively monitor the level of exposure so that movements in interest rates do not adversely affect future earnings. We use net financing revenue sensitivity analysis as our primary metric to measure and manage the interest rate sensitivities of our financial instruments.
We prepare our forward-looking baseline forecasts of net financing revenue which taketaking into consideration anticipated future business growth, asset/liability positioning, and interest rates based on the implied forward curve. During the first quarter of 2017 we implemented a dynamic pass-through modeling assumption on our retailliquid products deposits portfolio, whereby deposit pass-through levels increase as the absolute level of market interest rates rise. As a result, our baseline forecast assumes a medium-term deposit beta of 30% to 50%, steadily increasing to approximately 75% over the longer term. We continually monitor industry and competitive repricing activity along with other market factors when contemplating deposit pricing actions.
Simulations are used to assess changes in net financing revenue in multiple interest rates scenarios relative to the baseline forecast. The changes in net financing revenue relative to the baseline are defined as the sensitivity. Our simulation incorporates contractual cash flows and repricing characteristics for all assets, liabilities and off-balance sheet exposures and incorporates the effects of changing interest rates on the prepayment and attrition rates of certain assets and liabilities. The analysis is highly dependent upon a variety of assumptions including the repricing characteristics of deposits with noncontractual maturities. Our simulation does not assume any specific future actions are taken to mitigate the impacts of changing interest rates. Relative to our baseline forecast, which is based on the implied forward curve, our net financing revenue over the next twelve months would increase by $8$16 million if interest rates remain unchanged.
The net financing revenue sensitivity tests measure the potential change in our pretax net financing revenue over the following twelve months. A number of alternative rate scenarios are tested, including immediate and gradual parallel shocks to both current spot rates and the market forward curve. We also evaluate nonparallel shocks to interest rates and stresses to certain term points on the yield curve in isolation to capture and monitor a number of risk types.
Our twelve-month pretax net financing revenue sensitivity based on the market forward-curve was as follows.
|
| | | | | | | | | | | | | | | | |
| | June 30, 2016 | | December 31, 2015 |
Change in Interest Rates ($ in millions) | | Instantaneous | | Gradual (a) | | Instantaneous | | Gradual (a) |
-100 basis points | | $ | (81 | ) | | $ | (2 | ) | | $ | 47 |
| | $ | 17 |
|
+100 basis points | | (18 | ) | | — |
| | (109 | ) | | (37 | ) |
+200 basis points | | (128 | ) | | (17 | ) | | (278 | ) | | (96 | ) |
| |
(a) | Gradual changes in interest rates are recognized over 12 months. |
Our exposure to upward interest rate shocks has declined since December 31, 2015, primarily due to a reduction in implied forward interest rates. In addition, we reduced our receive-fixed interest rate swap portfolio and the sensitivity to consumer deposits with embedded optionality declined given the lower interest rate environment. The adverse change in the downward interest rate shock scenario is primarily driven by increased prepayment sensitivity across our mortgage loan and mortgage-backed securities portfolios as the portfolios continue to grow. The downward shock scenario is impacted by the current low rate environment, which limits absolute declines in short-term rates in a shock scenario.
The future repricing behavior of retail deposit liabilities, particularly non-maturity deposits, remains a significant driver of interest rate sensitivity. The sustained low interest rate environment increases the uncertainty of assumptions for deposit repricing relationships to market interest rates. Our interest rate risk models use dynamic assumptions driven by a number of factors, including the overall level of interest rates and the spread between short-term and long-term interest rates to project changes in our retail deposit offered rates. Our interest rate risk metrics currently assume a long-term retail deposit beta of greater than 75%. We believe our deposits may ultimately be less sensitive to interest rate changes, which will reduce our overall exposure to rising rates. Assuming a long-term retail deposit beta of 50% (vs. current assumption of greater than 75%) would result in a consolidated interest rate risk position that is asset sensitive.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Our twelve-month pretax net financing revenue sensitivity based on the market forward-curve was as follows.
|
| | | | | | | | | | | | | | | | |
| | March 31, 2017 | | December 31, 2016 |
Change in interest rates, ($ in millions) | | Instantaneous | | Gradual (a) | | Instantaneous | | Gradual (a) |
-100 basis points | | $ | 3 |
| | $ | (21 | ) | | $ | 46 |
| | $ | (14 | ) |
+100 basis points | | (52 | ) | | (21 | ) | | (62 | ) | | (2 | ) |
+200 basis points | | (171 | ) | | (67 | ) | | (153 | ) | | (19 | ) |
| |
(a) | Gradual changes in interest rates are recognized over 12 months. |
Implied forward rates have increased since December 31, 2016, and are reflected in our baseline net financing revenue projections. We remain moderately liability-sensitive as of March 31, 2017, in the upward interest rate shock scenarios as our simulation models assume liabilities will initially reprice faster than assets. The shift to a less liability-sensitive position as of March 31, 2017, is primarily due to higher variable-rate commercial loan balances, partially offset by an increase in our net receive-fixed interest rate swaps position.
The exposure in the downward interest rate shock scenario continues to benefit net financing revenue, shifting closer to a neutral position as of March 31, 2017. The impact of a downward shock scenario is less favorable than the prior period primarily due to the impact of variable-rate commercial loans.
The future repricing behavior of retail deposit liabilities, particularly non-maturity deposits, remains a significant driver of interest rate sensitivity. Our upward interest rate shock scenarios assume a longer term liquid products deposit beta of approximately 75%. We continue to believe our deposits may ultimately be less sensitive to interest rate changes, which would reduce our overall exposure to rising interest rate shocks. Assuming a static liquid products retail deposit beta of 50% would result in a consolidated interest rate risk position that is asset sensitive in the upward interest rate shock scenarios.
Our pro-forma rate sensitivity assuming a static 50% deposit pass-through based on the forward-curve was as follows.
| |
|
| June 30, 2016 |
| December 31, 2015 |
| March 31, 2017 |
| December 31, 2016 |
Change in Interest Rates ($ in millions) |
| Instantaneous |
| Gradual (a) |
| Instantaneous |
| Gradual (a) | |
-100 basis points |
| $ | (226 | ) |
| $ | (70 | ) |
| $ | (89 | ) |
| $ | (19 | ) | |
Change in interest rates, ($ in millions) | |
| Instantaneous |
| Gradual (a) |
| Instantaneous |
| Gradual (a) |
+100 basis points |
| 89 |
|
| 40 |
|
| 13 |
|
| 4 |
|
| $ | 45 |
|
| $ | 22 |
|
| $ | 77 |
|
| $ | 50 |
|
+200 basis points |
| 134 |
|
| 69 |
|
| (13 | ) |
| (1 | ) |
| 57 |
|
| 39 |
|
| 119 |
|
| 88 |
|
| |
(a) | Gradual changes in interest rates are recognized over 12 months. |
Our liability sensitivecurrent liability-sensitive risk position is also driveninfluenced by the net impact of off balance sheet hedging positions, which continue to generate positive financing revenue in the current interest rate environment. This position includes both receive-fixed interest rate swaps designated as fair value hedges of certain fixed-rate liabilities, including legacy unsecured debt. These swaps continue to generate positive financing revenue in the current interest rate environment, but also add to our liability sensitive position. The impact of receive-fixed interest rate swaps is partially offset bydebt, and pay-fixed interest rate swaps designated as fair value hedges of certain retail automotive assets. The size, maturity and mix of our hedging activities change frequently as we adjust our broader asset and liability management objectives.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Liquidity Management, Funding, and Regulatory Capital
Overview
The purpose of liquidity management is to ensure our ability to meet loan and 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, borrowing facilities, repurchase agreements, as well as funding programs supported by the Federal Reserve and the Federal Home Loan BankFHLB of Pittsburgh (FHLB).Pittsburgh.
