0000040729 us-gaap:UnsecuredDebtMember us-gaap:DesignatedAsHedgingInstrumentMember ally:InterestondepositsMember 2018-01-01 2018-06-30
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, 2018,2019, 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.) |
Ally Detroit Center
500 Woodward Ave.Ave.
Floor 10, Detroit, Michigan
48226
(Address of principal executive offices)
(Zip Code)
(866) (866) 710-4623
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act (all listed on the New York Stock Exchange):
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Title of each class | Trading symbols |
Common Stock, par value $0.01 per share | ALLY |
8.125% Fixed Rate/Floating Rate Trust Preferred Securities, Series 2 of GMAC Capital Trust I | ALLY PRA |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes☑ No ☐
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 asuch shorter period that the registrant was required to submit and post such files).
Yesþ☑ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filerþ | ☑ | | Accelerated filero | ☐ | | Non-accelerated filero | ☐ | | Smaller reporting companyo | ☐ |
| | (Do not check if a smaller reporting company) | | | | Emerging growth companyo
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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 July 30, 2018,2019, the number of shares outstanding of the Registrant’s common stock was 422,080,891390,415,331 shares.
INDEX
Ally Financial Inc. • 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 June 30, | | Six months ended June 30, |
($ in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Financing revenue and other interest income | | | | | | | | | | | | | | | | |
Interest and fees on finance receivables and loans | | $ | 1,647 |
| | $ | 1,447 |
| | $ | 3,190 |
| | $ | 2,815 |
| | $ | 1,860 |
| | $ | 1,647 |
| | $ | 3,667 |
| | $ | 3,190 |
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Interest on loans held-for-sale | | 6 |
| | — |
| | 6 |
| | — |
| | 3 |
| | 6 |
| | 5 |
| | 6 |
|
Interest and dividends on investment securities and other earning assets | | 188 |
| | 146 |
| | 364 |
| | 280 |
| | 244 |
| | 188 |
| | 484 |
| | 364 |
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Interest on cash and cash equivalents | | 17 |
| | 7 |
| | 32 |
| | 12 |
| | 21 |
| | 17 |
| | 44 |
| | 32 |
|
Operating leases | | 374 |
| | 488 |
| | 756 |
| | 1,031 |
| | 363 |
| | 374 |
| | 724 |
| | 756 |
|
Total financing revenue and other interest income | | 2,232 |
| | 2,088 |
| | 4,348 |
|
| 4,138 |
| | 2,491 |
| | 2,232 |
| | 4,924 |
|
| 4,348 |
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Interest expense | | | | | | | | | | | | | | | | |
Interest on deposits | | 399 |
| | 250 |
| | 750 |
| | 481 |
| | 651 |
| | 399 |
| | 1,243 |
| | 750 |
|
Interest on short-term borrowings | | 40 |
| | 33 |
| | 72 |
| | 60 |
| | 37 |
| | 40 |
| | 81 |
| | 72 |
|
Interest on long-term debt | | 434 |
| | 417 |
| | 845 |
| | 841 |
| | 407 |
| | 434 |
| | 826 |
| | 845 |
|
Total interest expense | | 873 |
| | 700 |
| | 1,667 |
|
| 1,382 |
| | 1,095 |
| | 873 |
| | 2,150 |
| | 1,667 |
|
Net depreciation expense on operating lease assets | | 265 |
| | 321 |
| | 538 |
| | 710 |
| | 239 |
| | 265 |
| | 485 |
| | 538 |
|
Net financing revenue and other interest income | | 1,094 |
| | 1,067 |
| | 2,143 |
|
| 2,046 |
| | 1,157 |
| | 1,094 |
| | 2,289 |
|
| 2,143 |
|
Other revenue | | | | | | | | | | | | | | | | |
Insurance premiums and service revenue earned | | 239 |
| | 227 |
| | 495 |
| | 468 |
| | 261 |
| | 239 |
| | 522 |
| | 495 |
|
Gain on mortgage and automotive loans, net | | 1 |
| | 36 |
| | 2 |
| | 50 |
| | 2 |
| | 1 |
| | 12 |
| | 2 |
|
Other gain on investments, net | | 27 |
| | 23 |
| | 15 |
| | 50 |
| | 39 |
| | 27 |
| | 147 |
| | 15 |
|
Other income, net of losses | | 97 |
| | 102 |
| | 206 |
| | 216 |
| | 93 |
| | 97 |
| | 180 |
| | 206 |
|
Total other revenue | | 364 |
|
| 388 |
| | 718 |
|
| 784 |
| | 395 |
|
| 364 |
| | 861 |
|
| 718 |
|
Total net revenue | | 1,458 |
| | 1,455 |
| | 2,861 |
|
| 2,830 |
| | 1,552 |
| | 1,458 |
| | 3,150 |
|
| 2,861 |
|
Provision for loan losses | | 158 |
| | 269 |
| | 419 |
| | 540 |
| | 177 |
| | 158 |
| | 459 |
| | 419 |
|
Noninterest expense | | | | | | | | | | | | | | | | |
Compensation and benefits expense | | 292 |
| | 265 |
| | 598 |
| | 550 |
| | 296 |
| | 292 |
| | 614 |
| | 598 |
|
Insurance losses and loss adjustment expenses | | 101 |
| | 125 |
| | 164 |
| | 213 |
| | 127 |
| | 101 |
| | 186 |
| | 164 |
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Other operating expenses | | 446 |
| | 420 |
| | 891 |
| | 825 |
| | 458 |
| | 446 |
| | 911 |
| | 891 |
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Total noninterest expense | | 839 |
| | 810 |
| | 1,653 |
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| 1,588 |
| | 881 |
| | 839 |
| | 1,711 |
| | 1,653 |
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Income from continuing operations before income tax expense | | 461 |
| | 376 |
| | 789 |
|
| 702 |
| |
Income tax expense from continuing operations | | 113 |
| | 122 |
| | 189 |
| | 235 |
| |
Income from continuing operations before income tax (benefit) expense | | | 494 |
| | 461 |
| | 980 |
|
| 789 |
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Income tax (benefit) expense from continuing operations | | | (90 | ) | | 113 |
| | 21 |
| | 189 |
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Net income from continuing operations | | 348 |
| | 254 |
| | 600 |
|
| 467 |
| | 584 |
| | 348 |
| | 959 |
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| 600 |
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Income (loss) from discontinued operations, net of tax | | 1 |
| | (2 | ) | | (1 | ) | | (1 | ) | |
(Loss) income from discontinued operations, net of tax | | | (2 | ) | | 1 |
| | (3 | ) | | (1 | ) |
Net income | | 349 |
| | 252 |
| | 599 |
|
| 466 |
| | 582 |
| | 349 |
| | 956 |
|
| 599 |
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Other comprehensive (loss) income, net of tax | | (70 | ) | | 76 |
| | (398 | ) | | 96 |
| |
Other comprehensive income (loss), net of tax | | | 309 |
| | (70 | ) | | 615 |
| | (398 | ) |
Comprehensive income | | $ | 279 |
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| $ | 328 |
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| $ | 201 |
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| $ | 562 |
| | $ | 891 |
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| $ | 279 |
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| $ | 1,571 |
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| $ | 201 |
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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 June 30, | | Six months ended June 30, |
(in dollars) (a) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Basic earnings per common share | | | | | | | | | | | | | | | | |
Net income from continuing operations | | $ | 0.81 |
| | $ | 0.55 |
| | $ | 1.38 |
| | $ | 1.01 |
| | $ | 1.47 |
| | $ | 0.81 |
| | $ | 2.39 |
| | $ | 1.38 |
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Loss from discontinued operations, net of tax | | — |
| | (0.01 | ) | | — |
| | — |
| | — |
| | — |
| | (0.01 | ) | | — |
|
Net income | | $ | 0.81 |
| | $ | 0.55 |
| | $ | 1.38 |
| | $ | 1.01 |
| | $ | 1.46 |
| | $ | 0.81 |
| | $ | 2.39 |
| | $ | 1.38 |
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Diluted earnings per common share | | | | | | | | | | | | | | | | |
Net income from continuing operations | | $ | 0.80 |
| | $ | 0.55 |
| | $ | 1.38 |
| | $ | 1.01 |
| | $ | 1.46 |
| | $ | 0.80 |
| | $ | 2.38 |
| | $ | 1.38 |
|
Loss from discontinued operations, net of tax | | — |
| | (0.01 | ) | | — |
| | — |
| | — |
| | — |
| | (0.01 | ) | | — |
|
Net income | | $ | 0.81 |
| | $ | 0.55 |
| | $ | 1.37 |
| | $ | 1.01 |
| | $ | 1.46 |
| | $ | 0.81 |
| | $ | 2.37 |
| | $ | 1.37 |
|
Cash dividends declared per common share | | $ | 0.13 |
| | $ | 0.08 |
| | $ | 0.26 |
| | $ | 0.16 |
| | $ | 0.17 |
| | $ | 0.13 |
| | $ | 0.34 |
| | $ | 0.26 |
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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 1615 for additional earnings per share 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, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
Assets | | | | | | | | |
Cash and cash equivalents | | | | | | | | |
Noninterest-bearing | | $ | 799 |
| | $ | 844 |
| | $ | 659 |
| | $ | 810 |
|
Interest-bearing | | 3,125 |
| | 3,408 |
| | 2,904 |
| | 3,727 |
|
Total cash and cash equivalents | | 3,924 |
| | 4,252 |
| | 3,563 |
| | 4,537 |
|
Equity securities | | 521 |
| | 518 |
| | 591 |
| | 773 |
|
Available-for-sale securities (refer to Note 6 for discussion of investment securities pledged as collateral) | | 23,296 |
| | 22,303 |
| | 28,688 |
| | 25,303 |
|
Held-to-maturity securities (fair value of $2,007 and $1,865) | | 2,089 |
| | 1,899 |
| |
Held-to-maturity securities (fair value of $2,499 and $2,307) | | | 2,461 |
| | 2,362 |
|
Loans held-for-sale, net | | 328 |
| | 108 |
| | 275 |
| | 314 |
|
Finance receivables and loans, net | | | | | | | | |
Finance receivables and loans, net of unearned income | | 125,544 |
| | 122,893 |
| | 129,210 |
| | 129,926 |
|
Allowance for loan losses | | (1,257 | ) | | (1,276 | ) | | (1,282 | ) | | (1,242 | ) |
Total finance receivables and loans, net | | 124,287 |
| | 121,617 |
| | 127,928 |
| | 128,684 |
|
Investment in operating leases, net | | 8,639 |
| | 8,741 |
| | 8,407 |
| | 8,417 |
|
Premiums receivable and other insurance assets | | 2,247 |
| | 2,047 |
| | 2,460 |
| | 2,326 |
|
Other assets | | 6,014 |
| | 5,663 |
| | 6,075 |
| | 6,153 |
|
Total assets | | $ | 171,345 |
| | $ | 167,148 |
| | $ | 180,448 |
| | $ | 178,869 |
|
Liabilities | | | | | | | | |
Deposit liabilities | | | | | | | | |
Noninterest-bearing | | $ | 153 |
| | $ | 108 |
| | $ | 162 |
| | $ | 142 |
|
Interest-bearing | | 98,581 |
|
| 93,148 |
| | 116,163 |
|
| 106,036 |
|
Total deposit liabilities | | 98,734 |
| | 93,256 |
| | 116,325 |
| | 106,178 |
|
Short-term borrowings | | 7,108 |
| | 11,413 |
| | 6,519 |
| | 9,987 |
|
Long-term debt | | 47,328 |
| | 44,226 |
| | 37,466 |
| | 44,193 |
|
Interest payable | | 568 |
| | 375 |
| | 744 |
| | 523 |
|
Unearned insurance premiums and service revenue | | 2,957 |
| | 2,604 |
| | 3,171 |
| | 3,044 |
|
Accrued expenses and other liabilities | | 1,511 |
| | 1,780 |
| | 1,907 |
| | 1,676 |
|
Total liabilities | | 158,206 |
| | 153,654 |
| | 166,132 |
| | 165,601 |
|
Contingencies (refer to Note 24) | | | | | |
Contingencies (refer to Note 23) | | | | | |
Equity | | | | | | | | |
Common stock and paid-in capital ($0.01 par value, shares authorized 1,100,000,000; issued 492,334,686 and 489,883,553; and outstanding 425,752,181 and 437,053,936) | | 21,303 |
| | 21,245 |
| |
Common stock and paid-in capital ($0.01 par value, shares authorized 1,100,000,000; issued 496,560,246 and 492,797,409; and outstanding 392,775,052 and 404,899,599) | | | 21,403 |
| | 21,345 |
|
Accumulated deficit | | (6,026 | ) | | (6,406 | ) | | (4,682 | ) | | (5,489 | ) |
Accumulated other comprehensive loss | | (648 | ) | | (235 | ) | |
Treasury stock, at cost (66,582,505 and 52,829,617 shares) | | (1,490 | ) | | (1,110 | ) | |
Accumulated other comprehensive income (loss) | | | 84 |
| | (539 | ) |
Treasury stock, at cost (103,785,194 and 87,897,810 shares) | | | (2,489 | ) | | (2,049 | ) |
Total equity | | 13,139 |
| | 13,494 |
| | 14,316 |
| | 13,268 |
|
Total liabilities and equity | | $ | 171,345 |
| | $ | 167,148 |
| | $ | 180,448 |
| | $ | 178,869 |
|
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, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
Assets | | | | | | | | |
Finance receivables and loans, net | | | | | | | | |
Finance receivables and loans, net of unearned income | | $ | 19,386 |
| | $ | 20,623 |
| | $ | 16,101 |
| | $ | 18,086 |
|
Allowance for loan losses | | (146 | ) | | (136 | ) | | (98 | ) | | (114 | ) |
Total finance receivables and loans, net | | 19,240 |
| | 20,487 |
| | 16,003 |
| | 17,972 |
|
Investment in operating leases, net | | 257 |
| | 444 |
| | 90 |
| | 164 |
|
Other assets | | 722 |
| | 689 |
| | 614 |
| | 767 |
|
Total assets | | $ | 20,219 |
| | $ | 21,620 |
| | $ | 16,707 |
| | $ | 18,903 |
|
Liabilities | | | | | | | | |
Long-term debt | | $ | 12,345 |
| | $ | 10,197 |
| | $ | 9,030 |
| | $ | 10,482 |
|
Accrued expenses and other liabilities | | 12 |
| | 9 |
| | 11 |
| | 12 |
|
Total liabilities | | $ | 12,357 |
| | $ | 10,206 |
| | $ | 9,041 |
| | $ | 10,494 |
|
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
| | | | | | | | | | | | | | Three months ended June 30, |
($ in millions) | | Common stock and paid-in capital | | Accumulated deficit | | Accumulated other comprehensive loss | | Treasury stock | | Total equity | | Common stock and paid-in capital | | Accumulated deficit | | Accumulated other comprehensive (loss) income | | Treasury stock | | Total equity |
Balance at January 1, 2017 | | $ | 21,166 |
| | $ | (7,151 | ) | | $ | (341 | ) | | $ | (357 | ) | | $ | 13,317 |
| |
Balance at April 1, 2018 | | | $ | 21,273 |
| | $ | (6,318 | ) | | $ | (578 | ) | | $ | (1,295 | ) | | $ | 13,082 |
|
Net income | | | | | 349 |
| | | | | | 349 |
|
Share-based compensation | | | 30 |
| | | | | | | | 30 |
|
Other comprehensive loss | | | | | | | (70 | ) | | | | (70 | ) |
Common stock repurchases | | | | | | | | | (195 | ) | | (195 | ) |
Common stock dividends ($0.13 per share) | | | | | (57 | ) | | | | | | (57 | ) |
Balance at June 30, 2018 | | | $ | 21,303 |
| | $ | (6,026 | ) | | $ | (648 | ) | | $ | (1,490 | ) | | $ | 13,139 |
|
Balance at April 1, 2019 | | | $ | 21,379 |
| | $ | (5,195 | ) | | $ | (225 | ) | | $ | (2,260 | ) | | $ | 13,699 |
|
Net income | |
| | 466 |
| |
|
| |
| | 466 |
| | | | 582 |
| | | | | | 582 |
|
Share-based compensation | | 42 |
| |
| |
|
| |
|
| | 42 |
| | 24 |
| | | | | | | | 24 |
|
Other comprehensive income | |
| |
| | 96 |
| |
|
| | 96 |
| | | | | | 309 |
| | | | 309 |
|
Common stock repurchases | |
| |
| |
|
| | (373 | ) | | (373 | ) | | | | | | | | (229 | ) | | (229 | ) |
Common stock dividends ($0.16 per share) | |
| | (75 | ) | |
| |
| | (75 | ) | |
Balance at June 30, 2017 | | $ | 21,208 |
| | $ | (6,760 | ) | | $ | (245 | ) | | $ | (730 | ) | | $ | 13,473 |
| |
Balance at January 1, 2018, before cumulative effect of adjustments | | $ | 21,245 |
| | $ | (6,406 | ) | | $ | (235 | ) | | $ | (1,110 | ) | | $ | 13,494 |
| |
Cumulative effect of changes in accounting principles, net of tax (a) | | | | | | | | | | | |
Adoption of Accounting Standards Update 2014-09 | | | | (126 | ) | | | | | | (126 | ) | |
Adoption of Accounting Standards Update 2016-01 | | | | (20 | ) | | 27 |
| | | | 7 |
| |
Adoption of Accounting Standards Update 2018-02 | | | | 42 |
| | (42 | ) | | | | — |
| |
Balance at January 1, 2018, after cumulative effect of adjustments | | 21,245 |
| | (6,510 | ) | | (250 | ) | | (1,110 | ) | | 13,375 |
| |
Net income | |
| | 599 |
| |
|
| |
| | 599 |
| |
Share-based compensation | | 58 |
| |
| |
| |
| | 58 |
| |
Other comprehensive loss | |
| |
| | (398 | ) | |
| | (398 | ) | |
Common stock repurchases | |
| |
| |
| | (380 | ) | | (380 | ) | |
Common stock dividends ($0.26 per share) | |
| | (115 | ) | |
| |
|
| | (115 | ) | |
Balance at June 30, 2018 | | $ | 21,303 |
| | $ | (6,026 | ) | | $ | (648 | ) | | $ | (1,490 | ) | | $ | 13,139 |
| |
Common stock dividends ($0.17 per share) | | | | | (69 | ) | | | | | | (69 | ) |
Balance at June 30, 2019 | | | $ | 21,403 |
| | $ | (4,682 | ) | | $ | 84 |
| | $ | (2,489 | ) | | $ | 14,316 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, |
($ in millions) | | Common stock and paid-in capital | | Accumulated deficit | | Accumulated other comprehensive (loss) income | | Treasury stock | | Total equity |
Balance at December 31, 2017 | | $ | 21,245 |
| | $ | (6,406 | ) | | $ | (235 | ) | | $ | (1,110 | ) | | $ | 13,494 |
|
Cumulative effect of changes in accounting principles, net of tax (a) | | | | | | | | | | |
Adoption of Accounting Standards Update 2014-09 | | | | (126 | ) | | | | | | (126 | ) |
Adoption of Accounting Standards Update 2016-01 | | | | (20 | ) | | 27 |
| | | | 7 |
|
Adoption of Accounting Standards Update 2018-02 | | | | 42 |
| | (42 | ) | | | | — |
|
Balance at January 1, 2018 | | $ | 21,245 |
| | $ | (6,510 | ) | | $ | (250 | ) | | $ | (1,110 | ) | | $ | 13,375 |
|
Net income | | | | 599 |
| | | | | | 599 |
|
Share-based compensation | | 58 |
| | | | | | | | 58 |
|
Other comprehensive loss | | | | | | (398 | ) | | | | (398 | ) |
Common stock repurchases | | | | | | | | (380 | ) | | (380 | ) |
Common stock dividends ($0.26 per share) | | | | (115 | ) | | | | | | (115 | ) |
Balance at June 30, 2018 | | $ | 21,303 |
| | $ | (6,026 | ) | | $ | (648 | ) | | $ | (1,490 | ) | | $ | 13,139 |
|
Balance at December 31, 2018 | | $ | 21,345 |
| | $ | (5,489 | ) | | $ | (539 | ) | | $ | (2,049 | ) | | $ | 13,268 |
|
Cumulative effect of changes in accounting principles, net of tax (a) | | | | | | | | | | |
Adoption of Accounting Standards Update 2017-08 | | | | (10 | ) | | 8 |
| | | | (2 | ) |
Balance at January 1, 2019 | | $ | 21,345 |
| | $ | (5,499 | ) | | $ | (531 | ) | | $ | (2,049 | ) | | $ | 13,266 |
|
Net income | | | | 956 |
| | | | | | 956 |
|
Share-based compensation | | 58 |
| | | | | | | | 58 |
|
Other comprehensive income | | | | | | 615 |
| | | | 615 |
|
Common stock repurchases | | | | | | | | (440 | ) | | (440 | ) |
Common stock dividends ($0.34 per share) | | | | (139 | ) | | | | | | (139 | ) |
Balance at June 30, 2019 | | $ | 21,403 |
| | $ | (4,682 | ) | | $ | 84 |
| | $ | (2,489 | ) | | $ | 14,316 |
|
| |
(a) | Refer to the section titled Recently Adopted Accounting Standards in Note 1 for additional information. |
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) | | 2018 | | 2017 | | 2019 | | 2018 |
Operating activities |
|
|
|
|
|
|
|
|
Net income |
| $ | 599 |
|
| $ | 466 |
|
| $ | 956 |
|
| $ | 599 |
|
Reconciliation of net income to net cash provided by operating activities |
| |
| |
| |
| |
Depreciation and amortization |
| 865 |
|
| 1,003 |
|
| 752 |
|
| 865 |
|
Provision for loan losses |
| 419 |
|
| 540 |
|
| 459 |
|
| 419 |
|
Gain on mortgage and automotive loans, net |
| (2 | ) |
| (50 | ) |
| (12 | ) |
| (2 | ) |
Other gain on investments, net |
| (15 | ) |
| (50 | ) |
| (147 | ) |
| (15 | ) |
Originations and purchases of loans held-for-sale |
| (730 | ) |
| (202 | ) |
| (528 | ) |
| (730 | ) |
Proceeds from sales and repayments of loans held-for-sale |
| 512 |
|
| 187 |
|
| 335 |
|
| 512 |
|
Net change in |
| |
| |
| |
| |
Deferred income taxes |
| 192 |
|
| 203 |
|
| 1 |
|
| 192 |
|
Interest payable |
| 193 |
|
| 48 |
|
| 221 |
|
| 193 |
|
Other assets |
| (25 | ) |
| (94 | ) |
| (21 | ) |
| (25 | ) |
Other liabilities |
| (24 | ) |
| (50 | ) |
| (114 | ) |
| (24 | ) |
Other, net |
| 25 |
|
| 69 |
|
| (58 | ) |
| 25 |
|
Net cash provided by operating activities |
| 2,009 |
|
| 2,070 |
|
| 1,844 |
|
| 2,009 |
|
Investing activities |
|
|
|
|
|
|
|
|
Purchases of equity securities | | (500 | ) | | (363 | ) | | (210 | ) | | (500 | ) |
Proceeds from sales of equity securities | | 535 |
| | 484 |
| | 511 |
| | 535 |
|
Purchases of available-for-sale securities |
| (4,094 | ) |
| (5,490 | ) |
| (7,018 | ) |
| (4,094 | ) |
Proceeds from sales of available-for-sale securities |
| 390 |
|
| 1,678 |
|
| 2,568 |
|
| 390 |
|
Proceeds from repayments of available-for-sale securities |
| 1,621 |
|
| 1,230 |
|
| 1,805 |
|
| 1,621 |
|
Purchases of held-to-maturity securities |
| (316 | ) |
| (313 | ) |
| (268 | ) |
| (316 | ) |
Proceeds from repayments of held-to-maturity securities |
| 72 |
|
| 17 |
|
| 107 |
|
| 72 |
|
Purchases of finance receivables and loans held-for-investment |
| (2,611 | ) |
| (1,817 | ) |
| (2,386 | ) |
| (2,611 | ) |
Proceeds from sales of finance receivables and loans initially held-for-investment |
| — |
|
| 1,280 |
|
| 159 |
|
| — |
|
Originations and repayments of finance receivables and loans held-for-investment and other, net | | (638 | ) | | (1,588 | ) | | 2,769 |
| | (638 | ) |
Purchases of operating lease assets |
| (2,107 | ) |
| (1,965 | ) |
| (1,769 | ) |
| (2,107 | ) |
Disposals of operating lease assets |
| 1,763 |
|
| 3,043 |
|
| 1,321 |
|
| 1,763 |
|
Net change in nonmarketable equity investments |
| (46 | ) |
| 107 |
|
| 113 |
|
| (46 | ) |
Other, net |
| (186 | ) |
| (90 | ) |
| (209 | ) |
| (186 | ) |
Net cash used in investing activities |
| (6,117 | ) |
| (3,787 | ) |
| (2,507 | ) |
| (6,117 | ) |
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) | | 2019 | | 2018 |
Financing activities |
|
|
|
|
Net change in short-term borrowings |
| (3,468 | ) |
| (4,305 | ) |
Net increase in deposits |
| 10,133 |
|
| 5,441 |
|
Proceeds from issuance of long-term debt |
| 4,590 |
|
| 12,940 |
|
Repayments of long-term debt |
| (11,372 | ) |
| (9,800 | ) |
Repurchase of common stock | | (440 | ) | | (380 | ) |
Dividends paid |
| (139 | ) |
| (115 | ) |
Net cash (used in) provided by financing activities |
| (696 | ) |
| 3,781 |
|
Effect of exchange-rate changes on cash and cash equivalents and restricted cash |
| 3 |
|
| (3 | ) |
Net decrease in cash and cash equivalents and restricted cash |
| (1,356 | ) |
| (330 | ) |
Cash and cash equivalents and restricted cash at beginning of year |
| 5,626 |
|
| 5,269 |
|
Cash and cash equivalents and restricted cash at June 30, |
| $ | 4,270 |
|
| $ | 4,939 |
|
Supplemental disclosures |
| | | |
Cash paid for |
| | | |
Interest |
| $ | 1,884 |
|
| $ | 1,455 |
|
Income taxes |
| 24 |
|
| 17 |
|
Noncash items |
| | | |
Loans held-for-sale transferred to finance receivables and loans held-for-investment |
| 125 |
|
| — |
|
Finance receivables and loans held-for-investment transferred to loans held-for-sale | | 20 |
| | — |
|
Other disclosures |
| | | |
Proceeds from repayments of mortgage loans held-for-investment originally designated as held-for-sale |
| 7 |
|
| 12 |
|
|
| | | | | | | | |
Six months ended June 30, ($ in millions) | | 2018 | | 2017 |
Financing activities |
|
|
|
|
Net change in short-term borrowings |
| (4,305 | ) |
| (1,962 | ) |
Net increase in deposits |
| 5,441 |
|
| 7,133 |
|
Proceeds from issuance of long-term debt |
| 12,940 |
|
| 9,330 |
|
Repayments of long-term debt |
| (9,800 | ) |
| (14,366 | ) |
Repurchase of common stock | | (380 | ) | | (373 | ) |
Dividends paid |
| (115 | ) |
| (75 | ) |
Net cash provided by (used in) financing activities |
| 3,781 |
|
| (313 | ) |
Effect of exchange-rate changes on cash and cash equivalents and restricted cash |
| (3 | ) |
| 2 |
|
Net decrease in cash and cash equivalents and restricted cash |
| (330 | ) |
| (2,028 | ) |
Cash and cash equivalents and restricted cash at beginning of year |
| 5,269 |
|
| 7,881 |
|
Cash and cash equivalents and restricted cash at June 30, |
| $ | 4,939 |
|
| $ | 5,853 |
|
Supplemental disclosures |
| | | |
Cash paid for |
| | | |
Interest |
| $ | 1,455 |
|
| $ | 1,331 |
|
Income taxes |
| 17 |
|
| 28 |
|
Noncash items |
| | | |
Held-to-maturity securities received in consideration for loans sold | | — |
| | 56 |
|
Finance receivables and loans transferred to loans held-for-sale |
| — |
|
| 1,298 |
|
Other disclosures |
| | | |
Proceeds from repayments of mortgage loans held-for-investment originally designated as held-for-sale |
| 12 |
|
| 20 |
|
The following table provides a reconciliation of cash and cash equivalents and restricted cash from the Condensed Consolidated Balance Sheet to the Condensed Consolidated Statement of Cash Flows.Flows.
| | June 30, ($ in millions) | | 2018 | | 2017 | | 2019 | | 2018 |
Cash and cash equivalents as disclosed on the Condensed Consolidated Balance Sheet | | $ | 3,924 |
| | $ | 4,377 |
| |
Cash and cash equivalents on the Condensed Consolidated Balance Sheet | | | $ | 3,563 |
| | $ | 3,924 |
|
Restricted cash included in other assets on the Condensed Consolidated Balance Sheet (a) | | 1,015 |
| | 1,476 |
| | 707 |
| | 1,015 |
|
Total cash and cash equivalents and restricted cash as disclosed in the Condensed Consolidated Statement of Cash Flows | | $ | 4,939 |
| | $ | 5,853 |
| |
Total cash and cash equivalents and restricted cash in the Condensed Consolidated Statement of Cash Flows | | | $ | 4,270 |
| | $ | 4,939 |
|
| |
(a) | Restricted cash balances relate primarily to Ally securitization arrangements. Refer toNote 1110for additional details describing the nature of restricted cash balances. |
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. (together with its consolidated subsidiaries unless the context otherwise requires, otherwise, Ally, the Company,or we, us, or our) is a leading digital financial-services company. As a customer-centric company with passionate customer service and innovative financial solutions, we are relentlessly focused on “Doing It Right” and being a trusted financial-services provider to our consumer, commercial, and corporate customers. We are one of the largest full-service automotive finance operations in the country and offer a wide range of financial services company and top 25 U.S. financial holding company (FHC) based on total assets, offering diversified financialinsurance products to dealerships and services for consumers, businesses, automotive dealers,consumers. Our award-winning online bank (Ally Bank, Member FDIC and corporate clients. Ally operates with a distinctive brand, an innovative approach,Equal Housing Lender) offers mortgage-lending services and a relentless focus on our customers. variety of deposit and other banking products, including savings, money-market, and checking accounts, certificates of deposit (CDs), and individual retirement accounts (IRAs). Additionally, we offer securities-brokerage and investment-advisory services through Ally Invest. Our robust corporate finance business offers capital for equity sponsors and middle-market companies. We are a Delaware corporation and are registered as a bank holding company (BHC) under the Bank Holding Company Act of 1956, as amended, and an FHC a financial holding company (FHC)under the Gramm-Leach-Bliley Act of 1999, as amended. We are one of the largest full service automotive finance operations in the country with a legacy that dates back to 1919, a deep expertise in automotive lending, and a complementary automotive-focused insurance business. Our wholly-owned banking subsidiary, Ally Bank, has received numerous industry awards for its services and capabilities and is one of the largest and most respected online banks, uniquely positioned for the observed shifting trends in consumer banking preferences for digital banking. We offer mortgage lending services and a variety of deposit and other banking products, including CDs, online savings, money market and checking accounts, and IRA products. We also promote a cash back credit card. We have recently integrated a growing digital wealth management and online brokerage platform to enable consumers to have a variety of options in managing their savings and wealth. Additionally, through our corporate finance business, we primarily offer senior secured leveraged cash flow and asset-based loans to middle-market companies.amended.
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, 2018,2019, and for the three months and six months ended June 30, 2018,2019, and 2017,2018, 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, 2017,2018, as filed on February 21, 2018,20, 2019, with the U.S. Securities and Exchange Commission (SEC).
Significant Accounting Policies
InvestmentsLease Accounting
Our investment portfolio includes various debt and equity securities. Our debt securities include government securities, corporate bonds, asset-backed securities (ABS), and mortgage-backed securities (MBS). Debt securities are classifiedAt contract inception, we determine whether the contract is or contains a lease based on management’s intent to sell or hold the security. We classify debt securities as held-to-maturity only when we have both the intentterms and ability to hold the securities to maturity. We classify debt securities as trading when the securities are acquired for the purpose of selling or holding them for a short period of time. Debt securities not classified as either held-to-maturity or trading are classified as available-for-sale.
Our portfolio includes debt securities classified as available-for-sale and held-to-maturity. Our available-for-sale debt securities are carried at fair value with unrealized gains and losses included in accumulated other comprehensive loss and are subject to impairment. Our held-to-maturity debt securities are carried at amortized cost and are subject to impairment.
We assess our available-for-sale and held-to-maturity debt securities for potential other-than-temporary impairment. We employ a methodology that considers available evidence in evaluating potential other-than-temporary impairment of our debt securities. If the cost of an investment exceeds its fair value, we evaluate, among other factors, the magnitude and durationconditions of the decline in fair value. We also evaluate the financial health of and business outlook for the issuer, the performance of the underlying assets for interests in securitized assets, and, for debt securities classified as available-for-sale, our intent and ability to hold the investment through recovery of its amortized cost basis.
Once a decline in fair value of a debt security is determined to be other-than-temporary, an impairment charge for the credit component is recorded to other gain (loss)contract. Lease contracts are recognized on investments, net, in our Condensed Consolidated StatementBalance Sheet as right-of-use (ROU) assets and lease liabilities; however, we have elected not to recognize ROU assets and lease liabilities on real estate leases with terms of Comprehensive Income,one year or less. Lease liabilities and a new cost basistheir corresponding ROU assets are recorded based on the present value of the future lease payments over the expected lease term. As the interest rate implicit in the investmentlease contract is established. The noncredit loss component oftypically not readily determinable, we utilize our incremental borrowing rate, which is the rate we would incur to borrow on a collateralized basis over a similar term on an available-for-sale debt security continues to be recorded in other comprehensive (loss) income when we do not intend to sell the security and it is not more likely than not that we will have to sell the security prioramount equal to the security’s anticipated recovery. Bothlease payments in a similar economic environment. The ROU asset also includes initial direct costs paid less lease incentives received from the creditlessor. Our lease contracts are generally classified as operating and, noncredit loss componentsas a result, we recognize a single lease cost within other operating expenses on the income statement on a straight-line basis over the lease term. This update to our accounting policy resulted from our adoption of Accounting Standards Update (ASU) 2016-02 on January 1, 2019, as further described within the section below titled Recently Adopted Accounting Standards.
Investments
Premiums on debt securities that have noncontingent call features that are recorded in earnings when we intend to sell the security or it is more likely than not that we will have to sell the security priorcallable at fixed prices on preset dates are amortized to the security’s anticipated recovery. Subsequent increases and decreasesearliest call date as an adjustment to the fair value of available-for-sale debt securities are included ininvestment yield. All other comprehensive (loss) income, so long as they are not attributable to another other-than-temporary impairment.
We amortize premiums and discounts on debt securities as an adjustment to investment yield generallyare amortized over the stated maturity of the security. For ABS and MBS where prepayments can be reasonably estimated,security as an adjustment to investment yield. This method of amortization is adjusted for expected prepayments.
Notesdiffers from that described in Note 1 to Condensed the Consolidated Financial Statements (unaudited)
Ally Financial Inc. •in our 2018 Annual Report on Form 10-Q
Our investment in equity securities includes securities that are recognized at fair value with changes in10-K, which describes our full accounting policy for Investments. This update to our amortization methodology resulted from the fair value recorded in earnings, and equity securities that are recognized using other measurement principles.
Effectiveadoption of ASU 2017-08 on January 1, 2018, equity securities that have a readily determinable fair value,2019, as well as certain investments that do not have a readily determinable fair value and are not eligible to be recognized using other measurement principles, are recorded at fair value with changes in fair value recorded in earnings and reported in other gain (loss) on investments, net in our Condensed Consolidated Statement of Comprehensive Income. These investments, which are primarily attributable tofurther described within the investment portfolio of our Insurance operations, are included in equity securities on our Condensed Consolidated Balance Sheet. Refer to Note 6 for further information on our equity securities that have a readily determinable market value.section below titled Recently Adopted Accounting Standards.
Our equity securities recognized using other measurement principles include investments in Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock held to meet regulatory requirements, equity investments related to low income housing tax credits and the Community Reinvestment Act (CRA), which do not have a readily determinable fair value, and other equity investments that do not have a readily determinable fair value. Our low income housing tax credit investments are accounted for using the proportional amortization method of accounting for qualified affordable housing investments. Our obligations related to unfunded commitments for our low income housing tax credit investments are included in other liabilities. The majority of our CRA investments are accounted for using the equity method of accounting. Our investments in low income housing tax credits and CRA investments are included in other assets on our Condensed Consolidated Balance Sheet. Our investments in FHLB and FRB stock are carried at cost. Our remaining investments in equity securities are recorded at cost, less impairment and adjusted for observable price changes under the measurement alternative provided under GAAP. These investments, along with our investments in FHLB and FRB stock, are included in nonmarketable equity investments in other assets on our Condensed Consolidated Balance Sheet. As conditions warrant, we review these investments for impairment and adjust the carrying value of the investment if it is deemed to be impaired. Investments recorded under the measurement alternative are also reviewed at each reporting period to determine if any adjustments are required for observable price changes in identical or similar securities of the same issuer.
Realized gains and losses on the sale of securities are determined using the specific identification method and are reported in other gain (loss) on investments, net in our Condensed Consolidated Statement of Comprehensive Income.
Derivative Instruments and Hedging Activities
We use derivative instruments primarily for risk management purposes. We do not use derivative instruments for speculative purposes. Certain of our derivative instruments are designated as accounting hedges in qualifying relationships, whereas other derivative instruments have not been designated as accounting hedges. In accordance with applicable accounting standards, all derivative instruments, whether designated for hedge accounting or not, are required to be recorded on the balance sheet as assets or liabilities and measured at fair value. We have elected to report the fair value of derivative assets and liabilities on a gross basis—including the fair value for the right to reclaim cash collateral or the obligation to return cash collateral—arising from instruments executed with the same counterparty under a master netting arrangement where we do not have the intent to offset. For additional information on derivative instruments and hedging activities, refer to Note 18.
At the inception of a hedge accounting relationship, we designate each qualifying hedge relationship as a hedge of the fair value of a specifically identified asset or liability (fair value hedge); as a hedge of the variability of cash flows to be received or paid, or forecasted to be received or paid, related to a recognized asset or liability (cash flow hedge); or as a hedge of the foreign-currency exposure of a net investment in a foreign operation (net investment hedge). We formally document all relationships between hedging instruments and hedged items, as well as the risk management objectives for undertaking various hedge transactions. Both at hedge inception and on an ongoing basis, we formally assess whether the derivatives that are used in hedging relationships are highly effective in offsetting changes in the fair values or cash flows of hedged items.
Changes in the fair value of derivative instruments qualifying as fair value hedges, along with the gain or loss on the hedged asset or liability attributable to the hedged risk, are recorded in current period earnings. For qualifying cash flow hedges, the changes in fair value of the derivative financial instruments are recorded in accumulated other comprehensive loss and recognized in the income statement when the hedged cash flows affect earnings. For a qualifying net investment hedge, the gain or loss is reported in accumulated other comprehensive loss as part of the cumulative translation adjustment.
Hedge accounting treatment is no longer applied if a derivative financial instrument is terminated, or if the hedge designation is removed or assessed to be no longer highly effective. For terminated fair value hedges, any changes to the hedged asset or liability remain as part of the basis of the hedged asset or liability and are recognized into income over the remaining life of the asset or liability. For terminated cash flow hedges, unless it is probable that the forecasted cash flows will not occur within a specified period, any changes in fair value of the derivative financial instrument previously recognized remain in accumulated other comprehensive loss, and are reclassified into earnings in the same period that the hedged cash flows affect earnings. Any previously recognized gain or loss for a net investment hedge continues to remain in accumulated other comprehensive loss until earnings are impacted by sale or liquidation of the associated foreign operation. In all instances, after hedge accounting is no longer applied, any subsequent changes in fair value of the derivative instrument will be recorded into earnings.
Changes in the fair value of derivative financial instruments held for risk management purposes that are not designated as accounting hedges under GAAP are reported in current period earnings.
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 Consolidated Financial Statements in our 20172018 Annual Report on Form 10-K, which describes our annual significant income tax accounting policy and related methodology.
Refer to Note 1 to the Consolidated Financial Statements in our 20172018 Annual Report on Form 10-K regarding additional significant accounting policies.
Recently Adopted Accounting Standards
Statement of Cash Flows — Restricted Cash (ASU 2016-18)
As of December 31, 2017, we elected to early-adopt Accounting Standards Update (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. The amendments were applied retrospectively to all periods presented within the statement of cash flows. The implementation of this guidance resulted in a change in presentation of our Condensed Consolidated Statement of Cash Flows and additional disclosures surrounding restricted cash balances, but did not result in a change to our Condensed Consolidated Statement of Comprehensive Income or Condensed Consolidated Balance Sheet.
Revenue from Contracts with Customers (ASU 2014-09)
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09. The purpose of this guidance is to streamline and consolidate existing revenue recognition principles in GAAP and to converge revenue recognition principles with International Financial Reporting Standards. The core principle of the amendments is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. The amendments include a five step process for consideration of the core principle, guidance on the accounting treatment for costs associated with a contract, and disclosure requirements related to the revenue process. The FASB issued several additional ASUs to clarify guidance and provide implementation support for ASU 2014-09. The clarifying guidance elaborates on the key concepts within ASU 2014-09 and clarifies how those concepts interact with other GAAP requirements. On January 1, 2018, we adopted ASU 2014-09 and all subsequent ASUs that modified ASU 2014-09 (collectively, the amendments to the revenue recognition principles), which have been codified in ASC 606, Revenue from Contracts with Customers, and ASC 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets, respectively. We elected to adopt this guidance using the modified retrospective approach applied to all contracts with customers that were not completed as of January 1, 2018. The adoption of the amendments resulted in a reduction to our opening retained earnings of approximately $126 million, net of income taxes. Refer to Note 2 for further details.
Financial Instruments — Recognition and Measurement of Financial Assets (ASU 2016-01)
As of January 1, 2018, we adopted ASU 2016-01. The amendments in this update modify the requirements related to the measurement of certain financial instruments in the statement of financial condition and results of operations. The FASB subsequently issued ASU 2018-03 to clarify guidance and provide implementation support for ASU 2016-01, which we elected to early-adopt as of January 1, 2018, to align with the adoption of ASU 2016-01. For equity investments (other than investments accounted for using the equity method), entities must measure such instruments at fair value with changes in fair value recognized in net income. Changes in fair value for equity securities are no longer recognized through other comprehensive (loss) income, which creates additional volatility in our Condensed Consolidated Statement of Comprehensive Income. Reporting entities may continue to elect to measure certain equity investments that do not have a readily determinable fair value at cost with adjustments for impairment and observable changes in price. In addition, for a liability (other than a derivative liability) that an entity measures at fair value, any change in fair value related to the instrument-specific credit risk, that is the entity’s own-credit, should be presented separately in other comprehensive (loss) income and not as a component of net income. We adopted these amendments, as required, on a modified retrospective basis with a cumulative effect adjustment as of the beginning of the fiscal year of initial adoption. The adoption of the amendments resulted in a reduction to our opening retained earnings of approximately $20 million, net of income taxes.
Derivatives and Hedging — Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12)
As of January 1, 2018, we elected to early-adopt ASU 2017-12. The amendments in this update enhance the financial reporting of hedging relationships to better align hedge accounting with an entity’s risk management activities. This update also makes certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP and better portrays economic results through changes to both the designation and measurement guidance for qualifying hedging relationships and presentation of hedge results. We adopted the amendments to all cash flow and net investment hedge relationships that existed on the date of adoption using a modified retrospective approach. No cumulative effect adjustment to our opening retained earnings was required as a result of the adoption. The presentation and disclosure requirements included in this update were adopted prospectively. Refer to Note 18 for further details.
Accumulated Other Comprehensive Income — Reclassification of Certain Tax Effects (ASU 2018-02)
In February 2018, the FASB issued ASU 2018-02. The amendments in this update provide guidance concerning the treatment of the impact of income tax effects resulting from the Tax Cuts and Jobs Act of 2017 (the Tax Act) on items included in accumulated other comprehensive income. Our policy is to use the portfolio method with respect to reclassification of stranded income tax effects in
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
accumulated other comprehensive loss. The amendments in ASU 2018-02 provide entities an election to reclassify the income tax effect of the Tax Act from accumulated other comprehensive income to retained earnings. We elected to early-adopt this standard as of January 1, 2018, and reclassified the effect of the change in the federal corporate income tax rate on items included in accumulated other comprehensive loss. This election resulted in a reclassification of $42 million from accumulated other comprehensive loss to retained earnings.
Recently IssuedAdopted Accounting Standards
Leases (ASU 2016-02)
In February 2016, the FASBFinancial Accounting Standards Board (FASB) issued ASU 2016-02. The amendments in this update primarily replacereplaced the existing accounting requirements for operating leases for lessees. Lessee accounting requirements for finance leases (previously referred to as capital leases) and lessor accounting requirements for operating leases and sales type and direct financing leases (sales-type and direct financing leases were both previously referred to as capital leases) are largely unchanged. The amendments require the lessee of an operating lease to record a balance sheet gross-up upon lease commencement by recognizing a right-of-useROU asset and lease liability equal to the present value of the lease payments. The right-of-useROU asset and lease liability should be derecognized in a manner that effectively yields a straight line lease expense over the lease term. In addition to the changes to the lessee operating lease accounting requirements, the amendments also changechanged the types of costs that can be capitalized related to a lease agreement for both lessees and lessors for all types of leases.lessors. The amendments also require additional disclosures for all lease types for both lessees and lessors. The amendments are effectiveFASB issued additional ASUs to clarify the guidance and provide certain practical expedients and an additional transition option. We adopted ASU 2016-02 and the subsequent ASUs that modified ASU 2016-02 (collectively, the amendments) on January 1, 2019. This includes the early adoption of ASU 2019-01, which was issued in March 2019 to amend certain provisions included in ASU 2016-02.
We adopted this guidance using the modified retrospective approach on January 1, 2019, and have not adjusted prior period comparative information and will continue to disclose prior period financial information in accordance with earlythe previous lease accounting guidance. We have elected certain practical expedients permitted within the amendments that allowed us to not reassess (i) current lease classifications, (ii) whether existing contracts meet the definition of a lease under the amendments to the lease guidance, and (iii) whether current initial direct costs meet the new criteria for capitalization, for all existing leases as of the adoption permitted.date. We made an accounting policy election to calculate the impact of adoption using the remaining minimum lease payments and remaining lease term for each contract that was identified as a lease, discounted at our incremental borrowing rate as of the adoption date. The adoption of the amendments resulted in a ROU asset of approximately $161 million from operating leases for our various corporate facilities, a $29 million reduction to accrued expenses and other liabilities for accrued rent and unamortized tenant improvement allowances, and a lease liability of approximately $190 million. The adoption did not change our previously reported Condensed Consolidated Statements of Comprehensive Income and did not result in a cumulative catch-up adjustment to opening retained earnings.
Receivables—Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities (ASU 2017-08)
In March 2017, the FASB issued ASU 2017-08. The amendments mustin this update require premiums on purchased callable debt securities to be appliedamortized to the security’s earliest call date. Prior to this ASU, premiums and discounts on purchased callable debt securities were generally required to be amortized to the security’s maturity date. The amendments do not require an accounting change for securities held at a discount. We adopted the amendments on January 1, 2019, on a modified retrospective basis, with a cumulative adjustment to the beginning of the earliest fiscal year presentedwhich resulted in the financial statements in the period of adoption. We are currently in the process of reviewing our lease contracts and examining the practical expedients and accounting policy elections provided in the amendments, as well as ensuring our control environment and reporting processes reflect the requirements of the amendments. Upon adoption, our balance sheet will include a right-of-use asset and lease liability for our operating leases where we are the lessee, which primarily include our facilities leases. In addition, we will no longer capitalize certain initial direct costs in connection with lease originations where we are the lessor. We do not anticipate the adoption of these amendments will have a material impactan increase to our financial statements. We currently planaccumulated deficit of $10 million, net of income taxes, partially offset by an $8 million decrease to adopt these amendments on January 1, 2019, and expect to use the modified retrospective approach as currently required.accumulated other comprehensive loss, net of income taxes.
Recently Issued Accounting Standards
Financial Instruments — Instruments—Credit Losses (ASU 2016-13)
In June 2016, the FASB issued ASU 2016-13.2016-13, Financial Instruments - Credit Losses (CECL). The amendments in this update introduce a new accounting model to measure credit losses for financial assets measured at amortized cost. The FASB has also issued additional ASUs to clarify the scope and provide additional guidance for ASU 2016-13. Credit losses for financial assets measured at amortized cost should be determined based on the total current expected credit losses over the life of the financial asset or group of financial assets. In effect, the financial asset or group of financial assets should be presented at the net amount expected to be collected. Credit losses will no longer be recorded under the current incurred loss model for financial assets measured at amortized cost. The amendments also modify the accounting for available-for-sale debt securities whereby credit losses will be recorded through an allowance for credit losses rather than a write-down to the security’s cost basis, which allows for reversals of credit losses when estimated credit losses decline. Credit losses for available-for-sale debt securities should be measured in a manner similar to current GAAP. The amendments are effective on January 1, 2020, with early adoption permitted as of January 1, 2019. The amendmentsand 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. adoption as required.
The new accounting model for credit losses represents a significant departure from existing GAAP, and will likely materially increase the allowance for credit losses on our finance receivables and loans, with a resulting negative adjustment to retained earnings. We expect that our consumer automotive loan portfolio will generate the majority of this increase. The amount of the change in the allowance for credit losses will also be impacted by the composition of our portfolio at the adoption date, as well as economic conditions and forecasts at that time. While the standard modifies the measurement of the allowance for credit losses, it does not alter the credit risk of our loan portfolios. Additionally, we currently expect to phase in the day-one impact of CECL into regulatory capital over a period of three years, as further described in Note 16. Management created a cross-functional working group to govern the implementation of these amendments, including consideration of model development, data integrity, technology, reporting and disclosure requirements, key accounting interpretations, control environment, and corporate governance. We are in the process of designingvalidating and buildingtesting the models and procedures that will be used to calculate the credit loss reserves in accordance with these amendments. We currently planperformed limited parallel runs during the first two quarters of 2019, and will continue to adopt these amendments on January 1, 2020,refine and expect to use the modified retrospective approach as required.
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,enhance our estimation process 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. While our assessment is not final,additional parallel testing throughout 2019. Additionally, we do not expect the amendments to have a material impact to our financial statements and are currently in the process of ensuring our control environment and reporting processes reflect the requirements of the amendments. We currently plan to adopt these amendments on January 1, 2019, and expect to use the modified retrospective approach as required.
2. Revenue from Contracts with Customers
On January 1, 2018, we adopted the amendments to the revenue recognition principles using the modified retrospective approach applied to contracts with customers outstanding as of the date of adoption. Results for reporting periods beginning after January 1, 2018, are presented in accordance with the amendments to the revenue recognition principles, while prior period amounts have not been adjusted and continue to be presented in accordance with the accounting standards in effect for those periods. Refer to Note 1 for additional information.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
expect a material allowance for credit losses on our debt securities as a result of the standard based upon the current composition of our portfolio.
2. Revenue from Contracts with Customers
Our primary revenue sources, which include financing revenue and other interest income, are addressed by other GAAP and are not in the scope of the amendments to the revenue recognition principles.ASC 606, Revenue from Contracts with Customers. As part of our Insurance operations, we recognize revenue from insurance contracts, which are addressed by other GAAP and are not included in the scope of the amendments to the revenue recognition principles.this standard. Certain noninsurance contracts within our Insurance operations, including vehicle service contracts (VSCs), guaranteed asset protection (GAP) contracts, and vehicle maintenance contracts (VMCs), are included in the scope of the amendments to the revenue recognition principles. Under the previous guidance, a portion of revenue earned on noninsurance contracts was recognized at contract inception, while the remainder was recognized over the contract term on a basis proportionate to the anticipated cost emergence. In addition, dealer and sales commissions incurred to obtain a noninsurance contract were recognized as expense when incurred, and certain direct-response advertising costs were deferred and recognized as expense over the term of the contract. Upon adoption of the amendments to the revenue recognition principles, allthis standard. All revenue associated with noninsurance contracts is recognized over the contract term on a basis proportionate to the anticipated cost emergence. Further, commissions and sales expense incurred to obtain these contracts are capitalized and recognized as expenseamortized over the contract term,terms of the related policies and service contracts on the same basis as premiums and service revenue are earned, and all advertising costs are recognized as expense when incurred.
The following table presents the impact to our Condensed Consolidated Balance Sheet as of January 1, 2018, as a result of adopting the amendments to the revenue recognition principles.
|
| | | | | | | | | | | | |
($ in millions) | | As reported, December 31, 2017 | | Adjustment related to adoption | | As adjusted, January 1, 2018 |
Assets | | | | | | |
Premiums receivable and other insurance assets | | $ | 2,047 |
| | $ | 122 |
| | $ | 2,169 |
|
Other assets | | 5,663 |
| | 41 |
| | 5,704 |
|
Total assets | | $ | 167,148 |
| | $ | 163 |
| | $ | 167,311 |
|
Liabilities | | | | | | |
Unearned insurance premiums and service revenue | | $ | 2,604 |
| | $ | 289 |
| | $ | 2,893 |
|
Total liabilities | | 153,654 |
| | 289 |
| | 153,943 |
|
Equity | | | | | | |
Accumulated deficit | | (6,406 | ) | | (126 | ) | | (6,532 | ) |
Total equity | | 13,494 |
| | (126 | ) | | 13,368 |
|
Total liabilities and equity | | $ | 167,148 |
| | $ | 163 |
| | $ | 167,311 |
|
The following tables present the impact of adopting the amendments to the revenue recognition principles to our Condensed Consolidated Statement of Comprehensive Income and Condensed Consolidated Balance Sheet.
|
| | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2018 | | Six months ended June 30, 2018 |
($ in millions) | | As reported | | Effect of adoption | | As reported | | Effect of adoption |
Other revenue | | | | | | | | |
Insurance premiums and service revenue earned | | $ | 239 |
| | $ | (9 | ) | | $ | 495 |
| | $ | (15 | ) |
Total other revenue | | 364 |
| | (9 | ) | | 718 |
| | (15 | ) |
Total net revenue | | 1,458 |
| | (9 | ) | | 2,861 |
| | (15 | ) |
Noninterest expense | | | | | | | | |
Compensation and benefits expense | | 292 |
| | (1 | ) | | 598 |
| | (2 | ) |
Other operating expenses | | 446 |
| | (3 | ) | | 891 |
| | (5 | ) |
Total noninterest expense | | 839 |
| | (4 | ) | | 1,653 |
| | (7 | ) |
Income from continuing operations before income tax expense | | 461 |
| | (5 | ) | | 789 |
| | (8 | ) |
Income tax expense from continuing operations | | 113 |
| | (1 | ) | | 189 |
| | (2 | ) |
Net income from continuing operations | | 348 |
| | (4 | ) | | 600 |
| | (6 | ) |
Net income | | 349 |
| | (4 | ) | | 599 |
| | (6 | ) |
Comprehensive income | | $ | 279 |
| | $ | (4 | ) | | $ | 201 |
| | $ | (6 | ) |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | |
June 30, 2018 ($ in millions) | | As reported | | Effect of adoption |
Assets | | | | |
Premiums receivable and other insurance assets | | $ | 2,247 |
| | $ | 128 |
|
Other assets | | 6,014 |
| | 43 |
|
Total assets | | 171,345 |
| | 171 |
|
Liabilities | | | | |
Unearned insurance premiums and service revenue | | $ | 2,957 |
| | $ | 304 |
|
Total liabilities | | 158,206 |
| | 304 |
|
Equity | | | | |
Accumulated deficit | | (6,026 | ) | | (133 | ) |
Total equity | | 13,139 |
| | (133 | ) |
Total liabilities and equity | | $ | 171,345 |
| | $ | 171 |
|
The following is a description of our primary revenue sources that are derived from contracts with customers. As a result of the adoption of the amendments to the revenue recognition principles, our only revenue source for which the recognition pattern was affected was that of noninsurance contracts, as described in this note. Revenue from contracts with customers is recognized when control of the promised goods or services is transferred to our customers, and in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. For information regarding our revenue recognition policies outside the scope of the amendments to the revenue recognition principles of ASC 606, Revenue from Contracts with Customers, refer to Note 1 to the Consolidated Financial Statements in our 2017 Annual Report on Form 10-K.
Noninsurance contracts— We sell VSCs that offer owners mechanical repair protection and roadside assistance for new and used vehicles beyond the manufacturer’s new vehicle limited warranty. We sell GAP contracts that protect the customer against having to pay certain amounts to a lender above the fair market value of their vehicle if the vehicle is damaged and declared a total loss or stolen. We also sell VMCs that provide coverage for certain agreed-upon services, such as oil changes and tire rotations, over the coverage period. We receive payment in full at the inception of each of these contracts. Our performance obligation for these contracts is satisfied over the term of the contract and we recognize revenue over the contract term on a basis proportionate to the anticipated cost emergence, as we believe this is the most appropriate method to measure progress towards satisfaction of the performance obligation. Upon adoption of the amendments to the revenue recognition principles, unearned revenue of $289 million was recognized as a component of unearned insurance premiums and service revenue on our Condensed Consolidated Balance Sheet associated with outstanding contracts at January 1, 2018, and $22 million and $44 million of this balance were recognized as insurance premiums and service revenue earned in our Condensed Consolidated Statement of Comprehensive Income during the three months and six months ended June 30, 2018, respectively. At June 30, 2018, we had unearned revenue of $2.6 billion associated with outstanding contracts, and with respect to this balance we expect to recognize revenue of $407 million during the remainder of 2018, $663 million in 2019, $564 million in 2020, $423 million in 2021, and $501 million thereafter. The incremental costs to obtain these contracts are initially deferred and recorded as a component of premiums receivable and other insurance assets on our Condensed Consolidated Balance Sheet. These deferred costs are amortized as an expense over the term of the related contract commensurate with how the related revenue is recognized, and are included in compensation and benefits and other operating expenses in our Condensed Consolidated Statement of Comprehensive Income. We had deferred insurance assets of $1.5 billion at June 30, 2018, and recognized $106 million and $209 million of expense during the three months and six months ended June 30, 2018, respectively.
Sale of off-lease vehicles — When a customer’s vehicle lease matures, the customer has the option of purchasing or returning the vehicle. If the vehicle is returned to us, we obtain possession with the intent to sell through SmartAuction—our online auction platform, our dealer channel, or through various other physical auctions. Our performance obligation is satisfied and the remarketing gain or loss is recognized when control of the vehicle has passed to the buyer, which coincides with the sale date. Our actual sales proceeds from remarketing the vehicle may be higher or lower than the estimated residual value resulting in a gain or loss on remarketing recorded through depreciation expense on operating lease assets in our Condensed Consolidated Statement of Comprehensive Income.
Remarketing fee income— In addition to using SmartAuction as a remarketing channel for our returned lease vehicles, we maintain the internet auction site and administer the auction process for third-party use. We earn a service fee from dealers for every third-party vehicle sold through SmartAuction. Our performance obligation is to provide the online marketplace for used vehicle transactions to be consummated. This obligation is satisfied and revenue is recognized when control of the vehicle has passed to the buyer, which coincides with the sale date. This revenue is recorded as remarketing fees within other income in our Condensed Consolidated Statement of Comprehensive Income.
Brokerage commissions and other revenues through Ally Invest — We charge fees to customers related to their use of certain services on our Ally Invest digital wealth management and online brokerage platform. These fees include commissions on
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
customer-directed trades, account service fees, account management fees on professional portfolio management services, subscriptions for market data feeds, and other ancillary fees. Commissions on customer-directed trades and account service fees are based on published fee schedules and are generated from a customer option to purchase the services offered under the contract. These options do not represent a material right and are only considered a contract when the customer executes their option to purchase these services. Based on this, the term of the contract does not extend beyond services provided, and as such revenue is recognized upon the completion of our performance obligation, which we view as the successful execution of the trade or service. Revenue on professional portfolio management services is calculated monthly based upon a fixed percentage of the client’s assets under management. Due to the fact that this revenue stream is composed of variable consideration that is based on factors outside of our control, we have deemed this revenue as constrained and we are unable to estimate the initial transaction price at the inception of the contract. We have elected to use the practical expedient under GAAP to recognize revenue monthly based on the amount we are able to invoice the customer. Subscriptions for market data feeds are based on published fee schedules, and our performance obligation for these contracts is satisfied over the term of the contract, which does not exceed 12 months. We receive payment in full at contract inception and recognize revenue over the related contract term on a straight-line basis, as we believe this is the most appropriate method to measure progress towards satisfaction of the performance obligation. We also earn revenue from a fee-sharing agreement with our clearing broker related to the interest income the clearing broker earns on customer cash balances and margin loans made to our customers. Ally concluded the initial transaction price is exclusively variable consideration and, based on the nature of our performance obligation to allow the clearing broker to collect interest income from cash deposits and customer loans from our customers, we are unable to determine the amount of revenue to be recognized until the total customer cash balance or the total interest income recognized on margin loans has been determined, which occurs monthly. These revenue streams are recorded as other income in our Condensed Consolidated Statement of Comprehensive Income.
Brokered/agent commissions through Insurance operations — We have agreements with third parties to offer various vehicle protection products to consumers. We also have agreements with third-party insurers to offer various insurance coverages to dealers. Our performance obligation for these arrangements is satisfied when a customer or dealer has purchased a vehicle protection product or an insurance policy through the third-party provider. In determining the initial transaction price for these agreements, we noted that revenue on brokered/agent commissions is based on the volume of vehicle protection product contracts sold or a percentage of insurance premium written, which is not known to Ally at the inception of the agreements with these third-party providers. As such, we believe the initial transaction price is exclusively variable consideration and, based on the nature of the performance obligation, we are unable to determine the amount of revenue we will record until the customer purchases a vehicle protection product or a dealer purchases an insurance policy from the third-party provider. Once Ally is notified of vehicle protection product sales or insurance policies issued by the third-party providers, we record the commission earned as insurance premiums and service revenues earned in our Condensed Consolidated Statement of Comprehensive Income.
Deposit account and other banking fees— We charge depositors various account service fees including those for outgoing wires, excessive transactions, overdrafts, stop payments, and returned deposits. These fees are generated from a customer option to purchase services offered under the contract. These options do not represent a material right and are only considered a contract in accordance with the amendments to the revenue recognition principles when the customer exercises their option to purchase these account services. Based on this, the term for our contracts with customers is considered day-to-day, and the contract does not extend beyond the services already provided. Revenue derived from deposit account fees is recorded at the point in time we perform the requested service, and is recorded as other income in our Condensed Consolidated Statement of Comprehensive Income. As a debit card issuer, we also generate interchange fee income from merchants during debit card transactions and incur certain corresponding charges from merchant card networks. Our performance obligation is satisfied when we have initiated the payment of funds from a customer’s account to a merchant through our contractual agreements with the merchant card networks. Interchange fees are reported on a net basis as other income in our Condensed Consolidated Statement of Comprehensive Income. Gross interchange fee income was $3 million and $6 million, and interchange expense was $2 million and $5 million, for the three months and six months ended June 30, 2018, respectively.
Other revenue — Other revenue primarily includes service revenue related to various account management functions, fee income derived from third-party loans arranged through Clearlane—our online automotive lender exchange, and revenue associated with licensing and marketing from the Ally CashBack Credit Card—our co-branded credit card. These revenue streams are recorded as other income in our Condensed Consolidated Statement of Comprehensive Income.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following table presents a disaggregated view of our revenue from contracts with customers included in other revenue that falls within the scope of the amendmentsrevenue recognition principles of ASC 606, Revenue from Contracts with Customers. For further information regarding our revenue recognition policies and details about the nature of our respective revenue streams, refer to Note 1 and Note 3 to the revenue recognition principles.Consolidated Financial Statements in our 2018 Annual Report on Form 10-K.
| | Three months ended June 30, 2018 ($ in millions) | | Automotive Finance operations | | Insurance operations | | Mortgage Finance operations | | Corporate Finance operations | | Corporate and Other | | Consolidated | |
Three months ended June 30, ($ in millions) | | | Automotive Finance operations | | Insurance operations | | Mortgage Finance operations | | Corporate Finance operations | | Corporate and Other | | Consolidated |
2019 | | | | | | | | | | | | | |
Revenue from contracts with customers | | | | | | | | | | | | | | | | | | | | | | | | |
Noninsurance contracts | | $ | — |
| | $ | 125 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 125 |
| |
Noninsurance contracts (a) (b) (c) | | | $ | — |
| | $ | 134 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 134 |
|
Remarketing fee income | | | 19 |
| | — |
| | — |
| | — |
| | — |
| | 19 |
|
Brokerage commissions and other revenue | | | — |
| | — |
| | — |
| | — |
| | 17 |
| | 17 |
|
Deposit account and other banking fees | | | — |
| | — |
| | — |
| | — |
| | 4 |
| | 4 |
|
Brokered/agent commissions | | | — |
| | 4 |
| | — |
| | — |
| | — |
| | 4 |
|
Other | | | 5 |
| | — |
| | — |
| | — |
| | — |
| | 5 |
|
Total revenue from contracts with customers | | | 24 |
| | 138 |
| | — |
| | — |
| | 21 |
| | 183 |
|
All other revenue | | | 37 |
| | 148 |
| | 4 |
| | 10 |
| | 13 |
| | 212 |
|
Total other revenue (d) | | | $ | 61 |
| | $ | 286 |
| | $ | 4 |
| | $ | 10 |
| | $ | 34 |
| | $ | 395 |
|
2018 | | | | | | | | | | | | | |
Revenue from contracts with customers | | | | | | | | | | | | | |
Noninsurance contracts (a) (b) (c) | | | $ | — |
| | $ | 125 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 125 |
|
Remarketing fee income | | 21 |
| | — |
| | — |
| | — |
| | — |
| | 21 |
| | 21 |
| | — |
| | — |
| | — |
| | — |
| | 21 |
|
Brokerage commissions and other revenue | | — |
| | — |
| | — |
| | — |
| | 15 |
| | 15 |
| | — |
| | — |
| | — |
| | — |
| | 15 |
| | 15 |
|
Brokered/agent commissions | | — |
| | 4 |
| | — |
| | — |
| | — |
| | 4 |
| | — |
| | 4 |
| | — |
| | — |
| | — |
| | 4 |
|
Deposit account and other banking fees | | — |
| | — |
| | — |
| | — |
| | 3 |
| | 3 |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| | 3 |
|
Other | | 4 |
| | — |
| | — |
| | — |
| | — |
| | 4 |
| | 4 |
| | — |
| | — |
| | — |
| | — |
| | 4 |
|
Total revenue from contracts with customers | | 25 |
| | 129 |
| | — |
| | — |
| | 18 |
| | 172 |
| | 25 |
| | 129 |
| | — |
| | — |
| | 18 |
| | 172 |
|
All other revenue | | 38 |
| | 137 |
| | 2 |
| | 14 |
| | 1 |
| | 192 |
| | 38 |
| | 137 |
| | 2 |
| | 14 |
| | 1 |
| | 192 |
|
Total other revenue (a) | | $ | 63 |
| | $ | 266 |
| | $ | 2 |
| | $ | 14 |
| | $ | 19 |
| | $ | 364 |
| |
Total other revenue (d) | | | $ | 63 |
| | $ | 266 |
| | $ | 2 |
| | $ | 14 |
| | $ | 19 |
| | $ | 364 |
|
| |
(a) | We had opening balances of $2.7 billion and $2.5 billion in unearned revenue associated with outstanding contracts at April 1, 2019, and April 1, 2018, respectively, and $202 million and $195 million of these balances were recognized as insurance premiums and service revenue earned in our Condensed Consolidated Statement of Comprehensive Income during the three months ended June 30, 2019, and June 30, 2018, respectively. |
| |
(b) | At June 30, 2019, we had unearned revenue of $2.8 billion associated with outstanding contracts, and with respect to this balance we expect to recognize revenue of $380 million during the remainder of 2019, $705 million in 2020, $605 million in 2021, $473 million in 2022, and $595 million thereafter. At June 30, 2018, we had unearned revenue of $2.6 billion associated with outstanding contracts. |
| |
(c) | We had deferred insurance assets of $1.6 billion at both April 1, 2019, and June 30, 2019, and recognized $114 million of expense during the three months ended June 30, 2019. We had deferred insurance assets of $1.4 billion and $1.5 billion at April 1, 2018, and June 30, 2018, respectively, and recognized $106 million of expense during the three months ended June 30, 2018. |
| |
(d) | Represents a component of total net revenue. Refer to Note 2221 for further information on our reportable operating segments. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
| | Six months ended June 30, 2018 ($ in millions) | | Automotive Finance operations | | Insurance operations | | Mortgage Finance operations | | Corporate Finance operations | | Corporate and Other | | Consolidated | |
Six months ended June 30, ($ in millions) | | | Automotive Finance operations | | Insurance operations | | Mortgage Finance operations | | Corporate Finance operations | | Corporate and Other | | Consolidated |
2019 | | | | | | | | | | | | | |
Revenue from contracts with customers | | | | | | | | | | | | | | | | | | | | | | | | |
Noninsurance contracts | | $ | — |
| | $ | 248 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 248 |
| |
Noninsurance contracts (a) (b) | | | $ | — |
| | $ | 265 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 265 |
|
Remarketing fee income | | | 37 |
| | — |
| | — |
| | — |
| | — |
| | 37 |
|
Brokerage commissions and other revenue | | | — |
| | — |
| | — |
| | — |
| | 34 |
| | 34 |
|
Deposit account and other banking fees | | | — |
| | — |
| | — |
| | — |
| | 9 |
| | 9 |
|
Brokered/agent commissions | | | — |
| | 7 |
| | — |
| | — |
| | — |
| | 7 |
|
Other | | | 10 |
| | — |
| | — |
| | — |
| | — |
| | 10 |
|
Total revenue from contracts with customers | | | 47 |
| | 272 |
| | — |
| | — |
| | 43 |
| | 362 |
|
All other revenue | | | 82 |
| | 374 |
| | 6 |
| | 21 |
| | 16 |
| | 499 |
|
Total other revenue (c) | | | $ | 129 |
| | $ | 646 |
| | $ | 6 |
| | $ | 21 |
| | $ | 59 |
| | $ | 861 |
|
2018 | | | | | | | | | | | | | |
Revenue from contracts with customers | | | | | | | | | | | | | |
Noninsurance contracts (a) (b) | | | $ | — |
| | $ | 248 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 248 |
|
Remarketing fee income | | 44 |
| | — |
| | — |
| | — |
| | — |
| | 44 |
| | 44 |
| | — |
| | — |
| | — |
| | — |
| | 44 |
|
Brokerage commissions and other revenue | | — |
| | — |
| | — |
| | — |
| | 31 |
| | 31 |
| | — |
| | — |
| | — |
| | — |
| | 31 |
| | 31 |
|
Brokered/agent commissions | | — |
| | 8 |
| | — |
| | — |
| | — |
| | 8 |
| | — |
| | 8 |
| | — |
| | — |
| | — |
| | 8 |
|
Deposit account and other banking fees | | — |
| | — |
| | — |
| | — |
| | 6 |
| | 6 |
| | — |
| | — |
| | — |
| | — |
| | 6 |
| | 6 |
|
Other | | 6 |
| | 1 |
| | — |
| | — |
| | — |
| | 7 |
| | 6 |
| | 1 |
| | — |
| | — |
| | — |
| | 7 |
|
Total revenue from contracts with customers | | 50 |
| | 257 |
| | — |
| | — |
| | 37 |
| | 344 |
| | 50 |
| | 257 |
| | — |
| | — |
| | 37 |
| | 344 |
|
All other revenue | | 79 |
| | 255 |
| | 3 |
| | 22 |
| | 15 |
| | 374 |
| | 79 |
| | 255 |
| | 3 |
| | 22 |
| | 15 |
| | 374 |
|
Total other revenue (a) | | $ | 129 |
| | $ | 512 |
| | $ | 3 |
| | $ | 22 |
| | $ | 52 |
| | $ | 718 |
| |
Total other revenue (c) | | | $ | 129 |
| | $ | 512 |
| | $ | 3 |
| | $ | 22 |
| | $ | 52 |
| | $ | 718 |
|
| |
(a) | We had opening balances of $2.6 billion and $2.5 billion in unearned revenue associated with outstanding contracts at January 1, 2019, and January 1, 2018, respectively, and $401 million and $389 million of these balances were recognized as insurance premiums and service revenue earned in our Condensed Consolidated Statement of Comprehensive Income during the six months ended June 30, 2019, and June 30, 2018, respectively. |
| |
(b) | We had deferred insurance assets of $1.5 billion and $1.6 billion at January 1, 2019, and June 30, 2019, respectively, and recognized $225 million of expense during the six months ended June 30, 2019. We had deferred insurance assets of $1.4 billion and $1.5 billion at January 1, 2018, and June 30, 2018, respectively, and recognized $209 million of expense during the six months ended June 30, 2018. |
| |
(c) | Represents a component of total net revenue. Refer to Note 2221 for further information on our reportable operating segments. |
In addition to the components of other revenue presented above, as part of our Automotive Finance operations, we recognized net remarketing gains of $23 million and $38 million for the three months and six months ended June 30, 2019, respectively, and $16 million and $34 million for the three months and six months ended, June 30, 2018, respectively, on the sale of off-lease vehicles. These gains are included in depreciation expense on operating lease assets in our Condensed Consolidated Statement of Comprehensive Income.Income.
3. Other Income, Net of Losses
Details of other income, net of losses, were as follows.
|
| | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
($ in millions) | | 2019 | | 2018 | | 2019 | | 2018 |
Late charges and other administrative fees | | $ | 28 |
| | $ | 25 |
| | $ | 57 |
| | $ | 54 |
|
Remarketing fees | | 19 |
| | 21 |
| | 37 |
| | 44 |
|
Income from equity-method investments | | 8 |
| | 7 |
| | 12 |
| | 13 |
|
Servicing fees | | 4 |
| | 8 |
| | 10 |
| | 16 |
|
Other, net | | 34 |
| | 36 |
| | 64 |
| | 79 |
|
Total other income, net of losses | | $ | 93 |
| | $ | 97 |
| | $ | 180 |
| | $ | 206 |
|
|
| | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
($ in millions) | | 2018 | | 2017 | | 2018 | | 2017 |
Late charges and other administrative fees | | $ | 25 |
| | $ | 25 |
| | $ | 54 |
| | $ | 52 |
|
Remarketing fees | | 21 |
| | 27 |
| | 44 |
| | 56 |
|
Servicing fees | | 8 |
| | 14 |
| | 16 |
| | 30 |
|
Income from equity-method investments | | 7 |
| | 5 |
| | 13 |
| | 5 |
|
Other, net | | 36 |
| | 31 |
| | 79 |
| | 73 |
|
Total other income, net of losses | | $ | 97 |
|
| $ | 102 |
|
| $ | 206 |
|
| $ | 216 |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
4. 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) | | 2018 | | 2017 | | 2019 | | 2018 |
Total gross reserves for insurance losses and loss adjustment expenses at January 1, | | $ | 140 |
| | $ | 149 |
| | $ | 134 |
| | $ | 140 |
|
Less: Reinsurance recoverable | | 108 |
| | 108 |
| | 96 |
| | 108 |
|
Net reserves for insurance losses and loss adjustment expenses at January 1, | | 32 |
| | 41 |
| | 38 |
| | 32 |
|
Net insurance losses and loss adjustment expenses incurred related to: | | | | | | | | |
Current year | | 159 |
| | 211 |
| | 186 |
| | 159 |
|
Prior years (a) | | 5 |
| | 2 |
| | — |
| | 5 |
|
Total net insurance losses and loss adjustment expenses incurred | | 164 |
| | 213 |
| | 186 |
| | 164 |
|
Net insurance losses and loss adjustment expenses paid or payable related to: | | | | | | | | |
Current year | | (121 | ) | | (183 | ) | | (134 | ) | | (121 | ) |
Prior years | | (26 | ) | | (27 | ) | | (27 | ) | | (26 | ) |
Total net insurance losses and loss adjustment expenses paid or payable | | (147 | ) | | (210 | ) | | (161 | ) | | (147 | ) |
Net reserves for insurance losses and loss adjustment expenses at June 30, | | 49 |
| | 44 |
| | 63 |
| | 49 |
|
Plus: Reinsurance recoverable | | 100 |
| | 135 |
| | 90 |
| | 100 |
|
Total gross reserves for insurance losses and loss adjustment expenses at June 30, | | $ | 149 |
| | $ | 179 |
| | $ | 153 |
| | $ | 149 |
|
| |
(a) | There have been no material adverse changes to the reserve for prior years. |
5. Other Operating Expenses
Details of other operating expenses were as follows.
|
| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
($ in millions) | 2019 | | 2018 | | 2019 | | 2018 |
Insurance commissions | $ | 117 |
| | $ | 109 |
| | $ | 231 |
| | $ | 219 |
|
Technology and communications | 73 |
| | 74 |
| | 150 |
| | 145 |
|
Advertising and marketing | 35 |
| | 29 |
| | 83 |
| | 68 |
|
Lease and loan administration | 43 |
| | 40 |
| | 82 |
| | 82 |
|
Professional services | 30 |
| | 35 |
| | 59 |
| | 67 |
|
Regulatory and licensing fees | 28 |
| | 35 |
| | 56 |
| | 65 |
|
Vehicle remarketing and repossession | 25 |
| | 26 |
| | 52 |
| | 58 |
|
Premises and equipment depreciation | 25 |
| | 22 |
| | 47 |
| | 42 |
|
Occupancy | 16 |
| | 11 |
| | 29 |
| | 22 |
|
Non-income taxes | 11 |
| | 6 |
| | 20 |
| | 14 |
|
Amortization of intangible assets | 3 |
| | 3 |
| | 6 |
| | 6 |
|
Other | 52 |
| | 56 |
| | 96 |
| | 103 |
|
Total other operating expenses | $ | 458 |
| | $ | 446 |
| | $ | 911 |
| | $ | 891 |
|
|
| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
($ in millions) | 2018 | | 2017 | | 2018 | | 2017 |
Insurance commissions | $ | 109 |
| | $ | 104 |
| | $ | 219 |
| | $ | 203 |
|
Technology and communications | 74 |
| | 71 |
| | 145 |
| | 140 |
|
Lease and loan administration | 40 |
| | 39 |
| | 82 |
| | 75 |
|
Advertising and marketing | 29 |
| | 33 |
| | 68 |
| | 63 |
|
Professional services | 35 |
| | 27 |
| | 67 |
| | 53 |
|
Regulatory and licensing fees | 35 |
| | 28 |
| | 65 |
| | 55 |
|
Vehicle remarketing and repossession | 26 |
| | 25 |
| | 58 |
| | 53 |
|
Premises and equipment depreciation | 22 |
| | 23 |
| | 42 |
| | 45 |
|
Occupancy | 11 |
| | 11 |
| | 22 |
| | 23 |
|
Non-income taxes | 6 |
| | 8 |
| | 14 |
| | 16 |
|
Amortization of intangible assets | 3 |
| | 3 |
| | 6 |
| | 6 |
|
Other | 56 |
| | 48 |
| | 103 |
| | 93 |
|
Total other operating expenses | $ | 446 |
| | $ | 420 |
| | $ | 891 |
| | $ | 825 |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
6. Investment Securities
Our investment portfolio of available-for-saleincludes various debt and held-to-maturityequity securities. Our debt securities, includeswhich are classified as available-for-sale or held-to-maturity, include government securities, corporate bonds, asset-backed securities, commercial and residential mortgage-backed securities, and other investments. We also hold equity securities. The cost, fair value, and gross unrealized gains and losses on available-for-sale and held-to-maturity investmentdebt securities were as follows.
| | | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
|
| 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 |
| $ | 1,963 |
|
| $ | 1 |
|
| $ | (90 | ) |
| $ | 1,874 |
|
| $ | 1,831 |
|
| $ | — |
|
| $ | (54 | ) |
| $ | 1,777 |
| |
U.S. Treasury and federal agencies | |
| $ | 2,023 |
|
| $ | 7 |
|
| $ | (12 | ) |
| $ | 2,018 |
|
| $ | 1,911 |
|
| $ | — |
|
| $ | (60 | ) |
| $ | 1,851 |
|
U.S. States and political subdivisions |
| 865 |
|
| 5 |
|
| (19 | ) |
| 851 |
|
| 850 |
|
| 11 |
|
| (7 | ) |
| 854 |
|
| 585 |
|
| 13 |
|
| — |
|
| 598 |
|
| 816 |
|
| 3 |
|
| (17 | ) |
| 802 |
|
Foreign government |
| 155 |
|
| 1 |
|
| (2 | ) |
| 154 |
|
| 153 |
|
| 2 |
|
| (1 | ) |
| 154 |
|
| 146 |
|
| 3 |
|
| — |
|
| 149 |
|
| 145 |
|
| 1 |
|
| (1 | ) |
| 145 |
|
Agency mortgage-backed residential |
| 15,559 |
|
| 4 |
|
| (497 | ) |
| 15,066 |
|
| 14,412 |
|
| 35 |
|
| (156 | ) |
| 14,291 |
|
| 18,971 |
|
| 191 |
|
| (62 | ) |
| 19,100 |
|
| 17,486 |
|
| 47 |
|
| (395 | ) |
| 17,138 |
|
Mortgage-backed residential | | 2,716 |
| | 2 |
| | (93 | ) | | 2,625 |
| | 2,517 |
| | 11 |
| | (34 | ) | | 2,494 |
| | 2,927 |
| | 18 |
| | (11 | ) | | 2,934 |
| | 2,796 |
| | 1 |
| | (111 | ) | | 2,686 |
|
Agency mortgage-backed commercial | | | 1,303 |
| | 48 |
| | — |
| | 1,351 |
| | 3 |
| | — |
| | — |
| | 3 |
|
Mortgage-backed commercial |
| 644 |
|
| 1 |
|
| (3 | ) |
| 642 |
|
| 541 |
|
| 1 |
|
| (1 | ) |
| 541 |
|
| 712 |
|
| 2 |
|
| (1 | ) |
| 713 |
|
| 715 |
|
| 1 |
|
| (2 | ) |
| 714 |
|
Asset-backed |
| 870 |
|
| 2 |
|
| (4 | ) |
| 868 |
|
| 933 |
|
| 4 |
|
| (1 | ) |
| 936 |
|
| 473 |
|
| 4 |
|
| — |
|
| 477 |
|
| 723 |
|
| 2 |
|
| (2 | ) |
| 723 |
|
Corporate debt |
| 1,258 |
|
| 1 |
|
| (43 | ) |
| 1,216 |
|
| 1,262 |
|
| 5 |
|
| (11 | ) |
| 1,256 |
|
| 1,326 |
|
| 25 |
|
| (3 | ) |
| 1,348 |
|
| 1,286 |
|
| 1 |
|
| (46 | ) |
| 1,241 |
|
Total available-for-sale securities (a) (b) (c) |
| $ | 24,030 |
|
| $ | 17 |
|
| $ | (751 | ) |
| $ | 23,296 |
|
| $ | 22,499 |
|
| $ | 69 |
|
| $ | (265 | ) |
| $ | 22,303 |
|
| $ | 28,466 |
|
| $ | 311 |
|
| $ | (89 | ) |
| $ | 28,688 |
|
| $ | 25,881 |
|
| $ | 56 |
|
| $ | (634 | ) |
| $ | 25,303 |
|
Held-to-maturity securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Debt securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Agency mortgage-backed residential (d) | | $ | 2,062 |
| | $ | 1 |
| | $ | (83 | ) | | $ | 1,980 |
| | $ | 1,863 |
| | $ | 3 |
| | $ | (37 | ) | | $ | 1,829 |
| | $ | 2,430 |
| | $ | 41 |
| | $ | (3 | ) | | $ | 2,468 |
| | $ | 2,319 |
| | $ | 6 |
| | $ | (61 | ) | | $ | 2,264 |
|
Asset-backed retained notes | | 27 |
| | — |
| | — |
| | 27 |
| | 36 |
| | — |
| | — |
| | 36 |
| | 31 |
| | — |
| | — |
| | 31 |
| | 43 |
| | — |
| | — |
| | 43 |
|
Total held-to-maturity securities |
| $ | 2,089 |
|
| $ | 1 |
|
| $ | (83 | ) |
| $ | 2,007 |
|
| $ | 1,899 |
| | $ | 3 |
| | $ | (37 | ) | | $ | 1,865 |
|
| $ | 2,461 |
|
| $ | 41 |
|
| $ | (3 | ) |
| $ | 2,499 |
|
| $ | 2,362 |
| | $ | 6 |
| | $ | (61 | ) | | $ | 2,307 |
|
| |
(a) | Certain entities related to our Insurance operations are required to deposit securities with state regulatory authorities. These deposited securities totaled $12 million at both June 30, 2018,2019, and December 31, 2017.2018, respectively. |
| |
(b) | Certain available-for-sale securities are included in fair value hedging relationships. Refer to Note 1817 for additional information. |
| |
(c) | InvestmentAvailable-for-sale securities with a fair value of $7.1$4.4 billion and $7.8$9.2 billion at June 30, 2018,2019, and December 31, 2017,2018, respectively, were pledged to secure advances from the FHLB,Federal Home Loan Bank (FHLB), short-term borrowings or repurchase agreements, or for other purposes as required by contractual obligation or law. Under these agreements, we have granted the counterparty the right to sell or pledge $1.2 billion$615 million and $1.0 billion$821 million of the underlying investment securities at June 30, 2018,2019, and December 31, 2017,2018, respectively. |
| |
(d) | SecuritiesHeld-to-maturity securities with a fair value of $962 million$1.3 billion and $664 million$1.2 billion at June 30, 2018,2019, and December 31, 2017,2018, respectively, were pledged to secure advances from the FHLB. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The maturity distribution of debt securities outstanding is summarized in the following tables. Call or prepayment options may cause actual maturities to differ from contractual maturities.
| |
|
| Total |
| Due in one year or less |
| Due after one year through five years |
| Due after five years through ten years |
| Due after ten years |
| Total |
| Due in one year or less |
| Due after one year through five years |
| Due after five years through ten years |
| Due after ten years |
($ in millions) |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
June 30, 2019 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of available-for-sale securities (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
| $ | 1,874 |
|
| 1.9 | % |
| $ | 13 |
|
| 1.4 | % |
| $ | 578 |
|
| 1.9 | % |
| $ | 1,283 |
|
| 1.8 | % |
| $ | — |
|
| — | % | |
U.S. Treasury and federal agencies | |
| $ | 2,018 |
|
| 1.7 | % |
| $ | 73 |
|
| 2.0 | % |
| $ | 1,430 |
|
| 1.6 | % |
| $ | 515 |
|
| 1.8 | % |
| $ | — |
|
| — | % |
U.S. States and political subdivisions |
| 851 |
|
| 3.1 |
|
| 35 |
|
| 3.4 |
|
| 53 |
|
| 2.2 |
|
| 237 |
|
| 2.6 |
|
| 526 |
|
| 3.4 |
|
| 598 |
|
| 3.1 |
|
| 33 |
|
| 3.3 |
|
| 47 |
|
| 2.3 |
|
| 153 |
|
| 2.8 |
|
| 365 |
|
| 3.4 |
|
Foreign government |
| 154 |
|
| 2.5 |
|
| 25 |
|
| 3.3 |
|
| 61 |
|
| 2.3 |
|
| 68 |
|
| 2.4 |
|
| — |
|
| — |
|
| 149 |
|
| 2.3 |
|
| 4 |
|
| 1.2 |
|
| 67 |
|
| 2.2 |
|
| 78 |
|
| 2.4 |
|
| — |
|
| — |
|
Agency mortgage-backed residential | | 15,066 |
| | 3.2 |
| | — |
| | — |
| | — |
| | — |
| | 25 |
| | 2.0 |
| | 15,041 |
| | 3.2 |
| | 19,100 |
| | 3.4 |
| | — |
| | — |
| | — |
| | — |
| | 50 |
| | 1.9 |
| | 19,050 |
| | 3.4 |
|
Mortgage-backed residential |
| 2,625 |
|
| 3.2 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 2,625 |
|
| 3.2 |
|
| 2,934 |
|
| 3.3 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 2,934 |
|
| 3.3 |
|
Agency mortgage-backed commercial | | | 1,351 |
| | 3.1 |
| | — |
| | — |
| | 3 |
| | 3.2 |
| | 932 |
| | 3.1 |
| | 416 |
| | 3.1 |
|
Mortgage-backed commercial |
| 642 |
|
| 3.6 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 31 |
|
| 3.6 |
|
| 611 |
|
| 3.6 |
|
| 713 |
|
| 3.7 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 36 |
|
| 3.9 |
|
| 677 |
|
| 3.7 |
|
Asset-backed |
| 868 |
|
| 3.3 |
|
| — |
|
| — |
|
| 618 |
|
| 3.3 |
|
| 137 |
|
| 3.6 |
|
| 113 |
|
| 3.0 |
|
| 477 |
|
| 3.4 |
|
| — |
|
| — |
|
| 328 |
|
| 3.4 |
|
| 74 |
|
| 3.9 |
|
| 75 |
|
| 3.1 |
|
Corporate debt |
| 1,216 |
|
| 3.1 |
|
| 122 |
|
| 2.8 |
|
| 472 |
|
| 2.7 |
|
| 589 |
|
| 3.3 |
|
| 33 |
|
| 4.9 |
|
| 1,348 |
|
| 3.2 |
|
| 143 |
|
| 3.0 |
|
| 549 |
|
| 3.0 |
|
| 634 |
|
| 3.4 |
|
| 22 |
|
| 5.6 |
|
Total available-for-sale securities |
| $ | 23,296 |
|
| 3.1 |
|
| $ | 195 |
|
| 2.9 |
|
| $ | 1,782 |
|
| 2.6 |
|
| $ | 2,370 |
|
| 2.4 |
|
| $ | 18,949 |
|
| 3.2 |
|
| $ | 28,688 |
|
| 3.2 |
|
| $ | 253 |
|
| 2.7 |
|
| $ | 2,424 |
|
| 2.2 |
|
| $ | 2,472 |
|
| 2.9 |
|
| $ | 23,539 |
|
| 3.4 |
|
Amortized cost of available-for-sale securities |
| $ | 24,030 |
|
|
|
| $ | 195 |
|
|
|
| $ | 1,811 |
|
|
|
| $ | 2,476 |
|
|
|
| $ | 19,548 |
|
|
|
| $ | 28,466 |
|
|
|
| $ | 253 |
|
|
|
| $ | 2,420 |
|
|
|
| $ | 2,412 |
|
|
|
| $ | 23,381 |
|
|
|
Amortized cost of held-to-maturity securities | |
|
| | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | |
Agency mortgage-backed residential | | $ | 2,062 |
| | 3.1 | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | 2,062 |
| | 3.1 | % | | $ | 2,430 |
| | 3.2 | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | 2,430 |
| | 3.2 | % |
Asset-backed retained notes | | 27 |
| | 1.8 |
| | — |
| | — |
| | 26 |
| | 1.8 |
| | 1 |
| | 3.0 |
| | — |
| | — |
| | 31 |
| | 3.1 |
| | — |
| | — |
| | 31 |
| | 2.1 |
| | — |
| | — |
| | — |
| | — |
|
Total held-to-maturity securities | | $ | 2,089 |
| | 3.1 |
| | $ | — |
| | — |
| | $ | 26 |
| | 1.8 |
| | $ | 1 |
| | 3.0 |
| | $ | 2,062 |
| | 3.1 |
| | $ | 2,461 |
| | 3.2 |
| | $ | — |
| | — |
| | $ | 31 |
| | 2.1 |
| | $ | — |
| | — |
| | $ | 2,430 |
| | 3.2 |
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
December 31, 2018 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of available-for-sale securities (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
| $ | 1,777 |
|
| 1.7 | % |
| $ | — |
|
| — | % |
| $ | 487 |
|
| 1.7 | % |
| $ | 1,290 |
|
| 1.8 | % |
| $ | — |
|
| — | % | |
U.S. Treasury and federal agencies | |
| $ | 1,851 |
|
| 1.9 | % |
| $ | 12 |
|
| 1.0 | % |
| $ | 1,277 |
|
| 1.8 | % |
| $ | 562 |
|
| 2.0 | % |
| $ | — |
|
| — | % |
U.S. States and political subdivisions |
| 854 |
|
| 2.9 |
|
| 76 |
|
| 1.8 |
|
| 36 |
|
| 2.3 |
|
| 203 |
|
| 2.5 |
|
| 539 |
|
| 3.3 |
|
| 802 |
|
| 3.0 |
|
| 49 |
|
| 1.9 |
|
| 43 |
|
| 2.3 |
|
| 252 |
|
| 2.6 |
|
| 458 |
|
| 3.4 |
|
Foreign government |
| 154 |
|
| 2.5 |
|
| — |
|
| — |
|
| 80 |
|
| 2.5 |
|
| 74 |
|
| 2.4 |
|
| — |
|
| — |
|
| 145 |
|
| 2.4 |
|
| 18 |
|
| 3.1 |
|
| 60 |
|
| 2.3 |
|
| 67 |
|
| 2.4 |
|
| — |
|
| — |
|
Agency mortgage-backed residential | | 14,291 |
| | 3.1 |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| | 2.9 |
| | 14,288 |
| | 3.1 |
| | 17,138 |
| | 3.3 |
| | — |
| | — |
| | — |
| | — |
| | 54 |
| | 1.9 |
| | 17,084 |
| | 3.3 |
|
Mortgage-backed residential |
| 2,494 |
|
| 3.1 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 2,494 |
|
| 3.1 |
|
| 2,686 |
|
| 3.3 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 2,686 |
|
| 3.3 |
|
Agency mortgage-backed commercial | | | 3 |
| | 3.1 |
| | — |
| | — |
| | 3 |
| | 3.1 |
| | — |
| | — |
| | — |
| | — |
|
Mortgage-backed commercial |
| 541 |
|
| 3.2 |
|
| — |
|
| — |
|
| 30 |
|
| 3.1 |
|
| 31 |
|
| 3.1 |
|
| 480 |
|
| 3.2 |
|
| 714 |
|
| 3.8 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 46 |
|
| 3.9 |
|
| 668 |
|
| 3.8 |
|
Asset-backed |
| 936 |
|
| 3.1 |
|
| — |
|
| — |
|
| 698 |
|
| 3.1 |
|
| 106 |
|
| 3.1 |
|
| 132 |
|
| 2.8 |
|
| 723 |
|
| 3.5 |
|
| — |
|
| — |
|
| 478 |
|
| 3.4 |
|
| 121 |
|
| 4.0 |
|
| 124 |
|
| 3.3 |
|
Corporate debt |
| 1,256 |
|
| 2.9 |
|
| 140 |
|
| 2.6 |
|
| 513 |
|
| 2.6 |
|
| 564 |
|
| 3.2 |
|
| 39 |
|
| 4.7 |
|
| 1,241 |
|
| 3.1 |
|
| 144 |
|
| 2.8 |
|
| 496 |
|
| 2.9 |
|
| 581 |
|
| 3.3 |
|
| 20 |
|
| 5.5 |
|
Total available-for-sale securities |
| $ | 22,303 |
|
| 3.0 |
|
| $ | 216 |
|
| 2.3 |
|
| $ | 1,844 |
|
| 2.5 |
|
| $ | 2,271 |
|
| 2.3 |
|
| $ | 17,972 |
|
| 3.1 |
|
| $ | 25,303 |
|
| 3.2 |
|
| $ | 223 |
|
| 2.6 |
|
| $ | 2,357 |
|
| 2.4 |
|
| $ | 1,683 |
|
| 2.8 |
|
| $ | 21,040 |
|
| 3.3 |
|
Amortized cost of available-for-sale securities |
| $ | 22,499 |
|
|
|
|
| $ | 217 |
|
|
|
|
| $ | 1,852 |
|
|
|
|
| $ | 2,314 |
|
|
|
|
| $ | 18,116 |
|
|
|
|
| $ | 25,881 |
|
|
|
|
| $ | 224 |
|
|
|
|
| $ | 2,405 |
|
|
|
|
| $ | 1,743 |
|
|
|
|
| $ | 21,509 |
|
|
|
|
Amortized cost of held-to-maturity securities |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed residential | | $ | 1,863 |
| | 3.1 | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | 1,863 |
| | 3.1 | % | | $ | 2,319 |
| | 3.2 | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | 2,319 |
| | 3.2 | % |
Asset-backed retained notes | | 36 |
| | 1.7 |
| | — |
| | — |
| | 35 |
| | 1.7 |
| | 1 |
| | 3.0 |
| | — |
| | — |
| | 43 |
| | 2.0 |
| | — |
| | — |
| | 42 |
| | 2.0 |
| | 1 |
| | 3.3 |
| | — |
| | — |
|
Total held-to-maturity securities | | $ | 1,899 |
| | 3.1 |
| | $ | — |
| | — |
| | $ | 35 |
| | 1.7 |
| | $ | 1 |
| | 3.0 |
| | $ | 1,863 |
| | 3.1 |
| | $ | 2,362 |
| | 3.2 |
| | $ | — |
| | — |
| | $ | 42 |
| | 2.0 |
| | $ | 1 |
| | 3.3 |
| | $ | 2,319 |
| | 3.2 |
|
| |
(a) | Yield is calculated using the effective yield of each security at the end of the period, weighted based on the market value. The effective yield considers the contractual coupon and amortized cost, and excludes expected capital gains and losses. |
The balances of cash equivalents were $129 million and $35 million at June 30, 2019, and December 31, 2018, respectively, and were composed primarily of money-market accounts and short-term securities, including U.S. Treasury bills.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The balances of cash equivalents were $54 million and $10 million at June 30, 2018, and December 31, 2017, respectively, and were composed primarily of money market accounts and short-term securities, including U.S. Treasury bills.
