Ally Financial Inc. - Quarter Report: 2019 March (Form 10-Q)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2019, or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-3754
ALLY FINANCIAL INC.
(Exact name of registrant as specified in its charter)
Delaware | 38-0572512 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
Ally Detroit Center
500 Woodward Ave.
Floor 10, Detroit, Michigan
48226
(Address of principal executive offices)
(Zip Code)
(866) 710-4623
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes þ 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.
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
Emerging growth company o | ||||||
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 | ||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No þ
Securities registered pursuant to Section 12(b) of the Act (all listed on the New York Stock Exchange):
Title of each class | Trading symbols |
Common Stock, par value $0.01 per share | ALLY |
8.125% Fixed Rate/Floating Rate Trust Preferred Securities, Series 2 of GMAC Capital Trust I | ALLY PRA |
At May 2, 2019, the number of shares outstanding of the Registrant’s common stock was 397,159,456 shares.
Page | ||
Item 1. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 1. | ||
Item 1A. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 5. | ||
Item 6. | ||
PART I — FINANCIAL INFORMATION | |||||
Item 1. Financial Statements
Condensed Consolidated Statement of Comprehensive Income (unaudited)
Ally Financial Inc. • Form 10-Q
Three months ended March 31, | ||||||||
($ in millions) | 2019 | 2018 | ||||||
Financing revenue and other interest income | ||||||||
Interest and fees on finance receivables and loans | $ | 1,807 | $ | 1,543 | ||||
Interest on loans held-for-sale | 2 | — | ||||||
Interest and dividends on investment securities and other earning assets | 240 | 176 | ||||||
Interest on cash and cash equivalents | 23 | 15 | ||||||
Operating leases | 361 | 382 | ||||||
Total financing revenue and other interest income | 2,433 | 2,116 | ||||||
Interest expense | ||||||||
Interest on deposits | 592 | 351 | ||||||
Interest on short-term borrowings | 44 | 32 | ||||||
Interest on long-term debt | 419 | 411 | ||||||
Total interest expense | 1,055 | 794 | ||||||
Net depreciation expense on operating lease assets | 246 | 273 | ||||||
Net financing revenue and other interest income | 1,132 | 1,049 | ||||||
Other revenue | ||||||||
Insurance premiums and service revenue earned | 261 | 256 | ||||||
Gain on mortgage and automotive loans, net | 10 | 1 | ||||||
Other gain (loss) on investments, net | 108 | (12 | ) | |||||
Other income, net of losses | 87 | 109 | ||||||
Total other revenue | 466 | 354 | ||||||
Total net revenue | 1,598 | 1,403 | ||||||
Provision for loan losses | 282 | 261 | ||||||
Noninterest expense | ||||||||
Compensation and benefits expense | 318 | 306 | ||||||
Insurance losses and loss adjustment expenses | 59 | 63 | ||||||
Other operating expenses | 453 | 445 | ||||||
Total noninterest expense | 830 | 814 | ||||||
Income from continuing operations before income tax expense | 486 | 328 | ||||||
Income tax expense from continuing operations | 111 | 76 | ||||||
Net income from continuing operations | 375 | 252 | ||||||
Loss from discontinued operations, net of tax | (1 | ) | (2 | ) | ||||
Net income | 374 | 250 | ||||||
Other comprehensive income (loss), net of tax | 306 | (328 | ) | |||||
Comprehensive income (loss) | $ | 680 | $ | (78 | ) | |||
Statement continues on the next page.