We define liquidity risk as the risk that an institution's financial condition or overall safety and soundness is adversely affected by an inability, or perceived inability, to meet its financial obligations, and to withstand unforeseen liquidity stress events. Liquidity risk can arise from a variety of institution specific or market-related events that could have a negative impact on cash flows available to the organization. Effective management of liquidity risk helps ensure an organization's preparedness to meet cash flow obligations caused by unanticipated events. Managing liquidity needs and contingent funding exposures has proven essential to the solvency of financial institutions.
The Asset-Liability Committee (ALCO) is chaired by the Corporate Treasurer and is responsible for overseeing our liquidity, funding strategies and plans, contingency funding plans, and counterparty credit exposure arising from financial transactions. Corporate Treasury is responsible for managing our liquidity positions within prudent operating guidelines and targets approved by ALCO and the Risk and Compliance Committee of the Ally Board of Directors. LiquidityAs part of managing liquidity risk, is managed for the parent company, Ally Bank, and the consolidated organization. The parent company and Ally Bankwe prepare periodic forecasts depicting anticipated funding needs and sources of funds with oversight and monitoring by the Liquidity Risk group within Corporate Treasury. Corporate Treasury executes our funding strategies and manages liquidity under baseline economic projections as well as more severely stressed macroeconomic environments.
Funding Strategy
Liquidity and ongoing profitability are largely dependent on the timely and cost-effective access to retail deposits and funding in different segments of the capital markets. Our funding strategy largely focuses on the development of diversified funding sources across a broad investor base of depositors, lenders, and investors to meet liquidity needs throughout different market cycles, including periods of financial distress. These funding sources include retail and brokered deposits, committed credit facilities, public and private asset-backed securitizations, wholesale and retail unsecured debt, public and private asset-backed securitizations, whole-loan sales, committed credit facilities, FHLB advances, brokered deposits, and retail deposits.whole-loan sales. We also supplement these funding sources with a modest amount of short-term borrowings, including demand notes and repurchase arrangements. The diversity of our funding sources enhances funding flexibility, limits dependence on any one source, and results in a more cost-effective funding strategy over the long term. We evaluate funding markets on an ongoing basis to achieve an appropriate balance of unsecured and secured funding sources and maturity profiles. In addition, we further distinguish our funding strategy between Ally Bank funding and parent company (nonbank) funding.
We diversify Ally Bank'sour overall funding in order to reduce reliance on any one source of funding and to achieve a well-balanced funding portfolio across a spectrum of risk, duration, and costcost-of-funds characteristics. Optimizing funding at Ally Bank continues to be a key part of funds characteristics.our long-term liquidity strategy. We optimize our funding sources at Ally Bank by growing retail deposits, maintaining active public and private securitization programs, managing a prudent maturity profile of our brokered deposit portfolio, utilizing repurchase agreements, and continuing to access funds from the FHLB.
Since 2009,becoming a BHC in December 2008, a significant portion of asset originations have been directed to Ally Bank in order to reduce parent company exposures and funding requirements, and to utilize our growing consumer deposit-taking capabilities. This has allowed us to use bank funding for a wider array of our automotive finance assets and to provide a sustainable long-term funding channel for the business, while also improving the cost of funds for the enterprise. On March 7, 2016, Ally Bank received approval from the Federal Reserve to become a state member bank. Ally Bank is now regulated by the FRB through the Federal Reserve Bank of Chicago, as well as the Utah Department of Financial Institutions. In addition, in connection with the application for membership in the Federal Reserve System, Ally Bank made commitments to the FRB relating to capital, liquidity, and business plan requirements. These commitments are consistent with the prior requirements under the now-terminated Capital and Liquidity Maintenance Agreement with the FDIC, including the requirement to maintain capital at a level such that Ally Bank’s Tier 1 leverage ratio is at least 15%. For this purpose, the Tier 1 leverage ratio is determined in accordance with the FRB's regulations related to capital adequacy. Continuation of the Ally Bank Tier 1 leverage ratio requirement could further restrict balance sheet growth within Ally Bank and could unfavorably impact liquidity at AFI. We continue to have ongoing dialogue with our regulators about a more normalized level of capital maintenance.
Liquidity Risk Management
Multiple metrics are used to frame the level of liquidity risk, manage the liquidity position, and identify related trends. These metrics include coverage ratios and stress tests that measure the sufficiency of the liquidity portfolio, stability ratios that measure longer-term structural liquidity, and concentration ratios that ensure 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 senior management in the execution of its funding strategy and risk management accountabilities.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
We maintain available liquidity in the form of cash, unencumbered highly liquid securities, and available committed credit facility capacity that, taken together, would allow us to operate and to meet our contractual and contingent obligations in the event that market-wide disruptions and enterprise-specific events disrupt normal access to funding. The available liquidity is held at various entities and considers regulatory restrictions and tax implications that may limit our ability to transfer funds across entities. The following table summarizes our total available liquidity.
| | June 30, 2016 ($ in millions) |
| Ally Bank |
| Parent company (nonbank) (a) | |
March 31, 2017 ($ in millions) | | | |
Unencumbered highly liquid U.S. federal government and U.S. agency securities |
| $ | 7,763 |
|
| $ | 2,360 |
| | $ | 13,128 |
|
Liquid cash and equivalents |
| 3,291 |
|
| 2,003 |
| | 3,811 |
|
Committed funding facilities (b)(a) |
| | | | | |
Total capacity |
| 4,510 |
|
| 15,625 |
| | 16,935 |
|
Outstanding |
| 3,460 |
|
| 14,540 |
| | 15,930 |
|
Unused capacity (c)(b) |
| 1,050 |
|
| 1,085 |
| | 1,005 |
|
Intercompany loan (d) |
| (1,400 | ) |
| 1,400 |
| |
Total available liquidity |
| $ | 10,704 |
|
| $ | 6,848 |
| | $ | 17,944 |
|
| |
(a) | Parent company liquidity is defined as our consolidated operations less Ally BankCommitted funding facilities include both on- and the regulated subsidiaries of Ally Insurance's holding company.off-balance sheet facilities. |
| |
(b) | Committed funding facilities include both consolidated and nonconsolidated facilities. |
| |
(c) | Funding from committed secured facilities is available on request in the event excess collateral resides in certain facilities or is available to the extent incremental collateral is available and contributed to the facilities. |
| |
(d) | To optimize cash and secured facility capacity between entities, the parent company lends cash to Ally Bank on occasion under an intercompany loan agreement. Amounts outstanding on this loan are repayable to the parent company upon demand, subject to a five day notice period. |
As of June 30, 2016,March 31, 2017, assuming a long-term capital markets stress, we expect that our available liquidity would allow us to continue to fund all planned loan originations and meet all of our financial obligations for approximatelymore than 36 months, assuming no issuance of unsecured debt or term securitizations.
In addition, our estimated Modified Liquidity Coverage Ratio exceeded 100% at June 30, 2016.March 31, 2017. Refer to Note 1918 to the Condensed Consolidated Financial Statements for further discussion of our liquidity requirements.
Ally BankDeposits
Ally Bank gathers retail deposits directly from customers through direct banking via the internet, telephone, mobile, and mail channels. These retail deposits provide our Automotive Finance, Mortgage Finance, and Corporate Finance operations with a stable and low-cost funding source.
Optimizing bank funding continues to be a key part of our long-term liquidity strategy. We have made significant progress in migrating asset originations to Ally Bank and growing our retail deposit base since becoming a BHC in December 2008. Retail deposit growth is a key driver of optimizing funding costs and reducing reliance on capital markets basedmarkets-based funding. We believe deposits provide a stable, low-cost source of funds that are less sensitive to interest rate changes, market volatility, or changes in credit ratings when compared to other funding sources. We have continued to expand our deposit gathering efforts through both direct and indirect marketing channels. Current retail deposit offerings consist of a variety of products including CDs, savings accounts, money market accounts, IRA deposit products, as well as an interest checking product. In addition, we utilize brokered deposits, which are obtained through third-party intermediaries.intermediaries, including a deposit related to TradeKing customer cash balances.