The following table presents interest and dividends on investment securities.
|
| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
($ in millions) | 2019 | | 2018 | | 2019 | | 2018 |
Taxable interest | $ | 220 |
|
| $ | 164 |
| | $ | 434 |
| | $ | 318 |
|
Taxable dividends | 3 |
|
| 3 |
| | 6 |
| | 6 |
|
Interest and dividends exempt from U.S. federal income tax | 4 |
|
| 6 |
| | 9 |
| | 12 |
|
Interest and dividends on investment securities | $ | 227 |
|
| $ | 173 |
| | $ | 449 |
| | $ | 336 |
|
|
| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
($ in millions) | 2018 | | 2017 | | 2018 | | 2017 |
Taxable interest | $ | 164 |
|
| $ | 130 |
| | $ | 318 |
| | $ | 249 |
|
Taxable dividends | 3 |
|
| 3 |
| | 6 |
| | 5 |
|
Interest and dividends exempt from U.S. federal income tax | 6 |
|
| 6 |
| | 12 |
| | 11 |
|
Interest and dividends on investment securities | $ | 173 |
|
| $ | 139 |
| | $ | 336 |
| | $ | 265 |
|
The following table presents gross gains and losses realized upon the sales of available-for-sale securities, and net gains or losses on equity securities held during the period. There were no other-than-temporary impairments of available-for-sale securities for either period.the periods presented.
|
| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
($ in millions) | 2019 | | 2018 | | 2019 | | 2018 |
Available-for-sale securities | | | | | | | |
Gross realized gains | $ | 24 |
| | $ | 1 |
| | $ | 34 |
| | $ | 7 |
|
Gross realized losses (a) | — |
| | — |
| | (1 | ) | | — |
|
Net realized gains on available-for-sale securities | 24 |
| | 1 |
| | 33 |
| | 7 |
|
Net realized gain on equity securities | 10 |
| | 18 |
| | 39 |
| | 40 |
|
Net unrealized gain (loss) on equity securities | 5 |
| | 8 |
| | 75 |
| | (32 | ) |
Other gain on investments, net | $ | 39 |
| | $ | 27 |
| | $ | 147 |
| | $ | 15 |
|
|
| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
($ in millions) | 2018 | | 2017 | | 2018 | | 2017 |
Available-for-sale securities | | | | | | | |
Gross realized gains | $ | 1 |
| | $ | 24 |
| | $ | 7 |
| | $ | 51 |
|
Gross realized losses (a) | — |
| | (1 | ) | | — |
| | (1 | ) |
Net realized gains on available-for-sale securities | 1 |
| | 23 |
| | 7 |
| | 50 |
|
Net realized gain on equity securities | 18 |
| | | | 40 |
| | |
Net unrealized gain (loss) on equity securities (b) | 8 |
| | | | (32 | ) | | |
Other gain on investments, net | $ | 27 |
| | $ | 23 |
| | $ | 15 |
| | $ | 50 |
|
| |
(a) | Certain available-for-sale securities were sold at a loss induring the three months and six months ended June 30, 2019, and June 30, 2018, and 2017 as a result of market conditions within these respective periods (e.g., a downgrade in the rating of a debt security) or a loss was realized based on corporate actions outside of our control (such as a call by the issuer). Any such sales were made in accordance with our risk managementrisk-management policies and practices. |
| |
(b) | As a result of our adoption of ASU 2016-01, beginning January 1, 2018, changes in the fair value of our portfolio of equity securities are recognized in net income. Prior to adoption, equity securities were included in our available-for-sale portfolio and unrealized changes in fair value were recognized through other comprehensive (loss) income until realized, at which point we recorded a gain or loss on sale. We adopted ASU 2016-01 on January 1, 2018, on a modified retrospective basis with a cumulative effect adjustment as of the beginning of the fiscal year of initial adoption. Refer to the section titled Recently Adopted Accounting Standards in Note 1 for additional information.
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The table below summarizes available-for-sale and held-to-maturity securities in an unrealized loss position, which we evaluated for other than temporary impairment applyingimpairment. For additional information on our methodology, refer to Note 1 to the methodology describedConsolidated Financial Statements in Note 1.our 2018 Annual Report on Form 10-K. As of June 30, 2018,2019, we did not have the intent to sell the available-for-sale or held-to-maturity securities with an unrealized loss position and we do not believe it is more likely than not that we will be required to sell these securities before recovery of their amortized cost basis. As a result of this evaluation, we believe that the securities with an unrealized loss position are not considered to be other-than-temporarily impaired at June 30, 2018.2019.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
|
| 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 |
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies |
| $ | — |
|
| $ | — |
|
| $ | 1,532 |
|
| $ | (12 | ) |
| $ | 31 |
|
| $ | — |
|
| $ | 1,758 |
|
| $ | (60 | ) |
U.S. States and political subdivisions |
| — |
|
| — |
|
| 46 |
|
| — |
|
| 259 |
|
| (3 | ) |
| 317 |
|
| (14 | ) |
Foreign government |
| 5 |
|
| — |
|
| 8 |
|
| — |
|
| 6 |
|
| — |
|
| 74 |
|
| (1 | ) |
Agency mortgage-backed residential | | 1,033 |
| | (1 | ) | | 5,713 |
| | (61 | ) | | 5,537 |
| | (94 | ) | | 7,808 |
| | (301 | ) |
Mortgage-backed residential |
| 26 |
|
| — |
|
| 1,235 |
|
| (11 | ) |
| 1,024 |
|
| (20 | ) |
| 1,360 |
|
| (91 | ) |
Agency mortgage-backed commercial | | 10 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Mortgage-backed commercial | | 280 |
| | (1 | ) | | — |
| | — |
| | 347 |
| | (1 | ) | | 36 |
| | (1 | ) |
Asset-backed |
| 6 |
|
| — |
|
| 75 |
|
| — |
|
| 294 |
|
| (1 | ) |
| 124 |
|
| (1 | ) |
Corporate debt |
| 35 |
|
| — |
|
| 256 |
|
| (3 | ) |
| 576 |
|
| (19 | ) |
| 569 |
|
| (27 | ) |
Total temporarily impaired available-for-sale securities |
| $ | 1,395 |
|
| $ | (2 | ) |
| $ | 8,865 |
|
| $ | (87 | ) |
| $ | 8,074 |
|
| $ | (138 | ) |
| $ | 12,046 |
|
| $ | (496 | ) |
Held-to-maturity securities | | | | | | | | | | | | | | | | |
Debt securities | | | | | | | | | | | | | | | | |
Agency mortgage-backed residential | | $ | 447 |
| | $ | (3 | ) | | $ | — |
| | $ | — |
| | $ | 457 |
| | $ | (6 | ) | | $ | 1,376 |
| | $ | (55 | ) |
Asset-backed retained notes | | 11 |
| | — |
| | — |
| | — |
| | 16 |
| | — |
| | 19 |
| | — |
|
Total held-to-maturity debt securities | | $ | 458 |
| | $ | (3 | ) | | $ | — |
| | $ | — |
| | $ | 473 |
| | $ | (6 | ) | | $ | 1,395 |
| | $ | (55 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2018 | | December 31, 2017 |
|
| 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 |
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
| $ | 485 |
|
| $ | (19 | ) |
| $ | 1,275 |
|
| $ | (71 | ) |
| $ | 471 |
|
| $ | (8 | ) |
| $ | 1,305 |
|
| $ | (46 | ) |
U.S. States and political subdivisions |
| 420 |
|
| (8 | ) |
| 181 |
|
| (11 | ) |
| 242 |
|
| (2 | ) |
| 183 |
|
| (5 | ) |
Foreign government |
| 56 |
|
| (1 | ) |
| 25 |
|
| (1 | ) |
| 80 |
|
| (1 | ) |
| 4 |
|
| — |
|
Agency mortgage-backed residential | | 8,834 |
| | (215 | ) | | 5,331 |
| | (282 | ) | | 4,066 |
| | (19 | ) | | 5,671 |
| | (137 | ) |
Mortgage-backed residential |
| 1,642 |
|
| (35 | ) |
| 688 |
|
| (58 | ) |
| 857 |
|
| (2 | ) |
| 773 |
|
| (32 | ) |
Mortgage-backed commercial | | 91 |
| | (2 | ) | | 18 |
| | (1 | ) | | 76 |
| | (1 | ) | | 21 |
| | — |
|
Asset-backed |
| 479 |
|
| (3 | ) |
| 71 |
|
| (1 | ) |
| 220 |
|
| (1 | ) |
| 91 |
|
| — |
|
Corporate debt |
| 885 |
|
| (26 | ) |
| 254 |
|
| (17 | ) |
| 529 |
|
| (4 | ) |
| 194 |
|
| (7 | ) |
Total temporarily impaired available-for-sale securities |
| $ | 12,892 |
|
| $ | (309 | ) |
| $ | 7,843 |
|
| $ | (442 | ) |
| $ | 6,541 |
|
| $ | (38 | ) |
| $ | 8,242 |
|
| $ | (227 | ) |
Held-to-maturity securities | | | | | | | | | | | | | | | | |
Agency mortgage-backed residential | | $ | 1,152 |
| | $ | (33 | ) | | $ | 668 |
| | $ | (50 | ) | | $ | 773 |
| | $ | (5 | ) | | $ | 687 |
| | $ | (32 | ) |
Asset-backed retained certificates | | 24 |
| | — |
| | — |
| | — |
| | 35 |
| | — |
| | — |
| | — |
|
Total held-to-maturity debt securities | | $ | 1,176 |
|
| $ | (33 | ) |
| $ | 668 |
|
| $ | (50 | ) |
| $ | 808 |
|
| $ | (5 | ) |
| $ | 687 |
|
| $ | (32 | ) |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
7. Finance Receivables and Loans, Net
The composition of finance receivables and loans reported at gross carrying value was as follows.
| | ($ in millions) | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
Consumer automotive (a) | | $ | 70,473 |
| | $ | 68,071 |
| | $ | 72,898 |
| | $ | 70,539 |
|
Consumer mortgage | | | | | | | | |
Mortgage Finance (b) | | 13,328 |
| | 11,657 |
| | 16,485 |
| | 15,155 |
|
Mortgage — Legacy (c) | | 1,803 |
| | 2,093 |
| | 1,315 |
| | 1,546 |
|
Total consumer mortgage | | 15,131 |
| | 13,750 |
| | 17,800 |
| | 16,701 |
|
Total consumer | | 85,604 |
| | 81,821 |
| | 90,698 |
| | 87,240 |
|
Commercial | | | | | | | | |
Commercial and industrial | | | | | | | | |
Automotive | | 31,501 |
| | 33,025 |
| | 29,382 |
| | 33,672 |
|
Other | | 4,027 |
| | 3,887 |
| | 4,353 |
| | 4,205 |
|
Commercial real estate | | 4,412 |
| | 4,160 |
| | 4,777 |
| | 4,809 |
|
Total commercial | | 39,940 |
| | 41,072 |
| | 38,512 |
| | 42,686 |
|
Total finance receivables and loans (d) | | $ | 125,544 |
| | $ | 122,893 |
| | $ | 129,210 |
| | $ | 129,926 |
|
| |
(a) | Certain finance receivables and loans are included in fair value hedging relationships. Refer to Note 1817 for additional information. |
| |
(b) | Includes loans originated as interest-only mortgage loans of $18$12 million and $20$18 million at June 30, 2018,2019, and December 31, 2017,2018, respectively, 36%34% of which are expected to start principal amortization in 2019, and 48%41% in 2020. The remainder of these loans have exited the interest-only period. |
| |
(c) | Includes loans originated as interest-only mortgage loans of $416$263 million and $496$341 million at June 30, 2018,2019, and December 31, 2017,2018, respectively, of which 99% have exited the interest-only period. |
| |
(d) | Totals include net unearned income, unamortized premiums and discounts, and deferred fees and costs of $612$577 million and $551$587 million at June 30, 2018,2019, and December 31, 2017,2018, respectively. |
The following tables present an analysis of the activity in the allowance for loan losses on finance receivables and loans.
| | Three months ended June 30, 2018 ($ in millions) | | Consumer automotive | | Consumer mortgage | | Commercial | | Total | |
Allowance at April 1, 2018 | | $ | 1,066 |
| | $ | 74 |
| | $ | 138 |
| | $ | 1,278 |
| |
Three months ended June 30, 2019 ($ in millions) | | | Consumer automotive | | Consumer mortgage | | Commercial | | Total |
Allowance at April 1, 2019 | | | $ | 1,070 |
| | $ | 52 |
| | $ | 166 |
| | $ | 1,288 |
|
Charge-offs (a) | | (296 | ) | | (8 | ) | | (2 | ) | | (306 | ) | | (301 | ) | | (5 | ) | | (12 | ) | | (318 | ) |
Recoveries | | 114 |
| | 6 |
| | 6 |
| | 126 |
| | 129 |
| | 7 |
| | — |
| | 136 |
|
Net charge-offs | | (182 | ) | | (2 | ) | | 4 |
| | (180 | ) | | (172 | ) | | 2 |
| | (12 | ) | | (182 | ) |
Provision for loan losses | | 168 |
| | (4 | ) | | (6 | ) | | 158 |
| | 180 |
| | (5 | ) | | 2 |
| | 177 |
|
Other | | 1 |
| | (2 | ) | | 2 |
| | 1 |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
Allowance at June 30, 2018 | | $ | 1,053 |
|
| $ | 66 |
|
| $ | 138 |
|
| $ | 1,257 |
| |
Allowance at June 30, 2019 | | | $ | 1,078 |
| | $ | 49 |
| | $ | 155 |
| | $ | 1,282 |
|
| |
(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 20172018 Annual Report on Form 10-K for more information regarding our charge-off policies. |
| | Three months ended June 30, 2017 ($ in millions) | | Consumer automotive | | Consumer mortgage | | Commercial | | Total | |
Allowance at April 1, 2017 | | $ | 941 |
| | $ | 86 |
| | $ | 128 |
| | $ | 1,155 |
| |
Three months ended June 30, 2018 ($ in millions) | | | Consumer automotive | | Consumer mortgage | | Commercial | | Total |
Allowance at April 1, 2018 | | | $ | 1,066 |
| | $ | 74 |
| | $ | 138 |
| | $ | 1,278 |
|
Charge-offs (a) | | (290 | ) | | (6 | ) | | — |
| | (296 | ) | | (296 | ) | | (8 | ) | | (2 | ) | | (306 | ) |
Recoveries | | 91 |
| | 6 |
| | — |
| | 97 |
| | 114 |
| | 6 |
| | 6 |
| | 126 |
|
Net charge-offs | | (199 | ) |
| — |
|
| — |
| | (199 | ) | | (182 | ) | | (2 | ) |
| 4 |
| | (180 | ) |
Provision for loan losses | | 260 |
| | (3 | ) | | 12 |
| | 269 |
| | 168 |
| | (4 | ) | | (6 | ) | | 158 |
|
Allowance at June 30, 2017 | | $ | 1,002 |
|
| $ | 83 |
|
| $ | 140 |
|
| $ | 1,225 |
| |
Other | | | 1 |
| | (2 | ) | | 2 |
| | 1 |
|
Allowance at June 30, 2018 | | | $ | 1,053 |
| | $ | 66 |
| | $ | 138 |
| | $ | 1,257 |
|
| |
(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 20172018 Annual Report on Form 10-K for more information regarding our charge-off policies. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
| | Six months ended June 30, 2018 ($ in millions) | | Consumer automotive | | Consumer mortgage | | Commercial | | Total | |
Allowance at January 1, 2018 |
| $ | 1,066 |
|
| $ | 79 |
|
| $ | 131 |
|
| $ | 1,276 |
| |
Six months ended June 30, 2019 ($ in millions) | | | Consumer automotive | | Consumer mortgage | | Commercial | | Total |
Allowance at January 1, 2019 | | | $ | 1,048 |
| | $ | 53 |
| | $ | 141 |
| | $ | 1,242 |
|
Charge-offs (a) |
| (661 | ) |
| (20 | ) |
| (2 | ) |
| (683 | ) | | (653 | ) | | (8 | ) | | (17 | ) | | (678 | ) |
Recoveries |
| 226 |
|
| 12 |
|
| 6 |
|
| 244 |
| | 247 |
| | 12 |
| | — |
| | 259 |
|
Net charge-offs |
| (435 | ) |
| (8 | ) |
| 4 |
|
| (439 | ) | | (406 | ) | | 4 |
| | (17 | ) | | (419 | ) |
Provision for loan losses |
| 421 |
|
| (3 | ) |
| 1 |
|
| 419 |
| | 437 |
| | (8 | ) | | 30 |
| | 459 |
|
Other |
| 1 |
|
| (2 | ) |
| 2 |
|
| 1 |
| | (1 | ) | | — |
| | 1 |
| | — |
|
Allowance at June 30, 2018 |
| $ | 1,053 |
| | $ | 66 |
| | $ | 138 |
|
| $ | 1,257 |
| |
Allowance for loan losses at June 30, 2018 |
|
|
|
|
|
|
|
| |
Allowance at June 30, 2019 | | | $ | 1,078 |
| | $ | 49 |
| | $ | 155 |
| | $ | 1,282 |
|
Allowance for loan losses at June 30, 2019 | | | | | | | | | |
Individually evaluated for impairment |
| $ | 42 |
|
| $ | 24 |
|
| $ | 27 |
|
| $ | 93 |
| | $ | 42 |
| | $ | 20 |
| | $ | 49 |
| | $ | 111 |
|
Collectively evaluated for impairment |
| 1,011 |
|
| 42 |
|
| 111 |
|
| 1,164 |
| | 1,036 |
| | 29 |
| | 106 |
| | 1,171 |
|
Finance receivables and loans at gross carrying value |
| | | | | | | | | | | | | | | |
Ending balance |
| $ | 70,473 |
|
| $ | 15,131 |
|
| $ | 39,940 |
|
| $ | 125,544 |
| | $ | 72,898 |
| | $ | 17,800 |
| | $ | 38,512 |
| | $ | 129,210 |
|
Individually evaluated for impairment |
| 480 |
|
| 228 |
|
| 198 |
|
| 906 |
| | 496 |
| | 220 |
| | 196 |
| | 912 |
|
Collectively evaluated for impairment |
| 69,993 |
|
| 14,903 |
|
| 39,742 |
|
| 124,638 |
| | 72,402 |
| | 17,580 |
| | 38,316 |
| | 128,298 |
|
| |
(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 20172018 Annual Report on Form 10-K for more information regarding our charge-off policies. |
| | Six months ended June 30, 2017 ($ in millions) | | Consumer automotive | | Consumer mortgage | | Commercial | | Total | |
Allowance at January 1, 2017 | | $ | 932 |
| | $ | 91 |
| | $ | 121 |
| | $ | 1,144 |
| |
Six months ended June 30, 2018 ($ in millions) | | | Consumer automotive | | Consumer mortgage | | Commercial | | Total |
Allowance at January 1, 2018 | | | $ | 1,066 |
| | $ | 79 |
| | $ | 131 |
| | $ | 1,276 |
|
Charge-offs (a) | | (631 | ) | | (15 | ) | | — |
| | (646 | ) | | (661 | ) | | (20 | ) | | (2 | ) | | (683 | ) |
Recoveries | | 181 |
| | 13 |
| | — |
| | 194 |
| | 226 |
| | 12 |
| | 6 |
| | 244 |
|
Net charge-offs | | (450 | ) | | (2 | ) | | — |
| | (452 | ) | | (435 | ) | | (8 | ) |
| 4 |
| | (439 | ) |
Provision for loan losses | | 527 |
| | (6 | ) | | 19 |
| | 540 |
| | 421 |
| | (3 | ) | | 1 |
| | 419 |
|
Other (b) | | (7 | ) | | — |
| | — |
| | (7 | ) | | 1 |
| | (2 | ) | | 2 |
| | 1 |
|
Allowance at June 30, 2017 | | $ | 1,002 |
| | $ | 83 |
| | $ | 140 |
| | $ | 1,225 |
| |
Allowance for loan losses at June 30, 2017 |
|
|
|
|
|
|
|
| |
Allowance at June 30, 2018 | | | $ | 1,053 |
| | $ | 66 |
| | $ | 138 |
| | $ | 1,257 |
|
Allowance for loan losses at June 30, 2018 | | | | | | | | | |
Individually evaluated for impairment |
| $ | 34 |
|
| $ | 31 |
|
| $ | 32 |
|
| $ | 97 |
| | $ | 42 |
| | $ | 24 |
| | $ | 27 |
| | $ | 93 |
|
Collectively evaluated for impairment |
| 968 |
|
| 52 |
|
| 108 |
|
| 1,128 |
| | 1,011 |
| | 42 |
| | 111 |
| | 1,164 |
|
Finance receivables and loans at gross carrying value |
| | | | | |
|
|
| | | | | | | | |
Ending balance |
| $ | 66,774 |
|
| $ | 11,294 |
|
| $ | 42,460 |
|
| $ | 120,528 |
| | $ | 70,473 |
| | $ | 15,131 |
| | $ | 39,940 |
| | $ | 125,544 |
|
Individually evaluated for impairment |
| 380 |
|
| 242 |
|
| 151 |
|
| 773 |
| | 480 |
| | 228 |
| | 198 |
| | 906 |
|
Collectively evaluated for impairment |
| 66,394 |
|
| 11,052 |
|
| 42,309 |
|
| 119,755 |
| | 69,993 |
| | 14,903 |
| | 39,742 |
| | 124,638 |
|
| |
(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 20172018 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 information about significant sales of finance receivables and loans and transfers of finance receivables and loans from held-for-investment to held-for-sale based on net carrying value.
|
| | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
($ in millions) |
| 2019 |
| 2018 | | 2019 | | 2018 |
Consumer automotive |
| $ | — |
|
| $ | — |
| | $ | 20 |
| | $ | — |
|
Consumer mortgage |
| — |
|
| 4 |
| | — |
| | 5 |
|
Total sales and transfers (a) |
| $ | — |
| | $ | 4 |
| | $ | 20 |
| | $ | 5 |
|
| |
(a) | During the six months ended June 30, 2019, we also sold $131 million of loans held-for-sale that were initially classified as finance receivables and loans held-for-investment, and transferred $79 million of finance receivables from held-for-sale to held-for-investment, both relating to equipment finance receivables from our commercial automotive business. |
|
| | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
($ in millions) |
| 2018 |
| 2017 | | 2018 | | 2017 |
Consumer automotive |
| $ | — |
|
| $ | 85 |
| | $ | — |
| | $ | 1,298 |
|
Consumer mortgage |
| 4 |
|
| 3 |
| | 5 |
| | 6 |
|
Total sales and transfers |
| $ | 4 |
|
| $ | 88 |
| | $ | 5 |
| | $ | 1,304 |
|
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 based on unpaid principal balance at the time of purchase.
|
| | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
($ in millions) | | 2019 | | 2018 | | 2019 | | 2018 |
Consumer automotive |
| $ | 218 |
|
| $ | 233 |
| | $ | 317 |
| | $ | 401 |
|
Consumer mortgage |
| 678 |
|
| 852 |
| | 1,913 |
| | 2,147 |
|
Commercial | | 3 |
| | — |
| | 3 |
| | — |
|
Total purchases of finance receivables and loans |
| $ | 899 |
| | $ | 1,085 |
| | $ | 2,233 |
| | $ | 2,548 |
|
|
| | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
($ in millions) | | 2018 | | 2017 | | 2018 | | 2017 |
Consumer automotive |
| $ | 233 |
|
| $ | 611 |
| | $ | 401 |
| | $ | 679 |
|
Consumer mortgage |
| 852 |
|
| 809 |
| | 2,147 |
| | 1,136 |
|
Total purchases of finance receivables and loans |
| $ | 1,085 |
| | $ | 1,420 |
| | $ | 2,548 |
| | $ | 1,815 |
|
The following table presents an analysis of our past duepast-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, 2019 | | | | | | | | | | | | |
Consumer automotive | | $ | 1,802 |
| | $ | 444 |
| | $ | 273 |
| | $ | 2,519 |
| | $ | 70,379 |
| | $ | 72,898 |
|
Consumer mortgage | | | | | | | | | | | | |
Mortgage Finance | | 77 |
| | 9 |
| | 9 |
| | 95 |
| | 16,390 |
| | 16,485 |
|
Mortgage — Legacy | | 32 |
| | 13 |
| | 30 |
| | 75 |
| | 1,240 |
| | 1,315 |
|
Total consumer mortgage | | 109 |
| | 22 |
| | 39 |
| | 170 |
| | 17,630 |
| | 17,800 |
|
Total consumer | | 1,911 |
| | 466 |
| | 312 |
| | 2,689 |
| | 88,009 |
| | 90,698 |
|
Commercial | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | |
Automotive | | 3 |
| | — |
| | 67 |
| | 70 |
| | 29,312 |
| | 29,382 |
|
Other | | — |
| | — |
| | 2 |
| | 2 |
| | 4,351 |
| | 4,353 |
|
Commercial real estate | | — |
| | — |
| | 4 |
| | 4 |
| | 4,773 |
| | 4,777 |
|
Total commercial | | 3 |
| | — |
| | 73 |
| | 76 |
| | 38,436 |
| | 38,512 |
|
Total consumer and commercial | | $ | 1,914 |
| | $ | 466 |
| | $ | 385 |
| | $ | 2,765 |
| | $ | 126,445 |
| | $ | 129,210 |
|
December 31, 2018 | | | | | | | | | | | | |
Consumer automotive | | $ | 2,107 |
| | $ | 537 |
| | $ | 296 |
| | $ | 2,940 |
| | $ | 67,599 |
| | $ | 70,539 |
|
Consumer mortgage | | | | | | | | | | | | |
Mortgage Finance | | 67 |
| | 5 |
| | 4 |
| | 76 |
| | 15,079 |
| | 15,155 |
|
Mortgage — Legacy | | 30 |
| | 10 |
| | 42 |
| | 82 |
| | 1,464 |
| | 1,546 |
|
Total consumer mortgage | | 97 |
| | 15 |
| | 46 |
| | 158 |
| | 16,543 |
| | 16,701 |
|
Total consumer | | 2,204 |
| | 552 |
| | 342 |
| | 3,098 |
| | 84,142 |
| | 87,240 |
|
Commercial | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | |
Automotive | | — |
| | 1 |
| | 31 |
| | 32 |
| | 33,640 |
| | 33,672 |
|
Other | | — |
| | 4 |
| | 16 |
| | 20 |
| | 4,185 |
| | 4,205 |
|
Commercial real estate | | — |
| | — |
| | 1 |
| | 1 |
| | 4,808 |
| | 4,809 |
|
Total commercial | | — |
| | 5 |
| | 48 |
| | 53 |
| | 42,633 |
|
| 42,686 |
|
Total consumer and commercial | | $ | 2,204 |
| | $ | 557 |
| | $ | 390 |
| | $ | 3,151 |
| | $ | 126,775 |
|
| $ | 129,926 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
($ 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, 2018 | | | | | | | | | | | | |
Consumer automotive | | $ | 1,706 |
| | $ | 387 |
| | $ | 248 |
| | $ | 2,341 |
| | $ | 68,132 |
| | $ | 70,473 |
|
Consumer mortgage | | | | | | | | | | | | |
Mortgage Finance | | 50 |
| | 4 |
| | 11 |
| | 65 |
| | 13,263 |
| | 13,328 |
|
Mortgage — Legacy | | 38 |
| | 14 |
| | 54 |
| | 106 |
| | 1,697 |
| | 1,803 |
|
Total consumer mortgage | | 88 |
| | 18 |
| | 65 |
| | 171 |
| | 14,960 |
| | 15,131 |
|
Total consumer | | 1,794 |
| | 405 |
| | 313 |
| | 2,512 |
| | 83,092 |
| | 85,604 |
|
Commercial | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | |
Automotive | | — |
| | — |
| | 21 |
| | 21 |
| | 31,480 |
| | 31,501 |
|
Other | | 4 |
| | — |
| | — |
| | 4 |
| | 4,023 |
| | 4,027 |
|
Commercial real estate | | — |
| | — |
| | — |
| | — |
| | 4,412 |
| | 4,412 |
|
Total commercial | | 4 |
|
| — |
|
| 21 |
|
| 25 |
|
| 39,915 |
|
| 39,940 |
|
Total consumer and commercial | | $ | 1,798 |
|
| $ | 405 |
|
| $ | 334 |
|
| $ | 2,537 |
|
| $ | 123,007 |
|
| $ | 125,544 |
|
December 31, 2017 | | | | | | | | | | | | |
Consumer automotive | | $ | 1,994 |
| | $ | 478 |
| | $ | 268 |
| | $ | 2,740 |
| | $ | 65,331 |
| | $ | 68,071 |
|
Consumer mortgage | | | | | | | | | | | | |
Mortgage Finance | | 60 |
| | 11 |
| | 18 |
| | 89 |
| | 11,568 |
| | 11,657 |
|
Mortgage — Legacy | | 43 |
| | 25 |
| | 62 |
| | 130 |
| | 1,963 |
| | 2,093 |
|
Total consumer mortgage | | 103 |
| | 36 |
| | 80 |
| | 219 |
| | 13,531 |
| | 13,750 |
|
Total consumer | | 2,097 |
| | 514 |
| | 348 |
| | 2,959 |
| | 78,862 |
| | 81,821 |
|
Commercial | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | |
Automotive | | 5 |
| | — |
| | 3 |
| | 8 |
| | 33,017 |
| | 33,025 |
|
Other | | — |
| | — |
| | — |
| | — |
| | 3,887 |
| | 3,887 |
|
Commercial real estate | | — |
| | — |
| | — |
| | — |
| | 4,160 |
| | 4,160 |
|
Total commercial | | 5 |
|
| — |
|
| 3 |
|
| 8 |
|
| 41,064 |
|
| 41,072 |
|
Total consumer and commercial | | $ | 2,102 |
|
| $ | 514 |
|
| $ | 351 |
|
| $ | 2,967 |
|
| $ | 119,926 |
|
| $ | 122,893 |
|
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, 2019 | | December 31, 2018 |
Consumer automotive | | $ | 642 |
| | $ | 664 |
|
Consumer mortgage | | | | |
Mortgage Finance | | 12 |
| | 9 |
|
Mortgage — Legacy | | 53 |
| | 70 |
|
Total consumer mortgage | | 65 |
| | 79 |
|
Total consumer | | 707 |
| | 743 |
|
Commercial | | | | |
Commercial and industrial | | | | |
Automotive | | 89 |
| | 203 |
|
Other | | 101 |
| | 142 |
|
Commercial real estate | | 6 |
| | 4 |
|
Total commercial | | 196 |
| | 349 |
|
Total consumer and commercial finance receivables and loans | | $ | 903 |
|
| $ | 1,092 |
|
|
| | | | | | | | |
($ in millions) | | June 30, 2018 | | December 31, 2017 |
Consumer automotive | | $ | 602 |
| | $ | 603 |
|
Consumer mortgage | | | | |
Mortgage Finance | | 18 |
| | 25 |
|
Mortgage — Legacy | | 87 |
| | 92 |
|
Total consumer mortgage | | 105 |
| | 117 |
|
Total consumer | | 707 |
| | 720 |
|
Commercial | | | | |
Commercial and industrial | | | | |
Automotive | | 88 |
| | 27 |
|
Other | | 104 |
| | 44 |
|
Commercial real estate | | 6 |
| | 1 |
|
Total commercial | | 198 |
| | 72 |
|
Total consumer and commercial finance receivables and loans | | $ | 905 |
|
| $ | 792 |
|
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 more, or when full collection is not expected. Refer to Note 1 to the Consolidated Financial Statements in our 20172018 Annual Report on Form 10-K for additional information.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
($ in millions) | | Performing | | Nonperforming | | Total | | Performing | | Nonperforming | | Total |
Consumer automotive | | $ | 72,256 |
| | $ | 642 |
| | $ | 72,898 |
| | $ | 69,875 |
| | $ | 664 |
| | $ | 70,539 |
|
Consumer mortgage | | | | | | | | | | | | |
Mortgage Finance | | 16,473 |
| | 12 |
| | 16,485 |
| | 15,146 |
| | 9 |
| | 15,155 |
|
Mortgage — Legacy | | 1,262 |
| | 53 |
| | 1,315 |
| | 1,476 |
| | 70 |
| | 1,546 |
|
Total consumer mortgage | | 17,735 |
| | 65 |
| | 17,800 |
| | 16,622 |
| | 79 |
| | 16,701 |
|
Total consumer | | $ | 89,991 |
| | $ | 707 |
| | $ | 90,698 |
| | $ | 86,497 |
| | $ | 743 |
| | $ | 87,240 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2018 | | December 31, 2017 |
($ in millions) | | Performing | | Nonperforming | | Total | | Performing | | Nonperforming | | Total |
Consumer automotive | | $ | 69,871 |
| | $ | 602 |
| | $ | 70,473 |
| | $ | 67,468 |
| | $ | 603 |
| | $ | 68,071 |
|
Consumer mortgage | | | | | | | | | | | | |
Mortgage Finance | | 13,310 |
| | 18 |
| | 13,328 |
| | 11,632 |
| | 25 |
| | 11,657 |
|
Mortgage — Legacy | | 1,716 |
| | 87 |
| | 1,803 |
| | 2,001 |
| | 92 |
| | 2,093 |
|
Total consumer mortgage | | 15,026 |
| | 105 |
| | 15,131 |
| | 13,633 |
| | 117 |
| | 13,750 |
|
Total consumer | | $ | 84,897 |
| | $ | 707 |
| | $ | 85,604 |
| | $ | 81,101 |
| | $ | 720 |
| | $ | 81,821 |
|
The following table presents pass and criticized credit quality indicators based on regulatory definitions for our commercial finance receivables and loans recorded at gross carrying value.
| | | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
($ in millions) | | Pass | | Criticized (a) | | Total | | Pass | | Criticized (a) | | Total | | Pass | | Criticized (a) | | Total | | Pass | | Criticized (a) | | Total |
Commercial and industrial | | | | | | | | | | | | | | | | | | | | | | | | |
Automotive | | $ | 28,890 |
| | $ | 2,611 |
| | $ | 31,501 |
| | $ | 30,982 |
| | $ | 2,043 |
| | $ | 33,025 |
| | $ | 26,629 |
| | $ | 2,753 |
| | $ | 29,382 |
| | $ | 30,799 |
| | $ | 2,873 |
| | $ | 33,672 |
|
Other | | 3,260 |
| | 767 |
| | 4,027 |
| | 2,986 |
| | 901 |
| | 3,887 |
| | 3,580 |
| | 773 |
| | 4,353 |
| | 3,373 |
| | 832 |
| | 4,205 |
|
Commercial real estate | | 4,193 |
| | 219 |
| | 4,412 |
| | 4,023 |
| | 137 |
| | 4,160 |
| | 4,517 |
| | 260 |
| | 4,777 |
| | 4,538 |
| | 271 |
| | 4,809 |
|
Total commercial | | $ | 36,343 |
| | $ | 3,597 |
| | $ | 39,940 |
|
| $ | 37,991 |
| | $ | 3,081 |
| | $ | 41,072 |
| | $ | 34,726 |
| | $ | 3,786 |
| | $ | 38,512 |
|
| $ | 38,710 |
| | $ | 3,976 |
| | $ | 42,686 |
|
| |
(a) | Includes loans classified as special mention, substandard, or doubtful. These classifications are based on regulatory definitions and generally represent loans within our portfolio that have a higher default risk or have already defaulted. |
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 Consolidated Financial Statements in our 20172018 Annual Report on Form 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, 2018 | | | | | | | | | | | |
June 30, 2019 | | | | | | | | | | | |
Consumer automotive | | $ | 491 |
| | $ | 480 |
| | $ | 117 |
| | $ | 363 |
| | $ | 42 |
| | $ | 506 |
| | $ | 496 |
| | $ | 101 |
| | $ | 395 |
| | $ | 42 |
|
Consumer mortgage | | | | | | | | | | | | | | | | | | | | |
Mortgage Finance | | 10 |
| | 10 |
| | 4 |
| | 6 |
| | — |
| | 14 |
| | 14 |
| | 6 |
| | 8 |
| | — |
|
Mortgage — Legacy | | 223 |
| | 218 |
| | 63 |
| | 155 |
| | 24 |
| | 211 |
| | 206 |
| | 65 |
| | 141 |
| | 20 |
|
Total consumer mortgage | | 233 |
| | 228 |
| | 67 |
| | 161 |
| | 24 |
| | 225 |
| | 220 |
| | 71 |
| | 149 |
| | 20 |
|
Total consumer | | 724 |
| | 708 |
| | 184 |
| | 524 |
| | 66 |
| | 731 |
| | 716 |
| | 172 |
| | 544 |
| | 62 |
|
Commercial | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | | | | | | | | | |
Automotive | | 88 |
| | 88 |
| | 16 |
| | 72 |
| | 12 |
| | 89 |
| | 89 |
| | 18 |
| | 71 |
| | 19 |
|
Other | | 116 |
| | 104 |
| | 40 |
| | 64 |
| | 15 |
| | 122 |
| | 101 |
| | 55 |
| | 46 |
| | 30 |
|
Commercial real estate | | 6 |
| | 6 |
| | 4 |
| | 2 |
| | — |
| | 6 |
| | 6 |
| | 6 |
| | — |
| | — |
|
Total commercial | | 210 |
| | 198 |
| | 60 |
| | 138 |
| | 27 |
| | 217 |
| | 196 |
| | 79 |
| | 117 |
| | 49 |
|
Total consumer and commercial finance receivables and loans | | $ | 934 |
|
| $ | 906 |
|
| $ | 244 |
|
| $ | 662 |
|
| $ | 93 |
| | $ | 948 |
| | $ | 912 |
| | $ | 251 |
| | $ | 661 |
| | $ | 111 |
|
December 31, 2017 | | | | | | | | | | | |
December 31, 2018 | | | | | | | | | | | |
Consumer automotive | | $ | 438 |
| | $ | 430 |
| | $ | 91 |
| | $ | 339 |
| | $ | 36 |
| | $ | 503 |
| | $ | 495 |
| | $ | 105 |
| | $ | 390 |
| | $ | 44 |
|
Consumer mortgage | | | | | | | | | | | | | | | | | | | | |
Mortgage Finance | | 8 |
| | 8 |
| | 4 |
| | 4 |
| | — |
| | 15 |
| | 15 |
| | 6 |
| | 9 |
| | 1 |
|
Mortgage — Legacy | | 228 |
| | 223 |
| | 58 |
| | 165 |
| | 27 |
| | 221 |
| | 216 |
| | 65 |
| | 151 |
| | 22 |
|
Total consumer mortgage | | 236 |
| | 231 |
| | 62 |
| | 169 |
| | 27 |
| | 236 |
| | 231 |
| | 71 |
| | 160 |
| | 23 |
|
Total consumer | | 674 |
| | 661 |
| | 153 |
| | 508 |
| | 63 |
| | 739 |
| | 726 |
| | 176 |
| | 550 |
| | 67 |
|
Commercial | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | | | | | | | | | |
Automotive | | 27 |
| | 27 |
| | 9 |
| | 18 |
| | 3 |
| | 203 |
| | 203 |
| | 112 |
| | 91 |
| | 10 |
|
Other | | 54 |
| | 44 |
| | 10 |
| | 34 |
| | 11 |
| | 159 |
| | 142 |
| | 40 |
| | 102 |
| | 46 |
|
Commercial real estate | | 1 |
| | 1 |
| | — |
| | 1 |
| | — |
| | 4 |
| | 4 |
| | 4 |
| | — |
| | — |
|
Total commercial | | 82 |
| | 72 |
| | 19 |
| | 53 |
| | 14 |
| | 366 |
| | 349 |
| | 156 |
| | 193 |
| | 56 |
|
Total consumer and commercial finance receivables and loans | | $ | 756 |
|
| $ | 733 |
|
| $ | 172 |
|
| $ | 561 |
|
| $ | 77 |
| | $ | 1,105 |
| | $ | 1,075 |
| | $ | 332 |
| | $ | 743 |
| | $ | 123 |
|
| |
(a) | Adjusted for charge-offs. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following tables present average balance and interest income for our impaired finance receivables and loans.
|
| | | | | | | | | | | | | | | | |
| | 2019 | | 2018 |
Three months ended June 30, ($ in millions) | | Average balance | | Interest income | | Average balance | | Interest income |
Consumer automotive | | $ | 498 |
| | $ | 9 |
| | $ | 472 |
| | $ | 7 |
|
Consumer mortgage | | | | | | | | |
Mortgage Finance | | 14 |
| | — |
| | 9 |
| | — |
|
Mortgage — Legacy | | 209 |
| | 2 |
| | 219 |
| | 3 |
|
Total consumer mortgage | | 223 |
| | 2 |
| | 228 |
| | 3 |
|
Total consumer | | 721 |
| | 11 |
| | 700 |
| | 10 |
|
Commercial | | | | | | | | |
Commercial and industrial | | | | | | | | |
Automotive | | 113 |
| | — |
| | 78 |
| | 1 |
|
Other | | 108 |
| | — |
| | 82 |
| | — |
|
Commercial real estate | | 6 |
| | — |
| | 5 |
| | — |
|
Total commercial | | 227 |
| | — |
| | 165 |
| | 1 |
|
Total consumer and commercial finance receivables and loans | | $ | 948 |
| | $ | 11 |
| | $ | 865 |
| | $ | 11 |
|
|
| | | | | | | | | | | | | | | | |
| | 2018 | | 2017 |
Three months ended June 30, ($ in millions) | | Average balance | | Interest income | | Average balance | | Interest income |
Consumer automotive | | $ | 472 |
| | $ | 7 |
| | $ | 391 |
| | $ | 5 |
|
Consumer mortgage | | | | | | | | |
Mortgage Finance | | 9 |
| | — |
| | 8 |
| | — |
|
Mortgage — Legacy | | 219 |
| | 3 |
| | 238 |
| | 3 |
|
Total consumer mortgage | | 228 |
| | 3 |
| | 246 |
| | 3 |
|
Total consumer | | 700 |
| | 10 |
| | 637 |
| | 8 |
|
Commercial | | | | | | | | |
Commercial and industrial | | | | | | | | |
Automotive | | 78 |
| | 1 |
| | 54 |
| | 1 |
|
Other | | 82 |
| | — |
| | 73 |
| | 8 |
|
Commercial real estate | | 5 |
| | — |
| | 6 |
| | — |
|
Total commercial | | 165 |
| | 1 |
| | 133 |
| | 9 |
|
Total consumer and commercial finance receivables and loans | | $ | 865 |
|
| $ | 11 |
|
| $ | 770 |
|
| $ | 17 |
|
| | | | 2018 | | 2017 | | 2019 | | 2018 |
Six months ended June 30, ($ in millions) | | Average balance | | Interest income | | Average balance | | Interest income | | Average balance | | Interest income | | Average balance | | Interest income |
Consumer automotive | | $ | 462 |
| | $ | 14 |
| | $ | 381 |
| | $ | 10 |
| | $ | 498 |
| | $ | 17 |
| | $ | 462 |
| | $ | 14 |
|
Consumer mortgage | | | | | | | | | | | | | | | | |
Mortgage Finance | | 9 |
| | — |
| | 8 |
| | — |
| | 15 |
| | — |
| | 9 |
| | — |
|
Mortgage — Legacy | | 220 |
| | 5 |
| | 239 |
| | 5 |
| | 211 |
| | 5 |
| | 220 |
| | 5 |
|
Total consumer mortgage | | 229 |
| | 5 |
| | 247 |
| | 5 |
| | 226 |
| | 5 |
| | 229 |
| | 5 |
|
Total consumer | | 691 |
| | 19 |
| | 628 |
| | 15 |
| | 724 |
| | 22 |
| | 691 |
| | 19 |
|
Commercial | | | | | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | | | | | |
Automotive | | 61 |
| | 2 |
| | 47 |
| | 1 |
| | 143 |
| | 1 |
| | 61 |
| | 2 |
|
Other | | 66 |
| | — |
| | 77 |
| | 8 |
| | 117 |
| | — |
| | 66 |
| | — |
|
Commercial real estate | | 4 |
| | — |
| | 6 |
| | — |
| | 6 |
| | — |
| | 4 |
| | — |
|
Total commercial | | 131 |
| | 2 |
| | 130 |
| | 9 |
| | 266 |
| | 1 |
| | 131 |
| | 2 |
|
Total consumer and commercial finance receivables and loans | | $ | 822 |
| | $ | 21 |
| | $ | 758 |
| | $ | 24 |
| | $ | 990 |
| | $ | 23 |
| | $ | 822 |
| | $ | 21 |
|
Troubled Debt Restructurings
Troubled Debt Restructurings (TDRs) are loan modifications where concessions were granted to borrowers experiencing financial difficulties. For consumer automotive loans, we may offer several types of assistance to aid our customers, including extensionpayment extensions and rewrites of the loan maturity date and rewriting the loan terms. Additionally, for mortgage loans, as part of certain programs, we offer mortgage loan modifications to qualified borrowers. These programs are in place to provide support to our mortgage customers in financial distress, including principal forgiveness, maturity extensions, delinquent interest capitalization, and changes to contractual interest rates. Total TDRs recorded at gross carrying value were $791$818 million and $712$812 million at June 30, 20182019, and December 31, 2017,2018, respectively.
Total commitments to lend additional funds to borrowers whose terms had been modified in a TDR were $7$15 million and $6$4 million at June 30, 2018,2019, and December 31, 2017,2018, respectively. Refer to Note 1 to the Consolidated Financial Statements in our 20172018 Annual Report on Form 10-K for additional information.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following tables present information related to finance receivables and loans recorded at gross carrying value modified in connection with a TDR during the period.
| | | 2018 | | 2017 | | 2019 | | 2018 |
Three months ended June 30, ($ 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 | | 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 | 5,898 |
| | $ | 107 |
| | $ | 93 |
| | 5,762 |
| | $ | 103 |
| | $ | 88 |
| | 5,598 |
| | $ | 96 |
| | $ | 85 |
| | 5,898 |
| | $ | 107 |
| | $ | 93 |
|
Consumer mortgage | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage Finance | 7 |
| | 2 |
| | 2 |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | — |
| | 7 |
| | 2 |
| | 2 |
|
Mortgage — Legacy | 27 |
| | 6 |
| | 7 |
| | 19 |
| | 3 |
| | 2 |
| | 18 |
| | 3 |
| | 3 |
| | 27 |
| | 6 |
| | 7 |
|
Total consumer mortgage | 34 |
|
| 8 |
|
| 9 |
|
| 19 |
|
| 3 |
|
| 2 |
| | 20 |
| | 3 |
| | 3 |
| | 34 |
| | 8 |
| | 9 |
|
Total consumer | 5,932 |
| | 115 |
| | 102 |
| | 5,781 |
| | 106 |
| | 90 |
| | 5,618 |
| | 99 |
| | 88 |
| | 5,932 |
| | 115 |
| | 102 |
|
Commercial | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | | | | | | | | | | | | |
Automotive | 3 |
| | 4 |
| | 4 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| | 4 |
| | 4 |
|
Other | 2 |
| | 55 |
| | 51 |
| | 1 |
| | 21 |
| | 21 |
| | 1 |
| | 22 |
| | 6 |
| | 2 |
| | 55 |
| | 51 |
|
Total commercial | 5 |
| | 59 |
| | 55 |
|
| 1 |
|
| 21 |
|
| 21 |
| | 1 |
| | 22 |
| | 6 |
| | 5 |
| | 59 |
| | 55 |
|
Total consumer and commercial finance receivables and loans | 5,937 |
|
| $ | 174 |
|
| $ | 157 |
|
| 5,782 |
|
| $ | 127 |
|
| $ | 111 |
| | 5,619 |
| | $ | 121 |
| | $ | 94 |
| | 5,937 |
| | $ | 174 |
| | $ | 157 |
|
| | | 2018 | | 2017 | | 2019 | | 2018 |
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 | | 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 | 12,940 |
| | $ | 235 |
| | $ | 203 |
| | 12,209 |
| | $ | 218 |
| | $ | 187 |
| | 13,025 |
| | $ | 225 |
| | $ | 196 |
| | 12,940 |
| | $ | 235 |
| | $ | 203 |
|
Consumer mortgage | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage Finance | 8 |
| | 3 |
| | 3 |
| | 1 |
| | — |
| | — |
| | 3 |
| | — |
| | — |
| | 8 |
| | 3 |
| | 3 |
|
Mortgage — Legacy | 89 |
| | 16 |
| | 16 |
| | 72 |
| | 15 |
| | 14 |
| | 38 |
| | 6 |
| | 6 |
| | 89 |
| | 16 |
| | 16 |
|
Total consumer mortgage | 97 |
| | 19 |
| | 19 |
| | 73 |
| | 15 |
| | 14 |
| | 41 |
| | 6 |
| | 6 |
| | 97 |
| | 19 |
| | 19 |
|
Total consumer | 13,037 |
| | 254 |
| | 222 |
| | 12,282 |
| | 233 |
| | 201 |
| | 13,066 |
| | 231 |
| | 202 |
| | 13,037 |
| | 254 |
| | 222 |
|
Commercial | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | | | | | | | | | | | | |
Automotive | 3 |
| | 4 |
| | 4 |
| | — |
| | — |
| | — |
| | 6 |
| | 41 |
| | 41 |
| | 3 |
| | 4 |
| | 4 |
|
Other | 2 |
| | 55 |
| | 51 |
| | 2 |
| | 44 |
| | 44 |
| | 1 |
| | 22 |
| | 6 |
| | 2 |
| | 55 |
| | 51 |
|
Total commercial | 5 |
| | 59 |
| | 55 |
| | 2 |
| | 44 |
| | 44 |
| | 7 |
| | 63 |
| | 47 |
| | 5 |
| | 59 |
| | 55 |
|
Total consumer and commercial finance receivables and loans | 13,042 |
| | $ | 313 |
| | $ | 277 |
| | 12,284 |
| | $ | 277 |
| | $ | 245 |
| | 13,073 |
| | $ | 294 |
| | $ | 249 |
| | 13,042 |
| | $ | 313 |
| | $ | 277 |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following tables present information about finance receivables and loans recorded at gross carrying value that have redefaulted during the reporting period and were within 12twelve 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 Consolidated Financial Statements in our 20172018 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.
|
| | | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2018 |
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 | | 1,752 |
| | $ | 20 |
| | $ | 12 |
| | 2,425 |
| | $ | 29 |
| | $ | 17 |
|
Consumer mortgage | | | | | | | | | | | | |
Mortgage — Legacy | | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
|
Total consumer finance receivables and loans | | 1,752 |
| | $ | 20 |
| | $ | 12 |
| | 2,426 |
| | $ | 29 |
| | $ | 17 |
|
|
| | | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2018 |
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 |
Consumer automotive | | 3,961 |
| | $ | 46 |
| | $ | 28 |
| | 4,751 |
| | $ | 57 |
| | $ | 35 |
|
Consumer mortgage | | | | | | | | | | | | |
Mortgage — Legacy | | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
|
Total consumer finance receivables and loans | | 3,961 |
| | $ | 46 |
| | $ | 28 |
| | 4,752 |
| | $ | 57 |
| | $ | 35 |
|
8. Leasing
On January 1, 2019, we adopted the amendments to the lease accounting principles. Refer to the section titled Recently Adopted Accounting Standards in Note 1 for additional information.
Ally as the Lessee
We have operating leases for our corporate facilities, which have remaining lease terms of 3 months to 13 years. Most of the property leases have fixed payment terms with annual fixed-escalation clauses and include options to extend the leases for periods that range from 1 to 15 years. Some of those lease agreements also include options to terminate the leases in periods that range from 2 to 5 years after the commencement of the leases. We have not included any of these term extensions or termination provisions in our estimates of the lease term, as we do not consider it reasonably certain that the options will be exercised. Our property-lease agreements contain a lease component, which includes the right to use the real estate, and non-lease components, which include utilities and common area maintenance services. Lease components are accounted for under the ASC Topic on Leases, while non-lease components are accounted for under other GAAP Topics. We elected the practical expedient to account for the lease and non-lease components for property leases as a single lease component. Additional variable-rent payments made during the lease term are not based on a rate or index and are excluded from the calculations of ROU assets and lease liabilities and recognized as a component of variable lease expense as incurred.
We also have operating leases for a fleet of vehicles that is used by our sales force for business purposes, with noncancellable lease terms of 367 days. Thereafter, the leases are month-to-month, up to a maximum of 48 months from inception. In addition to lease costs related to the vehicles, the lease contracts include non-lease components such as maintenance, fuel, and administrative services. We elected to account for the lease and non-lease components separately. As a result, the non-lease components are excluded from the calculation of the ROU asset and lease liability and are recognized as other operating expenses as incurred.
The following table details our total investment in operating leases.
|
| | | | | | | | | | | | | | | | | | | | | | |
| | 2018 | | 2017 |
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 | | 2,425 |
| | $ | 29 |
| | $ | 17 |
| | 2,143 |
| | $ | 25 |
| | $ | 17 |
|
Consumer mortgage | | | | | | | | | | | | |
Mortgage Finance | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Mortgage — Legacy | | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total consumer finance receivables and loans | | 2,426 |
| | $ | 29 |
| | $ | 17 |
| | 2,143 |
| | $ | 25 |
| | $ | 17 |
|
|
| | | | | | | | |
($ in millions) | | June 30, 2019 | | January 1, 2019 (a) |
Assets | | | | |
Operating lease right-of-use assets (b) | | $ | 172 |
| | $ | 161 |
|
Liabilities | | | | |
Operating lease liabilities (c) | | $ | 200 |
| | $ | 190 |
|
| |
(b) | Included in other assets on our Condensed Consolidated Balance Sheet. |
| |
(c) | Included in accrued expenses and other liabilities on our Condensed Consolidated Balance Sheet. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | | | | | | | | | | | | | | | |
| | 2018 | | 2017 |
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 |
Consumer automotive | | 4,751 |
| | $ | 57 |
| | $ | 35 |
| | 4,132 |
| | $ | 49 |
| | $ | 33 |
|
Consumer mortgage | | | | | | | | | | | | |
Mortgage Finance | | — |
| | — |
| | — |
| | 1 |
| | 1 |
| | — |
|
Mortgage — Legacy | | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total consumer finance receivables and loans | | 4,752 |
| | $ | 57 |
| | $ | 35 |
| | 4,133 |
| | $ | 50 |
| | $ | 33 |
|
During the three months and six months ended June 30, 2019, we paid $13 million and $25 million, respectively, in cash for amounts included in the measurement of lease liabilities at June 30, 2019. This amount is included in net cash provided by operating activities in the Condensed Consolidated Statement of Cash Flows. During the six months ended June 30, 2019, we obtained $34 million of ROU assets in exchange for new operating lease liabilities. As of June 30, 2019, the weighted-average remaining lease term of our operating lease portfolio was 7 years, and the weighted-average discount rate was 2.97%. 8. Investment in Operating Leases, Net
Investments inThe following table presents future minimum rental payments we are required to make under operating leases that have commenced as of June 30, 2019, and that have noncancellable lease terms expiring after June 30, 2019.
|
| | | | |
($ in millions) | | |
2019 | | $ | 25 |
|
2020 | | 48 |
|
2021 | | 37 |
|
2022 | | 25 |
|
2023 | | 16 |
|
2024 and thereafter | | 71 |
|
Total undiscounted cash flows | | 222 |
|
Difference between undiscounted cash flows and discounted cash flows | | (22 | ) |
Total lease liability | | $ | 200 |
|
In addition to the above, we entered into a forward-starting lease agreement in September 2017, for a new corporate facility in Charlotte, North Carolina, where we plan to consolidate several existing facilities into that location. The lessor and their agents are currently constructing the facilities at this location, with the lease scheduled to commence in April 2021 after construction is completed. The lease agreement will have a total of $290 million in undiscounted future lease payments over the 15 year term of the lease.
Future minimum rental payments required under operating leases as of December 31, 2018, prior to the date of adoption and as defined by the previous lease accounting guidance, with noncancellable lease terms expiring after December 31, 2018, were as follows.
|
| | | | |
Year ended December 31, ($ in millions) | | |
2019 | | $ | 48 |
|
2020 | | 47 |
|
2021 | | 46 |
|
2022 | | 37 |
|
2023 | | 31 |
|
2024 and thereafter | | 294 |
|
Total minimum payments required | | $ | 503 |
|
The following table details the components of total net operating lease expense.
|
| | | | | | | | | | | | | | | | |
�� | | Three months ended June 30, | | Six months ended June 30, |
($ in millions) | | 2019 | | 2018 | | 2019 | | 2018 |
Operating lease expense | | $ | 12 |
| | $ | 11 |
| | $ | 23 |
| | $ | 21 |
|
Variable lease expense | | 2 |
| | 1 |
| | 4 |
| | 3 |
|
Total lease expense, net (a) | | $ | 14 |
| | $ | 12 |
| | $ | 27 |
| | $ | 24 |
|
(a) Included in other operating expenses in our Condensed Consolidated Statement of Comprehensive Income
Ally as the Lessor
Investment in Operating Leases
We purchase consumer operating lease contracts and the associated vehicles from dealerships after those contracts are executed by the dealers and the consumers. The amount we pay a dealer for an operating lease contract is based on the negotiated price for the vehicle less vehicle trade-in, down payment from the consumer, and available automotive manufacturer incentives. Under the operating lease, the consumer is obligated to make payments in amounts equal to the amount by which the negotiated purchase price of the vehicle (less any trade-in value, down payment, or available manufacturer incentives) exceeds the contract residual value (including residual support) of the vehicle at lease termination, plus operating lease rental charges. The customer can terminate the lease at any point after commencement, subject to additional charges and fees. Both the consumer and the dealership have the option to purchase the vehicle at the end of the lease
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | |
($ in millions) | | June 30, 2018 | | December 31, 2017 |
Vehicles | | $ | 10,260 |
| | $ | 10,556 |
|
Accumulated depreciation | | (1,621 | ) | | (1,815 | ) |
Investment in operating leases, net | | $ | 8,639 |
| | $ | 8,741 |
|
term, which can range from 24 to 60 months, at the residual value of the vehicle, however it is not reasonably certain this option will be exercised and as such our consumer leases are classified as operating leases. We have made an accounting policy election to exclude the sales taxes we collect from consideration in the lease contract and from variable lease payments not included in contract consideration. In addition to the charges described above, the consumer is generally responsible for certain charges related to excess mileage or excessive wear and tear on the vehicle. These charges are deemed variable lease payments and, as these payments are not based on a rate or index, they are recognized as net depreciation expense on operating lease assets in our Condensed Consolidated Statement of Comprehensive Income as incurred.
When we acquire a consumer operating lease, we assume ownership of the vehicle from the dealer. We require that property damage, bodily injury, collision, and comprehensive insurance be obtained by the lessee on all consumer operating leases. Neither the consumer nor the dealer is responsible for the value of the vehicle at the time of lease termination. When vehicles are not purchased by customers or the receiving dealer at scheduled lease termination, the vehicle is returned to us for remarketing. We generally bear the risk of loss to the extent the value of a leased vehicle upon remarketing is below the expected residual value. At contract inception, we determine pricing based on the projected residual value of the leased vehicle. This evaluation is primarily based on a proprietary model, which includes variables such as age, expected mileage, seasonality, segment factors, vehicle type, economic indicators, production cycle, automotive manufacturer incentives, and shifts in used-vehicle supply. This internally-generated data is compared against third-party, independent data for reasonableness. Periodically, we revise the projected value of the leased vehicle at termination based on current market conditions and adjust depreciation expense if necessary over the remaining life of the contract. At termination, our actual sales proceeds from remarketing the vehicle may be higher or lower than the estimated residual value resulting in a gain or loss on remarketing, which is included in net depreciation expense on operating lease assets in our Condensed Consolidated Statement of Comprehensive Income. Excessive mileage or excessive wear and tear on the vehicle during the lease may impact the sales proceeds received upon remarketing. As of June 30, 2019, consumer operating leases with a carrying value, net of accumulated depreciation, of $366 million were covered by a residual value guarantee of 15% of the manufacturer’s suggested retail price.
The following table details our investment in operating leases.
|
| | | | | | | | |
($ in millions) | | June 30, 2019 | | December 31, 2018 |
Vehicles | | $ | 9,961 |
| | $ | 9,995 |
|
Accumulated depreciation | | (1,554 | ) | | (1,578 | ) |
Investment in operating leases, net | | $ | 8,407 |
| | $ | 8,417 |
|
The following table presents future minimum rental payments we have the right to receive under operating leases with noncancellable lease terms expiring after June 30, 2019.
|
| | | | |
($ in millions) | | |
2019 | | $ | 726 |
|
2020 | | 1,062 |
|
2021 | | 536 |
|
2022 | | 129 |
|
2023 | | 16 |
|
2024 and thereafter | | 1 |
|
Total lease payments from operating leases | | $ | 2,470 |
|
We recognized $363 million and $724 million, and $374 million and $756 million in operating lease revenue for the three months and six months ended June 30, 2019, and June 30, 2018, respectively. Depreciation expense on operating lease assets includes remarketing gains and losses recognized on the sale of operating lease assets. The following table summarizes the components of depreciation expense on operating lease assets.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
($ in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Depreciation expense on operating lease assets (excluding remarketing gains)(a) | | $ | 281 |
| | $ | 353 |
| | $ | 572 |
| | $ | 739 |
| | $ | 262 |
| | $ | 281 |
| | $ | 523 |
| | $ | 572 |
|
Remarketing gains | | (16 | ) | | (32 | ) | | (34 | ) | | (29 | ) | |
Remarketing gains, net | | | (23 | ) | | (16 | ) | | (38 | ) | | (34 | ) |
Net depreciation expense on operating lease assets | | $ | 265 |
| | $ | 321 |
| | $ | 538 |
| | $ | 710 |
| | $ | 239 |
| | $ | 265 |
| | $ | 485 |
| | $ | 538 |
|
(a) Includes variable lease payments related to excess mileage and excessive wear and tear on vehicles $5 million and $9 million during the three and six months ended June 30, 2019, respectively, and $6 million and $13 million during the three and six months ended June 30, 2018.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Finance Leases
Our total gross investment in finance leases, which is included in finance receivables and loans, net, on our Condensed Consolidated Balance Sheet was $492 million and $439 million as of June 30, 2019, and December 31, 2018, respectively. This includes lease payment receivables of $478 million and $425 million at June 30, 2019, and December 31, 2018, respectively, and unguaranteed residual assets of $14 million at both June 30, 2019, and December 31, 2018. Interest income on finance lease receivables was $6 million and $12 million for the three months and six months ended June 30, 2019, respectively, and $5 million and $11 million for the three months and six months ended June 30, 2018, and is included in interest and fees on finance receivables and loans in our Condensed Consolidated Statement of Comprehensive Income.
The following table presents future minimum rental payments we have the right to receive under finance leases with noncancellable lease terms expiring after June 30, 2019.
|
| | | | |
($ in millions) | | |
2019 | | $ | 82 |
|
2020 | | 157 |
|
2021 | | 142 |
|
2022 | | 79 |
|
2023 | | 46 |
|
2024 and thereafter | | 32 |
|
Total undiscounted cash flows | | 538 |
|
Difference between undiscounted cash flows and discounted cash flows | | (60 | ) |
Present value of lease payments recorded as lease receivable | | $ | 478 |
|
9. Securitizations and Variable Interest Entities
We securitize, transfer, and service consumer and commercial automotive loans, and operating leases. We often securitize these loans and notes secured by operating leases (collectively referred to as financial assets) through the use of special-purposeusing special purpose entities (SPEs). AAn SPE is a legal 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 assetsassets. SPEs are often variable interest entities (VIEs) and operating lease assets which may or may not be included on our Condensed Consolidated Balance Sheet.Sheet.
The transaction-specific SPEs involved in our securitization transactions are often considered VIEs. VIEs are legal entities that either have either a totalan insufficient amount of equity investment at risk that is insufficient to permitfor the entity to finance its activities without additional subordinated financial support or, whoseas a group, the holders of the equity investorsinvestment at risk lack the ability to control the entity’s activities.activities that most significantly impact economic performance through voting or similar rights, or do not have the obligation to absorb the expected losses or the right to receive expected residual returns of the entity.
The VIEs included on the Condensed Consolidated Balance Sheet represent SPEs where we are deemed to be the primary beneficiary, primarily due to our servicing activities and our beneficial interests in the VIE that could be potentially significant.
The nature, purpose, and activities of nonconsolidated securitization entitiesSPEs are similar to those of our consolidated securitization entitiesSPEs with the primary difference being the nature and extent of our continuing involvement. Additionally, to qualify for off-balance sheet
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
treatment, transfers of financial assets must meet appropriate sale accounting conditions. For nonconsolidated securitization entities,SPEs, the transferred financial assets are removed from our balance sheet provided the conditions for sale accounting are met. The financial assets obtained from the securitization are primarily reported as cash or retained interests (if applicable). Liabilities incurred as part of these securitization transactions, such as representation and warranty provisions,securitizations, are recorded at fair value at the time of sale and are reported as accrued expenses and other liabilities on our Condensed Consolidated Balance Sheet.Sheet. Upon the sale of the loans, we recognize a gain or loss on sale for the difference between the assets recognized, the assets derecognized, and the liabilities recognized as part of the transaction. We hadWith respect to our ongoing right to service the assets we sell, the servicing fee we receive represents adequate compensation, and consequently, we do not recognize a servicing asset or liability.
There were no pretax gain on sales of financial assets into nonconsolidated VIEs for both the three months and six months ended June 30, 2018,2019, and the three months ended June 30, 2017. We had a pretax gain of $2 million for the six months ended June 30, 2017.2018.
We provide long-term guarantee contracts to investors in certain nonconsolidated affordable housing entities and have extended a line of credit to provide liquidity. Since we do not have control over the entities or the power to make decisions, we do not consolidate the entities and our involvement is limited to the guarantee and the line of credit.
We have involvementare involved with various other nonconsolidated equity investments, including affordable housing entities and venture capital funds and loan funds. We do not consolidate these entities and our involvement is limited to our outstanding investment, additional capital committed to these funds plus any previously recognized low income housing tax credits that are subject to recapture.
Refer to Note 1 and Note 11 to the Consolidated Financial Statements in our 20172018 Annual Report on Form 10-K for further description of our securitization activities and our involvement with VIEs.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following table presents our involvement in consolidated and nonconsolidated VIEs in which we hold variable interests. For additional detail related to the assets and liabilities of consolidated variable interest entities refer to the Condensed Consolidated Balance Sheet.Sheet.
| | ($ in millions) | | Carrying value of total assets | Carrying value of total liabilities | Assets sold to 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, 2018 | | | | | | | | | | |
June 30, 2019 | | | | | | | | | | |
On-balance sheet variable interest entities | | | | | | | | | | | | | | | | | | |
Consumer automotive | | $ | 18,806 |
| (b) | $ | 8,787 |
| (c) | | | | | | $ | 16,123 |
| (b) | $ | 6,016 |
| (c) | | | | |
Commercial automotive | | 9,945 |
| | 3,595 |
| | | | | | | 9,077 |
| | 3,047 |
| | | | | |
Off-balance sheet variable interest entities | | | | | | | | | | | | | | | | | | |
Consumer automotive | | 28 |
| (d) | — |
| | $ | 1,388 |
| | $ | 1,416 |
| (e) | | 33 |
| (d) | — |
| | $ | 796 |
| | $ | 829 |
| (e) |
Commercial other | | 739 |
| (f) | 344 |
| (g) | — |
| | 968 |
| (h) | | 926 |
| (f) | 329 |
| (g) | — |
| | 1,187 |
| (h) |
Total | | $ | 29,518 |
| | $ | 12,726 |
| | $ | 1,388 |
| | $ | 2,384 |
| | | $ | 26,159 |
| | $ | 9,392 |
| | $ | 796 |
| | $ | 2,016 |
| |
December 31, 2017 | | | | | | | | | | |
December 31, 2018 | | | | | | | | | | |
On-balance sheet variable interest entities | | | | | | | | | | | | | | | | | | |
Consumer automotive | | $ | 17,597 |
| (b) | $ | 7,677 |
| (c) | | | | | | $ | 16,255 |
| (b) | $ | 6,573 |
| (c) | | | | |
Commercial automotive | | 12,550 |
| | 2,558 |
| | | | | | | 11,089 |
| | 3,946 |
| | | | | |
Off-balance sheet variable interest entities | | | | | | | | | | | | | | | | | | |
Consumer automotive | | 37 |
| (d) | — |
| | $ | 1,964 |
| | $ | 2,001 |
| (e) | | 45 |
| (d) | — |
| | $ | 1,235 |
| | $ | 1,280 |
| (e) |
Commercial other | | 592 |
| (f) | 248 |
| (g) | — |
| | 790 |
| (h) | | 806 |
| (f) | 326 |
| (g) | — |
| | 1,054 |
| (h) |
Total | | $ | 30,776 |
| | $ | 10,483 |
| | $ | 1,964 |
| | $ | 2,791 |
| | | $ | 28,195 |
| | $ | 10,845 |
| | $ | 1,235 |
| | $ | 2,334 |
| |
| |
(a) | Asset values represent the current unpaid principal balance of outstanding consumer finance receivables and loans within the VIEs. |
| |
(b) | Includes $8.5 billion and $8.4 billion of assets that were not encumbered by VIE beneficial interests held by third parties at both June 30, 2018,2019, and December 31, 2017.2018, respectively. Ally or consolidated affiliates hold the interests in these assets. |
| |
(c) | Includes $25$22 million and $29$25 million of liabilities that were not obligations to third-party beneficial interest holders at June 30, 2018,2019, and December 31, 2017,2018, respectively. |
| |
(d) | Represents retained notes and certificated residual interests, of which $27$31 million and $36$43 million were classified as held-to-maturity securities at June 30, 2018,2019, and December 31, 2017,2018, respectively, and $1$2 million was classified as other assets at both June 30, 2018,2019, and December 31, 2017.2018. These assets represent our compliance with the risk retention rules under the Dodd-Frank Act, requiring us to retain at least five percent ofinterest in the credit risk of the assets underlying asset-backed securitizations. |
| |
(e) | Maximum exposure to loss represents the current unpaid principal balance of outstanding loans, retained notes, certificated residual interests, as well as certain noncertificated interests retained from the sale of automotive finance receivables. This measure is based on the very unlikely event that all of our sold loans have defects that would trigger a representation and warranty provision and the underlying collateral supporting the loans becomes worthless. This required disclosure is not an indication of our expected loss. |
| |
(f) | Amounts are classified as other assets. |
| |
(g) | Amounts are classified as accrued expenses and other liabilities. |
| |
(h) | For certain nonconsolidated affordable housing entities, maximum exposure to loss represents the yield we guaranteed investors through long-term guarantee contracts. The amount disclosed is based on the unlikely event that the underlying properties cease generating yield to investors and the yield delivered to investors in the form of low income tax housing credits is recaptured. For nonconsolidated equity investments, maximum exposure to loss represents our outstanding investment, additional committed capital, and low income housing tax credits subject to recapture. The amount disclosed is based on the unlikely event that our committed capital is funded, our investments become worthless, and the tax credits previously delivered to us are recaptured. This required disclosure is not an indication of our expected loss. |
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 entitiesSPEs and asset-backed financings where the transfer is accounted for as a sale and we have a continuing involvement with the transferred consumer automotive assets (e.g., servicing) that were outstanding during the six months ended June 30, 2018,2019, and 2017.2018. Additionally, this table contains information regarding cash flows received from and paid to nonconsolidated securitization entitiesSPEs that existed during each period.
|
| | | | | | | | |
Six months ended June 30, ($ in millions) | | Consumer automotive | | Consumer mortgage |
2019 | | | | |
Cash flows received on retained interests in securitization entities | | $ | 13 |
| | $ | — |
|
Servicing fees | | 6 |
| | — |
|
Cash disbursements for repurchases during the period | | (1 | ) | | — |
|
2018 | | | | |
Cash flows received on retained interests in securitization entities | | $ | 9 |
| | $ | — |
|
Servicing fees | | 10 |
| | — |
|
Cash disbursements for repurchases during the period | | (2 | ) | | — |
|
Representations and warranty recoveries | | — |
| | 2 |
|
|
| | | | | | | | |
Six months ended June 30, ($ in millions) | | Consumer automotive | | Consumer mortgage |
2018 | | | | |
Cash disbursements for repurchases during the period | | $ | (2 | ) | | $ | — |
|
Servicing fees |
| 10 |
| | — |
|
Cash flows received on retained interests in securitization entities | | 9 |
| | — |
|
Representation and warranty recoveries | | — |
| | 2 |
|
2017 | | | | |
Cash proceeds from transfers completed during the period | | $ | 1,187 |
| | $ | — |
|
Cash disbursements for repurchases during the period (a) | | (491 | ) | | — |
|
Servicing fees | | 18 |
| | — |
|
Cash flows received on retained interests in securitization entities | | 10 |
| | — |
|
Other cash flows | | 4 |
| | — |
|
| |
(a) | During the second quarter of 2017, we elected to not renew a retail automotive credit conduit facility and also purchased the related retail automotive loans and settled associated retained interests. |
Delinquencies and Net Credit Losses
The following tables present quantitative information about delinquencies and net credit losses for off-balance sheet securitizations and whole-loan sales where we have continuing involvement.
|
| | | | | | | | | | | | | | | |
| Total amount | | Amount 60 days or more past due |
($ in millions) | June 30, 2019 | | December 31, 2018 | | June 30, 2019 | | December 31, 2018 |
Off-balance sheet securitization entities | | | | | | | |
Consumer automotive | $ | 796 |
| | $ | 1,235 |
| | $ | 9 |
| | $ | 13 |
|
Whole-loan sales (a) | | | | | | | |
Consumer automotive | 392 |
| | 634 |
| | 2 |
| | 3 |
|
Total | $ | 1,188 |
| | $ | 1,869 |
| | $ | 11 |
| | $ | 16 |
|
|
| | | | | | | | | | | | | | | |
| Total amount | | Amount 60 days or more past due |
($ in millions) | June 30, 2018 | | December 31, 2017 | | June 30, 2018 | | December 31, 2017 |
Off-balance sheet securitization entities | | | | | | | |
Consumer automotive | $ | 1,388 |
| | $ | 1,964 |
| | $ | 12 |
| | $ | 16 |
|
Total off-balance sheet securitization entities | 1,388 |
| | 1,964 |
| | 12 |
| | 16 |
|
Whole-loan sales (a) | 964 |
| | 1,399 |
| | 3 |
| | 4 |
|
Total | $ | 2,352 |
| | $ | 3,363 |
| | $ | 15 |
| | $ | 20 |
|
| |
(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 June 30, | | Six months ended June 30, |
($ in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Off-balance sheet securitization entities | | | | | | | | | | | | | | | | |
Consumer automotive | | $ | 2 |
| | $ | 3 |
| | $ | 5 |
| | $ | 6 |
| | $ | 2 |
| | $ | 2 |
| | $ | 4 |
| | $ | 5 |
|
Total off-balance sheet securitization entities | | 2 |
| | 3 |
| | 5 |
| | 6 |
| |
Whole-loan sales (a) | | — |
| | 1 |
| | 1 |
| | 2 |
| | | | | | | | |
Consumer automotive | | | 1 |
| | — |
| | 1 |
| | 1 |
|
Total | | $ | 2 |
| | $ | 4 |
|
| $ | 6 |
|
| $ | 8 |
| | $ | 3 |
| | $ | 2 |
| | $ | 5 |
| | $ | 6 |
|
| |
(a) | Whole-loan sales are not part of a securitization transaction, but represent consumer automotive pools of loans sold to third-party investors. |
10. 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 $8 million and $16 million during the three months and six
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
months ended June 30, 2018, respectively, compared to $14 million and $30 million during the three months and six months ended June 30, 2017.
