ALLY FINANCIAL INC. 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 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:
•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 financial-services legislation, regulation, or policies or changes in government officials or other personnel;
•changes in monetary, fiscal, or trade laws or policies, including as a result of actions by governmental agencies, central banks, or supranational authorities;
•changes in accounting standards or policies;
•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 breakdown in the financial system, including as a result of the failure of a financial institution or other 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 discontinuation of 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
•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 share repurchases;
•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 cost-effectively fund our business and operations, including through deposits and the capital markets;
•changes in any credit rating assigned to Ally, including
•adverse publicity or other reputational harm to us, our service providers, 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;
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•our ability to innovate, to anticipate the needs of current or future customers, to successfully compete, to increase or hold market share in changing competitive environments, or to deal with pricing or other competitive pressures;
•the continuing profitability and viability of our dealer-centric automotive finance and insurance businesses, especially in the face of competition from captive finance companies and their automotive manufacturing sponsors and challenges to the dealer's role as intermediary between manufacturers and purchasers;
•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;
•our ability to address heightened scrutiny and expectations from supervisory or other governmental authorities and to timely and credibly remediate related concerns or deficiencies;
•judicial, regulatory, or administrative inquiries, examinations, investigations, proceedings, disputes, or rulings that create uncertainty for, or are adverse to, us or the financial services industry;
•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 on whom we rely in delivering products and services to our customers and otherwise conducting our business and operations;
•our ability to manage and mitigate security risks, including our capacity 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 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 or to maintain rights or interests in associated intellectual property;
•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, 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, oversight, 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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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 September 30, Nine months ended September 30,
($ in millions) 2022 2021 Favorable/(unfavorable) % change 2022 2021 Favorable/(unfavorable) % change
Total net revenue
Dealer Financial Services
Automotive Finance $ 1,377 $ 1,390 (1) $ 4,113 $ 4,052 2
Insurance 260 297 (12) 725 1,050 (31)
Mortgage Finance 64 55 16 191 163 17
Corporate Finance 134 93 44 337 300 12
Corporate and Other 181 150 21 861 442 95
Total $ 2,016 $ 1,985 2 $ 6,227 $ 6,007 4
Income (loss) from continuing
operations before income tax
expense
Dealer Financial Services
Automotive Finance $ 488 $ 825 (41) $ 1,813 $ 2,545 (29)
Insurance (30) 24 n/m (139) 252 (155)
Mortgage Finance 19 6 n/m 36 29 24
Corporate Finance 91 61 49 215 209 3
Corporate and Other (151) (9) n/m (28) (79) 65
Total $ 417 $ 907 (54) $ 1,897 $ 2,956 (36)
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 22,900 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 and other commercial wholesale vehicle
transactions. SmartAuction provides diversified fee-based revenue and serves as
a means
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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 more than 16,000 dealer relationships, of which approximately 67%
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 400,000 consumers and are the VSC
and other protection plan provider for GM Canada and VSC provider for Subaru
Canada . Additionally, during the third quarter of 2022, we entered into a
long-term commitment to continue as the preferred VSC and protection plan
provider for GM 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 nine months ended September 30, 2022 , we originated $3.1 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 and Note 11 to the Condensed Consolidated
Financial Statements 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 nine months ended September 30, 2022 , we purchased $2.8 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. 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
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Finance business provides asset managers with facilities to partially fund their
direct-lending activities. We also offer a commercial real estate product to
serve companies in the healthcare industry.
•Corporate and Other primarily consists of centralized corporate treasury
activities such as management of the cash and corporate investment securities
and loan portfolios, short- and long-term debt, retail and brokered deposit
liabilities, derivative instruments, original issue discount, and the residual
impacts of our corporate 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.
Additionally, Corporate and Other includes costs that are not allocated to our
reportable operating segments as part of our COH methodology, which involves
management judgment.
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 vertical, which was launched in the second
quarter of 2020, had originations of $367 million during the third quarter of
2022 and now represents approximately 62% 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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