The following table shows Ally Bank's number of accounts and our deposit balances by type as of the end of each quarter since 2015.2016.
| | ($ in millions) | 2nd Quarter 2016 | 1st Quarter 2016 | 4th Quarter 2015 | 3rd Quarter 2015 | 2nd Quarter 2015 | 1st Quarter 2015 | |
Number of retail accounts | 2,133,657 |
| 2,061,923 |
| 1,969,562 |
| 1,931,380 |
| 1,874,632 |
| 1,818,770 |
| |
Deposits | | |
| | 1st Quarter 2017 | 4th Quarter 2016 | 3rd Quarter 2016 | 2nd Quarter 2016 | 1st Quarter 2016 |
Number of retail bank accounts (in thousands) | | 2,366 |
| 2,269 |
| 2,203 |
| 2,134 |
| 2,062 |
|
Deposits ($ in millions) | | |
Retail | $ | 61,239 |
| $ | 58,977 |
| $ | 55,437 |
| $ | 53,502 |
| $ | 51,750 |
| $ | 50,633 |
| $ | 69,971 |
| $ | 66,584 |
| $ | 63,880 |
| $ | 61,239 |
| $ | 58,977 |
|
Brokered(a) | 11,269 |
| 10,979 |
| 10,723 |
| 10,180 |
| 9,844 |
| 9,835 |
| 14,327 |
| 12,187 |
| 11,570 |
| 11,269 |
| 10,979 |
|
Other (a)(b) | 94 |
| 91 |
| 89 |
| 91 |
| 89 |
| 79 |
| 188 |
| 251 |
| 294 |
| 294 |
| 309 |
|
Total deposits | $ | 72,602 |
| $ | 70,047 |
| $ | 66,249 |
| $ | 63,773 |
| $ | 61,683 |
| $ | 60,547 |
| $ | 84,486 |
| $ | 79,022 |
| $ | 75,744 |
| $ | 72,802 |
| $ | 70,265 |
|
| |
(a) | Includes a deposit at Ally Bank related to TradeKing customer cash balances. |
| |
(b) | Other deposits include mortgage escrow, dealer, and other deposits (excluding intercompany deposits).deposits. |
During the first sixthree months of 2016, the2017, our deposit base at Ally Bank grew $6.4$5.5 billion. The growth in total deposits has been primarily attributable to our retail deposit portfolio, particularly within our savings and money market accounts. Strong retention rates and customer acquisition continue to drive growth in retail deposits. Our brokered deposit portfolio has also continued to grow, driven by the addition of TradeKing customer cash and an increase in brokered certificates of deposit. Brokered deposit balances include $1.2 billion and $200 million of customer cash balances related to TradeKing deposited at Ally Bank by a third party at March 31, 2017, and December 31, 2016, respectively. Refer to Note 1213 to the Condensed Consolidated Financial Statements for a summary of deposit funding by type.
Secured Financings
In addition to building a larger deposit base, secured funding continues to be a significant source of financing. Securitization has proven to be a reliable and cost-effective funding source, and we continue to remain active in the well-established securitization markets to finance our automotive loan products. During the first three months of 2017, we raised $3.0 billion through the completion of term securitization transactions backed by retail automotive loans and dealer floorplan automotive assets, which includes $1.1 billion through the completion of
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
In addition to building a larger deposit base, we continue to remain active in the securitization markets to finance our Ally Bank automotive loan portfolios. During the second quarter of 2016, Ally Bank raised $0.5 billion through the completion of one off-balance sheet securitization transaction backed by retail automotive loans. In addition, Ally Bank raised $1.0 billion related to whole-loan sales of retail automotive loans.
Securitization has proven to be a reliable and cost-effective funding source. Additionally, for retail automotive loans and lease notes, the term structure of the transaction locks in funding for a specified pool of loans and leases for the life of the underlying asset, creating an effective tool for managing interest rate and liquidity risk.
We manage secured funding execution risk by maintaining a diverse investor base and available committed credit facility capacity. Ally Bank has exclusiveWe have access to private committed funding facilities, the largest of which is a $3.0 billion syndicated credit facility of sixteen lenders shared with the parent company.secured by automotive receivables. This facility can fund automotive retail and dealer floorplan loans, as well as leases. During March 2016, this facility was renewed with $11.0 billion of capacity and the maturity was extended to March 2018. In March 2017, we reduced the capacity of this facility to $10.0 billion. In the event this facility is not renewed at maturity, the outstanding debt will be repaid over time as the underlying collateral amortizes. At March 31, 2017, there was $9.8 billion outstanding under this facility. Our ability to access the unused capacity in the secured facility depends on the availability of eligible assets to collateralize the incremental funding and, in some instances, on the execution of interest rate hedges.
Ally BankThe total capacity in our committed secured funding facilities is provided by banks through private transactions. The committed secured funding facilities can be revolving in nature and allow for additional funding during the commitment period, or they can be amortizing and not allow for any further funding after the closing date. At March 31, 2017, all of our $15.7 billion of secured committed capacity was revolving. Our revolving facilities generally have an original tenor ranging from 364 days to two years. As of March 31, 2017, we had $3.1 billion of committed funding capacity from revolving facilities with a remaining tenor greater than 364 days. In addition to our syndicated revolving credit facility, we also hasmaintain various bilateral and multilateral secured credit facilities that fund our Automotive Finance operations. These are primarily private securitization facilities that fund a specific pool of automotive assets.
We also have access to funding through advances with the FHLB. These advances are primarily secured by consumer mortgage and commercial real estate automotive finance receivables and loans. As of June 30, 2016, Ally BankMarch 31, 2017, we had pledged $14.6$16.8 billion of assets and investment securities to the FHLB resulting in $10.3$12.1 billion in total funding capacity with $7.3$8.0 billion of debt outstanding.
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 $3.7 billion at March 31, 2017. We also have short-term and long-term unsecured debt outstanding from retail term note programs. These programs generally consist of callable fixed-rate instruments with fixed-maturity dates. There were $450 million of retail term notes outstanding at March 31, 2017. The remainder of our unsecured debt is composed of institutional term debt. Refer to Note 14 to the Condensed Consolidated Financial Statements for additional information about our outstanding short-term borrowings and long-term unsecured debt.
In addition, Ally Bank hasDecember 2016, we closed a private unsecured committed funding facility under which we have access to a term facility with a commitment of $850 million, and a revolving facility with a commitment of $400 million. In January 2017, both the revolving facility and term facility were fully drawn.
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 financial instruments sold in repurchase agreements typically include U.S. government and federal agency obligations.obligations, and certificated residual interests related to asset-backed securitizations. As of June 30, 2016, Ally BankMarch 31, 2017, we had no$1.6 billion debt outstanding under repurchase agreements.
Additionally, Ally Bank haswe have access to the Federal Reserve Bank Discount Window and can borrow funds to meet short-term liquidity demands. However, the Federal Reserve Bank 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. Ally Bank hasWe have assets pledged and restricted as collateral to the Federal Reserve Bank totaling $2.6$2.3 billion. Ally BankWe had no debt outstanding with the Federal Reserve as of June 30, 2016.
Parent Company (Nonbank) Funding
Funding sources at the parent company generally consist of long-term unsecured debt, unsecured retail term notes, floating rate demand notes, committed credit facilities, asset-backed securitizations, and a modest amount of short-term borrowings. The parent company's ability to access unused capacity in secured facilities depends on the availability of eligible assets to collateralize the incremental funding and, in some instances, on the execution of interest rate hedges.
In addition, we have short-term and long-term unsecured debt outstanding from retail term note programs. These programs generally consist of callable fixed-rate instruments with fixed-maturity dates. There were $449 million of retail term notes outstanding at June 30, 2016.
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 $3.6 billion at June 30, 2016. Refer to Note 13 and Note 14 to the Condensed Consolidated Financial Statements for additional information about our outstanding short-term borrowings and long-term unsecured debt, respectively.