Automotive Finance Serviced Assets
The current unpaid principal balance and any related unamortized deferred fees and costs of total serviced automotive finance loans and net investment in operating leases outstanding were as follows.
|
| | | | | | | |
($ in millions) | June 30, 2018 | | December 31, 2017 |
On-balance sheet automotive finance loans and leases | | | |
Consumer automotive | $ | 69,701 |
| | $ | 67,631 |
|
Commercial automotive | 35,645 |
| | 37,058 |
|
Operating leases | 8,613 |
| | 8,682 |
|
Other | 111 |
| | 121 |
|
Off-balance sheet automotive finance loans | | | |
Securitizations | 1,392 |
| | 1,977 |
|
Whole-loan sales | 969 |
| | 1,409 |
|
Total serviced automotive finance loans and leases | $ | 116,431 |
| | $ | 116,878 |
|
11. 10. Other Assets
The components of other assets were as follows.
| | ($ in millions) | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
Property and equipment at cost | | $ | 1,161 |
| | $ | 1,064 |
| | $ | 1,245 |
| | $ | 1,250 |
|
Accumulated depreciation | | (648 | ) | | (608 | ) | | (640 | ) | | (686 | ) |
Net property and equipment | | 513 |
| | 456 |
| | 605 |
| | 564 |
|
Nonmarketable equity investments (a) | | 1,276 |
| | 1,233 |
| | 1,303 |
| | 1,410 |
|
Restricted cash collections for securitization trusts (b) | | 796 |
| | 812 |
| |
Accrued interest and rent receivables | | 548 |
| | 550 |
| |
Investment in qualified affordable housing projects (b) | | | 724 |
| | 649 |
|
Accrued interest, fees, and rent receivables | | | 631 |
| | 599 |
|
Restricted cash held for securitization trusts (c) | | | 608 |
| | 965 |
|
Other accounts receivable | | | 396 |
| | 203 |
|
Equity-method investments (d) | | | 317 |
| | 262 |
|
Goodwill (e) | | | 240 |
| | 240 |
|
Net deferred tax assets | | 455 |
| | 461 |
| | 173 |
| | 317 |
|
Other accounts receivable | | 289 |
| | 116 |
| |
Goodwill (c) | | 240 |
| | 240 |
| |
Restricted cash and cash equivalents (d) | | 116 |
| | 94 |
| |
Cash reserve deposits held for securitization trusts (e) | | 103 |
| | 111 |
| |
Fair value of derivative contracts in receivable position (f) | | 63 |
| | 39 |
| |
Restricted cash and cash equivalents (f) | | | 99 |
| | 124 |
|
Fair value of derivative contracts in receivable position (g) | | | 59 |
| | 41 |
|
Cash collateral placed with counterparties | | 35 |
|
| 29 |
| | 9 |
|
| 26 |
|
Other assets | | 1,580 |
| | 1,522 |
| | 911 |
| | 753 |
|
Total other assets | | $ | 6,014 |
| | $ | 5,663 |
| | $ | 6,075 |
| | $ | 6,153 |
|
| |
(a) | Includes investments in FHLB stock of $790$778 million and $745$903 million at June 30, 2018,2019, and December 31, 2017,2018, respectively; FRBFederal Reserve Bank (FRB) stock of $447 million and $445$448 million at both June 30, 2018,2019, and December 31, 2017, respectively;2018; and equity securities without a readily determinable fair value of $39$77 million and $59 million at June 30, 2019, and December 31, 2018, respectively, measured at cost with adjustments for impairment and observable changes in price. During the three months and six months ended June 30, 2018,2019, we recorded $1$7 million in impairmentof upward adjustments related to equity securities without a readily determinable fair value. Through June 30, 2019, we recorded $7 million of cumulative upward adjustments and $3 million of cumulative impairments and downward adjustments related to equity securities without a readily determinable fair value. |
| |
(b) | RepresentsInvestment in qualified affordable housing projects are accounted for using the proportional amortization method of accounting and include $322 million and $319 million of unfunded commitments to provide additional capital contributions to investees at June 30, 2019, and December 31, 2018, respectively. Substantially all of the unfunded commitments at June 30, 2019, are expected to be paid out over the next five years. |
| |
(c) | Includes restricted cash collectionscollected from customer payments on securitized receivables. These fundsreceivables, which are distributed by us to investors as payments on the related secured debt.debt, and cash reserve deposits utilized as a form of credit enhancement for various securitization transactions. |
| |
(c)(d) | Primarily relates to investments made in connection with our Community Reinvestment Act (CRA) program. |
| |
(e) | Includes goodwill of $27 million within our Insurance operations at both June 30, 2018,2019, and December 31, 2017;2018; $193 million within Corporate and Other at both June 30, 2018,2019, and December 31, 2017;2018; and $20 million within Automotive Finance operations at both June 30, 2018,2019, and December 31, 2017.2018. No changes to the carrying amount of goodwill were recorded during the six months ended June 30, 2018.2019. |
| |
(d)(f) | Primarily represents a number of arrangements with third parties where certain restrictions are placed on balances we hold due to collateral agreements associated with operational processes with a third-party bank, or letter of credit arrangements and corresponding collateral requirements. |
| |
(e) | Represents credit enhancement in the form of cash reserves for various securitization transactions. |
| |
(f)(g) | For additional information on derivative instruments and hedging activities, refer to Note 1817. |
11. Deposit Liabilities
Deposit liabilities consisted of the following.
34 |
| | | | | | | | |
($ in millions) | | June 30, 2019 | | December 31, 2018 |
Noninterest-bearing deposits | | $ | 162 |
| | $ | 142 |
|
Interest-bearing deposits | | | | |
Savings and money-market checking accounts | | 62,078 |
| | 56,050 |
|
Certificates of deposit | | 54,084 |
| | 49,985 |
|
Other deposits | | 1 |
| | 1 |
|
Total deposit liabilities | | $ | 116,325 |
| | $ | 106,178 |
|
At June 30, 2019, and December 31, 2018, certificates of deposit included $22.8 billion and $21.0 billion, respectively, of those in denominations of $100 thousand or more. At June 30, 2019, and December 31, 2018, certificates of deposit included $6.9 billion and $6.1 billion, respectively, of those in denominations in excess of $250 thousand federal insurance limits.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
12. Deposit Liabilities
Deposit liabilities consisted of the following.
|
| | | | | | | |
($ in millions) | June 30, 2018 | | December 31, 2017 |
Noninterest-bearing deposits | $ | 153 |
| | $ | 108 |
|
Interest-bearing deposits | | | |
Savings and money market checking accounts | 50,958 |
| | 49,267 |
|
Certificates of deposit | 47,617 |
| | 43,869 |
|
Dealer deposits | 6 |
| | 12 |
|
Total deposit liabilities | $ | 98,734 |
| | $ | 93,256 |
|
At June 30, 2018, and December 31, 2017, certificates of deposit included $19.9 billion and $18.9 billion, respectively, of those in denominations of $100 thousand or more. At both June 30, 2018, and December 31, 2017, certificates of deposit included $5.3 billion of those in denominations in excess of $250 thousand federal insurance limits.
13. Debt
Short-term Borrowings
The following table presents the composition of our short-term borrowings portfolio.
| | | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
($ in millions) | | Unsecured | | Secured (a) | | Total | | Unsecured | | Secured (a) | | Total | | Unsecured | | Secured (a) | | Total | | Unsecured | | Secured (a) | | Total |
Demand notes | | $ | 2,666 |
| | $ | — |
| | $ | 2,666 |
| | $ | 3,171 |
| | $ | — |
| | $ | 3,171 |
| | $ | 2,462 |
| | $ | — |
| | $ | 2,462 |
| | $ | 2,477 |
| | $ | — |
| | $ | 2,477 |
|
Federal Home Loan Bank | | — |
| | 3,475 |
| | 3,475 |
| | — |
| | 7,350 |
| | 7,350 |
| | — |
| | 3,625 |
| | 3,625 |
| | — |
| | 6,825 |
| | 6,825 |
|
Financial instruments sold under agreements to repurchase | | — |
| | 967 |
| | 967 |
| | — |
| | 892 |
| | 892 |
| |
Securities sold under agreements to repurchase | | | — |
| | 432 |
| | 432 |
| | — |
| | 685 |
| | 685 |
|
Total short-term borrowings | | $ | 2,666 |
| | $ | 4,442 |
| | $ | 7,108 |
| | $ | 3,171 |
| | $ | 8,242 |
| | $ | 11,413 |
| | $ | 2,462 |
| | $ | 4,057 |
| | $ | 6,519 |
| | $ | 2,477 |
| | $ | 7,510 |
| | $ | 9,987 |
|
| |
(a) | Refer to the section below titled Long-term Debt for further details on assets restricted as collateral for payment of the related debt. |
We periodically enter into term repurchase agreements, agreements—short-term borrowing agreements in which we sell financial instrumentssecurities 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, 2018,2019, the financial instruments securities sold under agreements to repurchase consisted of $276 $169 million of U.S. Treasury securities and $691 $263 million of agency mortgage-backed residential debt securities set to mature as follows: $530 $169 million within 30 days, and $437$263 million within 6131 to 9060 days. Refer to Note 6 and Note 2120 for further details.
The primary risk associated with these repurchase agreements is that the counterparty will be unable to perform under the terms of the contract. As the borrower, we are exposed to the excess market value of the securities pledged over the amount borrowed. Daily mark-to-market collateral management is designed to limit this risk to the initial margin. However, should a counterparty declare bankruptcy or become insolvent, we may incur additional delays and costs. In some instances, we may place or receive cash collateral with counterparties under collateral arrangements associated with our repurchase agreements. At June 30, 2018, 2019, we placed cashdid not place any collateral, totaling $4 million and we received cash collateral totaling $3 million and noncash collateral totaling $1 million. At December 31, 2018, we did not place any collateral, and we received cash collateral totaling $8 million and noncash collateral totaling $1$4 million. At December 31, 2017, we placed cash collateral totaling $10 million and received cash collateral totaling $1 million.
Long-term Debt
The following table presents the composition of our long-term debt portfolio.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
($ in millions) | | Unsecured | | Secured | | Total | | Unsecured | | Secured | | Total |
Long-term debt (a) | | | | | | | | | | | | |
Due within one year | | $ | 2,613 |
| | $ | 6,714 |
| | $ | 9,327 |
| | $ | 1,663 |
| | $ | 7,313 |
| | $ | 8,976 |
|
Due after one year | | 9,458 |
| | 18,681 |
| | 28,139 |
| | 10,444 |
| | 24,773 |
| | 35,217 |
|
Total long-term debt (b) (c) | | $ | 12,071 |
| | $ | 25,395 |
| | $ | 37,466 |
| | $ | 12,107 |
| | $ | 32,086 |
| | $ | 44,193 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2018 | | December 31, 2017 |
($ in millions) | | Unsecured | | Secured | | Total | | Unsecured | | Secured | | Total |
Long-term debt | | | | | | | | | | | | |
Due within one year | | $ | 2,740 |
| | $ | 8,016 |
| | $ | 10,756 |
| | $ | 3,482 |
| | $ | 7,499 |
| | $ | 10,981 |
|
Due after one year (a) | | 11,139 |
| | 25,334 |
| | 36,473 |
| | 11,909 |
| | 21,128 |
| | 33,037 |
|
Fair value adjustment (b) | | 168 |
| | (69 | ) | | 99 |
| | 240 |
| | (32 | ) | | 208 |
|
Total long-term debt (c) | | $ | 14,047 |
| | $ | 33,281 |
| | $ | 47,328 |
| | $ | 15,631 |
| | $ | 28,595 |
| | $ | 44,226 |
|
| |
(a) | Includes basis adjustments related to the application of hedge accounting. Refer to Note 17 for additional information. |
| |
(b) | Includes $2.6 billion of trust preferred securities at both June 30, 2018,2019, and December 31, 2017. |
| |
(b) | Represents the basis adjustment associated with the application of hedge accounting on certain of our long-term debt positions. Refer to Note 18 for additional information. 2018. |
| |
(c) | Includes advances net of hedge basis adjustment from the FHLB of Pittsburgh of $14.7$14.7 billion and $10.3$14.9 billion at June 30, 2018,2019, and December 31, 2017,2018, respectively. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following table presents the scheduled remaining maturity of long-term debt at June 30, 2018,2019, assuming no early redemptions will occur. The amounts below include adjustments to the carrying value resulting from the application of hedge accounting. The actual payment of secured debt may vary based on the payment activity of the related pledged assets.
| | ($ in millions) | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 and thereafter | | Fair value adjustment | | Total | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 and thereafter | | Total |
Unsecured | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Long-term debt | | $ | 1,991 |
| | $ | 1,681 |
| | $ | 2,251 |
| | $ | 663 |
| | $ | 1,066 |
| | $ | 7,414 |
| | $ | 168 |
| | $ | 15,234 |
| | $ | 873 |
| | $ | 2,256 |
| | $ | 696 |
| | $ | 1,084 |
| | $ | 11 |
| | $ | 8,273 |
| | $ | 13,193 |
|
Original issue discount | | (52 | ) | | (38 | ) | | (39 | ) | | (43 | ) | | (47 | ) | | (968 | ) | | — |
| | (1,187 | ) | | (21 | ) | | (43 | ) | | (46 | ) | | (51 | ) | | (57 | ) | | (904 | ) | | (1,122 | ) |
Total unsecured | | 1,939 |
| | 1,643 |
| | 2,212 |
| | 620 |
| | 1,019 |
| | 6,446 |
| | 168 |
| | 14,047 |
| | 852 |
| | 2,213 |
| | 650 |
| | 1,033 |
| | (46 | ) | | 7,369 |
| | 12,071 |
|
Secured | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Long-term debt | | 3,356 |
| | 7,995 |
| | 7,430 |
| | 8,484 |
| | 4,562 |
| | 1,523 |
| | (69 | ) | | 33,281 |
| | 2,963 |
| | 6,879 |
| | 9,393 |
| | 5,426 |
| | 557 |
| | 177 |
| | 25,395 |
|
Total long-term debt | | $ | 5,295 |
| | $ | 9,638 |
| | $ | 9,642 |
| | $ | 9,104 |
| | $ | 5,581 |
|
| $ | 7,969 |
|
| $ | 99 |
|
| $ | 47,328 |
| | $ | 3,815 |
| | $ | 9,092 |
| | $ | 10,043 |
| | $ | 6,459 |
| | $ | 511 |
| | $ | 7,546 |
|
| $ | 37,466 |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
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, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
($ in millions) | | Total (a) | | Ally Bank | | Total (a) | | Ally Bank | | Total (a) | | Ally Bank | | Total (a) | | Ally Bank |
Investment securities (b) | | $ | 7,902 |
| | $ | 6,995 |
| | $ | 8,371 |
| | $ | 7,443 |
| | $ | 5,517 |
| | $ | 5,067 |
| | $ | 10,280 |
| | $ | 9,564 |
|
Mortgage assets held-for-investment and lending receivables | | 14,943 |
| | 14,943 |
| | 13,579 |
| | 13,579 |
| | 17,589 |
| | 17,589 |
| | 16,498 |
| | 16,498 |
|
Consumer automotive finance receivables | | 18,965 |
| | 9,621 |
| | 19,787 |
| | 6,200 |
| | 11,287 |
| | 7,319 |
| | 17,015 |
| | 9,715 |
|
Commercial automotive finance receivables | | 14,252 |
| | 14,211 |
| | 16,567 |
| | 16,472 |
| | 13,736 |
| | 13,736 |
| | 15,563 |
| | 15,563 |
|
Operating leases | | 267 |
| | — |
| | 457 |
| | — |
| | 96 |
| | — |
| | 170 |
| | — |
|
Total assets restricted as collateral (c) (d) | | $ | 56,329 |
| | $ | 45,770 |
| | $ | 58,761 |
| | $ | 43,694 |
| | $ | 48,225 |
| | $ | 43,711 |
| | $ | 59,526 |
| | $ | 51,340 |
|
Secured debt | | $ | 37,723 |
| (e) | $ | 27,990 |
| | $ | 36,837 |
| (e) | $ | 23,278 |
| | $ | 29,452 |
| (e) | $ | 25,386 |
| | $ | 39,596 |
| (e) | $ | 32,072 |
|
| |
(a) | Ally Bank is a component of the total column. |
| |
(b) | A portion of the restricted investment securities at June 30, 2018,2019, and December 31, 2017,2018, were restricted under repurchase agreements. Refer to the section above titled Short-term Borrowings for information on the repurchase agreements. |
| |
(c) | Ally Bank has an advance agreement with the FHLB, and had assets pledged to secure borrowings that were restricted as collateral to the FHLB totaling $26.327.4 billion and $25.230.8 billion at June 30, 2018,2019, and December 31, 2017,2018, respectively. These assets were composed primarily of consumer mortgage finance receivables and loans and investment securities. Ally Bank has access to the FRB Discount Window. Ally BankWindow and had assets pledged and restricted as collateral to the FRB totaling $2.4 billion and $2.3 billion at both June 30, 20182019, and December 31, 2017, respectively.2018. These assets were composed of consumer automotive finance receivables and loans. Availability under these programs is only for the operations of Ally Bank and cannot be used to fund the operations or liabilities of Ally or its subsidiaries. |
| |
(d) | Excludes restricted cash and cash reserves for securitization trusts recorded within other assets on the Condensed Consolidated Balance Sheet. Refer to Note 1110 for additional information. |
| |
(e) | Includes $4.44.1 billion and $8.2$7.5 billion of short-term borrowings at June 30, 20182019, and December 31, 20172018, respectively. |
Trust Preferred Securities
At both June 30, 2019, and December 31, 2018, we havehad issued and outstanding approximately $2.6 billion in aggregate liquidation preference of 8.125% Fixed Rate/Floating Rate Trust Preferred Securities, Series 2 (Series 2 TRUPS). Each Series 2 TRUPS security has a liquidation amount of $25. Distributions are cumulative and are payable until redemption at the applicable coupon rate. Distributions are payable at an annual rate equal to three-month London interbank offeroffered rate plus 5.785% payable quarterly in arrears. Ally has the right to defer payments of interest for a period not exceeding 20 consecutive quarters. The Series 2 TRUPS have no stated maturity date, but must be redeemed upon the redemption or maturity of the related debentures (Debentures), which mature on February 15, 2040. Ally at any time may redeem the Series 2 TRUPS at a redemption price equal to 100% of the principal amount being redeemed, plus accrued and unpaid interest through the date of redemption. The Series 2 TRUPS are generally nonvoting, other than with respect to certain limited matters. During any period in which any Series 2 TRUPS remain outstanding but in which distributions on the Series 2 TRUPS have not been fully paid, none of Ally or its subsidiaries will be permitted to (i) declare or pay dividends on, make any distributions with respect to, or redeem, purchase, acquire or otherwise make a liquidation payment with respect to, any of Ally’s capital stock or make any guarantee payment with respect thereto; or (ii) make any payments of principal, interest, or premium on, or repay, repurchase or redeem, any debt securities or guarantees that rank on a parity with or junior in interest to the Debentures with certain specified exceptions in each case.
Funding Facilities
We utilize both committed secured credit facilities and other collateralized funding vehicles. The debt outstanding under our various funding facilities is included on our Condensed Consolidated Balance Sheet.Sheet.
As of June 30, 2018,2019, Ally Bank had exclusive access to $2.5 billion$250 million of funding capacity from committed secured credit facilities. Funding programs supportedAlly Bank’s credit facilities are complemented by the FRB and the FHLB complement Ally Bank’s private collateralized funding vehicles.programs.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The total capacity in our committed fundingcredit facilities is provided by banks through private transactions. The committed secured funding facilities can be revolving in nature, generally having an original tenor ranging from 364 days to two years, and allow for additional funding during the commitment period, or they can be amortizing and not allow for any further funding after the closing date. commitment period. AtJune 30, 2018, 2019, all of our $9.2 $3.3 billion of committed capacity was revolving. Our revolving facilities generally have an original tenor rangingand of this balance, $2.0 billion was from 364 days to two years. As of June 30, 2018, we had $7.6 billion of committed funding capacity from revolving facilities with a remaining tenor greater than 364 days.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Committed FundingSecured Credit Facilities
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Outstanding | | Unused capacity (a) | | Total capacity |
($ in millions) | | June 30, 2019 | | December 31, 2018 | | June 30, 2019 | | December 31, 2018 | | June 30, 2019 | | December 31, 2018 |
Bank funding | | | | | | | | | | | | |
Secured | | $ | 250 |
| | $ | 3,500 |
| | $ | — |
| | $ | 1,300 |
| | $ | 250 |
| | $ | 4,800 |
|
Parent funding | | | | | | | | | | | | |
Secured | | 1,365 |
| | 3,165 |
| | 1,635 |
| | 635 |
| | 3,000 |
| | 3,800 |
|
Total committed secured credit facilities | | $ | 1,615 |
| | $ | 6,665 |
| | $ | 1,635 |
| | $ | 1,935 |
| | $ | 3,250 |
| | $ | 8,600 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Outstanding | | Unused capacity (a) | | Total capacity |
($ in millions) | | June 30, 2018 | | December 31, 2017 | | June 30, 2018 | | December 31, 2017 | | June 30, 2018 | | December 31, 2017 |
Bank funding | | | | | | | | | | | | |
Secured | | $ | 2,500 |
| | $ | 1,785 |
| | $ | — |
| | $ | 890 |
| | $ | 2,500 |
| | $ | 2,675 |
|
Parent funding | | | | | | | | | | | | |
Secured | | 3,855 |
| | 6,330 |
| | 2,870 |
| | 2,920 |
| | 6,725 |
| | 9,250 |
|
Total committed facilities | | $ | 6,355 |
| | $ | 8,115 |
| | $ | 2,870 |
| | $ | 3,810 |
| | $ | 9,225 |
| | $ | 11,925 |
|
| |
(a) | Funding from committed secured credit facilities is available on request in the event excess collateral resides in certain facilities or the extent incremental collateral is available and contributed to the facilities. |
14. 13. Accrued Expenses and Other Liabilities
The components of accrued expenses and other liabilities were as follows.
| | ($ in millions) | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
Accounts payable | | $ | 369 |
| | $ | 746 |
| | $ | 580 |
| | $ | 516 |
|
Unfunded commitments for investment in qualified affordable housing projects | | | 322 |
| | 319 |
|
Employee compensation and benefits | | 188 |
| | 248 |
| | 197 |
| | 255 |
|
Reserves for insurance losses and loss adjustment expenses | | 149 |
| | 140 |
| | 153 |
| | 134 |
|
Fair value of derivative contracts in payable position (a) | | 65 |
| | 41 |
| |
Cash collateral received from counterparties | | 39 |
| | 17 |
| | 38 |
| | 41 |
|
Deferred revenue | | 28 |
| | 32 |
| | 28 |
| | 27 |
|
Fair value of derivative contracts in payable position (a) | | | 4 |
| | 37 |
|
Other liabilities | | 673 |
| | 556 |
| | 585 |
| | 347 |
|
Total accrued expenses and other liabilities | | $ | 1,511 |
| | $ | 1,780 |
| | $ | 1,907 |
| | $ | 1,676 |
|
| |
(a) | For additional information on derivative instruments and hedging activities, refer to Note 1817. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
15. 14. Accumulated Other Comprehensive Loss(Loss) Income
The following table presents changes, net of tax, in each component of accumulated other comprehensive loss.(loss) income.
|
| | | | | | | | | | | | | | | | | | | |
($ 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, 2016 | $ | (273 | ) | | $ | 14 |
| | $ | 8 |
| | $ | (90 | ) | | $ | (341 | ) |
2017 net change | 96 |
| | — |
| | 1 |
| | (1 | ) | | 96 |
|
Balance at June 30, 2017 | $ | (177 | ) | | $ | 14 |
| | $ | 9 |
| | $ | (91 | ) | | $ | (245 | ) |
Balance at December 31, 2017, before cumulative effect of adjustments | $ | (173 | ) | | $ | 16 |
| | $ | 11 |
| | $ | (89 | ) | | $ | (235 | ) |
Cumulative effect of changes in accounting principles, net of tax (c) | | | | | | | | | |
Adoption of Accounting Standards Update 2016-01 | 27 |
| | — |
| | — |
| | — |
| | 27 |
|
Adoption of Accounting Standards Update 2018-02 | (40 | ) | | 4 |
| | — |
| | (6 | ) | | (42 | ) |
Balance at January 1, 2018, after cumulative effect of adjustments | (186 | ) | | 20 |
| | 11 |
| | (95 | ) | | (250 | ) |
2018 net change | (412 | ) | | (1 | ) | | 17 |
| | (2 | ) | | (398 | ) |
Balance at June 30, 2018 | $ | (598 | ) | | $ | 19 |
| | $ | 28 |
| | $ | (97 | ) | | $ | (648 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, |
($ 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) income |
Balance at April 1, 2018 | $ | (524 | ) | | $ | 19 |
| | $ | 25 |
| | $ | (98 | ) | | $ | (578 | ) |
Net change | (74 | ) | | — |
| | 3 |
| | 1 |
| | (70 | ) |
Balance at June 30, 2018 | $ | (598 | ) | | $ | 19 |
| | $ | 28 |
| | $ | (97 | ) | | $ | (648 | ) |
Balance at April 1, 2019 | $ | (158 | ) | | $ | 18 |
| | $ | 11 |
| | $ | (96 | ) | | $ | (225 | ) |
Net change | 291 |
| | 1 |
| | 17 |
| | — |
| | 309 |
|
Balance at June 30, 2019 | $ | 133 |
| | $ | 19 |
| | $ | 28 |
| | $ | (96 | ) | | $ | 84 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, |
($ 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) income |
Balance at December 31, 2017 | $ | (173 | ) | | $ | 16 |
| | $ | 11 |
| | $ | (89 | ) | | $ | (235 | ) |
Cumulative effect of changes in accounting principles, net of tax | | | | | | | | | |
Adoption of Accounting Standards Update 2016-01 | 27 |
| | — |
| | — |
| | — |
| | 27 |
|
Adoption of Accounting Standards Update 2018-02 | (40 | ) | | 4 |
| | — |
| | (6 | ) | | (42 | ) |
Balance at January 1, 2018 | (186 | ) | | 20 |
| | 11 |
| | (95 | ) | | (250 | ) |
Net change | (412 | ) | | (1 | ) | | 17 |
| | (2 | ) | | (398 | ) |
Balance at June 30, 2018 | $ | (598 | ) | | $ | 19 |
| | $ | 28 |
| | $ | (97 | ) | | $ | (648 | ) |
Balance at December 31, 2018 | $ | (481 | ) | | $ | 18 |
| | $ | 19 |
| | $ | (95 | ) | | $ | (539 | ) |
Cumulative effect of changes in accounting principles, net of tax (c) | | | | | | | | | |
Adoption of Accounting Standards Update 2017-08 | 8 |
| | — |
| | — |
| | — |
| | 8 |
|
Balance at January 1, 2019 | (473 | ) | | 18 |
| | 19 |
| | (95 | ) | | (531 | ) |
Net change | 606 |
| | 1 |
| | 9 |
| | (1 | ) | | 615 |
|
Balance at June 30, 2019 | $ | 133 |
| | $ | 19 |
| | $ | 28 |
| | $ | (96 | ) | | $ | 84 |
|
| |
(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 1817. |
| |
(c) | Refer to the section titled Recently Adopted Accounting Standards in Note 1 for additional information. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following tables present the before- and after-tax changes in each component of accumulated other comprehensive income (loss) income..
|
| | | | | | | | | | | |
Three months ended June 30, 2019 ($ in millions) | Before tax | | Tax effect | | After tax |
Investment securities | | | | | |
Net unrealized gains arising during the period | $ | 404 |
| | $ | (95 | ) | | $ | 309 |
|
Less: Net realized gains reclassified to income from continuing operations | 24 |
| (a) | (6 | ) | (b) | 18 |
|
Net change | 380 |
| | (89 | ) | | 291 |
|
Translation adjustments | | | | | |
Net unrealized gains arising during the period | 4 |
| | (1 | ) | | 3 |
|
Net investment hedges (c) | | | | | |
Net unrealized losses arising during the period | (3 | ) | | 1 |
| | (2 | ) |
Cash flow hedges (c) | | | | | |
Net unrealized gains arising during the period | 26 |
| | (6 | ) | | 20 |
|
Less: Net realized gains reclassified to income from continuing operations | 4 |
| | (1 | ) | | 3 |
|
Net change | 22 |
| | (5 | ) | | 17 |
|
Other comprehensive income | $ | 403 |
| | $ | (94 | ) | | $ | 309 |
|
| |
(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 (benefit) 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 17. |
|
| | | | | | | | | | | |
Three months ended June 30, 2018 ($ in millions) | Before tax | | Tax effect | | After tax |
Investment securities | | | | | |
Net unrealized losses arising during the period | $ | (95 | ) | | $ | 22 |
| | $ | (73 | ) |
Less: Net realized gains reclassified to income from continuing operations | 1 |
| (a) | — |
| (b) | 1 |
|
Net change | (96 | ) | | 22 |
| | (74 | ) |
Translation adjustments | | | | | |
Net unrealized losses arising during the period | (3 | ) | | 1 |
| | (2 | ) |
Net investment hedges (c) | | | | | |
Net unrealized gains arising during the period | 3 |
| | (1 | ) | | 2 |
|
Cash flow hedges (c) | | | | | |
Net unrealized gains arising during the period | 5 |
| | (2 | ) | | 3 |
|
Defined benefit pension plans | | | | | |
Net unrealized gains arising during the period | 1 |
| | — |
| | 1 |
|
Other comprehensive loss | $ | (90 | ) | | $ | 20 |
| | $ | (70 | ) |
| |
(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 (benefit) 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 1817. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
| | Three months ended June 30, 2017 ($ in millions) | Before tax | | Tax effect | | After tax | |
Six months ended June 30, 2019 ($ in millions) | | Before tax | | Tax effect | | After tax |
Investment securities | | | | | | | | | | |
Net unrealized gains arising during the period | $ | 132 |
| | $ | (37 | ) | | $ | 95 |
| $ | 825 |
| | $ | (194 | ) | | $ | 631 |
|
Less: Net realized gains reclassified to income from continuing operations | 23 |
| (a) | (3 | ) | (b) | 20 |
| 33 |
| (a) | (8 | ) | (b) | 25 |
|
Net change | 109 |
| | (34 | ) | | 75 |
| 792 |
| | (186 | ) | | 606 |
|
Translation adjustments | | | | | | | | | | |
Net unrealized gains arising during the period | 4 |
| | (1 | ) | | 3 |
| 6 |
| | (2 | ) | | 4 |
|
Net investment hedges (c) | | | | | | | | | | |
Net unrealized losses arising during the period | (4 | ) | | 1 |
| | (3 | ) | (5 | ) | | 2 |
| | (3 | ) |
Cash flow hedges (c) | | | | | | | | | | |
Net unrealized gains arising during the period | 1 |
| | — |
| | 1 |
| |
Net unrealized losses arising during the period | | 21 |
| | (5 | ) | | 16 |
|
Less: Net realized gains reclassified to income from continuing operations | | 9 |
| | (2 | ) | | 7 |
|
Net change | | 12 |
| | (3 | ) | | 9 |
|
Defined benefit pension plans | | | | | | |
Net unrealized losses arising during the period | | (1 | ) | | — |
| | (1 | ) |
Other comprehensive income | $ | 110 |
| | $ | (34 | ) | | $ | 76 |
| $ | 804 |
| | $ | (189 | ) | | $ | 615 |
|
| |
(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 (benefit) 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 1817. |
|
| | | | | | | | | | | |
Six months ended June 30, 2018 ($ in millions) | Before tax | | Tax effect | | After tax |
Investment securities | | | | | |
Net unrealized losses arising during the period | $ | (531 | ) | | $ | 125 |
| | $ | (406 | ) |
Less: Net realized gains reclassified to income from continuing operations | 7 |
| (a) | (1 | ) | (b) | 6 |
|
Net change | (538 | ) | | 126 |
| | (412 | ) |
Translation adjustments | | | | | |
Net unrealized losses arising during the period | (8 | ) | | 2 |
| | (6 | ) |
Net investment hedges (c) | | | | | |
Net unrealized gains arising during the period | 7 |
| | (2 | ) | | 5 |
|
Cash flow hedges (c) | | | | | |
Net unrealized gains arising during the period | 23 |
| | (6 | ) | | 17 |
|
Defined benefit pension plans | | | | | |
Net unrealized losses arising during the period | (2 | ) | | — |
| | (2 | ) |
Other comprehensive loss | $ | (518 | ) | | $ | 120 |
| | $ | (398 | ) |
| |
(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 (benefit) 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 1817. |
|
| | | | | | | | | | | |
Six months ended June 30, 2017 ($ in millions) | Before tax | | Tax effect | | After tax |
Investment securities | | | | | |
Net unrealized gains arising during the period | $ | 183 |
| | $ | (42 | ) | | $ | 141 |
|
Less: Net realized gains reclassified to income from continuing operations | 50 |
| (a) | (5 | ) | (b) | 45 |
|
Net change | 133 |
| | (37 | ) | | 96 |
|
Translation adjustments | | | | | |
Net unrealized gains arising during the period | 6 |
| | (2 | ) | | 4 |
|
Net investment hedges (c) | | | | | |
Net unrealized losses arising during the period | (6 | ) | | 2 |
| | (4 | ) |
Cash flow hedges (c) | | | | | |
Net unrealized gains arising during the period | 1 |
| | — |
| | 1 |
|
Defined benefit pension plans | | | | | |
Net unrealized losses arising during the period | (1 | ) | | — |
| | (1 | ) |
Other comprehensive income | $ | 133 |
| | $ | (37 | ) | | $ | 96 |
|
| |
(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 18.
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
16. 15. 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 June 30, | | Six months ended June 30, |
($ in millions, except per share data; shares in thousands) (a) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Net income from continuing operations attributable to common stockholders | | $ | 348 |
| | $ | 254 |
| | $ | 600 |
| | $ | 467 |
| | $ | 584 |
| | $ | 348 |
| | $ | 959 |
| | $ | 600 |
|
Income (loss) from discontinued operations, net of tax | | 1 |
| | (2 | ) | | (1 | ) | | (1 | ) | |
(Loss) income from discontinued operations, net of tax | | | (2 | ) | | 1 |
| | (3 | ) | | (1 | ) |
Net income attributable to common stockholders | | $ | 349 |
| | $ | 252 |
| | $ | 599 |
| | $ | 466 |
| | $ | 582 |
| | $ | 349 |
| | $ | 956 |
| | $ | 599 |
|
Basic weighted-average common shares outstanding (b) | | 430,628 |
| | 457,891 |
| | 433,405 |
| | 461,904 |
| | 398,100 |
| | 430,628 |
| | 401,098 |
| | 433,405 |
|
Diluted weighted-average common shares outstanding (b) | | 432,554 |
| | 458,819 |
| | 435,727 |
| | 462,802 |
| | 399,916 |
| | 432,554 |
| | 402,921 |
| | 435,727 |
|
Basic earnings per common share | | | | | | | | | | | | | | | | |
Net income from continuing operations | | $ | 0.81 |
| | $ | 0.55 |
| | $ | 1.38 |
| | $ | 1.01 |
| | $ | 1.47 |
| | $ | 0.81 |
| | $ | 2.39 |
| | $ | 1.38 |
|
Loss from discontinued operations, net of tax | | — |
| | (0.01 | ) | | — |
| | — |
| | — |
| | — |
| | (0.01 | ) | | — |
|
Net income | | $ | 0.81 |
| | $ | 0.55 |
| | $ | 1.38 |
| | $ | 1.01 |
| | $ | 1.46 |
| | $ | 0.81 |
| | $ | 2.39 |
| | $ | 1.38 |
|
Diluted earnings per common share | | | | | | | | | | | | | | | | |
Net income from continuing operations | | $ | 0.80 |
| | $ | 0.55 |
| | $ | 1.38 |
| | $ | 1.01 |
| | $ | 1.46 |
| | $ | 0.80 |
| | $ | 2.38 |
| | $ | 1.38 |
|
Loss from discontinued operations, net of tax | | — |
| | (0.01 | ) | | — |
| | — |
| | — |
| | — |
| | (0.01 | ) | | — |
|
Net income | | $ | 0.81 |
| | $ | 0.55 |
| | $ | 1.37 |
| | $ | 1.01 |
| | $ | 1.46 |
| | $ | 0.81 |
| | $ | 2.37 |
| | $ | 1.37 |
|
| |
(a) | Figures in the table may not recalculate exactly due to rounding. Earnings per share is calculated based on unrounded numbers. |
| |
(b) | Includes shares related to share-based compensation that vested but were not yet issued for thethree months and six months ended June 30, 2018, and 2017.. |
17. 16. Regulatory Capital and Other Regulatory Matters
The FRB and other U.S. banking agencies have adopted risk-based and leverage capital standards that establish minimum capital-to-asset ratios for BHCs, like Ally, and depository institutions, like Ally Bank.The risk-based capital ratios are based on a banking organization’s risk-weighted assets (RWAs), which are generally determined under the Basel III standardized approach applicable to Ally and Ally Bank by (1) assigning on-balance sheet exposures to broad risk weight categories according to the counterparty or, if relevant, the guarantor or collateral (with higher risk weights assigned to categories of exposures perceived as representing greater risk), and (2) multiplying off-balance sheet exposures by specified credit conversion factors to calculate credit equivalent amounts and assigning those credit equivalent amounts to the relevant risk weight categories. The leverage ratio, in contrast, is based on an institution’s average unweighted on-balance sheet exposures.
Ally and Ally Bank are subject to capital requirements issued by U.S. banking regulators that require us to maintain risk-based and leverage capital ratios above minimum levels. As of January 1, 2015, Ally and Ally Bank became subject to the rules implementing the 2010 Basel III capital framework in the United States (U.S. Basel III), which generally reflects higher capital requirements, capital buffers, and changes to regulatory capital definitions, deductions, and adjustments, relative to the predecessor requirements implementing the Basel I capital framework in the United States. Certain aspects of U.S. Basel III, including the capital buffers, arewere subject to a phase-in period through December 31, 2018.
Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary action by regulators that, if undertaken, could have a direct material effect on the 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 and Ally Bank must meet specific capital guidelines that involve quantitative measures of capital, assets, and certain off-balance sheet items. These measures and related classifications, which are used in the calculation of our risk-based and leverage capital ratios and those of Ally Bank, are also subject to qualitative judgments by the regulators about the components of capital, the risk-weightings of assets and other exposures, and other factors. The FRB also uses these ratios and guidelines as part of the capital planning and stress testing processes. In addition, in order for Ally to maintain its status as an FHC, Ally and its bank subsidiary, Ally Bank, must remain well capitalized and well managed, as defined under applicable laws. The well capitalized standard for insured depository institutions, such as Ally Bank, reflects the capital requirements under U.S. Basel III.
Under U.S. Basel III, Ally and Ally Bank must maintain a minimum Common Equity Tier 1 risk-based capital ratio of 4.5%, a minimum Tier 1 risk-based capital ratio of 6%, and a minimum total risk-based capital ratio of 8%. In addition to these minimum risk-based capital ratios, Ally and Ally Bank are also subject to a Common Equity Tier 1 capital conservation buffer of more than 2.5%, subject to a phase-in period from January 1, 2016, through December 31, 2018. . Failure to maintain the full amount of the buffer would result in restrictions on the ability of Ally and Ally Bank to make capital distributions, including dividend payments and stock repurchases and redemptions, and to pay discretionary bonuses to executive officers.U.S. Basel III also subjects Ally and Ally Bank to a minimum Tier 1 leverage ratio of 4%.
U.S. Basel III also revised the eligibility criteria for regulatory capital instruments and provides for the phase-out of instruments that had previously been recognized as capital but that do not satisfy these criteria. For example, subject to certain exceptions (e.g., certain debt or
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
equity issued to the U.S. government under the Emergency Economic Stabilization Act), trust preferred and other hybrid securities were
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
excluded from a BHC’s Tier 1 capital as of January 1, 2016. Also, subject to a phase-in schedule, certain items are deducted from Common Equity Tier 1 capital under U.S. Basel III that had not previously been deducted from regulatory capital, and certain other deductions from regulatory capital have been modified. Among other things, U.S. Basel III requires significant investments in the common stock of unconsolidated financial institutions, mortgage servicing assets, and certain deferred tax assets that exceed specified individual and aggregate thresholds to be deducted from Common Equity Tier 1 capital. U.S. Basel III also revised the standardized approach for calculating RWAs by, among other things, modifying certain risk weights and the methods for calculating RWAs for certain types of assets and exposures.
Ally and Ally Bank are subject to the U.S. Basel III standardized approach for counterparty credit risk, but not to the U.S. Basel III advanced approaches for credit risk or operational risk. Ally is also not subject to the U.S. market risk capital rule, which applies only to banking organizations with significant trading assets and liabilities.
OnIn December 2018, the FRB and other U.S. banking agencies approved a final rule to address the impact of CECL on regulatory capital by allowing BHCs and banks, including Ally, the option to phase in the day-one impact of CECL over a period of three years for regulatory capital purposes. In addition, the FRB announced that although BHCs subject to company-run stress tests as part of CCAR must incorporate CECL beginning in the 2020 cycle, in order to reduce uncertainty, the FRB will maintain its current modeling framework for the allowance for loan losses in supervisory stress tests through the 2021 cycle.
In July 2019, the FRB and other U.S. banking agencies issued a final rule to simplify certain aspects of the capital rules for banking organizations such as Ally. The final rule simplifies the capital treatment for mortgage servicing assets, certain deferred tax assets, and investments in the capital instruments of unconsolidated financial institutions (collectively, threshold items). Under the current capital rule, a banking organization must deduct from Common Equity Tier 1 capital amounts of threshold items that individually exceed 10% of Common Equity Tier 1 capital. The aggregate amount of threshold items not deducted under the 10% threshold deduction but that nonetheless exceeds 15% of Common Equity Tier 1 capital minus certain deductions from and adjustments to Common Equity Tier 1 capital must also be deducted. Any amount of these threshold items not deducted from Common Equity Tier 1 capital are currently risk weighted at 100%. The final rule removes the individual and aggregate deduction thresholds for threshold items and adopts a single 25% Common Equity Tier 1 capital deduction threshold for each item individually, and requires that any of the threshold items not deducted be risk weighted at 250%. The final rule also simplifies the calculation methodology for minority interests. These provisions take effect on April 1, 2020, and we do not expect them to have a material impact to our capital position.
In May 24, 2018, targeted amendments to the Dodd-Frank Act and other financial-services laws were enacted through the Economic Growth, Regulatory Relief, and Consumer Protection Act was enacted. This legislation includes targeted amendments to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and other financial services laws,(EGRRCP Act), including amendments that affect whether and, if so, how the FRB applies enhanced prudential standards to BHCs like us with total consolidated assets equal to or greater than $100 billion andor more but less than $250 billion. While we currently anticipate that this legislation may resultbillion in regulatory and supervisory frameworks that are more tailored to our risk profile, such a result generally depends on future action bytotal consolidated assets. During the U.S. banking agencies and, as a result, cannot be predicted with any certainty.
On April 13,fourth quarter of 2018, the FRB and other U.S. banking agencies proposedissued proposals that would implement these amendments in the EGRRCP Act and establish risk-based categories for determining the prudential standards and the capital and liquidity requirements that apply to large U.S. banking organizations. Under the proposals, Ally would be treated as a revisionCategory IV firm and, as such, would be (1) made subject to theirthe FRB’s Comprehensive Capital Analysis and Review (CCAR) on a two-year cycle rather than the current one-year cycle, (2) made subject to supervisory stress testing on a two-year cycle rather than the current one-year cycle, (3) required to continue submitting an annual capital plan to the FRB for non-objection, (4) allowed to continue excluding accumulated other comprehensive income (AOCI) from regulatory capital, rules(5) required to addresscontinue maintaining a buffer of unencumbered highly liquid assets to meet projected net cash outflows for 30 days, (6) required to conduct liquidity stress tests on a quarterly basis rather than the regulatory capital treatment relatedcurrent monthly basis, (7) allowed to ASU 2016-13, which Ally plansengage in more tailored liquidity risk management, including monthly rather than weekly calculations of collateral positions, the elimination of limits for activities that are not relevant to adopt effective January 1, 2020, as further described in Note 1. We expect the implementationfirm, and fewer required elements of ASU 2016-13 will significantly increase our allowance for credit losses upon adoption. If finalized,monitoring of intraday liquidity exposures, (8) exempted from company-run stress testing, the modified liquidity coverage ratio (LCR), and the proposed changesmodified net stable funding ratio (NSFR), and (9) allowed to remain exempted from the supplementary leverage ratio, the countercyclical capital buffer, and single counterparty credit limits.
Following the issuance of this proposed rule, during the first quarter of 2019, the FRB announced that a number of large and noncomplex BHCs with $100 billion or more but less than $250 billion in total consolidated assets, including Ally, will not be required to submit a capital plan to the regulatory capital rules would allow Ally to phaseFRB, participate in the impact tosupervisory stress test or CCAR, or conduct company-run stress tests during the 2019 cycle. Instead, our regulatory capital as a result ofactions during this cycle will be largely based on the increase toresults from our allowance for credit losses on a straight-line basis over a three-year period. 2018 supervisory stress test.
In addition, the U.S. banking agencies are proposing to make amendments to the stress testing regulations that would exclude the impact of the adoption of ASU 2016-13 until the 2020 stress testing cycle. We continue to monitor and evaluate these regulatory developments. Until the U.S. banking agencies decide whether and, if so, how to amend their regulatory capital rules to account for ASU 2016-13, its ultimate impact on our regulatory capital and, therefore, our business, results of operations, and financial condition is unclear.
On April 10, 2018, the FRB issued a proposal that would seek to more closely align forward-looking stress testing results with the FRB’s non-stress regulatory capital requirements for banking organizations with $50 billion or more in total consolidated assets. The proposal would introduce a “stressstress capital buffer”buffer based on firm-specific stress test performance, which would effectively replace the non-stress capital conservation buffer for determining non-stress capital requirements.buffer. The proposal would also incorporatemake several other changes to the CCAR process, includingsuch as eliminating the CCAR quantitative objection, narrowing the set of planned capital actions assumed to occur in the stress scenario, and eliminating the thirty percent30% dividend payout ratio as a criterion for heightened scrutiny of a firm’s capital plan, among other proposed changes. If finalized, the rule would be effective on December 31, 2018, and a firm’s first stress buffer requirements would generally be effective on October 1, 2019. We are currently evaluating the effect this proposal will have on our capital planning and stress testing requirements. plan. In December 2017, the Basel Committee approved revisions to the global Basel III capital framework (commonly known as Basel IV), many of which—if adopted in the United States—could heighten regulatory capital standards even more.
At this time, it is not clear how all of these proposals and revisions will be harmonized and finalized in the United States.
On March 7, 2016, Ally Bank received approval fromStates is not clear or predictable and we continue to evaluate the FRB 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 (UDFI). As a requirement of FRB membership, we held $447 million of FRB stock at June 30, 2018. In addition, in connection with the application for membership in the Federal Reserve System, Ally Bank made commitments to the FRB relating to capital, liquidity,impacts these proposals and business plan requirements. These commitments were consistent with the prior requirements under the now-terminated Capital and Liquidity Maintenance Agreement with the Federal Deposit Insurance Corporation (FDIC), including the requirement to maintain capital at a level such that Ally Bank’s Tier 1 leverage ratio was at least 15%. On August 22, 2017, banking agencies lifted the capital, liquidity, and business plan commitments that Ally Bank had made in connection with its application for membership in the Federal Reserve System, including the commitment to maintain a Tier 1 leverage ratio of at least 15%.revisions may have on us.
Compliance with capital requirements is a strategic priority for Ally. We expect to be in compliance with all applicable requirements within the established timeframes.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following table summarizes our capital ratios under the U.S. Basel III capital framework.
| | | June 30, 2018 | | December 31, 2017 | | Required minimum (a) | | Well-capitalized minimum | | June 30, 2019 | | December 31, 2018 | | Required minimum (a) | | Well-capitalized minimum |
($ in millions) | Amount | | Ratio | | Amount | | Ratio | | | Amount | | Ratio | | Amount | | Ratio | |
Capital ratios | | | | | | | | | | | | | | | | | | | | | | | |
Common Equity Tier 1 (to risk-weighted assets) | | | | | | | | | | | | | | | | | | | | | | | |
Ally Financial Inc. | $ | 13,265 |
| | 9.37 | % | | $ | 13,237 |
| | 9.53 | % | | 4.50 | % | | (b) |
| | $ | 13,887 |
| | 9.52 | % | | $ | 13,397 |
| | 9.14 | % | | 4.50 | % | | (b) |
|
Ally Bank | 16,591 |
| | 13.65 |
| | 17,059 |
| | 15.04 |
| | 4.50 |
| | 6.50 | % | | 16,739 |
| | 12.54 |
| | 16,552 |
| | 12.61 |
| | 4.50 |
| | 6.50 | % |
Tier 1 (to risk-weighted assets) | | | | | | | | | | | | | | | | | | | | | | | |
Ally Financial Inc. | $ | 15,698 |
| | 11.09 | % | | $ | 15,628 |
| | 11.25 | % | | 6.00 | % | | 6.00 | % | | $ | 16,319 |
| | 11.19 | % | | $ | 15,831 |
| | 10.80 | % | | 6.00 | % | | 6.00 | % |
Ally Bank | 16,591 |
| | 13.65 |
| | 17,059 |
| | 15.04 |
| | 6.00 |
| | 8.00 |
| | 16,739 |
| | 12.54 |
| | 16,552 |
| | 12.61 |
| | 6.00 |
| | 8.00 |
|
Total (to risk-weighted assets) | | | | | | | | | | | | | | | | | | | | | | | |
Ally Financial Inc. | $ | 17,926 |
| | 12.66 | % | | $ | 17,974 |
| | 12.94 | % | | 8.00 | % | | 10.00 | % | | $ | 18,572 |
| | 12.73 | % | | $ | 18,046 |
| | 12.31 | % | | 8.00 | % | | 10.00 | % |
Ally Bank | 17,557 |
| | 14.45 |
| | 17,886 |
| | 15.77 |
| | 8.00 |
| | 10.00 |
| | 17,947 |
| | 13.44 |
| | 17,620 |
| | 13.42 |
| | 8.00 |
| | 10.00 |
|
Tier 1 leverage (to adjusted quarterly average assets) (c) | | | | | | | | | | | | | | | | | | | | | | | |
Ally Financial Inc. | $ | 15,698 |
| | 9.21 | % | | $ | 15,628 |
| | 9.53 | % | | 4.00 | % | | (b) |
| | $ | 16,319 |
| | 9.05 | % | | $ | 15,831 |
| | 9.00 | % | | 4.00 | % | | (b) |
|
Ally Bank | 16,591 |
| | 11.50 |
| | 17,059 |
| | 12.87 |
| | 4.00 |
| | 5.00 | % | | 16,739 |
| | 10.26 |
| | 16,552 |
| | 10.69 |
| | 4.00 |
| | 5.00 | % |
| |
(a) | In addition to the minimum risk-based capital requirements for common equitythe Common Equity Tier 1 capital, Tier 1 capital, and total capital ratios, Ally and Ally Bank were required to maintain a minimum capital conservation buffer of 1.875%2.5% and 1.25%1.875% at June 30, 2018,2019, and December 31, 2017, respectively, which ultimately increases to 2.5% on January 1, 2019.2018, respectively. |
| |
(b) | Currently, there is no ratio component for determining whether a BHC is “well-capitalized.” |
| |
(c) | Federal regulatory reporting guidelines require the calculation of adjusted quarterly average assets using a daily average methodology. |
At June 30, 2018,2019, Ally and Ally Bank were “well-capitalized” and met all applicable capital requirements to which each was subject.
Capital Planning and Stress Tests
Pending the adoption of proposals issued by the FRB and other U.S. banking agencies during the fourth quarter of 2018 that would implement the EGRRCP Act, Ally is required to conduct semi-annual company-run stress tests, is subject to an annual supervisory stress test conducted by the FRB, and must submit a proposed capital plan to the FRB.
Ally’s proposed capital plan must include an assessment of our expected uses and sources of capital and a description of all planned capital actions over a nine-quarter planning horizon, including any issuance of a debt or equity capital instrument, any dividend or other capital distribution, and any similar action that the FRB determines could have an impact on Ally’s capital. The proposed capital plan must also include a discussion of how Ally, under expected and stressful conditions, will maintain capital commensurate with its risks and above the minimum regulatory capital ratios, and will serve as a source of strength to Ally Bank. The FRB will either object to Ally’s proposed capital plan, in whole or in part, or provide a notice of non-objectionnon-objection. If the FRB objects to Ally’sthe proposed capital plan, andor if certain material events occur after approval of the plan, Ally must do so before Ally may take anysubmit a revised capital action. In addition, evenplan within 30 days. Even if the FRB does not object to our capital plan, Ally may be precluded from or limited in paying dividends or other capital distributions without the FRB’s approval under certain circumstances—for example, when we would not meet minimum regulatory capital ratios and capital buffers after giving effect to the distributions.
As part of the 2017 Comprehensive Capital Analysis and Review (CCAR) process, we received a non-objection to our capital plan from the FRB, including the proposed capital actions contained in our submission. The capital actions included increases in the quarterly cash dividend on common stock and in our share repurchase program.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following table presents information related to our common stock for each quarter since the commencement ofand distributions to our common stock repurchase programs and initiation of a quarterly cash dividend on common stock.stockholders over the last six quarters.
| | | | Common stock repurchased during period (a) | | Number of common shares outstanding | | Cash dividends declared per common share (b) | | Common stock repurchased during period (a) | | Number of common shares outstanding | | Cash dividends declared per common share (b) |
($ in millions, except per share data; shares in thousands) | | Approximate dollar value | | Number of shares | | Beginning of period | | End of period | | | Approximate dollar value | | Number of shares | | Beginning of period | | End of period | |
2016 | | | | | | | | | | | |
Third quarter | | $ | 159 |
| | 8,298 |
|
| 483,753 |
| | 475,470 |
|
| $ | 0.08 |
| |
Fourth quarter | | 167 |
| | 8,745 |
|
| 475,470 |
| | 467,000 |
|
| 0.08 |
| |
2017 | | | | | | | | | | | |
2018 | | | | | | | | | | | |
First quarter | | $ | 169 |
| | 8,097 |
|
| 467,000 |
| | 462,193 |
|
| $ | 0.08 |
| | $ | 185 |
| | 6,473 |
| | 437,054 |
| | 432,691 |
| | $ | 0.13 |
|
Second quarter | | 204 |
| | 10,485 |
|
| 462,193 |
| | 452,292 |
|
| 0.08 |
| | 195 |
| | 7,280 |
| | 432,691 |
| | 425,752 |
| | 0.13 |
|
Third quarter | | 190 |
| | 8,507 |
|
| 452,292 |
| | 443,796 |
|
| 0.12 |
| | 250 |
| | 9,194 |
| | 425,752 |
| | 416,591 |
| | 0.15 |
|
Fourth quarter | | 190 |
| | 7,033 |
|
| 443,796 |
| | 437,054 |
|
| 0.12 |
| | 309 |
| | 12,121 |
| | 416,591 |
| | 404,900 |
| | 0.15 |
|
2018 | | | | | | | | | | | |
2019 | | | | | | | | | | | |
First quarter | | $ | 185 |
| | 6,473 |
|
| 437,054 |
| | 432,691 |
|
| $ | 0.13 |
| | $ | 211 |
| | 8,113 |
| | 404,900 |
| | 399,761 |
| | $ | 0.17 |
|
Second quarter | | 195 |
| | 7,280 |
| | 432,691 |
| | 425,752 |
| | 0.13 |
| | 229 |
| | 7,775 |
| | 399,761 |
| | 392,775 |
| | 0.17 |
|
| |
(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) | On July 13, 2018,16, 2019, the Ally Board of Directors (the Board) declared a quarterly cash dividend of $0.15$0.17 per share on all common stock, payable on August 15, 2018.2019. Refer to Note 2524 for further information regarding this common stock dividend. |
Ally submitted its 2018 capital plan and company-run stress test results to the FRB on April 5, 2018. On June 21, 2018, we publicly disclosed summary results of the stress test under the severely adverse scenario in accordance with applicable regulatory requirements. On June 28, 2018, we received from the FRB a non-objection to our capital plan, which includesincluded increases in both our share repurchasestock-repurchase program and our planned dividends. Consistent with the capital plan, the Board authorized a 32% increaseincreases in our share repurchasestock-repurchase program, permitting us to repurchase up to $1.0 billion of our common stock from time to time from the third quarter of 2018 through the second quarter of 2019. Also consistent2019. On October 5, 2018, we submitted to the FRB the results of our company-run mid-cycle stress test and publicly disclosed summary results under the severely adverse scenario in accordance with applicable regulatory requirements.
As described earlier in this note, our capital actions during this cycle will be largely based on the capital plan,results from our 2018 supervisory stress test. On April 1, 2019, the Board authorized an increase in our stock-repurchase program, permitting us to repurchase up to $1.25 billion of our common stock from time to time from the third quarter of 2019 through the second quarter of 2020, representing a 25% increase over our previously announced program. Additionally, on July 13, 2018,16, 2019, the Board declared a quarterly cash dividend of $0.15$0.17 per share of our common stock, which is a $0.02 or 15% increase relative to the dividend declared in the prior quarter.stock. Refer to Note 2524 for further information on the most recent dividend.
Our ability to make capital distributions, including our ability to pay dividends or repurchase shares of our common stock, will continue to be subject to the FRB’s review of and non-objection toapproval by the actions that we propose each year in our annual capital plan.Board. The amount and size of any future dividends and share repurchases also will depend upon our results of operations, capital levels, future opportunities, consideration and approval by the Board, and other considerationsbe subject to various factors, including the degree of severity of stress scenarios assigned by the FRB as part of the CCAR process.
In January 2017, the FRB amended the capital planning and stress testing rules, effective for the 2017 cycle and beyond. As a result of this amendment, the FRB may no longer object to the capital plan of a large and noncomplex BHC, like Ally, on the basis of qualitative deficiencies in its capital planning process. Instead, the qualitative assessment of Ally’s capital planning process is now conducted outside of CCAR through the supervisory review process. The amendment also decreased the de minimis threshold for the amountand liquidity positions, regulatory considerations, any accounting standards that affect capital or liquidity (including CECL), financial and operational performance, alternative uses of capital, that Ally could distribute to stockholders outside of an approved capital plan without seeking prior approval of the FRB,common-stock price, and modified Ally’s reporting requirements to reduce unnecessary burdens.general market conditions, and may be suspended at any time.
18. 17. Derivative Instruments and Hedging Activities
We enter into derivative instruments, such aswhich may include interest rate, foreign-currency, and equity swaps, futures, forwards, and options in connection with our risk managementrisk-management activities. Our primary objective for utilizing derivative financial instruments is to manage interest rate risk associated with our fixed- and variable-rate assets and liabilities, foreign exchange risks related to our foreign-currency denominated assets and liabilities, and other market risks related to our investment portfolio.
Interest Rate Risk
We monitor our mix of fixed- and variable-rate assets and liabilities and may enter into interest rate swaps, forwards, futures, options, and swaptions to achieve our desired mix of fixed- and variable-rate assets and liabilities. We execute these trades to modify our exposure to interest rate risk by converting certain fixed-rate instruments to a variable-rate and certain variable-rate instruments to a fixed-rate. We use a mix of both derivatives that qualify for hedge accounting treatment and economic hedges.
Derivatives qualifying for hedge accounting can include receive-fixed swaps designated as fair value hedges of specific fixed-rate unsecured debt obligations, receive-fixed swaps designated as fair value hedges of specific fixed-rate FHLB advances, pay-fixed swaps designated as fair value hedges of securities within our available-for-sale portfolio, and pay-fixed swaps designated as fair value hedges of closed portfolios of fixed-rate held-for-investment retailconsumer automotive loan assets in which the hedged item is the last layer expected to be remaining at the end of the hedging
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
relationship. Other derivatives qualifying for hedge accounting consist of pay-fixed swaps designated as cash flow hedges of the expected future cash flows in the form of interest payments on certain variable-rate borrowings and deposit liabilities.liabilities, receive-fixed swaps designated as cash flow hedges of the expected future cash flows in the form of interest receipts on certain securities within our available-for-sale portfolio, as well as interest rate floor contracts designated as cash flow hedges of the expected future cash flows in the form of interest receipts on a portion of our dealer floorplan commercial loans.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
We may also execute economic hedges, which consist of interest rate swaps, interest rate caps, forwards, futures, options, and swaptions to mitigate interest rate risk.
We also enter into interest rate lock commitments and forward-sale commitments that are executed as part of our mortgage business that meet the accounting definition of a derivative.
Foreign Exchange Risk
We enter into derivative financial instrument contracts to mitigate the risk associated with variability in cash flows related to our various foreign-currency exposures.
We enter into foreign-currency forwards with external counterparties as net investment hedges of foreign exchange exposure on our investmentsinvestment 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. We also periodically enter into foreign-currency forwards to economically hedge any foreign-denominated debt, centralized lending, and foreign-denominated third-party loans. These foreign-currency forwards that are used as economic hedges are recorded at fair value with changes recorded as income offsetting the gains and losses on the associated foreign-currency transactions.
MarketInvestment 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.
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 theWe manage our risk of counterparty default, we maintain collateralto financial counterparties through internal credit analysis, limits, and monitoring. Additionally, derivatives and repurchase agreements are entered into with approved counterparties using industry standard agreements.
We execute certain over-the-counter (OTC) derivatives such as interest rate caps using bilateral agreements with certainfinancial counterparties. TheBilateral 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 andPayments related to the counterparty post collateral for the value of our total obligation to each other. Contractual terms provide for standard and customary exchange of collateral based on changes in the market value of the outstanding derivatives. The securing party posts additional collateral when their obligation rises or removes collateral when it falls. These paymentsfor OTC derivatives are characterizedrecognized as collateral for over-the-counter (OTC) derivatives.collateral.
We also execute certain derivatives such as interest rate swaps with clearinghouses, which requires us to post and receive collateral. For these clearinghouse derivatives, these payments are recognized as settlements rather than collateral.
Certain derivative instruments contain provisions that require us to either post additional collateral or immediately settle any outstanding liability balances upon the occurrence of a specified credit-risk-related event. No such specified credit-risk-related events occurred during the three months and six months ended June 30, 2018,2019, or 2017.2018.
We placed cash collateral totaling $31 million and noncash collateral totaling $151$9 million and $165 million, respectively, supporting our derivative positions at June 30, 2018, and $202019, compared to $26 million and $97$105 million of cash and noncash collateral at December 31, 2017, respectively, 2018, in accounts maintained by counterparties. This amount primarily relates to These amounts include collateral posted to support our derivative positions. This amount also excludesplaced at clearinghouses and exclude cash and noncash collateral pledged under repurchase agreements. Refer to Note 1312 for details on the repurchase agreements. The receivables for cash collateral placed are included on our Condensed Consolidated Balance Sheet in other assets.
We received cash and noncash collateral from counterparties totaling $38$25 million and noncash collateral totaling $11$32 million, at June 30, 2018, and $17 million and $2 million at December 31, 2017, respectively, in accounts maintained by counterparties.counterparties at June 30, 2019, compared to $30 million and $3 million of cash and noncash collateral at December 31, 2018. These amounts include collateral received from clearinghouses and exclude cash and noncash collateral pledged under repurchase agreements. Refer to Note 1312 for details on repurchase agreements. The payables for cash collateral received are included on our Condensed Consolidated Balance Sheet in accrued expenses and other liabilities. Included in these amounts is noncash collateral where we have been granted the right to sell or pledge the underlying assets. We have not sold or pledged any of the noncash collateral received under these agreements.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Balance Sheet Presentation
The following table summarizes the amounts of derivative instruments reported on our Condensed Consolidated Balance Sheet.Sheet. The amounts are presented on a gross basis, are segregated by derivatives that are designated and qualifying as hedging instruments or those that are not, and are further segregated by type of contract within those two categories.
Derivative contracts in a receivable and payable position exclude open trade equity on derivatives cleared through central clearing counterparties. Any associated collateral exchanged with our central clearing counterparties are treated as settlements of the derivative exposure, rather than collateral. Such payments are recognized as settlements of the derivatives contracts in a receivable and payable position on our Condensed Consolidated Balance Sheet.Sheet.
Notional amounts are reference amounts from which contractual obligations are derived and are not recorded on the balance sheet. In our view, derivative notional is not an accurate measure of our derivative exposure when viewed in isolation from other factors, such as market rate fluctuations and counterparty credit risk.
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| | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
| | Derivative contracts in a | | Notional amount | | Derivative contracts in a | | Notional amount |
($ in millions) | | receivable position | | payable position | | receivable position | | payable position | |
Derivatives designated as accounting hedges | | | | | | | | | | | | |
Interest rate contracts | | | | | | | | | | | | |
Swaps | | $ | — |
| | $ | — |
| | $ | 16,986 |
| | $ | — |
| | $ | — |
| | $ | 24,203 |
|
Purchased options | | 54 |
| | — |
| | 4,100 |
| | — |
| | — |
| | — |
|
Foreign exchange contracts | | | | | | | | | | | | |
Forwards | | — |
| | — |
| | 137 |
| | 1 |
| | — |
| | 136 |
|
Total derivatives designated as accounting hedges | | 54 |
| | — |
| | 21,223 |
| | 1 |
| | — |
| | 24,339 |
|
Derivatives not designated as accounting hedges | | | | | | | | | | | | |
Interest rate contracts | | | | | | | | | | | | |
Futures and forwards | | — |
| | — |
| | 17 |
| | — |
| | — |
| | 11 |
|
Written options | | 2 |
| | 3 |
| | 1,765 |
| | — |
| | 37 |
| | 6,793 |
|
Purchased options | | 3 |
| | — |
| | 1,658 |
| | 37 |
| | — |
| | 6,742 |
|
Total interest rate risk | | 5 |
| | 3 |
| | 3,440 |
| | 37 |
| | 37 |
| | 13,546 |
|
Foreign exchange contracts | | | | | | | | | | | | |
Futures and forwards | | — |
| | — |
| | 126 |
| | 3 |
| | — |
| | 181 |
|
Total foreign exchange risk | | — |
| | — |
| | 126 |
| | 3 |
| | — |
| | 181 |
|
Equity contracts | | | | | | | | | | | | |
Written options | | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
|
Total equity risk | | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
|
Total derivatives not designated as accounting hedges | | 5 |
| | 4 |
| | 3,566 |
| | 40 |
| | 37 |
| | 13,727 |
|
Total derivatives | | $ | 59 |
| | $ | 4 |
| | $ | 24,789 |
| | $ | 41 |
| | $ | 37 |
| | $ | 38,066 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2018 | | December 31, 2017 |
| | Derivative contracts in a | | Notional amount | | Derivative contracts in a | | Notional amount |
($ in millions) | | receivable position | | payable position | | receivable position | | payable position | |
Derivatives designated as accounting hedges | | | | | | | | | | | | |
Interest rate contracts | | | | | | | | | | | | |
Swaps | | $ | — |
| | $ | — |
| | $ | 28,840 |
| | $ | — |
| | $ | — |
| | $ | 6,915 |
|
Foreign exchange contracts | | | | | | | | | | | | |
Forwards | | — |
| | 1 |
| | 145 |
| | — |
| | 1 |
| | 136 |
|
Total derivatives designated as accounting hedges | | — |
| | 1 |
| | 28,985 |
| | — |
| | 1 |
| | 7,051 |
|
Derivatives not designated as accounting hedges | | | | | | | | | | | | |
Interest rate contracts | | | | | | | | | | | | |
Futures and forwards | | — |
| | — |
| | 9 |
| | — |
| | — |
| | 23 |
|
Written options | | 1 |
| | 62 |
| | 6,760 |
| | 1 |
| | 39 |
| | 8,327 |
|
Purchased options | | 62 |
| | — |
| | 6,694 |
| | 38 |
| | — |
| | 8,237 |
|
Total interest rate risk | | 63 |
| | 62 |
| | 13,463 |
| | 39 |
| | 39 |
| | 16,587 |
|
Foreign exchange contracts | | | | | | | | | | | | |
Futures and forwards | | — |
| | 1 |
| | 193 |
| | — |
| | 1 |
| | 124 |
|
Total foreign exchange risk | | — |
| | 1 |
| | 193 |
| | — |
| | 1 |
| | 124 |
|
Equity contracts | | | | | | | | | | | | |
Written options | | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
|
Total equity risk | | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
|
Total derivatives not designated as accounting hedges | | 63 |
| | 64 |
| | 13,656 |
| | 39 |
| | 40 |
| | 16,711 |
|
Total derivatives | | $ | 63 |
| | $ | 65 |
| | $ | 42,641 |
| | $ | 39 |
| | $ | 41 |
| | $ | 23,762 |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following table presents amounts recorded on our Condensed Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges.
| | ($ in millions) | | Carrying amount of the hedged items | | Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged items | | Carrying amount of the hedged items | | Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged items |
| | Total | | Discontinued (a) | | | Total | | Discontinued (a) |
| June 30, 2018 | | December 31, 2017 | | June 30, 2018 | | December 31, 2017 | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 | | June 30, 2019 | | December 31, 2018 | | June 30, 2019 | | December 31, 2018 |
Assets | | | | | | | | | | | | | | | | | | | | | | | | |
Available-for-sale securities (b) | | $ | 1,435 |
| | $ | 173 |
| | $ | (3 | ) | | $ | 2 |
| | $ | (2 | ) | | $ | 2 |
| |
Available-for-sale securities (b) (c) | | | $ | 1,401 |
| | $ | 1,485 |
| | $ | 11 |
| | $ | — |
| | $ | 10 |
| | $ | (5 | ) |
Finance receivables and loans, net (c)(d) | | 41,383 |
| | 2,305 |
| | (40 | ) | | 18 |
| | 11 |
| | 19 |
| | 46,111 |
| | 40,850 |
| | 153 |
| | 24 |
| | 59 |
| | 5 |
|
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
Long-term debt | | $ | 14,959 |
| | $ | 14,640 |
| | $ | 99 |
| | $ | 208 |
| | $ | 95 |
| | $ | 235 |
| | $ | 12,093 |
| | $ | 13,001 |
| | $ | 85 |
| | $ | 67 |
| | $ | 66 |
| | $ | 67 |
|
| |
(a) | Represents the fair value hedging adjustment on qualifying hedges for which the hedging relationship was discontinued. This represents a subset of the amounts reported in the total hedging adjustment. |
| |
(b) | The carrying amount of hedged available-for-sale securities is presented above using amortized cost. Refer to Note 6 for a reconciliation of the amortized cost and fair value of available-for-sale securities. |
| |
(c) | Includes the amortized cost basis of closed portfolios used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At December 31, 2018, the amortized cost basis of the closed portfolios used in these hedging relationships was $47 million. There was no basis adjustment associated with the last-of-layer relationships, and the amount identified as the last of layer in these hedge relationships was $28 million at December 31, 2018. A last-of-layer hedge strategy did not exist at June 30, 2019. |
| |
(d) | The hedged item represents the carrying value of the hedged portfolio of assets. The amount that is identified as the last of layer in the open hedge relationship is $17.7was $13.4 billion as of June 30, 2019, and $21.4 billion as of December 31, 2018. The basis adjustment associated with the open last-of-layer relationship iswas a $51$94 million liabilityasset as of June 30, 2019, and a $19 million asset as of December 31, 2018, which would be allocated across the entire remaining closed pool upon termination or maturity of the hedge relationship. AThe amount that is identified as the last of layer in the discontinued hedge relationship was $12.8 billion at June 30, 2019. The basis adjustment associated with the discontinued last-of-layer relationship was a $57 million asset as of June 30, 2019, which was allocated across the entire remaining pool upon termination of the hedge strategy did not exist at December 31, 2017.relationship. |
Statement of Comprehensive Income Presentation
The following table summarizes the location and amounts of gains and losses on derivative instruments not designated as accounting hedges reported in our Condensed Consolidated Statement of Comprehensive Income.Income.
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| | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
($ in millions) | | 2019 | | 2018 | | 2019 | | 2018 |
Gain (loss) recognized in earnings | | | | | | | | |
Interest rate contracts | | | | | | | | |
Gain on mortgage and automotive loans, net | | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | — |
|
Other income, net of losses | | (2 | ) | | (2 | ) | | (7 | ) | | — |
|
Total interest rate contracts | | (2 | ) | | (2 | ) |
| (6 | ) | | — |
|
Foreign exchange contracts | | | | | | | | |
Other income, net of losses | | (2 | ) | | 6 |
| | (3 | ) | | 6 |
|
Total foreign exchange contracts | | (2 | ) | | 6 |
|
| (3 | ) | | 6 |
|
(Loss) gain recognized in earnings | | $ | (4 | ) | | $ | 4 |
|
| $ | (9 | ) | | $ | 6 |
|
|
| | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
($ in millions) | | 2018 | | 2017 | | 2018 | | 2017 |
Gain (loss) recognized in earnings | | | | | | | | |
Interest rate contracts | | | | | | | | |
Gain on mortgage and automotive loans, net | | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | 1 |
|
Other income, net of losses | | (2 | ) | | (1 | ) | | — |
| | (3 | ) |
Total interest rate contracts | | (2 | ) | | — |
|
| — |
| | (2 | ) |
Foreign exchange contracts | | | | | | | | |
Other income, net of losses | | 6 |
| | (3 | ) | | 6 |
| | (4 | ) |
Total foreign exchange contracts | | 6 |
| | (3 | ) |
| 6 |
| | (4 | ) |
Gain (loss) recognized in earnings | | $ | 4 |
| | $ | (3 | ) |
| $ | 6 |
| | $ | (6 | ) |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following table summarizestables summarize the location and amounts of gains and losses on derivative instruments designated as fair value and cash flow hedges reported in our Condensed Consolidated Statement of Comprehensive Income. We had no gains or losses on derivative instruments designated as cash flow hedges for the periods shown.Income.
|
| | | | | | | | | | | | | | | | | | | | |
| Interest and fees on finance receivables and loans | | Interest and dividends on investment securities and other earning assets | | Interest on long-term debt |
Three months ended June 30, ($ in millions) | 2019 | 2018 | | 2019 | 2018 | | 2019 | 2018 |
(Loss) gain on fair value hedging relationships | | | | | | | | |
Interest rate contracts | | | | | | | | |
Hedged fixed-rate unsecured debt | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | (19 | ) | $ | 8 |
|
Derivatives designated as hedging instruments on fixed-rate unsecured debt | — |
| — |
| | — |
| — |
| | 19 |
| (8 | ) |
Hedged fixed-rate FHLB advances | — |
| — |
| | — |
| — |
| | — |
| 10 |
|
Derivatives designated as hedging instruments on fixed-rate FHLB advances | — |
| — |
| | — |
| — |
| | — |
| (10 | ) |
Hedged available-for-sale securities | — |
| — |
| | 2 |
| (2 | ) | | — |
| — |
|
Derivatives designated as hedging instruments on available-for-sale securities | — |
| — |
| | (2 | ) | 2 |
| | — |
| — |
|
Hedged fixed-rate consumer automotive loans | 98 |
| (6 | ) | | — |
| — |
| | — |
| — |
|
Derivatives designated as hedging instruments on fixed-rate consumer automotive loans | (98 | ) | 6 |
| | — |
| — |
| | — |
| — |
|
Total gain on fair value hedging relationships | — |
| — |
| | — |
| — |
| | — |
| — |
|
Gain on cash flow hedging relationships | | | | | | | | |
Interest rate contracts | | | | | | | | |
Hedged variable-rate borrowings | | | | | | | | |
Reclassified from accumulated other comprehensive income into income | — |
| — |
| | — |
| — |
| | 4 |
| — |
|
Total gain on cash flow hedging relationships | $ | — |
| $ | — |
|
| $ | — |
| $ | — |
|
| $ | 4 |
| $ | — |
|
Total amounts presented in the Condensed Consolidated Statement of Comprehensive Income | $ | 1,860 |
| $ | 1,647 |
| | $ | 244 |
| $ | 188 |
| | $ | 407 |
| $ | 434 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Interest and fees on finance receivables and loans | | Interest and dividends on investment securities and other earning assets | | Interest on long-term debt |
Three months ended June 30, ($ in millions) | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
Gain (loss) on fair value hedging relationships | | | | | | | | | | | |
Interest rate contracts | | | | | | | | | | | |
Hedged fixed-rate unsecured debt | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 8 |
| | $ | (21 | ) |
Derivatives designated as hedging instruments on fixed-rate unsecured debt | — |
| | — |
| | — |
| | — |
| | (8 | ) | | 21 |
|
Hedged fixed-rate FHLB advances | — |
| | — |
| | — |
| | — |
| | 10 |
| | 1 |
|
Derivatives designated as hedging instruments on fixed-rate FHLB advances | — |
| | — |
| | — |
| | — |
| | (10 | ) | | (1 | ) |
Hedged available-for-sale securities | — |
| | — |
| | (2 | ) | | 2 |
| | — |
| | — |
|
Derivatives designated as hedging instruments on available-for-sale securities | — |
| | — |
| | 2 |
| | (2 | ) | | — |
| | — |
|
Hedged fixed-rate retail automotive loans | (6 | ) | | 1 |
| | — |
| | — |
| | — |
| | — |
|
Derivatives designated as hedging instruments on fixed-rate retail automotive loans | 6 |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
|
Total loss on fair value hedging relationships | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Total amounts presented in the Condensed Consolidated Statement of Comprehensive Income | $ | 1,647 |
| | $ | 1,447 |
| | $ | 188 |
| | $ | 146 |
| | $ | 434 |
| | $ | 417 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Interest and fees on finance receivables and loans | | Interest and dividends on investment securities and other earning assets | | Interest on long-term debt |
Six months ended June 30, ($ in millions) | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
Gain (loss) on fair value hedging relationships | | | | | | | | | | | |
Interest rate contracts | | | | | | | | | | | |
Hedged fixed-rate unsecured debt | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 44 |
| | $ | (23 | ) |
Derivatives designated as hedging instruments on fixed-rate unsecured debt | — |
| | — |
| | — |
| | — |
| | (43 | ) | | 24 |
|
Hedged fixed-rate FHLB advances | — |
| | — |
| | — |
| | — |
| | 43 |
| | — |
|
Derivatives designated as hedging instruments on fixed-rate FHLB advances | — |
| | — |
| | — |
| | — |
| | (43 | ) | | — |
|
Hedged available-for-sale securities | — |
| | — |
| | (5 | ) | | 2 |
| | — |
| | — |
|
Derivatives designated as hedging instruments on available-for-sale securities | — |
| | — |
| | 5 |
| | (2 | ) | | — |
| | — |
|
Hedged fixed-rate retail automotive loans | (51 | ) | | (3 | ) | | — |
| | — |
| | — |
| | — |
|
Derivatives designated as hedging instruments on fixed-rate retail automotive loans | 51 |
| | 1 |
| | — |
| | — |
| | — |
| | — |
|
Total (loss) gain on fair value hedging relationships | $ | — |
| | $ | (2 | ) | | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
|
Total amounts presented in the Condensed Consolidated Statement of Comprehensive Income | $ | 3,190 |
| | $ | 2,815 |
| | $ | 364 |
| | $ | 280 |
| | $ | 845 |
| | $ | 841 |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest and fees on finance receivables and loans | | Interest and dividends on investment securities and other earning assets | | Interest on deposits | | Interest on long-term debt |
Six months ended June 30, ($ in millions) | 2019 | 2018 | | 2019 | 2018 | | 2019 | 2018 | | 2019 | 2018 |
(Loss) gain on fair value hedging relationships | | | | | | | | | | | |
Interest rate contracts | | | | | | | | | | | |
Hedged fixed-rate unsecured debt | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | (19 | ) | $ | 44 |
|
Derivatives designated as hedging instruments on fixed-rate unsecured debt | — |
| — |
| | — |
| — |
| | — |
| — |
| | 19 |
| (43 | ) |
Hedged fixed-rate FHLB advances | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| 43 |
|
Derivatives designated as hedging instruments on fixed-rate FHLB advances | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| (43 | ) |
Hedged available-for-sale securities | — |
| — |
| | 12 |
| (5 | ) | | — |
| — |
| | — |
| — |
|
Derivatives designated as hedging instruments on available-for-sale securities | — |
| — |
| | (12 | ) | 5 |
| | — |
| — |
| | — |
| — |
|
Hedged fixed-rate consumer automotive loans | 141 |
| (51 | ) | | — |
| — |
| | — |
| — |
| | — |
| — |
|
Derivatives designated as hedging instruments on fixed-rate consumer automotive loans | (141 | ) | 51 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
|
Total gain on fair value hedging relationships | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| 1 |
|
Gain on cash flow hedging relationships | | | | | | | | | | | |
Interest rate contracts | | | | | | | | | | | |
Hedged deposit liabilities | | | | | | | | | | | |
Reclassified from accumulated other comprehensive income into income | — |
| — |
| | — |
| — |
| | 1 |
| — |
| | — |
| — |
|
Hedged variable-rate borrowings | | | | | | | | | | | |
Reclassified from accumulated other comprehensive income into income | — |
| — |
| | — |
| — |
| | — |
| — |
| | 8 |
| — |
|
Total gain on cash flow hedging relationships | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | 1 |
| $ | — |
| | $ | 8 |
| $ | — |
|
Total amounts presented in the Condensed Consolidated Statement of Comprehensive Income | $ | 3,667 |
| $ | 3,190 |
| | $ | 484 |
| $ | 364 |
| | $ | 1,243 |
| $ | 750 |
| | $ | 826 |
| $ | 845 |
|
During the next twelve months, we estimate no amount will be reclassified into pretax earnings from derivatives designated as cash flow hedges.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following table summarizestables summarize the location and amounts of gains and losses related to interest and amortization on derivative instruments designated as fair value and cash flow hedges reported in our Condensed Consolidated Statement of Comprehensive Income.Income.
|
| | | | | | | | | | | | | | | | | | | | |
| Interest and fees on finance receivables and loans | | Interest and dividends on investment securities and other earning assets | | Interest on long-term debt |
Three months ended June 30, ($ in millions) | 2019 | 2018 | | 2019 | 2018 | | 2019 | 2018 |
Gain (loss) on fair value hedging relationships | | | | | | | | |
Interest rate contracts | | | | | | | | |
Amortization of deferred unsecured debt basis adjustments | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | 6 |
| $ | 14 |
|
Interest for qualifying accounting hedges of unsecured debt | — |
| — |
| | — |
| — |
| | — |
| 1 |
|
Amortization of deferred secured debt basis adjustments (FHLB advances) | — |
| — |
| | — |
| — |
| | (5 | ) | (5 | ) |
Interest for qualifying accounting hedges of secured debt (FHLB advances) | — |
| — |
| | — |
| — |
| | — |
| 2 |
|
Amortization of deferred basis adjustments of available-for-sale securities | — |
| — |
| | (1 | ) | — |
| | — |
| — |
|
Amortization of deferred loan basis adjustments | (9 | ) | (4 | ) | | — |
| — |
| | — |
| — |
|
Interest for qualifying accounting hedges of consumer automotive loans held-for-investment | 11 |
| 5 |
| | — |
| — |
| | — |
| — |
|
Total gain (loss) on fair value hedging relationships | 2 |
| 1 |
| | (1 | ) | — |
| | 1 |
| 12 |
|
Gain on cash flow hedging relationships | | | | | | | | |
Interest rate contracts | | | | | | | | |
Interest for qualifying accounting hedges of variable-rate borrowings | — |
| — |
| | — |
| — |
| | — |
| 2 |
|
Total gain on cash flow hedging relationships | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | 2 |
|
|
| | | | | | | | | | | | | | | |
| Interest and fees on finance receivables and loans | | Interest on long-term debt |
Three months ended June 30, ($ in millions) | 2018 | | 2017 | | 2018 | | 2017 |
Gain (loss) on fair value hedging relationships | | | | | | | |
Interest rate contracts | | | | | | | |
Amortization of deferred unsecured debt basis adjustments | $ | — |
| | $ | — |
| | $ | 14 |
| | $ | 20 |
|
Interest for qualifying accounting hedges of unsecured debt | — |
| | — |
| | 1 |
| | 7 |
|
Amortization of deferred secured debt basis adjustments (FHLB advances) | — |
| | — |
| | (5 | ) | | — |
|
Interest for qualifying accounting hedges of secured debt (FHLB advances) | — |
| | — |
| | 2 |
| | — |
|
Amortization of deferred loan basis adjustments | (4 | ) | | (6 | ) | | — |
| | — |
|
Interest for qualifying accounting hedges of retail automotive loans held-for-investment | 5 |
| | — |
| | — |
| | — |
|
Total (loss) gain on fair value hedging relationships | 1 |
| | (6 | ) | | 12 |
| | 27 |
|
Gain on cash flow hedging relationships | | | | | | | |
Interest rate contracts | | | | | | | |
Interest for qualifying accounting hedges of variable-rate borrowings | — |
| | — |
| | 2 |
| | — |
|
Total gain on cash flow hedging relationships | $ | — |
| | $ | — |
| | $ | 2 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Interest and fees on finance receivables and loans | | Interest and dividends on investment securities and other earning assets | | Interest on long-term debt |
Six months ended June 30, ($ in millions) | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
Gain (loss) on fair value hedging relationships | | | | | | | | | | | |
Interest rate contracts | | | | | | | | | | | |
Amortization of deferred unsecured debt basis adjustments | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 29 |
| | $ | 40 |
|
Interest for qualifying accounting hedges of unsecured debt | — |
| | — |
| | — |
| | — |
| | 4 |
| | 12 |
|
Amortization of deferred secured debt basis adjustments (FHLB advances) | — |
| | — |
| | — |
| | — |
| | (6 | ) | | (1 | ) |
Interest for qualifying accounting hedges of secured debt (FHLB advances) | — |
| | — |
| | — |
| | — |
| | 4 |
| | — |
|
Interest for qualifying accounting hedges of available-for-sale securities | — |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
|
Amortization of deferred loan basis adjustments | (8 | ) | | (11 | ) | | — |
| | — |
| | — |
| | — |
|
Interest for qualifying accounting hedges of retail automotive loans held-for-investment | (2 | ) | | (1 | ) | | — |
| | — |
| | — |
| | — |
|
Total (loss) gain on fair value hedging relationships | (10 | ) | | (12 | ) | | (1 | ) | | — |
| | 31 |
| | 51 |
|
Gain on cash flow hedging relationships | | | | | | | | | | | |
Interest rate contracts | | | | | | | | | | | |
Interest for qualifying accounting hedges of variable-rate borrowings | — |
| | — |
| | — |
| | — |
| | 3 |
| | — |
|
Total gain on cash flow hedging relationships | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3 |
| | $ | — |
|
During the next twelve months, we estimate $18 million will be reclassified into pretax earnings from derivatives designated as cash flow hedges.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | | | | | | | | | | | | | |
| Interest and fees on finance receivables and loans | | Interest and dividends on investment securities and other earning assets | | Interest on long-term debt |
Six months ended June 30, ($ in millions) | 2019 | 2018 | | 2019 | 2018 | | 2019 | 2018 |
Gain (loss) on fair value hedging relationships | | | | | | | | |
Interest rate contracts | | | | | | | | |
Amortization of deferred unsecured debt basis adjustments | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | 12 |
| $ | 29 |
|
Interest for qualifying accounting hedges of unsecured debt | — |
| — |
| | — |
| — |
| | — |
| 4 |
|
Amortization of deferred secured debt basis adjustments (FHLB advances) | — |
| — |
| | — |
| — |
| | (11 | ) | (6 | ) |
Interest for qualifying accounting hedges of secured debt (FHLB advances) | — |
| — |
| | — |
| — |
| | — |
| 4 |
|
Amortization of deferred basis adjustments of available-for-sale securities | — |
| — |
| | (1 | ) | — |
| | — |
| — |
|
Interest for qualifying accounting hedges of available-for-sale securities | — |
| — |
| | — |
| (1 | ) | | — |
| — |
|
Amortization of deferred loan basis adjustments | (13 | ) | (8 | ) | | — |
| — |
| | — |
| — |
|
Interest for qualifying accounting hedges of consumer automotive loans held-for-investment | 17 |
| (2 | ) | | — |
| — |
| | — |
| — |
|
Total gain (loss) on fair value hedging relationships | 4 |
| (10 | ) | | (1 | ) | (1 | ) | | 1 |
| 31 |
|
Gain on cash flow hedging relationships | | | | | | | | |
Interest rate contracts | | | | | | | | |
Interest for qualifying accounting hedges of variable-rate borrowings | — |
| — |
| | — |
| — |
| | — |
| 3 |
|
Total gain on cash flow hedging relationships | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | 1 |
| $ | 3 |
|
The following table summarizes the effect of cash flow hedges on accumulated other comprehensive loss.income (loss).
|
| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
($ in millions) | 2019 | | 2018 | | 2019 | | 2018 |
Interest rate contracts | | | | | | | |
Gain recognized in other comprehensive income (loss) | $ | 22 |
| | $ | 5 |
| | $ | 12 |
| | $ | 23 |
|
|
| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
($ in millions) | 2018 | | 2017 | | 2018 | | 2017 |
Interest rate contracts | | | | | | | |
Gain recognized in other comprehensive loss | $ | 5 |
| | $ | 1 |
| | $ | 23 |
| | $ | 1 |
|
The following table summarizes the effect of net investment hedges on accumulated other comprehensive lossincome (loss) and the Condensed Consolidated Statement of Comprehensive Income.Income.
| | | Three months ended June 30, | | Six months ended June 30, | Three months ended June 30, | | Six months ended June 30, |
($ in millions) | 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
Foreign exchange contracts (a) (b) | | | | | | | | | | | | | | |
Gain (loss) recognized in other comprehensive loss | $ | 3 |
| | $ | (4 | ) | | $ | 7 |
| | $ | (6 | ) | |
(Loss) gain recognized in other comprehensive income (loss) | | $ | (3 | ) | | $ | 3 |
| | $ | (5 | ) | | $ | 7 |
|
| |
(a) | There were no amounts excluded from effectiveness testing for the three months and six months ended June 30, 2018,2019, or 2017.2018. |
| |
(b) | Gains and losses reclassified from accumulated other comprehensive lossincome (loss) are reported as other income, net of losses, in the Condensed Consolidated Statement of Comprehensive Income.Income. There were no amounts reclassified for the three months and six months ended June 30, 2018,2019, or 2017.2018. |
19. 18. Income Taxes
We recognized totalincome tax benefit from continuing operations of $90 million and income tax expense from continuing operations of $21 million for the three months and six months ended June 30, 2019, respectively, compared to income tax expense of $113 million and $189 million for the three months and six months ended June 30, 2018, respectively, compared to $122 million and $235 million for the same periods in 2017. 2018.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The decreases in income tax expense for the three months and six months ended June 30, 2018,2019, compared to the same periods in 2017,2018, were primarily due to a release of valuation allowance on foreign tax credit carryforwards during the second quarter of 2019. The valuation allowance release during the three months ended June 30, 2019, was primarily driven by our current capacity to engage in certain securitization transactions and the reductionmarket demand from investors related to these transactions, coupled with the anticipated timing of the U.S. federal corporateforecasted expiration of certain tax rate enacted ascredit carryforwards. This release of valuation allowance of approximately $200 million resulted in a result ofsignificant variation in the Tax Act. Thiscustomary relationship between pretax income and income tax expense. Additionally, the decrease in income tax expense for the six months ended June 30, 2019, compared to the same period in 2018, was partially offset by the tax effects of an increase in pretax earnings, nondeductible FDIC premiums as a result of the Tax Act, and a nonrecurring tax benefit in 2017 from the release of valuation allowance against our capital-in-nature deferred tax assets and foreign tax credit carryforwards.
