Caution Regarding 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 theSEC . 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:
•changes in local, regional, national or international business, economic or political conditions;
•changes in laws or the regulatory or supervisory environment, including as a result of financial-services legislation, regulation, or policies or changes in government officials or other personnel;
• changes in monetary, tax or trade laws or policies, including as a result of actions by government agencies, central banks or supranational authorities;
•changes in accounting standards or policies;
•changes in the automotive industry or the markets for new or used vehicles, 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 type, ownership, and use;
• any instability or failure of the financial system, including following the failure of a financial institution or of another participant in it;
•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;
•the end of LIBOR and the negative impacts that could result;
• changes in business or consumer sentiment, preferences or behavior, including business or household spending, borrowing or saving;
• changes in our business or business strategies, the composition of our assets or the way we fund those assets;
•our ability to execute our business strategy to
•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 lending, point-of-sale personal lending, credit cards, corporate finance, brokerage, and wealth management;
• our ability to develop capital plans acceptable to the FRB and our ability to implement them, including any payment of dividends or redemption of shares;
•our ability to conduct appropriate stress tests and effectively plan for and manage capital or liquidity consistent with evolving business or operational needs, risk-management standards, and regulatory or supervisory requirements or expectations;
•our ability to profitably fund our business and operations, including through deposits and capital markets;
• changes in any credit rating assigned to Ally, including
• negative publicity or other reputational damage to us, our service providers or senior management;
• our ability to develop, maintain or market our products or services or to absorb unexpected costs or liabilities associated with such products or services;
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• our ability to innovate, anticipate the needs of current or future customers, compete successfully, increase or maintain market share in changing competitive environments, or respond to price or other competitive pressures;
•the continuing profitability and viability of our dealer-centric automotive finance and insurance businesses, especially in the face of competition from captive finance companies and their automotive manufacturing sponsors and challenges to the dealer's role as intermediary between manufacturers and purchasers;
• our ability to appropriately collateralize the loans we originate or purchase and otherwise manage credit risk;
•changes in the credit, liquidity or other financial condition of our customers, counterparties, service providers or competitors;
•our ability to deal effectively with economic, business or market downturns or disruptions;
• our ability to cope with increased surveillance and to meet the expectations of supervisors or other governmental authorities and to remedy in a timely and credible manner any related concerns or shortcomings;
•legal, regulatory or administrative inquiries, reviews, inquiries, proceedings, litigation or rulings that create uncertainty for us or the financial services industry or adversely affect us;
•the potential outcomes of judicial, regulatory, or administrative inquiries, examinations, investigations, proceedings, or disputes to which we are or may be subject, and our ability to absorb and address any damages or other remedies that are sought or awarded, and any collateral consequences;
•the performance and availability of third-party service providers we rely on to provide products and services to our customers and otherwise conduct our business and operations;
•our ability to manage and mitigate security risks, including our ability to withstand cyberattacks;
• our ability to maintain secure and functional financial, accounting, technology, data processing or other operating systems or infrastructure;
•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 effectiveness of our methods or models in evaluating trading strategies or opportunities or in evaluating, measuring, estimating, monitoring or managing positions or risks;
• our ability to keep pace with technological changes that affect us or our customers, counterparties, service providers or competitors or to maintain rights or interests in associated intellectual property;
•our ability to successfully complete 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, cyber-warfare, and pandemics (such as adverse effects of the COVID-19 pandemic on us and our customers, counterparties, employees, and service providers);
• our ability to maintain appropriate ESG practices, monitoring and disclosures;
•policies and other actions of governments to manage and mitigate climate and
related environmental risks, and the effects of climate change or the transition
to a lower-carbon economy on our business, operations, and reputation; 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
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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. The term "partnerships" means
business arrangements rather than partnerships as defined by law.
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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, Ally, the Company, we, us, or our) is a digital
financial-services company committed to its promise to "Do It Right" for its
consumer, commercial, and corporate customers. Ally is composed of an
industry-leading independent automotive finance and insurance operation, an
award-winning digital direct bank (Ally Bank , Member FDIC and Equal Housing
Lender, which offers mortgage lending, point-of-sale personal lending, and a
variety of deposit and other banking products), a consumer credit card business,
a corporate finance business for equity sponsors and middle-market companies,
and securities brokerage and investment advisory services. We are a Delaware
corporation and are registered as a BHC under the BHC Act, and an FHC under the
GLB Act.
Primary Business Lines
Dealer Financial Services , which includes our Automotive Finance and Insurance
operations, Mortgage Finance, and Corporate Finance are our primary business
lines. The remaining activity is reported in Corporate and Other, which
primarily consists of centralized treasury activities as well as Ally Invest,
our digital brokerage and wealth management offering, Ally Lending , our
point-of-sale financing business, Ally Credit Card, and CRA loans and related
investments. The following table summarizes the operating results excluding
discontinued operations of each business line. Operating results for each of the
business lines are more fully described in the MD&A sections that follow.