Secured funding continues to be a significant source of financing at the parent company. The total capacity in our committed funding facilities is provided by banks and other financial institutions through private transactions. The committed secured funding facilities can be revolving in nature and allow for additional funding during the commitment period, or they can be amortizing and not allow for any further funding after the closing date. At June 30, 2016, all of our $15.6 billion of committed capacity was revolving. Our revolving facilities generally have an original tenor ranging from 364 days to two years. As of June 30, 2016, we had $12.2 billion of committed funding capacity from revolving facilities with a remaining tenor greater than 364 days. The parent company's largest facility is an $8.0 billion revolving syndicated credit facility secured by automotive receivables. This facility was renewed in March 2016 by a syndicate of sixteen lenders and extended until March 2018. In the event this facility is not renewed at maturity, the outstanding debt will be repaid over time as the underlying collateral amortizes. At June 30, 2016, there was $8.0 billion outstanding under this facility. In addition to our syndicated revolving credit facility, we also maintain various bilateral and multilateral secured credit facilities that fund our Automotive Finance operations. These are primarily private securitization facilities that fund a specific pool of automotive assets.31, 2017.
At June 30, 2016, the parent company had debt of $468 million outstanding under repurchase agreements.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Recent Funding Developments
During the first sixthree months of 2016,2017, we accessed the public and private markets to execute secured funding transactions, whole-loan sales, unsecured funding transactions, and funding facility renewals totaling $19.9$4.3 billion. Key funding highlights from January 1, 20162017, to date were as follows:
Ally Financial Inc.We closed, renewed, increased, and/or extended $13.1$1.3 billion in U.S. secured credit facilities during the sixthree months ended June 30, 2016. The automotive credit facility renewal amount includes the March 2016 refinancing of $11.0 billion for our shared credit facilities at both the parent company and Ally Bank with a syndicate of sixteen lenders. The $11.0 billion capacity is secured by retail, lease, and dealer floorplan automotive assets and is allocated to two separate facilities; one is an $8.0 billion facility which is available to the parent company, while the other is a $3.0 billion facility available to Ally Bank. Both facilities mature in March 2018.
31, 2017.Ally Financial Inc.We continued to access the public and private term asset-backed securitization markets raising $3.3$3.0 billion during the sixthree months ended June 30, 2016, with $2.3March 31, 2017. During the quarter, we raised approximately $1.3 billion and $1.0 billion raised by Ally Bank and the parent company, respectively. Included in Ally Bank's funding for 2016 are two off-balance sheetthrough securitizations backed by retail automotive loans, whichloans. We also raised $1.5 billion. In addition, Ally Bank raised $2.6 billion related to whole-loan sales of retail automotive loans in the first half of 2016. In July 2016, the parent company raised $755$650 million through a public securitization backed by dealer floorplan automotive assets, which represented our first floorplan securitization since 2015. Additionally, we raised approximately $1.1 billion through an off-balance sheet public securitization backed by retail automotive loans.
In April 2016, Ally Financial Inc. accessed the unsecured debt capital markets and raised $900 million through the issuance of $600 million and $300 million of aggregate principal amount of senior and subordinated notes, respectively.
Funding Sources
The following table summarizes debt and other sources of funding and the amount outstanding under each category for the periods shown.
|
| | | | | | | | | | | | | | |
($ in millions) | | Bank |
| Parent |
| Total |
| % |
June 30, 2016 | | | | | | | | |
Secured financings |
| $ | 19,943 |
|
| $ | 21,932 |
|
| $ | 41,875 |
|
| 30 |
Institutional term debt |
| — |
|
| 20,598 |
|
| 20,598 |
|
| 15 |
Retail debt programs (a) |
| — |
|
| 4,024 |
|
| 4,024 |
|
| 3 |
Total debt (b) |
| 19,943 |
|
| 46,554 |
|
| 66,497 |
|
| 48 |
Deposits (c) |
| 72,602 |
|
| 200 |
|
| 72,802 |
|
| 52 |
Total on-balance sheet funding |
| $ | 92,545 |
|
| $ | 46,754 |
|
| $ | 139,299 |
|
| 100 |
December 31, 2015 | | | | | | | | |
Secured financings |
| $ | 24,790 |
|
| $ | 25,129 |
|
| $ | 49,919 |
|
| 36 |
Institutional term debt |
| — |
|
| 20,235 |
|
| 20,235 |
|
| 14 |
Retail debt programs (a) |
| — |
|
| 3,850 |
|
| 3,850 |
|
| 3 |
Total debt (b) |
| 24,790 |
|
| 49,214 |
|
| 74,004 |
|
| 53 |
Deposits (c) |
| 66,249 |
|
| 229 |
|
| 66,478 |
|
| 47 |
Total on-balance sheet funding |
| $ | 91,039 |
|
| $ | 49,443 |
|
| $ | 140,482 |
|
| 100 |
| |
(a) | Includes $449 million and $397 million of retail term notes at June 30, 2016, and December 31, 2015, respectively.
|
| |
(b) | Excludes fair value adjustment as described in Note 20 to the Condensed Consolidated Financial Statements.
|
| |
(c) | Bank deposits include retail, brokered, mortgage escrow, and other deposits. Parent deposits include dealer deposits. Intercompany deposits are not included. |
Refer to Note 14 to the Condensed Consolidated Financial Statements for a summary of the scheduled maturity of long-term debt at June 30, 2016.
Cash Flows
Net cash provided by operating activities was $2.4 billion for the six months ended June 30, 2016, compared to $1.7 billion for the same period in 2015. The change was due to a $1.1 billion decrease in the originations and purchases of loans held-for-sale, net of proceeds, as well a $0.5 billion gain on sale of subsidiaries in 2015. This was partially offset by a $0.5 billion increase of cash outflows from other assets and a $0.4 billion decrease in loss on extinguishment of debt.
Net cash used in investing activities was $1.3 billion for the six months ended June 30, 2016, compared to $5.2 billion for the same period in 2015. The change was a result of an increase in net cash inflows from purchases, sales, maturities and repayment of available-for-sale securities of $2.6 billion. Also contributing to the change was a decrease in net cash used by finance receivables and loans of $2.4 billion and an increase of net cash inflows from operating lease activity of $1.2 billion. This was partially offset by $1.0 billion in proceeds from the
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
saleFunding Sources
The following table summarizes our sources of funding and the amount outstanding under each category for the periods shown.
|
| | | | | | | | | | | | |
| | March 31, 2017 | | December 31, 2016 |
($ in millions) | | On-balance sheet funding | | % Share of funding | | On-balance sheet funding | | % Share of funding |
Secured financings |
| $ | 37,010 |
| | 26 | | $ | 43,140 |
| | 30 |
Institutional term debt and unsecured bank funding |
| 18,022 |
| | 12 | | 19,276 |
| | 13 |
Retail debt programs (a) |
| 4,101 |
| | 3 | | 4,070 |
| | 3 |
Total debt (b) |
| 59,133 |
| | 41 | | 66,486 |
| | 46 |
Deposits |
| 84,486 |
| | 59 | | 79,022 |
| | 54 |
Total on-balance sheet funding |
| $ | 143,619 |
| | 100 | | $ | 145,508 |
| | 100 |
| |
(a) | Includes $450 million and $448 million of retail term notes at March 31, 2017, and December 31, 2016, respectively. |
| |
(b) | Excludes fair value adjustment as described in Note 19 to the Condensed Consolidated Financial Statements. |
Refer to Note 14 to the Condensed Consolidated Financial Statements for a summary of the scheduled maturity of long-term debt at March 31, 2017.
Cash Flows
The following summarizes the activity reflected on the Condensed Consolidated Statement of Cash Flows. While this information may be helpful to highlight certain macro trends and business strategies, the cash flow analysis may not be as relevant when analyzing changes in our net earnings and net assets. We believe that in addition to the traditional cash flow analysis, the discussion related to liquidity, dividends, and ALM herein may provide more useful context in evaluating our liquidity position and related activity.