As further described in Note 1, we elected to early-adopt ASU 2018-02 effective January 1, 2018. As a result of this adoption, we reclassified $42 million from accumulated other comprehensive loss to retained earnings, which eliminated the stranded federal income tax effects in accumulated other comprehensive loss resulting from the Tax Act. Our policy is to use the portfolio method with respect to reclassification of stranded income tax effects in accumulated other comprehensive loss.earnings.
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. WeFollowing the release of the aforementioned valuation allowance, we continue to believe it is more likely than not that the benefit for certain foreign tax credit carryforwards and state net operating loss carryforwards, and state capital loss carryforwards will not be realized. In recognition of this risk, we continue to provide a partial valuation allowance on the deferred tax assets relating to these carryforwards.carryforwards and it is reasonably possible that the valuation allowance may change in the next twelve months.
20. 19. Fair Value
Fair Value Measurements
For purposes of this disclosure, fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market in an orderly transaction between market participants at the measurement date under current market conditions. Fair value is based on the assumptions we believe market participants would use when pricing an asset or liability. Additionally, entities are required to consider all aspects of nonperformance risk, including the entity’s own credit standing, when measuring the fair value of a liability.
Judgment is used in estimating inputs to our internal valuation models used to estimate our Level 3 fair value measurements. Level 3 inputs such as interest rate movements, prepayment speeds, credit losses, and discount rates are inherently difficult to estimate. Changes to these inputs can have a significant effect on fair value measurements and amounts that could be realized.
GAAP specifies a three-level hierarchy that is used when measuring and disclosing fair value. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. The following is a description of the three hierarchy levels.
| |
Level 1 | 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 |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
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 six months ended June 30, 2018. |
The following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models, key inputs to those models, and significant assumptions utilized.
| |
• | Equity Securities — Includes various marketable equity securities measured at fair value with changes in fair value recognized in net income. Measurements based on observable market prices are classified as Level 1. |
| |
• | Available-for-sale securities — All classes of available-for-sale securities are carried at fair value based on observable market prices, when available. If observable market prices are not available, our valuations are based on internally developed discounted cash flow models (an income approach) that use a market-based discount rate and consider recent market transactions, experience with similar securities, current business conditions, and analysis of the underlying collateral, as available. To estimate cash flows, 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). |
Equity Securities — Includes various marketable equity securities measured at fair value with changes in fair value recognized in net income. Measurements based on observable market prices are classified as Level 1.50
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
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.
| |
• | Derivative instruments — We enter into a variety of derivative financial instruments as part of our risk-management strategies. Certain of these derivatives are exchange traded, such as Eurodollar futures, options of Eurodollar futures, and equity options. To determine the fair value of these instruments, we utilize the quoted market prices for the particular derivative contracts; therefore, we classified these contracts as Level 1. |
We also execute OTC and centrally-cleared derivative contracts, such as interest rate swaps, swaptions, foreign-currency denominated forward contracts, caps, floors, and agency to-be-announced securities. We utilize third-party-developed valuation models that are widely accepted in the market to value these derivative contracts. The specific terms of the contract and market observable inputs (such as interest rate forward curves, interpolated volatility assumptions, or equity pricing) are used in the model. We classified these derivative contracts as Level 2 because all significant inputs into these models were market observable.
We also enter into interest rate lock commitments and forward-sale commitments that are executed as part of our mortgage business, certain of which meet the accounting definition of a derivative and therefore are recorded as derivatives on our Condensed Consolidated Balance Sheet.Sheet. Because these derivatives are valued using internal pricing models with unobservable inputs, they are classified as Level 3.
We are required to consider all aspects of nonperformance risk, including our own credit standing, when measuring fair value of a liability. We reduce credit risk on the majority of our derivatives by entering into legally enforceable agreements that enable the posting and receiving of collateral associated with the fair value of our derivative positions on an ongoing basis. In the event that we do not enter into legally enforceable agreements that enable the posting and receiving of collateral, we will consider our credit risk and the credit risk of our counterparties in the valuation of derivative instruments through a credit valuation adjustment (CVA), if warranted. The CVA calculation utilizes the credit default swap spreads of the counterparty.
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 managementrisk-management activities.
|
| | | | | | | | | | | | | | | | |
| | Recurring fair value measurements |
June 30, 2019 ($ in millions) | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | | |
Investment securities | | | | | | | |
|
Equity securities (a) | | $ | 582 |
| | $ | — |
| | $ | 9 |
| | $ | 591 |
|
Available-for-sale securities | | | | | | | |
|
Debt securities | | | | | | | |
|
U.S. Treasury and federal agencies | | 2,017 |
| | 1 |
| | — |
| | 2,018 |
|
U.S. States and political subdivisions | | — |
| | 598 |
| | — |
| | 598 |
|
Foreign government | | 13 |
| | 136 |
| | — |
| | 149 |
|
Agency mortgage-backed residential | | — |
| | 19,100 |
| | — |
| | 19,100 |
|
Mortgage-backed residential | | — |
| | 2,934 |
| | — |
| | 2,934 |
|
Agency mortgage-backed commercial | | — |
| | 1,351 |
| | — |
| | 1,351 |
|
Mortgage-backed commercial | | — |
| | 713 |
| | — |
| | 713 |
|
Asset-backed | | — |
| | 477 |
| | — |
| | 477 |
|
Corporate debt | | — |
| | 1,348 |
| | — |
| | 1,348 |
|
Total available-for-sale securities | | 2,030 |
| | 26,658 |
| | — |
| | 28,688 |
|
Mortgage loans held-for-sale (b) | | — |
| | — |
| | 22 |
| | 22 |
|
Interests retained in financial asset sales | | — |
| | — |
| | 3 |
| | 3 |
|
Derivative contracts in a receivable position | | | | | | | |
|
Interest rate | | — |
| | 57 |
| | 2 |
| | 59 |
|
Total derivative contracts in a receivable position | | — |
| | 57 |
| | 2 |
| | 59 |
|
Total assets | | $ | 2,612 |
|
| $ | 26,715 |
| | $ | 36 |
| | $ | 29,363 |
|
Liabilities | | | | | | | |
|
Accrued expenses and other liabilities | | | | | | | |
|
Derivative contracts in a payable position | | | | | | | |
|
Interest rate | | $ | — |
| | $ | 3 |
| | $ | — |
| | $ | 3 |
|
Other | | 1 |
| | — |
| | — |
| | 1 |
|
Total derivative contracts in a payable position | | 1 |
| | 3 |
| | — |
| | 4 |
|
Total liabilities | | $ | 1 |
| | $ | 3 |
| | $ | — |
| | $ | 4 |
|
|
| | | | | | | | | | | | | | | | |
| | Recurring fair value measurements |
June 30, 2018 ($ in millions) | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | | |
Investment securities | | | | | | | |
|
Equity securities (a) | | $ | 509 |
| | $ | — |
| | $ | 12 |
| | $ | 521 |
|
Available-for-sale securities | | | | | | | |
|
Debt securities | | | | | | | |
|
U.S. Treasury | | 1,874 |
| | — |
| | — |
| | 1,874 |
|
U.S. States and political subdivisions | | — |
| | 851 |
| | — |
| | 851 |
|
Foreign government | | 7 |
| | 147 |
| | — |
| | 154 |
|
Agency mortgage-backed residential | | — |
| | 15,066 |
| | — |
| | 15,066 |
|
Mortgage-backed residential | | — |
| | 2,625 |
| | — |
| | 2,625 |
|
Mortgage-backed commercial | | — |
| | 642 |
| | — |
| | 642 |
|
Asset-backed | | — |
| | 868 |
| | — |
| | 868 |
|
Corporate debt | | — |
| | 1,216 |
| | — |
| | 1,216 |
|
Total available-for-sale securities | | 1,881 |
| | 21,415 |
| | — |
| | 23,296 |
|
Mortgage loans held-for-sale (b) | | — |
| | — |
| | 13 |
| | 13 |
|
Interests retained in financial asset sales | | — |
| | — |
| | 4 |
| | 4 |
|
Derivative contracts in a receivable position | | | | | | | |
|
Interest rate | | — |
| | 62 |
| | 1 |
| | 63 |
|
Total derivative contracts in a receivable position | | — |
| | 62 |
| | 1 |
| | 63 |
|
Total assets | | $ | 2,390 |
| | $ | 21,477 |
| | $ | 30 |
| | $ | 23,897 |
|
Liabilities | | | | | | | |
|
Accrued expenses and other liabilities | | | | | | | |
|
Derivative contracts in a payable position | | | | | | | |
|
Interest rate | | $ | — |
| | $ | 62 |
| | $ | — |
| | $ | 62 |
|
Foreign currency | | — |
| | 2 |
| | — |
| | 2 |
|
Other | | 1 |
| | — |
| | — |
| | 1 |
|
Total derivative contracts in a payable position | | 1 |
| | 64 |
| | — |
| | 65 |
|
Total liabilities | | $ | 1 |
| | $ | 64 |
| | $ | — |
| | $ | 65 |
|
| |
(a) | Our investment in any one industry did not exceed 15%. |
| |
(b) | Carried at fair value due to fair value option elections. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | | | | | | | | | |
| | Recurring fair value measurements |
December 31, 2017 ($ in millions) | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | | |
Investment securities | | | | | | | | |
Equity securities (a) | | $ | 518 |
| | $ | — |
| | $ | — |
| | $ | 518 |
|
Available-for-sale securities | | | | | | | | |
Debt securities | | | | | | | | |
U.S. Treasury | | 1,777 |
| | — |
| | — |
| | 1,777 |
|
U.S. States and political subdivisions | | — |
| | 854 |
| | — |
| | 854 |
|
Foreign government | | 8 |
| | 146 |
| | — |
| | 154 |
|
Agency mortgage-backed residential | | — |
| | 14,291 |
| | — |
| | 14,291 |
|
Mortgage-backed residential | | — |
| | 2,494 |
| | — |
| | 2,494 |
|
Mortgage-backed commercial | | — |
| | 541 |
| | — |
| | 541 |
|
Asset-backed | | — |
| | 936 |
| | — |
| | 936 |
|
Corporate debt | | — |
| | 1,256 |
| | — |
| | 1,256 |
|
Total available-for-sale securities | | 1,785 |
| | 20,518 |
| | — |
| | 22,303 |
|
Mortgage loans held-for-sale (b) | | — |
| | — |
| | 13 |
| | 13 |
|
Interests retained in financial asset sales | | — |
| | — |
| | 5 |
| | 5 |
|
Derivative contracts in a receivable position | | | | | | | |
|
Interest rate | | — |
| | 38 |
| | 1 |
| | 39 |
|
Total derivative contracts in a receivable position | | — |
| | 38 |
| | 1 |
| | 39 |
|
Total assets | | $ | 2,303 |
|
| $ | 20,556 |
|
| $ | 19 |
| | $ | 22,878 |
|
Liabilities | | | | | | | |
|
Accrued expenses and other liabilities | | | | | | | |
|
Derivative contracts in a payable position | | | | | | | |
|
Interest rate | | $ | — |
| | $ | 39 |
| | $ | — |
| | $ | 39 |
|
Foreign currency | | — |
| | 2 |
| | — |
| | 2 |
|
Total derivative contracts in a payable position | | — |
| | 41 |
| | — |
| | 41 |
|
Total liabilities | | $ | — |
|
| $ | 41 |
|
| $ | — |
|
| $ | 41 |
|
| |
(a) | Our investment in any one industry did not exceed 14%. |
| |
(b) | Carried at fair value due to fair value option elections. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | | | | | | | | | |
| | Recurring fair value measurements |
December 31, 2018 ($ in millions) | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | | |
Investment securities | | | | | | | | |
Equity securities (a) | | $ | 766 |
| | $ | — |
| | $ | 7 |
| | $ | 773 |
|
Available-for-sale securities | | | | | | | | |
Debt securities | | | | | | | | |
U.S. Treasury and federal agencies | | 1,850 |
| | 1 |
| | — |
| | 1,851 |
|
U.S. States and political subdivisions | | — |
| | 802 |
| | — |
| | 802 |
|
Foreign government | | 7 |
| | 138 |
| | — |
| | 145 |
|
Agency mortgage-backed residential | | — |
| | 17,138 |
| | — |
| | 17,138 |
|
Mortgage-backed residential | | — |
| | 2,686 |
| | — |
| | 2,686 |
|
Agency mortgage-backed commercial | | — |
| | 3 |
| | — |
| | 3 |
|
Mortgage-backed commercial | | — |
| | 714 |
| | — |
| | 714 |
|
Asset-backed | | — |
| | 723 |
| | — |
| | 723 |
|
Corporate debt | | — |
| | 1,241 |
| | — |
| | 1,241 |
|
Total available-for-sale securities | | 1,857 |
| | 23,446 |
| | — |
| | 25,303 |
|
Mortgage loans held-for-sale (b) | | — |
| | — |
| | 8 |
| | 8 |
|
Interests retained in financial asset sales | | — |
| | — |
| | 4 |
| | 4 |
|
Derivative contracts in a receivable position | | | | | | | |
|
Interest rate | | — |
| | 37 |
| | — |
| | 37 |
|
Foreign currency | | — |
| | 4 |
| | — |
| | 4 |
|
Total derivative contracts in a receivable position | | — |
| | 41 |
| | — |
| | 41 |
|
Total assets | | $ | 2,623 |
| | $ | 23,487 |
| | $ | 19 |
|
| $ | 26,129 |
|
Liabilities | | | | | | | |
|
Accrued expenses and other liabilities | | | | | | | |
|
Derivative contracts in a payable position | | | | | | | |
|
Interest rate | | $ | — |
| | $ | 37 |
| | $ | — |
| | $ | 37 |
|
Total derivative contracts in a payable position | | — |
| | 37 |
| | — |
| | 37 |
|
Total liabilities | | $ | — |
| | $ | 37 |
| | $ | — |
|
| $ | 37 |
|
| |
(a) | Our investment in any one industry did not exceed 9%. |
| |
(b) | Carried at fair value due to fair value option elections. |
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. There were no transfers into or out of Level 3 in the periods presented. We often economically hedge the fair value change of our assets or liabilities with derivatives and other financial instruments. The Level 3 items presented below may be hedged by derivatives and other financial instruments that are classified as Level 1 or Level 2. Thus, the following tables do not fully reflect the impact of our risk managementrisk-management activities.
| | | Level 3 recurring fair value measurements | Level 3 recurring fair value measurements |
| | Net realized/unrealized gains | | Fair value at June 30, 2018 | Net unrealized gains included in earnings still held at June 30, 2018 | | Net realized/unrealized gains | | Fair value at June 30, 2019 | Net unrealized gains still held at June 30, 2019 |
($ in millions) | Fair value at April 1, 2018 | included in earnings | | included in OCI | Purchases | Sales | Issuances | Settlements | Fair value at April 1, 2019 | included in earnings | | included in OCI | Purchases | Sales | Issuances | Settlements | included in earnings | included in OCI |
Assets | | | | | | | | |
Equity securities | $ | 12 |
| $ | — |
| | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 12 |
| $ | — |
| $ | 11 |
| $ | 2 |
| (a) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | (4 | ) | $ | 9 |
| $ | 2 |
| $ | — |
|
Mortgage loans held-for-sale (a)(b) | 7 |
| 1 |
| (b) | — |
| 73 |
| (68 | ) | — |
| — |
| 13 |
| — |
| 15 |
| 3 |
| (c) | — |
| 156 |
| (152 | ) | — |
| — |
| 22 |
| — |
| — |
|
Other assets | | | | | | |
Interests retained in financial asset sales | 5 |
| — |
| | — |
| — |
| — |
| — |
| (1 | ) | 4 |
| — |
| 4 |
| — |
| | — |
| — |
| — |
| — |
| (1 | ) | 3 |
| — |
| — |
|
Derivative assets | 1 |
| — |
| | — |
| — |
| — |
| — |
| — |
| 1 |
| — |
| 2 |
| — |
| (c) | — |
| — |
| — |
| — |
| — |
| 2 |
| — |
| — |
|
Total assets | $ | 25 |
| $ | 1 |
| | $ | — |
| $ | 73 |
| $ | (68 | ) | $ | — |
| $ | (1 | ) | $ | 30 |
| $ | — |
| $ | 32 |
| $ | 5 |
| | $ | — |
| $ | 156 |
| $ | (152 | ) | $ | — |
| $ | (5 | ) | $ | 36 |
| $ | 2 |
| $ | — |
|
| |
(a) | Reported as other gain on investments, net, in the Condensed Consolidated Statement of Comprehensive Income. |
| |
(b) | Carried at fair value due to fair value option elections. |
| |
(c) | Reported as gain on mortgage and automotive loans, net, in the Condensed Consolidated Statement of Comprehensive Income. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Level 3 recurring fair value measurements |
| Fair value at April 1, 2018 | Net realized/unrealized gains | Purchases | Sales | Issuances | Settlements | Fair value at June 30, 2018 | Net unrealized gains included in earnings still held at June 30, 2018 |
($ in millions) | included in earnings | | included in OCI |
Assets | | | | | | | | | | |
Equity securities | $ | 12 |
| $ | — |
| | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 12 |
| $ | — |
|
Mortgage loans held-for-sale (a) | 7 |
| 1 |
| (b) | — |
| 73 |
| (68 | ) | — |
| — |
| 13 |
| — |
|
Other assets | | | | | | | | | | |
Interests retained in financial asset sales | 5 |
| — |
| | — |
| — |
| — |
| — |
| (1 | ) | 4 |
| — |
|
Derivative assets | 1 |
| — |
| | — |
| — |
| — |
| — |
| — |
| 1 |
| — |
|
Total assets | $ | 25 |
| $ | 1 |
| | $ | — |
| $ | 73 |
| $ | (68 | ) | $ | — |
| $ | (1 | ) | $ | 30 |
| $ | — |
|
| |
(a) | Carried at fair value due to fair value option elections. |
| |
(b) | Reported as gain on mortgage and automotive loans, net, in the Condensed Consolidated Statement of Comprehensive Income. |
| | | Level 3 recurring fair value measurements | Level 3 recurring fair value measurements |
| Fair value at April 1, 2017 | Net realized/unrealized gains | Purchases | Sales | Issuances | Settlements | Fair value at June 30, 2017 | Net unrealized gains included in earnings still held at June 30, 2017 | | Net realized/unrealized gains | | Fair value at June 30, 2019 | Net unrealized gains still held at June 30, 2019 |
($ in millions) | included in earnings | | included in OCI | Fair value at Jan. 1, 2019 | included in earnings | | included in OCI | Purchases | Sales | Issuances | Settlements | included in earnings | included in OCI |
Assets | | | | | | | |
Mortgage loans held-for-sale (a) | $ | 1 |
| $ | — |
| | $ | — |
| $ | 20 |
| $ | (18 | ) | $ | — |
| $ | — |
| $ | 3 |
| $ | — |
| |
Equity securities | | $ | 7 |
| $ | 6 |
| (a) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | (4 | ) | $ | 9 |
| $ | 6 |
| $ | — |
|
Mortgage loans held-for-sale (b) | | 8 |
| 4 |
| (c) | — |
| 246 |
| (236 | ) | — |
| — |
| 22 |
| — |
| — |
|
Other assets | | | | | | |
Interests retained in financial asset sales | 31 |
| 1 |
| (b) | — |
| — |
| 4 |
| — |
| (31 | ) | 5 |
| — |
| 4 |
| — |
| | — |
| — |
| — |
| — |
| (1 | ) | 3 |
| — |
| — |
|
Derivative assets | — |
| 1 |
| (c) | — |
| — |
| — |
| — |
| — |
| 1 |
| 1 |
| — |
| 2 |
| (c) | — |
| — |
| — |
| — |
| — |
| 2 |
| 2 |
| — |
|
Total assets | $ | 32 |
| $ | 2 |
| | $ | — |
| $ | 20 |
| $ | (14 | ) | $ | — |
| $ | (31 | ) | $ | 9 |
| $ | 1 |
| $ | 19 |
| $ | 12 |
| | $ | — |
| $ | 246 |
| $ | (236 | ) | $ | — |
| $ | (5 | ) | $ | 36 |
| $ | 8 |
| $ | — |
|
| |
(a) | Reported as other gain on investments, net, in the Condensed Consolidated Statement of Comprehensive Income. |
| |
(b) | Carried at fair value due to fair value option elections. |
| |
(b) | Reported as other income, net of losses, in the Condensed Consolidated Statement of Comprehensive Income.
|
| |
(c) | Reported as gain on mortgage and automotive loans, net, in the Condensed Consolidated Statement of Comprehensive Income. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
| | | Level 3 recurring fair value measurements | Level 3 recurring fair value measurements |
| | Net realized/unrealized (losses) gains | | Fair value at June 30, 2018 | Net unrealized losses included in earnings still held at June 30, 2018 | Fair value at Jan. 1, 2018 | Net realized/unrealized (losses) gains | Purchases | Sales | Issuances | Settlements | Fair value at June 30, 2018 | Net unrealized losses included in earnings still held at June 30, 2018 |
($ in millions) | Fair value at Jan. 1, 2018 | included in earnings | | included in OCI | Purchases | Sales | Issuances | Settlements | included in earnings | | included in OCI |
Assets | | | | | | | |
Equity securities (a) | $ | 19 |
| $ | (4 | ) | (b) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | (3 | ) | $ | 12 |
| $ | (5 | ) | $ | 19 |
| $ | (4 | ) | (a) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | (3 | ) | $ | 12 |
| $ | (5 | ) |
Mortgage loans held-for-sale (c)(b) | 13 |
| 2 |
| (d) | — |
| 132 |
| (134 | ) | — |
| — |
| 13 |
| — |
| 13 |
| 2 |
| (c) | — |
| 132 |
| (134 | ) | — |
| — |
| 13 |
| — |
|
Other assets | | | | | | |
Interests retained in financial asset sales | 5 |
| — |
| | — |
| — |
| — |
| — |
| (1 | ) | 4 |
| — |
| 5 |
| — |
| | — |
| — |
| — |
| — |
| (1 | ) | 4 |
| — |
|
Derivative assets | 1 |
| — |
| | — |
| — |
| — |
| — |
| — |
| 1 |
| — |
| 1 |
| — |
| | — |
| — |
| — |
| — |
| — |
| 1 |
| — |
|
Total assets | $ | 38 |
| $ | (2 | ) | | $ | — |
| $ | 132 |
| $ | (134 | ) | $ | — |
| $ | (4 | ) | $ | 30 |
| $ | (5 | ) | $ | 38 |
| $ | (2 | ) | | $ | — |
| $ | 132 |
| $ | (134 | ) | $ | — |
| $ | (4 | ) | $ | 30 |
| $ | (5 | ) |
| |
(a) | In connection with our adoption of ASU 2016-01 on January 1, 2018, certain of our equity securities previously measured using the cost method of accounting are now measured at fair value on a recurring basis, and have been categorized as Level 3 within the fair value hierarchy. Accordingly, the fair value of such investments has been included in the opening balance of the reconciliation above. |
| |
(b) | Reported as other loss on investments, net, in the Condensed Consolidated Statement of Comprehensive Income. |
| |
(c)(b) | Carried at fair value due to fair value option elections. |
| |
(d)(c) | Reported as gain on mortgage and automotive loans, net, in the Condensed Consolidated Statement of Comprehensive Income. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Level 3 recurring fair value measurements |
| Fair value at Jan. 1, 2017 | Net realized/unrealized gains | Purchases | Sales | Issuances | Settlements | Fair value at June 30, 2017 | Net unrealized gains included in earnings still held at June 30, 2017 |
($ in millions) | included in earnings | | included in OCI |
Assets | | | | | | | | | | |
Mortgage loans held-for-sale (a) | $ | — |
| $ | — |
| | $ | — |
| $ | 23 |
| $ | (20 | ) | $ | — |
| $ | — |
| $ | 3 |
| $ | — |
|
Other assets | | | | | | | | | | |
Interests retained in financial asset sales | 29 |
| 1 |
| (b) | — |
| — |
| 8 |
| — |
| (33 | ) | 5 |
| — |
|
Derivative assets | — |
| 1 |
| (c) | — |
| — |
| — |
| — |
| — |
| 1 |
| 1 |
|
Total assets | $ | 29 |
| $ | 2 |
| | $ | — |
| $ | 23 |
| $ | (12 | ) | $ | — |
| $ | (33 | ) | $ | 9 |
| $ | 1 |
|
| |
(a) | Carried at fair value due to fair value option elections. |
| |
(b) | Reported as other income, net of losses, in the Condensed Consolidated Statement of Comprehensive Income.
|
| |
(c) | Reported as gain on mortgage and automotive loans, net, 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.
The following tables display the assets and liabilities measured at fair value on a nonrecurring basis.basis and still held at June 30, 2019, and December 31, 2018, respectively. The amounts are as of the end of each period presented, which approximate the fair value measurements that occurred during each period.
| | | | Nonrecurring fair value measurements | | Lower-of-cost or fair value or valuation reserve allowance | | Total gain (loss) included in earnings | | | Nonrecurring fair value measurements | | Lower-of-cost or fair value reserve, valuation reserve, or cumulative impairment | | Total gain (loss) included in earnings | |
June 30, 2018 ($ in millions) | | Level 1 | | Level 2 | | Level 3 | | Total | | |
June 30, 2019 ($ in millions) | | | Level 1 | | Level 2 | | Level 3 | | Total | | Lower-of-cost or fair value reserve, valuation reserve, or cumulative impairment | | Total gain (loss) included in earnings | |
Assets | | | | | | | | | | | | | | | | | | | | |
Loans held-for-sale, net | | $ | — |
|
| $ | — |
|
| $ | 315 |
| | $ | 315 |
| | $ | — |
| | n/m | (a) | | $ | — |
| | $ | — |
| | $ | 253 |
| | $ | 253 |
| | $ | — |
| | n/m | (a) |
Commercial finance receivables and loans, net (b) | | | | | | | | | | | | | | | | | | | | | | |
Automotive | | — |
| | — |
| | 62 |
| | 62 |
| | (12 | ) | | n/m | (a) | | — |
| | — |
| | 54 |
| | 54 |
| | (19 | ) | | n/m | (a) |
Other | | — |
| | — |
| | 50 |
| | 50 |
| | (15 | ) | | n/m | (a) | | — |
| | — |
| | 17 |
| | 17 |
| | (30 | ) | | n/m | (a) |
Total commercial finance receivables and loans, net | | — |
| | — |
| | 112 |
| | 112 |
| | (27 | ) | | n/m | (a) | | — |
| | — |
| | 71 |
| | 71 |
| | (49 | ) | | n/m | (a) |
Other assets | | | | | | | |
| | | | | | | | | | |
| | | |
Repossessed and foreclosed assets (c) | | — |
| | — |
| | 13 |
| | 13 |
| | (1 | ) | | n/m | (a) | | — |
| | — |
| | 13 |
| | 13 |
| | (1 | ) | | n/m | (a) |
Nonmarketable equity investments | | | — |
| | — |
| | 9 |
| | 9 |
| | (1 | ) | | n/m | (a) |
Equity-method investments | | | — |
| | — |
| | 3 |
| | 3 |
| | (4 | ) | | n/m | (a) |
Total assets | | $ | — |
| | $ | — |
| | $ | 440 |
| | $ | 440 |
| | $ | (28 | ) | | n/m | | | $ | — |
| | $ | — |
| | $ | 349 |
| | $ | 349 |
|
| $ | (55 | ) | | n/m | |
n/m = not meaningful
| |
(a) | We consider the applicable valuation orallowance, loan loss allowance, or cumulative impairment to be the most relevant indicator of the impact on earnings caused by the fair value measurement. Accordingly, the table above excludes total gains and losses included in earnings for these items. The carrying values are inclusive of the respective valuation orallowance, loan loss allowance.allowance, or cumulative impairment. |
| |
(b) | Represents the portion of the portfolio specifically impaired during 2018.2019. The related valuation allowance represents the cumulative adjustment to fair value of those specific receivables. |
| |
(c) | The allowance provided for repossessed and foreclosed assets represents any cumulative valuation adjustment recognized to adjust the assets to fair value. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
| | | | Nonrecurring fair value measurements | | Lower-of-cost or fair value or valuation reserve allowance | | Total gain (loss) included in earnings | | | Nonrecurring fair value measurements | | Lower-of-cost or fair value reserve, valuation reserve, or cumulative impairment | | Total gain (loss) included in earnings | |
December 31, 2017 ($ in millions) | | Level 1 | | Level 2 | | Level 3 | | Total | | |
December 31, 2018 ($ in millions) | | | Level 1 | | Level 2 | | Level 3 | | Total | | Lower-of-cost or fair value reserve, valuation reserve, or cumulative impairment | | Total gain (loss) included in earnings | |
Assets | | | | | | | | | | | | | | | | | | | | |
Loans held-for-sale, net | | $ | — |
| | $ | — |
| | $ | 77 |
| | $ | 77 |
| | $ | — |
| | n/m | (a) | | | | | | | | | | | |
Commercial finance receivables and loans, net (b) | | | | | | | |
| | | | |
Automotive (a) | | | $ | — |
| | $ | — |
| | $ | 210 |
| | $ | 210 |
| | $ | (2 | ) | | n/m | (b) |
Other | | | — |
| | — |
| | 96 |
| | 96 |
| | — |
| | n/m | (b) |
Total loans held-for-sale, net | | | — |
| | — |
| | 306 |
| | 306 |
| | (2 | ) | | n/m | (b) |
Commercial finance receivables and loans, net (c) | | | | | | | | |
| | | |
Automotive | | — |
| | — |
| | 20 |
| | 20 |
| | (3 | ) | | n/m | (a) | | — |
| | — |
| | 84 |
| | 84 |
| | (10 | ) | | n/m | (b) |
Other | | — |
| | — |
| | 22 |
| | 22 |
| | (12 | ) | | n/m | (a) | | — |
| | — |
| | 55 |
| | 55 |
| | (46 | ) | | n/m | (b) |
Total commercial finance receivables and loans, net | | — |
| | — |
| | 42 |
| | 42 |
| | (15 | ) | | n/m | (a) | | — |
| | — |
| | 139 |
| | 139 |
| | (56 | ) | | n/m | (b) |
Other assets | | | | | | | |
| | | | | | | | | | |
| | | |
Repossessed and foreclosed assets (c) | | — |
| | — |
| | 14 |
| | 14 |
| | (1 | ) | | n/m | (a) | |
Other | | — |
| | — |
| | 3 |
| | 3 |
| | — |
| | n/m | (a) | |
Nonmarketable equity investments | | | — |
| | — |
| | 1 |
| | 1 |
| | (1 | ) | | n/m | (b) |
Equity-method investments | | | — |
| | — |
| | 3 |
| | 3 |
| | — |
| | n/m | (b) |
Repossessed and foreclosed assets (d) | | | — |
| | — |
| | 13 |
| | 13 |
| | (1 | ) | | n/m | (b) |
Total assets | | $ | — |
| | $ | — |
| | $ | 136 |
| | $ | 136 |
| | $ | (16 | ) | | n/m | | | $ | — |
| | $ | — |
| | $ | 462 |
| | $ | 462 |
| | $ | (60 | ) | | n/m | |
n/m = not meaningful
| |
(a) | Represents loans within our commercial automotive portfolio. Of this amount, $104 million was valued based upon a sales price for a transaction that closed in January 2019, and $106 million was valued using a discounted cash flow analysis, with a spread over forward interest rates as a significant unobservable input utilizing a range of 0.08–1.09% and weighted average of 0.72%. |
| |
(b) | We consider the applicable valuation orallowance, loan loss allowance, or cumulative impairment to be the most relevant indicator of the impact on earnings caused by the fair value measurement. Accordingly, the table above excludes total gains and losses included in earnings for these items. The carrying values are inclusive of the respective valuation orallowance, loan loss allowance.allowance, or cumulative impairment. |
| |
(b)(c) | Represents the portion of the portfolio specifically impaired during 2017.2018. The related valuation allowance represents the cumulative adjustment to fair value of those specific receivables. |
| |
(c)(d) | The allowance provided for repossessed and foreclosed assets represents any cumulative valuation adjustment recognized to adjust the assets to fair value. |
Fair Value Option for Financial Assets
We elected the fair value option for an insignificant amount of conforming mortgage loans held-for-sale. We elected the fair value option to mitigate earnings volatility by better matching the accounting for the assets with the related derivatives. Our intent in electing fair value measurement was to mitigate a divergence between accounting gains or losses and economic exposure for certain assets and liabilities.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
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, 20182019, and December 31, 20172018.
|
| | | | | | | | | | | | | | | | | | | |
| | | Estimated fair value |
($ in millions) | Carrying value | | Level 1 | | Level 2 | | Level 3 | | Total |
June 30, 2019 | | | | | | | | | |
Financial assets | | | | | | | | | |
Held-to-maturity securities | $ | 2,461 |
| | $ | — |
| | $ | 2,499 |
| | $ | — |
| | $ | 2,499 |
|
Loans held-for-sale, net | 253 |
| | — |
| | — |
| | 253 |
| | 253 |
|
Finance receivables and loans, net | 127,928 |
| | — |
| | — |
| | 131,383 |
| | 131,383 |
|
FHLB/FRB stock (a) | 1,226 |
| | — |
| | 1,226 |
| | — |
| | 1,226 |
|
Financial liabilities | | | | | | | | | |
Deposit liabilities | $ | 56,084 |
| | $ | — |
| | $ | — |
| | $ | 56,575 |
| | $ | 56,575 |
|
Short-term borrowings | 6,519 |
| | — |
| | — |
| | 6,523 |
| | 6,523 |
|
Long-term debt | 37,466 |
| | — |
| | 23,441 |
| | 16,734 |
| | 40,175 |
|
December 31, 2018 | | | | | | | | | |
Financial assets | | | | | | | | | |
Held-to-maturity securities | $ | 2,362 |
| | $ | — |
| | $ | 2,307 |
| | $ | — |
| | $ | 2,307 |
|
Loans held-for-sale, net | 306 |
| | — |
| | — |
| | 306 |
| | 306 |
|
Finance receivables and loans, net | 128,684 |
| | — |
| | — |
| | 130,878 |
| | 130,878 |
|
FHLB/FRB stock (a) | 1,351 |
| | — |
| | 1,351 |
| | — |
| | 1,351 |
|
Financial liabilities | | | | | | | | | |
Deposit liabilities | $ | 51,985 |
| | $ | — |
| | $ | — |
| | $ | 51,997 |
| | $ | 51,997 |
|
Short-term borrowings | 9,987 |
| | — |
| | — |
| | 9,992 |
| | 9,992 |
|
Long-term debt | 44,193 |
| | — |
| | 23,846 |
| | 21,800 |
| | 45,646 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | | Estimated fair value |
($ in millions) | Carrying value | | Level 1 | | Level 2 | | Level 3 | | Total |
June 30, 2018 | | | | | | | | | |
Financial assets | | | | | | | | | |
Held-to-maturity securities | $ | 2,089 |
| | $ | — |
| | $ | 2,007 |
| | $ | — |
| | $ | 2,007 |
|
Loans held-for-sale, net | 315 |
| | — |
| | — |
| | 315 |
| | 315 |
|
Finance receivables and loans, net | 124,287 |
| | — |
| | — |
| | 125,846 |
| | 125,846 |
|
Nonmarketable equity investments | 1,237 |
| | — |
| | 1,237 |
| | — |
| | 1,237 |
|
Financial liabilities | | | | | | | | | |
Deposit liabilities (a) | $ | 49,617 |
| | $ | — |
| | $ | — |
| | $ | 49,493 |
| | $ | 49,493 |
|
Short-term borrowings | 7,108 |
| | — |
| | — |
| | 7,112 |
| | 7,112 |
|
Long-term debt | 47,328 |
| | — |
| | 28,040 |
| | 21,094 |
| | 49,134 |
|
December 31, 2017 | | | | | | | | | |
Financial assets | | | | | | | | | |
Held-to-maturity securities | $ | 1,899 |
| | $ | — |
| | $ | 1,865 |
| | $ | — |
| | $ | 1,865 |
|
Loans held-for-sale, net | 95 |
| | — |
| | — |
| | 95 |
| | 95 |
|
Finance receivables and loans, net | 121,617 |
| | — |
| | — |
| | 123,302 |
| | 123,302 |
|
Nonmarketable equity investments | 1,233 |
| | — |
| | 1,190 |
| | 49 |
| | 1,239 |
|
Financial liabilities | | | | | | | | | |
Deposit liabilities (a) | $ | 45,869 |
| | $ | — |
| | $ | — |
| | $ | 45,827 |
| | $ | 45,827 |
|
Short-term borrowings | 11,413 |
| | — |
| | — |
| | 11,417 |
| | 11,417 |
|
Long-term debt | 44,226 |
| | — |
| | 27,807 |
| | 18,817 |
| | 46,624 |
|
| |
(a) | In connection withIncluded in other assets on our adoption of ASU 2016-01 on January 1, 2018, deposit liabilities with no defined or contractual maturities are no longer included in the table above. Amounts for December 31, 2017, have been adjusted to conform to the current presentation and exclude $47.4 billion and $45.2 billion of deposit liabilities with no defined or contractual maturities from the carrying value and Level 3 fair value, respectively. Refer to Note 12 for information regarding the composition of our deposits portfolio, and Note 1 for further information regarding recently adopted accounting standards.Condensed Consolidated Balance Sheet.
|
21. 20. Offsetting Assets and Liabilities
Our derivative contracts and repurchase/reverse repurchase transactions are supported by qualifying master netting and master repurchase agreements. These agreements are legally enforceable bilateral agreements that (i) create a single legal obligation for all individual transactions covered by the agreement to the nondefaulting entity upon an event of default of the counterparty, including bankruptcy, insolvency, or similar proceeding, and (ii) provide the nondefaulting entity the right to accelerate, terminate, and close-out on a net basis all transactions under the agreement and to liquidate or set off collateral promptly upon an event of default of the counterparty.
To further mitigate the risk of counterparty default related to derivative instruments, we maintain collateral agreements with certain counterparties. The agreements require both parties to maintain collateral in the event the fair values of the derivative financial instruments meet established thresholds. In the event that either party defaults on the obligation, the secured party may seize the collateral. Generally, our collateral arrangements are bilateral such that we and the counterparty post collateral for the obligation. Contractual terms provide for standard and customary exchange of collateral based on changes in the market value of the outstanding derivatives. A party posts additional collateral when their obligation rises or removes collateral when it falls, such that the net replacement cost of the nondefaulting party is covered in the event of counterparty default.
In certain instances as it relates to our derivative instruments, we have the option to report derivative assets and liabilities as well as assets and liabilities associated with cash collateral received or delivered that is governed by a master netting agreement on a net basis as long as certain qualifying criteria are met. Similarly, for our repurchase/reverse repurchase transactions, we have the option to report recognized
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, 2018,2019, these instruments are reported as gross assets and gross liabilities on the Condensed Consolidated Balance Sheet.Sheet.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The composition of offsetting derivative instruments, financial assets, and financial liabilities was as follows.
| | | | Gross amounts of recognized assets/liabilities | | Gross amounts offset on the Condensed Consolidated Balance Sheet | | Net amounts of assets/liabilities presented on the Condensed Consolidated Balance Sheet | | | | | | | | Gross amounts of recognized assets/liabilities | | Gross amounts offset on the Condensed Consolidated Balance Sheet | | Net amounts of assets/liabilities presented on the Condensed Consolidated Balance Sheet | | | | | | |
| | Gross amounts not offset on the Condensed Consolidated Balance Sheet | | | | Gross amounts not offset on the Condensed Consolidated Balance Sheet | | |
June 30, 2018 ($ in millions) | | Financial instruments | | Collateral (a) (b) (c) | | Net amount | |
June 30, 2019 ($ in millions) | | | Gross amounts of recognized assets/liabilities | | Gross amounts offset on the Condensed Consolidated Balance Sheet | | Net amounts of assets/liabilities presented on the Condensed Consolidated Balance Sheet | | Financial instruments | | Collateral (a) (b) (c) | | Net amount |
Assets | | | | | | | | | | | | | | | | | | |
Derivative assets in net asset positions(d) | | $ | 62 |
| | $ | — |
| | $ | 62 |
| | $ | — |
| | $ | — |
| | $ | 62 |
| | $ | (2 | ) | | $ | (54 | ) | | $ | 1 |
|
Derivative assets with no offsetting arrangements | | 1 |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
| | 2 |
| | — |
| | 2 |
| | — |
| | — |
| | 2 |
|
Total assets (d) | | $ | 63 |
|
| $ | — |
|
| $ | 63 |
|
| $ | — |
|
| $ | — |
|
| $ | 63 |
| | $ | 59 |
| | $ | — |
| | $ | 59 |
| | $ | (2 | ) | | $ | (54 | ) | | $ | 3 |
|
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative liabilities in net liability positions (d) | | $ | 65 |
| | $ | — |
| | $ | 65 |
| | $ | — |
| | $ | (1 | ) | | $ | 64 |
| | $ | 2 |
| | $ | — |
| | $ | 2 |
| | $ | — |
| | $ | (1 | ) | | $ | 1 |
|
Derivative liabilities in net asset positions | | | 2 |
| | — |
| | 2 |
| | (2 | ) | | — |
| | — |
|
Total derivative liabilities (d) | | | 4 |
| | — |
| | 4 |
| | (2 | ) | | (1 | ) | | 1 |
|
Securities sold under agreements to repurchase (e) | | 967 |
| | — |
| | 967 |
| | — |
| | (967 | ) | | — |
| | 432 |
| | — |
| | 432 |
| | — |
| | (432 | ) | | — |
|
Total liabilities | | $ | 1,032 |
| | $ | — |
| | $ | 1,032 |
| | $ | — |
| | $ | (968 | ) | | $ | 64 |
| | $ | 436 |
| | $ | — |
| | $ | 436 |
| | $ | (2 | ) | | $ | (433 | ) | | $ | 1 |
|
| |
(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. $11There was $32 million of noncash derivative collateral, and $1 million of noncash collateral associated with our repurchase agreements, pledged to us that was excluded at June 30, 2018.2019. 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 $11$33 million at June 30, 2018.2019. We have not sold or pledged any of the noncash collateral received under these agreements as of June 30, 2018.2019. |
| |
(d) | For additional information on derivative instruments and hedging activities, refer to Note 1817. |
| |
(e) | For additional information on securities sold under agreements to repurchase, refer to Note 1312. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
| | | | Gross amounts of recognized assets/liabilities | | Gross amounts offset on the Condensed Consolidated Balance Sheet | | Net amounts of assets/liabilities presented on the Condensed Consolidated Balance Sheet | | | | | | | | Gross amounts of recognized assets/liabilities | | Gross amounts offset on the Condensed Consolidated Balance Sheet | | Net amounts of assets/liabilities presented on the Condensed Consolidated Balance Sheet | | | | | | |
| | Gross amounts not offset on the Condensed Consolidated Balance Sheet | | | | Gross amounts not offset on the Condensed Consolidated Balance Sheet | | |
December 31, 2017 ($ in millions) | | Financial instruments | | Collateral (a) (b) (c) | | Net amount | |
December 31, 2018 ($ in millions) | | | Gross amounts of recognized assets/liabilities | | Gross amounts offset on the Condensed Consolidated Balance Sheet | | Net amounts of assets/liabilities presented on the Condensed Consolidated Balance Sheet | | Financial instruments | | Collateral (a) (b) (c) | | Net amount |
Assets | | | | | | | | | | | | | | | | | | |
Derivative assets in net asset positions | | $ | 38 |
| | $ | — |
| | $ | 38 |
| | $ | — |
| | $ | — |
| | $ | 38 |
| | $ | — |
| | $ | (4 | ) | | $ | 37 |
|
Derivative assets with no offsetting arrangements | | 1 |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
| |
Total assets (d) | | $ | 39 |
| | $ | — |
| | $ | 39 |
| | $ | — |
| | $ | — |
| | $ | 39 |
| | $ | 41 |
| | $ | — |
| | $ | 41 |
| | $ | — |
| | $ | (4 | ) | | $ | 37 |
|
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative liabilities in net liability positions (d) | | $ | 41 |
| | $ | — |
| | $ | 41 |
| | $ | — |
| | $ | (1 | ) | | $ | 40 |
| | $ | 37 |
| | $ | — |
| | $ | 37 |
| | $ | — |
| | $ | — |
| | $ | 37 |
|
Securities sold under agreements to repurchase (e) | | 892 |
| | — |
| | 892 |
| | — |
| | (892 | ) | | — |
| | 685 |
| | — |
| | 685 |
| | — |
| | (685 | ) | | — |
|
Total liabilities | | $ | 933 |
| | $ | — |
| | $ | 933 |
| | $ | — |
| | $ | (893 | ) | | $ | 40 |
| | $ | 722 |
| | $ | — |
| | $ | 722 |
| | $ | — |
| | $ | (685 | ) | | $ | 37 |
|
| |
(a) | Financial collateral received/pledged shown as a balance based on the sum of all net asset and liability positions between Ally and each individual derivative counterparty. |
| |
(b) | Amounts disclosed are limited to the financial asset or liability balance and, accordingly, exclude excess collateral received or pledged and noncash collateral received. $2There was $3 million of noncash derivative collateral, and $4 million of noncash collateral associated with our repurchase agreements, pledged to us that was excluded at December 31, 2017.2018. 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 $2$7 million at December 31, 2017.2018. We have not sold or pledged any of the noncash collateral received under these agreements as of December 31, 2017.2018. |
| |
(d) | For additional information on derivative instruments and hedging activities, refer to Note 1817. |
| |
(e) | For additional information on securities sold under agreements to repurchase, refer to Note 1312. |
22. Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
21. Segment Information
Operating segments are defined as components of an enterprise that engage in business activity from which revenues are earned and expenses incurred for which discrete financial information is available that is evaluated regularly by our chief operating decision maker in deciding how to allocate resources and in assessing performance.
We report our results of operations on a line-of-businessbusiness-line basis through four operating segments: Automotive Finance operations, Insurance operations, Mortgage Finance operations, and Corporate Finance operations, with the remaining activity reported in Corporate and Other. The operating segments are determined based on the products and services offered, and reflect the manner in which financial information is currently evaluated by management. The following is a description of each of our reportable operating segments.
Automotive Finance operations— One of the largest full service automotive finance operations in the United States providing automotive financing services to consumers, automotive dealers, companies, and municipalities. Our automotive finance services include providing retail installment sales contracts, loans and operating leases, offering term loans to dealers, financing dealer floorplans and other lines of credit to dealers, warehouse lines to companies,automotive retailers, fleet financing, providing financing to companies and municipalities for the purchase or lease of vehicles, and vehicle remarketingvehicle-remarketing services.
Insurance operations — A complementary automotive-focused business offering both consumer finance protection and insurance products sold primarily through the automotive dealer channel, and commercial insurance products sold directly to dealers. As part of our focus on offering dealers a broad range of consumer financial and insurance products, we provide VSCs, VMCs, and GAP products. We also underwrite select commercial insurance coverages, which primarily insure dealers’ wholesale vehicle inventory.
Mortgage Finance operations — Primarily consists of the management of a held-for-investment consumer mortgage finance loan portfolio, which includes bulk purchases of high-quality jumbo and low-to-moderate income (LMI) mortgage loans originated by third parties. In late 2016, we introduced ourOur direct-to-consumer mortgage offering, named Ally Home, consistingconsists of a variety of jumbo and conforming fixed- and adjustable-rate mortgage products with the assistance of a third-party fulfillment partner.provider. Jumbo mortgage loans are generally held on our balance sheet and are accounted for as held-for-investment. Conforming mortgage loans are generally originated as held-for-sale and then sold to the fulfillment partner,provider, and we retain no mortgage servicing rights associated with those loans that are sold.
Corporate Finance operations — Primarily provides senior secured leveraged cash flow and asset-based loans to mostly U.S.-based middle-market companies. Our primary focus is on businesses owned by private equity sponsors with loans typically used for leveraged buyouts, mergers and acquisitions, debt refinancing, restructurings, and working capital. In 2017, we introducedWe also offer a commercial real estate product to serve companies in the healthcare industry.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Corporate and Other primarily consists of centralized corporate treasury activities such as management of the cash and corporate investment securities and loan portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative instruments, original issue discount, and the residual impacts of our corporate funds-transfer pricing (FTP) and treasury asset liability management (ALM) activities. Corporate and Other also includes certain equity investments, which primarily consist of FHLB and FRB stock, the management of our legacy mortgage portfolio, which primarily consists of loans originated prior to January 1, 2009, and reclassifications and eliminations between the reportable operating segments. Additionally, financial results related to Ally Invest are currently included within Corporate and Other.
We utilize an FTP methodology for the majority of our business operations. The FTP methodology assigns charge rates and credit rates to classes of assets and liabilities based on expected duration and the benchmark rate curve plus an assumed credit spread. Matching duration allocates interest income and interest expense to these reportable segments so their respective results are insulated from interest rate risk. This methodology is consistent with our ALM practices, which includes managing interest rate risk centrally at a corporate level. The net residual impact of the FTP methodology is included within the results of Corporate and Other.
The information presented in our reportable operating segments is based in part on internal allocations, which involve management judgment.
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) |
2018 | | | | | | | | | | | | |
Net financing revenue and other interest income | | $ | 925 |
| | $ | 13 |
| | $ | 44 |
| | $ | 57 |
| | $ | 55 |
| | $ | 1,094 |
|
Other revenue | | 63 |
| | 266 |
| | 2 |
| | 14 |
| | 19 |
| | 364 |
|
Total net revenue | | 988 |
| | 279 |
| | 46 |
| | 71 |
| | 74 |
| | 1,458 |
|
Provision for loan losses | | 170 |
| | — |
| | — |
| | (6 | ) | | (6 | ) | | 158 |
|
Total noninterest expense | | 436 |
| | 268 |
| | 32 |
| | 19 |
| | 84 |
| | 839 |
|
Income (loss) from continuing operations before income tax expense | | $ | 382 |
| | $ | 11 |
| | $ | 14 |
| | $ | 58 |
| | $ | (4 | ) | | $ | 461 |
|
Total assets | | $ | 114,915 |
| | $ | 7,634 |
| | $ | 13,385 |
| | $ | 4,458 |
| | $ | 30,953 |
| | $ | 171,345 |
|
2017 | | | | | | | | | | | | |
Net financing revenue and other interest income | | $ | 932 |
| | $ | 14 |
| | $ | 32 |
| | $ | 48 |
| | $ | 41 |
| | $ | 1,067 |
|
Other revenue | | 107 |
| | 245 |
| | 1 |
| | 10 |
| | 25 |
| | 388 |
|
Total net revenue | | 1,039 |
| | 259 |
| | 33 |
| | 58 |
| | 66 |
| | 1,455 |
|
Provision for loan losses | | 266 |
| | — |
| | 1 |
| | 6 |
| | (4 | ) | | 269 |
|
Total noninterest expense | | 426 |
| | 280 |
| | 25 |
| | 17 |
| | 62 |
| | 810 |
|
Income (loss) from continuing operations before income tax expense | | $ | 347 |
| | $ | (21 | ) | | $ | 7 |
| | $ | 35 |
| | $ | 8 |
| | $ | 376 |
|
Total assets | | $ | 115,447 |
| | $ | 7,308 |
| | $ | 8,902 |
| | $ | 3,552 |
| | $ | 29,136 |
| | $ | 164,345 |
|
| |
(a) | Net financing revenue and other interest income after the provision for loan losses totaled $936 million and $798 million for the three months ended June 30, 2018, and 2017, respectively. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Financial information for our reportable operating segments is summarized as follows.
| | Six months ended June 30, ($ in millions) | | Automotive Finance operations | | Insurance operations | | Mortgage Finance operations | | Corporate Finance operations | | Corporate and Other | | Consolidated (a) | |
Three months ended June 30, ($ in millions) | | | Automotive Finance operations | | Insurance operations | | Mortgage Finance operations | | Corporate Finance operations | | Corporate and Other | | Consolidated (a) |
2019 | | | | | | | | | | | | | |
Net financing revenue and other interest income | | | $ | 1,022 |
| | $ | 15 |
| | $ | 46 |
| | $ | 61 |
| | $ | 13 |
| | $ | 1,157 |
|
Other revenue | | | 61 |
| | 286 |
| | 4 |
| | 10 |
| | 34 |
| | 395 |
|
Total net revenue | | | 1,083 |
| | 301 |
| | 50 |
| | 71 |
| | 47 |
| | 1,552 |
|
Provision for loan losses | | | 180 |
| | — |
| | — |
| | 3 |
| | (6 | ) | | 177 |
|
Total noninterest expense | | | 444 |
| | 301 |
| | 36 |
| | 22 |
| | 78 |
| | 881 |
|
Income (loss) from continuing operations before income tax expense | | | $ | 459 |
| | $ | — |
| | $ | 14 |
| | $ | 46 |
| | $ | (25 | ) | | $ | 494 |
|
Total assets | | | $ | 114,955 |
| | $ | 8,241 |
| | $ | 16,584 |
| | $ | 4,980 |
| | $ | 35,688 |
| | $ | 180,448 |
|
2018 | | | | | | | | | | | | | | | | | | | | | | | |
|
Net financing revenue and other interest income | | $ | 1,834 |
| | $ | 25 |
| | $ | 87 |
| | $ | 103 |
| | $ | 94 |
| | $ | 2,143 |
| | $ | 925 |
| | $ | 13 |
| | $ | 44 |
| | $ | 57 |
| | $ | 55 |
| | $ | 1,094 |
|
Other revenue | | 129 |
| | 512 |
| | 3 |
| | 22 |
| | 52 |
| | 718 |
| | 63 |
| | 266 |
| | 2 |
| | 14 |
| | 19 |
| | 364 |
|
Total net revenue | | 1,963 |
| | 537 |
| | 90 |
| | 125 |
| | 146 |
| | 2,861 |
| | 988 |
| | 279 |
| | 46 |
| | 71 |
| | 74 |
| | 1,458 |
|
Provision for loan losses | | 429 |
| | — |
| | 2 |
| | (6 | ) | | (6 | ) | | 419 |
| | 170 |
| | — |
| | — |
| | (6 | ) | | (6 | ) | | 158 |
|
Total noninterest expense | | 884 |
| | 499 |
| | 66 |
| | 44 |
| | 160 |
| | 1,653 |
| | 436 |
| | 268 |
| | 32 |
| | 19 |
| | 84 |
| | 839 |
|
Income (loss) from continuing operations before income tax expense | | $ | 650 |
| | $ | 38 |
| | $ | 22 |
| | $ | 87 |
| | $ | (8 | ) | | $ | 789 |
| | $ | 382 |
| | $ | 11 |
| | $ | 14 |
| | $ | 58 |
| | $ | (4 | ) | | $ | 461 |
|
Total assets | | $ | 114,915 |
| | $ | 7,634 |
| | $ | 13,385 |
| | $ | 4,458 |
| | $ | 30,953 |
| | $ | 171,345 |
| | $ | 114,915 |
| | $ | 7,634 |
| | $ | 13,385 |
| | $ | 4,458 |
| | $ | 30,953 |
| | $ | 171,345 |
|
2017 | | | | | | | | | | | |
| |
Net financing revenue and other interest income | | $ | 1,824 |
| | $ | 29 |
| | $ | 66 |
| | $ | 82 |
| | $ | 45 |
| | $ | 2,046 |
| |
Other revenue | | 208 |
| | 509 |
| | 1 |
| | 28 |
| | 38 |
| | 784 |
| |
Total net revenue | | 2,032 |
| | 538 |
| | 67 |
| | 110 |
| | 83 |
| | 2,830 |
| |
Provision for loan losses | | 534 |
| | — |
| | 2 |
| | 12 |
| | (8 | ) | | 540 |
| |
Total noninterest expense | | 863 |
| | 519 |
| | 49 |
| | 38 |
| | 119 |
| | 1,588 |
| |
Income (loss) from continuing operations before income tax expense | | $ | 635 |
| | $ | 19 |
| | $ | 16 |
| | $ | 60 |
| | $ | (28 | ) | | $ | 702 |
| |
Total assets | | $ | 115,447 |
| | $ | 7,308 |
| | $ | 8,902 |
| | $ | 3,552 |
| | $ | 29,136 |
| | $ | 164,345 |
| |
| |
(a) | Net financing revenue and other interest income after the provision for loan losses totaled $1.7$980 million and $936 million for the three months ended June 30, 2019, and 2018, respectively. |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Six months ended June 30, ($ in millions) | | Automotive Finance operations | | Insurance operations | | Mortgage Finance operations | | Corporate Finance operations | | Corporate and Other | | Consolidated (a) |
2019 | | | | | | | | | | | | |
Net financing revenue and other interest income | | $ | 2,002 |
| | $ | 27 |
| | $ | 96 |
| | $ | 115 |
| | $ | 49 |
| | $ | 2,289 |
|
Other revenue | | 129 |
| | 646 |
| | 6 |
| | 21 |
| | 59 |
| | 861 |
|
Total net revenue | | 2,131 |
| | 673 |
| | 102 |
| | 136 |
| | 108 |
| | 3,150 |
|
Provision for loan losses | | 442 |
| | — |
| | 2 |
| | 26 |
| | (11 | ) | | 459 |
|
Total noninterest expense | | 901 |
| | 528 |
| | 73 |
| | 51 |
| | 158 |
| | 1,711 |
|
Income (loss) from continuing operations before income tax expense | | $ | 788 |
| | $ | 145 |
| | $ | 27 |
| | $ | 59 |
| | $ | (39 | ) | | $ | 980 |
|
Total assets | | $ | 114,955 |
| | $ | 8,241 |
| | $ | 16,584 |
| | $ | 4,980 |
| | $ | 35,688 |
| | $ | 180,448 |
|
2018 | | | | | | | | | | | | |
Net financing revenue and other interest income | | $ | 1,834 |
| | $ | 25 |
| | $ | 87 |
| | $ | 103 |
| | $ | 94 |
| | $ | 2,143 |
|
Other revenue | | 129 |
| | 512 |
| | 3 |
| | 22 |
| | 52 |
| | 718 |
|
Total net revenue | | 1,963 |
| | 537 |
| | 90 |
| | 125 |
| | 146 |
| | 2,861 |
|
Provision for loan losses | | 429 |
| | — |
| | 2 |
| | (6 | ) | | (6 | ) | | 419 |
|
Total noninterest expense | | 884 |
| | 499 |
| | 66 |
| | 44 |
| | 160 |
| | 1,653 |
|
Income (loss) from continuing operations before income tax expense | | $ | 650 |
| | $ | 38 |
| | $ | 22 |
| | $ | 87 |
| | $ | (8 | ) | | $ | 789 |
|
Total assets | | $ | 114,915 |
| | $ | 7,634 |
| | $ | 13,385 |
| | $ | 4,458 |
| | $ | 30,953 |
| | $ | 171,345 |
|
| |
(a) | Net financing revenue and other interest income after the provision for loan losses totaled $1.8 billion and $1.5$1.7 billion for the six months ended June 30, 2019, and 2018, and 2017, respectively. |
23. Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
22. Parent and Guarantor Condensed Consolidating Financial Statements
Certain of our senior notes issued by the parent are guaranteed by 100% directly owned subsidiaries of Ally (the Guarantors). As of June 30, 20182019, the Guarantors include Ally US LLC and IB Finance Holding Company, LLC (IB Finance), each of which fully and unconditionally guarantee the senior notes on a joint and several basis.
The following financial statements present condensed consolidating financial data for (i) Ally Financial Inc. (on a parent company-only basis); (ii) the Guarantors; (iii) the nonguarantor subsidiaries (all other subsidiaries); and (iv) an eliminationa column for adjustments to arrive at (v) the information for the parent company, the Guarantors, and nonguarantors on a consolidated basis.