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
3
Condensed Consolidated Statement of Comprehensive Income (unaudited)
Ally Financial Inc. • Form 10-Q
Three months ended March 31, | ||||||||
(in dollars) (a) | 2019 | 2018 | ||||||
Basic earnings per common share | ||||||||
Net income from continuing operations | $ | 0.93 | $ | 0.58 | ||||
Loss from discontinued operations, net of tax | — | (0.01 | ) | |||||
Net income | $ | 0.93 | $ | 0.57 | ||||
Diluted earnings per common share | ||||||||
Net income from continuing operations | $ | 0.92 | $ | 0.57 | ||||
Loss from discontinued operations, net of tax | — | (0.01 | ) | |||||
Net income | $ | 0.92 | $ | 0.57 | ||||
Cash dividends declared per common share | $ | 0.17 | $ | 0.13 | ||||
(a) | Figures in the table may not recalculate exactly due to rounding. Earnings per share is calculated based on unrounded numbers. |
Refer to Note 15 for additional earnings per share information. The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
4
($ in millions, except share data) | March 31, 2019 | December 31, 2018 | ||||||
Assets | ||||||||
Cash and cash equivalents | ||||||||
Noninterest-bearing | $ | 946 | $ | 810 | ||||
Interest-bearing | 3,011 | 3,727 | ||||||
Total cash and cash equivalents | 3,957 | 4,537 | ||||||
Equity securities | 536 | 773 | ||||||
Available-for-sale securities (refer to Note 6 for discussion of investment securities pledged as collateral) | 27,630 | 25,303 | ||||||
Held-to-maturity securities (fair value of $2,374 and $2,307) | 2,387 | 2,362 | ||||||
Loans held-for-sale, net | 107 | 314 | ||||||
Finance receivables and loans, net | ||||||||
Finance receivables and loans, net of unearned income | 130,055 | 129,926 | ||||||
Allowance for loan losses | (1,288 | ) | (1,242 | ) | ||||
Total finance receivables and loans, net | 128,767 | 128,684 | ||||||
Investment in operating leases, net | 8,339 | 8,417 | ||||||
Premiums receivable and other insurance assets | 2,401 | 2,326 | ||||||
Other assets | 5,993 | 6,153 | ||||||
Total assets | $ | 180,117 | $ | 178,869 | ||||
Liabilities | ||||||||
Deposit liabilities | ||||||||
Noninterest-bearing | $ | 141 | $ | 142 | ||||
Interest-bearing | 113,158 | 106,036 | ||||||
Total deposit liabilities | 113,299 | 106,178 | ||||||
Short-term borrowings | 6,115 | 9,987 | ||||||
Long-term debt | 41,490 | 44,193 | ||||||
Interest payable | 696 | 523 | ||||||
Unearned insurance premiums and service revenue | 3,096 | 3,044 | ||||||
Accrued expenses and other liabilities | 1,722 | 1,676 | ||||||
Total liabilities | 166,418 | 165,601 | ||||||
Contingencies (refer to Note 23) | ||||||||
Equity | ||||||||
Common stock and paid-in capital ($0.01 par value, shares authorized 1,100,000,000; issued 495,771,320 and 492,797,409; and outstanding 399,760,804 and 404,899,599) | 21,379 | 21,345 | ||||||
Accumulated deficit | (5,195 | ) | (5,489 | ) | ||||
Accumulated other comprehensive loss | (225 | ) | (539 | ) | ||||
Treasury stock, at cost (96,010,516 and 87,897,810 shares) | (2,260 | ) | (2,049 | ) | ||||
Total equity | 13,699 | 13,268 | ||||||
Total liabilities and equity | $ | 180,117 | $ | 178,869 | ||||
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
5
The assets of consolidated variable interest entities that can be used only to settle obligations of the consolidated variable interest entities and the liabilities of these entities for which creditors (or beneficial interest holders) do not have recourse to our general credit were as follows.
($ in millions) | March 31, 2019 | December 31, 2018 | ||||||
Assets | ||||||||
Finance receivables and loans, net | ||||||||
Finance receivables and loans, net of unearned income | $ | 16,772 | $ | 18,086 | ||||
Allowance for loan losses | (99 | ) | (114 | ) | ||||
Total finance receivables and loans, net | 16,673 | 17,972 | ||||||
Investment in operating leases, net | 123 | 164 | ||||||
Other assets | 636 | 767 | ||||||
Total assets | $ | 17,432 | $ | 18,903 | ||||
Liabilities | ||||||||
Long-term debt | $ | 9,742 | $ | 10,482 | ||||
Accrued expenses and other liabilities | 11 | 12 | ||||||
Total liabilities | $ | 9,753 | $ | 10,494 | ||||
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
6
Condensed Consolidated Statement of Changes in Equity (unaudited)
Ally Financial Inc. • Form 10-Q
($ in millions) | Common stock and paid-in capital | Accumulated deficit | Accumulated other comprehensive loss | 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 | 250 | 250 | ||||||||||||||||||
Share-based compensation | 28 | 28 | ||||||||||||||||||
Other comprehensive loss | (328 | ) | (328 | ) | ||||||||||||||||
Common stock repurchases | (185 | ) | (185 | ) | ||||||||||||||||
Common stock dividends ($0.13 per share) | (58 | ) | (58 | ) | ||||||||||||||||
Balance at March 31, 2018 | $ | 21,273 | $ | (6,318 | ) | $ | (578 | ) | $ | (1,295 | ) | $ | 13,082 | |||||||
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 | 374 | 374 | ||||||||||||||||||
Share-based compensation | 34 | 34 | ||||||||||||||||||
Other comprehensive income | 306 | 306 | ||||||||||||||||||
Common stock repurchases | (211 | ) | (211 | ) | ||||||||||||||||
Common stock dividends ($0.17 per share) | (70 | ) | (70 | ) | ||||||||||||||||
Balance at March 31, 2019 | $ | 21,379 | $ | (5,195 | ) | $ | (225 | ) | $ | (2,260 | ) | $ | 13,699 | |||||||
(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.