Net cash provided by operating activities was $1.2 billion for both the three months ended March 31, 2017, and 2016, respectively. Activity was largely consistent year-over-year, as cash flows from our consumer and commercial lending activities offset declines in our leasing business.
Net cash used in investing activities was $0.7 billion for the three months ended March 31, 2017, compared to net cash provided by investing activities of $0.7 billion for the three months ended March 31, 2016. The change was the result of a business unitdecrease in 2015,net cash inflows from purchases, sales, originations, and repayments of $0.6finance receivables and loans of $0.9 billion as loan originations and purchases outpaced repayments and loan sales during the three months ended March 31, 2017. Also contributing to the decrease was an increase in net cash outflows from purchases, sales, maturities, and repayments of held-to maturityavailable-for-sale securities of $0.9 billion. This was partially offset by an increase of $0.4$0.5 billion in net cash usedprovided by nonmarketable equity investments due primarily to lower holdings in our investment in FHLB stock in 2017, compared to the purchase of nonmarketable equity investments, and $0.3 billion due to the acquisition of TradeKing.FRB stock in 2016.
Net cash used in financing activities for the sixthree months ended June 30, 2016,March 31, 2017, was $1.8$2.1 billion, compared to $3.7$3.2 billion for the three months ended March 31, 2016. The reduction in net cash provided for the same period in 2015. The changeused in financing activities was primarily dueattributable to cash used for the repaymentlower net repayments of long-term debt exceeding cash from issuance of long-term debt by $5.3$3.1 billion for the sixthree months ended June 30, 2016. This isMarch 31, 2017, compared to cash used for the repayment of long-term debt exceeding cash from the issuance of long-term debt by $1.2$4.2 billion for the same periodthree months ended March 31, 2016. The net increase in 2015. Also contributingcash flows associated with deposit borrowings of approximately $1.7 billion was the repayment oflargely offset by decreases in short-term borrowings of $2.1 billion for the six months ended June 30, 2016, compared to an increase of short-term borrowings of $2.9 billion for the same period in 2015. This was partially offset by an increase in deposits of $2.6 billion during the six months ended June 30, 2016, compared to the same period in 2015, and a $1.3 billion decrease in dividends paid on preferred stock.$1.6 billion.
Capital Planning and Stress Tests
As a BHC with $50 billion or more of consolidated assets, Ally is required to conduct periodicsemi-annual company-run stress tests, is subject to an annual supervisory stress test conducted by the Federal Reserve Bank (FRB),FRB, and must submit an annual capital plan to the FRB.
Ally’s capital plan must include a description of all planned capital actions over a nine-quarter planning horizon. The capital plan must also include a discussion of how Ally will maintain capital above the minimum regulatory capital ratios under baseline, adverse, and severely adverse economic scenarios, and serve as a source of strength to Ally Bank. The FRB must approve Ally's capital plan before Ally may take any capital action. Even with an approved capital plan, Ally must seek the approval of the FRB before making a capital distribution if, among other factors, Ally would not meet its regulatory capital requirements after making the proposed capital distribution.
In addition to the Series G preferred stock redemptions and Series A preferred stock repurchase that occurred during 2015, asAs part of the 2015 CCAR2016 Comprehensive Capital Analysis and Review (CCAR) process, Ally alsowe received approval to repurchase or redeem the remaining approximately $700 million of Series A preferred stock as well as $500 million of our Trust Preferred Securities. The remaining shares of Series A preferred stock were redeemed on May 16, 2016, but we have indefinitely deferred redemption of the Trust Preferred Securities in support of our acquisition of TradeKing, which closed on June 1, 2016. Refer to Note 27 to the Condensed Consolidated Financial Statements for additional information impacting these capital actions.
On April 5, 2016, we submitted the results of our semi-annual stress test and our annual capital plan to the FRB. On June 23, 2016, we publicly disclosed summary results of the stress test under the most severe scenario in accordance with regulatory requirements. On June 29, 2016, we received a non-objection to our capital plan from the FRB, including the proposed capital actions contained in our submission. The planned capital actions includeincluding a quarterly cash dividend of $0.08 per share of our common stock, subject to quarterly approval by the Board of Directors, and the ability to repurchase up to $700 million of our common stock from time to time through the second quarter of 2017. Our first common stock dividend was paid during the third quarter of 2016 and we paid a cash dividend of $0.08 per share on our common stock during each subsequent quarter. On July 18, 2016,April 14, 2017, the Ally Board of Directors declared a quarterly cash dividend payment of $0.08 per share on all common stock. The dividend is payable on August 15, 2016,Refer to shareholders of record atNote 26 to the close of business on August 1, 2016.Condensed Consolidated Financial Statements for further information regarding this common share dividend. Additionally, the Ally Board of Directors authorized a common stock repurchase program of up to $700 million beginning in the third quarter of 2016 and continuing through the second quarter of 2017. We had 483,753,360Under this program, we have repurchased $495 million, or 25,140,190 shares of common stock, outstanding atwhich reduced total shares by approximately 5.2% since inception. At March 31, 2017, we had 462,193,424 shares of common stock outstanding.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Ally submitted its 2017 capital plan on April 5, 2017, with capital actions including distributions to common shareholders through share repurchases and cash dividends. 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 of and non-objection to the actions that we propose each year in our annual capital plan. We expect to receive the FRB’s response (either a non-objection or objection) to the capital plan submitted by June 30, 2016.2017.
In January 2017, the FRB finalized a rule amending the capital planning and stress testing rules, effective for the 2017 cycle. The final rule, among other things, revised the capital plan rule to no longer subject large and noncomplex firms, including Ally, to the provisions of the rule whereby the FRB may object to a capital plan on the basis of qualitative deficiencies in the firm’s capital planning process. Under the final rule, the qualitative assessment of Ally’s capital plan is conducted outside of the CCAR process, through the supervisory review process, and Ally’s reporting requirements have been modified to reduce certain reporting burdens related to capital planning and stress testing. The final rule also decreased the de minimis threshold for the amount of capital that Ally could distribute to shareholders outside of an approved capital plan without seeking prior approval of the FRB.
Regulatory Capital
Refer to Note 1918 to the Condensed 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).
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
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 |
| Short-term |
| Senior unsecured debt |
| Outlook |
| Date of last action |
Fitch |
| B |
| BB+ |
| Stable |
| April 6,September 28, 2016 (a) |
Moody’s |
| Not Prime |
| Ba3 |
| Stable |
| October 20, 2015 (b) |
S&P |
| B |
| BB+ |
| PositiveStable |
| October 21, 201512, 2016 (c) |
DBRS |
| R-3 |
| BBB (Low) |
| Stable |
| May 2, 20163, 2017 (d) |
| |
(a) | Fitch affirmed our senior unsecured debt rating of BB+, affirmed our short-term rating of B, and maintained a Stable outlook on April 6,September 28, 2016. |
| |
(b) | Moody's upgraded our senior unsecured debt rating to Ba3 from B1, affirmed our short-term rating of Not Prime, and changed the outlook to Stable on October 20, 2015. Effective December 1, 2014, we determined to not renew our contractual arrangement with Moody's related to their providing of our corporate family, senior debt, and short-term ratings. Notwithstanding this, Moody's has determined to continue to provide these ratings on a discretionary basis. However, Moody's has no obligation to continue to provide these ratings, and could cease doing so at any time. |
| |
(c) | Standard & Poor's affirmed our senior unsecured debt rating of BB+, affirmed our short-term rating of B, and changed the outlook from StablePositive to PositiveStable on October 21, 2015.12, 2016. |
| |
(d) | DBRS upgradedaffirmed our short-term rating toof R-3, from R-4, upgradedaffirmed our senior unsecured debt rating toof BBB (Low) from BB (High), and changed themaintained a Stable outlook to Stable on all ratings on May 2, 2016.3, 2017. |
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. 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 June 15, 2016, A.M. Best affirmed the FSR of B++ (good) and affirmed the ICR of bbb+.