InvestmentsInvestment in subsidiaries areis accounted for by the parent company and the Guarantors using the equity method for this presentation. Results of operations of subsidiaries are therefore classified in the parent company’s and Guarantors’ investment in subsidiaries accounts. The elimination entries set forth in the following condensed consolidating financial statements eliminate distributed and undistributed income of subsidiaries, investmentsinvestment in subsidiaries, and intercompany balances and transactions between the parent, the Guarantors, and nonguarantors.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Condensed Consolidating Statements of Comprehensive Income
| | Three months ended June 30, 2018 ($ in millions) | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated | |
Three months ended June 30, 2019 ($ in millions) | | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated |
Financing revenue and other interest income | | | | | | | | | | | | | | | | | | | | |
Interest and fees on finance receivables and loans | | $ | (1 | ) | | $ | — |
| | $ | 1,648 |
| | $ | — |
| | $ | 1,647 |
| | $ | (60 | ) | | $ | — |
| | $ | 1,923 |
| | $ | (3 | ) | | $ | 1,860 |
|
Interest and fees on finance receivables and loans — intercompany | | 4 |
| | — |
| | 1 |
| | (5 | ) | | — |
| | 3 |
| | — |
| | 1 |
| | (4 | ) | | — |
|
Interest on loans held-for-sale | | — |
| | — |
| | 6 |
| | — |
| | 6 |
| | — |
| | — |
| | 3 |
| | — |
| | 3 |
|
Interest and dividends on investment securities and other earning assets | | — |
| | — |
| | 188 |
| | — |
| | 188 |
| | — |
| | — |
| | 244 |
| | — |
| | 244 |
|
Interest on cash and cash equivalents | | 2 |
| | — |
| | 14 |
| | 1 |
| | 17 |
| | 4 |
| | — |
| | 17 |
| | — |
| | 21 |
|
Interest-bearing cash — intercompany | | 2 |
| | — |
| | 2 |
| | (4 | ) | | — |
| | 3 |
| | — |
| | 5 |
| | (8 | ) | | — |
|
Operating leases | | 1 |
| | — |
| | 373 |
| | — |
| | 374 |
| | (1 | ) | | — |
| | 364 |
| | — |
| | 363 |
|
Total financing revenue and other interest income | | 8 |
| | — |
| | 2,232 |
| | (8 | ) | | 2,232 |
| |
Total financing (loss) revenue and other interest income | | | (51 | ) | | — |
| | 2,557 |
| | (15 | ) | | 2,491 |
|
Interest expense | | | | | | | | | |
|
| | | | | | | | | |
|
Interest on deposits | | — |
| | — |
| | 395 |
| | 4 |
| | 399 |
| | — |
| | — |
| | 651 |
| | — |
| | 651 |
|
Interest on short-term borrowings | | 10 |
| | — |
| | 30 |
| | — |
| | 40 |
| | 13 |
| | — |
| | 24 |
| | — |
| | 37 |
|
Interest on long-term debt | | 257 |
| | — |
| | 177 |
| | — |
| | 434 |
| | 212 |
| | — |
| | 195 |
| | — |
| | 407 |
|
Interest on intercompany debt | | 4 |
| | — |
| | 8 |
| | (12 | ) | | — |
| | 6 |
| | — |
| | 6 |
| | (12 | ) | | — |
|
Total interest expense | | 271 |
| | — |
| | 610 |
| | (8 | ) | | 873 |
| | 231 |
| | — |
| | 876 |
| | (12 | ) | | 1,095 |
|
Net depreciation expense on operating lease assets | | 1 |
| | — |
| | 264 |
| | — |
| | 265 |
| | 1 |
| | — |
| | 238 |
| | — |
| | 239 |
|
Net financing (loss) revenue | | (264 | ) | | — |
| | 1,358 |
| | — |
| | 1,094 |
| | (283 | ) | | — |
| | 1,443 |
| | (3 | ) | | 1,157 |
|
Cash dividends from subsidiaries | | | | | | | | | |
|
| | | | | | | | | |
|
Bank subsidiary | | 500 |
| | 500 |
| | — |
| | (1,000 | ) | | — |
| | 500 |
| | 500 |
| | — |
| | (1,000 | ) | | — |
|
Nonbank subsidiaries | | 132 |
| | — |
| | — |
| | (132 | ) | | — |
| | 94 |
| | — |
| | — |
| | (94 | ) | | — |
|
Other revenue | | | | | | | | | |
|
| | | | | | | | | | |
Insurance premiums and service revenue earned | | — |
| | — |
| | 239 |
| | — |
| | 239 |
| | — |
| | — |
| | 261 |
| | — |
| | 261 |
|
Gain on mortgage and automotive loans, net | | — |
| | — |
| | 1 |
| | — |
| | 1 |
| |
(Loss) gain on mortgage and automotive loans, net | | | (1 | ) | | — |
| | 3 |
| | — |
| | 2 |
|
Other gain on investments, net | | — |
| | — |
| | 27 |
| | — |
| | 27 |
| | — |
| | — |
| | 39 |
| | — |
| | 39 |
|
Other income, net of losses | | 100 |
| | — |
| | 185 |
| | (188 | ) | | 97 |
| | 91 |
| | — |
| | 145 |
| | (143 | ) | | 93 |
|
Total other revenue | | 100 |
| | — |
| | 452 |
| | (188 | ) | | 364 |
| | 90 |
| | — |
| | 448 |
| | (143 | ) | | 395 |
|
Total net revenue | | 468 |
| | 500 |
| | 1,810 |
| | (1,320 | ) | | 1,458 |
| | 401 |
| | 500 |
| | 1,891 |
| | (1,240 | ) | | 1,552 |
|
Provision for loan losses | | 32 |
| | — |
| | 126 |
| | — |
| | 158 |
| | 5 |
| | — |
| | 173 |
| | (1 | ) | | 177 |
|
Noninterest expense | | | | | | | | | |
|
| | | | | | | | | |
|
Compensation and benefits expense | | 25 |
| | — |
| | 267 |
| | — |
| | 292 |
| | 9 |
| | — |
| | 287 |
| | — |
| | 296 |
|
Insurance losses and loss adjustment expenses | | — |
| | — |
| | 101 |
| | — |
| | 101 |
| | — |
| | — |
| | 127 |
| | — |
| | 127 |
|
Other operating expenses | | 173 |
| | — |
| | 461 |
| | (188 | ) | | 446 |
| | 159 |
| | — |
| | 442 |
| | (143 | ) | | 458 |
|
Total noninterest expense | | 198 |
| | — |
| | 829 |
| | (188 | ) | | 839 |
| | 168 |
| | — |
| | 856 |
| | (143 | ) | | 881 |
|
Income from continuing operations before income tax (benefit) expense and undistributed income (loss) of subsidiaries | | 238 |
| | 500 |
| | 855 |
| | (1,132 | ) | | 461 |
| | 228 |
| | 500 |
| | 862 |
| | (1,096 | ) | | 494 |
|
Income tax (benefit) expense from continuing operations | | (66 | ) | | — |
| | 179 |
| | — |
| | 113 |
| | (289 | ) | | — |
| | 199 |
| | — |
| | (90 | ) |
Net income from continuing operations | | 304 |
| | 500 |
| | 676 |
| | (1,132 | ) | | 348 |
| | 517 |
| | 500 |
| | 663 |
| | (1,096 | ) | | 584 |
|
(Loss) income from discontinued operations, net of tax | | (1 | ) | | — |
| | 2 |
| | — |
| | 1 |
| |
Loss from discontinued operations, net of tax | | | (2 | ) | | — |
| | — |
| | — |
| | (2 | ) |
Undistributed income (loss) of subsidiaries | | | | | | | | | |
|
| | | | | | | | | | |
Bank subsidiary | | 52 |
| | 52 |
| | — |
| | (104 | ) | | — |
| | 110 |
| | 110 |
| | — |
| | (220 | ) | | — |
|
Nonbank subsidiaries | | (6 | ) | | — |
| | — |
| | 6 |
| | — |
| | (43 | ) | | — |
| | — |
| | 43 |
| | — |
|
Net income | | 349 |
| | 552 |
| | 678 |
| | (1,230 | ) | | 349 |
| | 582 |
| | 610 |
| | 663 |
| | (1,273 | ) | | 582 |
|
Other comprehensive loss, net of tax | | (70 | ) | | (56 | ) | | (74 | ) | | 130 |
| | (70 | ) | |
Other comprehensive income, net of tax | | | 309 |
| | 237 |
| | 311 |
| | (548 | ) | | 309 |
|
Comprehensive income | | $ | 279 |
| | $ | 496 |
| | $ | 604 |
| | $ | (1,100 | ) | | $ | 279 |
| | $ | 891 |
| | $ | 847 |
| | $ | 974 |
| | $ | (1,821 | ) | | $ | 891 |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
| | Three months ended June 30, 2017 ($ in millions) | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated | |
Financing (loss) revenue and other interest income | | | | | | | | | | | |
Three months ended June 30, 2018 ($ in millions) | | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated |
Financing revenue and other interest income | | | | | | | | | | | |
Interest and fees on finance receivables and loans | | $ | (35 | ) | | $ | — |
| | $ | 1,482 |
| | $ | — |
| | $ | 1,447 |
| | $ | (1 | ) | | $ | — |
| | $ | 1,648 |
| | $ | — |
| | $ | 1,647 |
|
Interest and fees on finance receivables and loans — intercompany | | 3 |
| | — |
| | 2 |
| | (5 | ) | | — |
| | 4 |
| | — |
| | 1 |
| | (5 | ) | | — |
|
Interest on loans held-for-sale | | | — |
| | — |
| | 6 |
| | — |
| | 6 |
|
Interest and dividends on investment securities and other earning assets | | — |
| | — |
| | 146 |
| | — |
| | 146 |
| | — |
| | — |
| | 188 |
| | — |
| | 188 |
|
Interest on cash and cash equivalents | | 2 |
| | — |
| | 5 |
| | — |
| | 7 |
| | 2 |
| | — |
| | 14 |
| | 1 |
| | 17 |
|
Interest-bearing cash — intercompany | | — |
| | — |
| | 2 |
| | (2 | ) | | — |
| | 2 |
| | — |
| | 2 |
| | (4 | ) | | — |
|
Operating leases | | 3 |
| | — |
| | 485 |
| | — |
| | 488 |
| | 1 |
| | — |
| | 373 |
| | — |
| | 374 |
|
Total financing (loss) revenue and other interest income | | (27 | ) | | — |
| | 2,122 |
| | (7 | ) | | 2,088 |
| |
Total financing revenue and other interest income | | | 8 |
| | — |
| | 2,232 |
| | (8 | ) | | 2,232 |
|
Interest expense | | | | | | | | | | | | | | | | | | | | |
Interest on deposits | | 1 |
| | — |
| | 249 |
| | — |
| | 250 |
| | — |
| | — |
| | 395 |
| | 4 |
| | 399 |
|
Interest on short-term borrowings | | 19 |
| | — |
| | 14 |
| | — |
| | 33 |
| | 10 |
| | — |
| | 30 |
| | — |
| | 40 |
|
Interest on long-term debt | | 274 |
| | — |
| | 143 |
| | — |
| | 417 |
| | 257 |
| | — |
| | 177 |
| | — |
| | 434 |
|
Interest on intercompany debt | | 4 |
| | — |
| | 3 |
| | (7 | ) | | — |
| | 4 |
| | — |
| | 8 |
| | (12 | ) | | — |
|
Total interest expense | | 298 |
| | — |
| | 409 |
| | (7 | ) | | 700 |
| | 271 |
| | — |
| | 610 |
| | (8 | ) | | 873 |
|
Net depreciation expense on operating lease assets | | 3 |
| | — |
| | 318 |
| | — |
| | 321 |
| | 1 |
| | — |
| | 264 |
| | — |
| | 265 |
|
Net financing (loss) revenue | | (328 | ) | | — |
| | 1,395 |
|
| — |
| | 1,067 |
| | (264 | ) | | — |
| | 1,358 |
| | — |
| | 1,094 |
|
Cash dividends from subsidiaries | | | | | | | | | | | | | | | | | | | | |
Bank subsidiary | | | 500 |
| | 500 |
| | — |
| | (1,000 | ) | | — |
|
Nonbank subsidiaries | | 387 |
| | — |
| | — |
| | (387 | ) | | — |
| | 132 |
| | — |
| | — |
| | (132 | ) | | — |
|
Other revenue | | | | | | | | | | | | | | | | | | | | |
Insurance premiums and service revenue earned | | — |
| | — |
| | 227 |
| | — |
| | 227 |
| | — |
| | — |
| | 239 |
| | — |
| | 239 |
|
Gain on mortgage and automotive loans, net | | 32 |
| | — |
| | 4 |
| | — |
| | 36 |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
Other gain on investments, net | | — |
| | — |
| | 23 |
| | — |
| | 23 |
| | — |
| | — |
| | 27 |
| | — |
| | 27 |
|
Other income, net of losses | | 163 |
| | — |
| | 210 |
| | (271 | ) | | 102 |
| | 100 |
| | — |
| | 185 |
| | (188 | ) | | 97 |
|
Total other revenue | | 195 |
| | — |
| | 464 |
| | (271 | ) | | 388 |
| | 100 |
| | — |
| | 452 |
| | (188 | ) | | 364 |
|
Total net revenue | | 254 |
| | — |
| | 1,859 |
| | (658 | ) | | 1,455 |
| | 468 |
| | 500 |
| | 1,810 |
| | (1,320 | ) | | 1,458 |
|
Provision for loan losses | | 82 |
| | — |
| | 187 |
| | — |
| | 269 |
| | 32 |
| | — |
| | 126 |
| | — |
| | 158 |
|
Noninterest expense | | | | | | | | | | | | | | | | | | | | |
Compensation and benefits expense | | 19 |
| | — |
| | 246 |
| | — |
| | 265 |
| | 25 |
| | — |
| | 267 |
| | — |
| | 292 |
|
Insurance losses and loss adjustment expenses | | — |
| | — |
| | 125 |
| | — |
| | 125 |
| | — |
| | — |
| | 101 |
| | — |
| | 101 |
|
Other operating expenses | | 213 |
| | — |
| | 478 |
| | (271 | ) | | 420 |
| | 173 |
| | — |
| | 461 |
| | (188 | ) | | 446 |
|
Total noninterest expense | | 232 |
| | — |
| | 849 |
| | (271 | ) | | 810 |
| | 198 |
| | — |
| | 829 |
| | (188 | ) | | 839 |
|
(Loss) income from continuing operations before income tax (benefit) expense and undistributed income (loss) of subsidiaries | | (60 | ) | | — |
| | 823 |
| | (387 | ) | | 376 |
| |
Income from continuing operations before income tax (benefit) expense and undistributed income (loss) of subsidiaries | | | 238 |
| | 500 |
| | 855 |
| | (1,132 | ) | | 461 |
|
Income tax (benefit) expense from continuing operations | | (93 | ) | | — |
| | 215 |
| | — |
| | 122 |
| | (66 | ) | | — |
| | 179 |
| | — |
| | 113 |
|
Net income from continuing operations | | 33 |
| | — |
| | 608 |
| | (387 | ) | | 254 |
| | 304 |
| | 500 |
| | 676 |
| | (1,132 | ) | | 348 |
|
Loss from discontinued operations, net of tax | | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) | |
(Loss) income from discontinued operations, net of tax | | | (1 | ) | | — |
| | 2 |
| | — |
| | 1 |
|
Undistributed income (loss) of subsidiaries | | | | | | | | | | | | | | | | | | | | |
Bank subsidiary | | 375 |
| | 375 |
| | — |
| | (750 | ) | | — |
| | 52 |
| | 52 |
| | — |
| | (104 | ) | | — |
|
Nonbank subsidiaries | | (156 | ) | | — |
| | — |
| | 156 |
| | — |
| | (6 | ) | | — |
| | — |
| | 6 |
| | — |
|
Net income | | 252 |
| | 375 |
| | 606 |
| | (981 | ) | | 252 |
| | 349 |
| | 552 |
| | 678 |
| | (1,230 | ) | | 349 |
|
Other comprehensive income, net of tax | | 76 |
| | 50 |
| | 72 |
| | (122 | ) | | 76 |
| |
Other comprehensive loss, net of tax | | | (70 | ) | | (56 | ) | | (74 | ) | | 130 |
| | (70 | ) |
Comprehensive income | | $ | 328 |
| | $ | 425 |
| | $ | 678 |
| | $ | (1,103 | ) | | $ | 328 |
| | $ | 279 |
| | $ | 496 |
| | $ | 604 |
| | $ | (1,100 | ) | | $ | 279 |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
| | Six months ended June 30, 2018 ($ in millions) | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated | |
Six months ended June 30, 2019 ($ in millions) | | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated |
Financing revenue and other interest income | | | | | | | | | | | | | | | | | | | | |
Interest and fees on finance receivables and loans | | $ | 10 |
| | $ | — |
| | $ | 3,180 |
| | $ | — |
| | $ | 3,190 |
| | $ | (120 | ) | | $ | — |
| | $ | 3,790 |
| | $ | (3 | ) | | $ | 3,667 |
|
Interest and fees on finance receivables and loans — intercompany | | 6 |
| | — |
| | 2 |
| | (8 | ) | | — |
| | 6 |
| | — |
| | 3 |
| | (9 | ) | | — |
|
Interest on loans held-for-sale | | — |
| | — |
| | 6 |
| | — |
| | 6 |
| | — |
| | — |
| | 5 |
| | — |
| | 5 |
|
Interest and dividends on investment securities and other earning assets | | — |
| | — |
| | 365 |
| | (1 | ) | | 364 |
| | — |
| | — |
| | 484 |
| | — |
| | 484 |
|
Interest on cash and cash equivalents | | 4 |
| | — |
| | 28 |
| | — |
| | 32 |
| | 6 |
| | — |
| | 38 |
| | — |
| | 44 |
|
Interest-bearing cash — intercompany | | 4 |
| | — |
| | 4 |
| | (8 | ) | | — |
| | 5 |
| | — |
| | 8 |
| | (13 | ) | | — |
|
Operating leases | | 3 |
| | — |
| | 753 |
| | — |
| | 756 |
| | 1 |
| | — |
| | 723 |
| | — |
| | 724 |
|
Total financing revenue and other interest income | | 27 |
| | — |
| | 4,338 |
| | (17 | ) | | 4,348 |
| |
Total financing (loss) revenue and other interest income | | | (102 | ) | | — |
| | 5,051 |
| | (25 | ) | | 4,924 |
|
Interest expense | | | | | | | | | | | | | | | | | | | | |
Interest on deposits | | — |
| | — |
| | 750 |
| | — |
| | 750 |
| | — |
| | — |
| | 1,243 |
| | — |
| | 1,243 |
|
Interest on short-term borrowings | | 20 |
| | — |
| | 52 |
| | — |
| | 72 |
| | 26 |
| | — |
| | 55 |
| | — |
| | 81 |
|
Interest on long-term debt | | 515 |
| | — |
| | 330 |
| | — |
| | 845 |
| | 423 |
| | — |
| | 403 |
| | — |
| | 826 |
|
Interest on intercompany debt | | 7 |
| | — |
| | 10 |
| | (17 | ) | | — |
| | 11 |
| | — |
| | 11 |
| | (22 | ) | | — |
|
Total interest expense | | 542 |
| | — |
| | 1,142 |
| | (17 | ) | | 1,667 |
| | 460 |
| | — |
| | 1,712 |
| | (22 | ) | | 2,150 |
|
Net depreciation expense on operating lease assets | | 5 |
| | — |
| | 533 |
| | — |
| | 538 |
| | 2 |
| | — |
| | 483 |
| | — |
| | 485 |
|
Net financing (loss) revenue | | (520 | ) | | — |
| | 2,663 |
| | — |
| | 2,143 |
| | (564 | ) | | — |
| | 2,856 |
| | (3 | ) | | 2,289 |
|
Cash dividends from subsidiaries | | | | | | | | | | | | | | | | | | | | |
Bank subsidiary | | 1,500 |
| | 1,500 |
| | — |
| | (3,000 | ) | | — |
| | 900 |
| | 900 |
| | — |
| | (1,800 | ) | | — |
|
Nonbank subsidiaries | | 301 |
| | — |
| | — |
| | (301 | ) | | — |
| | 136 |
| | — |
| | — |
| | (136 | ) | | — |
|
Other revenue | | | | | | | | | | | | | | | | | | | | |
Insurance premiums and service revenue earned | | — |
| | — |
| | 495 |
| | — |
| | 495 |
| | — |
| | — |
| | 522 |
| | — |
| | 522 |
|
Gain on mortgage and automotive loans, net | | 28 |
| | — |
| | 2 |
| | (28 | ) | | 2 |
| | 3 |
| | — |
| | 9 |
| | — |
| | 12 |
|
Other gain on investments, net | | — |
| | — |
| | 15 |
| | — |
| | 15 |
| | — |
| | — |
| | 147 |
| | — |
| | 147 |
|
Other income, net of losses | | 196 |
| | — |
| | 406 |
| | (396 | ) | | 206 |
| | 194 |
| | — |
| | 289 |
| | (303 | ) | | 180 |
|
Total other revenue | | 224 |
| | — |
| | 918 |
| | (424 | ) | | 718 |
| | 197 |
| | — |
| | 967 |
| | (303 | ) | | 861 |
|
Total net revenue | | 1,505 |
| | 1,500 |
| | 3,581 |
| | (3,725 | ) | | 2,861 |
| | 669 |
| | 900 |
| | 3,823 |
| | (2,242 | ) | | 3,150 |
|
Provision for loan losses | | 113 |
| | — |
| | 334 |
| | (28 | ) | | 419 |
| | 32 |
| | — |
| | 445 |
| | (18 | ) | | 459 |
|
Noninterest expense | | | | | | | | | | | | | | | | | | | |
|
|
Compensation and benefits expense | | 48 |
| | — |
| | 550 |
| | — |
| | 598 |
| | 21 |
| | — |
| | 593 |
| | — |
| | 614 |
|
Insurance losses and loss adjustment expenses | | — |
| | — |
| | 164 |
| | — |
| | 164 |
| | — |
| | — |
| | 186 |
| | — |
| | 186 |
|
Other operating expenses | | 355 |
| | — |
| | 932 |
| | (396 | ) | | 891 |
| | 314 |
| | — |
| | 900 |
| | (303 | ) | | 911 |
|
Total noninterest expense | | 403 |
| | — |
| | 1,646 |
| | (396 | ) | | 1,653 |
| | 335 |
| | — |
| | 1,679 |
| | (303 | ) | | 1,711 |
|
Income from continuing operations before income tax (benefit) expense and undistributed (loss) income of subsidiaries | | 989 |
| | 1,500 |
| | 1,601 |
| | (3,301 | ) | | 789 |
| |
Income from continuing operations before income tax (benefit) expense and undistributed income of subsidiaries | | | 302 |
| | 900 |
| | 1,699 |
| | (1,921 | ) | | 980 |
|
Income tax (benefit) expense from continuing operations | | (122 | ) | | — |
| | 311 |
| | — |
| | 189 |
| | (350 | ) | | — |
| | 371 |
| | — |
| | 21 |
|
Net income from continuing operations | | 1,111 |
| | 1,500 |
| | 1,290 |
| | (3,301 | ) | | 600 |
| | 652 |
| | 900 |
| | 1,328 |
| | (1,921 | ) | | 959 |
|
(Loss) income from discontinued operations, net of tax | | (2 | ) | | — |
| | 1 |
| | — |
| | (1 | ) | |
Undistributed (loss) income of subsidiaries | | | | | | | | | | | |
Loss from discontinued operations, net of tax | | | (3 | ) | | — |
| | — |
| | — |
| | (3 | ) |
Undistributed income of subsidiaries | | | | | | | | | | |
|
|
Bank subsidiary | | (545 | ) | | (545 | ) | | — |
| | 1,090 |
| | — |
| | 167 |
| | 167 |
| | — |
| | (334 | ) | | — |
|
Nonbank subsidiaries | | 35 |
| | — |
| | — |
| | (35 | ) | | — |
| | 140 |
| | — |
| | — |
| | (140 | ) | | — |
|
Net income | | 599 |
| | 955 |
| | 1,291 |
| | (2,246 | ) | | 599 |
| | 956 |
| | 1,067 |
| | 1,328 |
| | (2,395 | ) | | 956 |
|
Other comprehensive loss, net of tax | | (398 | ) | | (332 | ) | | (413 | ) | | 745 |
| | (398 | ) | |
Other comprehensive income, net of tax | | | 615 |
| | 466 |
| | 631 |
| | (1,097 | ) | | 615 |
|
Comprehensive income | | $ | 201 |
| | $ | 623 |
| | $ | 878 |
| | $ | (1,501 | ) | | $ | 201 |
| | $ | 1,571 |
| | $ | 1,533 |
| | $ | 1,959 |
| | $ | (3,492 | ) | | $ | 1,571 |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | | | | | | | | | | | | | |
Six months ended June 30, 2018 ($ in millions) | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated |
Financing revenue and other interest income | | | | | | | | | | |
Interest and fees on finance receivables and loans | | $ | 10 |
| | $ | — |
| | $ | 3,180 |
| | $ | — |
| | $ | 3,190 |
|
Interest and fees on finance receivables and loans — intercompany | | 6 |
| | — |
| | 2 |
| | (8 | ) | | — |
|
Interest on loans held-for-sale | | — |
| | — |
| | 6 |
| | — |
| | 6 |
|
Interest and dividends on investment securities and other earning assets | | — |
| | — |
| | 365 |
| | (1 | ) | | 364 |
|
Interest on cash and cash equivalents | | 4 |
| | — |
| | 28 |
| | — |
| | 32 |
|
Interest-bearing cash — intercompany | | 4 |
| | — |
| | 4 |
| | (8 | ) | | — |
|
Operating leases | | 3 |
| | — |
| | 753 |
| | — |
| | 756 |
|
Total financing revenue and other interest income | | 27 |
| | — |
| | 4,338 |
| | (17 | ) | | 4,348 |
|
Interest expense | | | | | | | | | |
|
Interest on deposits | | — |
| | — |
| | 750 |
| | — |
| | 750 |
|
Interest on short-term borrowings | | 20 |
| | — |
| | 52 |
| | — |
| | 72 |
|
Interest on long-term debt | | 515 |
| | — |
| | 330 |
| | — |
| | 845 |
|
Interest on intercompany debt | | 7 |
| | — |
| | 10 |
| | (17 | ) | | — |
|
Total interest expense | | 542 |
| | — |
| | 1,142 |
| | (17 | ) | | 1,667 |
|
Net depreciation expense on operating lease assets | | 5 |
| | — |
| | 533 |
| | — |
| | 538 |
|
Net financing (loss) revenue | | (520 | ) | | — |
| | 2,663 |
| | — |
| | 2,143 |
|
Cash dividends from subsidiaries | | | | | | | | | |
|
Bank subsidiary | | 1,500 |
| | 1,500 |
| | — |
| | (3,000 | ) | | — |
|
Nonbank subsidiaries | | 301 |
| | — |
| | — |
| | (301 | ) | | — |
|
Other revenue | | | | | | | | | |
|
Insurance premiums and service revenue earned | | — |
| | — |
| | 495 |
| | — |
| | 495 |
|
Gain on mortgage and automotive loans, net | | 28 |
| | — |
| | 2 |
| | (28 | ) | | 2 |
|
Other gain on investments, net | | — |
| | — |
| | 15 |
| | — |
| | 15 |
|
Other income, net of losses | | 196 |
| | — |
| | 406 |
| | (396 | ) | | 206 |
|
Total other revenue | | 224 |
| | — |
| | 918 |
| | (424 | ) | | 718 |
|
Total net revenue | | 1,505 |
| | 1,500 |
| | 3,581 |
| | (3,725 | ) | | 2,861 |
|
Provision for loan losses | | 113 |
| | — |
| | 334 |
| | (28 | ) | | 419 |
|
Noninterest expense | | | | | | | | | |
|
Compensation and benefits expense | | 48 |
| | — |
| | 550 |
| | — |
| | 598 |
|
Insurance losses and loss adjustment expenses | | — |
| | — |
| | 164 |
| | — |
| | 164 |
|
Other operating expenses | | 355 |
| | — |
| | 932 |
| | (396 | ) | | 891 |
|
Total noninterest expense | | 403 |
| | — |
| | 1,646 |
| | (396 | ) | | 1,653 |
|
Income from continuing operations before income tax (benefit) expense and undistributed (loss) income of subsidiaries | | 989 |
| | 1,500 |
| | 1,601 |
| | (3,301 | ) | | 789 |
|
Income tax (benefit) expense from continuing operations | | (122 | ) | | — |
| | 311 |
| | — |
| | 189 |
|
Net income from continuing operations | | 1,111 |
| | 1,500 |
| | 1,290 |
| | (3,301 | ) | | 600 |
|
(Loss) income from discontinued operations, net of tax | | (2 | ) | | — |
| | 1 |
| | — |
| | (1 | ) |
Undistributed (loss) income of subsidiaries | | | | | | | | | |
|
Bank subsidiary | | (545 | ) | | (545 | ) | | — |
| | 1,090 |
| | — |
|
Nonbank subsidiaries | | 35 |
| | — |
| | — |
| | (35 | ) | | — |
|
Net income | | 599 |
| | 955 |
| | 1,291 |
| | (2,246 | ) | | 599 |
|
Other comprehensive loss, net of tax | | (398 | ) | | (332 | ) | | (413 | ) | | 745 |
| | (398 | ) |
Comprehensive income | | $ | 201 |
| | $ | 623 |
| | $ | 878 |
| | $ | (1,501 | ) | | $ | 201 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Six months ended June 30, 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 | | $ | (70 | ) | | $ | — |
| | $ | 2,885 |
| | $ | — |
| | $ | 2,815 |
|
Interest and fees on finance receivables and loans — intercompany | | 7 |
| | — |
| | 4 |
| | (11 | ) | | — |
|
Interest and dividends on investment securities and other earning assets | | — |
| | — |
| | 281 |
| | (1 | ) | | 280 |
|
Interest on cash and cash equivalents | | 4 |
| | — |
| | 8 |
| | — |
| | 12 |
|
Interest-bearing cash — intercompany | | — |
| | — |
| | 3 |
| | (3 | ) | | — |
|
Operating leases | | 6 |
| | — |
| | 1,025 |
| | — |
| | 1,031 |
|
Total financing (loss) revenue and other interest income | | (53 | ) | | — |
| | 4,206 |
| | (15 | ) | | 4,138 |
|
Interest expense | | | | | | | | | | |
Interest on deposits | | 2 |
| | — |
| | 479 |
| | — |
| | 481 |
|
Interest on short-term borrowings | | 36 |
| | — |
| | 24 |
| | — |
| | 60 |
|
Interest on long-term debt | | 556 |
| | — |
| | 285 |
| | — |
| | 841 |
|
Interest on intercompany debt | | 8 |
| | — |
| | 7 |
| | (15 | ) | | — |
|
Total interest expense | | 602 |
| | — |
| | 795 |
| | (15 | ) | | 1,382 |
|
Net depreciation expense on operating lease assets | | 5 |
| | — |
| | 705 |
| | — |
| | 710 |
|
Net financing (loss) revenue | | (660 | ) | | — |
| | 2,706 |
|
| — |
| | 2,046 |
|
Cash dividends from subsidiaries | | | | | | | | | | |
Nonbank subsidiaries | | 427 |
| | — |
| | — |
| | (427 | ) | | — |
|
Other revenue | | | | | | | | | | |
Insurance premiums and service revenue earned | | — |
| | — |
| | 468 |
| | — |
| | 468 |
|
Gain on mortgage and automotive loans, net | | 30 |
| | — |
| | 20 |
| | — |
| | 50 |
|
Other gain on investments, net | | — |
| | — |
| | 50 |
| | — |
| | 50 |
|
Other income, net of losses | | 431 |
| | — |
| | 433 |
| | (648 | ) | | 216 |
|
Total other revenue | | 461 |
| | — |
| | 971 |
| | (648 | ) | | 784 |
|
Total net revenue | | 228 |
| | — |
| | 3,677 |
| | (1,075 | ) | | 2,830 |
|
Provision for loan losses | | 189 |
| | — |
| | 351 |
| | — |
| | 540 |
|
Noninterest expense | | | | | | | | | | |
Compensation and benefits expense | | 140 |
| | — |
| | 410 |
| | — |
| | 550 |
|
Insurance losses and loss adjustment expenses | | — |
| | — |
| | 213 |
| | — |
| | 213 |
|
Other operating expenses | | 501 |
| | — |
| | 972 |
| | (648 | ) | | 825 |
|
Total noninterest expense | | 641 |
| | — |
| | 1,595 |
| | (648 | ) | | 1,588 |
|
(Loss) income from continuing operations before income tax (benefit) expense and undistributed income of subsidiaries | | (602 | ) | | — |
| | 1,731 |
| | (427 | ) | | 702 |
|
Income tax (benefit) expense from continuing operations | | (227 | ) | | — |
| | 462 |
| | — |
| | 235 |
|
Net (loss) income from continuing operations | | (375 | ) | | — |
| | 1,269 |
| | (427 | ) | | 467 |
|
Income (loss) from discontinued operations, net of tax | | 2 |
| | — |
| | (3 | ) | | — |
| | (1 | ) |
Undistributed income of subsidiaries | | | | | | | | | | |
Bank subsidiary | | 764 |
| | 764 |
| | — |
| | (1,528 | ) | | — |
|
Nonbank subsidiaries | | 75 |
| | — |
| | — |
| | (75 | ) | | — |
|
Net income | | 466 |
| | 764 |
| | 1,266 |
| | (2,030 | ) | | 466 |
|
Other comprehensive income, net of tax | | 96 |
| | 55 |
| | 91 |
| | (146 | ) | | 96 |
|
Comprehensive income | | $ | 562 |
| | $ | 819 |
| | $ | 1,357 |
| | $ | (2,176 | ) | | $ | 562 |
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Condensed Consolidating Balance Sheet
|
| | | | | | | | | | | | | | | | | | | | |
June 30, 2019 ($ in millions) | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated |
Assets | | | | | | | | | | |
Cash and cash equivalents | | | | | | | | | | |
Noninterest-bearing | | $ | 44 |
| | $ | — |
| | $ | 615 |
| | $ | — |
| | $ | 659 |
|
Interest-bearing | | 6 |
| | — |
| | 2,898 |
| | — |
| | 2,904 |
|
Interest-bearing — intercompany | | 1,242 |
| | — |
| | 745 |
| | (1,987 | ) | | — |
|
Total cash and cash equivalents | | 1,292 |
| | — |
| | 4,258 |
| | (1,987 | ) |
| 3,563 |
|
Equity securities | | — |
| | — |
| | 591 |
| | — |
| | 591 |
|
Available-for-sale securities | | — |
| | — |
| | 28,688 |
| | — |
| | 28,688 |
|
Held-to-maturity securities | | — |
| | — |
| | 2,475 |
| | (14 | ) | | 2,461 |
|
Loans held-for-sale, net | | — |
| | — |
| | 275 |
| | — |
| | 275 |
|
Finance receivables and loans, net | | | | | | | | | | |
Finance receivables and loans, net | | 2,292 |
| | — |
| | 126,904 |
| | 14 |
| | 129,210 |
|
Intercompany loans to | | | | | | | | | | |
Nonbank subsidiaries | | 663 |
| | — |
| | 102 |
| | (765 | ) | | — |
|
Allowance for loan losses | | (34 | ) | | — |
| | (1,248 | ) | | — |
| | (1,282 | ) |
Total finance receivables and loans, net | | 2,921 |
| | — |
| | 125,758 |
| | (751 | ) | | 127,928 |
|
Investment in operating leases, net | | 2 |
| | — |
| | 8,405 |
| | — |
| | 8,407 |
|
Intercompany receivables from | | | | | | | | | | |
Bank subsidiary | | 105 |
| | — |
| | — |
| | (105 | ) | | — |
|
Nonbank subsidiaries | | 40 |
| | — |
| | 115 |
| | (155 | ) | | — |
|
Investment in subsidiaries | | | | | | | | | | |
Bank subsidiary | | 16,865 |
| | 16,865 |
| | — |
| | (33,730 | ) | | — |
|
Nonbank subsidiaries | | 7,096 |
| | — |
| | — |
| | (7,096 | ) | | — |
|
Premiums receivable and other insurance assets | | — |
| | — |
| | 2,460 |
| | — |
| | 2,460 |
|
Other assets | | 2,339 |
| | — |
| | 5,475 |
| | (1,739 | ) | | 6,075 |
|
Total assets | | $ | 30,660 |
| | $ | 16,865 |
| | $ | 178,500 |
| | $ | (45,577 | ) | | $ | 180,448 |
|
Liabilities and equity | | | | | | | | | | |
Deposit liabilities | | | | | | | | | | |
Noninterest-bearing | | $ | — |
| | $ | — |
| | $ | 162 |
| | $ | — |
| | $ | 162 |
|
Interest-bearing | | 1 |
| | — |
| | 116,162 |
| | — |
| | 116,163 |
|
Interest-bearing — intercompany | | — |
| | — |
| | 1,242 |
| | (1,242 | ) | | — |
|
Total deposit liabilities | | 1 |
| | — |
| | 117,566 |
| | (1,242 | ) | | 116,325 |
|
Short-term borrowings | | 2,462 |
| | — |
| | 4,057 |
| | — |
| | 6,519 |
|
Long-term debt | | 12,447 |
| | — |
| | 25,019 |
| | — |
| | 37,466 |
|
Intercompany debt to | | | | | | | | | | |
Bank subsidiary | | 14 |
| | — |
| | — |
| | (14 | ) | | — |
|
Nonbank subsidiaries | | 847 |
| | — |
| | 663 |
| | (1,510 | ) | | — |
|
Intercompany payables to | | | | | | | | | | |
Bank subsidiary | | 51 |
| | — |
| | — |
| | (51 | ) | | — |
|
Nonbank subsidiaries | | 108 |
| | — |
| | 107 |
| | (215 | ) | | — |
|
Interest payable | | 150 |
| | — |
| | 594 |
| | — |
| | 744 |
|
Unearned insurance premiums and service revenue | | — |
| | — |
| | 3,171 |
| | — |
| | 3,171 |
|
Accrued expenses and other liabilities | | 264 |
| | — |
| | 3,377 |
| | (1,734 | ) | | 1,907 |
|
Total liabilities | | 16,344 |
| | — |
| | 154,554 |
| | (4,766 | ) | | 166,132 |
|
Total equity | | 14,316 |
| | 16,865 |
| | 23,946 |
| | (40,811 | ) | | 14,316 |
|
Total liabilities and equity | | $ | 30,660 |
| | $ | 16,865 |
| | $ | 178,500 |
| | $ | (45,577 | ) | | $ | 180,448 |
|
|
| | | | | | | | | | | | | | | | | | | | |
June 30, 2018 ($ in millions) | | Parent (a) | | Guarantors | | Nonguarantors (a) | | Consolidating adjustments | | Ally consolidated |
Assets | | | | | | | | | | |
Cash and cash equivalents | | | | | | | | | | |
Noninterest-bearing | | $ | 49 |
| | $ | — |
| | $ | 750 |
| | $ | — |
| | $ | 799 |
|
Interest-bearing | | 6 |
| | — |
| | 3,119 |
| | — |
| | 3,125 |
|
Interest-bearing — intercompany | | 1,016 |
| | — |
| | 569 |
| | (1,585 | ) | | — |
|
Total cash and cash equivalents | | 1,071 |
|
| — |
|
| 4,438 |
|
| (1,585 | ) |
| 3,924 |
|
Equity securities | | — |
| | — |
| | 521 |
| | — |
| | 521 |
|
Available-for-sale securities | | — |
| | — |
| | 23,296 |
| | — |
| | 23,296 |
|
Held-to-maturity securities | | — |
| | — |
| | 2,146 |
| | (57 | ) | | 2,089 |
|
Loans held-for-sale, net | | — |
| | — |
| | 328 |
| | — |
| | 328 |
|
Finance receivables and loans, net | | | | | | | | | | |
Finance receivables and loans, net | | 5,647 |
| | — |
| | 119,897 |
| | — |
| | 125,544 |
|
Intercompany loans to | | | | | | | | | | |
Nonbank subsidiaries | | 786 |
| | — |
| | 405 |
| | (1,191 | ) | | — |
|
Allowance for loan losses | | (128 | ) | | — |
| | (1,129 | ) | | — |
| | (1,257 | ) |
Total finance receivables and loans, net | | 6,305 |
| | — |
| | 119,173 |
| | (1,191 | ) | | 124,287 |
|
Investment in operating leases, net | | 10 |
| | — |
| | 8,629 |
| | — |
| | 8,639 |
|
Intercompany receivables from | | | | | | | | | | |
Bank subsidiary | | 106 |
| | — |
| | — |
| | (106 | ) | | — |
|
Nonbank subsidiaries | | 61 |
| | — |
| | 88 |
| | (149 | ) | | — |
|
Investment in subsidiaries | | | | | | | | | | |
Bank subsidiary | | 16,163 |
| | 16,163 |
| | — |
| | (32,326 | ) | | — |
|
Nonbank subsidiaries | | 7,162 |
| | — |
| | — |
| | (7,162 | ) | | — |
|
Premiums receivable and other insurance assets | | — |
| | — |
| | 2,247 |
| | — |
| | 2,247 |
|
Other assets | | 2,123 |
| | — |
| | 5,129 |
| | (1,238 | ) | | 6,014 |
|
Total assets | | $ | 33,001 |
|
| $ | 16,163 |
|
| $ | 165,995 |
|
| $ | (43,814 | ) |
| $ | 171,345 |
|
Liabilities | | | | | | | | | | |
Deposit liabilities | | | | | | | | | | |
Noninterest-bearing | | $ | — |
| | $ | — |
| | $ | 153 |
| | $ | — |
| | $ | 153 |
|
Interest-bearing | | 6 |
| | — |
| | 98,575 |
| | — |
| | 98,581 |
|
Interest-bearing — intercompany | | — |
| | — |
| | 1,016 |
| | (1,016 | ) | | — |
|
Total deposit liabilities | | 6 |
| | — |
| | 99,744 |
| | (1,016 | ) | | 98,734 |
|
Short-term borrowings | | 2,666 |
| | — |
| | 4,442 |
| | — |
| | 7,108 |
|
Long-term debt | | 15,571 |
| | — |
| | 31,757 |
| | — |
| | 47,328 |
|
Intercompany debt to | | | | | | | | | | |
Bank subsidiary | | 57 |
| | — |
| | — |
| | (57 | ) | | — |
|
Nonbank subsidiaries | | 973 |
| | — |
| | 786 |
| | (1,759 | ) | | — |
|
Intercompany payables to | | | | | | | | | | |
Nonbank subsidiaries | | 130 |
| | — |
| | 129 |
| | (259 | ) | | — |
|
Interest payable | | 192 |
| | — |
| | 376 |
| | — |
| | 568 |
|
Unearned insurance premiums and service revenue | | — |
| | — |
| | 2,957 |
| | — |
| | 2,957 |
|
Accrued expenses and other liabilities | | 267 |
| | — |
| | 2,479 |
| | (1,235 | ) | | 1,511 |
|
Total liabilities | | 19,862 |
| | — |
| | 142,670 |
| | (4,326 | ) | | 158,206 |
|
Total equity | | 13,139 |
| | 16,163 |
| | 23,325 |
| | (39,488 | ) | | 13,139 |
|
Total liabilities and equity | | $ | 33,001 |
| | $ | 16,163 |
| | $ | 165,995 |
| | $ | (43,814 | ) | | $ | 171,345 |
|
| |
(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, 2018 ($ in millions) | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated |
Assets | | | | | | | | | | |
Cash and cash equivalents | | | | | | | | | | |
Noninterest-bearing | | $ | 55 |
| | $ | — |
| | $ | 755 |
| | $ | — |
| | $ | 810 |
|
Interest-bearing | | 5 |
| | — |
| | 3,722 |
| | — |
| | 3,727 |
|
Interest-bearing — intercompany | | 1,249 |
| | — |
| | 521 |
| | (1,770 | ) | | — |
|
Total cash and cash equivalents | | 1,309 |
| | — |
| | 4,998 |
| | (1,770 | ) | | 4,537 |
|
Equity securities | | — |
| | — |
| | 773 |
| | — |
| | 773 |
|
Available-for-sale securities | | — |
| | — |
| | 25,303 |
| | — |
| | 25,303 |
|
Held-to-maturity securities | | — |
| | — |
| | 2,382 |
| | (20 | ) | | 2,362 |
|
Loans held-for-sale, net | | — |
| | — |
| | 314 |
| | — |
| | 314 |
|
Finance receivables and loans, net | | | | | | | | | | |
Finance receivables and loans, net | | 2,349 |
| | — |
| | 127,577 |
| | — |
| | 129,926 |
|
Intercompany loans to | | | | | | | | | | |
Nonbank subsidiaries | | 882 |
| | — |
| | 397 |
| | (1,279 | ) | | — |
|
Allowance for loan losses | | (55 | ) | | — |
| | (1,187 | ) | | — |
| | (1,242 | ) |
Total finance receivables and loans, net | | 3,176 |
| | — |
| | 126,787 |
| | (1,279 | ) | | 128,684 |
|
Investment in operating leases, net | | 5 |
| | — |
| | 8,412 |
| | — |
| | 8,417 |
|
Intercompany receivables from | | | | | | | | | | |
Bank subsidiary | | 158 |
| | — |
| | — |
| | (158 | ) | | — |
|
Nonbank subsidiaries | | 45 |
| | — |
| | 129 |
| | (174 | ) | | — |
|
Investment in subsidiaries | | | | | | | | | | |
Bank subsidiary | | 16,213 |
| | 16,213 |
| | — |
| | (32,426 | ) | | — |
|
Nonbank subsidiaries | | 6,928 |
| | — |
| | — |
| | (6,928 | ) | | — |
|
Premiums receivable and other insurance assets | | — |
| | — |
| | 2,326 |
| | — |
| | 2,326 |
|
Other assets | | 2,226 |
| | — |
| | 5,453 |
| | (1,526 | ) | | 6,153 |
|
Total assets | | $ | 30,060 |
| | $ | 16,213 |
| | $ | 176,877 |
| | $ | (44,281 | ) | | $ | 178,869 |
|
Liabilities and equity | | | | | | | | | | |
Deposit liabilities | | | | | | | | | | |
Noninterest-bearing | | $ | — |
| | $ | — |
| | $ | 142 |
| | $ | — |
| | $ | 142 |
|
Interest-bearing | | 1 |
| | — |
| | 106,035 |
| | — |
| | 106,036 |
|
Interest-bearing — intercompany | | — |
| | — |
| | 1,249 |
| | (1,249 | ) | | — |
|
Total deposit liabilities | | 1 |
| | — |
| | 107,426 |
| | (1,249 | ) | | 106,178 |
|
Short-term borrowings | | 2,477 |
| | — |
| | 7,510 |
| | — |
| | 9,987 |
|
Long-term debt | | 12,774 |
| | — |
| | 31,419 |
| | — |
| | 44,193 |
|
Intercompany debt to | | | | | | | | | | |
Bank subsidiary | | 20 |
| | — |
| | — |
| | (20 | ) | | — |
|
Nonbank subsidiaries | | 918 |
| | — |
| | 882 |
| | (1,800 | ) | | — |
|
Intercompany payables to | | | | | | | | | | |
Bank subsidiary | | 45 |
| | — |
| | — |
| | (45 | ) | | — |
|
Nonbank subsidiaries | | 124 |
| | — |
| | 129 |
| | (253 | ) | | — |
|
Interest payable | | 159 |
| | — |
| | 364 |
| | — |
| | 523 |
|
Unearned insurance premiums and service revenue | | — |
| | — |
| | 3,044 |
| | — |
| | 3,044 |
|
Accrued expenses and other liabilities | | 274 |
| | — |
| | 2,962 |
| | (1,560 | ) | | 1,676 |
|
Total liabilities | | 16,792 |
| | — |
| | 153,736 |
| | (4,927 | ) | | 165,601 |
|
Total equity | | 13,268 |
| | 16,213 |
| | 23,141 |
| | (39,354 | ) | | 13,268 |
|
Total liabilities and equity | | $ | 30,060 |
| | $ | 16,213 |
| | $ | 176,877 |
| | $ | (44,281 | ) | | $ | 178,869 |
|
|
| | | | | | | | | | | | | | | | | | | | |
December 31, 2017 ($ in millions) | | Parent (a) | | Guarantors | | Nonguarantors (a) | | Consolidating adjustments | | Ally consolidated |
Assets | | | | | | | | | | |
Cash and cash equivalents | | | | | | | | | | |
Noninterest-bearing | | $ | 74 |
| | $ | — |
| | $ | 770 |
| | $ | — |
| | $ | 844 |
|
Interest-bearing | | 5 |
| | — |
| | 3,403 |
| | — |
| | 3,408 |
|
Interest-bearing — intercompany | | 1,138 |
| | — |
| | 695 |
| | (1,833 | ) | | — |
|
Total cash and cash equivalents | | 1,217 |
| | — |
| | 4,868 |
| | (1,833 | ) | | 4,252 |
|
Equity securities | | — |
| | — |
| | 518 |
| | — |
| | 518 |
|
Available-for-sale securities | | — |
| | — |
| | 22,303 |
| | — |
| | 22,303 |
|
Held-to-maturity securities | | — |
| | — |
| | 1,973 |
| | (74 | ) | | 1,899 |
|
Loans held-for-sale, net | | — |
| | — |
| | 108 |
| | — |
| | 108 |
|
Finance receivables and loans, net | | | | | | | | | | |
Finance receivables and loans, net | | 7,434 |
| | — |
| | 115,459 |
| | — |
| | 122,893 |
|
Intercompany loans to | | | | | | | | | | |
Nonbank subsidiaries | | 879 |
| | — |
| | 408 |
| | (1,287 | ) | | — |
|
Allowance for loan losses | | (185 | ) | | — |
| | (1,091 | ) | | — |
| | (1,276 | ) |
Total finance receivables and loans, net | | 8,128 |
| | — |
| | 114,776 |
| | (1,287 | ) | | 121,617 |
|
Investment in operating leases, net | | 19 |
| | — |
| | 8,722 |
| | — |
| | 8,741 |
|
Intercompany receivables from | | | | | | | | | | |
Bank subsidiary | | 80 |
| | — |
| | — |
| | (80 | ) | | — |
|
Nonbank subsidiaries | | 71 |
| | — |
| | 77 |
| | (148 | ) | | — |
|
Investment in subsidiaries | | | | | | | | | | |
Bank subsidiary | | 16,962 |
| | 16,962 |
| | — |
| | (33,924 | ) | | — |
|
Nonbank subsidiaries | | 8,111 |
| | — |
| | — |
| | (8,111 | ) | | — |
|
Premiums receivable and other insurance assets | | — |
| | — |
| | 2,082 |
| | (35 | ) | | 2,047 |
|
Other assets | | 2,207 |
| | — |
| | 5,105 |
| | (1,649 | ) | | 5,663 |
|
Total assets | | $ | 36,795 |
|
| $ | 16,962 |
|
| $ | 160,532 |
|
| $ | (47,141 | ) | | $ | 167,148 |
|
Liabilities | | | | | | | | | | |
Deposit liabilities | | | | | | | | | | |
Noninterest-bearing | | $ | — |
| | $ | — |
| | $ | 108 |
| | $ | — |
| | $ | 108 |
|
Interest-bearing | | 12 |
| | — |
| | 93,136 |
| | — |
| | 93,148 |
|
Interest-bearing — intercompany | | — |
| | — |
| | 1,139 |
| | (1,139 | ) | | — |
|
Total deposit liabilities | | 12 |
|
| — |
|
| 94,383 |
|
| (1,139 | ) |
| 93,256 |
|
Short-term borrowings | | 3,171 |
| | — |
| | 8,242 |
| | — |
| | 11,413 |
|
Long-term debt | | 17,966 |
| | — |
| | 26,260 |
| | — |
| | 44,226 |
|
Intercompany debt to | | | | | | | | | | |
Bank subsidiary | | 74 |
| | — |
| | — |
| | (74 | ) | | — |
|
Nonbank subsidiaries | | 1,103 |
| | — |
| | 879 |
| | (1,982 | ) | | — |
|
Intercompany payables to | | | | | | | | | | |
Bank subsidiary | | 4 |
| | — |
| | — |
| | (4 | ) | | — |
|
Nonbank subsidiaries | | 132 |
| | — |
| | 127 |
| | (259 | ) | | — |
|
Interest payable | | 200 |
| | — |
| | 175 |
| | — |
| | 375 |
|
Unearned insurance premiums and service revenue | | — |
| | — |
| | 2,604 |
| | — |
| | 2,604 |
|
Accrued expenses and other liabilities | | 639 |
| | — |
| | 2,790 |
| | (1,649 | ) | | 1,780 |
|
Total liabilities | | 23,301 |
| | — |
| | 135,460 |
| | (5,107 | ) | | 153,654 |
|
Total equity | | 13,494 |
| | 16,962 |
| | 25,072 |
| | (42,034 | ) | | 13,494 |
|
Total liabilities and equity | | $ | 36,795 |
| | $ | 16,962 |
| | $ | 160,532 |
| | $ | (47,141 | ) | | $ | 167,148 |
|
| |
(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, 2019 ($ in millions) | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated |
Operating activities | | | | | | | | | | |
Net cash provided by operating activities | | $ | 693 |
| | $ | 900 |
| | $ | 2,189 |
| | $ | (1,938 | ) | | $ | 1,844 |
|
Investing activities | | | | | | | | | | |
Purchases of equity securities | | — |
| | — |
| | (210 | ) | | — |
| | (210 | ) |
Proceeds from sales of equity securities | | — |
| | — |
| | 511 |
| | — |
| | 511 |
|
Purchases of available-for-sale securities | | — |
| | — |
| | (7,018 | ) | | — |
| | (7,018 | ) |
Proceeds from sales of available-for-sale securities | | — |
| | — |
| | 2,568 |
| | — |
| | 2,568 |
|
Proceeds from repayments of available-for-sale securities | | — |
| | — |
| | 1,805 |
| | — |
| | 1,805 |
|
Purchases of held-to-maturity securities | | — |
| | — |
| | (268 | ) | | — |
| | (268 | ) |
Proceeds from repayments of held-to-maturity securities | | — |
| | — |
| | 107 |
| | — |
| | 107 |
|
Net change in investment securities — intercompany | | — |
| | — |
| | 6 |
| | (6 | ) | | — |
|
Purchases of finance receivables and loans held-for-investment | | — |
| | — |
| | (2,850 | ) | | 464 |
| | (2,386 | ) |
Proceeds from sales of finance receivables and loans initially held-for-investment | | 476 |
| | — |
| | 147 |
| | (464 | ) | | 159 |
|
Originations and repayments of finance receivables and loans held-for-investment and other, net | | (407 | ) | | — |
| | 3,173 |
| | 3 |
| | 2,769 |
|
Net change in loans — intercompany | | 216 |
| | — |
| | 291 |
| | (507 | ) | | — |
|
Purchases of operating lease assets | | — |
| | — |
| | (1,769 | ) | | — |
| | (1,769 | ) |
Disposals of operating lease assets | | 2 |
| | — |
| | 1,319 |
| | — |
| | 1,321 |
|
Capital contributions to subsidiaries | | (1 | ) | | — |
| | — |
| | 1 |
| | — |
|
Returns of contributed capital | | 26 |
| | — |
| | — |
| | (26 | ) | | — |
|
Net change in nonmarketable equity investments | | (11 | ) | | — |
| | 124 |
| | — |
| | 113 |
|
Other, net | | — |
| | — |
| | (208 | ) | | (1 | ) | | (209 | ) |
Net cash provided by (used in) investing activities | | 301 |
| | — |
| | (2,272 | ) | | (536 | ) | | (2,507 | ) |
Financing activities | | | | | | | | | | |
Net change in short-term borrowings — third party | | (15 | ) | | — |
| | (3,453 | ) | | — |
| | (3,468 | ) |
Net increase in deposits | | — |
| | — |
| | 10,126 |
| | 7 |
| | 10,133 |
|
Proceeds from issuance of long-term debt — third party | | 756 |
| | — |
| | 3,834 |
| | — |
| | 4,590 |
|
Repayments of long-term debt — third party | | (1,116 | ) | | — |
| | (10,256 | ) | | — |
| | (11,372 | ) |
Net change in debt — intercompany | | (74 | ) | | — |
| | (216 | ) | | 290 |
| | — |
|
Repurchase of common stock | | (440 | ) | | — |
| | — |
| | — |
| | (440 | ) |
Dividends paid — third party | | (139 | ) | | — |
| | — |
| | — |
| | (139 | ) |
Dividends paid and returns of contributed capital — intercompany | | — |
| | (900 | ) | | (1,061 | ) | | 1,961 |
| | — |
|
Capital contributions from parent | | — |
| | — |
| | 1 |
| | (1 | ) | | — |
|
Net cash used in financing activities | | (1,028 | ) | | (900 | ) | | (1,025 | ) | | 2,257 |
| | (696 | ) |
Effect of exchange-rate changes on cash and cash equivalents and restricted cash | | — |
| | — |
| | 3 |
| | — |
| | 3 |
|
Net decrease in cash and cash equivalents and restricted cash | | (34 | ) | | — |
| | (1,105 | ) | | (217 | ) | | (1,356 | ) |
Cash and cash equivalents and restricted cash at beginning of year | | 1,398 |
| | — |
| | 5,998 |
| | (1,770 | ) | | 5,626 |
|
Cash and cash equivalents and restricted cash at June 30, | | $ | 1,364 |
| | $ | — |
| | $ | 4,893 |
| | $ | (1,987 | ) | | $ | 4,270 |
|
The following table provides a reconciliation of cash and cash equivalents and restricted cash from the Condensed Consolidated Balance Sheet to the Condensed Consolidated Statement of Cash Flows.
|
| | | | | | | | | | | | | | | | | | | | |
June 30, 2019 ($ in millions) | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated |
Cash and cash equivalents on the Condensed Consolidated Balance Sheet | | $ | 1,292 |
| | $ | — |
| | $ | 4,258 |
| | $ | (1,987 | ) | | $ | 3,563 |
|
Restricted cash included in other assets on the Condensed Consolidated Balance Sheet (a) | | 72 |
| | — |
| | 635 |
| | — |
| | 707 |
|
Total cash and cash equivalents and restricted cash in the Condensed Consolidated Statement of Cash Flows | | $ | 1,364 |
| | $ | — |
| | $ | 4,893 |
| | $ | (1,987 | ) | | $ | 4,270 |
|
| |
(a) | Restricted cash balances relate primarily to Ally securitization arrangements. Refer toNote 10for additional details describing the nature of restricted cash balances. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | | | | | | | | | | | | | |
Six months ended June 30, 2018 ($ in millions) | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated |
Operating activities | | | | | | | | | | |
Net cash provided by operating activities | | $ | 958 |
| | $ | 1,500 |
| | $ | 2,853 |
| | $ | (3,302 | ) | | $ | 2,009 |
|
Investing activities | | | | | | | | | |
|
|
Purchases of equity securities | | — |
| | — |
| | (500 | ) | | — |
| | (500 | ) |
Proceeds from sales of equity securities | | — |
| | — |
| | 535 |
| | — |
| | 535 |
|
Purchases of available-for-sale securities | | — |
| | — |
| | (4,094 | ) | | — |
| | (4,094 | ) |
Proceeds from sales of available-for-sale securities | | — |
| | — |
| | 390 |
| | — |
| | 390 |
|
Proceeds from repayments of available-for-sale securities | | — |
| | — |
| | 1,621 |
| | — |
| | 1,621 |
|
Purchases of held-to-maturity securities | | — |
| | — |
| | (316 | ) | | — |
| | (316 | ) |
Proceeds from repayments of held-to-maturity securities | | — |
| | — |
| | 72 |
| | — |
| | 72 |
|
Net change in investment securities — intercompany | | — |
| | — |
| | 17 |
| | (17 | ) | | — |
|
Purchases of finance receivables and loans held-for-investment | | — |
| | — |
| | (3,431 | ) | | 820 |
| | (2,611 | ) |
Proceeds from sales of finance receivables and loans initially held-for-investment | | 820 |
| | — |
| | — |
| | (820 | ) | | — |
|
Originations and repayments of finance receivables and loans held-for-investment and other, net | | 1,331 |
| | — |
| | (1,969 | ) | | — |
| | (638 | ) |
Net change in loans — intercompany | | 83 |
| | — |
| | (5 | ) | | (78 | ) | | — |
|
Purchases of operating lease assets | | — |
| | — |
| | (2,107 | ) | | — |
| | (2,107 | ) |
Disposals of operating lease assets | | 6 |
| | — |
| | 1,757 |
| | — |
| | 1,763 |
|
Capital contributions to subsidiaries | | (57 | ) | | (6 | ) | | — |
| | 63 |
| | — |
|
Returns of contributed capital | | 194 |
| | — |
| | — |
| | (194 | ) | | — |
|
Net change in nonmarketable equity investments | | — |
| | — |
| | (46 | ) | | — |
| | (46 | ) |
Other, net | | (3 | ) | | — |
| | (183 | ) | | — |
| | (186 | ) |
Net cash provided by (used in) investing activities | | 2,374 |
| | (6 | ) | | (8,259 | ) | | (226 | ) | | (6,117 | ) |
Financing activities | | | | | | | | | | |
Net change in short-term borrowings — third party | | (505 | ) | | — |
| | (3,800 | ) | | — |
| | (4,305 | ) |
Net (decrease) increase in deposits | | (6 | ) | | — |
| | 5,324 |
| | 123 |
| | 5,441 |
|
Proceeds from issuance of long-term debt — third party | | 32 |
| | — |
| | 12,908 |
| | — |
| | 12,940 |
|
Repayments of long-term debt — third party | | (2,412 | ) | | — |
| | (7,388 | ) | | — |
| | (9,800 | ) |
Net change in debt — intercompany | | (138 | ) | | — |
| | (83 | ) | | 221 |
| | — |
|
Repurchase of common stock | | (380 | ) | | — |
| | — |
| | — |
| | (380 | ) |
Dividends paid — third party | | (115 | ) | | — |
| | — |
| | — |
| | (115 | ) |
Dividends paid and returns of contributed capital — intercompany | | — |
| | (1,500 | ) | | (1,995 | ) | | 3,495 |
| | — |
|
Capital contributions from parent | | — |
| | 6 |
| | 57 |
| | (63 | ) | | — |
|
Net cash (used in) provided by financing activities | | (3,524 | ) | | (1,494 | ) | | 5,023 |
| | 3,776 |
| | 3,781 |
|
Effect of exchange-rate changes on cash and cash equivalents | | — |
| | — |
| | (3 | ) | | — |
| | (3 | ) |
Net decrease in cash and cash equivalents and restricted cash | | (192 | ) | | — |
| | (386 | ) | | 248 |
| | (330 | ) |
Cash and cash equivalents and restricted cash at beginning of year | | 1,395 |
| | — |
| | 5,707 |
| | (1,833 | ) | | 5,269 |
|
Cash and cash equivalents and restricted cash at June 30, | | $ | 1,203 |
| | $ | — |
| | $ | 5,321 |
| | $ | (1,585 | ) | | $ | 4,939 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Six months ended June 30, 2018 ($ in millions) | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated |
Operating activities | | | | | | | | | | |
Net cash provided by operating activities | | $ | 958 |
| | $ | 1,500 |
| | $ | 2,853 |
| | $ | (3,302 | ) | | $ | 2,009 |
|
Investing activities | | | | | | | | | | |
Purchases of equity securities | | — |
| | — |
| | (500 | ) | | — |
| | (500 | ) |
Proceeds from sales of equity securities | | — |
| | — |
| | 535 |
| | — |
| | 535 |
|
Purchases of available-for-sale securities | | — |
| | — |
| | (4,094 | ) | | — |
| | (4,094 | ) |
Proceeds from sales of available-for-sale securities | | — |
| | — |
| | 390 |
| | — |
| | 390 |
|
Proceeds from repayments of available-for-sale securities | | — |
| | — |
| | 1,621 |
| | — |
| | 1,621 |
|
Purchases of held-to-maturity securities | | — |
| | — |
| | (316 | ) | | — |
| | (316 | ) |
Proceeds from repayments of held-to-maturity securities | | — |
| | — |
| | 72 |
| | — |
| | 72 |
|
Net change in investment securities — intercompany | | — |
| | — |
| | 17 |
| | (17 | ) | | — |
|
Purchases of finance receivables and loans held-for-investment | | — |
| | — |
| | (3,431 | ) | | 820 |
| | (2,611 | ) |
Proceeds from sales of finance receivables and loans initially held-for-investment | | 820 |
| | — |
| | — |
| | (820 | ) | | — |
|
Originations and repayments of finance receivables and loans held-for-investment and other, net | | 1,331 |
| | — |
| | (1,969 | ) | | — |
| | (638 | ) |
Net change in loans — intercompany | | 83 |
| | — |
| | (5 | ) | | (78 | ) | | — |
|
Purchases of operating lease assets | | — |
| | — |
| | (2,107 | ) | | — |
| | (2,107 | ) |
Disposals of operating lease assets | | 6 |
| | — |
| | 1,757 |
| | — |
| | 1,763 |
|
Capital contributions to subsidiaries | | (57 | ) | | (6 | ) | | — |
| | 63 |
| | — |
|
Returns of contributed capital | | 194 |
| | — |
| | — |
| | (194 | ) | | — |
|
Net change in nonmarketable equity investments | | — |
| | — |
| | (46 | ) | | — |
| | (46 | ) |
Other, net | | (3 | ) | | — |
| | (183 | ) | | — |
| | (186 | ) |
Net cash provided by (used in) investing activities | | 2,374 |
| | (6 | ) | | (8,259 | ) | | (226 | ) | | (6,117 | ) |
Financing activities | | | | | | | | | | |
Net change in short-term borrowings — third party | | (505 | ) | | — |
| | (3,800 | ) | | — |
| | (4,305 | ) |
Net (decrease) increase in deposits | | (6 | ) | | — |
| | 5,324 |
| | 123 |
| | 5,441 |
|
Proceeds from issuance of long-term debt — third party | | 32 |
| | — |
| | 12,908 |
| | — |
| | 12,940 |
|
Repayments of long-term debt — third party | | (2,412 | ) | | — |
| | (7,388 | ) | | — |
| | (9,800 | ) |
Net change in debt — intercompany | | (138 | ) | | — |
| | (83 | ) | | 221 |
| | — |
|
Repurchase of common stock | | (380 | ) | | — |
| | — |
| | — |
| | (380 | ) |
Dividends paid — third party | | (115 | ) | | — |
| | — |
| | — |
| | (115 | ) |
Dividends paid and returns of contributed capital — intercompany | | — |
| | (1,500 | ) | | (1,995 | ) | | 3,495 |
| | — |
|
Capital contributions from parent | | — |
| | 6 |
| | 57 |
| | (63 | ) | | — |
|
Net cash (used in) provided by financing activities | | (3,524 | ) | | (1,494 | ) | | 5,023 |
| | 3,776 |
| | 3,781 |
|
Effect of exchange-rate changes on cash and cash equivalents and restricted cash | | — |
| | — |
| | (3 | ) | | — |
| | (3 | ) |
Net decrease in cash and cash equivalents and restricted cash | | (192 | ) | | — |
| | (386 | ) | | 248 |
| | (330 | ) |
Cash and cash equivalents and restricted cash at beginning of year | | 1,395 |
| | — |
| | 5,707 |
| | (1,833 | ) | | 5,269 |
|
Cash and cash equivalents and restricted cash at June 30, | | $ | 1,203 |
| | $ | — |
| | $ | 5,321 |
| | $ | (1,585 | ) | | $ | 4,939 |
|
The following table provides a reconciliation of cash and cash equivalents and restricted cash from the Condensed Consolidated Balance Sheet to the Condensed Consolidated Statement of Cash Flows.
| | June 30, 2018 ($ in millions) | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated |
Cash and cash equivalents as disclosed on the Condensed Consolidated Balance Sheet | | $ | 1,071 |
| | $ | — |
| | $ | 4,438 |
| | $ | (1,585 | ) | | $ | 3,924 |
| |
Cash and cash equivalents on the Condensed Consolidated Balance Sheet | | | $ | 1,071 |
| | $ | — |
| | $ | 4,438 |
| | $ | (1,585 | ) | | $ | 3,924 |
|
Restricted cash included in other assets on the Condensed Consolidated Balance Sheet (a) | | 132 |
| | — |
| | 883 |
| | — |
| | 1,015 |
| | 132 |
| | — |
| | 883 |
| | — |
| | 1,015 |
|
Total cash and cash equivalents and restricted cash as disclosed in the Condensed Consolidated Statement of Cash Flows | | $ | 1,203 |
| | $ | — |
| | $ | 5,321 |
| | $ | (1,585 | ) | | $ | 4,939 |
| |
Total cash and cash equivalents and restricted cash in the Condensed Consolidated Statement of Cash Flows | | | $ | 1,203 |
| | $ | — |
| | $ | 5,321 |
| | $ | (1,585 | ) | | $ | 4,939 |
|
| |
(a) | Restricted cash balances relate primarily to Ally securitization arrangements. Refer toNote 1110for additional details describing the nature of restricted cash balances. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | | | | | | | | | | | | | |
Six months ended June 30, 2017 ($ in millions) | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated |
Operating activities | | | | | | | | | | |
Net cash provided by operating activities | | $ | 561 |
| | $ | — |
| | $ | 1,856 |
| | $ | (347 | ) | | $ | 2,070 |
|
Investing activities | | | | | | | | | |
|
Purchases of equity securities | | — |
| | — |
| | (363 | ) | | — |
| | (363 | ) |
Proceeds from sales of equity securities | | — |
| | — |
| | 484 |
| | — |
| | 484 |
|
Purchases of available-for-sale securities | | — |
| | — |
| | (5,490 | ) | | — |
| | (5,490 | ) |
Proceeds from sales of available-for-sale securities | | — |
| | — |
| | 1,678 |
| | — |
| | 1,678 |
|
Proceeds from repayments of available-for-sale securities | | — |
| | — |
| | 1,230 |
| | — |
| | 1,230 |
|
Purchases of held-to-maturity securities | | — |
| | — |
| | (313 | ) | | — |
| | (313 | ) |
Proceeds from repayments of held-to-maturity securities | | — |
| | — |
| | 17 |
| | — |
| | 17 |
|
Net change in investment securities — intercompany | | 1 |
| | — |
| | 269 |
| | (270 | ) | | — |
|
Purchases of finance receivables and loans held-for-investment | | (35 | ) | | — |
| | (1,782 | ) | | — |
| | (1,817 | ) |
Proceeds from sales of finance receivables and loans initially held-for-investment | | 67 |
| | — |
| | 1,213 |
| | — |
| | 1,280 |
|
Originations and repayments of finance receivables and loans held-for-investment and other, net | | 1,044 |
| | — |
| | (676 | ) | | (1,956 | ) | | (1,588 | ) |
Net change in loans — intercompany | | 1,864 |
| | — |
| | 246 |
| | (2,110 | ) | | — |
|
Purchases of operating lease assets | | — |
| | — |
| | (1,965 | ) | | — |
| | (1,965 | ) |
Disposals of operating lease assets | | 4 |
| | — |
| | 3,039 |
| | — |
| | 3,043 |
|
Capital contributions to subsidiaries | | (824 | ) | | — |
| | — |
| | 824 |
| | — |
|
Returns of contributed capital | | 838 |
| | — |
| | — |
| | (838 | ) | | — |
|
Net change in nonmarketable equity investments | | — |
| | — |
| | 107 |
| | — |
| | 107 |
|
Other, net | | (21 | ) | | — |
| | 27 |
| | (96 | ) | | (90 | ) |
Net cash provided by (used in) investing activities | | 2,938 |
| | — |
| | (2,279 | ) | | (4,446 | ) | | (3,787 | ) |
Financing activities | | | | | | | | | |
|
Net change in short-term borrowings — third party | | 1,083 |
| | — |
| | (3,045 | ) | | — |
| | (1,962 | ) |
Net (decrease) increase in deposits | | (123 | ) | | — |
| | 7,256 |
| | — |
| | 7,133 |
|
Proceeds from issuance of long-term debt — third party | | 353 |
| | — |
| | 7,016 |
| | 1,961 |
| | 9,330 |
|
Repayments of long-term debt — third party | | (3,323 | ) | | — |
| | (11,043 | ) | | — |
| | (14,366 | ) |
Net change in debt — intercompany | | (370 | ) | | — |
| | (1,864 | ) | | 2,234 |
| | — |
|
Repurchase of common stock | | (373 | ) | | — |
| | — |
| | — |
| | (373 | ) |
Dividends paid — third party | | (75 | ) | | — |
| | — |
| | — |
| | (75 | ) |
Dividends paid and returns of contributed capital — intercompany | | — |
| | — |
| | (1,266 | ) | | 1,266 |
| | — |
|
Capital contributions from parent | | — |
| | — |
| | 824 |
| | (824 | ) | | — |
|
Net cash used in financing activities | | (2,828 | ) | | — |
| | (2,122 | ) | | 4,637 |
| | (313 | ) |
Effect of exchange-rate changes on cash and cash equivalents | | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Net increase (decrease) in cash and cash equivalents and restricted cash | | 671 |
| | — |
| | (2,543 | ) | | (156 | ) | | (2,028 | ) |
Cash and cash equivalents and restricted cash at beginning of year | | 989 |
| | — |
| | 7,293 |
| | (401 | ) | | 7,881 |
|
Cash and cash equivalents and restricted cash at June 30, | | $ | 1,660 |
| | $ | — |
| | $ | 4,750 |
| | $ | (557 | ) | | $ | 5,853 |
|
The following table provides a reconciliation of cash and cash equivalents and restricted cash from the Condensed Consolidated Balance Sheet to the Condensed Consolidated Statement of Cash Flows.
|
| | | | | | | | | | | | | | | | | | | | |
June 30, 2017 ($ in millions) | | Parent | | Guarantors | | Nonguarantors | | Consolidating adjustments | | Ally consolidated |
Cash and cash equivalents as disclosed on the Condensed Consolidated Balance Sheet | | $ | 1,441 |
| | $ | — |
| | $ | 3,493 |
| | $ | (557 | ) | | $ | 4,377 |
|
Restricted cash included in other assets on the Condensed Consolidated Balance Sheet (a) | | 219 |
| | — |
| | 1,257 |
| | — |
| | 1,476 |
|
Total cash and cash equivalents and restricted cash as disclosed in the Condensed Consolidated Statement of Cash Flows | | $ | 1,660 |
| | $ | — |
| | $ | 4,750 |
| | $ | (557 | ) | | $ | 5,853 |
|
| |
(a) | Restricted cash balances relate primarily to Ally securitization arrangements. Refer toNote 11for additional details describing the nature of restricted cash balances.
|
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
24. 23. Contingencies and Other Risks
Legal Matters
Ally and its subsidiaries, including Ally Bank, are or may be subject to potential liability in connection with pending or threatened legal proceedings and other matters. These legal matters may be formal or informal and include litigation and arbitration with one or more identified claimants, certified or purported class actions with yet-to-be-identified claimants, and regulatory or other governmental information-gathering requests, examinations, investigations, and enforcement proceedings. Our legal matters exist in varying stages of adjudication, arbitration, negotiation, or investigation and span our business lines and operations. Claims may be based in law or equity—such as those arising under contracts or in tort and those involving banking, consumer-protection, securities, tax, employment, and other laws—and some can present novel legal theories and allege substantial or indeterminate damages.
Ally and its subsidiaries, including Ally Bank, also are or may be subject to potential liability under other contingent exposures, including indemnification, tax, self-insurance, and other miscellaneous contingencies.
We accrue for a legal matter or other contingent exposure when a loss becomes probable and the amount of loss can be reasonably estimated. Accruals are evaluated each quarter and may be adjusted, upward or downward, based on our best judgment after consultation with counsel. No assurance exists that our accruals will not need to be adjusted in the future. When a probable or reasonably possible loss on a legal matter or other contingent exposure could be material to our consolidated financial condition, results of operations, or cash flows, we provide disclosure in this note as prescribed by ASC 450, Contingencies. Refer to Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K for additional information related to our policy for establishing accruals.
The course and outcome of legal matters are inherently unpredictable. This is especially so when a matter is still in its early stages, the damages sought are indeterminate or unsupported, significant facts are unclear or disputed, novel questions of law or other meaningful legal uncertainties exist, a request to certify a proceeding as a class action is outstanding or granted, multiple parties are named, or regulatory or other governmental entities are involved. Other contingent exposures and their ultimate resolution are similarly unpredictable for reasons that can vary based on the circumstances.
As a result, we often are unable to determine how or when threatened or pending legal matters and other contingent exposures will be resolved and what losses may be incrementally and ultimately incurred. Actual losses may be higher or lower than any amounts accrued or estimated for those matters and other exposures, possibly to a significant degree.
Descriptions of our material legal matters follow. We do not believe, however, that an estimate of reasonably possible losses or a range of reasonably possible losses—whether in excess of any related accrual or where no accrual exists—can be made for any of these matters for some or all of the reasons identified in the preceding paragraph.
Securities Litigation
In October 2016, a purported class action—Bucks County Employees Retirement Fund v. Ally Financial Inc. et al.—was filed in the Circuit Court for Wayne County in the State of Michigan (Case No. 16-013616-CZ). This matter was removedSubject to the U.S. District Court for the Eastern District of Michigan on November 18, 2016. The complaint alleges material misstatements and omissions in connection with Ally’s initial public offering in April 2014, including a failure to adequately disclose the severity of rising subprime automotive loan delinquency rates, deficient underwriting measures employed in the origination of subprime automotive loans, and aggressive tactics used with low-income borrowers. The request for relief 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 Financial Inc. et al.—was filed in the Circuit Court for Oakland County in the State of Michigan (Case No. 2017-156719-CB). This matter was removed to the U.S. District Court for the Eastern District of Michigan on January 30, 2017. In March 2017, a third purported class action—James McIntire v. Ally Financial Inc. et al.—was filed in the Circuit Court for Wayne County in the State of Michigan (Case No. 17-003811-CZ). This matter was removed to the U.S. District Court for the Eastern District of Michigan on March 15, 2017. 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. All three matters were remanded from the U.S. District Court for the Eastern District of Michigan to the state circuit courts on May 26, 2017, and have been consolidated for discovery in Wayne County Circuit Court as In re Ally Financial, Inc. Securities Litigation (Case No. 16-013616-CB). In November 2017, the plaintiffs filed a consolidated amended complaint. In April 2018, the court entered a scheduling order setting deadlines for briefing of defendants’ joint motion for summary disposition. We intend to vigorously defend against each of these 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 U.S. Department of Justice requesting similar information. In May 2015 and December 2016, we received information requests from the New York Department of Financial Services requesting similar information. We responded timely to each of the requests.
Other Contingencies
Ally and its subsidiaries, including Ally Bank, are or may be subject to potential liability under various other contingent exposures, including indemnification, tax, self-insurance, and other miscellaneous contingencies. We accrue for a contingent exposure when a loss becomes probable and the amount of loss can be reasonably estimated. Accruals are evaluated each quarter and may be adjusted, upward or downward,foregoing, based on our best judgment. No assurance exists that our accruals will not need to be adjusted in the future,current knowledge and actual losses may be higher or lower than any amounts accrued or estimated for those exposures, possibly to a significant degree. On the basis of information currently available,after consultation with counsel, we do not believe that thesethe ultimate outcomes of currently threatened or pending legal matters and other contingent exposures willare likely to be material to our consolidated financial condition after taking into account existing accruals. In light of the uncertainties inherent in these matters and other exposures, however, one or more of them could be material to our results of operations or cash flows. Refer to Note 1 toflows during a particular reporting period, depending on factors such as the Consolidated Financial Statements inamount of the loss or liability and the level of our 2017 Annual Report on Form 10-Kincome for additional information related to our policy for establishing reserves for legal and regulatory matters.that period.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
25. 24. Subsequent Events
Declaration of Quarterly Dividend
On July 13, 2018,16, 2019, the Board declared a quarterly cash dividend of $0.15$0.17 per share on all common stock. The dividend is payable on August 15, 2018,2019, to stockholders of record at the close of business on August 1, 2018.2019.
Health Credit Services Acquisition
On July 16, 2019, we signed an agreement to acquire Health Credit Services, a digital point-of-sale payment provider that offers financing to consumers, for approximately $190 million. The transaction is currently expected to close in the fourth quarter of 2019. The transaction is subject to the satisfaction of regulatory and other customary closing conditions.
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
Cautionary Notice about Forward-Looking Statements and Other Terms
From time to time we have made, and in the future will make, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as “believe,” “expect,” “anticipate,” “intend,” “pursue,” “seek,” “continue,” “estimate,” “project,” “outlook,” “forecast,” “potential,” “target,” “objective,” “trend,” “plan,” “goal,” “initiative,” “priorities,” or other words of comparable meaning or future-tense or conditional verbs such as “may,” “will,” “should,” “would,” or “could.” Forward-looking statements convey our expectations, intentions, or forecasts about future events, circumstances, or results.
This report, including any information incorporated by reference in this report, contains forward-looking statements. We also may make forward-looking statements in other documents that are filed or furnished with the SEC. In addition, we may make forward-looking statements orally or in writing to investors, analysts, members of the media, or others.
All forward-looking statements, by their nature, are subject to assumptions, risks, and uncertainties, which may change over time and many of which are beyond our control. You should not rely on any forward-looking statement as a prediction or guarantee about the future. Actual future objectives, strategies, plans, prospects, performance, conditions, or results may differ materially from those set forth in any forward-looking statement. While no list of assumptions, risks, or uncertainties could be complete, some of the factors that may cause actual results or other future events or circumstances to differ from those in forward-looking statements include:
evolving local, regional, national, or international business, economic, or political conditions;
changes in laws or the regulatory or supervisory environment, including as a result of recent financial services legislation, regulation, or policies or changes in government officials or other personnel;
changes in monetary, fiscal, or trade laws or policies, including as a result of actions by government agencies, central banks, or supranational authorities;
| |
• | changes in accounting standards or policies, including ASU 2016-13, Financial Instruments—Credit Losses; |
changes in the automotive industry or the markets for new or used vehicles, including the rise of vehicle sharing and ride hailing, the development of autonomous and alternative-energy vehicles, and the impact of demographic shifts on attitudes and behaviors toward vehicle ownership and use;
disruptions or shifts in investor sentiment or behavior in the securities, capital, or other financial markets, including financial or systemic shocks and volatility or changes in market liquidity, interest or currency rates, or valuations;
uncertainty about the future of the London Interbank Offered Rate (LIBOR) and any negative impacts that could result;
changes in business or consumer sentiment, preferences, or behavior, including spending, borrowing, or saving by businesses or households;
changes in our corporate or business strategies, the composition of our assets, or the way in which we fund those assets;
our ability to execute our business strategy for Ally Bank, including its digital focus;
our ability to optimize our automotive finance and insurance businesses and to continue diversifying into and growing other consumer and commercial business lines, including mortgage finance, corporate finance, brokerage, and wealth management;
our ability to develop capital plans that will be approved by the FRB and our ability to implement them, including any payment of dividends or share repurchases;
our ability to effectively manage capital or liquidity consistent with evolving business or operational needs, risk-management standards, and regulatory or supervisory requirements;
our ability to cost-effectively fund our business and operations, including through deposits and the capital markets;
changes in any credit rating assigned to Ally, including Ally Bank;
adverse publicity or other reputational harm to us or our senior officers;
our ability to develop, maintain, or market our products or services or to absorb unanticipated costs or liabilities associated with those products or services;
our ability to innovate, to anticipate the needs of current or future customers, to successfully compete, to increase or hold market share in changing competitive environments, or to deal with pricing or other competitive pressures;
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
the continuing profitability and viability of our dealer-centric automotive finance and insurance businesses, especially in the face of competition from captive finance companies and their automotive manufacturing sponsors and challenges to the dealer’s role as intermediary between manufacturers and purchasers;
our ability to appropriately underwrite loans that we originate or purchase and to otherwise manage credit risk;
changes in the credit, liquidity, or other financial condition of our customers, counterparties, service providers, or competitors;
our ability to effectively deal with economic, business, or market slowdowns or disruptions;
judicial, regulatory, or administrative investigations, proceedings, disputes, or rulings that create uncertainty for, or are adverse to, us or the financial services industry;
our ability to address stricter or heightened regulatory or supervisory requirements and expectations;
the performance and availability of third-party service providers on whom we rely in delivering products and services to our customers and otherwise conducting our business and operations;
our ability to maintain secure and functional financial, accounting, technology, data processing, or other operating systems or infrastructure, including our capacity to withstand cyberattacks;
the adequacy of our corporate governance, risk-management framework, compliance programs, or internal controls over financial reporting, including our ability to control lapses or deficiencies in financial reporting or to effectively mitigate or manage operational risk;
the efficacy of our methods or models in assessing business strategies or opportunities or in valuing, measuring, estimating, monitoring, or managing positions or risk;
our ability to keep pace with changes in technology that affect us or our customers, counterparties, service providers, or competitors;
our ability to successfully make and integrate acquisitions;
the adequacy of our succession planning for key executives or other personnel and our ability to attract or retain qualified employees;
natural or man-made disasters, calamities, or conflicts, including terrorist events and pandemics; 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 (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 or described in any of the Company’s annual, quarterly or current reports.
Any forward-looking statement made by us or on our behalf speaks only as of the date that it was made. We do not undertake to update any forward-looking statement to reflect the impact of events, circumstances, or results that arise after the date that the statement was made, except as required by applicable securities laws. You, however, should consult further disclosures (including disclosures of a forward-looking nature) that we may make in any subsequent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, or Current Report on Form 8-K.
Unless the context otherwise requires, the following definitions apply. The term “loans” means the following consumer and commercial products associated with our direct and indirect financing activities: loans, retail installment sales contracts, lines of credit, and other financing products excluding operating leases. The term “operating leases” means consumer- and commercial-vehicle lease agreements where Ally is the lessor and the lessee is generally not obligated to acquire ownership of the vehicle at lease-end or compensate Ally for the vehicle’s residual value. The terms “lend,” “finance,” and “originate” mean our direct extension or origination of loans, our purchase or acquisition of loans, or our purchase of operating leases as applicable. The term “consumer” means all consumer products associated with our loan and operating-lease activities and all commercial retail installment sales contracts. The term “commercial” means all commercial products associated with our loan activities, other than commercial retail installment sales contracts.
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Selected Financial Data
The selected historical financial information set forth below should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), and our Condensed Consolidated Financial Statements and the notes thereto. The historical financial information presented may not be indicative of our future performance.
The following table presents selected Condensed Consolidated Statement of Comprehensive Income and earnings per common share and market price data.
| |
|
| Three months ended June 30, |
| Six months ended June 30, |
| Three months ended June 30, |
| Six months ended June 30, |
($ in millions, except per share data; shares in thousands) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2019 |
| 2018 |
| 2019 | | 2018 |
Total financing revenue and other interest income |
| $ | 2,232 |
|
| $ | 2,088 |
|
| $ | 4,348 |
|
| $ | 4,138 |
|
| $ | 2,491 |
|
| $ | 2,232 |
|
| $ | 4,924 |
| | $ | 4,348 |
|
Total interest expense |
| 873 |
|
| 700 |
|
| 1,667 |
|
| 1,382 |
|
| 1,095 |
|
| 873 |
|
| 2,150 |
| | 1,667 |
|
Net depreciation expense on operating lease assets |
| 265 |
|
| 321 |
|
| 538 |
|
| 710 |
|
| 239 |
|
| 265 |
|
| 485 |
| | 538 |
|
Net financing revenue and other interest income |
| 1,094 |
|
| 1,067 |
|
| 2,143 |
|
| 2,046 |
|
| 1,157 |
|
| 1,094 |
|
| 2,289 |
|
| 2,143 |
|
Total other revenue |
| 364 |
|
| 388 |
|
| 718 |
|
| 784 |
|
| 395 |
|
| 364 |
|
| 861 |
| | 718 |
|
Total net revenue |
| 1,458 |
|
| 1,455 |
|
| 2,861 |
|
| 2,830 |
|
| 1,552 |
|
| 1,458 |
|
| 3,150 |
|
| 2,861 |
|
Provision for loan losses |
| 158 |
|
| 269 |
|
| 419 |
|
| 540 |
|
| 177 |
|
| 158 |
|
| 459 |
| | 419 |
|
Total noninterest expense |
| 839 |
|
| 810 |
|
| 1,653 |
|
| 1,588 |
|
| 881 |
|
| 839 |
|
| 1,711 |
| | 1,653 |
|
Income from continuing operations before income tax expense |
| 461 |
|
| 376 |
|
| 789 |
|
| 702 |
| |
Income tax expense from continuing operations |
| 113 |
|
| 122 |
|
| 189 |
|
| 235 |
| |
Income from continuing operations before income tax (benefit) expense | |
| 494 |
|
| 461 |
|
| 980 |
|
| 789 |
|
Income tax (benefit) expense from continuing operations | |
| (90 | ) |
| 113 |
|
| 21 |
| | 189 |
|
Net income from continuing operations |
| 348 |
|
| 254 |
|
| 600 |
|
| 467 |
|
| 584 |
|
| 348 |
|
| 959 |
|
| 600 |
|
Income (loss) from discontinued operations, net of tax |
| 1 |
|
| (2 | ) |
| (1 | ) |
| (1 | ) | |
(Loss) income from discontinued operations, net of tax | |
| (2 | ) |
| 1 |
|
| (3 | ) | | (1 | ) |
Net income |
| $ | 349 |
|
| $ | 252 |
|
| $ | 599 |
|
| $ | 466 |
|
| $ | 582 |
|
| $ | 349 |
|
| $ | 956 |
|
| $ | 599 |
|
Basic earnings per common share (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net income from continuing operations |
| $ | 0.81 |
|
| $ | 0.55 |
|
| $ | 1.38 |
|
| $ | 1.01 |
|
| $ | 1.47 |
|
| $ | 0.81 |
|
| $ | 2.39 |
| | $ | 1.38 |
|
Net income |
| 0.81 |
|
| 0.55 |
|
| 1.38 |
|
| 1.01 |
|
| 1.46 |
|
| 0.81 |
|
| 2.39 |
| | 1.38 |
|
Weighted-average common shares outstanding | | 430,628 |
| | 457,891 |
| | 433,405 |
| | 461,904 |
| | 398,100 |
| | 430,628 |
| | 401,098 |
| | 433,405 |
|
Diluted earnings per common share (a): | | | | | | | | | | | | | | | | |
Net income from continuing operations | | $ | 0.80 |
| | $ | 0.55 |
| | $ | 1.38 |
| | $ | 1.01 |
| | $ | 1.46 |
| | $ | 0.80 |
| | $ | 2.38 |
| | $ | 1.38 |
|
Net income | | 0.81 |
| | 0.55 |
| | 1.37 |
| | 1.01 |
| | 1.46 |
| | 0.81 |
| | 2.37 |
| | 1.37 |
|
Weighted-average common shares outstanding | | 432,554 |
| | 458,819 |
| | 435,727 |
| | 462,802 |
| | 399,916 |
| | 432,554 |
| | 402,921 |
| | 435,727 |
|
Market price per common share: | | | | | | | | | |
High closing | | $ | 28.13 |
| | $ | 21.21 |
| | $ | 30.83 |
| | $ | 23.48 |
| |
Low closing | | 25.25 |
| | 18.22 |
| | 25.25 |
| | 18.22 |
| |
Period-end closing | | 26.27 |
| | 20.90 |
| | 26.27 |
| | 20.90 |
| |
Common share information: | | | | | | | | | |
Cash dividends declared per common share | | $ | 0.13 |
| | $ | 0.08 |
| | $ | 0.26 |
| | $ | 0.16 |
| | $ | 0.17 |
| | $ | 0.13 |
| | $ | 0.34 |
| | $ | 0.26 |
|
Period-end common shares outstanding | | 425,752 |
| | 452,292 |
| | 425,752 |
| | 452,292 |
| | 392,775 |
| | 425,752 |
| | 392,775 |
| | 425,752 |
|
| |
(a) | Includes shares related to share-based compensation that vested but were not yet issued for thethree months and six months ended June 30, 2018, and 2017.. |
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
The following tables present selected Condensed Consolidated Balance Sheet and ratio data.
| | June 30, ($ in millions) | | 2018 | | 2017 | | 2019 | | 2018 |
Selected period-end balance sheet data: | | | | | | | | |
Total assets | | $ | 171,345 |
| | $ | 164,345 |
| | $ | 180,448 |
| | $ | 171,345 |
|
Total deposit liabilities | | $ | 98,734 |
| | $ | 86,183 |
| | $ | 116,325 |
| | $ | 98,734 |
|
Long-term debt | | $ | 47,328 |
| | $ | 49,145 |
| | $ | 37,466 |
| | $ | 47,328 |
|
Total equity | | $ | 13,139 |
| | $ | 13,473 |
| | $ | 14,316 |
| | $ | 13,139 |
|
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Financial ratios: | | | | | | | | | | | | | | | | |
Return on average assets (a) | | 0.82 | % | | 0.62 | % | | 0.72 | % | | 0.58 | % | | 1.29 | % | | 0.82 | % | | 1.08 | % | | 0.72 | % |
Return on average equity (a) | | 10.71 | % | | 7.52 | % | | 9.19 | % | | 6.99 | % | | 16.92 | % | | 10.71 | % | | 14.20 | % | | 9.19 | % |
Equity to assets (a) | | 7.68 | % | | 8.27 | % | | 7.78 | % | | 8.31 | % | | 7.64 | % | | 7.68 | % | | 7.58 | % | | 7.78 | % |
Common dividend payout ratio (b) | | 16.05 | % | | 14.55 | % | | 18.84 | % | | 15.84 | % | | 11.64 | % | | 16.05 | % | | 14.23 | % | | 18.84 | % |
Net interest spread (a) (c) | | 2.53 | % | | 2.63 | % | | 2.50 | % | | 2.55 | % | | 2.43 | % | | 2.53 | % | | 2.44 | % | | 2.50 | % |
Net yield on interest-earning assets (a) (d) | | 2.68 | % | | 2.76 | % | | 2.66 | % | | 2.68 | % | | 2.66 | % | | 2.68 | % | | 2.66 | % | | 2.66 | % |
| |
(a) | The ratios were based on average assets and average equity using a combination of monthly and daily average methodologies. |
| |
(b) | Common dividend payout ratio was calculated using basic earnings per common share. |
| |
(c) | Net interest spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities, excluding discontinued operations for the periods shown. |
| |
(d) | Net yield on interest-earning assets represents 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
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, arewere subject to a phase-in period through December 31, 2018. To assess our capital adequacy against the full impact of U.S. Basel III, we also present “fully phased-in” information that reflects regulatory capital rules that will taketook effect onceat the conclusion of the transition period has ended.period. Refer to Note 1716 to the Condensed Consolidated Financial Statements for further information. The following table presents selected regulatory capital data.
| | | | June 30, 2018 | | June 30, 2017 | | June 30, 2019 | | June 30, 2018 |
($ in millions) | | Transitional | | Fully phased-in (a) | | Transitional | | Fully phased-in (a) | | Transitional | | Fully phased-in (a) | | Transitional | | Fully phased-in (a) |
Common Equity Tier 1 capital ratio | | 9.37 | % | | 9.35 | % | | 9.47 | % | | 9.37 | % | | 9.52 | % | | 9.51 | % | | 9.37 | % | | 9.35 | % |
Tier 1 capital ratio | | 11.09 | % | | 11.06 | % | | 11.18 | % | | 11.13 | % | | 11.19 | % | | 11.18 | % | | 11.09 | % | | 11.06 | % |
Total capital ratio | | 12.66 | % | | 12.63 | % | | 12.83 | % | | 12.79 | % | | 12.73 | % | | 12.72 | % | | 12.66 | % | | 12.63 | % |
Tier 1 leverage ratio (to adjusted quarterly average assets) (b) | | 9.21 | % | | 9.21 | % | | 9.51 | % | | 9.51 | % | | 9.05 | % | | 9.05 | % | | 9.21 | % | | 9.21 | % |
Total equity | | $ | 13,139 |
| | $ | 13,139 |
| | $ | 13,473 |
| | $ | 13,473 |
| | $ | 14,316 |
| | $ | 14,316 |
| | $ | 13,139 |
| | $ | 13,139 |
|
Goodwill and certain other intangibles | | (289 | ) | | (289 | ) | | (279 | ) | | (289 | ) | | (281 | ) | | (281 | ) | | (289 | ) | | (289 | ) |
Deferred tax assets arising from net operating loss and tax credit carryforwards (c) | | (251 | ) | | (251 | ) | | (378 | ) | | (473 | ) | | (84 | ) | | (84 | ) | | (251 | ) | | (251 | ) |
Other adjustments | | 666 |
| | 666 |
| | 250 |
| | 250 |
| | (64 | ) | | (64 | ) | | 666 |
| | 666 |
|
Common Equity Tier 1 capital | | 13,265 |
| | 13,265 |
| | 13,066 |
| | 12,961 |
| | 13,887 |
| | 13,887 |
| | 13,265 |
| | 13,265 |
|
Trust preferred securities | | 2,492 |
| | 2,492 |
| | 2,490 |
| | 2,490 |
| | 2,494 |
| | 2,494 |
| | 2,492 |
| | 2,492 |
|
Deferred tax assets arising from net operating loss and tax credit carryforwards | | — |
| | — |
| | (95 | ) | | — |
| |
Other adjustments | | (59 | ) | | (59 | ) | | (44 | ) | | (44 | ) | | (62 | ) | | (62 | ) | | (59 | ) | | (59 | ) |
Tier 1 capital | | 15,698 |
| | 15,698 |
| | 15,417 |
| | 15,407 |
| | 16,319 |
| | 16,319 |
| | 15,698 |
| | 15,698 |
|
Qualifying subordinated debt and other instruments qualifying as Tier 2 | | 1,030 |
| | 1,030 |
| | 1,106 |
| | 1,106 |
| | 1,032 |
| | 1,032 |
| | 1,030 |
| | 1,030 |
|
Qualifying allowance for credit losses and other adjustments | | 1,198 |
| | 1,198 |
| | 1,181 |
| | 1,181 |
| | 1,221 |
| | 1,221 |
| | 1,198 |
| | 1,198 |
|
Total capital | | $ | 17,926 |
| | $ | 17,926 |
| | $ | 17,704 |
| | $ | 17,694 |
| | $ | 18,572 |
| | $ | 18,572 |
| | $ | 17,926 |
| | $ | 17,926 |
|
Risk-weighted assets (d) | | $ | 141,605 |
| | $ | 141,892 |
| | $ | 137,947 |
| | $ | 138,380 |
| | $ | 145,874 |
| | $ | 146,030 |
| | $ | 141,605 |
| | $ | 141,892 |
|
| |
(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 deferred tax assets required to be deducted from capital under U.S. Basel III. |
| |
(d) | Risk-weighted assets are defined by regulation and are generally determined by allocating assets and specified off-balance sheet exposures into various risk categories. |
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Overview
Ally Financial Inc. (together with its consolidated subsidiaries unless the context otherwise requires, otherwise, Ally, the Company,or we, us, or our) is a leading digital financial-services company. As a customer-centric company with passionate customer service and innovative financial solutions, we are relentlessly focused on “Doing It Right” and being a trusted financial-services provider to our consumer, commercial, and corporate customers. We are one of the largest full-service automotive finance operations in the country and offer a wide range of financial services company and top 25 U.S. financial holding company (FHC) offering diversified financialinsurance products to dealerships and services for consumers, businesses, automotive dealers,consumers. Our award-winning online bank (Ally Bank, Member FDIC and corporate clients. Ally operates with a distinctive brand, an innovative approach,Equal Housing Lender) offers mortgage-lending services and a relentless focus on our customers. variety of deposit and other banking products, including savings, money-market, and checking accounts, certificates of deposit (CDs), and individual retirement accounts (IRAs). Additionally, we offer securities-brokerage and investment-advisory services through Ally Invest. Our robust corporate finance business offers capital for equity sponsors and middle-market companies. We are a Delaware corporation and are registered as a bank holding company (BHC) under the Bank Holding Company Act of 1956, as amended, and an FHC a financial holding company under the Gramm-Leach-Bliley Act of 1999, as amended. We are one of the largest full service automotive finance operations in the country with a legacy that dates back to 1919, a deep expertise in automotive lending, and a complementary automotive-focused insurance business. Our wholly-owned banking subsidiary, Ally Bank, has received numerous industry awards for its services and capabilities and is one of the largest and most respected online banks, uniquely positioned for the observed shifting trends in consumer banking preferences for digital banking. Ally Bank’s assets and operating results are included within our Automotive Finance, Mortgage Finance, and Corporate Finance segments, as well as Corporate and Other, based on its underlying business activities.amended.
We offer mortgage lending services and a variety of deposit and other banking products, including CDs, online savings, money market and checking accounts, and IRA products. We also promote a cash back credit card. We have recently integrated a growing digital wealth management and online brokerage platform to enable consumers to have a variety of options in managing their savings and wealth. Additionally, through our corporate finance business, we primarily offer senior secured leveraged cash flow and asset-based loans to middle-market companies.
Discontinued Operations
During 2013 and 2012, certain disposal groups met the criteria to be presented as discontinued operations. The remaining activity relates to previous discontinued operations for which we continue to have wind-down, legal, and minimal operational costs. For all periods presented, the operating results for these operations have been removed from continuing operations. The MD&A has been adjusted to exclude discontinued operations unless otherwise noted.
Primary Business 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.business lines. The following table summarizes the operating results excluding discontinued operations of each line of business.business line. Operating results for each of the business lines of business are more fully described in the MD&A sections that follow.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
($ in millions) | | 2018 | | 2017 | | Favorable/(unfavorable) % change | | 2018 | | 2017 | | Favorable/(unfavorable) % change | | 2019 | | 2018 | | Favorable/(unfavorable) % change | | 2019 | | 2018 | | Favorable/(unfavorable) % change |
Total net revenue | | | | | | | | | | | | | | | | | | | | |
Dealer Financial Services | | | | | | | | | | | | | | | | | | |
Automotive Finance | | $ | 988 |
| | $ | 1,039 |
| | (5) | | $ | 1,963 |
| | $ | 2,032 |
| | (3) | | $ | 1,083 |
| | $ | 988 |
| | 10 | | $ | 2,131 |
| | $ | 1,963 |
| | 9 |
Insurance | | 279 |
| | 259 |
| | 8 | | 537 |
| | 538 |
| | — | | 301 |
| | 279 |
| | 8 | | 673 |
| | 537 |
| | 25 |
Mortgage Finance | | 46 |
| | 33 |
| | 39 | | 90 |
| | 67 |
| | 34 | | 50 |
| | 46 |
| | 9 | | 102 |
| | 90 |
| | 13 |
Corporate Finance | | 71 |
| | 58 |
| | 22 | | 125 |
| | 110 |
| | 14 | | 71 |
| | 71 |
| | — | | 136 |
| | 125 |
| | 9 |
Corporate and Other | | 74 |
| | 66 |
| | 12 | | 146 |
| | 83 |
| | 76 | | 47 |
| | 74 |
| | (36) | | 108 |
| | 146 |
| | (26) |
Total | | $ | 1,458 |
| | $ | 1,455 |
| | — | | $ | 2,861 |
| | $ | 2,830 |
| | 1 | | $ | 1,552 |
| | $ | 1,458 |
| | 6 | | $ | 3,150 |
| | $ | 2,861 |
| | 10 |
Income (loss) from continuing operations before income tax expense | | | | | | | | | | | |
Income (loss) from continuing operations before income tax (benefit) expense | | | | | | | | | | | | |
Dealer Financial Services | | | | | | | | | | | | | | | | | | |
Automotive Finance | | $ | 382 |
| | $ | 347 |
| | 10 | | $ | 650 |
| | $ | 635 |
| | 2 | | $ | 459 |
| | $ | 382 |
| | 20 | | $ | 788 |
| | $ | 650 |
| | 21 |
Insurance | | 11 |
| | (21 | ) | | 152 | | 38 |
| | 19 |
| | 100 | | — |
| | 11 |
| | (100) | | 145 |
| | 38 |
| | n/m |
Mortgage Finance | | 14 |
| | 7 |
| | 100 | | 22 |
| | 16 |
| | 38 | | 14 |
| | 14 |
| | — | | 27 |
| | 22 |
| | 23 |
Corporate Finance | | 58 |
| | 35 |
| | 66 | | 87 |
| | 60 |
| | 45 | | 46 |
| | 58 |
| | (21) | | 59 |
| | 87 |
| | (32) |
Corporate and Other | | (4 | ) | | 8 |
| | (150) | | (8 | ) | | (28 | ) | | 71 | | (25 | ) | | (4 | ) | | n/m | | (39 | ) | | (8 | ) | | n/m |
Total | | $ | 461 |
| | $ | 376 |
| | 23 | | $ | 789 |
| | $ | 702 |
| | 12 | | $ | 494 |
| | $ | 461 |
| | 7 | | $ | 980 |
| | $ | 789 |
| | 24 |
n/m = not meaningful
Our Dealer Financial Services is one of the largest full service automotive finance operations in the country and offers a wide range of financial services and insurance products to approximately 18,900 automotive dealerships and approximately 4.3 million consumer automotive customers. Dealer Financial Services consists of two separate reportable segments—Automotive Finance and Insurance operations.
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Our automotive finance services include providingpurchasing retail installment sales contracts and operating leases from dealers, extending automotive loans and leases,directly to consumers, offering term loans to dealers, financing dealer floorplans and providing other lines of credit to dealers, supplying warehouse lines to companies, fleetautomotive retailers, offering automotive-fleet financing, providing financing to companies and municipalities for the purchase or lease of vehicles, and vehicle remarketingsupplying vehicle-remarketing services. Our success as an automotive finance provider is driven by the consistent and broad range of products and services we offer to dealers that originate loans and leases for their retail customers to acquire new and used vehicles. Ally and other automotive finance providers purchase these loans and leases from automotive dealers, which are independently owned businesses and are the primary customers of our automotive finance business.dealers. The automotive marketplace is dynamic and evolving, and we are focused on meeting the needs of both our dealer and consumer customers and will continuecontinuing to strengthen and expand upon the 18,900approximately 4.4 million consumer accounts in our portfolio and approximately 18,200 dealer relationships we have. To enhanceClearlane, our automotive finance offerings, relationships, and digital capabilities, we recently built upon the platform acquired from the purchase of Blue Yield and introduced Clearlane, an online automotive lender exchange, expandingexpands our direct-to-consumerdirect-to-
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
consumer capabilities and providing an end-to-endprovides a digital platform for consumers seeking financing. Additionally, we continue to identify and cultivate relationships with automotive retailers including those with leading eCommerce platforms. We believe these actions will enable us to respond to the growing trends for a more streamlined and digital automotive financing process to serve both dealers and dealers looking to drive online sales.consumers.