Three months ended June 30, Six months ended June 30,
($ in millions) 2022 2021 Favorable/(unfavorable) % change 2022 2021 Favorable/(unfavorable) % change
Total net revenue
Dealer Financial Services
Automotive Finance $ 1,373 $ 1,394 (2) $ 2,736 $ 2,662 3
Insurance 178 359 (50) 465 753 (38)
Mortgage Finance 60 45 33 127 108 18
Corporate Finance 96 110 (13) 203 207 (2)
Corporate and Other 369 177 108 680 292 133
Total $ 2,076 $ 2,085 - $ 4,211 $ 4,022 5
Income (loss) from continuing
operations before income tax
expense
Dealer Financial Services
Automotive Finance $ 600 $ 917 (35) $ 1,325 $ 1,720 (23)
Insurance (122) 87 n/m (109) 228 (148)
Mortgage Finance 6 - n/m 17 23 (26)
Corporate Finance 60 95 (37) 124 148 (16)
Corporate and Other 90 (57) n/m 123 (70) n/m
Total $ 634 $ 1,042 (39) $ 1,480 $ 2,049 (28)
n/m = not meaningful
•Our Dealer Financial Services business is one of the largest full-service
automotive finance operations in the country and offers a wide range of
financial services and insurance products to automotive dealerships and their
customers. Dealer Financial Services comprises our Automotive Finance and
Insurance segments.
Our Automotive Finance operations include purchasing retail installment sales
contracts and operating leases from dealers and automotive retailers, extending
automotive loans directly to consumers, offering term loans to dealers,
financing dealer floorplans and providing other lines of credit to dealers,
supplying warehouse lines to automotive retailers, offering automotive-fleet
financing, providing financing to companies and municipalities for the purchase
or lease of vehicles, and supplying vehicle-remarketing services. Our
dealer-centric business model, value-added products and services, full-spectrum
financing, and business expertise proven over many credit cycles make us a
premier automotive finance company. Our success as an automotive finance
provider is driven by the consistent and broad range of products and services we
offer to dealers. The automotive marketplace is dynamic and evolving, including
substantial investments in electrification by automobile manufacturers and
suppliers. We remain focused on meeting the needs of both our dealer and
consumer customers and continuing to strengthen and expand upon our
approximately 22,400 dealer relationships. We continue to identify and cultivate
relationships with automotive retailers including those with leading eCommerce
platforms. We also operate Clearlane, our online direct-lending platform, which
provides a digital platform for consumers seeking direct financing. We believe
these actions will enable us to respond to the growing trends for a more
streamlined and digital automotive financing process to serve both dealers and
consumers. Additionally, we provide comprehensive automotive remarketing
services, including the use of SmartAuction, our online auction platform, which
efficiently supports dealer-to-dealer
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and other commercial wholesale vehicle transactions. SmartAuction provides
diversified fee-based revenue and serves as a means of deepening relationships
with our dealership customers. Furthermore, our strong and expansive dealer
relationships, comprehensive suite of products and services, full-spectrum
financing, and depth of experience position us to evolve with future shifts in
automobile technologies, including electrification. We have and continue to
provide automobile financing for hybrid and battery-electric vehicles today, and
are well positioned to remain a leader in automotive financing as we believe the
majority of these vehicles will be sold through dealerships with whom we have an
established relationship.
The Growth channel was established to focus on developing dealer relationships
beyond those relationships that primarily were developed through our previous
role as a captive finance company for GM and Stellantis. The Growth channel was
expanded to include direct-to-consumer financing through Clearlane and other
channels and our arrangements with online automotive retailers. We have
established relationships with thousands of Growth channel dealers through our
customer-centric approach and specialized incentive programs designed to drive
loyalty amongst dealers to our products and services. The success of the Growth
channel has been a key enabler in evolving our business model from a focused
captive finance company to a leading market competitor. In this channel, we
currently have approximately 16,000 dealer relationships, of which approximately
70% are franchised dealers (including brands such as Ford, Nissan, Kia, Hyundai,
Toyota , Honda, and others), or used vehicle only retailers with 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 2.5 million
consumers nationwide across F&I and P&C products. In addition, we offer F&I
products in Canada , where we serve more than 400 thousand consumers and are the
VSC and other protection plan provider for GM Canada and VSC provider for Subaru
Canada .
As part of our focus on offering dealers a broad range of consumer F&I products,
we offer VSCs, VMCs, and GAP products. We also underwrite selected commercial
insurance coverages, which primarily insure dealers' wholesale vehicle inventory
and offer additional products to protect a dealer's business including property
and liability coverage that is underwritten by a third-party carrier. Ally
Premier Protection is our flagship VSC offering, which provides coverage for new
and used vehicles of virtually all makes and models. We also offer ClearGuard on
the SmartAuction platform, which is a protection product designed to minimize
the risk to dealers from arbitration claims for eligible vehicles sold at
auction.
•Our Mortgage Finance operations consist of the management of
held-for-investment and held-for-sale consumer mortgage loan portfolios. Our
held-for-investment portfolio includes our direct-to-consumer Ally Home mortgage
offering, and bulk purchases of high-quality jumbo and LMI mortgage loans
originated by third parties.