Off-balance Sheet Arrangements
Refer to Note 910 to the Condensed Consolidated Financial Statements.Statements.
Critical Accounting Estimates
We identified critical accounting estimates that, as a result of judgments, uncertainties, uniqueness, and complexities of the underlying accounting standards and operations involved could result in material changes to our financial condition, results of operations, or cash flows under different conditions or using different assumptions.
Our most critical accounting estimates are as follows.
Allowance for loan losses
Valuation of automotive lease assets and residuals
Fair value of financial instruments
Legal and regulatory reserves
Determination of provision for income taxes
During 2016,2017, we did not substantively change any material aspect of our overall methodologies and processes used in developing the above estimates from what was described in our Annualthe Consolidated Financial Statements.Statements in our 2016 Annual Report on Form 10-K.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Refer to Note 1 to the Condensed Consolidated Financial Statements for further discussion regarding the methodology used in calculating the provision for income taxes for interim financial reporting.
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Statistical Table
The accompanying supplemental information should be read in conjunction with the more detailed information, including our Condensed Consolidated Financial Statements and the Notesnotes thereto, which appears elsewhere in this Quarterly 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.
| | | | 2016 | | 2015 | | (Decrease) increase due to | | 2017 | | 2016 | | Increase (decrease) due to |
Three months ended June 30, ($ in millions) | | Average balance (a) | | Interest income/ Interest expense | | Yield/rate | | Average balance (a) | | Interest income/ Interest expense | | Yield/rate | | Volume | | Yield/rate | | Total | |
Three months ended March 31, ($ in millions) | | | Average balance (a) | | Interest income/ Interest expense | | Yield/rate | | Average balance (a) | | Interest income/ Interest expense | | Yield/rate | | Volume | | Yield/rate | | Total |
Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing cash and cash equivalents | | $ | 2,708 |
| | $ | 4 |
| | 0.59 | % | | $ | 4,013 |
| | $ | 2 |
| | 0.20 | % | | $ | (1 | ) | | $ | 3 |
| | $ | 2 |
| | $ | 2,674 |
| | $ | 5 |
| | 0.76 | % | | $ | 2,867 |
| | $ | 3 |
| | 0.42 | % | | $ | — |
| | $ | 2 |
| | $ | 2 |
|
Federal funds sold and securities purchased under resale agreements | | 2 |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Investment securities (b) | | 17,559 |
| | 94 |
| | 2.15 |
| | 17,078 |
| | 86 |
| | 2.02 |
| | 2 |
| | 6 |
| | 8 |
| | 20,481 |
| | 126 |
| | 2.49 |
| | 17,594 |
| | 102 |
| | 2.33 |
| | 17 |
| | 7 |
| | 24 |
|
Loans held-for-sale, net | | — |
| | — |
| | — |
| | 1,493 |
| | 14 |
| | 3.76 |
| | (14 | ) | | — |
| | (14 | ) | | — |
| | — |
| | — |
| | 35 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Finance receivables and loans, net (c) (d) | | 112,158 |
| | 1,265 |
| | 4.54 |
| | 101,962 |
| | 1,118 |
| | 4.40 |
| | 112 |
| | 35 |
| | 147 |
| | 117,974 |
| | 1,368 |
| | 4.70 |
| | 111,525 |
| | 1,235 |
| | 4.45 |
| | 71 |
| | 62 |
| | 133 |
|
Investment in operating leases, net (e) | | 14,392 |
| | 267 |
| | 7.46 |
| | 18,520 |
| | 297 |
| | 6.43 |
| | (66 | ) | | 36 |
| | (30 | ) | | 10,931 |
| | 154 |
| | 5.71 |
| | 15,638 |
| | 259 |
| | 6.66 |
| | (78 | ) | | (27 | ) | | (105 | ) |
Other earning assets | | | 817 |
| | 8 |
| | 3.97 |
| | — |
| | — |
| | — |
| | 8 |
| | — |
| | 8 |
|
Total interest-earning assets | | 146,819 |
| | 1,630 |
| | 4.47 |
| | 143,067 |
| | 1,517 |
| | 4.25 |
| | 33 |
| | 80 |
| | 113 |
| | 152,877 |
| | 1,661 |
| | 4.41 |
| | 147,659 |
| | 1,599 |
| | 4.36 |
| |
|
| |
|
| | 62 |
|
Noninterest-bearing cash and cash equivalents | | 1,339 |
| | | | | | 1,337 |
| | | | | | | | | | | | 1,100 |
| | | | | | 1,841 |
| | | | | | | | | | |
Other assets | | 9,386 |
| | | | | | 9,472 |
| | | | | | | | | | | | 8,013 |
| | | | | | 8,929 |
| | | | | | | | | | |
Allowance for loan losses | | (1,088 | ) | | | | | | (953 | ) | | | | | | | | | | | | (1,145 | ) | | | | | | (1,060 | ) | | | | | | | | | | |
Total assets | | $ | 156,456 |
| | | | | | $ | 152,923 |
| | | | | | | | | | | | $ | 160,845 |
| | | | | | $ | 157,369 |
| | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing deposit liabilities | | $ | 71,479 |
| | $ | 203 |
| | 1.14 | % | | $ | 61,224 |
| | $ | 177 |
| | 1.16 | % | | 30 |
| | (4 | ) | | 26 |
| | $ | 82,160 |
| | $ | 231 |
| | 1.14 | % | | $ | 68,148 |
| | $ | 193 |
| | 1.14 | % | | $ | 40 |
| | $ | (2 | ) | | $ | 38 |
|
Short-term borrowings | | 5,535 |
| | 12 |
| | 0.87 |
| | 6,057 |
| | 12 |
| | 0.79 |
| | (1 | ) | | 1 |
| | — |
| | 8,223 |
| | 27 |
| | 1.33 |
| | 5,609 |
| | 13 |
| | 0.93 |
| | 6 |
| | 8 |
| | 14 |
|
Long-term debt (d) | | 60,758 |
| | 436 |
| | 2.89 |
| | 66,371 |
| | 419 |
| | 2.53 |
| | (35 | ) | | 52 |
| | 17 |
| | 52,549 |
| | 424 |
| | 3.27 |
| | 64,841 |
| | 442 |
| | 2.74 |
| | (84 | ) | | 66 |
| | (18 | ) |
Total interest-bearing liabilities | | 137,772 |
| | 651 |
| | 1.90 |
| | 133,652 |
| | 608 |
| | 1.82 |
| | (6 | ) | | 49 |
| | 43 |
| | 142,932 |
| | 682 |
| | 1.94 |
| | 138,598 |
| | 648 |
| | 1.88 |
| |
|
| |
|
| | 34 |
|
Noninterest-bearing deposit liabilities | | 91 |
| | | | | | 81 |
| | | | | | | | | | | | 93 |
| | | | | | 92 |
| | | | | | | | | | |
Total funding sources | | 137,863 |
| | 651 |
| | 1.90 |
| | 133,733 |
| | 608 |
| | 1.82 |
| | | | | | | | 143,025 |
| | 682 |
| | 1.93 |
| | 138,690 |
| | 648 |
| | 1.88 |
| | | | | | |
Other liabilities | | 4,948 |
| | | | | | 4,538 |
| | | | | | | | | | | | 4,383 |
| | | | | | 5,053 |
| | | | | | | | | | |
Total liabilities | | 142,811 |
| | | | | | 138,271 |
| | | | | | | | | | | | 147,408 |
| | | | | | 143,743 |
| | | | | | | | | | |
Total equity | | 13,645 |
| | | | | | 14,652 |
| | | | | | | | | | | | 13,437 |
| | | | | | 13,626 |
| | | | | | | | | | |
Total liabilities and equity | | $ | 156,456 |
| | | | | | $ | 152,923 |
| | | | | | | | | | | | $ | 160,845 |
| | | | | | $ | 157,369 |
| | | | | | | | | | |
Net financing revenue | | | | $ | 979 |
| | | | | | $ | 909 |
| | | | $ | 39 |
| | $ | 31 |
| | $ | 70 |
| |
Net financing revenue and other interest income | | | | | $ | 979 |
| | | | | | $ | 951 |
| | | |
|
| |
|
| | $ | 28 |
|
Net interest spread (f) | | | | | | 2.57 | % | | | | | | 2.43 | % | | | | | | | | | | | | 2.47 | % | | | | | | 2.48 | % | | | | | | |
Net yield on interest-earning assets (g) | | | | | | 2.68 | % | | | | | | 2.55 | % | | | | | | | | | | | | 2.60 | % | | | | | | 2.59 | % | | | | | | |
| |
(a) | Average balances are calculated using a combination of monthly and daily average methodologies. |
| |
(b) | ExcludesAmounts for the three months ended March 31, 2016, were adjusted to include previously excluded equity investments with an average balance of $631$738 million and $1,037 million at June 30, 2016, and 2015, respectively, and related income on equity investments of $5 million and $7 million for the three months ended June 30, 2016, and 2015, respectively.$4 million. Yields on available-for-sale debt securities are based on fair value as opposed to amortized cost. Yields on held-to-maturity securities are based on amortized cost.