The Growth channel was established to focus on developing dealer relationships beyond those relationships that primarily were developed through our role as a captive finance company historically for the General Motors Company (GM) and Fiat Chrysler Automobiles US LLC (Chrysler) brands, and. The Growth channel was expanded to include our direct-to-consumer lending offering,financing through Clearlane and other channels and our arrangements with online automotive retailers. We have established relationships with thousands of Growth channel dealers through our customer-centric approach and specialized incentive programs designed to drive loyalty amongst dealers to Allyour products and services. The success of the Growth channel has been a key enabler to converting our business model from a focused captive finance company to a leading market competitor. In this channel, we currently have over 12,00011,000 dealer relationships, of which approximately 90%88% are franchised dealers (from(including brands such as Ford, Nissan, Kia, Hyundai, Toyota, Honda, and others), recreational vehicle (RV) dealers, or used vehicle only retailers that 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. We serve approximately 2.4 million end consumers and have active relationships with approximately 4,600 dealerships nationwide across Finance and Insurance (F&I) and Property and Casualty (P&C) products. As part of our focus on offering dealers a broad range of consumer financial and insurance products, we provideoffer vehicle service contracts (VSCs), vehicle maintenance contracts (VMCs), guaranteed asset protection (GAP) products, and other ancillary products desired by consumers. We also underwrite selected commercial insurance coverages, which primarily insure dealers’ wholesale vehicle inventory. Ally Premier Protection is our flagship vehicle service contractVSC offering, which provides coverage for new and used vehicles of virtually all makes and models. We also offer ClearGuard, on the SmartAuction platform, which is a protection product designed to minimize the risk to dealers from arbitration claims for eligible vehicles sold at auction. Additionally, we are the preferred VSC and protection plan provider for GM Canada.
Our Mortgage Finance operations consist of the management of held-for-investment and held-for-sale consumer mortgage finance loan portfolios. We acquire mortgage loans through two primary channels includingOur held-for-investment portfolio includes bulk purchases of high-quality jumbo and low-to-moderate income (LMI) mortgage loans originated by third parties, as well asand a direct-to-consumer mortgage offeringsoffering under the Ally Home brand.
Through the bulk loan channel, we purchase loans from several qualified sellers including direct originators and large aggregators who have the financial capacity to support strong representations and warranties and the industry knowledge and experience to originate high-quality assets. Bulk purchases are made on a servicing-released basis, allowing us to directly oversee servicing activities and manage prepayments through retention modification or refinancing through our direct-to-consumer channel. During the three months and six months ended June 30, 2019, we purchased $678 million and $1.9 billion of mortgage loans that were originated by third parties. Our mortgage loan purchases are held-for-investment.
Through our direct-to-consumer channel, which was introduced late in 2016, we offer a variety of competitively-priced jumbo and conforming fixed- and adjustable-rate mortgage products through a third-party fulfillment provider. Under our current arrangement, our direct-to-consumer conforming mortgages are originated as held-for-sale and sold, while jumbo and LMI mortgages are originated as held-for-investment. Loans originated in the direct-to-consumer channel are sourced by existing Ally Home. customer marketing, prospect marketing on third-party websites, and email or direct mail campaigns. In April of 2019, we announced a strategic partnership with Better.com, which delivers an enhanced end-to-end digital mortgage experience for our customers through our direct-to-consumer channel. Through this partnership, Better.com conducts the processing, underwriting, and closing for Ally’s digital mortgage offering in a highly innovative, scalable, and cost-efficient manner. Ally and Better.com launched a pilot program in nine states during July, with a broader market integration expected by year-end.
The combination of our bulk portfolio purchase program and our direct-to-consumer strategy provides the capacity to expand revenue sources and further grow and diversify our finance receivable portfolio with an attractive asset class while also deepening relationships with existing Ally customers.
Our bulk loan purchase program acquires loans beyond our current customer base and seeks to purchase only from sellers with the financial capacity to support strong representations and warranties and who have the industry knowledge and experience to originate high-quality assets. Our bulk loan purchases are held-for-investment. During the three months and six months ended June 30, 2018, we purchased $852 million and $2.1 billion of mortgage loans that were originated by third parties. Through our direct-to-consumer channel, introduced late in 2016, we offer a variety of competitively-priced jumbo and conforming fixed- and adjustable-rate mortgage products through a third-party fulfillment partner. Under our current arrangement, our direct-to-consumer conforming mortgages are originated as held-for-sale and sold, while jumbo mortgages are originated as held-for-investment. Currently, we retain no mortgage servicing rights associated with loans that are sold. Loans that we retain are serviced by a third party.
Our Corporate Finance operations primarily provide senior secured leveraged cash flow and asset-based loans to mostly U.S.-based middle-market companies. We believe our attractivegrowing deposit-based funding model, coupled with our expanded product offerings and deep industry relationships, provide an advantage over our competition, which includes other banks as well as publicly and privately held finance companies. Our Corporate Finance lending portfolio is almost entirelygenerally composed of first lien, first outfirst-lien, first-out loans. Our primary focus is on businesses owned by private equity sponsors with loans typically used for leveraged buyouts, mergers and acquisitions, debt refinancing, expansions, restructurings, and working capital. The portfolio is well diversified across multiple industries including retail, manufacturing, distribution, service companies,services, and other specialty sectors. These specialty sectors include our Healthcare and Technology Finance and Healthcare verticals. TheIn late 2017, we expanded our Healthcare vertical provides financing across the healthcare spectrum including services, pharmaceuticals, manufacturing, and medical devices and supplies. Our Technology Finance vertical provides financing solutions to venture capital-backed, technology-based companies. Additionally, in late in 2017, we launchedinclude a commercial real estate product focused on lending to skilled nursing facilities, senior housing, medical office buildings, and hospitals. Additionally, we recently launched a new lender finance product, providing senior secured asset-based lending facilities to non-bank middle-market lenders.
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Corporate and Other primarily consists of centralized corporate treasury activities such as management of the cash and corporate investment securities and loan portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative instruments, original issue discount, and the residual impacts of our corporate funds-transfer pricing (FTP) and treasury asset liability management (ALM) activities. Corporate and Other also includes activity related to the Ally CashBack credit card, certain equity investments, which primarily consist of Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock, the management of our legacy mortgage portfolio, which primarily consists of loans originated prior to January 1, 2009, and reclassifications and eliminations between the reportable operating segments.
In May 2017, we launched Ally Invest, our digital brokerage and wealth management offering, that combineswhich enables us to complement our competitive deposit products with low-cost investing through the platform we acquired from the June 2016 acquisition of TradeKing Group, Inc. (TradeKing) with our award-winning online banking products in a single, convenient customer experience that provides low-cost investing with competitive deposit products.. Through Ally Invest, we are able to offer a broader array of personal finance products through a fully-integratedfully integrated digital consumer platform centered around self-directed products and digital advisory services. Our value proposition is based on the combination of attractive pricing, a broad product offering for active and passive investors, and outstanding client-focused and user-friendly customer service that is accessible 24twenty-four hours a day, seven days a week, via the phone, web or email—consistent with the Ally brand. Financial results related to our online brokerage operations are currently included within Corporate and Other.
We continue to invest in enhancing the customer experience with integrated features across product lines on our digital platform. We also continue toplatform, build onupon our existing foundation of approximately 5.9 million consumer automotive financing and primary deposit customers, strong brand, and leverage our innovative culture. Upon launching our first ever enterprise-wide campaign themed “Do It Right,” we introduced a broad audience to our full suite of digital financial services, which emphasizes our relentless customer-centric focus and commitment to constantly create and reinvent our product offerings and digital experiences to meet the needs of consumers. Our product offerings and brand continue to gain traction in the marketplace, as demonstrated by industry recognition of our award-winning direct online bank and strong retention rates of our customer base.
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.business line.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
($ in millions) |
| 2018 |
| 2017 |
| Favorable/(unfavorable) % change | | 2018 | | 2017 | | Favorable/(unfavorable) % change |
| 2019 |
| 2018 |
| Favorable/(unfavorable) % change | | 2019 | | 2018 | | Favorable/(unfavorable) % change |
Net financing revenue and other interest income |
|
|
|
|
| | | | | |
|
|
|
|
| | | | | |
Total financing revenue and other interest income |
| $ | 2,232 |
|
| $ | 2,088 |
|
| 7 | | $ | 4,348 |
| | $ | 4,138 |
| | 5 |
| $ | 2,491 |
|
| $ | 2,232 |
|
| 12 | | $ | 4,924 |
| | $ | 4,348 |
| | 13 |
Total interest expense |
| 873 |
|
| 700 |
|
| (25) | | 1,667 |
| | 1,382 |
| | (21) |
| 1,095 |
|
| 873 |
|
| (25) | | 2,150 |
| | 1,667 |
| | (29) |
Net depreciation expense on operating lease assets |
| 265 |
|
| 321 |
|
| 17 | | 538 |
| | 710 |
| | 24 |
| 239 |
|
| 265 |
|
| 10 | | 485 |
| | 538 |
| | 10 |
Net financing revenue and other interest income |
| 1,094 |
|
| 1,067 |
|
| 3 | | 2,143 |
| | 2,046 |
| | 5 |
| 1,157 |
|
| 1,094 |
|
| 6 | | 2,289 |
| | 2,143 |
| | 7 |
Other revenue |
|
|
|
|
| | | | | |
|
|
|
|
| | | | | |
Insurance premiums and service revenue earned |
| 239 |
|
| 227 |
|
| 5 | | 495 |
| | 468 |
| | 6 |
| 261 |
|
| 239 |
|
| 9 | | 522 |
| | 495 |
| | 5 |
Gain on mortgage and automotive loans, net |
| 1 |
|
| 36 |
|
| (97) | | 2 |
| | 50 |
| | (96) |
| 2 |
|
| 1 |
|
| 100 | | 12 |
| | 2 |
| | n/m |
Other gain on investments, net |
| 27 |
|
| 23 |
|
| 17 | | 15 |
| | 50 |
| | (70) |
| 39 |
|
| 27 |
|
| 44 | | 147 |
| | 15 |
| | n/m |
Other income, net of losses |
| 97 |
|
| 102 |
|
| (5) | | 206 |
| | 216 |
| | (5) |
| 93 |
|
| 97 |
|
| (4) | | 180 |
| | 206 |
| | (13) |
Total other revenue |
| 364 |
|
| 388 |
|
| (6) | | 718 |
| | 784 |
| | (8) |
| 395 |
|
| 364 |
|
| 9 | | 861 |
| | 718 |
| | 20 |
Total net revenue |
| 1,458 |
|
| 1,455 |
|
| — | | 2,861 |
| | 2,830 |
| | 1 |
| 1,552 |
|
| 1,458 |
|
| 6 | | 3,150 |
| | 2,861 |
| | 10 |
Provision for loan losses |
| 158 |
|
| 269 |
|
| 41 | | 419 |
| | 540 |
| | 22 |
| 177 |
|
| 158 |
|
| (12) | | 459 |
| | 419 |
| | (10) |
Noninterest expense |
|
|
|
|
| | | | | |
|
|
|
|
| | | | | |
Compensation and benefits expense |
| 292 |
|
| 265 |
|
| (10) | | 598 |
| | 550 |
| | (9) |
| 296 |
|
| 292 |
|
| (1) | | 614 |
| | 598 |
| | (3) |
Insurance losses and loss adjustment expenses |
| 101 |
|
| 125 |
|
| 19 | | 164 |
| | 213 |
| | 23 |
| 127 |
|
| 101 |
|
| (26) | | 186 |
| | 164 |
| | (13) |
Other operating expenses |
| 446 |
|
| 420 |
|
| (6) | | 891 |
| | 825 |
| | (8) |
| 458 |
|
| 446 |
|
| (3) | | 911 |
| | 891 |
| | (2) |
Total noninterest expense |
| 839 |
|
| 810 |
|
| (4) | | 1,653 |
| | 1,588 |
| | (4) |
| 881 |
|
| 839 |
|
| (5) | | 1,711 |
| | 1,653 |
| | (4) |
Income from continuing operations before income tax expense |
| 461 |
|
| 376 |
|
| 23 | | 789 |
| | 702 |
| | 12 | |
Income tax expense from continuing operations |
| 113 |
|
| 122 |
|
| 7 | | 189 |
| | 235 |
| | 20 | |
Income from continuing operations before income tax (benefit) expense | |
| 494 |
|
| 461 |
|
| 7 | | 980 |
| | 789 |
| | 24 |
Income tax (benefit) expense from continuing operations | |
| (90 | ) |
| 113 |
|
| 180 | | 21 |
| | 189 |
| | 89 |
Net income from continuing operations |
| $ | 348 |
|
| $ | 254 |
|
| 37 | | $ | 600 |
| | $ | 467 |
| | 28 |
| $ | 584 |
|
| $ | 348 |
|
| 68 | | $ | 959 |
| | $ | 600 |
| | 60 |
n/m = not meaningful
We earned net income from continuing operations of $584 million and $959 million for the three months and six months ended June 30, 2019, respectively, compared to $348 million and $600 million for the three months and six months ended June 30, 2018, respectively, compared to $254 million and $467 million for2018. During the three months and six months ended June 30, 2017. During the three months and six months ended June 30, 2018,2019, results were favorably impacted by a decrease inan income tax benefit from the provision for loan losses primarily due to favorablerelease of valuation allowance of approximately $200 million on foreign tax credit performance within our consumer automotive loan portfolio,carryforwards during the second quarter of 2019, and higher net financing revenue across our lending operations, resulting from a continued focus on optimizing portfolio growth within our Automotive Finance operations,driven primarily by higher yields and growth within our Mortgage Finance and Corporate Finance operations. Higher investment securities balances and a more favorable interest rate environment also contributed to higher yields on ourin earning assets. Additionally, resultsResults for the six months ended June 30, 2019, were also favorably impacted by the reduction in the U.S. federal corporate tax rate enacted as a resulthigher market values of the Tax Cuts and Jobs Act of 2017 (the Tax Act), higher insurance premiums and service revenue earned, and lower insurance losses.equity investments primarily within our Insurance operations. These items were partially offset by higher interest expense, lower net operating lease revenue due to runoff of our legacy GM lease portfolio,provision for loan losses, and higher noninterest expense, and lower gains on the sale of automotive loans.expense.
Net financing revenue and other interest income increased $27$63 million and $97$146 million for the three months and six months ended June 30, 2018,2019, respectively, compared to the three months and six months ended June 30, 2017.2018. Within our Automotive Finance operations, consumer automotive financing revenue benefited from improved portfolio yields as a result of our continued focus on expanding risk-adjusted returns, and higher average retail asset levels resulting from sustained asset growth. Commercial automotive net financing revenue also increased due primarily to higher yields resulting from higher benchmark interest rates. Income from our portfolio ofinterest and dividends on investment securities and other earning assets, including cash and cash equivalents, increased $52$60 million and $104$132 million for the three months and six months ended June 30, 2018, respectively,2019, compared to the same periods in 2017,2018, due primarily to growthboth higher yields and higher balances of investment securities balances as we continue to utilize this portfolio to manage liquidity and generate a stable source of income. Net financingFinancing revenue and other interest income within our Mortgage Finance operations was favorably impacted by increased loan balances as a result of bulk purchases of high-quality jumbo and LMI mortgage loans. Net financingloans and direct-to-consumer originations. Financing revenue and other interest income within our Corporate Finance operations was favorably impacted by our strategy to prudently grow assets and our product suite within existing verticals while selectively pursuing opportunities to broaden industry and product diversification. Retail automotive financing revenue continued to benefit from our actions and efforts to reposition our origination profile to focus on capital optimization and risk-adjusted returns, as well as higher average retail asset levels. Commercial automotive financing revenue also increased during both periods due to higher benchmark interest rates, partially offset by a decrease in average outstanding floorplan assets resulting from a reduction in the number of dealer floorplan lines and lower average dealer inventory levels. TheseThe increases to net financing revenue and other interest income were partially offset by increases of 25% and 29% in total interest expense for the runoff ofthree months and six months ended June 30, 2019, respectively, compared to the three months and six months ended June 30, 2018. While we continue to shift borrowings toward more cost-effective deposit funding and reduce our legacydependence on market-based funding through reductions in higher-cost secured
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
GM lease portfolio, which has substantially wound-down as of June 30, 2018. Additionally, total interest expense increased 25% and 21% for the three months and six months ended June 30, 2018, respectively, compared to the same periods in 2017. While we continue to shift borrowings toward more cost-effective deposit funding and to reduce our dependence on market-based funding through reductions in higher-cost secured and unsecured debt, interest expense increased as a result of higher market rates across all funding sources. Additionally, our overall borrowing levels were higher to support the growth in our lending operations. Our total deposit liabilities increased $17.6 billion to $116.3 billion as of June 30, 2019, as compared to $98.7 billion as of June 30, 2018, as compared to $93.3 billion as of December 31, 2017.2018.
Insurance premiums and service revenue earned increased $12was $261 million and $27$522 million for the three months and six months ended June 30, 2018,2019, respectively, compared to $239 million and $495 million for the same periods in 2018. The increases for the three months and six months ended June 30, 2019, were primarily due to higher vehicle inventory insurance rates and portfolio growth.
Gain on mortgage and automotive loans increased $1 million and $10 million for the three months and six months ended June 30, 2019, as compared to the same periods in 2017, primarily due2018. We continue to higher vehicle inventory insurance rates.
Gain on mortgage and automotive loans decreased to $1 million and $2 million for the three months and six months ended June 30, 2018, respectively, as compared to $36 million and $50 million for the same periods in 2017. During the six months ended June 30, 2017, we utilizedselectively utilize whole-loan sales to proactively manage our overall credit exposure, asset levels, funding, and capital utilization, including the sale of previously written-down retailconsumer automotive loans related to consumers in Chapter 13 bankruptcy.bankruptcy.
Other gain on investments was $39 million and $147 million for the three months and six months ended June 30, 2019, respectively, compared to $27 million and $15 million for the three months and six months ended June 30, 2018, respectively, compared to $23 million and $50 million for the same periods in 2017.2018. During the three months ended June 30, 2019, gross realized gains from our available-for-sale securities portfolio increased $23 million due to favorable market conditions as compared to the same period in 2018. This increase was partially offset by lower realized and unrealized gains on equity securities. The gain on investments for the three months and six months ended June 30, 2018,2019, includes $8$75 million of unrealized gains and $32 millionas a result of unrealized losses, respectively, due to changes in the fair value of our portfolio of equity securities. Beginning January 1, 2018, as a resultsecurities, compared to $32 million of a changeunrealized losses in accounting principles, unrealized gains and losses onthe fair value of our portfolio of equity securities are included in net income. Refer to Note 1for the six months ended June 30, 2018.
Other income decreased $4 million and $26 million for the three months and six months ended June 30, 2019, respectively, compared to the Condensed Consolidated Financial Statementssame periods in 2018. The decreases for further discussion.the three months and six months ended June 30, 2019, were primarily due to lower syndication income, lower servicing fee income resulting from lower levels of off-balance sheet consumer automotive serviced loans, and lower remarketing income related to lower operating lease termination volume. Additionally, other income decreased during the six months ended June 30, 2019, due to lower income related to certain equity hedges.
The provision for loan losses was $177 million and $459 million for the three months and six months ended June 30, 2019, respectively, compared to $158 million and $419 million for the same periods in 2018. The increase in provision for loan losses was primarily driven by reserve reductions during the three months and six months ended June 30, 2018, respectively, compared to $269associated with hurricane activity experienced during 2017 within our retail automotive loan portfolio, and a recovery of $6 million recognized within our corporate finance portfolio both during the three months and $540 millionsix months ended June 30, 2018. Additionally, for the same periodssix months ended June 30, 2019, provision expense was unfavorably impacted by two specific corporate finance loan exposures which were within separate industries, each with unique considerations. These items were partially offset by lower net charge-offs in 2017. The decreases in provision forour retail automotive loan losses were primarily driven by our consumer automotive portfolio, wheredespite continued loan portfolio growth, as we experiencedcontinue to experience strong overall credit performance driven by favorable macroeconomic trendsconditions including low unemployment, as well as continued disciplined underwriting and higher recoveries on charge-offs. Results were also favorably impacted by lower than anticipated losses associated with the hurricanes experienced in the third quarter of 2017. These items were partially offset by growth in our consumer automotive portfolio.recoveries. Refer to the Risk Management section of this MD&A for further discussion.discussion on our provision for loan losses.
Noninterest expense was $839increased $42 million and $1.7 billion$58 million for the three months and six months ended June 30, 2018, respectively,2019, as compared to $810 million and $1.6 billion for the same periods in 2017.2018. The increases for the three months ended June 30, 2019, were driven by expenses relatedhigher weather-related losses due to supportingspecific weather events within our Insurance operations. Additionally, noninterest expense increased for three months and six months ended June 30, 2019, to support the growth of our retail depositsconsumer and consumer automotive loan portfolios.commercial product suite. We also continue to make investments in product expansion initiatives to grow our direct-to-consumer mortgage offering, in our technology platform to enhance the customer experience inand expand our digital wealth management offering,capabilities, and in marketing activities to promote brand awareness. Additionally, compensationawareness and benefits expense was impacted by a one-time tax reform-related bonus paid to eligible Ally employees during the first quarter of 2018 as well as certain employee separation expenses incurred during the three months ended June 30, 2018. These increases were partially offset by lower insurance losses and loss adjustment expenses, primarily driven by lower weather-related losses.drive retail deposit growth.
We recognized total income tax expensebenefit from continuing operations of $90 million and income tax expense of $21 million for the three months and six months ended June 30, 2019, respectively, compared to $113 million and $189 million for the three months and six months ended June 30, 2018, respectively, compared to $122 million and $235 million for the same periods in 2017.2018. The decreases in income tax expense for the three months and six months ended June 30, 2018,2019, compared to the same periods in 2017,2018, were primarily due to a release of valuation allowance of approximately $200 million on foreign tax credit carryforwards during the second quarter of 2019. The valuation allowance release during the three months ended June 30, 2019, was primarily driven by our current capacity to engage in certain securitization transactions and the reduction inmarket demand from investors related to these transactions, coupled with the U.S. federal corporate tax rate enacted as a resultanticipated timing of the Tax Act. Thisforecasted expiration of certain tax credit carryforwards. Additionally, the decrease in income tax expense for the six months ended June 30, 2019, compared to the same period in 2018, was partially offset by the tax effects of an increase in pretax earnings, nondeductible FDIC premiums as a result of the Tax Act, and a nonrecurring tax benefit in 2017 from the release of valuation allowance against our capital-in-nature deferred tax assets and foreign tax credit carryforwards.earnings.
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Dealer Financial Services
Results for Dealer Financial Services are presented by reportable segment, which includes our Automotive Finance and Insurance operations.
Automotive Finance
Results of Operations
The following table summarizes the operating results of our Automotive Finance operations. The amounts presented are before the elimination of balances and transactions with our other reportable segments.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
($ in millions) | | 2018 | | 2017 | | Favorable/(unfavorable) % change | | 2018 | | 2017 | | Favorable/(unfavorable) % change | | 2019 | | 2018 | | Favorable/(unfavorable) % change | | 2019 | | 2018 | | Favorable/(unfavorable) % change |
Net financing revenue and other interest income | | | | | | | | | | | | | | | | | | |
Consumer | | $ | 1,058 |
| | $ | 962 |
| | 10 | | $ | 2,070 |
| | $ | 1,886 |
| | 10 | | $ | 1,184 |
| | $ | 1,058 |
| | 12 | | $ | 2,314 |
| | $ | 2,070 |
| | 12 |
Commercial | | 371 |
| | 325 |
| | 14 | | 713 |
| | 629 |
| | 13 | | 412 |
| | 371 |
| | 11 | | 834 |
| | 713 |
| | 17 |
Loans held-for-sale | | | — |
| | — |
| | — | | 1 |
| | — |
| | n/m |
Operating leases | | 374 |
| | 488 |
| | (23) | | 756 |
| | 1,031 |
| | (27) | | 363 |
| | 374 |
| | (3) | | 724 |
| | 756 |
| | (4) |
Other interest income | | 1 |
| | 1 |
| | — | | 3 |
| | 3 |
| | — | | 3 |
| | 1 |
| | n/m | | 4 |
| | 3 |
| | 33 |
Total financing revenue and other interest income | | 1,804 |
| | 1,776 |
| | 2 | | 3,542 |
| | 3,549 |
| | — | | 1,962 |
| | 1,804 |
| | 9 | | 3,877 |
| | 3,542 |
| | 9 |
Interest expense | | 614 |
| | 523 |
| | (17) | | 1,170 |
| | 1,015 |
| | (15) | | 701 |
| | 614 |
| | (14) | | 1,390 |
| | 1,170 |
| | (19) |
Net depreciation expense on operating lease assets | | 265 |
| | 321 |
| | 17 | | 538 |
| | 710 |
| | 24 | | 239 |
| | 265 |
| | 10 | | 485 |
| | 538 |
| | 10 |
Net financing revenue and other interest income | | 925 |
| | 932 |
| | (1) | | 1,834 |
| | 1,824 |
| | 1 | | 1,022 |
| | 925 |
| | 10 | | 2,002 |
| | 1,834 |
| | 9 |
Other revenue | | | | | | | | | | | | | | | | | | |
Gain on automotive loans, net | | — |
| | 35 |
| | (100) | | — |
| | 59 |
| | (100) | | — |
| | — |
| | — | | 8 |
| | — |
| | n/m |
Other income | | 63 |
| | 72 |
| | (13) | | 129 |
| | 149 |
| | (13) | | 61 |
| | 63 |
| | (3) | | 121 |
| | 129 |
| | (6) |
Total other revenue | | 63 |
| | 107 |
| | (41) | | 129 |
| | 208 |
| | (38) | | 61 |
| | 63 |
| | (3) | | 129 |
| | 129 |
| | — |
Total net revenue | | 988 |
| | 1,039 |
| | (5) | | 1,963 |
| | 2,032 |
| | (3) | | 1,083 |
| | 988 |
| | 10 | | 2,131 |
| | 1,963 |
| | 9 |
Provision for loan losses | | 170 |
| | 266 |
| | 36 | | 429 |
| | 534 |
| | 20 | | 180 |
| | 170 |
| | (6) | | 442 |
| | 429 |
| | (3) |
Noninterest expense | | | | | | | | | | | | | | | | | | |
Compensation and benefits expense | | 130 |
| | 125 |
| | (4) | | 261 |
| | 254 |
| | (3) | | 127 |
| | 130 |
| | 2 | | 263 |
| | 261 |
| | (1) |
Other operating expenses | | 306 |
| | 301 |
| | (2) | | 623 |
| | 609 |
| | (2) | | 317 |
| | 306 |
| | (4) | | 638 |
| | 623 |
| | (2) |
Total noninterest expense | | 436 |
| | 426 |
| | (2) | | 884 |
| | 863 |
| | (2) | | 444 |
| | 436 |
| | (2) | | 901 |
| | 884 |
| | (2) |
Income from continuing operations before income tax expense | | $ | 382 |
| | $ | 347 |
| | 10 | | $ | 650 |
| | $ | 635 |
| | 2 | |
Income from continuing operations before income tax (benefit) expense | | | $ | 459 |
| | $ | 382 |
| | 20 | | $ | 788 |
| | $ | 650 |
| | 21 |
Total assets | | $ | 114,915 |
| | $ | 115,447 |
| | — | | $ | 114,915 |
| | $ | 115,447 |
| | — | | $ | 114,955 |
| | $ | 114,915 |
| | — | | $ | 114,955 |
| | $ | 114,915 |
| | — |
n/m = not meaningful
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Components of net operating lease revenue, included in amounts above, were as follows.
|
| | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
($ in millions) | | 2018 | | 2017 | | Favorable/(unfavorable) % change | | 2018 | | 2017 | | Favorable/(unfavorable) % change |
Net operating lease revenue | | | | | | | | | | | | |
Operating lease revenue | | $ | 374 |
| | $ | 488 |
| | (23) | | $ | 756 |
| | $ | 1,031 |
| | (27) |
Depreciation expense | | | | | | | | | | | | |
Depreciation expense on operating lease assets (excluding remarketing gains) | | 281 |
| | 353 |
| | 20 | | 572 |
| | 739 |
| | 23 |
Remarketing gains | | (16 | ) | | (32 | ) | | (50) | | (34 | ) | | (29 | ) | | 17 |
Net depreciation expense on operating lease assets | | 265 |
| | 321 |
| | 17 | | 538 |
| | 710 |
| | 24 |
Total net operating lease revenue | | $ | 109 |
| | $ | 167 |
| | (35) | | $ | 218 |
| | $ | 321 |
| | (32) |
Investment in operating leases, net | | $ | 8,639 |
| | $ | 9,717 |
| | (11) | | $ | 8,639 |
| | $ | 9,717 |
| | (11) |
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
($ in millions) | | 2019 | | 2018 | | Favorable/(unfavorable) % change | | 2019 | | 2018 | | Favorable/(unfavorable) % change |
Net operating lease revenue | | | | | | | | | | | | |
Operating lease revenue | | $ | 363 |
| | $ | 374 |
| | (3) | | $ | 724 |
| | $ | 756 |
| | (4) |
Depreciation expense | | | | | | | | | | | | |
Depreciation expense on operating lease assets (excluding remarketing gains) | | 262 |
| | 281 |
| | 7 | | 523 |
| | 572 |
| | 9 |
Remarketing gains, net | | (23 | ) | | (16 | ) | | 44 | | (38 | ) | | (34 | ) | | 12 |
Net depreciation expense on operating lease assets | | 239 |
| | 265 |
| | 10 | | 485 |
| | 538 |
| | 10 |
Total net operating lease revenue | | $ | 124 |
| | $ | 109 |
| | 14 | | $ | 239 |
| | $ | 218 |
| | 10 |
Investment in operating leases, net | | $ | 8,407 |
| | $ | 8,639 |
| | (3) | | $ | 8,407 |
| | $ | 8,639 |
| | (3) |
The following table presents the average balance and yield of the loan and operating lease portfolios of our Automotive Financing operations.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
($ in millions) |
| Average balance | Yield |
| Average balance | Yield | | Average balance | Yield | | Average balance | Yield |
| Average balance (a) | Yield |
| Average balance (a) | Yield | | Average balance (a) | Yield | | Average balance (a) | Yield |
Finance receivables and loans, net (a) (b) |
|
|
|
|
|
| | | | | | | |
Finance receivables and loans, net (b) | |
|
|
|
|
|
| | | | | | |
Consumer automotive (c) |
| $ | 69,941 |
| 6.08 | % |
| $ | 65,995 |
| 5.80 | % | | $ | 69,337 |
| 5.99 | % | | $ | 65,788 |
| 5.74 | % |
| $ | 72,274 |
| 6.58 | % |
| $ | 69,941 |
| 6.08 | % | | $ | 71,631 |
| 6.53 | % | | $ | 69,337 |
| 5.99 | % |
Commercial |
|
| |
| |
| | | | | | |
|
| |
| |
| | | | | | |
Wholesale floorplan |
| 29,309 |
| 4.12 |
|
| 32,832 |
| 3.25 |
| | 29,334 |
| 3.97 |
| | 32,650 |
| 3.17 |
|
| 29,031 |
| 4.77 |
|
| 29,309 |
| 4.12 |
| | 29,508 |
| 4.80 |
| | 29,334 |
| 3.97 |
|
Other commercial automotive (d) |
| 6,161 |
| 4.56 |
|
| 5,802 |
| 4.15 |
| | 6,132 |
| 4.44 |
| | 5,678 |
| 4.12 |
|
| 5,719 |
| 4.70 |
|
| 6,161 |
| 4.56 |
| | 5,643 |
| 4.72 |
| | 6,132 |
| 4.44 |
|
Investment in operating leases, net (e) |
| 8,583 |
| 5.09 |
|
| 10,109 |
| 6.63 |
| | 8,606 |
| 5.11 |
| | 10,518 |
| 6.15 |
|
| 8,370 |
| 5.94 |
|
| 8,583 |
| 5.09 |
| | 8,379 |
| 5.75 |
| | 8,606 |
| 5.11 |
|
| |
(a) | Average balances are calculated using a combination of monthly and daily average methodology.methodologies. |
| |
(b) | Nonperforming finance receivables and loans are included in the average balances. For information on our accounting policies regarding nonperforming status, refer to Note 1 to the Consolidated Financial Statements in our 20172018 Annual Report on Form 10-K. |
| |
(c) | Includes the effects of derivative financial instruments designated as hedges. |
| |
(d) | Consists primarily of automotive dealer term loans, including those to finance dealership land and buildings, and dealer fleet financing. |
| |
(e) | Yield includes gains on the sale of off-lease vehicles of $23 million and $38 million for the three months and six months ended June 30, 2019, respectively, compared to $16 million and $34 million for the three months and six months ended June 30, 2018, respectively, compared to $32 million and $29 million for the three months and six months ended June 30, 2017.2018. Excluding these gains on sale, the annualized yield would be 4.35% and 4.31%4.84% for both the three months and six months ended June 30, 2018, respectively,2019, compared to 5.36%4.35% and 5.60%4.31% for the three months and six months ended June 30, 2017.2018, respectively. |
Our Automotive Finance operations earned income from continuing operations before income tax expense of $459 million and $788 million for the three months and six months ended June 30, 2019, respectively, compared to $382 million and $650 million for the three months and six months ended June 30, 2018, respectively, compared to $347 million and $635 million for2018. During the three months and six months ended June 30, 2017. During the three months and six months ended June 30, 2018,2019, we continued to focus on repositioning our origination profile to drivedriving capital optimization and expanding risk-adjusted returns. As a result, we experienced higher consumer loan financing revenue, primarily due to an increase in consumer loan portfolio yields and asset levels. We also experienced higher commercial financing revenue due to higher yields resulting from higher benchmark interest rates, partially offset by a decreaserates. Growth in asset balances. Results were favorably impacted by a decrease in provisionfinance revenue for loan losses primarily due to favorable credit performance within our consumer loan portfolio. Results were unfavorably impacted by a decrease in net operating lease revenue fromboth the runoff of our legacy GM lease portfolio, and higher interest expense due to higher benchmark rates.
Consumer financing revenue increased $96 million and $184 million for the three months and six months ended June 30, 2018,2019, was partially offset by higher interest expense driven by higher funding costs and growth in our consumer loan portfolio.
Consumer loan financing revenue increased $126 million and $244 million for the three months and six months ended June 30, 2019, respectively, compared to the same periods in 2017.2018. The increases were primarily due to improved portfolio yields as a result of our continued focus on expanding risk-adjusted returns, as well asand higher average retail asset levels resulting from sustained asset growth.growth, including a continued focus on the used-vehicle portfolio primarily through franchised dealers. Additionally, we have continued to identify and grow relationships with automotive retailers including those with leading eCommerce platforms. Through these actions, we continue to optimize our origination mix and achieve greater portfolio diversification.
Commercial loan financing revenue increased $46$41 million and $84$121 million for the three months and six months ended June 30, 2018,2019, respectively, compared to the same periods in 2017.2018. The increases were primarily due to higher yields resulting from higher benchmark interest rates and anrates. For the three months ended June 30, 2019, the increase in non-floorplan dealer loan balances,was partially offset by a decrease in average outstanding floorplan assets resulting from a reductioncompared to the same period in the number2018.
Management’s Discussion and lower average dealer inventory levels.Analysis
Ally Financial Inc. • Form 10-Q
Interest expense was $701 million and $1.4 billion for the three months and six months ended June 30, 2019, respectively, compared to $614 million and $1.2 billion for the three months and six months ended June 30, 2018, respectively, compared to $523 million and $1.0 billion forin the same periods in 2017.2018. The increases were primarily due to higher funding costs as a result of a rising interest rate environment.and growth in our consumer automotive loan portfolio.
During the three months and six months ended June 30, 2018, we had noWe recorded gains from the sale of automotive loans compared to gains of $35 million and $59$8 million for the same periods in 2017. During the six months ended June 30, 2017, we utilized2019, compared to no gains for the three months and six months ended June 30, 2018. We continue to selectively utilize whole-loan sales to proactively manage our overall credit exposure, asset levels, funding, and capital utilization, including the sale of previously written-down retailconsumer automotive loans related to consumers in Chapter 13 bankruptcy.bankruptcy. There were no such sales during the three months ended June 30, 2019, or the six months ended June 30, 2018.
Other income decreased 13%3% and 6% for both the three months and six months ended June 30, 2018,2019, respectively, compared to the same periods in 2017.2018. The decreases were primarily due to a decrease in remarketing fee income resulting from lower operating lease termination volume, as well as a decrease in servicing fee income resulting from lower levels of off-balance sheet retailconsumer automotive serviced assets, as well as a decrease in remarketing fee income primarily resulting from lower termination volumes.loans.
Total net operating lease revenue decreased $58increased $15 million and $103$21 million for the three months and six months ended June 30, 2018,2019, respectively, compared to the same periods in 2017.2018. These increases were primarily due to favorable performance in our outstanding portfolio of trucks and sport utility vehicles, as well as a more favorable shift in portfolio mix of vehicle type, as our share of sport utility vehicles has increased compared to the same periods in 2018. Additionally, we recognized remarketing gains of $23 million and $38 million for the three months and six months ended June 30, 2019, compared to $16 million and $34 million for the same periods in 2018. The decreasesincreases were primarily due to higher gain per unit, partially offset by a lower number of terminated units. This was partially offset by a reduction in our outstanding portfolio of leased vehicles, primarily due to the runoff of our legacy GM operating lease portfolio, which haswas substantially wound-down as of June 30, 2018. We recognized remarketing gains of $16 million and $34 million for the three months and six months ended June 30, 2018, respectively, compared to gains of $32 million and $29 million for the same periods in 2017. Refer to the Operating Lease Residual Risk Management section of this MD&A for further discussion.
The provision for loan losses was $180 million and $442 million for the three months and six months ended June 30, 2019, respectively, compared to $170 million and $429 million for the same periods in 2018. The increases were largely driven by reserve reductions during the three months and six months ended June 30, 2018, respectively, comparedassociated with hurricane activity experienced during 2017 within our retail automotive loan portfolio. This activity was largely offset by lower net charge-offs, despite continued growth within our retail automotive loan portfolio. We continue to $266 million and $534 million for the same periods in 2017. The decreases in provision for loan losses for the three months and six months ended June 30, 2018, were primarilyexperience strong overall credit performance driven by our consumer automotive portfolio where we experienced strong overall creditfavorable macroeconomic conditions including low unemployment, as well as continued disciplined underwriting, and higher recoveries. Refer to the Risk Management section of this MD&A for further discussion.
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
performance driven by favorable macroeconomic trends including low unemployment, continued disciplined underwriting, and higher recoveries on charge-offs. Results were also favorably impacted by lower than anticipated losses associated with the hurricanes experienced in the third quarter of 2017. These items were partially offset by growth in the consumer automotive loan portfolio. Refer to the 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
For the three months and six months ended June 30, 2018,2019, our average buy rateportfolio yield for retail originationsconsumer automotive loans increased 5250 and 4254 basis points, respectively, relative to the same periods in 2017, without reducing the credit quality of our new and used retail originations.2018. We set our buy rates using a granular, risk-based methodology factoring in several variables including interest costs, projected net average annualized loss rates at the time of origination, anticipated operating costs, and targeted return on equity. The increases in our average buy raterates on recent loan originations were primarily the result of an increaseour continued focus on risk adjusted returns and increased levels of used vehicle loan volume. Over the past several years, we have continued to focus on portfolio diversification and the used vehicle segment, primarily through franchised dealers, which has contributed to higher yields on our consumer automotive loan portfolio. Commensurate with this shift in interest ratesorigination mix, we continue to maintain consistent, disciplined underwriting within our new and our strategy to increase our targeted return on equity through a focused deployment of stockholder capital.used consumer automotive loan originations. The carrying value of our nonprime consumer automotive loans before allowance for loan losses was $8.7$8.5 billion, or approximately 12.3%11.6% of our total consumer automotive loans at June 30, 2018,2019, as compared to $8.8$8.3 billion, or approximately 12.9%11.7% of our total consumer automotive loans at December 31, 2017.2018.
The following table presents retail loan originations by credit tier and product type.
| | | | Used retail | | New retail | | Used retail | | New retail |
Credit Tier (a) | | Volume ($ in billions) | | % Share of volume | | Average FICO® | | Volume ($ in billions) | | % Share of volume | | Average FICO® | | Volume ($ in billions) | | % Share of volume | | Average FICO® | | Volume ($ in billions) | | % Share of volume | | Average FICO® |
Three months ended June 30, 2019 | | | | | | | | | | | |
S | | | $ | 1.3 |
| | 25 | | 738 |
| | $ | 1.5 |
| | 44 |
| | 743 |
|
A | | | 2.2 |
| | 42 | | 678 |
| | 1.4 |
| | 41 |
| | 676 |
|
B | | | 1.2 |
| | 23 | | 645 |
| | 0.4 |
| | 12 |
| | 644 |
|
C | | | 0.4 |
| | 8 | | 607 |
| | 0.1 |
| | 3 |
| | 613 |
|
D | | | 0.1 |
| | 2 | | 519 |
| | — |
| | — |
| | 579 |
|
Total retail originations | | | $ | 5.2 |
| | 100 | | 678 |
| | $ | 3.4 |
| | 100 |
| | 698 |
|
Three months ended June 30, 2018 | | | | | | | | | | | | | | | | | | |
S | | $ | 1.3 |
| | 27 | | 738 |
| | $ | 1.6 |
| | 46 | | 746 |
| | $ | 1.3 |
| | 27 | | 738 |
| | $ | 1.6 |
| | 46 |
| | 746 |
|
A | | 2.1 |
| | 43 | | 675 |
| | 1.3 |
| | 37 | | 675 |
| | 2.1 |
| | 43 | | 675 |
| | 1.3 |
| | 37 |
| | 675 |
|
B | | 1.2 |
| | 24 | | 644 |
| | 0.5 |
| | 14 | | 645 |
| | 1.2 |
| | 24 | | 644 |
| | 0.5 |
| | 14 |
| | 645 |
|
C | | 0.3 |
| | 6 | | 612 |
| | 0.1 |
| | 3 | | 616 |
| | 0.3 |
| | 6 | | 612 |
| | 0.1 |
| | 3 |
| | 616 |
|
Total retail originations | | $ | 4.9 |
| | 100 | | 680 |
| | $ | 3.5 |
| | 100 | | 700 |
| | $ | 4.9 |
| | 100 | | 680 |
| | $ | 3.5 |
| | 100 |
| | 700 |
|
Three months ended June 30, 2017 | | | | | | | | | |
Six months ended June 30, 2019 | | | | | | | | | | | |
S | | $ | 0.9 |
| | 23 | | 757 |
| | $ | 1.5 |
| | 43 | | 765 |
| | $ | 2.7 |
| | 26 | | 738 |
| | $ | 3.0 |
| | 46 |
| | 744 |
|
A | | 1.9 |
| | 48 | | 663 |
| | 1.4 |
| | 40 | | 667 |
| | 4.3 |
| | 41 | | 677 |
| | 2.5 |
| | 38 |
| | 676 |
|
B | | 1.0 |
| | 24 | | 640 |
| | 0.5 |
| | 14 | | 639 |
| | 2.5 |
| | 24 | | 644 |
| | 0.8 |
| | 13 |
| | 643 |
|
C | | 0.2 |
| | 5 | | 608 |
| | 0.1 |
| | 3 | | 609 |
| | 0.8 |
| | 8 | | 608 |
| | 0.2 |
| | 3 |
| | 612 |
|
D | | | 0.1 |
| | 1 | | 537 |
| | — |
| | — |
| | 571 |
|
Total retail originations | | $ | 4.0 |
| | 100 | | 676 |
| | $ | 3.5 |
| | 100 | | 698 |
| | $ | 10.4 |
| | 100 | | 680 |
| | $ | 6.5 |
| | 100 |
| | 699 |
|
Six months ended June 30, 2018 | | | | | | | | | | | | | | | | | | | | |
S | | $ | 2.7 |
| | 28 | | 738 |
| | $ | 3.4 |
| | 48 | | 747 |
| | $ | 2.7 |
| | 28 | | 738 |
| | $ | 3.4 |
| | 48 |
| | 747 |
|
A | | 4.1 |
| | 42 | | 674 |
| | 2.5 |
| | 35 | | 675 |
| | 4.1 |
| | 42 | | 674 |
| | 2.5 |
| | 35 |
| | 675 |
|
B | | 2.3 |
| | 24 | | 643 |
| | 1.0 |
| | 14 | | 645 |
| | 2.3 |
| | 24 | | 643 |
| | 1.0 |
| | 14 |
| | 645 |
|
C | | 0.6 |
| | 6 | | 609 |
| | 0.2 |
| | 3 | | 614 |
| | 0.6 |
| | 6 | | 609 |
| | 0.2 |
| | 3 |
| | 614 |
|
Total retail originations | | $ | 9.7 |
| | 100 | | 681 |
| | $ | 7.1 |
| | 100 | | 702 |
| | $ | 9.7 |
| | 100 | | 681 |
| | $ | 7.1 |
| | 100 |
| | 702 |
|
Six months ended June 30, 2017 | | | | | | | | | |
S | | $ | 1.9 |
| | 23 | | 758 |
| | $ | 3.1 |
| | 43 | | 765 |
| |
A | | 3.8 |
| | 46 | | 664 |
| | 2.8 |
| | 39 | | 668 |
| |
B | | 2.1 |
| | 26 | | 640 |
| | 1.1 |
| | 15 | | 641 |
| |
C | | 0.4 |
| | 5 | | 607 |
| | 0.2 |
| | 3 | | 610 |
| |
Total retail originations | | $ | 8.2 |
| | 100 | | 677 |
| | $ | 7.2 |
| | 100 | | 700 |
| |
| |
(a) | Represents Ally’s internal credit score, incorporating numerous borrower and structure attributes including: severity and aging of delinquency; number of credit inquiries; loan-to-value (LTV) ratio; and payment-to-income ratio. We periodically update our underwriting scorecard, which can have an impact on our credit tier scoring. We originated an insignificant amount of retail loans classified below Tier C during the periods presented.three months and six months ended June 30, 2018. |
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
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, | | Three months ended June 30, | | Six months ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
0–71 | | 19 | % | | 19 | % | | 20 | % | | 19 | % | | 19 | % | | 19 | % | | 20 | % | | 20 | % |
72–75 | | 68 |
| | 68 |
| | 67 |
| | 67 |
| | 66 |
| | 68 |
| | 66 |
| | 67 |
|
76 + | | 13 |
| | 13 |
| | 13 |
| | 14 |
| | 15 |
| | 13 |
| | 14 |
| | 13 |
|
Total retail originations (a) | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Retail originations with a term of 76 months or more represented 13%15% and 14% of total retail originations for both the three months and six months ended June 30, 2018,2019, respectively, compared to 13% for both the three months and 14% for the same periods in 2017.six months ended June 30, 2018. Substantially all of the loans originated with a term of 76 months or more during the three months and six months ended June 30, 2018,2019, and 2017,2018, were considered to be prime and in credit tiers S, A, or B. We define prime retailconsumer automotive loans primarily as those loans with a FICO® Score (or an equivalent score) at origination of 620 or greater.
The following table presents the percentage of total outstanding retail loans by origination year.
| | June 30, | | 2018 | | 2017 | | 2019 | | 2018 |
Pre-2014 | | 2 | % | | 7 | % | |
2014 | | 5 |
| | 10 |
| |
Pre-2015 | | | 3 | % | | 7 | % |
2015 | | 14 |
| | 25 |
| | 7 |
| | 14 |
|
2016 | | 23 |
| | 36 |
| | 14 |
| | 23 |
|
2017 | | 33 |
| | 22 |
| | 22 |
| | 33 |
|
2018 | | 23 |
| | — |
| | 32 |
| | 23 |
|
2019 | | | 22 |
| | — |
|
Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
The 2019, 2018, 2017, and 20162017 vintages comprise 79%76% of the overall retail portfolio as of June 30, 2018,2019, and have higher average buy rates than older vintages. The increase in average buy rates was due to the execution of our targeted underwriting strategy to focus on expanding risk-adjusted returns.
The following tables present the total retail loan and operating lease origination dollars and percentage mix by product type and by channel.
| | | | Consumer automotive financing originations | | % Share of Ally originations | | Consumer automotive financing originations | | % Share of Ally originations |
Three months ended June 30, ($ in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Used retail | | $ | 4,924 |
| | $ | 4,005 |
| | 51 | | 47 | | $ | 5,259 |
| | $ | 4,924 |
| | 54 | | 51 |
New retail standard | | 3,365 |
| | 3,437 |
| | 35 | | 40 | | 3,368 |
| | 3,365 |
| | 34 | | 35 |
Lease | | 1,228 |
| | 1,115 |
| | 13 | | 13 | | 1,060 |
| | 1,228 |
| | 11 | | 13 |
New retail subvented | | 62 |
| | 42 |
| | 1 | | — | | 56 |
| | 62 |
| | 1 | | 1 |
Total consumer automotive financing originations (a) | | $ | 9,579 |
| | $ | 8,599 |
| | 100 | | 100 | | $ | 9,743 |
| | $ | 9,579 |
| | 100 | | 100 |
| |
(a) | Includes Commercial Services Group (CSG) originations of $892 million$1.0 billion and $874$892 million for the three months ended June 30, 2018,2019, and 2017,2018, respectively, and RV originations of $90 million and $131 million for the three months ended June 30, 2018, and 2017, respectively.2018. |
| | | | Consumer automotive financing originations | | % Share of Ally originations | | Consumer automotive financing originations | | % Share of Ally originations |
Six months ended June 30, ($ in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Used retail | | $ | 9,693 |
| | $ | 8,216 |
| | 51 |
| | 47 | | $ | 10,411 |
| | $ | 9,693 |
| | 55 | | 51 |
New retail standard | | 6,971 |
| | 7,130 |
| | 37 |
| | 41 | | 6,417 |
| | 6,971 |
| | 34 | | 37 |
Lease | | 2,275 |
| | 2,039 |
| | 12 |
| | 12 | | 1,943 |
| | 2,275 |
| | 10 | | 12 |
New retail subvented | | 104 |
| | 79 |
| | — |
| | — | | 123 |
| | 104 |
| | 1 | | — |
Total consumer automotive financing originations (a) | | $ | 19,043 |
| | $ | 17,464 |
| | 100 |
| | 100 | | $ | 18,894 |
| | $ | 19,043 |
| | 100 | | 100 |
| |
(a) | Includes CSG originations of $2.0 billion and $1.9 billion for both the six months ended June 30, 2019, and 2018, and 2017,respectively, and RV originations of $190 million and $261 million for the six months ended June 30, 2018, and 2017, respectively.2018. |
|
| | | | | | | | | | | | |
| | Consumer automotive financing originations | | % Share of Ally originations |
Three months ended June 30, ($ in millions) | | 2018 | | 2017 | | 2018 | | 2017 |
Growth channel | | $ | 4,319 |
| | $ | 3,494 |
| | 45 | | 41 |
Chrysler dealers | | 2,719 |
| | 2,563 |
| | 28 | | 30 |
GM dealers | | 2,541 |
| | 2,542 |
| | 27 | | 29 |
Total consumer automotive financing originations | | $ | 9,579 |
| | $ | 8,599 |
| | 100 | | 100 |
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
| | | | Consumer automotive financing originations | | % Share of Ally originations | | Consumer automotive financing originations | | % Share of Ally originations |
Six months ended June 30, ($ in millions) | | 2018 | | 2017 | | 2018 | | 2017 | |
Three months ended June 30, ($ in millions) | | | 2019 | | 2018 | | 2019 | | 2018 |
Growth channel | | $ | 8,502 |
| | $ | 6,996 |
| | 45 | | 40 | | $ | 4,862 |
| | $ | 4,319 |
| | 50 | | 45 |
Chrysler dealers | | | 2,450 |
| | 2,719 |
| | 25 | | 28 |
GM dealers | | 5,387 |
| | 5,409 |
| | 28 | | 31 | | 2,431 |
| | 2,541 |
| | 25 | | 27 |
Chrysler dealers | | 5,154 |
| | 5,059 |
| | 27 | | 29 | |
Total consumer automotive financing originations | | $ | 19,043 |
| | $ | 17,464 |
| | 100 | | 100 | | $ | 9,743 |
| | $ | 9,579 |
| | 100 | | 100 |
|
| | | | | | | | | | | | |
| | Consumer automotive financing originations | | % Share of Ally originations |
Six months ended June 30, ($ in millions) | | 2019 | | 2018 | | 2019 | | 2018 |
Growth channel | | $ | 9,353 |
| | $ | 8,502 |
| | 50 | | 45 |
GM dealers | | 4,805 |
| | 5,387 |
| | 25 | | 28 |
Chrysler dealers | | 4,736 |
| | 5,154 |
| | 25 | | 27 |
Total consumer automotive financing originations | | $ | 18,894 |
| | $ | 19,043 |
| | 100 | | 100 |
During the three months and six months ended June 30, 2018,2019, total consumer loan and operating lease originations increased $980$164 million and $1.6 billion,decreased $149 million, respectively, compared to the same periods in 2017. The increases were2018. For the three months ended June 30, 2019, the increase was primarily due to larger volumeincreased originations from the Growth channel, which was partially offset by lower originations from the Chrysler and GM channels. For the six months ended June 30, 2019, the decrease was primarily due to lower originations from the Chrysler and GM channels, which was partially offset by increased originations from the Growth channel. Over the past several years we have continued to diversify our portfolio through the Growth channel, including increased levels of used vehicle loan volume, which we view as an attractive asset class consistent with our continued focus on obtaining appropriate risk-adjusted returns.
We have included origination metrics by loan term and FICO® Score within this MD&A. However, the proprietary way we evaluate risk is based on multiple inputs as described in the section titled Automotive Financing Volume — Volume—Acquisition and Underwriting within the MD&A in our 20172018 Annual Report on Form 10-K.
The following tables present the percentage of total retail loan and operating lease originations, in dollars, by FICO® Score and product type.
| | | | Used | | New | | Used retail | | New retail | | Lease |
Three months ended June 30, | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
740 + | | 18 | % | | 17 | % | | 25 | % | | 26 | % | | 17 | % | | 18 | % | | 23 | % | | 25 | % | | 50 | % | | 48 | % |
739–660 | | 39 |
| | 36 |
| | 34 |
| | 32 |
| |
659–620 | | 28 |
| | 30 |
| | 22 |
| | 21 |
| |
619–540 | | 12 |
| | 13 |
| | 6 |
| | 9 |
| |
660–739 | | | 39 |
| | 39 |
| | 35 |
| | 34 |
| | 34 |
| | 35 |
|
620–659 | | | 25 |
| | 28 |
| | 20 |
| | 22 |
| | 10 |
| | 10 |
|
540–619 | | | 13 |
| | 12 |
| | 7 |
| | 6 |
| | 4 |
| | 5 |
|
< 540 | | 1 |
| | 2 |
| | 1 |
| | 1 |
| | 2 |
| | 1 |
| | 1 |
| | 1 |
| | — |
| | — |
|
Unscored (a) | | 2 |
| | 2 |
| | 12 |
| | 11 |
| | 4 |
| | 2 |
| | 14 |
| | 12 |
| | 2 |
| | 2 |
|
Total consumer automotive financing originations | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
| |
(a) | Unscored are primarily CSG contracts with business entities that have no FICO® Score. |
| | | | Used | | New | | Used retail | | New retail | | Lease |
Six months ended June 30, | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
740 + | | 18 | % | | 18 | % | | 26 | % | | 27 | % | | 18 | % | | 19 | % | | 24 | % | | 26 | % | | 48 | % | | 48 | % |
739–660 | | 38 |
| | 36 |
| | 34 |
| | 32 |
| |
659–620 | | 28 |
| | 30 |
| | 21 |
| | 21 |
| |
619–540 | | 12 |
| | 13 |
| | 6 |
| | 8 |
| |
660–739 | | | 39 |
| | 38 |
| | 34 |
| | 34 |
| | 34 |
| | 35 |
|
620–659 | | | 25 |
| | 28 |
| | 20 |
| | 21 |
| | 11 |
| | 10 |
|
540–619 | | | 12 |
| | 12 |
| | 6 |
| | 6 |
| | 5 |
| | 5 |
|
< 540 | | 2 |
| | 1 |
| | 1 |
| | 1 |
| | 2 |
| | 1 |
| | 1 |
| | 1 |
| | — |
| | — |
|
Unscored (a) | | 2 |
| | 2 |
| | 12 |
| | 11 |
| | 4 |
| | 2 |
| | 15 |
| | 12 |
| | 2 |
| | 2 |
|
Total consumer automotive financing originations | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
| |
(a) | Unscored are primarily CSG contracts with business entities that have no FICO® Score. |
Originations with a FICO® Score of less than 620 (considered nonprime) represented 10%11% of total consumer loan and operating lease originations for both the three months and six months ended June 30, 2018,2019, and 11%10% for both the three months and six months ended June 30, 2017.2018. Consumer loans and operating leases with FICO® Scores of less than 540 continued to comprise only 1% of total originations for the
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
three months and six months ended June 30, 2018.2019. Nonprime applications that are not automatically declined by our proprietary credit-scoring models for risk reasons are manually reviewed and decisioned by an experienced underwriting team. The nonprime portfolio is subject to more stringent underwriting criteria for certain loan attributes (e.g., payment-to-income, mileage, and maximum amount financed) and generally does not include any loans with a term of 76 months or more. For discussion of our credit risk managementcredit-risk-management practices and performance, refer to the section titled Risk Management.
For discussion of manufacturer marketing incentives, refer to the section titled Automotive Financing Volume—Manufacturer Marketing Incentives within the MD&A in our 20172018 Annual Report on Form 10-K, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations — Automotive Finance Operations.10-K.
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Commercial Wholesale Financing Volume
The following table presents the percentage of average balance of our commercial wholesale floorplan finance receivables, in dollars, by product type and by channel.
| | | | Average balance | | Average balance | | Average balance | | Average balance |
| | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
($ in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
GM new vehicles | | 42 | % | | 51 | % | | 42 | % | | 50 | % | | 41 | % | | 42 | % | | 40 | % | | 42 | % |
Chrysler new vehicles | | 31 |
| | 25 |
| | 30 |
| | 25 |
| | 33 |
| | 31 |
| | 33 |
| | 30 |
|
Growth new vehicles | | 14 |
| | 13 |
| | 15 |
| | 13 |
| | 14 |
| | 14 |
| | 14 |
| | 15 |
|
Used vehicles | | 13 |
| | 11 |
| | 13 |
| | 12 |
| | 12 |
| | 13 |
| | 13 |
| | 13 |
|
Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
Total commercial wholesale finance receivables | | $ | 29,309 |
| | $ | 32,832 |
| | $ | 29,334 |
| | $ | 32,650 |
| | $ | 29,031 |
| | $ | 29,309 |
| | $ | 29,508 |
| | $ | 29,334 |
|
Average commercial wholesale financing receivables outstanding decreased $3.5 billion$278 million and $3.3 billionincreased $174 million during the three months and six months ended June 30, 2018,2019, respectively, compared to the same periods in 2017.2018. The decreases weredecrease for the three months ended June 30, 2019, was primarily due todriven by a reduction in the number of GM dealer relationships due to the competitive environment across the automotive lending market, partially offset by higher average vehicle prices. The increase for the six months ended June 30, 2019, was primarily driven by higher average vehicle prices, as well as lower dealerincreased inventory levels duringat GM and Chrysler dealers. These two factors were partially offset by a reduction in the period.number of GM and Chrysler dealer relationships due to the competitive environment across the automotive lending market. Dealer inventory levels are dependent on a number of factors, including manufacturer production schedules and vehicle mix, sales incentives, and industry sales—all of which can influence future wholesale balances.
Other Commercial Automotive Financing
We also provide other forms of commercial financing for the automotive industry including automotive dealer term and revolving loans and automotive fleet financing. Automotive dealer term and revolving loans are loans that we make to dealers to finance other aspects of the dealership business, including acquisitions. These loans are usually secured by real estate and/or other dealership assets and are typically personally guaranteed by the individual owners of the dealership. Automotive fleet financing credit lines may be obtained by dealers, their affiliates, and other independent companies that are used to purchase vehicles, which they lease or rent to others. Other commercial automotive loans inclusive of our commercial lease portfolio, increased 6%decreased 7% and 8% for the three months and six months ended June 30, 2018,2019, respectively, compared to the same periods in 2017,2018, to an average of $6.2$5.7 billion and $6.1$5.6 billion.
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Insurance
Results of Operations
The following table summarizes the operating results of our Insurance operations. The amounts presented are before the elimination of balances and transactions with our other reportable segments.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
($ in millions) | | 2018 | | 2017 | | Favorable/(unfavorable) % change | | 2018 | | 2017 | | Favorable/(unfavorable) % change | | 2019 | | 2018 | | Favorable/(unfavorable) % change | | 2019 | | 2018 | | Favorable/(unfavorable) % change |
Insurance premiums and other income | | | | | | | | | | | | | | | | | | |
Insurance premiums and service revenue earned | | $ | 239 |
| | $ | 227 |
| | 5 | | $ | 495 |
| | $ | 468 |
| | 6 | | $ | 261 |
| | $ | 239 |
| | 9 | | $ | 522 |
| | $ | 495 |
| | 5 |
Interest and dividends on investment securities and cash and cash equivalents, net (a) | | 13 |
| | 14 |
| | (7) | | 25 |
| | 29 |
| | (14) | | 15 |
| | 13 |
| | 15 | | 27 |
| | 25 |
| | 8 |
Other gain on investments, net (b) | | 25 |
| | 15 |
| | 67 | | 11 |
| | 36 |
| | (69) | | 23 |
| | 25 |
| | (8) | | 118 |
| | 11 |
| | n/m |
Other income | | 2 |
| | 3 |
| | (33) | | 6 |
| | 5 |
| | 20 | | 2 |
| | 2 |
| | — | | 6 |
| | 6 |
| | — |
Total insurance premiums and other income | | 279 |
| | 259 |
| | 8 | | 537 |
| | 538 |
| | — | | 301 |
| | 279 |
| | 8 | | 673 |
| | 537 |
| | 25 |
Expense | | | | | | | | | | | | | | | | | | |
Insurance losses and loss adjustment expenses | | 101 |
| | 125 |
| | 19 | | 164 |
| | 213 |
| | 23 | | 127 |
| | 101 |
| | (26) | | 186 |
| | 164 |
| | (13) |
Acquisition and underwriting expense | | | | | | | | | | | | | | | | | | |
Compensation and benefits expense | | 18 |
| | 18 |
| | — | | 39 |
| | 37 |
| | (5) | | 20 |
| | 18 |
| | (11) | | 41 |
| | 39 |
| | (5) |
Insurance commissions expense | | 109 |
| | 104 |
| | (5) | | 219 |
| | 203 |
| | (8) | | 117 |
| | 109 |
| | (7) | | 231 |
| | 219 |
| | (5) |
Other expenses | | 40 |
|
| 33 |
| | (21) | | 77 |
| | 66 |
| | (17) | | 37 |
| | 40 |
| | 8 | | 70 |
| | 77 |
| | 9 |
Total acquisition and underwriting expense | | 167 |
| | 155 |
| | (8) | | 335 |
| | 306 |
| | (9) | | 174 |
| | 167 |
| | (4) | | 342 |
| | 335 |
| | (2) |
Total expense | | 268 |
| | 280 |
| | 4 | | 499 |
| | 519 |
| | 4 | | 301 |
| | 268 |
| | (12) | | 528 |
| | 499 |
| | (6) |
Income (loss) from continuing operations before income tax expense | | $ | 11 |
| | $ | (21 | ) | | n/m | | $ | 38 |
| | $ | 19 |
| | 100 | |
Income from continuing operations before income tax (benefit) expense | | | $ | — |
| | $ | 11 |
| | (100) | | $ | 145 |
| | $ | 38 |
| | n/m |
Total assets | | $ | 7,634 |
| | $ | 7,308 |
| | 4 | | $ | 7,634 |
| | $ | 7,308 |
| | 4 | | $ | 8,241 |
| | $ | 7,634 |
| | 8 | | $ | 8,241 |
| | $ | 7,634 |
| | 8 |
Insurance premiums and service revenue written | | $ | 278 |
| | $ | 220 |
| | 26 | | $ | 553 |
| | $ | 460 |
| | 20 | | $ | 314 |
| | $ | 278 |
| | 13 | | $ | 619 |
| | $ | 553 |
| | 12 |
Combined ratio (c) | | 111.2 | % | | 122.1 | % | | 99.6 | % | | 109.8 | % | | | 114.4 | % | | 111.2 | % | | 100.0 | % | | 99.6 | % | |
n/m = not meaningful
| |
(a) | Includes interest expense of $19 million and $38 million for the three months and six months ended June 30, 2019, respectively, and $16 million and $32 million for the three months and six months ended June 30, 2018, respectively, and $13 million and $24 million for the three months and six months ended June 30, 2017. Amounts for the three months and six months endedJune 30, 2017, were adjusted to include $2 million and $3 million, respectively, of interest on cash and cash equivalents previously classified as other income to conform to the current period presentation.2018. |
| |
(b) | Other gain on investments for the three months ended June 30, 2018, includesIncludes net unrealized gains on equity securitiesinvestments of $8 million. Other loss on investments$4 million and $69 million for the three months and six months ended June 30, 2019, respectively, $8 million of net unrealized gains for the three months ended June 30, 2018, includesand net unrealized losses on equity securities of $27 million. These are included in net income as a result ofmillion for the adoption of Accounting Standards Update (ASU) 2016-01 on January 1,six months ended June 30, 2018.
|
| |
(c) | Management uses a combined ratio as a primary measure of underwriting profitability. Underwriting profitability is indicated by a combined ratio under 100% and is calculated as the sum of all incurred losses and expenses (excluding interest and income tax expense) divided by the total of premiums and service revenues earned and other income. |
Our Insurance operations earned income from continuing operations before income tax expense ofwas $0 million during the three months ended June 30, 2019, and $145 million for the six months ended June 30, 2019, compared to $11 million and $38 million for the three months and six months ended June 30, 2018, respectively,respectively. The decrease for the three months ended June 30, 2019, was primarily due to higher weather losses in 2019, compared to a loss of $21 million and income of $19 millionlower than average weather losses for the three months and six months ended June 30, 2017.2018. The increase for the threesix months ended June 30, 2018,2019, was primarily driven by lower weather-related losses, higher vehicle inventory insurance rates, and unrealized$118 million of gains on investments of $8 million related to the increase in fair valueequity investments, compared to $11 million of equity securities. The increasegains for the six months ended June 30, 2018, was primarily driven by lower weather-related losses and higher vehicle inventory insurance rates. This increase was offset by unrealized losses on investments of $27 million related to the decrease in fair value of equity securities. As further described in Note 1 to the Condensed Consolidated Financial Statements, we adopted ASU 2016-01 on January 1, 2018, which requires that equity investments be measured at fair value with changes in fair value recognized in net income instead of through other comprehensive (loss) income.2018.
Insurance premiums and service revenue earned was $261 million and $522 million for the three months and six months ended June 30, 2019, respectively, compared to $239 million and $495 million for the three months and six months ended June 30, 2018, respectively, compared to $227 million and $468 million2018. The increases for the three months and six months ended June 30, 2017. The increase for the three months and six months ended June 30, 2018, was2019, were primarily due to higher vehicle inventory insurance rates.rates and portfolio growth.
Insurance losses and loss adjustment expenses totaled $127 million and $186 million for the three months and six months ended June 30, 2019, respectively, compared to $101 million and $164 million for the same periods in 2018. The increases for the three months and six months ended June 30, 2018, respectively, compared2019, were primarily driven by higher weather-related losses due to $125 millionspecific weather events and $213 millionportfolio growth within our vehicle inventory insurance business. Higher weather losses contributed to an increase in the combined ratio to 114.4% and 100.0% for the same periods in 2017. The decreases for the three months and six months ended June 30, 2018, were primarily driven by lower weather-related losses. The decline2019, respectively, compared to 111.2% and 99.6% for the three months and six months ended June 30, 2018, was2018. In April 2019, we renewed our annual reinsurance program and continue to utilize this coverage to manage our risk of weather-related loss.
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
also driven by more severe weather-related losses incurred during the three months ended March 31, 2017, prior to entering into a reinsurance agreement in April 2017. The lower weather losses primarily drove the decrease in the combined ratio to 111.2% and 99.6% for the three months and six months ended June 30, 2018, respectively, compared to 122.1% and 109.8% for the three months and six months ended June 30, 2017. In April 2018, we renewed our annual reinsurance program and continue to utilize such coverage to manage our risk of weather loss.
Premium and Service Revenue Written
The following table summarizes premium and service revenue written by insurance product.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
($ in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Vehicle service contracts |
|
|
|
| | | | |
|
|
|
| | | | |
New retail |
| $ | 124 |
|
| $ | 108 |
| | $ | 231 |
| | $ | 211 |
|
| $ | 117 |
|
| $ | 124 |
| | $ | 217 |
| | $ | 231 |
|
Used retail |
| 143 |
|
| 119 |
| | 273 |
| | 232 |
|
| 167 |
|
| 143 |
| | 325 |
| | 273 |
|
Reinsurance (a) |
| (42 | ) |
| (51 | ) | | (88 | ) | | (100 | ) |
| (45 | ) |
| (42 | ) | | (100 | ) | | (88 | ) |
Total vehicle service contracts (b) |
| 225 |
|
| 176 |
| | 416 |
| | 343 |
|
| 239 |
| | 225 |
| | 442 |
| | 416 |
|
Vehicle inventory insurance(c) |
| 27 |
|
| 20 |
| | 89 |
| | 72 |
|
| 44 |
|
| 27 |
| | 120 |
| | 89 |
|
Other finance and insurance (c) |
| 26 |
|
| 24 |
| | 48 |
| | 45 |
| |
Other (d) | |
| 31 |
|
| 26 |
| | 57 |
| | 48 |
|
Total |
| $ | 278 |
|
| $ | 220 |
| | $ | 553 |
| | $ | 460 |
|
| $ | 314 |
|
| $ | 278 |
| | $ | 619 |
| | $ | 553 |
|
| |
(a) | Reinsurance represents the transfer of premiums and risk from an Ally insurance company to a third-party insurance company. |
| |
(b) | VSC revenue is earned over the life of the service contract on a basis proportionate to the anticipated cost pattern.Refer to the section titled Recently Adopted Accounting Standards in Note 1 to the Condensed Consolidated Financial Statements for further information regarding our adoption of the amendments to the revenue recognition principles of Accounting Standards Codification 606, Revenue from Contracts with Customers, and Note 2 to the Condensed Consolidated Financial Statements for further discussion of this revenue stream and the related impacts of adoption. |
| |
(c) | Other finance andVehicle inventory insurance includes dealer ancillary products. |
| |
(d) | Other products include GAP coverage, VMCs, ClearGuard, and other ancillary products. |
Insurance premiums and service revenue written was $314 million and $619 million for the three months and six months ended June 30, 2019, respectively, compared to $278 million and $553 million for the same periods in 2018. The increases for the three months and six months ended June 30, 2018, respectively, compared to $220 million and $460 million for the same periods in 2017. The increase for the three months and six months ended June 30, 2018, was2019, were primarily due to highergrowth in VSC and vehicle inventory insurance rates, higher VSC volume, and lower dealer reinsurance participation.products, with continued momentum in the Growth channel, which represents our non-GM volume.
Cash and Investments
A significant aspect of our Insurance operations is the investment of proceeds from premiums and other revenue sources. We use these investments to satisfy our obligations related to future claims at the time these claims are settled. Our Insurance operations have an Investment Committee, which develops guidelines and strategies for these investments. The guidelines established by this committee reflect our risk appetite, liquidity requirements, regulatory requirements, and rating agency considerations, among other factors.
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
The following table summarizes the composition of our Insurance operations cash and investment portfolio at fair value.
| | ($ in millions) |
| June 30, 2018 | | December 31, 2017 |
| June 30, 2019 | | December 31, 2018 |
Cash |
|
|
|
|
|
|
|
|
Noninterest-bearing cash |
| $ | 327 |
|
| $ | 298 |
|
| $ | 182 |
|
| $ | 252 |
|
Interest-bearing cash |
| 889 |
|
| 983 |
|
| 916 |
|
| 644 |
|
Total cash |
| 1,216 |
|
| 1,281 |
|
| 1,098 |
|
| 896 |
|
Equity securities |
| 509 |
|
| 518 |
|
| 582 |
|
| 766 |
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
Debt securities |
| | | |
| | | |
U.S. Treasury |
| 507 |
|
| 380 |
| |
U.S. Treasury and federal agencies | |
| 625 |
|
| 460 |
|
U.S. States and political subdivisions |
| 754 |
|
| 773 |
|
| 513 |
|
| 691 |
|
Foreign government |
| 154 |
|
| 154 |
|
| 149 |
|
| 145 |
|
Agency mortgage-backed residential | | 634 |
| | 613 |
| | 1,095 |
| | 758 |
|
Mortgage-backed residential |
| 152 |
|
| 174 |
|
| 128 |
|
| 135 |
|
Mortgage-backed commercial | | 3 |
| | 22 |
| |
Corporate debt |
| 1,216 |
|
| 1,256 |
|
| 1,348 |
|
| 1,241 |
|
Total available-for-sale securities |
| 3,420 |
|
| 3,372 |
|
| 3,858 |
| | 3,430 |
|
Total cash and securities |
| $ | 5,145 |
|
| $ | 5,171 |
|
| $ | 5,538 |
| | $ | 5,092 |
|
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Mortgage Finance
Results of Operations
The following table summarizes the activities of our Mortgage Finance operations. The amounts presented are before the elimination of balances and transactions with our reportable segments.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
($ in millions) | | 2018 | | 2017 | | Favorable/(unfavorable) % change | | 2018 | | 2017 | | Favorable/(unfavorable) % change | | 2019 | | 2018 | | Favorable/(unfavorable) % change | | 2019 | | 2018 | | Favorable/(unfavorable) % change |
Net financing revenue and other interest income | | | | | | | | | | | | | | | | | | | | |
Total financing revenue and other interest income | | $ | 114 |
| | $ | 72 |
| | 58 | | $ | 219 |
| | $ | 143 |
| | 53 | | $ | 150 |
| | $ | 114 |
| | 32 | | $ | 296 |
| | $ | 219 |
| | 35 |
Interest expense | | 70 |
| | 40 |
| | (75) | | 132 |
| | 77 |
| | (71) | | 104 |
| | 70 |
| | (49) | | 200 |
| | 132 |
| | (52) |
Net financing revenue and other interest income | | 44 |
| | 32 |
| | 38 | | 87 |
| | 66 |
| | 32 | | 46 |
| | 44 |
| | 5 | | 96 |
| | 87 |
| | 10 |
Gain on mortgage loans, net | | 1 |
| | 1 |
| | — | | 2 |
| | 1 |
| | 100 | | 2 |
| | 1 |
| | 100 | | 4 |
| | 2 |
| | 100 |
Other income, net of losses | | 1 |
| | — |
| | n/m | | 1 |
| | — |
| | n/m | | 2 |
| | 1 |
| | 100 | | 2 |
| | 1 |
| | 100 |
Total other revenue | | 2 |
| | 1 |
| | 100 | | 3 |
| | 1 |
| | n/m | | 4 |
| | 2 |
| | 100 | | 6 |
| | 3 |
| | 100 |
Total net revenue | | 46 |
| | 33 |
| | 39 | | 90 |
| | 67 |
| | 34 | | 50 |
| | 46 |
| | 9 | | 102 |
| | 90 |
| | 13 |
Provision for loan losses | | — |
| | 1 |
| | 100 | | 2 |
| | 2 |
| | — | | — |
| | — |
| | — | | 2 |
| | 2 |
| | — |
Noninterest expense | | | | | | | | | | | | | | | | | | |
Compensation and benefits expense | | 8 |
| | 5 |
| | (60) | | 16 |
| | 10 |
| | (60) | | 9 |
| | 8 |
| | (13) | | 17 |
| | 16 |
| | (6) |
Other operating expenses | | 24 |
| | 20 |
| | (20) | | 50 |
| | 39 |
| | (28) | | 27 |
| | 24 |
| | (13) | | 56 |
| | 50 |
| | (12) |
Total noninterest expense | | 32 |
| | 25 |
| | (28) | | 66 |
| | 49 |
| | (35) | | 36 |
| | 32 |
| | (13) | | 73 |
| | 66 |
| | (11) |
Income from continuing operations before income tax expense | | $ | 14 |
| | $ | 7 |
| | 100 | | $ | 22 |
| | $ | 16 |
| | 38 | |
Income from continuing operations before income tax (benefit) expense | | | $ | 14 |
| | $ | 14 |
| | — | | $ | 27 |
| | $ | 22 |
| | 23 |
Total assets | | $ | 13,385 |
| | $ | 8,902 |
| | 50 | | $ | 13,385 |
| | $ | 8,902 |
| | 50 | | $ | 16,584 |
| | $ | 13,385 |
| | 24 | | $ | 16,584 |
| | $ | 13,385 |
| | 24 |
n/m = not meaningful
Our Mortgage Finance operations earned income from continuing operations before income tax expense of $14 million and $22$27 million for the three months and six months ended June 30, 2018,2019, respectively, compared to $7$14 million and $16$22 million for the three months and six months ended June 30, 2017.2018. The increasesincrease for the six months ended June 30, 2019, was primarily due to growth in our mortgage loan portfolio and an increase in gain on sale of mortgage loans held-for-sale, partially offset by accelerated premium amortization due to higher prepayment activity and higher noninterest expense driven primarily by continued asset growth during the three months ended June 30, 2019. For the three months ended June 30, 2019, growth in net financing revenue driven by mortgage portfolio growth and higher gains on the sale of mortgage loans were offset by accelerated premium amortization due to higher prepayment activity and higher noninterest expenses driven primarily by continued asset growth.
Net financing revenue and other interest income was $46 million and $96 million for the three months and six months ended June 30, 2018, were primarily due2019, respectively, compared to $44 million and $87 million for the three months and six months ended June 30, 2018. The increases in net financing revenue and other interest income driven by were primarily due to increased portfolio loan balances as a result of bulk purchases of high-quality jumbo and LMI mortgage loans and direct-to-consumer originations. Theoriginations. These increases were partially offset by accelerated premium amortization due to higher noninterest expense driven by continued build out ofprepayment activity during the direct-to-consumer offering and asset growth.
Net financing revenue and other interest income was $44 million and $87 million forthree months ended June 30, 2019. During the three months and six months ended June 30, 2018, respectively, compared to $322019, we purchased $678 million and $66 million for the three months and six months ended June 30, 2017. The increases in net financing revenue and other interest income were primarily due to increased loan balances as a result of bulk purchases of high-quality jumbo and LMI mortgage loans. During the three months and six months ended June 30, 2018, we purchased $852 million and $2.1$1.9 billion respectively, of mortgage loans that were originated by third parties, compared to $809$852 million and $1.1$2.1 billion forduring the same periods in 2017.three months and six months ended June 30, 2018, respectively.
Gain on sale of mortgage loans, net, was $2 million and $4 million for the three months and six months ended June 30, 2019, respectively, compared to $1 million and $2 million for the three months and six months ended June 30, 2018, respectively, compared to $1 million for both the three months and six months ended June 30, 2017. The increase for the six months ended June 30, 2018, wasas a result of higher direct-to-consumer mortgage originations and the subsequent sale of these loans to our fulfillment partner.provider.
Total noninterest expense was $36 million and $73 million for the three months and six months ended June 30, 2019, respectively, compared to $32 million and $66 million for the three months and six months ended June 30, 2018, respectively, compared to $25 million and $49 million for the three months and six months ended June 30, 2017.2018. The increases were primarily driven by continued expansion of the direct-to-consumer offering and asset growth.
Management’s Discussion and Analysis
Ally Financial Inc. •��• Form 10-Q
The following table presents the total unpaid principal balance (UPB) of purchases and originations of consumer mortgages held-for-investment, by FICO® Score at the time of acquisition.
| | FICO® Score | | Volume ($ in millions) | | % Share of volume | | Volume ($ in millions) | | % Share of volume |
Three months ended June 30, 2019 | | | | |
740 + | | | $ | 852 |
| | 79 |
720–739 | | | 119 |
| | 11 |
700–719 | | | 92 |
| | 9 |
680–699 | | | 11 |
| | 1 |
Total consumer mortgage financing volume | | | $ | 1,074 |
| | 100 |
Three months ended June 30, 2018 | | | | | | |
740 + | | $ | 781 |
| | 80 | | $ | 781 |
| | 80 |
720–739 | | 112 |
| | 12 | | 112 |
| | 12 |
700–719 | | 73 |
| | 7 | | 73 |
| | 7 |
680–699 | | 7 |
| | 1 | | 7 |
| | 1 |
660–679 | | 1 |
| | — | | 1 |
| | — |
Total consumer mortgage financing volume | | $ | 974 |
| | 100 | | $ | 974 |
| | 100 |
Three months ended June 30, 2017 | | | | |
Six months ended June 30, 2019 | | | | |
740 + | | $ | 690 |
| | 83 | | $ | 2,050 |
| | 80 |
720–739 | | 94 |
| | 11 | | 282 |
| | 11 |
700–719 | | 37 |
| | 4 | | 222 |
| | 8 |
680–699 | | 6 |
| | 1 | | 17 |
| | 1 |
660–679 | | 4 |
| | 1 | |
Total consumer mortgage financing volume | | $ | 831 |
| | 100 | | $ | 2,571 |
| | 100 |
Six months ended June 30, 2018 | | | | | | |
740 + | | $ | 1,875 |
| | 79 | | $ | 1,875 |
| | 79 |
720–739 | | 244 |
| | 10 | | 244 |
| | 10 |
700–719 | | 178 |
| | 8 | | 178 |
| | 8 |
680–699 | | 62 |
| | 3 | | 62 |
| | 3 |
660–679 | | 1 |
| | — | | 1 |
| | — |
Total consumer mortgage financing volume | | $ | 2,360 |
| | 100 | | $ | 2,360 |
| | 100 |
Six months ended June 30, 2017 | | | | |
740 + | | $ | 956 |
| | 83 | |
720–739 | | 128 |
| | 11 | |
700–719 | | 57 |
| | 5 | |
680–699 | | 11 |
| | 1 | |
660–679 | | 6 |
| | — | |
Total consumer mortgage financing volume | | $ | 1,158 |
| | 100 | |
The following table presents the net UPB, net UPB as a percentage of total, weighted-average coupon (WAC), premium net of discounts, loan-to-value (LTV),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, 2018 | | | | | | | | | | | |
June 30, 2019 | | | | | | | | | | | |
Adjustable-rate | | $ | 2,831 |
| | 22 | | 3.37 | % | | $ | 41 |
| | 56.19 | % | | 773 |
| | $ | 2,638 |
| | 16 | | 3.42 | % | | $ | 34 |
| | 53.97 | % | | 775 |
|
Fixed-rate | | 10,222 |
| | 78 | | 4.05 |
| | 234 |
| | 61.27 |
| | 772 |
| | 13,557 |
| | 84 | | 4.20 |
| | 256 |
| | 61.89 |
| | 774 |
|
Total | | $ | 13,053 |
| | 100 | | 3.90 |
| | $ | 275 |
| | 60.16 |
| | 772 |
| | $ | 16,195 |
| | 100 | | 4.08 |
| | $ | 290 |
| | 60.60 |
| | 774 |
|
December 31, 2017 | | | | | | | | | | | |
December 31, 2018 | | | | | | | | | | | |
Adjustable-rate | | $ | 2,579 |
| | 23 | | 3.35 | % | | $ | 42 |
| | 56.82 | % | | 774 |
| | $ | 2,828 |
| | 19 | | 3.40 | % | | $ | 37 |
| | 53.69 | % | | 775 |
|
Fixed-rate | | 8,824 |
| | 77 | | 4.02 |
| | 212 |
| | 62.02 |
| | 771 |
| | 12,042 |
| | 81 | | 4.15 |
| | 248 |
| | 60.97 |
| | 774 |
|
Total | | $ | 11,403 |
| | 100 | | 3.87 |
| | $ | 254 |
| | 60.84 |
| | 772 |
| | $ | 14,870 |
| | 100 | | 4.01 |
| | $ | 285 |
| | 59.58 |
| | 774 |
|
| |
(a) | Represents UPB net of charge-offs. |
| |
(b) | Updated home values were derived using a combination of appraisals, broker price opinions, automated valuation models, and metropolitan statistical area level house price indices. |
| |
(c) | Updated to reflect changes in credit score since loan origination. |
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 June 30, | | Six months ended June 30, |
($ in millions) | | 2018 | | 2017 | | Favorable/(unfavorable) % change | | 2018 | | 2017 | | Favorable/(unfavorable) % change | | 2019 | | 2018 | | Favorable/(unfavorable) % change | | 2019 | | 2018 | | Favorable/(unfavorable) % change |
Net financing revenue and other interest income | | | | | | | | | | | | | | | | | | |
Interest and fees on finance receivables and loans | | $ | 84 |
| | $ | 70 |
| | 20 | | $ | 158 |
| | $ | 124 |
| | 27 | | $ | 95 |
| | $ | 84 |
| | 13 | | $ | 184 |
| | $ | 158 |
| | 16 |
Interest on loans held-for-sale | | 5 |
| | — |
| | n/m | | 5 |
| | — |
| | n/m | | 2 |
| | 5 |
| | (60) | | 3 |
| | 5 |
| | (40) |
Interest expense | | 32 |
| | 22 |
| | (45) | | 60 |
| | 42 |
| | (43) | | 36 |
| | 32 |
| | (13) | | 72 |
| | 60 |
| | (20) |
Net financing revenue and other interest income | | 57 |
| | 48 |
| | 19 | | 103 |
| | 82 |
| | 26 | | 61 |
| | 57 |
| | 7 | | 115 |
| | 103 |
| | 12 |
Total other revenue | | 14 |
| | 10 |
| | 40 | | 22 |
| | 28 |
| | (21) | | 10 |
| | 14 |
| | (29) | | 21 |
| | 22 |
| | (5) |
Total net revenue | | 71 |
| | 58 |
| | 22 | | 125 |
| | 110 |
| | 14 | | 71 |
| | 71 |
| | — | | 136 |
| | 125 |
| | 9 |
Provision for loan losses | | (6 | ) | | 6 |
| | n/m | | (6 | ) | | 12 |
| | 150 | | 3 |
| | (6 | ) | | (150) | | 26 |
| | (6 | ) | | n/m |
Noninterest expense | | | | | |
|
| | | | | | | | |
|
| | | |
Compensation and benefits expense | | 12 |
| | 10 |
| | (20) | | 27 |
| | 24 |
| | (13) | | 13 |
| | 12 |
| | (8) | | 32 |
| | 27 |
| | (19) |
Other operating expenses | | 7 |
| | 7 |
| | — | | 17 |
| | 14 |
| | (21) | | 9 |
| | 7 |
| | (29) | | 19 |
| | 17 |
| | (12) |
Total noninterest expense | | 19 |
| | 17 |
| | (12) | | 44 |
| | 38 |
| | (16) | | 22 |
| | 19 |
| | (16) | | 51 |
| | 44 |
| | (16) |
Income from continuing operations before income tax expense | | $ | 58 |
| | $ | 35 |
| | 66 | | $ | 87 |
| | $ | 60 |
| | 45 | |
Income from continuing operations before income tax (benefit) expense | | | $ | 46 |
| | $ | 58 |
| | (21) | | $ | 59 |
| | $ | 87 |
| | (32) |
Total assets | | $ | 4,458 |
| | $ | 3,552 |
| | 26 | | $ | 4,458 |
| | $ | 3,552 |
| | 26 | | $ | 4,980 |
| | $ | 4,458 |
| | 12 | | $ | 4,980 |
| | $ | 4,458 |
| | 12 |
n/m = not meaningful
Our Corporate Finance operations earned income from continuing operations before income tax expense of $46 million and $59 million for the three months and six months ended June 30, 2019, respectively, compared to $58 million and $87 million for the three months and six months ended June 30, 2018, respectively, compared to $35 million and $60 million for the same periods in 2017.2018. The increasesdecreases were driven by a decrease indue primarily to higher provision for loan losses, due to higher recoveries and strong credit performance in the portfolio. Results were also favorably impacted by higher asset levels driven by our strategy to prudently grow the loan portfolio and expand our product suite while selectively pursuing opportunities to broaden industry and product breadth, as well as higher syndication and other fee income during the first half of 2018. These favorable results were partially offset by lower investmenthigher net financing revenue and other interest income for the six months ended June 30, 2018, compared to the same period in 2017, primarily resulting from an $11 million gain on an equity investment during the first quarter of 2017.higher asset levels.