Through our direct-to-consumer channel, we offer a variety of competitively
priced jumbo and conforming fixed- and adjustable-rate mortgage products through
a third-party fulfillment provider. Under our current arrangement, our
direct-to-consumer conforming mortgages are originated as held-for-sale and
sold, while jumbo and LMI mortgages are originated as held-for-investment. Loans
originated in the direct-to-consumer channel are sourced by existing Ally
customer marketing, prospect marketing on third-party websites, and email or
direct mail campaigns. In April 2019 , we announced a strategic partnership with
BMC, which delivers an enhanced end-to-end digital mortgage experience for our
customers through our direct-to-consumer channel. Through this partnership, BMC
conducts the sales, processing, underwriting, and closing for Ally's digital
mortgage offerings in a highly innovative, scalable, and cost-efficient manner,
while Ally retains control of all the marketing and advertising strategies and
loan pricing. This partnership with BMC limits operational volatility as the
mortgage industry continues to evolve in the current interest rate environment.
During the six months ended June 30, 2022 , we originated $2.6 billion of
mortgage loans through our direct-to-consumer channel. During 2018, we made a
strategic equity investment in the parent of BMC (BMC Holdco) that was
subsequently increased in 2019 and 2020. This investment is recognized as a
nonmarketable equity investment within other assets of our Condensed
Consolidated Balance Sheet and is included in Corporate and Other. Refer to the
Market Risk section of this MD&A for more information.
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 refinancing through our direct-to-consumer channel. During
the six months ended June 30, 2022 , we purchased $1.6 billion of mortgage loans
that were originated by third parties. Our mortgage loan purchases are
held-for-investment.
The combination of our direct-to-consumer strategy and bulk portfolio purchase
program 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 Corporate Finance operations primarily provide senior secured leveraged
cash flow and asset-based loans to mostly U.S. -based middle-market companies
owned by private equity sponsors, and loans to asset managers that primarily
provide leveraged loans. We believe our growing deposit-based funding model
coupled with our expanded product offerings and deep industry relationships
provide an advantage over our competition, which includes other banks as well as
publicly and privately held finance companies. While there continues to be a
significant level of liquidity and competition in the middle-market lending
space, we have continued
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to prudently grow our lending portfolio with a focus on a disciplined and
selective approach to credit quality, including a greater focus on asset-based
loans and priority, first-out revolving lines of credit. We seek markets and
opportunities where our clients require customized, highly structured, and
time-sensitive financing solutions. Our corporate-finance lending portfolio is
generally composed of first-lien, first-out loans. Our focus is on businesses
owned by private-equity sponsors with loans typically used for leveraged
buyouts, refinancing and recapitalizations, mergers and acquisitions, growth,
turnarounds, and debtor-in-possession financings. Additionally, our Lender
Finance business provides asset managers with facilities to partially fund their
direct-lending activities. The portfolio is well diversified across multiple
industries including financials, services, manufacturing, distribution, and
other specialty sectors. These specialty sectors include healthcare,
technology/venture finance, defense and aerospace, and transportation and
logistics. We also provide a healthcare-based commercial real estate product
focused on lending to skilled nursing facilities, senior housing, medical office
buildings, and hospitals. Other smaller complementary product offerings that
help strengthen our reputation as a full-spectrum provider of financing
solutions for borrowers include selectively offering second-out loans on certain
transactions and issuing letters of credit through Ally Bank .
•Corporate and Other 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 FTP and treasury ALM activities. Corporate and Other
also includes activity related to certain equity investments, which primarily
consist of FHLB and FRB stock as well as other strategic investments, the
management of our legacy mortgage portfolio, which primarily consists of loans
originated prior to January 1, 2009 , CRA loans and related investments, and
reclassifications and eliminations between the reportable operating segments.
Corporate and Other includes the results of Ally Invest, our digital brokerage
and wealth management offering, which enables us to complement our competitive
deposit products with low-cost investing. The digital wealth management business
aligns with our strategy to create a premier digital financial services company
and provides additional sources of fee income through asset management and
certain other fees, with minimal balance sheet utilization. This business also
provides an additional source of low-cost deposits through arrangements with
Ally Invest's clearing broker.
Information related to our point-of-sale financing business, Ally Lending , is
also included within Corporate and Other. Ally Lending currently serves medical
and home improvement service providers by enabling promotional and fixed rate
installment-loan products through a digital application process at
point-of-sale. The home improvement segment, which was launched in the second
quarter of 2020, had originations of $343 million during the second quarter of
2022 and now represents approximately 58% of new originations, and is expected
to grow. Point-of-sale lending broadens our capabilities, and expands our
product offering into consumer unsecured lending, all while helping to further
meet the financial needs of our customers.
Additionally, beginning in December 2021 with the acquisition of Fair Square ,
which we rebranded as Ally Credit Card, financial information related to our
credit card business is included within Corporate and Other. The acquisition
provides us with a scalable, digital-first credit card platform, and advances
our evolution as a leading digital consumer bank. Ally Credit Card features
leading-edge technology, and a proprietary, analytics-based underwriting model.
We believe the addition of credit card to our suite of products enhances our
ability to grow and deepen both new and existing customer relationships.
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