|
| |
(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 Annual Consolidated Financial Statements. in our 2016 Annual Report on Form 10-K. |
| |
(d) | Includes the effects of derivative financial instruments designated as hedges. |
| |
(e) | Includes gainsloss on sale of $86$3 million and $108gain on sale of $55 million for the three months ended June 30,March 31, 2017, and 2016, and 2015, respectively. Excluding these losses or gains on sale, the annualized yield would be 5.06%5.82% and 4.09%5.25% at June 30,March 31, 2017, and 2016, and 2015, respectively. |
| |
(f) | Net interest spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities. |
| |
(g) | Net yield on interest-earning assets represents annualized net financing revenue and other interest income as a percentage of total interest-earning assets. |
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 | | (Decrease) increase due to |
Six months ended June 30, ($ in millions) | | Average balance (a) | | Interest income/ Interest expense | | Yield/rate | | Average balance (a) | | Interest income/ Interest expense | | Yield/rate | | Volume | | Yield/rate | | Total |
Assets | | | | | | | | | | | | | | | | | | |
Interest-bearing cash and cash equivalents | | $ | 2,787 |
| | $ | 7 |
| | 0.51 | % | | $ | 4,206 |
| | $ | 4 |
| | 0.19 | % | | $ | (1 | ) | | $ | 4 |
| | $ | 3 |
|
Federal funds sold and securities purchased under resale agreements | | 1 |
| | — |
| | — |
| | 4 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Investment securities (b) | | 17,210 |
| | 192 |
| | 2.24 |
| | 16,494 |
| | 169 |
| | 2.07 |
| | 7 |
| | 16 |
| | 23 |
|
Loans held-for-sale, net | | 18 |
| | — |
| | — |
| | 1,719 |
| | 38 |
| | 4.46 |
| | (38 | ) | | — |
| | (38 | ) |
Finance receivables and loans, net (c) (d) | | 111,843 |
| | 2,500 |
| | 4.50 |
| | 100,412 |
| | 2,192 |
| | 4.40 |
| | 250 |
| | 58 |
| | 308 |
|
Investment in operating leases, net (e) | | 15,011 |
| | 526 |
| | 7.05 |
| | 18,960 |
| | 571 |
| | 6.07 |
| | (119 | ) | | 74 |
| | (45 | ) |
Total interest-earning assets | | 146,870 |
| | 3,225 |
| | 4.42 |
| | 141,795 |
| | 2,974 |
| | 4.23 |
| | 99 |
| | 152 |
| | 251 |
|
Noninterest-bearing cash and cash equivalents | | 1,589 |
| | | | | | 1,580 |
| | | | | | | | | | |
Other assets | | 9,526 |
| | | | | | 9,535 |
| | | | | | | | | | |
Allowance for loan losses | | (1,074 | ) | | | | | | (961 | ) | | | | | | | | | | |
Total assets | | $ | 156,911 |
| | | | | | $ | 151,949 |
| | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | |
Interest-bearing deposit liabilities | | $ | 69,823 |
| | $ | 396 |
| | 1.14 | % | | $ | 60,303 |
| | $ | 349 |
| | 1.17 | % | | 55 |
| | (8 | ) | | 47 |
|
Short-term borrowings | | 5,572 |
| | 25 |
| | 0.90 |
| | 6,168 |
| | 23 |
| | 0.75 |
| | (2 | ) | | 4 |
| | 2 |
|
Long-term debt (d) | | 62,788 |
| | 878 |
| | 2.81 |
| | 65,685 |
| | 848 |
| | 2.60 |
| | (37 | ) | | 67 |
| | 30 |
|
Total interest-bearing liabilities | | 138,183 |
| | 1,299 |
| | 1.89 |
| | 132,156 |
| | 1,220 |
| | 1.86 |
| | 16 |
| | 63 |
| | 79 |
|
Noninterest-bearing deposit liabilities | | 92 |
| | | | | | 77 |
| | | | | | | | | | |
Total funding sources | | 138,275 |
| | 1,299 |
| | 1.89 |
| | 132,233 |
| | 1,220 |
| | 1.86 |
| | | | | | |
Other liabilities | | 4,976 |
| | | | | | 4,548 |
| | | | | | | | | | |
Total liabilities | | 143,251 |
| | | | | | 136,781 |
| | | | | | | | | | |
Total equity | | 13,660 |
| | | | | | 15,168 |
| | | | | | | | | | |
Total liabilities and equity | | $ | 156,911 |
| | | | | | $ | 151,949 |
| | | | | | | | | | |
Net financing revenue | | | | $ | 1,926 |
| | | | | | $ | 1,754 |
| | | | $ | 83 |
| | $ | 89 |
| | $ | 172 |
|
Net interest spread (f) | | | | | | 2.53 | % | | | | | | 2.37 | % | | | | | | |
Net yield on interest-earning assets (g) | | | | | | 2.64 | % | | | | | | 2.49 | % | | | | | | |
| |
(a) | Average balances are calculated using a combination of monthly and daily average methodologies. |
| |
(b) | Excludes equity investments with an average balance of $685 million and $943 million at June 30, 2016, and 2015, respectively, and related income on equity investments of $9 million and $12 million for the six months ended June 30, 2016, and 2015, respectively. Yields on available-for-sale debt securities are based on fair value as opposed to amortized cost. |
| |
(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 Annual Consolidated Financial Statements. |
| |
(d) | Includes the effects of derivative financial instruments designated as hedges. |
| |
(e) | Includes gains on sale of $141 million and $178 million for the six months ended June 30, 2016, and 2015, respectively. Excluding these gains on sale, the annualized yield would be 5.16% and 4.18% at June 30, 2016, and 2015, respectively. |
| |
(f) | Net interest spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities. |
| |
(g) | Net yield on interest-earning assets represents net financing revenue as a percentage of total interest-earning assets. |
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Recently Issued Accounting Standards
Refer to Note 1 to the Condensed Consolidated Financial Statements.Statements.
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 Statementsstatements 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.