Net financing revenue and other interest income was $61 million and $115 million for the three months and six months ended June 30, 2019, respectively, compared to $57 million and $103 million for the three months and six months ended June 30, 2018, respectively, compared to $48 million and $82 million for the same periods in 2017.2018. The increase wasincreases were primarily due to the growth of our lendingloan portfolio, represented by an 18%a 15% increase in the gross carrying value of finance receivables and loans as of June 30, 2018,2019, compared to June 30, 2017.2018.
Other revenue was $10 million and $21 million for the three months and six months ended June 30, 2019, respectively, compared to $14 million and $22 million for the same periods in 2018. The decreases for the three months and six months ended June 30, 2018, respectively,2019, were primarily driven by lower syndication income, partially offset by higher gains related to our equity investments, as compared to $10 million and $28 million for the same periods in 2017. The increase for the three months ended June 30, 2018, was primarily driven by higher syndication and other fee income. The decrease for the six months ended June 30, 2018, was primarily driven by an $11 million realized gain on the sale of an equity investment during the first quarter of 2017 and a $5 million unrealized loss on an equity investment during the six months ended June 30, 2018, following the adoption of ASU 2016-01 on January 1, 2018, which requires that equity investments be measured at fair value with changes in fair value recognized in net income. The impact of investment-related activity was partially offset by an increase in syndication and other fee income.2018.
The provision for loan losses decreased $12increased $9 million and $18$32 million for the three months and six months ended June 30, 2018,2019, respectively, compared to the same periods in 2017. These decreases2018. The increases for the three months and six months ended June 30, 2019, were due to favorable overall credit performance in the portfolio, as well asimpacted by a $6 million recovery inrecognized during the second quarter of 2018 of a previously charged-off loan.that did not reoccur. Additionally, the increase in provision expense for the six months ended June 30, 2019, was driven by higher reserves associated with two loan exposures, within separate industries, each with unique considerations.
Total noninterest expense was $22 million and $51 million for the three months and six months ended June 30, 2019, respectively, compared to $19 million and $44 million for the three months and six months ended June 30, 2018, respectively, compared to $17 million and $38 million for the same periods in 2017.2018. The increases were primarily due to higher compensation and benefits expense and other noninterest costs associated with growth in the business.
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Credit Portfolio
The following table presents loans held-for-sale, the gross carrying value of finance receivables and loans outstanding, and unfunded commitments to lend, and total serviced loans of our Corporate Finance operations.
| | ($ in millions) | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
Loans held-for-sale, net | | $ | 275 |
| | $ | 77 |
| | $ | 195 |
| | $ | 47 |
|
Finance receivables and loans | | 4,184 |
| | 3,910 |
| | $ | 4,795 |
| | $ | 4,636 |
|
Unfunded lending commitments (a) | | 2,146 |
| | 1,813 |
| | $ | 2,240 |
| | $ | 2,141 |
|
Total serviced loans | | | $ | 5,655 |
| | $ | 5,501 |
|
| |
(a) | Includes unused revolving credit line commitments for loans held-for-sale and finance receivables and loans, signed commitment letters, and standby letter of credit facilities, which are issued on behalf of clients and may contingently require us to make payments to a third-party beneficiary shouldin the client fail to fulfillevent of a contractual commitment.draw by the beneficiary thereunder. As many of these commitments are subject to borrowing base agreements and other restrictive covenants or may expire without being fully drawn, the contractstated amounts of these letters of credit are not necessarily indicative of future cash requirements. |
The following table presents the percentage of total finance receivables and loans of our Corporate Finance operations by industry concentration. The finance receivables and loans are reported at gross carrying value.
| | | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
Industry | | | | | | | | |
Services | | 31.8 | % | | 31.0 | % | | 28.4 | % | | 25.6 | % |
Health services | | 14.2 |
| | 15.6 |
| | 25.7 |
| | 24.5 |
|
Automotive and transportation | | 13.2 |
| | 10.3 |
| | 13.5 |
| | 12.3 |
|
Machinery, equipment, and electronics | | | 6.9 |
| | 6.0 |
|
Wholesale | | 8.4 |
| | 8.7 |
| | 5.2 |
| | 7.5 |
|
Food and beverages | | 6.0 |
| | 4.1 |
| | 4.3 |
| | 5.0 |
|
Chemicals and metals | | | 4.1 |
| | 4.9 |
|
Other manufactured products | | 5.9 |
| | 7.1 |
| | 3.9 |
| | 4.7 |
|
Chemicals and metals | | 5.7 |
| | 5.0 |
| |
Machinery, equipment, and electronics | | 5.0 |
| | 7.9 |
| |
Paper, printing, and publishing | | | 2.3 |
| | 2.8 |
|
Retail trade | | 2.8 |
| | 2.6 |
| | 2.0 |
| | 1.3 |
|
Paper, printing, and publishing | | 2.5 |
| | 3.0 |
| |
Other | | 4.5 |
| | 4.7 |
| | 3.7 |
| | 5.4 |
|
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, which primarily consist of centralized corporate treasury activities such as management of the cash and corporate investment securities and loan portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative instruments, original issue discount, and the residual impacts of our corporate FTP and treasury ALM activities. Corporate and Other also includes certain equity investments, which primarily consist of FHLB and FRB stock, the management of our legacy mortgage portfolio, which primarily consists of loans originated prior to January 1, 2009, the activity related to Ally Invest, and reclassifications and eliminations between the reportable operating segments.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
($ in millions) | | 2018 | | 2017 | | Favorable/(unfavorable) % change | | 2018 | | 2017 | | Favorable/(unfavorable) % change | | 2019 | | 2018 | | Favorable/(unfavorable) % change | | 2019 | | 2018 | | Favorable/(unfavorable) % change |
Net financing revenue and other interest income | | | | | | | | | | | | | | | | | | |
Interest and fees on finance receivables and loans (a) | | $ | 21 |
| | $ | 19 |
| | 11 | | $ | 31 |
| | $ | 34 |
| | (9) | | $ | 20 |
| | $ | 21 |
| | (5) | | $ | 41 |
| | $ | 31 |
| | 32 |
Interest on loans held-for-sale | | 1 |
| | — |
| | n/m | | 1 |
| | — |
| | n/m | | 1 |
| | 1 |
| | — | | 1 |
| | 1 |
| | — |
Interest and dividends on investment securities and other earning assets | | 162 |
| | 121 |
| | 34 | | 312 |
| | 230 |
| | 36 | | 215 |
| | 162 |
| | 33 | | 428 |
| | 312 |
| | 37 |
Interest on cash and cash equivalents | | 14 |
| | 5 |
| | 180 | | 27 |
| | 9 |
| | n/m | | 16 |
| | 14 |
| | 14 | | 35 |
| | 27 |
| | 30 |
Other, net | | (2 | ) | | (2 | ) | | — | | (4 | ) | | (4 | ) | | — | | (4 | ) | | (2 | ) | | (100) | | (6 | ) | | (4 | ) | | (50) |
Total financing revenue and other interest income | | 196 |
| | 143 |
| | 37 | | 367 |
| | 269 |
| | 36 | | 248 |
| | 196 |
| | 27 | | 499 |
| | 367 |
| | 36 |
Interest expense | | | | | | | | | | | | | | | | | | |
Original issue discount amortization (b) | | 25 |
| | 22 |
| | (14) | | 49 |
| | 43 |
| | (14) | | 10 |
| | 25 |
| | 60 | | 20 |
| | 49 |
| | 59 |
Other interest expense (c) | | 116 |
| | 80 |
| | (45) | | 224 |
| | 181 |
| | (24) | | 225 |
| | 116 |
| | (94) | | 430 |
| | 224 |
| | (92) |
Total interest expense | | 141 |
| | 102 |
| | (38) | | 273 |
| | 224 |
| | (22) | | 235 |
| | 141 |
| | (67) | | 450 |
| | 273 |
| | (65) |
Net financing revenue and other interest income | | 55 |
| | 41 |
| | 34 | | 94 |
| | 45 |
| | 109 | | 13 |
| | 55 |
| | (76) | | 49 |
| | 94 |
| | (48) |
Other revenue | | | | | | | | | | | | | | | | | | |
Loss on mortgage and automotive loans, net | | — |
| | — |
| | — | | — |
| | (10 | ) | | 100 | |
Other gain on investments, net | | 1 |
| | 8 |
| | (88) | | 7 |
| | 14 |
| | (50) | | 14 |
| | 1 |
| | n/m | | 23 |
| | 7 |
| | n/m |
Other income, net of losses | | 18 |
| | 17 |
| | 6 | | 45 |
| | 34 |
| | 32 | | 20 |
| | 18 |
| | 11 | | 36 |
| | 45 |
| | (20) |
Total other revenue | | 19 |
| | 25 |
| | (24) | | 52 |
| | 38 |
| | 37 | | 34 |
| | 19 |
| | 79 | | 59 |
| | 52 |
| | 13 |
Total net revenue | | 74 |
| | 66 |
| | 12 | | 146 |
| | 83 |
| | 76 | | 47 |
| | 74 |
| | (36) | | 108 |
| | 146 |
| | (26) |
Provision for loan losses | | (6 | ) | | (4 | ) | | 50 | | (6 | ) | | (8 | ) | | (25) | | (6 | ) | | (6 | ) | | — | | (11 | ) | | (6 | ) | | 83 |
Total noninterest expense (d) | | 84 |
| | 62 |
| | (35) | | 160 |
| | 119 |
| | (34) | | 78 |
| | 84 |
| | 7 | | 158 |
| | 160 |
| | 1 |
(Loss) income from continuing operations before income tax expense | | $ | (4 | ) | | $ | 8 |
| | (150) | | $ | (8 | ) | | $ | (28 | ) | | 71 | |
Loss from continuing operations before income tax (benefit) expense | | | $ | (25 | ) | | $ | (4 | ) | | n/m | | $ | (39 | ) | | $ | (8 | ) | | n/m |
Total assets | | $ | 30,953 |
| | $ | 29,136 |
| | 6 | | $ | 30,953 |
| | $ | 29,136 |
| | 6 | | $ | 35,688 |
| | $ | 30,953 |
| | 15 | | $ | 35,688 |
| | $ | 30,953 |
| | 15 |
n/m = not meaningful
| |
(a) | Primarily related to impacts associated with hedging activities within our consumer automotive loan portfolio and financing revenue from our legacy mortgage portfolio and impacts related to hedging activities associated with our consumer automotive loan portfolio. |
| |
(b) | Amortization is included as interest on long-term debt in the Condensed Consolidated Statement of Comprehensive Income. |
| |
(c) | Includes the residual impacts of our FTP methodology and impacts of hedging activities of certain debt obligations. |
| |
(d) | Includes reductions of $219 million and $448 million for the three months and six months ended June 30, 2019, respectively, and $206 million and $426 million for the three months and six months ended June 30, 2018, respectively, and $200 million and $412 million for the three months and six months ended June 30, 2017, related to the allocation of corporate overhead expenses to other segments. The receiving segments record their allocation of corporate overhead expense within other operating expense. |
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
The following table presents the scheduled remaining amortization of the original issue discount at June 30, 2018.2019.
| | Year ended December 31, ($ in millions) | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 and thereafter (a) | | Total | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 and thereafter (a) | | Total |
Original issue discount | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Outstanding balance at year end | | $ | 1,135 |
| | $ | 1,097 |
| | $ | 1,058 |
| | $ | 1,015 |
| | $ | 968 |
| | $ | — |
| | | | $ | 1,101 |
| | $ | 1,058 |
| | $ | 1,012 |
| | $ | 961 |
| | $ | 904 |
| | $ | — |
| | |
Total amortization (b) | | 52 |
| | 38 |
| | 39 |
| | 43 |
| | 47 |
| | 968 |
| | $ | 1,187 |
| | 21 |
| | 43 |
| | 46 |
| | 51 |
| | 57 |
| | 904 |
| | $ | 1,122 |
|
| |
(a) | The maximum annual scheduled amortization for any individual year is $153$147 million in 2030. |
| |
(b) | The 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
Corporate and Other incurred a loss from continuing operations before income tax expense of $25 million and $39 million for the three months and six months ended June 30, 2019, respectively, compared to a loss of $4 million and $8 million for the three months and six months ended June 30, 2018, respectively, compared to income of $8 million and a loss of $28 million for the three months and six months ended June 30, 2017. The decrease in income for the three months ended June 30, 2018, was primarily due to higher interest expense that was driven by higher funding costs primarily as a result of an increase in market rates, and higher noninterest expenses due primarily to increased compensation and benefit costs and other operating expenses to support growth in the business. These items were partially offset by higher2018. Total financing revenue and other interest income due primarily to higher investment securities balancesincreased for both the three months and increased interest rates on cash and cash equivalents. The decrease in loss for the six months ended June 30, 2019, compared to the same periods in 2018, was primarily driven by higherour investment securities balances and higher interest rates on cash and cash equivalents and a loss on sale of automotive loans during the first six months ended June 30, 2017 as compared to no loss on sale during the first six months ended June 30, 2018. These items were partiallyportfolio. This increase was more than offset by higher funding costs primarily as a result of higher market rates, and higher noninterest expenses due primarily to higher compensation and benefit costs and other operating expenses to support the growth in the business.costs.
Financing revenue and other interest income was $248 million and $499 million for the three months and six months ended June 30, 2019, respectively, compared to $196 million and $367 million for the three months and six months ended June 30, 2018, respectively, compared to $143 million and $269 million for the three months and six months ended June 30, 2017.2018. The increase wasincreases were primarily driven by increasedhigher interest and dividends from investment securities, and other earning assets compared to 2017, primarily as a result of higher yields and growth in the size of the investment portfolio. Results for the three months and six months ended June 30, 2018,2019, were also favorably impacted by increases in interest on cash and cash equivalents, as a result of higher yields.
Total interest expense was $235 million and $450 million for the three months and six months ended June 30, 2019, respectively, compared to $141 million and $273 million for the three months and six months ended June 30, 2018, respectively, compared to $102 million and $224 million for the three months and six months ended June 30, 2017.2018. The increases were primarily driven by increased interest on deposits resulting from higher market rates and deposit growth, as well as increased LIBOR rates on secured borrowings. The increase was partially offset by a decrease in higher-cost unsecuredsecured debt borrowings as maturities are replaced with lower cost funding.borrowings.
We had no net loss on mortgageTotal other revenue was $34 million and automotive loans for the six months ended June 30, 2018, compared to a loss of $10$59 million for the six months ended June 30, 2017. The loss during the six months ended June 30, 2017, was driven by the sale of automotive loans and the corresponding impact to the Corporate and Other segment as a result of our FTP methodology.
Other gain on investments, net was $1 million and $7 million for the three months and six months ended June 30, 2018,2019, respectively, compared to $8$19 million and $14$52 million for the three months and six months ended June 30, 2017, respectively. The decreases were primarily due to higher sales of investment securities in 2017 that did not recur in the current period.
Noninterest expense was $84 million and $160 million for the three months and six months ended June 30, 2018, respectively, compared to $62 million and $119 million for the three months and six months ended June 30, 2017.2018. The increases were primarily due to higher compensation and benefit costs and other operating expensesincreased realized investment gains, partially offset by lower income related to support growth in the business. Additionally, expenses increased as a result of a one-time tax reform-related bonus paid to eligible Ally employeescertain equity hedges during the six months ended June 30, 2018.2019.
Total assets were $35.7 billion as of June 30, 2019, compared to $31.0 billion as of June 30, 2018, compared to $29.1 billion as of June 30, 2017. The2018. This increase was primarily the result of growth in our available-for-sale and held-to-maturity securities portfolios. The increase was partially offset by a reduction of cash and cash equivalents, other assets, and the continued runoff of our legacy mortgage portfolio. At June 30, 2018,2019, the gross carrying value of the legacy mortgage portfolio was $1.8$1.3 billion, compared to $2.4$1.8 billion at June 30, 2017.2018.
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Cash and Securities
The following table summarizes the composition of the cash and securities portfolio at fair value for Corporate and Other.
| | ($ in millions) | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
Cash | | | | | | | | |
Noninterest-bearing cash | | $ | 449 |
| | $ | 523 |
| | $ | 454 |
| | $ | 535 |
|
Interest-bearing cash | | 2,236 |
| | 2,425 |
| | 1,988 |
| | 3,083 |
|
Total cash | | 2,685 |
| | 2,948 |
| | 2,442 |
| | 3,618 |
|
Available-for-sale securities | | | | | | | | |
Debt securities | | | | | | | | |
U.S. Treasury | | 1,367 |
| | 1,397 |
| |
U.S. Treasury and federal agencies | | | 1,393 |
| | 1,391 |
|
U.S. States and political subdivisions | | 97 |
| | 81 |
| | 85 |
| | 111 |
|
Agency mortgage-backed residential | | 14,432 |
| | 13,678 |
| | 18,005 |
| | 16,380 |
|
Mortgage-backed residential | | 2,473 |
| | 2,320 |
| | 2,806 |
| | 2,551 |
|
Agency mortgage-backed commercial | | | 1,351 |
| | 3 |
|
Mortgage-backed commercial | | 639 |
| | 519 |
| | 713 |
| | 714 |
|
Asset-backed | | 868 |
| | 936 |
| | 477 |
| | 723 |
|
Total available-for-sale securities | | 19,876 |
| | 18,931 |
| | 24,830 |
| | 21,873 |
|
Held-to-maturity securities | | | | | | | | |
Debt securities | | | | | | | | |
Agency mortgage-backed residential | | 1,980 |
| | 1,829 |
| | 2,468 |
| | 2,264 |
|
Asset-backed retained notes | | 27 |
| | 36 |
| | 31 |
| | 43 |
|
Total held-to-maturity securities | | 2,007 |
| | 1,865 |
| | 2,499 |
| | 2,307 |
|
Total cash and securities | | $ | 24,568 |
| | $ | 23,744 |
| | $ | 29,771 |
| | $ | 27,798 |
|
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Ally Invest
In May 2017, we launched Ally Invest, our digital brokerage and wealth management offering, that combineswhich enables us to complement our competitive deposit products with low-cost investing through the platform we acquired from the June 2016 acquisition of TradeKing with our award-winning online banking products in a single, convenient customer experience that provides low-cost investing with competitive deposit products.. The following table presents the trading days and average customer trades per day, during each respective quarter and the number of funded accounts, total net customer assets, and total customer cash balances as of the end of each quarter since 2017.of the last five quarters.
| | | 2nd quarter 2018 | 1st quarter 2018 | 4th quarter 2017 | 3rd quarter 2017 | 2nd quarter 2017 | 1st quarter 2017 | 2nd quarter 2019 | | 1st quarter 2019 | | 4th quarter 2018 | | 3rd quarter 2018 | | 2nd quarter 2018 |
Trading days (a) | 64.0 |
| 61.0 |
| 62.5 |
| 62.5 |
| 63.0 |
| 62.0 |
| 63.0 |
| | 61.0 |
| | 62.0 |
| | 62.5 |
| | 64.0 |
|
Average customer trades per day (in thousands) | 18.0 |
| 21.8 |
| 16.8 |
| 15.5 |
| 16.5 |
| 19.0 |
| 18.3 |
| | 19.5 |
| | 19.6 |
| | 19.1 |
| | 18.0 |
|
Funded accounts (b) (in thousands) | 271 |
| 259 |
| 245 |
| 239 |
| 234 |
| 235 |
| 337 |
| | 320 |
| | 302 |
| | 287 |
| | 271 |
|
Total net customer assets ($ in millions) | $ | 5,990 |
| $ | 5,473 |
| $ | 5,354 |
| $ | 5,203 |
| $ | 5,006 |
| $ | 4,984 |
| $ | 7,149 |
| | $ | 6,796 |
| | $ | 5,804 |
| | $ | 6,608 |
| | $ | 5,990 |
|
Total customer cash balances ($ in millions) | $ | 1,166 |
| $ | 1,111 |
| $ | 1,144 |
| $ | 1,168 |
| $ | 1,154 |
| $ | 1,233 |
| $ | 1,229 |
| | $ | 1,209 |
| | $ | 1,159 |
| | $ | 1,178 |
| | $ | 1,166 |
|
| |
(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. |
Average customer trades per day decreased duringTotal funded accounts increased 5% from the prior quarter and 24% from the second quarter of 2018 due to the combination of seasonality and reduced market volatility. Average customer trades per day of 18.0 thousand represented a 17% decrease from the prior quarter and a 9% increase from the prior year. Our funded accounts have increased since our acquisition of TradeKing as a result of a continued focus on marketing campaigns, whilecampaigns. Average customer trades per day decreased from the prior quarter, primarily due to seasonality. Additionally, net customer assets have increased due to market appreciation and growth in funded accounts. Additionally, total customer cash increased by 5% in the current quarter, following a two-quarter decline. The decline observed in the prior two quarters was the result of investors shifting a higher percentage of assets into investment positions—a trend that reversed in the second quarter of 2018.2019, primarily as a result of equity market appreciation and customer account growth.
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, and all employees are responsible for managing risk. We use multiple layers of defense to identify, monitor, and manage current and emerging risks.
Business lines — Responsible for owning and managing all of the risks that emanate from their risk-taking activities, including business units and support functions.
Independent risk management — Responsible for establishing and maintaining our risk management framework and promulgating it enterprise-wide. Independent risk management also provides an objective, critical assessment of risks and—through oversight, effective challenge, and other means—evaluates whether Ally remains aligned with its risk appetite.
Internal audit — Provides its own independent assessments of the effectiveness of our risk management, internal controls, and governance; and independent assessments regarding the quality of our loan portfolios. Internal audit includes Audit Services and the Loan Review Group.
| |
• | Business lines — Responsible for owning and managing all of the risks that emanate from their risk-taking activities, including business units and support functions. |
| |
• | Independent risk management — Responsible for establishing and maintaining our risk-management framework and promulgating it enterprise-wide. Independent risk management also provides an objective, critical assessment of risks and—through oversight, effective challenge, and other means—evaluates whether Ally remains aligned with its risk appetite. |
| |
• | Internal audit — Provides its own independent assessments of the effectiveness of our risk management, internal controls, and governance; and independent assessments regarding the quality of our loan portfolios. Internal audit includes Audit Services and the Loan Review Group. |
Our risk-management framework is overseen by the Risk Committee (RC) of the Ally Board of Directors (the Board). The RC sets the risk appetite across our company while risk-oriented management committees, the executive leadership team, and our associates identify and monitor current and emerging risks and manage those risks within our risk appetite. Our primary types ofFor more information on our risk includemanagement process, refer to the following:
Credit risk — The risk of loss arising from an obligor not meeting its contractual obligations to us.
Insurance/underwriting risk — The risk of loss or of adverse change in the value of insurance liabilities, due to inadequate pricing and provisioning assumptions.
Liquidity risk — The risk that our financial condition or overall safety and soundness is adversely affected by the actual or perceived inability to liquidate assets or obtain adequate funding or to easily unwind or offset specific exposures without significantly lowering market prices because of inadequate market depth or market disruptions. Refer to discussion in theRisk Management MD&A section titled Liquidity Management, Funding, and Regulatory Capital within this MD&A.
Market risk — The risk of loss arising from changes in the value of our assets or liabilities (including derivatives) caused by movements in market variables such as interest rates, foreign-exchange rates, and equity and commodity prices. Market risk includes interest rate risk, investment risk, and lease residual risk.
Business/strategic risk — The risk resulting from the pursuit of business plans that turn out to be unsuccessful due to a variety of factors.
Reputation risk — The risk arising from negative public opinion2018 Annual Report on our business practices, whether true or not, that will cause a decline in the customer base, litigation, or revenue reductions.
Operational risk — The risk of loss or harm arising from inadequate or failed processes or systems, human factors, or external events.
Information technology/security risk — The risk resulting from the failure of, or insufficiency in, information technology (e.g., system outage) or intentional or accidental unauthorized access, sharing, removal, tampering, or disposal of company and customer data or records.
Compliance risk — The risk arising from potential violations of or nonconformance with applicable laws (including statutes, rules, regulations, and case law), prescribed compliance practices, specific internal compliance policies, standards, and procedures designed to facilitate compliance with legal or ethical standards, or principles of fair and ethical customer treatment. Compliance risk also arises in situations where applicable laws may change or are ambiguous or untested.
Conduct risk — The risk of customer harm, employee harm, reputational damage, regulatory sanction, or financial loss resulting from the behavior of our employees and contractors toward customers, counterparties, other employees and contractors, or the markets in which we operate.
Our risk-governance structure starts within each business line, including committees established to oversee risk in their respective areas. The business lines are responsible for their risk-based performance and compliance with risk management policies and applicable law.
The independent risk-management function is accountable for independently identifying, monitoring, measuring, and reporting on our various risks and for designing an effective risk management framework and structure. The independent risk-management function is also responsible for developing, maintaining, and implementing enterprise-risk-management policies. In addition, the Enterprise Risk Management Committee (ERMC) is responsible for supporting the Chief Risk Officer’s oversight of senior management’s responsibility to execute on our strategy within our risk appetite set by the RC and the Chief Risk Officer’s implementation of our independent risk-management program. The Chief Risk Officer reports to the RC, as well as administratively to the Chief Executive Officer.
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
All business lines are subject to full and unrestricted audits by Audit Services. The Chief Audit Executive reports to the Audit Committee of the Board (AC), as well as administratively to the Chief Executive Officer, and is primarily responsible for assisting the AC in fulfilling its governance and oversight responsibilities. Audit Services is granted free and unrestricted access to any and all of our records, physical properties, technologies, management, and employees.
In addition, our Loan Review Group provides an independent assessment of the quality of our extensions of credit and credit risk management practices, and all business lines that create or influence credit risk are subject to full and unrestricted reviews by the Loan Review Group. This group also is granted free and unrestricted access to any and all of our records, physical properties, technologies, management and employees, and reports its findings directly to the RC.10-K.
Loan and Operating Lease Exposure
The following table summarizes the exposures from our loan and operating lease activities.
| | ($ in millions) | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
Finance receivables and loans | | | | | | | | |
Automotive Finance | | $ | 106,118 |
| | $ | 105,129 |
| | $ | 106,473 |
| | $ | 108,463 |
|
Mortgage Finance | | 13,328 |
| | 11,657 |
| | 16,485 |
| | 15,155 |
|
Corporate Finance | | 4,184 |
| | 3,910 |
| | 4,795 |
| | 4,636 |
|
Corporate and Other (a) | | 1,914 |
| | 2,197 |
| | 1,457 |
| | 1,672 |
|
Total finance receivables and loans | | 125,544 |
| | 122,893 |
| | 129,210 |
| | 129,926 |
|
Loans held-for-sale | | | | | | | | |
Automotive Finance | | | — |
| | 210 |
|
Mortgage Finance (b) | | 13 |
| | 13 |
| | 22 |
| | 8 |
|
Corporate Finance | | 275 |
| | 77 |
| | 195 |
| | 47 |
|
Corporate and Other | | 40 |
| | 18 |
| | 58 |
| | 49 |
|
Total loans held-for-sale | | 328 |
| | 108 |
| | 275 |
| | 314 |
|
Total on-balance sheet loans | | 125,872 |
| | 123,001 |
| | 129,485 |
| | 130,240 |
|
Off-balance sheet securitized loans | | | | | | | | |
Automotive Finance (c) | | 1,388 |
| | 1,964 |
| | 796 |
| | 1,235 |
|
Whole-loan sales | | | | | | | | |
Automotive Finance (c) | | 964 |
| | 1,399 |
| | 392 |
| | 634 |
|
Total off-balance sheet loans | | 2,352 |
| | 3,363 |
| | 1,188 |
| | 1,869 |
|
Operating lease assets | | | | | | | | |
Automotive Finance | | 8,639 |
| | 8,741 |
| | 8,407 |
| | 8,417 |
|
Total loan and lease exposure | | $ | 136,863 |
| | $ | 135,105 |
| |
Serviced loans and leases | | | | | |
Automotive Finance | | $ | 116,431 |
| | $ | 116,878 |
| |
Mortgage Finance | | 13,328 |
| | 11,670 |
| |
Corporate Finance | | 5,069 |
| | 3,893 |
| |
Corporate and Other | | 1,803 |
| | 2,093 |
| |
Total serviced loans and leases | | $ | 136,631 |
| | $ | 134,534 |
| |
Total loan and operating lease exposure | | | $ | 139,080 |
| | $ | 140,526 |
|
| |
(a) | Includes $1.8$1.3 billion and $2.1$1.5 billion of consumer mortgage loans in our legacy mortgage portfolio at June 30, 2018,2019, and December 31, 2017,2018, respectively. |
| |
(b) | Represents the current balance of conforming mortgages originated directly to the held-for-sale portfolio. |
| |
(c) | Represents the current unpaid principal balance of outstanding loans based on our customary representation and warranty provisions. |
The risks inherent in our loan and operating lease exposures are largely driven by changes in the overall economy, used vehicle and housing price levels, unemployment levels, and their impact toon our borrowers. The potential financial statement impact of these exposures varies depending on the accounting classification and future expected disposition strategy. We retain the majority of our consumer automotive loans as they complement our core business model, but we do sell loans from time to time on an opportunistic basis. We ultimately manage the associated risks based on the underlying economics of the exposure. Our operating lease residual risk, which may be more volatile than credit risk in stressed macroeconomic scenarios, has declined withover the decrease in the lease portfolio.
Since the end of 2014,past several years as we have experienced growth in our consumer retail automotive loan portfolio and a significant reduction in lease assets. This shift in our portfolio mix over the past several years 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
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
depreciation expense over the remaining life of the lease. Our risk to future fluctuationsautomotive loan portfolio and a significant reduction in used vehicle values has diminished in recent years as ouroperating lease assets have declined materially. since 2014.While all operating leases are exposed to potential reductions in used vehicle values, only loans where we take possession of the vehicle are affected by potential reductions in used vehicle values. Operating lease assets, net of accumulated depreciation, decreased $102 million to $8.6 billion at June 30, 2018, from $8.7 billion at December 31, 2017.
Credit Risk
Credit risk is defined as the risk of loss arising from an obligor not meeting its contractual obligations to us. Credit risk includes consumer credit risk, commercial credit risk, and counterparty credit risk.
Credit risk is a major source of potential economic loss to us. Credit risk is monitored by the risk committees, executive leadership team, and our associates. Together, they oversee credit decisioning, account servicing activities, and credit risk managementcredit-risk-management processes and monitormanage 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 managementcredit-risk-management practices, and directly reports its findings to the RC on a regular basis.
To mitigate risk, we have implemented specific policies and practices across business lines, utilizing both qualitative and quantitative analyses. This reflects our commitment to maintaining an independent and ongoing assessment of credit risk and credit quality. Our policies require an objective and timely assessment of the overall quality of the consumer and commercial loan and operating lease portfolios. This includes the identification of relevant trends that affect the collectability of the portfolios, segments of the portfolios that are potential problem areas, loans and operating leases with potential credit weaknesses, and the assessment of the adequacy of internal credit risk policies and procedures to monitor compliance with relevant laws and regulations.procedures. Our consumer and commercial loan and operating lease portfolios are subject to regular stress tests that are based on plausible, but unexpected, economic scenarios to assess whether we can withstandhow the portfolios may perform in a severe economic downturn. In addition, we establish and maintain underwriting policies and limits across our portfolios and higher risk segments (e.g., nonprime) based on our risk appetite.
Another important aspect to managing credit risk involves the need to carefully monitor and manage the performance and pricing of our loan products to generatewith the aim of generating appropriate risk-adjusted returns. When considering pricing, various granular risk-based factors are considered such as expected loss rates, loss volatility, anticipated operating costs, and targeted returns on equity. We carefully monitor credit losses and trends in credit losses in conjunction with pricing at contract inception and continue to closely monitor our loan performance and profitability performance in light of forecasted economic conditions, and manage credit risk and expectations of losses in the portfolio.
We manage credit risk based on the risk profile of the borrower, the source of repayment, the underlying collateral, and current market conditions. We monitor the credit risk profile of individual borrowers and the aggregate portfolio of borrowers either within a designated geographic region or a particular product or industry segment. We perform quarterly analyses of the consumer automotive, consumer mortgage, and commercial portfolios using a range of indicators to assess the adequacy of the allowance for loan losses based on historical and current trends. Refer to Note 7 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 consumer automotive loans, we work with customers when they become delinquent on their monthly payment. In lieu of repossessing their vehicle, we may offer several types of assistance to aid our customers based on their willingness and ability to repay their loan. Loss mitigation may include extensionpayment extensions and rewrites of the loan maturity date and rewriting the loan terms. For mortgage loans, as part of certain programs, we offer mortgage loan modifications to qualified borrowers. These programs are in place to provide support to our mortgage customers in financial distress, including principal forgiveness, maturity extensions, delinquent interest capitalization, and changes to contractual interest rates.
Furthermore, we manage our credit exposure to financial counterparties based on the risk profile of the counterparty. Within our policies we have established standards and requirements for managing counterparty risk exposures in a safe and sound manner. Counterparty credit risk is derived from multiple exposure types including derivatives, securities trading, securities financing transactions, financial futures, cash balances (e.g., due from depository institutions, restricted accounts, and cash equivalents), and investment in debt securities. For more information on derivative counterparty credit risk, refer toNote 1817 to the Condensed Consolidated Financial Statements.Statements.
We employ an internal team of economists to enhance our planning and forecasting capabilities. This team conducts industry and market research, monitors economic risks, and helps support various forms of scenario planning. This group closely monitormonitors macroeconomic 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, 2018,2019, the U.S. economy continued to modestly expand, and consumer confidence remained strong.elevated. The labor market remained healthy during the period, with the unemployment rate falling to 4.0%at 3.7% as of June 30, 2018.2019. Within the U.S. automotive market, new light vehicle sales have moderated from both historic highs but rose year over yearand year-over-year pace, to aan average 17.0 million and 16.9 million Seasonally Adjusted Annual Rate of 17.1 million for both the three months and six months ended June 30, 2018. 2019, respectively. We continueexpect to experience modest downward pressure on used vehicle values and expect that to continue throughout 2018.
On-balance Sheet Portfolio
Our on-balance sheet portfolio includes both finance receivables and loans, and loans held-for-sale. At June 30, 2018, this primarily included $106.1 billion of automotive finance loans within our Automotive Finance operations, $15.1 billion of consumer mortgage loans within our Mortgage Finance operations and Corporate and Other, and $4.5 billion of corporate finance loans within our Corporate Finance operations. Refer to the section above titled Primary Lines of Business for further information about our lending operations.
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
The following table presents our total on-balance sheet consumer and commercial finance receivables and loans.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Outstanding | | Nonperforming (a) | | Accruing past due 90 days or more |
($ in millions) | | June 30, 2018 | | December 31, 2017 | | June 30, 2018 | | December 31, 2017 | | June 30, 2018 | | December 31, 2017 |
Consumer | | | | | | | | | | | | |
Finance receivables and loans | | | | | | | | | | | | |
Loans at gross carrying value | | $ | 85,604 |
| | $ | 81,821 |
| | $ | 707 |
| | $ | 720 |
| | $ | — |
| | $ | — |
|
Loans held-for-sale | | 13 |
| | 13 |
| | — |
| | — |
| | — |
| | — |
|
Total consumer loans (b) | | 85,617 |
| | 81,834 |
| | 707 |
| | 720 |
| | — |
| | — |
|
Commercial | | | | | | | | | | | | |
Finance receivables and loans | | | | | | | | | | | | |
Loans at gross carrying value | | 39,940 |
| | 41,072 |
| | 198 |
| | 72 |
| | — |
| | — |
|
Loans held-for-sale | | 315 |
| | 95 |
| | — |
| | — |
| | — |
| | — |
|
Total commercial loans | | 40,255 |
|
| 41,167 |
|
| 198 |
|
| 72 |
|
| — |
|
| — |
|
Total on-balance sheet loans | | $ | 125,872 |
| | $ | 123,001 |
| | $ | 905 |
| | $ | 792 |
| | $ | — |
| | $ | — |
|
| |
(a) | Includes nonaccrual TDR loans of $336 million and $270 million at June 30, 2018, and December 31, 2017, respectively.
|
| |
(b) | Includes outstanding CSG loans of $7.5 billion and $7.3 billion at June 30, 2018, and December 31, 2017, respectively, and RV loans of $1.8 billion at both June 30, 2018, and December 31, 2017.
|
Total on-balance sheet loans outstanding at June 30, 2018, increased$2.9 billion to $125.9 billion from December 31, 2017, reflecting an increase of $3.8 billion in the consumer portfolio and a decrease of $912 million in the commercial portfolio. The increase in consumer on-balance sheet loans was primarily due to loan growth that was driven by the continued momentum in our consumer automotive Growth channel, as well as the execution of bulk loan purchases in our Mortgage Finance portfolio. The decrease in commercial on-balance sheet loans outstanding was primarily due to a reduction in the number of dealer relationships due to the competitive environment across the automotive lending market, as well as lower dealer inventory levels during the period.2019.
Total TDRs outstanding at June 30, 2018, increased $79 million to $791 million from December 31, 2017. The increase was primarily driven by growth in our retail automotive loan portfolio as well as the addition of one account in our Corporate Finance portfolio. Refer to Note 7 to the Condensed Consolidated Financial Statements for additional information.
Total nonperforming loans at June 30, 2018, increased$113 million to $905 million from December 31, 2017, reflecting an increase of $126 million of commercial nonperforming loans and a decrease of $13 million of consumer nonperforming loans. The increase in total commercial nonperforming loans was primarily driven by the downgrade of two accounts within our Corporate Finance portfolio and one account within our commercial automotive portfolio. Nonperforming loans include finance receivables and loans on nonaccrual status when the principal or interest has been delinquent for 90 days or when full collection is determined not to be probable. Refer to Note 1 to the Consolidated Financial Statements in our 2017 Annual Report on Form 10-K for additional information.
The following table includes consumer and commercial net charge-offs from finance receivables and loans at gross carrying value and related ratios.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
| | Net charge-offs (recoveries) | | Net charge-off ratios (a) | | Net charge-offs (recoveries) | | Net charge-off ratios (a) |
($ in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
Consumer | | $ | 184 |
| | $ | 199 |
| | 0.9 | % | | 1.0 | % | | $ | 443 |
| | $ | 452 |
| | 1.1 | % | | 1.2 | % |
Commercial | | (4 | ) | | — |
| | — |
| | — |
| | (4 | ) | | — |
| | — |
| | — |
|
Total finance receivables and loans at gross carrying value | | $ | 180 |
| | $ | 199 |
| | 0.6 |
| | 0.7 |
| | $ | 439 |
| | $ | 452 |
| | 0.7 |
| | 0.8 |
|
| |
(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 $180 million and $439 million for the three months and six months ended June 30, 2018, respectively, compared to $199 million and $452 million for the three months and six months ended June 30, 2017. The decreases in net charge-offs for the three months and six months ended June 30, 2018, were primarily driven by our consumer automotive portfolio where we experienced strong overall credit performance driven by favorable macroeconomic trends including low unemployment, continued disciplined underwriting, and higher recoveries on charge-offs.
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
The following discussions titled Consumer Credit Portfolio and Commercial Credit Portfolio 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.
Consumer Credit Portfolio
During the three months and six months ended June 30, 2018,2019, the credit performance of the consumer loan portfolio reflected both our underwriting strategy to originate a diversified portfolio of consumer automotive loan assets, including used, nonsubvented new, higher LTV, extended term, Growth channel, nonprime, and nonsubventednonprime finance receivables and loans, as well as high-quality jumbo and LMI mortgage loans that are acquired through bulk loan purchases and direct-to-consumer mortgage originations. The carrying value of our nonprime consumer automotive loans before allowance for loan losses represented approximately 12.3%11.6% of our total consumer automotive loans at June 30, 2018,2019, compared to approximately 12.9%11.7% at December 31, 2017.2018. For information on our consumer credit risk practices and policies regarding
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
delinquencies, nonperforming status, and charge-offs, refer to Note 1 to the Consolidated Financial Statements in our 20172018 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 (b) |
($ in millions) | | June 30, 2018 | | December 31, 2017 | | June 30, 2018 | | December 31, 2017 | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 | | June 30, 2019 | | December 31, 2018 | | June 30, 2019 | | December 31, 2018 |
Consumer automotive (b) (c) | | $ | 70,473 |
| | $ | 68,071 |
| | $ | 602 |
| | $ | 603 |
| | $ | — |
| | $ | — |
| |
Consumer automotive (c) (d) | | | $ | 72,898 |
| | $ | 70,539 |
| | $ | 642 |
| | $ | 664 |
| | $ | — |
| | $ | — |
|
Consumer mortgage | | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage Finance | | 13,328 |
| | 11,657 |
| | 18 |
| | 25 |
| | — |
| | — |
| | 16,485 |
| | 15,155 |
| | 12 |
| | 9 |
| | — |
| | — |
|
Mortgage — Legacy | | 1,803 |
| | 2,093 |
| | 87 |
| | 92 |
| | — |
| | — |
| | 1,315 |
| | 1,546 |
| | 53 |
| | 70 |
| | — |
| | — |
|
Total consumer finance receivables and loans | | $ | 85,604 |
| | $ | 81,821 |
| | $ | 707 |
| | $ | 720 |
| | $ | — |
| | $ | — |
| | $ | 90,698 |
| | $ | 87,240 |
| | $ | 707 |
| | $ | 743 |
| | $ | — |
| | $ | — |
|
| |
(a) | Includes nonaccrual TDR loans of $253$232 million and $219$257 million at June 30, 2018,2019, and December 31, 2017,2018, respectively. |
| |
(b) | Loans are generally in nonaccrual status when principal or interest has been delinquent for 90 days or more, or when full collection is not expected. Refer to Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K for a description of our accounting policies for finance receivables and loans. |
| |
(c) | Certain finance receivables and loans are included in fair value hedging relationships. Refer to Note 1817 to the Condensed Consolidated Financial Statements for additional information. |
| |
(c)(d) | Includes outstanding CSG loans of $7.5$8.1 billion and $7.3$7.9 billion at June 30, 2018,2019, and December 31, 2017,2018, respectively, and RV loans of $1.8$1.5 billion and $1.7 billion at both June 30, 20182019, and December 31, 2017.2018, respectively. |
Total consumer outstanding finance receivables and loans increased$3.83.5 billion at June 30, 20182019, compared with December 31, 20172018, reflecting an increase of $2.4 billion of consumer automotive finance receivables and loans and an increase of $1.4$1.1 billion of consumer mortgage finance receivables and loans. The increase in consumer automotive finance receivables and loans was primarily related to continued momentum in our Growth channel. The increase in consumer mortgage finance receivables and loans was primarily due to growth within the Mortgage Finance portfolio as a result of the execution of bulk loan purchases totaling $2.1$1.9 billion during the six months ended June 30, 2018, partially offset by total consumer mortgage portfolio runoff.2019.
Total consumer nonperforming finance receivables and loans at June 30, 2018,2019, decreased $13$36 million to $707 million from December 31, 2017,2018, reflecting a decrease of $12$22 million of consumer automotive finance receivables and loans and a decrease of $14 million of consumer mortgage nonperforming finance receivables and loans and aloans. The decrease of $1 million ofin nonperforming consumer automotive finance receivables and loans.loans was primarily due to seasonality. The decrease in nonperforming consumer mortgage finance receivables and loans was primarily due to run-off in our legacy mortgage portfolio, as well as favorable macroeconomic conditions. Refer to Note 7 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% and 0.9% at June 30, 2018,2019, and December 31, 2017,2018, respectively.
Total consumer TDRs outstanding at June 30, 2019, decreased $10 million since December 31, 2018, to $716 million. The decrease was primarily driven by a $10 million reduction in our legacy mortgage portfolio, while the consumer automotive and mortgage finance portfolios remained relatively stable. Refer to Note 7 to the Condensed Consolidated Financial Statements for additional information.
Consumer automotive loans accruing and past due 30 days or more decreased $377$388 million to $2.0$2.1 billion at June 30, 2018,2019, compared withto December 31, 2017,2018, primarily due to seasonality. ConsumerCompared to June 30, 2018, consumer automotive loans accruing and past due 30 days or more increased $149$153 million to $2.0 billion as ofat June 30, 2018, compared to June 30, 2017,2019, driven by growth in the overall size of the retailconsumer automotive loan portfolio, as well as slightly higher delinquency rates associated with a measured increase in the mix of used vehicle financings as part of our continued diversification strategy. Used vehicle loans within our portfolio generally have higher delinquency rates and higher loss frequency, but lower loss severity relative to new vehicle loans due to lower original loan balances and slower collateral depreciation.
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
The following table includes consumer net charge-offs from finance receivables and loans at gross carrying value and related ratios.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| | Net charge-offs | | Net charge-off ratios (a) | | Net charge-offs | | Net charge-off ratios (a) | | Net charge-offs (recoveries) | | Net charge-off ratios (a) | | Net charge-offs (recoveries) | | Net charge-off ratios (a) |
($ in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
Consumer automotive | | $ | 182 |
| | $ | 199 |
| | 1.0 | % | | 1.2 | % | | $ | 435 |
| | $ | 450 |
| | 1.3 | % | | 1.4 | % | | $ | 172 |
| | $ | 182 |
| | 1.0 | % | | 1.0 | % | | $ | 406 |
| | $ | 435 |
| | 1.1 | % | | 1.3 | % |
Consumer mortgage | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage Finance | | 1 |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | — |
|
Mortgage — Legacy | | 1 |
| | — |
| | 0.2 |
| | — |
| | 6 |
| | 2 |
| | 0.6 |
| | 0.1 |
| | (2 | ) | | 1 |
| | (0.6 | ) | | 0.2 |
| | (4 | ) | | 6 |
| | (0.6 | ) | | 0.6 |
|
Total consumer finance receivables and loans | | $ | 184 |
| | $ | 199 |
| | 0.9 |
| | 1.0 |
| | $ | 443 |
| | $ | 452 |
| | 1.1 |
| | 1.2 |
| | $ | 170 |
| | $ | 184 |
| | 0.8 |
| | 0.9 |
| | $ | 402 |
| | $ | 443 |
| | 0.9 |
| | 1.1 |
|
| |
(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. |
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Our net charge-offs from total consumer finance receivables and loans were $170 million and $402 million for the three months and six months ended June 30, 2019, respectively, compared to $184 million and $443 million for the three months and six months endedJune 30, 2018, respectively, compared to $199 million and $452 million for the three months and six months ended June 30, 2017.2018. The decreases in net charge-offs for both the three months and six months ended June 30, 2018,2019, were primarily driven by our consumer automotive loan portfolio where we experienced strong overall credit performance driven by favorable recovery performance.macroeconomic conditions including low unemployment, as well as continued disciplined underwriting and higher recoveries.
The following table summarizes total consumer loan originations for the periods shown. Total consumer loan originations include loans classified as finance receivables and loans and loans held-for-sale during the period.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
($ in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Consumer automotive | | $ | 8,351 |
| | $ | 7,484 |
| | $ | 16,768 |
| | $ | 15,425 |
| | $ | 8,683 |
| | $ | 8,351 |
| | $ | 16,951 |
| | $ | 16,768 |
|
Consumer mortgage (a) | | 194 |
| | 41 |
| | 345 |
| | 44 |
| | 552 |
| | 194 |
| | 903 |
| | 345 |
|
Total consumer loan originations | | $ | 8,545 |
| | $ | 7,525 |
| | $ | 17,113 |
| | $ | 15,469 |
| | $ | 9,235 |
| | $ | 8,545 |
| | $ | 17,854 |
| | $ | 17,113 |
|
| |
(a) | Excludes bulk loan purchases associated with our Mortgage Finance operations and includes $72$155 million and $132$244 million of loans originated as held-for-sale for the three months and six months ended June 30, 2018,2019, respectively, and $20$72 million and $23$132 million for the three months and six months ended June 30, 2017.2018. |
Total consumer loan originations increased $1.0 billion$690 million and $1.6 billion$741 million for the three months and six months ended June 30, 2018,2019, respectively, compared to the three months and six months ended June 30, 2017.2018, reflecting increases of $358 million and $558 million of consumer mortgage loans and increases of $332 million and $183 million of consumer automotive loans. The increases in consumer mortgage loan originations for the three months and six months ended June 30, 2019, were primarily due to growth in the direct-to-consumer mortgage business. The increases in consumer automotive loan originations for the three months and six months ended June 30, 2019, were primarily due to higher consumer automotiveused volume in the Growth channel, with our continued focus on obtaining appropriate risk-adjusted returns.partially offset by lower new retail volume from GM and Chrysler.
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 $72.9 billion and $70.5 billion and $68.1 billion at June 30, 20182019, and December 31, 20172018, respectively. Total consumer mortgage and home equity loans were $15.1$17.8 billion and $13.8$16.7 billion at June 30, 20182019, and December 31, 20172018, respectively.
| |
|
| June 30, 2018 (a) |
| December 31, 2017 |
| June 30, 2019 (a) |
| December 31, 2018 |
|
| Consumer automotive |
| Consumer mortgage |
| Consumer automotive |
| Consumer mortgage |
| Consumer automotive |
| Consumer mortgage |
| Consumer automotive |
| Consumer mortgage |
California |
| 8.3 | % |
| 36.3 | % |
| 8.2 | % |
| 34.6 | % |
| 8.4 | % |
| 36.7 | % |
| 8.4 | % |
| 36.9 | % |
Texas |
| 13.0 |
|
| 6.2 |
|
| 13.2 |
|
| 6.5 |
|
| 12.6 |
|
| 6.3 |
|
| 12.8 |
|
| 6.2 |
|
Florida | | 8.7 |
| | 4.7 |
| | 8.5 |
| | 4.8 |
| | 8.8 |
| | 5.0 |
| | 8.8 |
| | 4.7 |
|
Pennsylvania | |
| 4.6 |
|
| 1.4 |
|
| 4.5 |
|
| 1.4 |
|
Illinois |
| 4.1 |
|
| 3.2 |
|
| 4.2 |
|
| 3.2 |
|
| 4.1 |
|
| 2.8 |
|
| 4.1 |
|
| 3.0 |
|
Pennsylvania |
| 4.5 |
|
| 1.4 |
|
| 4.6 |
|
| 1.5 |
| |
Georgia |
| 4.2 |
|
| 2.6 |
|
| 4.2 |
|
| 2.5 |
|
| 4.0 |
|
| 2.8 |
|
| 4.1 |
|
| 2.8 |
|
North Carolina |
| 3.8 |
|
| 1.7 |
|
| 3.7 |
|
| 1.8 |
|
| 3.9 |
|
| 1.8 |
|
| 3.9 |
|
| 1.7 |
|
New York |
| 3.0 |
|
| 2.4 |
|
| 3.0 |
|
| 2.2 |
|
| 3.1 |
|
| 2.5 |
|
| 3.1 |
|
| 2.4 |
|
Ohio |
| 3.5 |
|
| 0.4 |
|
| 3.4 |
|
| 0.5 |
|
| 3.6 |
|
| 0.4 |
|
| 3.5 |
|
| 0.4 |
|
New Jersey |
| 2.6 |
|
| 2.1 |
|
| 2.6 |
|
| 2.1 |
|
| 2.8 |
|
| 2.2 |
|
| 2.7 |
|
| 2.1 |
|
Other United States |
| 44.3 |
|
| 39.0 |
|
| 44.4 |
|
| 40.3 |
|
| 44.1 |
|
| 38.1 |
|
| 44.1 |
|
| 38.4 |
|
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, 20182019. |
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
We monitor our consumer loan portfolio for concentration risk across the states in which we lend. The highest concentrations of consumer loans are in California and Texas, which represented an aggregate of 25.1%25.3% and 24.7%25.4% of our total outstanding consumer finance receivables and loans at June 30, 20182019, and December 31, 20172018, respectively. Our consumer mortgage loan portfolio concentration within California, which is primarily composed of high-quality jumbo mortgage loans, generally aligns to the California share of jumbo mortgages nationally.
Repossessed and Foreclosed Assets
We classify an asset as repossessed or foreclosed, which is included in other assets on our Condensed Consolidated Balance Sheet, when physical possession of the collateral is taken. We dispose of the acquired collateral in a timely fashion in accordance with regulatory requirements. For more information on repossessed and foreclosed assets, refer to Note 1 to the Consolidated Financial Statements in our 20172018 Annual Report on Form 10-K.
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Repossessed consumer automotive loan assets in our Automotive Finance operations decreased $2 million from December 31, 2018, to $134 million at June 30, 2018, decreased $12 million to $128 million from December 31, 2017.2019. Foreclosed mortgage assets increased $1 million to $11at June 30, 2019, remained flat at $11 million from December 31, 2017.2018.
Commercial Credit Portfolio
During the three months and six months ended June 30, 2018,2019, the credit performance of the commercial portfolio remained strong as nonperforming finance receivables and loans decreased, and our net charge-offs remained low and net recoveries were realized.low. For information on our commercial credit risk practices and policies regarding delinquencies, nonperforming status, and charge-offs, refer to Note 1 to the Consolidated Financial Statements in our 20172018 Annual Report on Form 10-K.
The following table includes total commercial finance receivables and loans reported at gross carrying value.
| | | | Outstanding | | Nonperforming (a) | | Accruing past due 90 days or more | | Outstanding | | Nonperforming (a) | | Accruing past due 90 days or more (b) |
($ in millions) | | June 30, 2018 | | December 31, 2017 | | June 30, 2018 | | December 31, 2017 | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 | | June 30, 2019 | | December 31, 2018 | | June 30, 2019 | | December 31, 2018 |
Commercial and industrial | | | | | | | | | | | | | | | | | | | | | | | | |
Automotive | | $ | 31,501 |
| | $ | 33,025 |
| | $ | 88 |
|
| $ | 27 |
|
| $ | — |
|
| $ | — |
| | $ | 29,382 |
| | $ | 33,672 |
| | $ | 89 |
|
| $ | 203 |
|
| $ | — |
|
| $ | — |
|
Other (b)(c) | | 4,027 |
| | 3,887 |
| | 104 |
|
| 44 |
|
| — |
|
| — |
| | 4,353 |
| | 4,205 |
| | 101 |
|
| 142 |
|
| — |
|
| — |
|
Commercial real estate | | 4,412 |
| | 4,160 |
| | 6 |
|
| 1 |
|
| — |
|
| — |
| | 4,777 |
| | 4,809 |
| | 6 |
|
| 4 |
|
| — |
|
| — |
|
Total commercial finance receivables and loans | | $ | 39,940 |
| | $ | 41,072 |
| | $ | 198 |
| | $ | 72 |
| | $ | — |
| | $ | — |
| | $ | 38,512 |
| | $ | 42,686 |
| | $ | 196 |
| | $ | 349 |
| | $ | — |
| | $ | — |
|
| |
(a) | Includes nonaccrual TDR loans of $83$96 million and $51$86 million at June 30, 20182019, and December 31, 20172018, respectively. |
| |
(b) | Loans are generally in nonaccrual status when principal or interest has been delinquent for 90 days or more, or when full collection is not expected. Refer to Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K for a description of our accounting policies for finance receivables and loans. |
| |
(c) | Other commercial and industrial primarily includes senior secured commercial lending largely associated with our Corporate Finance operations. |
Total commercial finance receivables and loans outstanding decreased$1.14.2 billion from December 31, 20172018, to $39.9$38.5 billion at June 30, 20182019. The decrease was primarily due to lower dealer inventory levels and a reduction in the number of dealer relationships due to the competitive environment across the automotive lending market, as well as lower dealer inventory levels during the period.market. This decrease was partially offset by growth in automotive dealer term loans, as well as within our Corporate Finance portfolio in line with our business strategy.portfolio.
Total commercial nonperforming finance receivables and loans were $198$196 million at June 30, 2018,2019, reflecting an increasea decrease of $126$153 million when compared to December 31, 2017.2018. The increasedecrease was primarily driven bydue to reduced exposure to one larger dealer group that was placed into default in the downgradefourth quarter of 2018, as well as the partial liquidation and charge-off of two accounts within our Corporate Finance portfolio and one account within our commercial automotive portfolio. Nonperforming commercial finance receivables and loans as a percentage of outstanding commercial finance receivables and loans increaseddecreased to 0.5% at June 30, 2018,2019, compared to 0.2%0.8% at December 31, 2017.2018.
Total commercial TDRs outstanding at June 30, 2019, increased $16 million since December 31, 2018, to $102 million. The increase was primarily driven by TDRs granted to one larger dealer group that was placed into default in the fourth quarter of 2018. This increase was partially offset by the partial liquidation and charge-off of two accounts within our Corporate Finance portfolio. Refer to Note 7 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K for additional information.
The following table includes total commercial net charge-offs from finance receivables and loans at gross carrying value and related ratios.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| | Net charge-offs (recoveries) | | Net charge-off ratios (a) | | Net charge-offs (recoveries) | | Net charge-off ratios (a) | | Net charge-offs (recoveries) | | Net charge-off ratios (a) | | Net charge-offs (recoveries) | | Net charge-off ratios (a) |
($ in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
Commercial and industrial | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Automotive | | $ | 2 |
| | $ | — |
| | — | % | | — | % | | $ | 2 |
| | $ | — |
| | — | % | | — | % | | $ | 1 |
| | $ | 2 |
| | — | % | | — | % | | $ | 1 |
| | $ | 2 |
| | — | % | | — | % |
Other | | (6 | ) | | — |
| | (0.5 | ) | | — |
| | (6 | ) | | — |
| | (0.3 | ) | | — |
| | 11 |
| | (6 | ) | | 1.0 |
| | (0.5 | ) | | 16 |
| | (6 | ) | | 0.7 |
| | (0.3 | ) |
Commercial real estate | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total commercial finance receivables and loans | | $ | (4 | ) | | $ | — |
| | — |
| | — |
| | $ | (4 | ) | | $ | — |
| | — |
| | — |
| | $ | 12 |
| | $ | (4 | ) | | 0.1 |
| | — |
| | $ | 17 |
| | $ | (4 | ) | | 0.1 |
| | — |
|
| |
(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 commercial finance receivables and loans were $12 million and $17 million for the three months and six months ended June 30, 2019, respectively, compared to net recoveries of $4 million for both the three months and six months ended June 30,
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Our2018. The increases in net charge-offs from total commercial finance receivables and loans resulted in recoveries of $4 million for both the three months and six months ended June 30, 2018, compared to no net charge-offs for the same periods in 2017. The increases in recoveries for the three months and six months ended June 30, 2018,2019, were primarily driven by a recovery from a previously charged-off loanpartial charge-offs of two accounts within theour Corporate Finance portfolio during the second quarter of 2018.portfolio.
Commercial Real Estate
The commercial real estate portfolio consists of finance receivables and loans issued primarily to automotive dealers. Commercial real estate finance receivables and loans were $4.4 billion and $4.2$4.8 billion at both June 30, 20182019, and December 31, 2017, respectively.2018.
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, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
Texas | | 16.2 | % | | 15.7 | % | | 15.2 | % | | 15.5 | % |
Florida | | 11.8 |
| | 10.3 |
| | 11.9 |
| | 11.6 |
|
California | | 9.3 |
| | 8.2 |
| | 7.6 |
| | 8.3 |
|
Michigan | | 7.0 |
| | 7.7 |
| | 6.8 |
| | 6.8 |
|
North Carolina | | | 4.7 |
| | 3.6 |
|
New York | | | 4.6 |
| | 4.8 |
|
Georgia | | 4.4 |
| | 4.6 |
| | 4.0 |
| | 4.0 |
|
North Carolina | | 3.8 |
| | 3.6 |
| |
South Carolina | | | 3.5 |
| | 3.4 |
|
New Jersey | | 3.3 |
| | 3.6 |
| | 3.0 |
| | 3.1 |
|
South Carolina | | 3.3 |
| | 3.5 |
| |
Missouri | | 2.6 |
| | 2.4 |
| |
Pennsylvania | | 2.4 |
| | 3.0 |
| |
Utah | | | 2.8 |
| | 2.6 |
|
Other United States | | 35.9 |
| | 37.4 |
| | 35.9 |
| �� | 36.3 |
|
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 reported as criticized. These classifications are based on regulatory definitions and generally represent finance receivables and loans within our portfolio that have a higher default risk or have already defaulted. These finance receivables and loans require additional monitoring and review including specific actions to mitigate our potential loss.
Total criticized exposures increased $516decreased $190 million from December 31, 2017,2018, to $3.6$3.8 billion at June 30, 2018.2019. The increasedecrease was primarily due to declining dealer inventory levels and the reclassificationreduced exposure to one larger dealer group that defaulted in the fourth quarter of certain accounts to special mention within the commercial automotive portfolio, partially offset by the reclassification of certain accounts from special mention to pass within the Corporate Finance portfolio.2018.
The following table presents the percentage of total commercial criticized finance receivables and loans by industry concentration. These finance receivables and loans within our automotive and Corporate Finance portfolios are reported at gross carrying value.
| | |
| June 30, 2018 | | December 31, 2017 |
| June 30, 2019 | | December 31, 2018 |
Industry |
|
|
|
|
|
|
|
|
Automotive |
| 81.2 | % |
| 76.3 | % |
| 81.0 | % |
| 80.6 | % |
Services |
| 5.6 |
|
| 6.7 |
|
| 5.3 |
|
| 5.0 |
|
Health/Medical |
| 4.9 |
|
| 4.9 |
| |
Electronics | |
| 4.4 |
|
| 2.3 |
|
Other |
| 8.3 |
|
| 12.1 |
|
| 9.3 |
|
| 12.1 |
|
Total commercial criticized finance receivables and loans | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Allowance for Loan Losses
The following tables present an analysis of the activity in the allowance for loan losses on finance receivables and loans.
|
| | | | | | | | | | | | | | | | | | | | |
Three months ended June 30, 2018 ($ in millions) | | Consumer automotive | | Consumer mortgage | | Total consumer | | Commercial | | Total |
Allowance at April 1, 2018 | | $ | 1,066 |
| | $ | 74 |
| | $ | 1,140 |
| | $ | 138 |
| | $ | 1,278 |
|
Charge-offs (a) | | (296 | ) | | (8 | ) | | (304 | ) | | (2 | ) | | (306 | ) |
Recoveries | | 114 |
| | 6 |
| | 120 |
| | 6 |
| | 126 |
|
Net charge-offs | | (182 | ) | | (2 | ) | | (184 | ) | | 4 |
| | (180 | ) |
Provision for loan losses | | 168 |
| | (4 | ) | | 164 |
| | (6 | ) | | 158 |
|
Other | | 1 |
| | (2 | ) | | (1 | ) | | 2 |
| | 1 |
|
Allowance at June 30, 2018 | | $ | 1,053 |
| | $ | 66 |
| | $ | 1,119 |
| | $ | 138 |
| | $ | 1,257 |
|
Allowance for loan losses to finance receivables and loans outstanding at June 30, 2018 (b) | | 1.5 | % | | 0.4 | % | | 1.3 | % | | 0.3 | % | | 1.0 | % |
Net charge-offs to average finance receivables and loans outstanding for the three months ended June 30, 2018 | | 1.0 | % | | — | % | | 0.9 | % | | — | % | | 0.6 | % |
Allowance for loan losses to total nonperforming finance receivables and loans at June 30, 2018 (b) | | 175.0 | % | | 63.2 | % | | 158.4 | % | | 69.5 | % | | 138.9 | % |
Ratio of allowance for loan losses to annualized net charge-offs at June 30, 2018 | | 1.4 |
| | 10.7 |
| | 1.5 |
| | n/m |
| | 1.8 |
|
n/m = not meaningful |
| | | | | | | | | | | | | | | | | | | | |
Three months ended June 30, 2019 ($ in millions) | | Consumer automotive | | Consumer mortgage | | Total consumer | | Commercial | | Total |
Allowance at April 1, 2019 | | $ | 1,070 |
| | $ | 52 |
| | $ | 1,122 |
| | $ | 166 |
| | $ | 1,288 |
|
Charge-offs (a) | | (301 | ) | | (5 | ) | | (306 | ) | | (12 | ) | | (318 | ) |
Recoveries | | 129 |
| | 7 |
| | 136 |
| | — |
| | 136 |
|
Net charge-offs | | (172 | ) | | 2 |
| | (170 | ) | | (12 | ) | | (182 | ) |
Provision for loan losses | | 180 |
| | (5 | ) | | 175 |
| | 2 |
| | 177 |
|
Other | | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
Allowance at June 30, 2019 | | $ | 1,078 |
| | $ | 49 |
| | $ | 1,127 |
| | $ | 155 |
| | $ | 1,282 |
|
Allowance for loan losses to finance receivables and loans outstanding at June 30, 2019 (b) | | 1.5 | % | | 0.3 | % | | 1.2 | % | | 0.4 | % | | 1.0 | % |
Net charge-offs to average finance receivables and loans outstanding for the three months ended June 30, 2019 | | 1.0 | % | | — | % | | 0.8 | % | | 0.1 | % | | 0.6 | % |
Allowance for loan losses to total nonperforming finance receivables and loans at June 30, 2019 (b) | | 168.0 | % | | 75.1 | % | | 159.5 | % | | 79.3 | % | | 142.1 | % |
Ratio of allowance for loan losses to annualized net charge-offs at June 30, 2019 | | 1.6 |
| | (6.0 | ) | | 1.7 |
| | 3.3 |
| | 1.8 |
|
| |
(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 20172018 Annual Report on Form 10-K for more information regarding our charge-off policies. |
| |
(b) | Coverage percentages are based on the allowance for loan losses related to finance receivables and loans excluding those loans held at fair value as a percentage of the gross carrying value. |
|
| | | | | | | | | | | | | | | | | | | | |
Three months ended June 30, 2017 ($ in millions) | | Consumer automotive | | Consumer mortgage | | Total consumer | | Commercial | | Total |
Allowance at April 1, 2017 | | $ | 941 |
| | $ | 86 |
| | $ | 1,027 |
| | $ | 128 |
| | $ | 1,155 |
|
Charge-offs (a) | | (290 | ) | | (6 | ) | | (296 | ) | | — |
| | (296 | ) |
Recoveries | | 91 |
| | 6 |
| | 97 |
| | — |
| | 97 |
|
Net charge-offs | | (199 | ) | | — |
| | (199 | ) | | — |
| | (199 | ) |
Provision for loan losses | | 260 |
| | (3 | ) | | 257 |
| | 12 |
| | 269 |
|
Allowance at June 30, 2017 | | $ | 1,002 |
| | $ | 83 |
| | $ | 1,085 |
| | $ | 140 |
| | $ | 1,225 |
|
Allowance for loan losses to finance receivables and loans outstanding at June 30, 2017 (b) | | 1.5 | % | | 0.7 | % | | 1.4 | % | | 0.3 | % | | 1.0 | % |
Net charge-offs to average finance receivables and loans outstanding for the three months ended June 30, 2017 | | 1.2 | % | | — | % | | 1.0 | % | | — | % | | 0.7 | % |
Allowance for loan losses to total nonperforming finance receivables and loans at June 30, 2017 (b) | | 185.6 | % | | 89.6 | % | | 171.6 | % | | 92.5 | % | | 156.3 | % |
Ratio of allowance for loan losses to annualized net charge-offs at June 30, 2017 | | 1.3 |
| | n/m |
| | 1.4 |
| | n/m |
| | 1.5 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Three months ended June 30, 2018 ($ in millions) | | Consumer automotive | | Consumer mortgage | | Total consumer | | Commercial | | Total |
Allowance at April 1, 2018 | | $ | 1,066 |
| | $ | 74 |
| | $ | 1,140 |
| | $ | 138 |
| | $ | 1,278 |
|
Charge-offs (a) | | (296 | ) | | (8 | ) | | (304 | ) | | (2 | ) | | (306 | ) |
Recoveries | | 114 |
| | 6 |
| | 120 |
| | 6 |
| | 126 |
|
Net charge-offs | | (182 | ) | | (2 | ) | | (184 | ) | | 4 |
| | (180 | ) |
Provision for loan losses | | 168 |
| | (4 | ) | | 164 |
| | (6 | ) | | 158 |
|
Other | | 1 |
| | (2 | ) | | (1 | ) | | 2 |
| | 1 |
|
Allowance at June 30, 2018 | | $ | 1,053 |
| | $ | 66 |
| | $ | 1,119 |
| | $ | 138 |
| | $ | 1,257 |
|
Allowance for loan losses to finance receivables and loans outstanding at June 30, 2018 (b) | | 1.5 | % | | 0.4 | % | | 1.3 | % | | 0.3 | % | | 1.0 | % |
Net charge-offs to average finance receivables and loans outstanding for the three months ended June 30, 2018 | | 1.0 | % | | — | % | | 0.9 | % | | — | % | | 0.6 | % |
Allowance for loan losses to total nonperforming finance receivables and loans at June 30, 2018 (b) | | 175.0 | % | | 63.2 | % | | 158.4 | % | | 69.5 | % | | 138.9 | % |
Ratio of allowance for loan losses to annualized net charge-offs at June 30, 2018 | | 1.4 |
| | 10.7 |
| | 1.5 |
| | n/m |
| | 1.8 |
|
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 in our 20172018 Annual Report on Form 10-K for more information regarding our charge-off policies. |
| |
(b) | Coverage percentages are based on the allowance for loan losses related to finance receivables and loans excluding those loans held at fair value as a percentage of the gross carrying value. |
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
|
| | | | | | | | | | | | | | | | | | | | |
Six months ended June 30, 2018 ($ in millions) | | Consumer automotive | | Consumer mortgage | | Total consumer | | Commercial | | Total |
Allowance at January 1, 2018 | | $ | 1,066 |
| | $ | 79 |
| | $ | 1,145 |
| | $ | 131 |
| | $ | 1,276 |
|
Charge-offs (a) | | (661 | ) | | (20 | ) | | (681 | ) | | (2 | ) | | (683 | ) |
Recoveries | | 226 |
| | 12 |
| | 238 |
| | 6 |
| | 244 |
|
Net charge-offs | | (435 | ) | | (8 | ) | | (443 | ) | | 4 |
| | (439 | ) |
Provision for loan losses | | 421 |
| | (3 | ) | | 418 |
| | 1 |
| | 419 |
|
Other | | 1 |
| | (2 | ) | | (1 | ) | | 2 |
| | 1 |
|
Allowance at June 30, 2018 | | $ | 1,053 |
| | $ | 66 |
| | $ | 1,119 |
| | $ | 138 |
| | $ | 1,257 |
|
Allowance for loan losses to finance receivables and loans outstanding at June 30, 2018 (b) | | 1.5 | % | | 0.4 | % | | 1.3 | % | | 0.3 | % | | 1.0 | % |
Net charge-offs to average finance receivables and loans outstanding for the six months ended June 30, 2018 | | 1.3 | % | | 0.1 | % | | 1.1 | % | | — | % | | 0.7 | % |
Allowance for loan losses to total nonperforming finance receivables and loans at June 30, 2018 (b) | | 175.0 | % | | 63.2 | % | | 158.4 | % | | 69.5 | % | | 138.9 | % |
Ratio of allowance for loan losses to annualized net charge-offs at June 30, 2018 | | 1.2 |
| | 4.2 |
| | 1.3 |
| | n/m |
| | 1.4 |
|
n/m = not meaningful |
| | | | | | | | | | | | | | | | | | | | |
Six months ended June 30, 2019 ($ in millions) | | Consumer automotive | | Consumer mortgage | | Total consumer | | Commercial | | Total |
Allowance at January 1, 2019 | | $ | 1,048 |
| | $ | 53 |
| | $ | 1,101 |
| | $ | 141 |
| | $ | 1,242 |
|
Charge-offs (a) | | (653 | ) | | (8 | ) | | (661 | ) | | (17 | ) | | (678 | ) |
Recoveries | | 247 |
| | 12 |
| | 259 |
| | — |
| | 259 |
|
Net charge-offs | | (406 | ) | | 4 |
| | (402 | ) | | (17 | ) | | (419 | ) |
Provision for loan losses | | 437 |
| | (8 | ) | | 429 |
| | 30 |
| | 459 |
|
Other | | (1 | ) | | — |
| | (1 | ) | | 1 |
| | — |
|
Allowance at June 30, 2019 | | $ | 1,078 |
| | $ | 49 |
| | $ | 1,127 |
| | $ | 155 |
| | $ | 1,282 |
|
Allowance for loan losses to finance receivables and loans outstanding at June 30, 2019 (b) | | 1.5 | % | | 0.3 | % | | 1.2 | % | | 0.4 | % | | 1.0 | % |
Net charge-offs to average finance receivables and loans outstanding for the six months ended June 30, 2019 | | 1.1 | % | | — | % | | 0.9 | % | | 0.1 | % | | 0.6 | % |
Allowance for loan losses to total nonperforming finance receivables and loans at June 30, 2019 (b) | | 168.0 | % | | 75.1 | % | | 159.5 | % | | 79.3 | % | | 142.1 | % |
Ratio of allowance for loan losses to annualized net charge-offs at June 30, 2019 | | 1.3 |
| | (5.6 | ) | | 1.4 |
| | 4.7 |
| | 1.5 |
|
| |
(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 20172018 Annual Report on Form 10-K for more information regarding our charge-off policies. |
| |
(b) | Coverage percentages are based on the allowance for loan losses related to finance receivables and loans excluding those loans held at fair value as a percentage of the gross carrying value. |
|
| | | | | | | | | | | | | | | | | | | | |
Six months ended June 30, 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) | | (631 | ) | | (15 | ) | | (646 | ) | | — |
| | (646 | ) |
Recoveries | | 181 |
| | 13 |
| | 194 |
| | — |
| | 194 |
|
Net charge-offs | | (450 | ) | | (2 | ) | | (452 | ) | | — |
| | (452 | ) |
Provision for loan losses | | 527 |
| | (6 | ) | | 521 |
| | 19 |
| | 540 |
|
Other (b) | | (7 | ) | | — |
| | (7 | ) | | — |
| | (7 | ) |
Allowance at June 30, 2017 | | $ | 1,002 |
| | $ | 83 |
| | $ | 1,085 |
| | $ | 140 |
| | $ | 1,225 |
|
Allowance for loan losses to finance receivables and loans outstanding at June 30, 2017 (c) | | 1.5 | % | | 0.7 | % | | 1.4 | % | | 0.3 | % | | 1.0 | % |
Net charge-offs to average finance receivables and loans outstanding for the six months ended June 30, 2017 | | 1.4 | % | | — | % | | 1.2 | % | | — | % | | 0.8 | % |
Allowance for loan losses to total nonperforming finance receivables and loans at June 30, 2017 (c) | | 185.6 | % | | 89.6 | % | | 171.6 | % | | 92.5 | % | | 156.3 | % |
Ratio of allowance for loan losses to annualized net charge-offs at June 30, 2017 | | 1.1 |
| | 17.3 |
| | 1.2 |
| | n/m |
| | 1.4 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Six months ended June 30, 2018 ($ in millions) | | Consumer automotive | | Consumer mortgage | | Total consumer | | Commercial | | Total |
Allowance at January 1, 2018 | | $ | 1,066 |
| | $ | 79 |
| | $ | 1,145 |
| | $ | 131 |
| | $ | 1,276 |
|
Charge-offs (a) | | (661 | ) | | (20 | ) | | (681 | ) | | (2 | ) | | (683 | ) |
Recoveries | | 226 |
| | 12 |
| | 238 |
| | 6 |
| | 244 |
|
Net charge-offs | | (435 | ) | | (8 | ) | | (443 | ) | | 4 |
| | (439 | ) |
Provision for loan losses | | 421 |
| | (3 | ) | | 418 |
| | 1 |
| | 419 |
|
Other | | 1 |
| | (2 | ) | | (1 | ) | | 2 |
| | 1 |
|
Allowance at June 30, 2018 | | $ | 1,053 |
| | $ | 66 |
| | $ | 1,119 |
| | $ | 138 |
| | $ | 1,257 |
|
Allowance for loan losses to finance receivables and loans outstanding at June 30, 2018 (b) | | 1.5 | % | | 0.4 | % | | 1.3 | % | | 0.3 | % | | 1.0 | % |
Net charge-offs to average finance receivables and loans outstanding for the six months ended June 30, 2018 | | 1.3 | % | | 0.1 | % | | 1.1 | % | | — | % | | 0.7 | % |
Allowance for loan losses to total nonperforming finance receivables and loans at June 30, 2018 (b) | | 175.0 | % | | 63.2 | % | | 158.4 | % | | 69.5 | % | | 138.9 | % |
Ratio of allowance for loan losses to annualized net charge-offs at June 30, 2018 | | 1.2 |
| | 4.2 |
| | 1.3 |
| | n/m |
| | 1.4 |
|
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 in our 20172018 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 gross carrying value. |
The allowance for consumer loan losses at June 30, 2018,2019, increased $34$8 million compared to June 30, 2017.2018, reflecting an increase of $25 million in the consumer automotive allowance and a decrease of $17 million in the consumer mortgage allowance. The increase in our consumer automotive allowance was primarily driven by our consumer automotive portfolio and reflects higher consumer automotive loan balances. This increase wasgrowth as finance receivable balances are up $2.4 billion from the prior-year period, partially offset by a decrease in the allowance for loan losses in our consumer mortgage portfolio.lower hurricane-related reserves. The decrease in the consumer mortgage portfolioallowance was primarily driven by run-off in our legacy mortgage portfolio and lower hurricane-related reserves, partially offset by growth in our Mortgage Finance portfolio. Additionally,portfolio as of June 30, 2018, we continue to maintain a reserve of $10 million due to estimated impacts offinance receivable balances are up $3.2 billion from the hurricanes, and we expect to incur related losses throughout 2018.prior-year period.
The allowance for commercial loan losses declined $2increased $17 million at June 30, 2018,2019, compared to June 30, 2017.2018. The decreaseincrease was primarily driven by higher reserves in our Corporate Finance portfolio due to loweras balances are up $611 million from the prior-year period, as well as higher reserves for individually impaired loans. This decreaseaccounts, which was partially offset byprimarily associated with one lending exposure in our Corporate Finance portfolio. Overall credit performance in the Corporate Finance portfolio remains stable.
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
increases in the allowance for loan losses in our commercial automotive portfolio where we experienced higher reserves for individually impaired loans.
Allowance for Loan Losses by Type
The following table summarizes the allocation of the allowance for loan losses by product type.
| |
|
| 2018 |
| 2017 |
| 2019 |
| 2018 |
June 30, ($ 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 |
| 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 |
| $ | 1,053 |
|
| 1.5 | % |
| 83.7 | % |
| $ | 1,002 |
|
| 1.5 | % |
| 81.8 | % |
| $ | 1,078 |
|
| 1.5 | % |
| 84.1 | % |
| $ | 1,053 |
|
| 1.5 | % |
| 83.7 | % |
Consumer mortgage |
| | | | | | | | | | | |
| | | | | | | | | | | |
Mortgage Finance |
| 18 |
|
| 0.1 |
|
| 1.5 |
|
| 12 |
|
| 0.1 |
|
| 1.0 |
|
| 18 |
|
| 0.1 |
|
| 1.4 |
|
| 18 |
|
| 0.1 |
|
| 1.5 |
|
Mortgage — Legacy |
| 48 |
|
| 2.7 |
|
| 3.8 |
|
| 71 |
|
| 2.9 |
|
| 5.8 |
|
| 31 |
|
| 2.3 |
|
| 2.4 |
|
| 48 |
|
| 2.7 |
|
| 3.8 |
|
Total consumer mortgage |
| 66 |
|
| 0.4 |
|
| 5.3 |
|
| 83 |
|
| 0.7 |
|
| 6.8 |
|
| 49 |
|
| 0.3 |
|
| 3.8 |
|
| 66 |
|
| 0.4 |
|
| 5.3 |
|
Total consumer loans |
| 1,119 |
|
| 1.3 |
|
| 89.0 |
|
| 1,085 |
|
| 1.4 |
|
| 88.6 |
|
| 1,127 |
|
| 1.2 |
|
| 87.9 |
|
| 1,119 |
|
| 1.3 |
|
| 89.0 |
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Automotive |
| 42 |
|
| 0.1 |
|
| 3.4 |
|
| 38 |
|
| 0.1 |
|
| 3.1 |
|
| 42 |
|
| 0.1 |
|
| 3.3 |
|
| 42 |
|
| 0.1 |
|
| 3.4 |
|
Other |
| 69 |
|
| 1.7 |
|
| 5.5 |
|
| 76 |
|
| 2.1 |
|
| 6.2 |
|
| 87 |
|
| 2.0 |
|
| 6.8 |
|
| 69 |
|
| 1.7 |
|
| 5.5 |
|
Commercial real estate |
| 27 |
|
| 0.6 |
|
| 2.1 |
|
| 26 |
|
| 0.6 |
|
| 2.1 |
|
| 26 |
|
| 0.6 |
|
| 2.0 |
|
| 27 |
|
| 0.6 |
|
| 2.1 |
|
Total commercial loans |
| 138 |
|
| 0.3 |
|
| 11.0 |
|
| 140 |
|
| 0.3 |
|
| 11.4 |
|
| 155 |
|
| 0.4 |
|
| 12.1 |
|
| 138 |
|
| 0.3 |
|
| 11.0 |
|
Total allowance for loan losses |
| $ | 1,257 |
|
| 1.0 |
|
| 100.0 | % |
| $ | 1,225 |
|
| 1.0 |
|
| 100.0 | % |
| $ | 1,282 |
|
| 1.0 |
|
| 100.0 | % |
| $ | 1,257 |
|
| 1.0 |
|
| 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, |
| Three months ended June 30, | | Six months ended June 30, |
($ in millions) |
| 2018 |
| 2017 | | 2018 | | 2017 |
| 2019 |
| 2018 | | 2019 | | 2018 |
Consumer |
|
|
|
| | | | |
|
|
|
| | | | |
Consumer automotive |
| $ | 168 |
|
| $ | 260 |
| | $ | 421 |
| | $ | 527 |
|
| $ | 180 |
|
| $ | 168 |
| | $ | 437 |
| | $ | 421 |
|
Consumer mortgage |
|
|
|
| | | | |
|
|
|
| | | | |
Mortgage Finance |
| — |
|
| 1 |
| | 2 |
| | 2 |
|
| — |
|
| — |
| | 2 |
| | 2 |
|
Mortgage — Legacy |
| (4 | ) |
| (4 | ) | | (5 | ) | | (8 | ) |
| (5 | ) |
| (4 | ) | | (10 | ) | | (5 | ) |
Total consumer mortgage |
| (4 | ) |
| (3 | ) | | (3 | ) | | (6 | ) |
| (5 | ) |
| (4 | ) | | (8 | ) | | (3 | ) |
Total consumer loans |
| 164 |
|
| 257 |
| | 418 |
| | 521 |
|
| 175 |
|
| 164 |
| | 429 |
| | 418 |
|
Commercial |
|
|
|
| | | | |
|
|
|
| | | | |
Commercial and industrial |
|
|
|
| | | | |
|
|
|
| | | | |
Automotive |
| 3 |
|
| 6 |
| | 7 |
| | 6 |
|
| — |
|
| 3 |
| | 6 |
| | 7 |
|
Other |
| (8 | ) |
| 6 |
| | (8 | ) | | 12 |
|
| 2 |
|
| (8 | ) | | 25 |
| | (8 | ) |
Commercial real estate |
| (1 | ) |
| — |
| | 2 |
| | 1 |
|
| — |
|
| (1 | ) | | (1 | ) | | 2 |
|
Total commercial loans |
| (6 | ) |
| 12 |
| | 1 |
| | 19 |
|
| 2 |
|
| (6 | ) | | 30 |
| | 1 |
|
Total provision for loan losses |
| $ | 158 |
|
| $ | 269 |
| | $ | 419 |
| | $ | 540 |
|
| $ | 177 |
|
| $ | 158 |
| | $ | 459 |
| | $ | 419 |
|
The provision for consumer loan losses decreased $93was $175 million and $103$429 million for the three months and six months ended June 30, 2019, respectively, compared to $164 million and $418 million for three months and six months ended June 30, 2018. The provision for consumer automotive loan losses increased $12 million and $16 million during the three months and six months ended June 30, 2019, as compared to the same periods in the prior year. The increases were driven primarily by reserve reductions during the three and six months ended June 30, 2018, respectively, comparedassociated with hurricane activity experienced during 2017. This activity was largely offset by lower net charge-offs, which occurred despite continued growth within our retail automotive loan portfolio. We continue to the same periods in 2017. The decreases during the three months and six months ended June 30, 2018, were primarily driven by our consumer automotive portfolio where we experiencedexperience strong overall credit performance driven by favorable macroeconomic trendsconditions including low unemployment, as well as continued disciplined underwriting and higher recoveries on charge-offs. Results were also favorably impactedrecoveries. The provision for consumer mortgage loan losses decreased $1 million and $5 million during the three months and six months ended June 30, 2019, primarily driven by overall lower than anticipated losses associated withnet charge-offs and strong credit performance as the hurricanes experienced in the third quarter of 2017. We loweredlegacy mortgage portfolio continues to run-off and we continue to grow our reserve for these hurricane losses from $45 million as of December 31, 2017, to $20 million as of March 31, 2018, and to $10 million asMortgage Finance business.