The foregoingThis 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, including the residual effects of the recent global economic crisis and responses to that crisis by governments, businesses, and households;
changes in laws or the regulatory or supervisory environment, including as a result of recent financial services legislation, regulation, or policies or changes in government officials or other personnel;
changes in monetary, fiscal, or trade laws or policies, including as a result of actions by government agencies, central banks, or supranational authorities;
changes in accounting standards or policies;
changes in the automotive industry or the markets for new or used vehicles;
disruptions or shifts in investor sentiment or behavior in the securities, capital, or other financial markets, including financial or systemic shocks and volatility or changes in market liquidity, interest or currency rates, or valuations;
changes in business or consumer sentiment, preferences, or behavior, including spending, borrowing, or saving by businesses or households;
changes in our corporate or business strategies, the composition of our assets, or the way in which we fund those assets;
our ability to execute our business strategy for Ally Bank, including its regulatory normalization;
our ability to optimize our automotive finance and insurance businesses and to continue diversifying into and growing other lines of business, including consumer finance, corporate finance, brokerage, and wealth management;
our ability to develop capital plans that will be approved by the FRB and our ability to implement them, including any payment of dividends or share repurchases;
our ability to effectively manage capital or liquidity consistent with evolving business or operational needs, risk management standards, and regulatory or supervisory requirements;
our ability to cost-effectively fund our business and operations, including through deposits and the capital markets;
changes in any credit rating assigned to Ally, including Ally Bank;
adverse publicity or other reputational harm to us;
our ability to develop, maintain, or market our products or services or to absorb unanticipated costs or liabilities associated with those products or services;
our ability to innovate, to anticipate the needs of current or future customers, to successfully compete, to increase or hold market share in changing competitive environments, or to deal with pricing or other competitive pressures;
the continuing profitability and viability of our dealer-centric automotive finance and insurance businesses, especially in the face of competition from captive finance companies and their automotive manufacturing sponsors;
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q
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;
our ability to maintain secure and functional financial, accounting, technology, data processing, or other operating systems or facilities, including our capacity to withstand cyber-attacks;
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 to attract or retain qualified employees;
natural or man-made disasters, calamities, or conflicts, including terrorist events and pandemics; or
other assumptions, risks, or uncertainties described in the Risk Factors (Part II, Item 1A herein), Management’s Discussion and Analysis of Financial Condition and Results of Operations and other portions of(Part I, Item 2 herein), or the Notes to the Condensed Consolidated Financial Statements (Part I, Item 1 herein) in this Quarterly Report on Form 10-Q contain various forward-looking statements within the meaning of applicable federal securities laws.
The words “expect,” “anticipate,” “estimate,” “forecast,” “initiative,” “objective,” “plan,” “goal,” “project,” “outlook,” “priorities,” “target,” “intend,” “evaluate,” “pursue,” “seek,” “may,” “would,” “could,” “should,” “believe,” “potential,” “continue,” or the negative ofdescribed in any of these wordsthe Company’s annual, quarterly or similar expressions are intended to identify forward-looking statements. All statements herein, other than statements of historical fact, including without limitation statements about future events and financial performance, are forward-looking statements that involve certain risks and uncertainties.current reports.
While these statements represent our current judgment on what the future may hold, and we believe these judgments are reasonable, these statements are not guarantees of any events or financial results, and Ally's actual results may differ materially. You should not place undue reliance on anyAny forward-looking statement and should consider all uncertainties and risks described in the most recent reportsmade by us or on Securities and Exchange Commission (SEC) Forms 10-K and 10-Q for Ally, or discussed in this report, including those under Item 1A, Risk Factors, as well as those provided in any subsequent SEC filings. Forward-looking statements applyour behalf speaks only as of the date they are made, and Ally undertakes no obligationthat it was made. We do not undertake to update any forward-looking statement to reflect the impact of events, circumstances, or circumstancesresults 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 statement are made. Such factors include, among others, the following: maintaining the mutually beneficial relationship between Ally and GM, and Ally and Chrysler, and our ability to further diversify our business; our ability to maintain relationships with automotive dealers; the significant regulation and restrictionsnature) that we are subject to as a BHC and a FHC; the potential for deteriorationmay make in the residual value of off-lease vehicles; disruptions in the market in which we fund our operations, with resulting negative impactany subsequent Annual Report on our liquidity; changes in our accounting assumptions that may requireForm 10-K, Quarterly Report on Form 10-Q, or that result from changes in the accounting rules or their application, which could result in an impactCurrent Report on earnings; changes in our credit ratings; changes in economic conditions, currency exchange rates or political stability in the markets in which we operate; and changes in the existing or the adoption of new laws, regulations, policies or other activities of governments, agencies and similar organizations (including as a result of the Dodd-Frank Act and Basel III).Form 8-K.
UseOur use of the term “loans” describes all of the products associated with our direct and indirect lending activities of Ally’s operations.activities. The specific products include loans, retail installment sales contracts, lines of credit, leases, orand other financing products. The term “lend” or “originate” refers to Ally’s purchase, acquisition orour direct origination of various “loan” products.loans or our purchase or acquisition of loans.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Refer to the Market Risk Management section of Item 2, Management's Discussion and Analysis.
Controls and Procedures
Ally Financial Inc. • Form 10-Q
Item 4. 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 our most recent fiscalthe quarter ended March 31, 2017, that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
Our management, including our Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls or our internal controls will prevent or detect all errors and all fraud. 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. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Ally have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II — OTHER INFORMATION
Ally Financial Inc. • Form 10-Q
Item 1. Legal Proceedings
Refer to Note 2625 to the Condensed Consolidated Financial Statements (incorporated herein by reference) for a discussion related to our legal proceedings.proceedings, which supplements the discussion of legal proceedings set forth in Note 30 to the Consolidated Financial Statements in our 2016 Annual Report on Form 10-K.
Item 1A. Risk Factors
There have been no material changes to the Risk Factors described in our 2016 Annual Consolidated Financial Statements.Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Repurchases Under Share-Based Incentive PlansWe did not have any unregistered sales of equity securities during the three months ended March 31, 2017.
Purchases of Equity Securities by the Issuer
The following table presents repurchases of our common stock, by month, for the three months endedJune 30, 2016. All repurchases reflected below include only shares of common stock that were withheld to cover income taxes owed by participants in our share-based incentive plans. March 31, 2017.
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Three months ended June 30, 2016 | | Total number of shares repurchased | | Weighted-average price paid per share |
April 2016 | | 4,436 |
| | $ | 18.32 |
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May 2016 | | 4,018 |
| | 17.72 |
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June 2016 | | 207 |
| | 16.63 |
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Total | | 8,661 |
| | $ | 18.00 |
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Three months ended March 31, 2017 | | 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) |
January 2017 | | 3,289 |
| | $ | 19.68 |
| | 3,289 |
| | $ | 309 |
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February 2017 | | 1,845 |
| | 22.76 |
| | 1,845 |
| | 267 |
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March 2017 | | 2,963 |
| | 21.02 |
| | 2,963 |
| | 205 |
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Total | | 8,097 |
| | 20.87 |
| | 8,097 |
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(a) | Includes shares of common stock withheld to cover income taxes owed by participants in our share-based incentive plans. |
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(b) | Excludes brokerage commissions. |
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(c) | On July 19, 2016, we announced a common stock repurchase program of up to $700 million. The program commenced in the third quarter of 2016 and will expire on June 30, 2017. |
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
The exhibits listed on the accompanying Index of Exhibits are filed as a part of this report. This Index is incorporated herein by reference.
Signatures
Ally Financial Inc. • Form 10-Q
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 4th day of August, 2016May, 2017.
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| Ally Financial Inc. (Registrant) |
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| /S/ CHRISTOPHER A. HALMY |
| Christopher A. Halmy Chief Financial Officer |
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| /S/ DAVID J. DEBRUNNER |
| David J. DeBrunner Vice President, Chief Accounting Officer, and Corporate Controller |
Ally Financial Inc. • Form 10-Q
INDEX OF EXHIBITS
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Exhibit | Description | Method of Filing |
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12 | Computation of Ratio of Earnings to Fixed Charges | Filed herewith. |
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31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) | Filed herewith. |
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31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) | Filed herewith. |
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32 | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 | Filed herewith. |
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101 | Interactive Data File | Filed herewith. |