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
of June 30, 2018, and expect to incur related losses throughout 2018. The lower provision for consumer credit losses was partially offset by the impact of growth in the consumer automotive loan portfolio.
The provision for commercial loan losses decreased $18increased $8 million and $29 million for both the three months and six months ended June 30, 2018,2019, respectively, compared to the same periods in 2017.three months and six months ended June 30, 2018. The decreasesincreases in provision for commercial loan losses for the three months and six months ended June 30, 2019, were primarily drivenimpacted by our Corporate Finance portfolio where we experienced favorable overall credit performance, as well asrecognized a $6 million recovery of a previously charged-off loanduring the three months ended June 30, 2018, which did not reoccur. Additionally, the increase in provision expense for the six months ended June 30, 2019, was primarily driven by higher reserves associated with two specific exposures which were within separate industries, each with unique considerations. Overall credit performance in the second quarter of 2018.Corporate Finance portfolio remains stable.
Insurance/Underwriting Risk
The underwriting of our VSCs and insurance policies includes an assessment of the risk to determine acceptability and categorization for appropriate pricing. The acceptability of a particular risk is based on expected losses, expenses and other factors specific to the product in question. With respect to VSCs, considerations include the quality of the vehicles produced, the price of replacement parts, repair labor rates, and new model introductions. Insurance risk also includes event risk, which is synonymous with pure risk, hazard risk, or insurance risk, and presents no chance of gain, only of loss.
We mitigate losses by the active management of claim settlement activities using experienced claims personnel and the evaluation of current period reported claims. Losses for these events may be compared to prior claims experience, expected claims, or loss expenses from similar incidents to assess the reasonableness of incurred losses.
In some instances, reinsurance is used to reduce the risk associated with volatile business lines, such as catastrophe risk in vehicle inventory insurance. Our vehicle inventory insurance product is covered by excess of loss protection, including catastrophe coverage for weather-related events. In addition, loss control techniques such as storm path monitoring to assist dealers in preparing for severe weather help to mitigate loss potential.
In accordance with industry and accounting practices and applicable insurance laws and regulatory requirements, we maintain reserves for reported losses, losses incurred but not reported, losses expected to be incurred in the future for contracts in force and loss adjustment expenses. The estimated values of our prior reported loss reserves and changes to the estimated values are routinely monitored by credentialed actuaries. Our reserve estimates are regularly reviewed by management; however, since the reserves are based on estimates and numerous assumptions, the ultimate liability may differ from the amount estimated.
Market Risk
Our automotive financing, mortgage, investing, and insurance activities give rise to market risk, representingor the potential loss arising from changeschange in the value of our assets or(including securities, assets held-for-sale, and operating leases) and liabilities (including derivatives) caused bydeposits and debt) due to movements in market variables such as interest rates, credit spreads, foreign-exchange rates, equity prices, and equityoff-lease vehicle prices.
The impact of changes in benchmark interest rates on our assets and commodity prices. Theseliabilities (interest rate risk) represents an exposure to market variables could affect therisk. We primarily use interest rate derivatives to manage our interest rate risk exposure.
The fair value of our securities,credit-sensitive assets held-for-sale, and operating leases. Market risk includes interest rate risk, investment risk, and lease residual risk.
We areis also exposed to interest rate risk arising from changes incredit spread risk. Credit spread is the amount of additional return over the benchmark 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 usedthat an investor would demand for funding. We enter into various financial instruments, including derivatives, to maintain the desired level oftaking exposure to the credit risk of interest rate and other fluctuations.an instrument. Generally, an increase in credit spreads would result in a decrease in a fair value measurement.
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 changes in the value of equity price risk, primarily in our Insurance operations, which invests in equity securities that are subject to price risk influenced by capital market movements.securities. We enter into equity options to economically hedge our exposure to the equity markets. Additionally, we have exposure to equity price risksecurities with readily determinable fair values primarily related to certain share-based compensation programs.our Insurance operations. For such equity securities, we use equity derivatives to manage our exposure to equity price fluctuations. In addition, we are exposed to changes in the value of other equity investments without readily determinable fair market values. Refer to Note 10 to the Condensed Consolidated Financial Statements for additional information. We may experience changes in the valuation of these investments, which may cause volatility in our earnings.
Although the diversityThe composition of our activities from our complementary business lines maybalance sheet, including shorter-duration consumer automotive loans and variable-rate commercial loans, coupled with the continued funding shift toward retail deposits, partially mitigatemitigates market risk,risk. Additionally, we also actively manage this risk. We maintain risk management control systems torisk-management controls that measure and monitor interest rates, foreign-currency exchange rates, equity price risks, and any of their related hedge positions. Positions are monitoredmarket risk using a variety of analytical techniques including market value, sensitivity analysis, and value at risk models. Refer to Note 1817 to the Condensed Consolidated Financial Statements for further information.
LIBOR Transition
In July 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced its intent to stop persuading or compelling banks to submit rates for the calculation of LIBOR to the administrator of LIBOR after 2021. Due to the uncertainty surrounding the future of LIBOR, it is expected that a transition away from the use of LIBOR to alternative benchmark rates will occur by the end of 2021. We have exposure to LIBOR-based contracts within certain of our finance receivables and loans primarily related to commercial automotive loans, corporate finance loans, and mortgage loans, as well as certain investment securities, derivative contracts, and trust preferred securities, among other arrangements.
The discontinuation of LIBOR or LIBOR-based rates will present risks to our business, as further described in the section titled Risk Factors within our 2018 Annual Report on Form 10-K. In recognition of these risks and uncertainties, we have established a formal enterprise-wide initiative to identify, assess, monitor, and mitigate risks that may arise from the potential discontinuation of LIBOR and the related transition to an alternative reference rate. Through this initiative, we continue to assess and plan for potential impacts to our financial forecasts, operational processes, technology, modeling, as well as our current and potential future contracts with customers and counterparties.
We continue to evaluate the most appropriate course of action for each instrument that currently references LIBOR. For example, the Alternative Reference Rates Committee (ARRC), a group convened by the FRB, has identified the Secured Overnight Financing Rate (SOFR) as its preferred alternative rate for LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed purchase transactions. We are evaluating SOFR, among other alternatives and actions, as a potential alternative reference rate to LIBOR and are taking steps to assess the operational, financial, and various other impacts this change could have to our business. We will continue to actively monitor industry developments and their potential impact to us.
We are also actively assessing how the discontinuation of LIBOR could impact accounting and financial reporting including, but not limited to, potential impacts to our hedge accounting, valuation or modeling, or impacts associated with modifying the terms of our loan agreements or debt instruments with our customers or counterparties. We also continue to monitor activities of standard setters such as the FASB, which added a project to its agenda to address potential accounting and reporting implications relating to the expected discontinuation of LIBOR. Additionally, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, which permits the use of the OIS rate based on the SOFR to be designated as a benchmark interest rate for hedge accounting purposes.
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Net Financing Revenue Sensitivity Analysis
Interest rate risk represents our most significant exposure to market risk. We actively monitor the level of exposure so thatto movements in interest rates do not adversely affectand take actions to mitigate adverse impacts these movements may have on future earnings. We use net financing revenue sensitivity analysis as our primary metric to measure and manage the interest rate sensitivities of our financial instruments.
We prepare our forward-looking baseline forecasts of net financing revenue taking into consideration anticipated future business growth, asset/liability positioning, and interest rates based on the implied forward curve. The analysis is highly dependent upon a variety of assumptions including the repricing characteristics of retail deposits with both contractual and non-contractual maturities. During the first quarter of 2017, we implemented a dynamic pass-through modeling assumption on our deposits without contractual maturities, which consist of our savings, money market, and checking accounts, whereby deposit pass-through levels increase as the absolute level of the Federal Funds Rate increases. Based on current market conditions, actual beta on our total retail deposits portfolio has been approximately 25%48% relative to the increase in the federal funds rate since
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
rates began to rise in December 2015. We continually monitor industry and competitive repricing activity along with other market factors when contemplating deposit pricing actions.
Simulations are used to assess changes in net financing revenue in multiple interest rate scenarios relative to the baseline forecast. The changes in net financing revenue relative to the baseline are defined as the sensitivity. Our simulations incorporate contractual cash flows and repricing characteristics for all assets, liabilities, and off-balance sheet exposures and incorporate the effects of changing interest rates on the prepayment and attrition rates of certain assets and liabilities. Our simulation does not assume any specific future actions are taken to mitigate the impacts of changing interest rates.
The net financing revenue sensitivity tests measure the potential change in our pretax net financing revenue over the following twelve months. A number of alternative rate scenarios are tested, including immediate and gradual parallel shocks to the implied market forward curve. Management also evaluates nonparallel shocks to interest rates and stresses to certain term points on the yield curve in isolation to capture and monitor a number of risk types. Relative to our baseline forecast, which is based on the implied forward curve, our net financing revenue over the next twelve months would decrease by $27$60 million if interest rates remain unchanged.
The following table presents the pretax dollar impact to forecasted net financing revenue over the next 12twelve months assuming 100 basis point and 200 basis point instantaneous parallel and gradual parallel shock increases, and assuming 100 basis point instantaneous parallel and gradual parallel shock decreases to the implied market forward curve as of June 30, 2018,2019, and December 31, 2017.2018.
| | | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
Change in interest rates ($ in millions) | | Gradual (a) | | Instantaneous | | Gradual (a) | | Instantaneous | |
($ in millions) | | | Gradual (a) | | Instantaneous | | Gradual (a) | | Instantaneous |
Change in interest rates | | | | | | | | | |
-100 basis points | | $ | (28 | ) | | $ | (80 | ) | | $ | (22 | ) | | $ | 15 |
| | $ | (60 | ) | | $ | (147 | ) | | $ | (20 | ) | | $ | (34 | ) |
+100 basis points | | (7 | ) | | (72 | ) | | (18 | ) | | (106 | ) | | 43 |
| | 28 |
| | 51 |
| | 10 |
|
+200 basis points | | (7 | ) | | (132 | ) | | (68 | ) | | (294 | ) | | 91 |
| | (11 | ) | | 81 |
| | (10 | ) |
| |
(a) | Gradual changes in interest rates are recognized over 12twelve months. |
The implied forward rate curve was higher and flatterlower across all tenors compared to December 31, 2017, as short-end rates have increased more than long-end rates.2018, and includes multiple projected declines in the Federal Funds Target in the forecast horizon. The impact of this change is reflected in our baseline net financing revenue projections. We remain moderately liability-sensitive asAs of June 30, 2018, in the upward2019, our net interest rate shock scenarios as our simulation models assume liabilities will initially reprice faster than assets. Exposureincome sensitivity in the +100 and +200 basis point instantaneous shock scenarios have decreased ashas primarily been impacted by lower rates and the impact of June 30, 2018, primarily duefunding sources shifting from short-term market-based funding to the hedge program we initiatedretail deposits, partially offset by year-to-date notional decreases in the first quarter of 2018 of pay-fixed interest rate swaps on certain automotive assets that allows us to reduce our sensitivity to a rise in short-term interest rates beyond the implied forward curve. This was partially offset by the impact of higher interest rates on deposits as a result of our assumption that deposit pass-through levels increase with higher interest rates.assets.
The exposure in the downward instantaneous interest rate shock scenario has increased as of June 30, 2018,2019, primarily due to changes to our derivative hedging position as noted above.mortgage prepayment risk in a lower interest rate environment.
Our risk position is influenced by the net impact of derivative hedging which includesprimarily consists of interest rate swaps designated as fair value hedges of certain fixed-rate assets and fixed-rate debt instruments, and pay-fixed interest rate swaps designated as cash flow hedges of certain floating-rate debt instruments. During the first half of 2019, we also initiated a hedge program of interest rate floor contracts designated as cash flow hedges on certain floating-rate assets. The size, maturity, and mix of our hedging activities changes frequentlyare adjusted as we adjust our broaderbalance sheet, ALM objectives.objectives, and interest rate environment evolve over time.
Operating Lease Residual Risk Management
We are exposed to residual risk on vehicles in the consumer operating lease portfolio. This operating lease residual risk represents the possibility that the actual proceeds realized upon the sale of returned vehicles will be lower than the projection of these values used in establishing the pricing at lease inception. However, certain automotive manufacturers have provided their guarantee for portions of our residual exposure, foras further described in Note 8. Our operating lease programs with them.portfolio, net of accumulated depreciation was $8.4 billion at both June 30, 2019, and December 31, 2018. The expected lease residual value of our operating lease portfolio at scheduled termination was $6.8 billion at both June 30, 2019, and December 31, 2018. For information on our valuation of automotive operating lease residuals including periodic revisions through adjustments to depreciation expense based on current and forecasted market conditions, refer to the section titled Critical Accounting Estimates—Valuation of Automotive Operating Lease Assets and Residuals within the MD&A in our 20172018 Annual Report on Form 10-K.
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Operating Lease Vehicle Terminations and Remarketing
The following table summarizes the volume of operating lease terminations and average gain per vehicle, as well as our methods of vehicle sales at lease termination, stated as a percentage of total operating lease vehicle disposals.
| | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Off-lease vehicles terminated (in units) | | 35,919 |
| | 71,667 |
| | 80,641 |
| | 149,428 |
| | 29,267 |
| | 35,919 |
| | 55,297 |
| | 80,641 |
|
Average gain per vehicle ($ per unit) | | $ | 447 |
| | $ | 453 |
| | $ | 423 |
| | $ | 194 |
| | $ | 776 |
| | $ | 447 |
| | $ | 680 |
| | $ | 423 |
|
Method of vehicle sales | | | | | | | | | | | | | | | | |
Auction | | | | | | | | | | | | | | | | |
Internet | | 51 | % | | 55 | % | | 53 | % | | 56 | % | | 53 | % | | 51 | % | | 52 | % | | 53 | % |
Physical | | 14 |
| | 13 |
| | 14 |
| | 13 |
| | 15 |
| | 14 |
| | 15 |
| | 14 |
|
Sale to dealer, lessee, and other | | 35 |
| | 32 |
| | 33 |
| | 31 |
| | 32 |
| | 35 |
| | 33 |
| | 33 |
|
OverWe recognized an average gain per vehicle of $776 and $680 for the last twelve months, our operating lease portfolio, net of accumulated depreciation, decreased 11% from $9.7 billion at June 30, 2017, to $8.6 billion at June 30, 2018. The number of off-lease vehicles remarketed during the three months and six months ended June 30, 2018, decreased 50%2019, compared to $447 and 46%, respectively,$423 for the same periods in 2018. The increases in average gain per vehicle for the three months and six months ended June 30, 2019, compared to the same periods in 2017.2018, were primarily due to an increase in the mix of trucks and sport utility vehicles and a decrease in the mix of cars, which drove more favorable remarketing results. The decreases in net operating lease assets and remarketing volume arewere primarily due to the wind down of our legacy GM lease portfolio being substantially wound-down as of June 30, 2018. The residual risk associated with our operating lease portfolio has declined during this run-off period.portfolio. We expect future termination volume to be more consistent with trends experienced during the six months ended June 30, 2018.
We recognized an average gain per vehicle of $447 and $423 for the three months and six months ended June 30, 2018, respectively, compared to $453 and $194 for the same periods in 2017. Declining used vehicle values during the three months ended March 31, 2017, were more pronounced in the car market; however, as expected, beginning in the second quarter of 2017 our lease termination activity has experienced an increase in the mix of trucks and sport utility vehicles. The favorable average gain per vehicle performance for the six months ended June 30, 2018, was primarily the result of this more favorable termination mix. We expect to maintain our current mix of trucks and sport utility vehicles in our future lease terminations.2019. For more information on our investment in operating leases, refer to Note 8 to the Condensed Consolidated Financial Statements, and Note 1 to the Consolidated Financial Statements in our 20172018 Annual Report on Form 10-K.
Operating Lease Portfolio Mix
We monitor the concentration of our outstanding operating leases. The following table presents the mix of leased vehiclesoperating lease assets by vehicle type, based on volume of units outstanding.
| | June 30, | | 2018 | | 2017 | | 2019 | | 2018 |
Sport utility vehicle | | 55 | % | | 54 | % | | 58 | % | | 55 | % |
Truck | | 31 |
| | 22 |
| | 31 |
| | 31 |
|
Car | | 14 |
| | 24 |
| | 11 |
| | 14 |
|
Our overall operating lease residual exposure has declined in recent years largely as a result of the runoff of our legacy GM operating lease portfolio. Primarily because of this,portfolio, and as a result our exposure to Chrysler vehicles has grown and now representsrepresented approximately 88%93% of our operating lease units as of June 30, 2018. The following table presents the mix2019, as compared to 88% as of leased vehicles by manufacturer, based on volume of units outstanding.
|
| | | | | | |
June 30, | | 2018 | | 2017 |
Chrysler vehicles | | 88 | % | | 63 | % |
GM vehicles | | 2 |
| | 30 |
|
Other | | 10 |
| | 7 |
|
Business/Strategic Risk
Business/strategic risk is embedded in every facet of our organization and is one of our primary risk types. It is the risk resulting from the pursuit of business plans that turn out to be unsuccessful due to a variety of factors, including incorrect assumptions, inappropriate business plans, ineffective business strategy execution, or failure to respond in a timely manner to changes in the regulatory, macroeconomic or competitive environments, in the geographic locations in which we operate, competitor actions, changing customer preferences, product obsolescence, and technology developments. We aim to mitigate this risk within our business units through portfolio diversification, product innovations, and close monitoring of the execution of our strategic and capital plan, and ensuring flexibility of the cost base (e.g., through outsourcing).
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
The strategic plan is reviewed and approved annually by the Board, as are the capital plan and financial business plan. With oversight from the Board, executive management seeks to consistently apply core operating principles while executing our strategic plan in accordance with our risk appetite approved by the RC. The executive management team continuously monitors business performance throughout the year to assess strategic risk and find early warning signals so that risks can be proactively managed. Executive management regularly reviews actual performance versus the plan, updates the Board via reporting routines and implements changes as deemed appropriate.
Significant strategic actions, such as capital actions, material acquisitions or divestitures, and recovery and resolution plans are reviewed and approved by the Board as required. At the business level, as we introduce new products, we monitor their performance relative to expectations. With oversight by the Board, executive management performs similar analyses throughout the year, and evaluates changes to the financial forecast or the risk, capital, or liquidity positions as deemed appropriate to balance and optimize achieving our targeted risk appetite, stockholder returns, and maintaining our targeted financial strength.
Reputation Risk
Reputation risk is the risk arising from negative public opinion on our business practices, whether true or not, that will cause a decline in the customer base, litigation, or revenue reductions. Reputation risk may result from many of our activities, including those related to the management of our business/strategic, operational, and credit risks. We manage reputation risk through established policies and controls in our businesses and risk management processes to mitigate reputation risks in a timely manner and through proactive monitoring and identification of potential reputation risk events. We have established processes and procedures to respond to events that give rise to reputation risk, including educating individuals and organizations that influence public opinion, external communication strategies to mitigate the risk, and informing key stakeholders of potential reputation risks. Primary responsibility for the identification, escalation and resolution of reputation risk issues resides with our business lines. Each employee is under an obligation, within the scope of their activities, to analyze and assess any imminent or intended transaction in terms of possible risk factors in order to minimize reputation risks. Further, Ally’s strong “LEAD” culture and distinct “Do it Right” philosophy also strengthen our efforts to mitigate reputational risks by promoting a transparent culture where every associate is expected to act as a risk manager. Our culture is proactive with its core principles embedded at all levels of the organization so that any associate, at any time, can and should call attention to risks that need to be addressed and taken into account. Our organization and governance structure provides oversight of reputation risks, and key risk indicators are reported regularly and directly to management and the RC, which provide primary oversight of reputation risk.
Operational Risk
Operational risk is the risk of loss or harm arising from inadequate or failed processes or systems, human factors, or external events. Operational risk is an inherent risk element in each of our business lines. Such risk can manifest in various ways, including errors, business interruptions, and inappropriate behavior of employees, and can potentially result in financial losses and other damage to us. Operational risk includes business disruption risk, fraud risk, human capital risk, legal risk, model risk, process execution and management risk, and supplier (third party) risk.
Business disruption risk — The risk of significant disruption to our operations resulting from natural disasters, external technology outages, or other external events.
Fraud risk — The risk from deliberate misrepresentation or concealment of information material to a transaction with the intent to deceive another and that is reasonably relied on or used in decision making. Fraud can occur internally (e.g., employees) or externally (e.g., criminal activity, third-party suppliers).
Human capital risk — The risk caused by high turnover, inadequate or improper staffing levels, departure/unavailability of key personnel, or inadequate training and includes our exposure to worker’s compensation and employment litigation.
Legal risk — The risk arising from the potential that unenforceable contracts, lawsuits, or adverse judgments can disrupt or otherwise negatively affect our operations or condition.
Model risk — The potential for adverse consequences from decisions based on incorrect or misused model assumptions, inputs, outputs, and reports. This risk may include fundamental errors within the model that produce inaccurate outputs or that the model is used incorrectly or inappropriately.
Process execution and management risk — The risk caused by failure to execute or adhere to policies, standards, procedures, processes, controls, and activities as designed and documented.
Supplier (third party) risk — The risk associated with third-party suppliers and their delivery of products and/or services and effect on overall business performance. This includes a supplier’s failure to comply with information technology requirements, information and physical security, laws, rules, regulations, and legal agreements.
To monitor and mitigate such risk, we maintain a system of policies and a control framework designed to provide a sound and well-controlled operational environment. This framework employs practices and tools designed to maintain risk identification, risk governance, risk and control assessment and testing, risk monitoring, and transparency through risk reporting mechanisms. The goal is to maintain operational risk at appropriate levels based on our financial strength, the characteristics of the businesses and the markets in which we operate, and the related competitive and regulatory environment.
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
June 30, 2018.
Information Technology/Security Risk
Information technology/security risk includes risk resulting from the failure of, or insufficiency in, information technology (e.g., system outage) or intentional or accidental unauthorized access, sharing, removal, tampering, or disposal of company and customer data or records.
We and our service providers rely extensively on communications, data-management, and other operating systems and infrastructure to conduct our business and operations. Failures or disruptions to these systems or infrastructure from cyberattacks or otherwiseother events may impede our ability to conduct business and operations and may cause usresult in business, reputational, financial, regulatory, or other harm.
We and other financial institutions continue to be the target of various cyberattacks, including those by unauthorized parties who may seek to disrupt our operations through malware, phishing attacks, denial-of-service, or other security breaches, as part of an effort to disrupt the operations of financial institutions or obtain confidential, proprietary, or other information or assets of the Company, our customers, employees, or other third parties with whom we transact.
Cybersecurity and the continued development of our controls, processes, and systems to protect our technology infrastructure, customer information, and other proprietary information or assets remain a critical and ongoing priority. We recognize that cyber-related risks continue to evolve and have become increasingly sophisticated, and as a result we continuously evaluate the adequacy of our preventive and detective measures.
In order to help mitigate cybersecurity risks, we devote substantial resources to protect the Company from cyber-related incidents. We regularly assess vulnerabilities and threats to our environment utilizing various resources including independent third-party assessments to evaluate whether our layered system of controls effectively mitigates risk. We also invest in new technologies and infrastructure in order to respond to evolving risks within our environment. We continue to partner with other industry peers in order to share knowledge and information to further our security environment and invest in training and employee awareness to cyber-related risks. Additionally, as a further protective measure, we maintain insurance coverage that, subject to terms and conditions, may cover certain aspects of cybersecurity
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
and information risks; however, such insurance may not be sufficient to cover losses. Management monitors a significant amount of operational metrics and data surrounding cybersecurity operations, and the organization monitors compliance with established guardrails around such metricslimits in connection with management’sour risk appetite framework.appetite. Senior leadership regularly reviews, questions, and challenges such information.
The RC reviews cybersecurity risks, incidents, and developments in connection with its oversight of our independent risk-management program. The Board and the ACAudit Committee (AC) also undertake reviews as appropriate. The Information Technology Risk Committee is responsible for supporting the Chief Risk Officer’s oversight of Ally’s management of cybersecurity and other risks involving our communications, data-management, and other operating systems and infrastructure. Additionally, our cybersecurity program is regularly assessed by Audit Services, which reports directly to the AC. The business lines are also actively engaged in overseeing the service providers that supply or support the operating systems and infrastructure on which we depend and, with effective challenge from the independent risk-management function, managing related operational and other risks.
Notwithstanding these risk and control initiatives, we may incur losses attributable to operational risksinformation technology/security risk from time to time, and there can be no assurance these losses will not be incurred in the future or will not be substantial. For further information on security,cybersecurity, technology, systems, infrastructure, and other operational risks,infrastructure, refer to the section titled Risk Factors in Part I, Item 1A of within our 20172018 Annual Report on Form 10-K.
Compliance Risk
Compliance risk arises from potential violations of or nonconformance with applicable laws (including statutes, rules, regulations, and case law), prescribed compliance practices, specific internal compliance policies, standards, and procedures designed to facilitate compliance with legal or ethical standards, or principles of fair and ethical customer treatment. Compliance risk also arises in situations where applicable laws may change or are ambiguous or untested. Examples of such risks include compliance with regulations set forth by banking agencies including fair and responsible banking, anti-money laundering, or community reinvestment act, risks associated with offering our products or services, or risks associated with deviating from internal policies and procedures including those that are established to promote sound risk-management and internal-control practices. Compliance risk also includes fiduciary risk, which includes risks arising from our duty to exercise loyalty, act in the best interest of our clients, and care for assets according to an appropriate standard of care. This risk generally exists to the extent that we exercise discretion in managing assets on behalf of a customer.
We recognizeare currently preparing to implement a new technology platform for our consumer automotive loans and operating leases that an effective compliance program, including drivingwill be utilized for customer servicing and financial reporting activities through their full lifecycle. This new platform will replace our existing consumer automotive loan and lease technology platform, and is expected to be implemented within the next twelve months. While we expect that this new platform will help us continue to expand our technological capabilities, there are inherent risks in implementing any new system such as this. We will continue to evaluate and test the new platform through a cultureseries of compliance, plays a key role in managing and overseeing compliance risk, and that a proactive compliance environment and program are essential to help meet various legal, regulatory, or other requirements or expectations. To manage compliance risk, we maintain a system of policies, change-management protocols, control frameworks, and other formal governance structures designed to provide a holistic enterprise approach to managing such risks, which includes consideration of identifying, assessing, monitoring, and communicating compliance risks throughout the Company. Our compliance function is led by the Chief Compliance Officer who reports to our Chief Executive Officer. The Chief Compliance Officer has the authority and responsibility for the oversight and administration of our Enterprise Compliance Program, which includes ongoing reporting of significant compliance-related matters to the Board and various committees established to govern compliance-related risks. The Compliance Risk Management Committee, established by the Chief Compliance Officer, serves to facilitate compliance risk management and to oversee the implementation of Ally’s compliance risk management strategies and covers compliance matters across the enterprise including matters impacting customers, products, geographies, and services.assessments until fully implemented.
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Conduct Risk
Conduct risk includes the risk of customer harm, employee harm, reputational damage, regulatory sanction, or financial loss resulting from the behavior of our employees and contractors toward customers, counterparties, other employees and contractors, or the markets in which we operate.
All business lines are responsible for identifying and managing conduct risk and driving a culture consistent with our “LEAD” core values and “Do it Right” philosophy. We manage conduct risk through a variety of enterprise programs, policies, and procedures. Our code of conduct and ethics and various other training programs and resources serve as a guide to our associates regarding expectations around appropriate conduct, ethical behavior, and a culture of compliance with laws, regulations, policies, and standards. Our code of conduct and ethics requires officers and employees to take personal responsibility for maintaining the highest standards of honesty, trustworthiness, and ethical conduct; to understand and manage the risks associated with their positions; and to escalate concerns about risk management including reporting of violations of the code, our policies, or other laws and regulations. Associates are required to complete training about our code of conduct and ethics upon on-boarding and annually thereafter to affirm compliance to our code of conduct and ethics. Conduct risk is also considered through various human resource and management activities including associate recruiting and on-boarding and management of performance and compensation. Conduct risk is also managed through our Enterprise Fraud, Security, and Investigations program, which identifies, monitors, and investigates potential fraud or conduct violations through a variety of measures including the administration of an anonymous reporting hotline.
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 enable the organizationus to meet loan and operating lease demand, debt maturities, deposit withdrawals, and other cash commitments under both normal operating conditions as well as periods of economic or financial stress. Our primary objective is to maintain cost-effective, stable and diverse sources of funding capable of sustaining the organization throughout all market cycles. Sources of funding include both retail and brokered deposits and secured and unsecured market-based funding across various maturity, interest rate, and investor profiles. Additional liquidity is available through a pool of unencumbered highly liquid securities, borrowingcommitted secured credit facilities, repurchase agreements, as well as funding programs supported by the FRB and advances from the FHLB of Pittsburgh.
We define liquidity risk as the risk that an institution’s financial condition or overall safety and soundness is adversely affected by an inability, or perceived inability, to meet its financial obligations, and to withstand unforeseen liquidity stress events. Liquidity risk can arise from a variety of institution-specific or market-related events that could have a negative impact on cash flows available to the organization. Effective management of liquidity risk helps ensurefacilitates an organization’s preparedness to meet cash flow obligations caused by unanticipated events. Managing liquidity needs and contingent funding exposures has proven essential to the solvency of financial institutions.
The Asset-Liability Committee (ALCO) is chaired by the Corporate Treasurer and is responsible for overseeing our funding and liquidity funding strategies and plans, contingency funding plans, and counterparty credit exposure arising from financial transactions.strategies. Corporate Treasury is responsible for managing our liquidity positions within prudent operating guidelines and targetslimits approved by ALCO and the RC. As part of managing liquidity risk, we prepare periodic forecasts depicting anticipated funding needs and sources of funds with oversight and monitoring by the Liquidity Risk groupGroup within Corporate Treasury. Corporate Treasury executes our funding strategies and manages liquidity under baseline economic projections as well as more severely stressed macroeconomic environments.
Funding Strategy
Liquidity and ongoing profitability are largely dependent on the timely and cost-effective access to retail deposits and funding in different segments of the capital markets. Our funding strategy largely focuses on the development of diversified funding sources across a broad base of depositors, lenders, and investors to meet liquidity needs throughout different market cycles, including periods of financial distress. These funding sources include retail and brokered deposits, committed secured credit facilities, public and private asset-backed securitizations, wholesale and retail unsecured debt, FHLB advances, whole-loan sales, demand notes, and repurchase arrangements.agreements. The diversity of our funding sources enhances funding flexibility, limits dependence on any one source, and results in a more cost-effective funding strategy over the long term. We evaluate funding markets on an ongoing basis to achieve an appropriate balance of unsecured and secured funding sources and maturity profiles.
We diversify our overall funding 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,maturity, and cost-of-funds characteristics. Optimizing funding at Ally Bank continues to be a key part of our long-term liquidity strategy. We optimize our funding sources at Ally Bank by growing retail deposits, maintaining active public and private securitization programs, managing a prudent maturity profile of our brokered deposit portfolio, utilizing repurchase agreements, and continuing to access funds from the FHLB.
Since becoming a BHC in December 2008, a significant portion ofEssentially all asset originations have beenare 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 allowedallows us to use bank funding for a wider arrayan increasing proportion of our automotive finance and other assets and to provide a sustainable long-term funding channel for the business, while also improving the cost of funds for the enterprise. On March 7, 2016, Ally Bank received approval from the FRB 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 were 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 was at least 15%. On August 22, 2017, banking agencies lifted the capital, liquidity, and business plan commitments that Ally Bank had made in connection with its application for membership in the Federal Reserve System, including the commitment to maintain a Tier 1 leverage ratio of at least 15%.
Liquidity Risk Management
Multiple metrics are used to framemeasure the level of liquidity risk, manage the liquidity position, and identify related trends.trends, and monitor such trends and metrics against established limits. These metrics include coverage ratios and comprehensive stress tests that measure the sufficiency of the liquidity portfolio over stressed horizons ranging from overnight to more than twelve months, stability ratios that measure longer-term structural liquidity, and concentration ratios that ensureenable prudent funding diversification. In addition, we have established internal management routines designed to review all aspects of liquidity and funding plans, evaluate the adequacy of liquidity buffers, review stress testing results, and assist management in the execution of its funding strategy and risk managementrisk-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 secured credit facility capacitycapacity. Our liquidity stress testing is designed to enable an ongoing total liquidity position that taken together, would allow us to operate our businesses and to meet our contractual and contingent obligations, in the event thatincluding unsecured debt maturities, for at least twelve months, assuming severe market-wide disruptions and enterprise-specific events disrupt normal access to funding. We hold available liquidity at various entities, taking into consideration regulatory restrictions and tax implications that may limit our ability to transfer funds across entities. The following table summarizes our total available liquidity.
| | June 30, 2018 ($ in millions) | | | |
($ in millions) | | | June 30, 2019 | | December 31, 2018 |
Unencumbered highly liquid U.S. federal government and U.S. agency securities | | $ | 13,444 |
| | $ | 21,541 |
| | $ | 12,849 |
|
Liquid cash and equivalents | | 3,386 |
| | 3,157 |
| | 4,227 |
|
Committed funding facilities | | | |
Committed secured credit facilities | | | | | |
Total capacity | | 9,225 |
| | 3,250 |
|
| 8,600 |
|
Outstanding | | 6,355 |
| | 1,615 |
| | 6,665 |
|
Unused capacity (a) | | 2,870 |
| | 1,635 |
| | 1,935 |
|
Total available liquidity | | $ | 19,700 |
| | $ | 26,333 |
|
| $ | 19,011 |
|
| |
(a) | Funding from committed secured credit facilities is available on request in the event excess collateral resides in certain facilities or the extent incremental collateral is available and contributed to the facilities. |
Assuming a long-term capital markets stress with no issuance of unsecured debt or term securitizations, our available liquidity as of June 30, 2018, would allow us to continue to fund planned loan originations and meet all of our financial obligations for more than 36 months.
In addition, our average Modified Liquidity Coverage Ratio exceeded 100% atwas 125% for the three months ended June 30, 2018.2019, which exceeds the regulatory required minimum of 100%. Refer to Note 1716 to the Condensed Consolidated Financial Statements and the section titled Regulation and Supervisionin Part I, Item 1 of our 20172018 Annual Report on Form 10-K for further discussion of our liquidity requirements.
Recent Funding Developments
During the first six months of 2019, we accessed the public and private markets to execute secured funding transactions, an unsecured funding transaction, and to manage our committed secured credit facility capacity. Key funding highlights from January 1, 2019, to date were as follows:
During the first six months of 2019, we raised $1.8 billion through securitizations backed by consumer automotive loans.
In May 2019, we accessed the unsecured debt capital markets and raised $750 million through the issuance of senior notes.
| |
• | Our total capacity in committed secured credit facilities was reduced by $5.4 billion during the six months ended June 30, 2019, as we continue to shift our overall funding toward a greater mix of cost-effective deposit funding. |
Funding Sources
The following table summarizes our sources of funding and the amount outstanding under each category for the periods shown.
|
| | | | | | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
($ in millions) | | On-balance sheet funding | | % Share of funding | | On-balance sheet funding | | % Share of funding |
Deposits | | $ | 116,325 |
| | 73 | | $ | 106,178 |
| | 66 |
Debt | | | | | | | | |
Secured financings | | 29,452 |
| | 18 | | 39,596 |
| | 25 |
Institutional term debt | | 11,779 |
| | 7 | | 11,760 |
| | 7 |
Retail debt programs (a) | | 2,754 |
| | 2 | | 2,824 |
| | 2 |
Total debt (b) | | 43,985 |
| | 27 | | 54,180 |
| | 34 |
Total on-balance sheet funding | | $ | 160,310 |
| | 100 | | $ | 160,358 |
| | 100 |
| |
(a) | Includes $292 million and $347 million of retail term notes at June 30, 2019, and December 31, 2018, respectively. |
| |
(b) | Includes hedge basis adjustment as described in Note 17 to the Condensed Consolidated Financial Statements. |
Refer to Note 12 to the Condensed Consolidated Financial Statements for a summary of the scheduled maturity of long-term debt at June 30, 2019.
Deposits
We obtainAlly Bank, which is a direct bank with no branch network, obtains 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. Retail deposit growth is a key driver of optimizing funding costs and reducing reliance on capital markets-based funding. We believe deposits provide a stable, low-cost source of funds that areis less sensitive to interest rate changes, market
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
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 marketmoney-market accounts, IRA deposit products, as well as an interest checking product. In addition, we utilize brokered deposits, which are obtained through third-party intermediaries, including a deposit related to Ally Invest customer cash balances.
The following table shows Ally Bank’s number of accounts and our deposit balances by type as of the end of each quarter since 2017.2018.
| | | 2nd quarter 2018 | | 1st quarter 2018 | | 4th quarter 2017 | | 3rd quarter 2017 | | 2nd quarter 2017 | | 1st quarter 2017 | 2nd quarter 2019 | | 1st quarter 2019 | | 4th quarter 2018 | | 3rd quarter 2018 | | 2nd quarter 2018 | | 1st quarter 2018 |
Number of retail bank accounts (in thousands) | 2,947 |
| | 2,864 |
| | 2,740 |
| | 2,603 |
| | 2,474 |
| | 2,366 |
| 3,712 |
| | 3,503 |
| | 3,238 |
| | 3,079 |
| | 2,947 |
| | 2,864 |
|
Deposits ($ in millions) | | | | | | | | | | | | | | | | | | | | | | |
Retail | $ | 81,736 |
| | $ | 81,657 |
| | $ | 77,925 |
| | $ | 74,928 |
| | $ | 71,094 |
| | $ | 69,971 |
| $ | 98,600 |
| | $ | 95,423 |
| | $ | 89,121 |
| | $ | 84,629 |
| | $ | 81,736 |
| | $ | 81,657 |
|
Brokered (a) | 16,839 |
| | 15,661 |
| | 15,211 |
| | 15,045 |
| | 14,937 |
| | 14,327 |
| 17,562 |
| | 17,734 |
| | 16,914 |
| | 16,567 |
| | 16,839 |
| | 15,661 |
|
Other (b) | 159 |
| | 128 |
| | 120 |
| | 143 |
| | 152 |
| | 188 |
| 163 |
| | 142 |
| | 143 |
| | 183 |
| | 159 |
| | 128 |
|
Total deposits | $ | 98,734 |
| | $ | 97,446 |
| | $ | 93,256 |
| | $ | 90,116 |
| | $ | 86,183 |
| | $ | 84,486 |
| $ | 116,325 |
| | $ | 113,299 |
| | $ | 106,178 |
| | $ | 101,379 |
| | $ | 98,734 |
| | $ | 97,446 |
|
| |
(a) | Brokered deposit balances include a deposit related to Ally Invest customer cash balances deposited at Ally Bank by a third party of $1.1 billion as of June 30, 2019, March 31, 2019, and December 31, 2018, and $1.2 billion as of the end of each other quarter presented. |
| |
(b) | Other deposits include mortgage escrow, dealer, and other deposits. |
During the first six months of 2018,2019, our total deposit base grew $5.5 billion. $10.1 billion and we added approximately 100 thousand retail deposit customers, resulting in nearly 1.9 million total retail deposit customers as of June 30, 2019. The recent growth in total deposits has been primarily attributable to our retail deposit portfolio—particularly within our online savings product and retail CDs, as we capitalized on a shift in consumer preference from savings accounts to CDs. Our savings and money market accounts also continued to grow in 2018. Strong retention rates and customer acquisition, reflecting the strength of the brand, continue to drive growth in retail deposits. Refer to Note 1211 to the Condensed Consolidated Financial Statements for a summary of deposit funding by type.
Secured Financings, Securitizations and Off-balance Sheet ArrangementsSecured Financings
In addition to building a larger deposit base, secured funding continues to be a significant, reliable, and cost-effective source of financing. Securitization has provenSecuritizations and secured funding transactions, collectively referred to be a reliable and cost-effective funding source, and we continueas securitization transactions due to remain active in the well-established securitization markets to finance our automotive loan products. Through securitizations, we are abletheir similarities, allow us to convert our financial assets, includingautomotive finance receivables and operating leases into cash earlier than what would have occurred in the normal course of business.
Management’s Discussionbusiness, and Analysis
Ally Financial Inc. • Form 10-Q
we continue to remain active in the well-established securitization markets.
As part of these securitization transactions, we sell assets to various securitization entities. In turn, the securitizationspecial purpose entities establish separate trusts to which they transfer the assets(SPEs) in exchange for the proceeds from the saleissuance of securities issued bydebt and other beneficial interests in the trust.assets. The trusts’ activities of the SPEs are generally limited to acquiring the assets, issuing securities,and making payments on the securities,debt, paying related expenses, and periodically reporting to the investors.
These securitization entitiesSPEs are separate legal entities that assume the risks and rewards of ownership of the receivables they hold. The assets of the securitization entitiesSPEs are not available to satisfy our claims or those of our creditors. In addition, the trustsSPEs do not invest in our equity or in the equity of any of our affiliates. Our economic exposure related to the securitization trustsSPEs is generally limited to cash reserves, retained interests, and customary representation and warranty provisions.
As part of our securitization transactions, weWe typically agree to service the transferred assets in our securitization transactions for a fee, and we may also earn other related fees. The total amount of theservicing fees earned is disclosed in Note 103 to the Condensed Consolidated Financial Statements.Statements. We may also retain a portion of senior and subordinated interests issued by the trusts.SPEs. Subordinate interests typically provide credit support to the more highly rated senior interest in a securitization transaction and may be subject to all or a portion of the first lossfirst-loss position related to the sold assets.
Certain of these securitization transactions meet the criteria to be accounted for as off-balance sheet arrangementssecuritization transactions if we either do not hold a potentially significant economic interest or do not provide servicing or asset management functions for the financial assets held by the securitization entity. Certain of our securitization transactions do not meet the required criteria to be accounted for as off-balance sheet arrangements;securitization transactions; therefore, they are accounted for as secured borrowings. For information regarding our off-balance sheet arrangements and securitization activities, refer to Note 1 and Note 11 to the Consolidated Financial Statements in our 20172018 Annual Report on Form 10-K and Note 9 to the Condensed Consolidated Financial Statements.10-K.
During the first six months of 2018,2019, we raised $5.8$1.8 billion through the completion of term securitization transactions backed by retailconsumer automotive loans. Additionally, for consumer automotive loans and dealer floorplan automotive assets. Additionally, for retail automotive loans andoperating leases, the term structure of the transaction locks in funding for a specified pool of loans and operating leases, creating an effective tool for managing interest rate and liquidity risk.
We manage secured fundingsecuritization execution risk by maintaining a diverse investor base and available committed credit facility capacity. We have access tocapacity from private committed fundingsecured credit facilities the largest of which is a syndicated credit facility of five lenders securedprovided by automotive receivables. This facility can fund automotive retail and dealer floorplan loans, as well as leases. In March 2018, this facility was renewed with $4.0 billion of capacity and the maturity was extended to March 2020. In the event this facility is not renewed at maturity, the outstanding debt will be repaid over time as the underlying collateral amortizes. At June 30, 2018, there was $3.0 billion outstanding under this facility.banks. Our ability to access the unused capacity in the secured facilitythese facilities depends on the availability of eligible assets to collateralize the incremental funding and, in some instances, on the execution of interest rate hedges.
The total capacity in We maintain bilateral facilities, which fund our committed secured funding facilities is provided by banks through private transactions.Automotive Finance operations. The committed secured funding facilities can be revolving in naturenature—generally having an original tenor ranging from 364 days to two years and allowallowing for additional funding during the commitment period, period—or they can be amortizing and not allow for any further funding after the closing date. commitment period. At June 30, 2018, 2019, all of our $9.2 $3.3 billion of secured committed capacity was revolving. Our revolving facilities generally have an original tenor rangingand of this balance, $2.0 billion was from 364 days to two years. As of June 30, 2018, we had $7.6 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 maintain various bilateral secured credit facilities that fund our Automotive Finance operations. These are primarily private securitization facilities that fund a specific pool
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
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, 2018,2019, we had pledged $26.3$27.4 billion of assets and investment securities to the FHLB resulting in $19.5$20.8 billion in total funding capacity with $18.1$18.4 billion of debt outstanding.
At June 30, 2018, $56.32019, $48.2 billion of our total assets were restricted as collateral for the payment of debt obligations accounted for as secured borrowings and repurchase agreements. Refer to Note 1312 to the Condensed Consolidated Financial Statements for further discussion.
Unsecured Financings
We obtain unsecured funding from the sale of floating-rate demand notes under our Demand Notes program. The holder has the option to require us to redeem these notes at any time without restriction. Demand Notes outstanding were $2.7$2.5 billion at June 30, 2018.2019. We also have short-term and long-term unsecured debt outstanding from retail term note programs. These programs are composed of callable fixed-rate instruments with fixed-maturity dates and floating-rate notes. There were $323$292 million of retail term notes outstanding at June 30, 2018.2019. The remainder of our unsecured debt is composed of institutional term debt. In May 2019, we accessed the unsecured debt capital markets and raised $750 million through the issuance of senior notes. Refer to Note 1312 to the Condensed Consolidated Financial Statements for additional information about our outstanding short-term borrowings and long-term unsecured debt.
Other Secured and Unsecured Short-term Borrowings
We have access to repurchase agreements. A repurchase agreement is a transaction in which the firm sells financial instruments to a buyer, typically in exchange for cash, and simultaneously enters into an agreement to repurchase the same or substantially the same financial instruments from the buyer at a stated price plus accrued interest at a future date. The financial instrumentssecurities sold in repurchase agreements include U.S. government and federal agency obligations, and certificated residual interests related to asset-backed securitizations.obligations. As of June 30, 2018,2019, we had $967$432 million of debt outstanding under repurchase agreements.
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
Additionally, we have access to the FRB Discount Window and can borrow funds to meet short-term liquidity demands. However, the FRB is not a primary source of funding for day to dayday-to-day business. Instead, it is a liquidity source that can be accessed in stressed environments or periods of market disruption. We havehad assets pledged and restricted as collateral to the FRB totaling $2.4 billion.billion as of June 30, 2019. We had no debt outstanding with the FRB as of June 30, 2018.
Recent Funding Developments
During the first six months of 2018, we accessed the public and private markets to execute secured funding transactions, unsecured funding transactions, and funding facility renewals totaling $12.4 billion. Key funding highlights from January 1, 2018, to date were as follows:
We closed, renewed, increased, and/or extended $6.6 billion in U.S. secured credit facilities during the six months ended June 30, 2018.
We continued to access the public and private term asset-backed securitization markets raising $5.8 billion during the six months ended June 30, 2018. In the first six months of 2018, we raised $4.1 billion through securitizations backed by retail automotive loans. We also raised approximately $1.7 billion through a public securitization backed by dealer floorplan automotive assets.
Funding Sources
The following table summarizes our sources of funding and the amount outstanding under each category for the periods shown.
|
| | | | | | | | | | | | |
| | June 30, 2018 | | December 31, 2017 |
($ in millions) | | On-balance sheet funding | | % Share of funding | | On-balance sheet funding | | % Share of funding |
Secured financings |
| $ | 37,792 |
| | 25 | | $ | 36,869 |
| | 25 |
Institutional term debt |
| 13,556 |
| | 9 | | 15,099 |
| | 10 |
Retail debt programs (a) |
| 2,989 |
| | 2 | | 3,463 |
| | 2 |
Total debt (b) |
| 54,337 |
| | 36 | | 55,431 |
| | 37 |
Deposits |
| 98,734 |
| | 64 | | 93,256 |
| | 63 |
Total on-balance sheet funding |
| $ | 153,071 |
| | 100 | | $ | 148,687 |
| | 100 |
| |
(a) | Includes $323 million and $292 million of retail term notes at June 30, 2018, and December 31, 2017, respectively.
|
| |
(b) | Excludes fair value adjustment as described in Note 18 to the Condensed Consolidated Financial Statements.
|
Refer to Note 13 to the Condensed Consolidated Financial Statements for a summary of the scheduled maturity of long-term debt at June 30, 2018.2019.
Cash Flows
The following summarizes the activity reflected on the Condensed Consolidated Statement of Cash Flows.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 $1.8 billion and $2.0 billion for the six months ended June 30, 2019, and 2018, compared to $2.1 billion for the same period in 2017.respectively. Activity was largely consistent year over year,year-over-year, as cash flows from our consumer and commercial lending activities offset declinesa decline in our leasing business.
Net cash used in investing activities was $2.5 billion for the six months ended June 30, 2019, compared to $6.1 billion for the same period in 2018. The decrease was primarily due to a $3.8 billion net decrease in cash outflows from purchases, sales, originations and repayments of finance receivables and loans, as repayments outpaced originations. This decrease was also driven by a $266 million increase in proceeds from equity securities, net of purchases. This was partially offset by a $562 million increase in net outflows from purchases of available-for-sale securities, net of sales and repayments.
Net cash used in financing activities for the six months ended June 30, 2018,2019, was $696 million, compared to net cash provided by of $3.8 billion for the same period in 2017. The increase during the six months ended June 30, 2018, was primarily due to $1.4 billion lower proceeds from disposals of operating lease assets, net of purchases, and loan sales of $1.3 billion during the six months ended June 30, 2017.
Net cash provided by financing activities for the six months ended June 30, 2018, was $3.8 billion, compared to net cash used of $313 million for the same period in 2017.2018. The increase in net cash provided byused in financing activities was primarily attributable to a $4.6an $8.4 billion decrease in net cash outflows for repayment of long-term debt and an increase of $3.6 billion from cash inflows due to issuance of long-term debt.debt and an increase in net cash outflows related to repayments of long-term debt of $1.6 billion between the two periods. This was partially offset by an increase of $4.7 billion from net cash inflows associated with deposits and a decrease in net cash outflows related to short-term borrowings of approximately $2.3 billion between the two periods and a decrease in net cash inflows associated with deposits of $1.7 billion.$837 million.
Capital Planning and Stress Tests
Pending the adoption of proposals issued by the FRB and other U.S. banking agencies during the fourth quarter of 2018 that would implement the Economic Growth, Regulatory Relief, and Consumer Protection Act, as further described in Note 16 to the Condensed Consolidated Financial Statements, Ally is required to conduct semi-annual company-run stress tests, is subject to an annual supervisory stress test conducted by the FRB, and must submit a proposed capital plan to the FRB.
Ally’s proposed capital plan must include an assessment of our expected uses and sources of capital and a description of all planned capital actions over a nine-quarter planning horizon, including any issuance of a debt or equity capital instrument, any dividend or other capital distribution, and any similar action that the FRB determines could have an impact on Ally’s capital. The proposed capital plan must
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
also include a discussion of how Ally, under expected and stressful conditions, will maintain capital commensurate with its risks and above the minimum regulatory capital ratios, and will serve as a source of strength to Ally Bank. The FRB will either object to Ally’s proposed capital plan, in whole or in part, or provide a notice of non-objectionnon-objection. If the FRB objects to Ally’sthe proposed capital plan, andor if certain material events occur after approval of the plan, Ally must do so before Ally may take anysubmit a revised capital action. In addition, evenplan within 30 days. Even if the FRB does not object to our capital plan, Ally may be precluded from or limited in paying dividends or other capital distributions without the FRB’s approval under certain
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
circumstances—for example, when we would not meet minimum regulatory capital ratios and capital buffers after giving effect to the distributions.
As part of the 2017 Comprehensive Capital Analysis and Review (CCAR) process, we received a non-objection to our capital plan from the FRB, including the proposed capital actions contained in our submission. The capital actions included increases in the quarterly cash dividend on common stock and in our share repurchase program.
The following table presents information related to our common stock for each quarter since the commencement ofand distributions to our common stock repurchase programs and initiation of a quarterly cash dividend on common stock.stockholders over the last six quarters.
| | | | Common stock repurchased during period (a) | | Number of common shares outstanding | | Cash dividends declared per common share (b) | | Common stock repurchased during period (a) | | Number of common shares outstanding | | Cash dividends declared per common share (b) |
($ in millions, except per share data; shares in thousands) | | Approximate dollar value | | Number of shares | | Beginning of period | | End of period | | | Approximate dollar value | | Number of shares | | Beginning of period | | End of period | |
2016 | |
| |
|
|
| |
|
|
| |
Third quarter | | $ | 159 |
| | 8,298 |
|
| 483,753 |
| | 475,470 |
|
| $ | 0.08 |
| |
Fourth quarter | | 167 |
| | 8,745 |
|
| 475,470 |
| | 467,000 |
|
| 0.08 |
| |
2017 | |
| |
|
| | |
|
|
| |
2018 | | | | | | | | | | | |
First quarter | | $ | 169 |
| | 8,097 |
|
| 467,000 |
| | 462,193 |
|
| $ | 0.08 |
| | $ | 185 |
| | 6,473 |
|
| 437,054 |
| | 432,691 |
|
| $ | 0.13 |
|
Second quarter | | 204 |
| | 10,485 |
|
| 462,193 |
| | 452,292 |
|
| 0.08 |
| | 195 |
| | 7,280 |
| | 432,691 |
| | 425,752 |
| | 0.13 |
|
Third quarter | | 190 |
| | 8,507 |
|
| 452,292 |
| | 443,796 |
|
| 0.12 |
| | 250 |
| | 9,194 |
| | 425,752 |
| | 416,591 |
| | 0.15 |
|
Fourth quarter | | 190 |
| | 7,033 |
|
| 443,796 |
| | 437,054 |
|
| 0.12 |
| | 309 |
| | 12,121 |
| | 416,591 |
| | 404,900 |
| | 0.15 |
|
2018 | | | | | | | | | | | |
2019 | | | | | | | | | | | |
First quarter | | $ | 185 |
| | 6,473 |
|
| 437,054 |
| | 432,691 |
|
| $ | 0.13 |
| | $ | 211 |
| | 8,113 |
| | 404,900 |
| | 399,761 |
| | $ | 0.17 |
|
Second quarter | | 195 |
| | 7,280 |
| | 432,691 |
| | 425,752 |
| | 0.13 |
| | 229 |
| | 7,775 |
| | 399,761 |
| | 392,775 |
| | 0.17 |
|
| |
(a) | Includes shares of common stock withheld to cover income taxes owed by participants in our share-based incentive plans. |
| |
(b) | On July 13, 2018,16, 2019, the Board declared a quarterly cash dividend of $0.15$0.17 per share on all common stock, payable on August 15, 2018.2019. Refer to Note 2524 to the Condensed Consolidated Financial Statements for further information regarding this common stock dividend. |
Ally submitted its 2018 capital plan and company-run stress test results to the FRB on April 5, 2018. On June 21, 2018, we publicly disclosed summary results of the stress test under the severely adverse scenario in accordance with applicable regulatory requirements. On June 28, 2018, we received from the FRB a non-objection to our capital plan, which includesincluded increases in both our share repurchasestock-repurchase program and our planned dividends. Consistent with the capital plan, the Board authorized a 32% increaseincreases in our share repurchasestock-repurchase program, permitting us to repurchase up to $1.0 billion of our common stock from time to time from the third quarter of 2018 through the second quarter of 2019. Also consistent2019. On October 5, 2018, we submitted to the FRB the results of our company-run mid-cycle stress test and publicly disclosed summary results under the severely adverse scenario in accordance with applicable regulatory requirements.
During the first quarter of 2019, the FRB announced that a number of large and noncomplex BHCs with $100 billion or more but less than $250 billion in total consolidated assets, including Ally, will not be required to submit a capital plan to the FRB, participate in the supervisory stress test or CCAR, or conduct company-run stress tests during the 2019 cycle. Instead, our capital actions during this cycle will be largely based on the results from our 2018 supervisory stress test.On April 1, 2019, the Board authorized an increase in our stock-repurchase program, permitting us to repurchase up to $1.25 billion of our common stock from time to time from the third quarter of 2019 through the second quarter of 2020, representing a 25% increase over our previously announced program. Additionally, on July 13, 2018,16, 2019, the Board declared a quarterly cash dividend of $0.15$0.17 per share of our common stock, which is a $0.02 or 15% increase relativestock. Refer to Note 24 to the dividend declared in the prior quarter. Refer to Note 25 to the Condensed Consolidated Financial Statements for further information on the most recent dividend.
Our ability to make capital distributions, including our ability to pay dividends or repurchase shares of our common stock, will continue to be subject to the FRB’s review of and non-objection toapproval by the actions that we propose each year in our annual capital plan.Board. The amount and size of any future dividends and share repurchases also will depend upon our results of operations, capital levels, future opportunities, consideration and approval by the Board, and other considerationsbe subject to various factors, including the degree of severity of stress scenarios assigned by the FRB as part of the CCAR process.
In January 2017, the FRB amended the capital planning and stress testing rules, effective for the 2017 cycle and beyond. As a result of this amendment, the FRB may no longer object to the capital plan of a large and noncomplex BHC, like Ally, on the basis of qualitative deficiencies in its capital planning process. Instead, the qualitative assessment of Ally’s capital planning process is now conducted outside of CCAR through the supervisory review process. The amendment also decreased the de minimis threshold for the amountand liquidity positions, regulatory considerations, any accounting standards that affect capital or liquidity (including CECL), financial and operational performance, alternative uses of capital, that Ally could distribute to stockholders outside of an approved capital plan without seeking prior approval of the FRB,common-stock price, and modified Ally’s reporting requirements to reduce unnecessary burdens.general market conditions, and may be suspended at any time.
Regulatory Capital
Refer to Note 1716 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
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
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 marketmoney-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+ |
| Positive |
| September 8, 2017August 28, 2018 (a) |
Moody’s |
| Not Prime |
| Ba3Ba2 |
| Stable |
| October 20, 2015February 11, 2019 (b) |
S&P |
| B |
| BB+ |
| StablePositive |
| October 16, 201717, 2018 (c) |
DBRS |
| R-3 |
| BBB (Low) |
| StablePositive |
| May 1, 201820, 2019 (d) |
| |
(a) | Fitch affirmed our senior unsecured debt rating of BB+, affirmed our short-term rating of B, and changed themaintained a Positive outlook from Stable to Positive on September 8, 2017.August 28, 2018. |
| |
(b) | Moody’s upgraded our senior unsecured debt rating to Ba3Ba2 from B1,Ba3, affirmed our short-term rating of Not Prime, and changed themaintained a Stable outlook to Stable on October 20, 2015.February 11, 2019. Effective December 1, 2014, we determined to not renew our contractual arrangement with Moody’s related to their providing of our issuer, senior unsecured debt, and short-term ratings. Notwithstanding this, Moody’s has determined to continue to provide these ratings on a discretionary basis. However, Moody’s has no obligation to continue to provide these ratings, and could cease doing so at any time. |
| |
(c) | Standard & Poor’s affirmed our senior unsecured debt rating of BB+, affirmed our short-term rating of B, and maintained achanged the outlook from Stable outlookto Positive on October 16, 2017.17, 2018. |
| |
(d) | DBRS affirmed our senior unsecured debt rating of BBB (Low), affirmed our short-term rating of R-3, and maintained achanged the outlook from Stable outlookto Positive on May 1, 2018.20, 2019. |
Rating agencies indicate that they base their ratings on many quantitative and qualitative factors, includingwhich may include capital adequacy, liquidity, asset quality, business mix, level and quality of earnings, and the current operating, legislative, and regulatory environment. Rating agencies themselves could make or be required to make substantial changes to their ratings policies and practices—particularly in response to legislative and regulatory changes. Potential changes in rating methodology, as well as in the legislative and regulatory environment, and the timing of those changes could impact our ratings, which as noted above could increase our borrowing costs and reduce our access to capital.
A credit rating is not a recommendation to buy, sell, or hold securities, and the ratings are subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating.
Off-balance Sheet Arrangements
Refer to Note 9 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 2018,2019, 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 the Consolidated Financial Statements in our 20172018 Annual Report on Form 10-K.
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 notes 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.
| | | | 2018 | | 2017 | | Increase (decrease) due to | | 2019 | | 2018 | | 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 | | 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 | | $ | 3,048 |
| | $ | 17 |
| | 2.24 | % | | $ | 2,683 |
| | $ | 7 |
| | 1.05 | % | | $ | 1 |
| | $ | 9 |
| | $ | 10 |
| | $ | 3,713 |
| | $ | 21 |
| | 2.27 | % | | $ | 3,048 |
| | $ | 17 |
| | 2.24 | % | | $ | 4 |
| | $ | — |
| | $ | 4 |
|
Investment securities (b) | | 25,748 |
| | 173 |
| | 2.69 |
| | 22,203 |
| | 139 |
| | 2.51 |
| | 22 |
| | 12 |
| | 34 |
| | 31,244 |
| | 227 |
| | 2.91 |
| | 25,748 |
| | 173 |
| | 2.69 |
| | 37 |
| | 17 |
| | 54 |
|
Loans held-for-sale, net | | 358 |
| | 6 |
| | 6.72 |
| | 2 |
| | — |
| | — |
| | 6 |
| | — |
| | 6 |
| | 191 |
| | 3 |
| | 6.30 |
| | 358 |
| | 6 |
| | 6.72 |
| | (3 | ) | | — |
| | (3 | ) |
Finance receivables and loans, net (b) (c) | | 124,516 |
| | 1,647 |
| | 5.31 |
| | 119,235 |
| | 1,447 |
| | 4.87 |
| | 64 |
| | 136 |
| | 200 |
| | 129,950 |
| | 1,860 |
| | 5.74 |
| | 124,516 |
| | 1,647 |
| | 5.31 |
| | 72 |
| | 141 |
| | 213 |
|
Investment in operating leases, net (d) | | 8,583 |
| | 109 |
| | 5.09 |
| | 10,109 |
| | 167 |
| | 6.63 |
| | (25 | ) | | (33 | ) | | (58 | ) | | 8,370 |
| | 124 |
| | 5.94 |
| | 8,583 |
| | 109 |
| | 5.09 |
| | (3 | ) | | 18 |
| | 15 |
|
Other earning assets | | 1,239 |
| | 15 |
| | 4.86 |
| | 846 |
| | 7 |
| | 3.32 |
| | 3 |
| | 5 |
| | 8 |
| | 1,202 |
| | 17 |
| | 5.67 |
| | 1,239 |
| | 15 |
| | 4.86 |
| | — |
| | 2 |
| | 2 |
|
Total interest-earning assets | | 163,492 |
| | 1,967 |
| | 4.83 |
| | 155,078 |
| | 1,767 |
| | 4.57 |
| |
|
| |
|
| | 200 |
| | 174,670 |
| | 2,252 |
| | 5.17 |
| | 163,492 |
| | 1,967 |
| | 4.83 |
| | | | | | 285 |
|
Noninterest-bearing cash and cash equivalents | | 526 |
| | | | | | 968 |
| | | | | | | | | | | | 544 |
| | | | | | 526 |
| | | | | | | | | | |
Other assets | | 7,505 |
| | | | | | 7,727 |
| | | | | | | | | | | | 6,722 |
| | | | | | 7,505 |
| | | | | | | | | | |
Allowance for loan losses | | (1,274 | ) | | | | | | (1,172 | ) | | | | | | | | | | | | (1,284 | ) | | | | | | (1,274 | ) | | | | | | | | | | |
Total assets | | $ | 170,249 |
| | | | | | $ | 162,601 |
| | | | | | | | | | | | $ | 180,652 |
| | | | | | $ | 170,249 |
| | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | | |
Liabilities and equity | | | | | | | | | | | | | | | | | | | |
Interest-bearing deposit liabilities | | $ | 97,351 |
| | $ | 399 |
| | 1.64 | % | | $ | 84,792 |
| | $ | 250 |
| | 1.18 | % | | $ | 37 |
| | $ | 112 |
| | $ | 149 |
| | $ | 114,257 |
| | $ | 651 |
| | 2.29 | % | | $ | 97,351 |
| | $ | 399 |
| | 1.64 | % | | $ | 69 |
| | $ | 183 |
| | $ | 252 |
|
Short-term borrowings | | 8,767 |
| | 40 |
| | 1.83 |
| | 9,024 |
| | 33 |
| | 1.47 |
| | (1 | ) | | 8 |
| | 7 |
| | 5,887 |
| | 37 |
| | 2.52 |
| | 8,767 |
| | 40 |
| | 1.83 |
| | (13 | ) | | 10 |
| | (3 | ) |
Long-term debt (b) | | 45,802 |
| | 434 |
| | 3.80 |
| | 50,723 |
| | 417 |
| | 3.30 |
| | (40 | ) | | 57 |
| | 17 |
| | 40,222 |
| | 407 |
| | 4.06 |
| | 45,802 |
| | 434 |
| | 3.80 |
| | (53 | ) | | 26 |
| | (27 | ) |
Total interest-bearing liabilities | | 151,920 |
| | 873 |
| | 2.30 |
| | 144,539 |
| | 700 |
| | 1.94 |
| |
|
| |
|
| | 173 |
| | 160,366 |
| | 1,095 |
| | 2.74 |
| | 151,920 |
| | 873 |
| | 2.30 |
| | | | | | 222 |
|
Noninterest-bearing deposit liabilities | | 126 |
| | | | | | 95 |
| | | | | | | | | | | | 135 |
| | | | | | 126 |
| | | | | | | | | | |
Total funding sources | | 152,046 |
| | 873 |
| | 2.30 |
| | 144,634 |
| | 700 |
| | 1.94 |
| | | | | | | | 160,501 |
| | 1,095 |
| | 2.74 |
| | 152,046 |
| | 873 |
| | 2.30 |
| | | | | | |
Other liabilities | | 5,134 |
| | | | | | 4,526 |
| | | | | | | | | | | | 6,357 |
| | | | | | 5,134 |
| | | | | | | | | | |
Total liabilities | | 157,180 |
| | | | | | 149,160 |
| | | | | | | | | | | | 166,858 |
| | | | | | 157,180 |
| | | | | | | | | | |
Total equity | | 13,069 |
| | | | | | 13,441 |
| | | | | | | | | | | | 13,794 |
| | | | | | 13,069 |
| | | | | | | | | | |
Total liabilities and equity | | $ | 170,249 |
| | | | | | $ | 162,601 |
| | | | | | | | | | | | $ | 180,652 |
| | | | | | $ | 170,249 |
| | | | | | | | | | |
Net financing revenue and other interest income | | | | $ | 1,094 |
| | | | | | $ | 1,067 |
| | | |
|
| |
|
| | $ | 27 |
| | | | $ | 1,157 |
| | | | | | $ | 1,094 |
| | | | | | | | $ | 63 |
|
Net interest spread (e) | | | | | | 2.53 | % | | | | | | 2.63 | % | | | | | | | | | | | | 2.43 | % | | | | | | 2.53 | % | | | | | | |
Net yield on interest-earning assets (f) | | | | | | 2.68 | % | | | | | | 2.76 | % | | | | | | | | | | | | 2.66 | % | | | | | | 2.68 | % | | | | | | |
| |
(a) | Average balances are calculated using a combination of monthly and daily average methodologies. |
| |
(b) | Includes the effects of derivative financial instruments designated as hedges. Refer to Note 1817 to the Condensed Consolidated Financial Statements for further information about the effects of our hedging activities. |
| |
(c) | Nonperforming finance receivables and loans are included in the average balances. For information on our accounting policies regarding nonperforming status, refer to Note 1 to the Consolidated Financial Statements in our 20172018 Annual Report on Form 10-K. |
| |
(d) | Yield includes gains on the sale of off-lease vehicles of $16$23 million and $32$16 million for the three months ended June 30, 2018,2019, and 2017,2018, respectively. Excluding these gains on sale, the annualized yield would be 4.35%4.84% and 5.36%4.35% for the three months ended June 30, 2019, and 2018, and 2017, respectively. |
| |
(e) | Net interest spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities. |
| |
(f) | Net yield on interest-earning assets represents annualized net financing revenue and other interest income as a percentage of total interest-earning assets. |
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
| | | | 2018 | | 2017 | | Increase (decrease) due to | | 2019 | | 2018 | | Increase (decrease) due to |
Six months ended June 30, ($ in millions) | | Average balance (a) | | Interest income/interest expense | | Yield/rate | | Average balance (a) | | Interest income/interest expense | | Yield/rate | | Volume | | Yield/rate | | Total | | 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 | | $ | 3,274 |
| | $ | 32 |
| | 1.97 | % | | $ | 2,679 |
| | $ | 12 |
| | 0.90 | % | | $ | 3 |
| | $ | 17 |
| | $ | 20 |
| | $ | 3,961 |
| | $ | 44 |
| | 2.24 | % | | $ | 3,274 |
| | $ | 32 |
| | 1.97 | % | | $ | 7 |
| | $ | 5 |
| | $ | 12 |
|
Investment securities (b) | | 25,491 |
| | 336 |
| | 2.66 |
| | 21,347 |
| | 265 |
| | 2.50 |
| | 51 |
| | 20 |
| | 71 |
| | 30,291 |
| | 449 |
| | 2.99 |
| | 25,491 |
| | 336 |
| | 2.66 |
| | 63 |
| | 50 |
| | 113 |
|
Loans held-for-sale, net | | 217 |
| | 6 |
| | 5.58 |
| | 1 |
| | — |
| | — |
| | 6 |
| | — |
| | 6 |
| | 190 |
| | 5 |
| | 5.31 |
| | 217 |
| | 6 |
| | 5.58 |
| | (1 | ) | | — |
| | (1 | ) |
Finance receivables and loans, net (b) (c) | | 123,506 |
| | 3,190 |
| | 5.21 |
| | 118,608 |
| | 2,815 |
| | 4.79 |
| | 116 |
| | 259 |
| | 375 |
| | 129,310 |
| | 3,667 |
| | 5.72 |
| | 123,506 |
| | 3,190 |
| | 5.21 |
| | 150 |
| | 327 |
| | 477 |
|
Investment in operating leases, net (d) | | 8,606 |
| | 218 |
| | 5.11 |
| | 10,518 |
| | 321 |
| | 6.15 |
| | (58 | ) | | (45 | ) | | (103 | ) | | 8,379 |
| | 239 |
| | 5.75 |
| | 8,606 |
| | 218 |
| | 5.11 |
| | (6 | ) | | 27 |
| | 21 |
|
Other earning assets | | 1,175 |
| | 28 |
| | 4.81 |
| | 831 |
| | 15 |
| | 3.64 |
| | 6 |
| | 7 |
| | 13 |
| | 1,215 |
| | 35 |
| | 5.81 |
| | 1,175 |
| | 28 |
| | 4.81 |
| | 1 |
| | 6 |
| | 7 |
|
Total interest-earning assets | | 162,269 |
| | 3,810 |
| | 4.73 |
| | 153,984 |
| | 3,428 |
| | 4.49 |
| | | | | | 382 |
| | 173,346 |
| | 4,439 |
| | 5.16 |
| | 162,269 |
| | 3,810 |
| | 4.73 |
| | | | | | 629 |
|
Noninterest-bearing cash and cash equivalents | | 521 |
| | | | | | 1,034 |
| | | | | | | | | | | | 494 |
| | | | | | 521 |
| | | | | | | | | | |
Other assets | | 7,383 |
| | | | | | 7,870 |
| | | | | | | | | | | | 6,641 |
| | | | | | 7,383 |
| | | | | | | | | | |
Allowance for loan losses | | (1,278 | ) | | | | | | (1,158 | ) | | | | | | | | | | | | (1,266 | ) | | | | | | (1,278 | ) | | | | | | | | | | |
Total assets | | $ | 168,895 |
| | | | | | $ | 161,730 |
| | | | | | | | | | | | $ | 179,215 |
| | | | | | $ | 168,895 |
| | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | | |
Liabilities and equity | | | | | | | | | | | | | | | | | | | |
Interest-bearing deposit liabilities | | $ | 96,330 |
| | $ | 750 |
| | 1.57 | % | | $ | 83,484 |
| | $ | 481 |
| | 1.16 | % | | $ | 74 |
| | $ | 195 |
| | $ | 269 |
| | $ | 111,729 |
| | $ | 1,243 |
| | 2.24 | % | | $ | 96,330 |
| | $ | 750 |
| | 1.57 | % | | $ | 120 |
| | $ | 373 |
| | $ | 493 |
|
Short-term borrowings | | 8,556 |
| | 72 |
| | 1.70 |
| | 8,626 |
| | 60 |
| | 1.40 |
| | — |
| | 12 |
| | 12 |
| | 6,467 |
| | 81 |
| | 2.53 |
| | 8,556 |
| | 72 |
| | 1.70 |
| | (18 | ) | | 27 |
| | 9 |
|
Long-term debt (b) | | 45,669 |
| | 845 |
| | 3.73 |
| | 51,631 |
| | 841 |
| | 3.28 |
| | (97 | ) | | 101 |
| | 4 |
| | 41,303 |
| | 826 |
| | 4.03 |
| | 45,669 |
| | 845 |
| | 3.73 |
| | (81 | ) | | 62 |
| | (19 | ) |
Total interest-bearing liabilities | | 150,555 |
|
| 1,667 |
| | 2.23 |
| | 143,741 |
| | 1,382 |
| | 1.94 |
| | | | | | 285 |
| | 159,499 |
| | 2,150 |
| | 2.72 |
| | 150,555 |
| | 1,667 |
| | 2.23 |
| | | | | | 483 |
|
Noninterest-bearing deposit liabilities | | 120 |
| | | | | | 94 |
| | | | | | | | | | | | 136 |
| | | | | | 120 |
| | | | | | | | | | |
Total funding sources | | 150,675 |
| | 1,667 |
| | 2.23 |
| | 143,835 |
| | 1,382 |
| | 1.94 |
| | | | | | | | 159,635 |
| | 2,150 |
| | 2.72 |
| | 150,675 |
| | 1,667 |
| | 2.23 |
| | | | | | |
Other liabilities | | 5,081 |
| | | | | | 4,454 |
| | | | | | | | | | | | 6,002 |
| | | | | | 5,081 |
| | | | | | | | | | |
Total liabilities | | 155,756 |
| | | | | | 148,289 |
| | | | | | | | | | | | 165,637 |
| | | | | | 155,756 |
| | | | | | | | | | |
Total equity | | 13,139 |
| | | | | | 13,441 |
| | | | | | | | | | | | 13,578 |
| | | | | | 13,139 |
| | | | | | | | | | |
Total liabilities and equity | | $ | 168,895 |
| | | | | | $ | 161,730 |
| | | | | | | | | | | | $ | 179,215 |
| | | | | | $ | 168,895 |
| | | | | | | | | | |
Net financing revenue and other interest income | | | | $ | 2,143 |
| | | | | | $ | 2,046 |
| | | |
|
| |
|
| | $ | 97 |
| | | | $ | 2,289 |
| | | | | | $ | 2,143 |
| | | | | | | | $ | 146 |
|
Net interest spread (e) | | | | | | 2.50 | % | | | | | | 2.55 | % | | | | | | | | | | | | 2.44 | % | | | | | | 2.50 | % | | | | | | |
Net yield on interest-earning assets (f) | | | | | | 2.66 | % | | | | | | 2.68 | % | | | | | | | | | | | | 2.66 | % | | | | | | 2.66 | % | | | | | | |
| |
(a) | Average balances are calculated using a combination of monthly and daily average methodologies. |
| |
(b) | Includes the effects of derivative financial instruments designated as hedges. Refer to Note 1817 to the Condensed Consolidated Financial Statements for further information about the effects of our hedging activities. |
| |
(c) | Nonperforming finance receivables and loans are included in the average balances. For information on our accounting policies regarding nonperforming status, refer to Note 1 to the Consolidated Financial Statements in our 20172018 Annual Report on Form 10-K. |
| |
(d) | Yield includes gains on the sale of off-lease vehicles of $34$38 million and $29$34 million for the six months ended June 30, 2018,2019, and 2017,2018, respectively. Excluding these gains on sale, the annualized yield would be 4.31%4.84% and 5.60%4.31% for the six months ended June 30, 2019, and 2018, and 2017, respectively. |
| |
(e) | Net interest spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities. |
| |
(f) | Net yield on interest-earning assets represents 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
Recently Issued Accounting Standards
Refer to Note 1 to the Condensed Consolidated Financial 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 statements often use words such as “believe,” “expect,” “anticipate,” “intend,” “pursue,” “seek,” “continue,” “estimate,” “project,” “outlook,” “forecast,” “potential,” “target,” “objective,” “trend,” “plan,” “goal,” “initiative,” “priorities,” or other words of comparable meaning or future-tense or conditional verbs such as “may,” “will,” “should,” “would,” or “could.” Forward-looking statements convey our expectations, intentions, or forecasts about future events, circumstances, or results.
This report, including any information incorporated by reference in this report, contains forward-looking statements. We also may make forward-looking statements in other documents that are filed or furnished with the SEC. In addition, we may make forward-looking statements orally or in writing to investors, analysts, members of the media, or others.
All forward-looking statements, by their nature, are subject to assumptions, risks, and uncertainties, which may change over time and many of which are beyond our control. You should not rely on any forward-looking statement as a prediction or guarantee about the future. Actual future objectives, strategies, plans, prospects, performance, conditions, or results may differ materially from those set forth in any forward-looking statement. While no list of assumptions, risks, or uncertainties could be complete, some of the factors that may cause actual results or other future events or circumstances to differ from those in forward-looking statements include:
evolving local, regional, national, or international business, economic, or political conditions;
changes in laws or the regulatory or supervisory environment, including as a result of recent financial services legislation, regulation, or policies or changes in government officials or other personnel;
changes in monetary, fiscal, or trade laws or policies, including as a result of actions by government agencies, central banks, or supranational authorities;
changes in accounting standards or policies, including ASU 2016-13, Financial Instruments — Credit Losses;
changes in the automotive industry or the markets for new or used vehicles, including the rise of vehicle sharing and ride hailing, the development of autonomous and alternative-energy vehicles, and the impact of demographic shifts on attitudes and behaviors toward vehicle ownership and use;
disruptions or shifts in investor sentiment or behavior in the securities, capital, or other financial markets, including financial or systemic shocks and volatility or changes in market liquidity, interest or currency rates, or valuations;
changes in business or consumer sentiment, preferences, or behavior, including spending, borrowing, or saving by businesses or households;
changes in our corporate or business strategies, the composition of our assets, or the way in which we fund those assets;
our ability to execute our business strategy for Ally Bank, including its digital focus;
our ability to optimize our automotive finance and insurance businesses and to continue diversifying into and growing other consumer and commercial business lines, including mortgage finance, corporate finance, brokerage, and wealth management;
our ability to develop capital plans that will be approved by the FRB and our ability to implement them, including any payment of dividends or share repurchases;
our ability to effectively manage capital or liquidity consistent with evolving business or operational needs, risk management standards, and regulatory or supervisory requirements;
our ability to cost-effectively fund our business and operations, including through deposits and the capital markets;
changes in any credit rating assigned to Ally, including Ally Bank;
adverse publicity or other reputational harm to us or our senior officers;
our ability to develop, maintain, or market our products or services or to absorb unanticipated costs or liabilities associated with those products or services;
our ability to innovate, to anticipate the needs of current or future customers, to successfully compete, to increase or hold market share in changing competitive environments, or to deal with pricing or other competitive pressures;
Management’s Discussion and Analysis
Ally Financial Inc. • Form 10-Q
the continuing profitability and viability of our dealer-centric automotive finance and insurance businesses, especially in the face of competition from captive finance companies and their automotive manufacturing sponsors and challenges to the dealer’s role as intermediary between manufacturers and purchasers;
our ability to appropriately underwrite loans that we originate or purchase and to otherwise manage credit risk;
changes in the credit, liquidity, or other financial condition of our customers, counterparties, service providers, or competitors;
our ability to effectively deal with economic, business, or market slowdowns or disruptions;
judicial, regulatory, or administrative investigations, proceedings, disputes, or rulings that create uncertainty for, or are adverse to, us or the financial services industry;
our ability to address stricter or heightened regulatory or supervisory requirements and expectations;
the performance and availability of third-party service providers on whom we rely in delivering products and services to our customers and otherwise conducting our business and operations;
our ability to maintain secure and functional financial, accounting, technology, data processing, or other operating systems or infrastructure, including our capacity to withstand cyberattacks;
the adequacy of our corporate governance, risk management framework, compliance programs, or internal controls over financial reporting, including our ability to control lapses or deficiencies in financial reporting or to effectively mitigate or manage operational risk;
the efficacy of our methods or models in assessing business strategies or opportunities or in valuing, measuring, estimating, monitoring, or managing positions or risk;
our ability to keep pace with changes in technology that affect us or our customers, counterparties, service providers, or competitors;
our ability to successfully make and integrate acquisitions;
the adequacy of our succession planning for key executives or other personnel and our ability to attract or retain qualified employees;
natural or man-made disasters, calamities, or conflicts, including terrorist events and pandemics; 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 (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 or described in any of the Company’s annual, quarterly or current reports.
Any forward-looking statement made by us or on our behalf speaks only as of the date that it was made. We do not undertake to update any forward-looking statement to reflect the impact of events, circumstances, or results that arise after the date that the statement was made, except as required by applicable securities laws. You, however, should consult further disclosures (including disclosures of a forward-looking nature) that we may make in any subsequent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, or Current Report on Form 8-K.
Our use of the term “loans” describes all of the products associated with our direct and indirect lending activities. The specific products include loans, retail installment sales contracts, lines of credit, leases, and other financing products. The term “lend” or “originate” refers to our direct origination of loans or our purchase or acquisition of loans..
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Refer to the Market Risk 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 the quarter ended June 30, 2018,2019, that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Ally Financial Inc. • Form 10-Q
Item 1. Legal Proceedings
Refer to Note 2423 to the Condensed Consolidated Financial Statements (incorporated herein by reference) for a discussion related to our legal proceedings which supplements the discussion of legal proceedings set forth in Note 3029 to the Consolidated Financial Statements in our 20172018 Annual Report on Form 10-K.
Item 1A. Risk Factors
There have been no material changes to the Risk Factors described in our 20172018 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We did not have any unregistered sales of equity securities during the three months ended June 30, 2018.2019.
Purchases of Equity Securities by the Issuer
The following table presents repurchases of our common stock, by month, for the three months ended June 30, 2018.2019.
|
| | | | | | | | | | | | | | |
Three months ended June 30, 2018 | | 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) |
April 2018 | | 2,090 |
| | $ | 27.18 |
| | 2,090 |
| | $ | 138 |
|
May 2018 | | 3,411 |
| | 26.62 |
| | 3,411 |
| | 47 |
|
June 2018 | | 1,779 |
| | 26.36 |
| | 1,779 |
| | — |
|
Total | | 7,280 |
| | 26.72 |
| | 7,280 |
| | |
|
| | | | | | | | | | | | | | |
Three months ended June 30, 2019 | | 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) |
April 2019 | | 2,606 |
| | $ | 29.10 |
| | 2,606 |
| | $ | 154 |
|
May 2019 | | 2,793 |
| | 29.43 |
| | 2,793 |
| | 72 |
|
June 2019 | | 2,376 |
| | 29.76 |
| | 2,376 |
| | 1 |
|
Total | | 7,775 |
| | 29.42 |
| | 7,775 |
| | |
| |
(a) | Includes shares of common stock withheld to cover income taxes owed by participants in our share-based incentive plans. |
| |
(b) | Excludes brokerage commissions. |
| |
(c) | On June 28, 2017,2018, we announced a common stock repurchasestock-repurchase program of up to $760 million.$1.0 billion. The program commenced in the third quarter of 20172018 and expired on June 30, 2018.2019. Additionally, on April 1, 2019, we announced a common stock-repurchase program of up to $1.25 billion to commence in the third quarter of 2019 through the second quarter of 2020. Refer to Note 1716 to the Condensed Consolidated Financial Statements for a discussion of our 2018 capital plan.further details. |
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Ally Financial Inc. • Form 10-Q
Item 6. Exhibits
The exhibits listed on the following index of exhibits are filed as a part of this report.
|
| | |
Exhibit | Description | Method of Filing |
| | |
10.14.1 | Separation and Transition Services Agreement, effective April 18, 2018, by and betweenAction of the Executive Committee of Ally Financial Inc. and Timothy M. Russidated as of May 16, 2019 | |
| | |
12 | | Filed herewith. |
| | |
31.1 | | Filed herewith. |
| | |
31.2 | | Filed herewith. |
| | |
32 | | Filed herewith. |
| | |
101 | The following information from our Form 10-Q for the quarterly periodquarter ended June 30, 2018,2019, formatted in iXBRL (Inline eXtensible Business Reporting Language:Language): (i) Condensed Consolidated Statement of Comprehensive Income (unaudited), (ii) Condensed Consolidated Balance Sheet (unaudited), (iii) Condensed Consolidated Statement of Changes in Equity (unaudited), (iv) Condensed Consolidated Statement of Cash Flows (unaudited), and (v) the Notes to the Condensed Consolidated Financial Statements (unaudited). | Filed herewith. |
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104 | The cover page of our Form 10-Q for the quarter ended June 30, 2019, formatted in iXBRL | Filed herewith. |
Signatures
Ally Financial Inc. • Form 10-Q
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this reportQuarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized, this 1st day of August, 20182019.
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| Ally Financial Inc. (Registrant) |
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| /S/JENNIFER A. A. LACLAIR |
| Jennifer A. LaClair Chief Financial Officer |
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| /S/DAVID J. DEBRUNNER |
| David J. DeBrunner Vice President, Chief Accounting Officer, and Corporate Controller |