7
Condensed Consolidated Statement of Cash Flows (unaudited)
Ally Financial Inc. • Form 10-Q
Three months ended March 31, ($ in millions) | 2019 | 2018 | ||||||
Operating activities | ||||||||
Net income | $ | 374 | $ | 250 | ||||
Reconciliation of net income to net cash provided by operating activities | ||||||||
Depreciation and amortization | 369 | 434 | ||||||
Provision for loan losses | 282 | 261 | ||||||
Gain on mortgage and automotive loans, net | (10 | ) | (1 | ) | ||||
Other (gain) loss on investments, net | (108 | ) | 12 | |||||
Originations and purchases of loans held-for-sale | (134 | ) | (248 | ) | ||||
Proceeds from sales and repayments of loans held-for-sale | 111 | 230 | ||||||
Net change in | ||||||||
Deferred income taxes | 100 | 83 | ||||||
Interest payable | 173 | 120 | ||||||
Other assets | (40 | ) | 29 | |||||
Other liabilities | 37 | (106 | ) | |||||
Other, net | (73 | ) | 33 | |||||
Net cash provided by operating activities | 1,081 | 1,097 | ||||||
Investing activities | ||||||||
Purchases of equity securities | (48 | ) | (374 | ) | ||||
Proceeds from sales of equity securities | 383 | 220 | ||||||
Purchases of available-for-sale securities | (3,401 | ) | (2,360 | ) | ||||
Proceeds from sales of available-for-sale securities | 656 | 328 | ||||||
Proceeds from repayments of available-for-sale securities | 694 | 795 | ||||||
Purchases of held-to-maturity securities | (131 | ) | (155 | ) | ||||
Proceeds from repayments of held-to-maturity securities | 44 | 35 | ||||||
Purchases of finance receivables and loans held-for-investment | (1,452 | ) | (1,497 | ) | ||||
Proceeds from sales of finance receivables and loans initially held-for-investment | 157 | — | ||||||
Originations and repayments of finance receivables and loans held-for-investment and other, net | 1,149 | (1,300 | ) | |||||
Purchases of operating lease assets | (792 | ) | (969 | ) | ||||
Disposals of operating lease assets | 624 | 976 | ||||||
Net change in nonmarketable equity investments | 171 | (19 | ) | |||||
Other, net | (95 | ) | (82 | ) | ||||
Net cash used in investing activities | (2,041 | ) | (4,402 | ) | ||||
Statement continues on the next page.
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
8
Condensed Consolidated Statement of Cash Flows (unaudited)
Ally Financial Inc. • Form 10-Q
Three months ended March 31, ($ in millions) | 2019 | 2018 | ||||||
Financing activities | ||||||||
Net change in short-term borrowings | (3,872 | ) | (1,848 | ) | ||||
Net increase in deposits | 7,114 | 4,173 | ||||||
Proceeds from issuance of long-term debt | 1,766 | 6,665 | ||||||
Repayments of long-term debt | (4,490 | ) | (5,771 | ) | ||||
Repurchase of common stock | (211 | ) | (185 | ) | ||||
Dividends paid | (70 | ) | (58 | ) | ||||
Net cash provided by financing activities | 237 | 2,976 | ||||||
Effect of exchange-rate changes on cash and cash equivalents and restricted cash | 1 | (2 | ) | |||||
Net decrease in cash and cash equivalents and restricted cash | (722 | ) | (331 | ) | ||||
Cash and cash equivalents and restricted cash at beginning of year | 5,626 | 5,269 | ||||||
Cash and cash equivalents and restricted cash at March 31, | $ | 4,904 | $ | 4,938 | ||||
Supplemental disclosures | ||||||||
Cash paid for | ||||||||
Interest | $ | 862 | $ | 667 | ||||
Income taxes | 12 | 5 | ||||||
Noncash items | ||||||||
Loans held-for-sale transferred to finance receivables and loans held-for-investment | 63 | — | ||||||
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 | 3 | 11 | ||||||
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.
March 31, ($ in millions) | 2019 | 2018 | ||||||
Cash and cash equivalents on the Condensed Consolidated Balance Sheet | $ | 3,957 | $ | 3,721 | ||||
Restricted cash included in other assets on the Condensed Consolidated Balance Sheet (a) | 947 | 1,217 | ||||||
Total cash and cash equivalents and restricted cash in the Condensed Consolidated Statement of Cash Flows | $ | 4,904 | $ | 4,938 | ||||
(a) | Restricted cash balances relate primarily to Ally securitization arrangements. Refer to Note 10 for 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.
9
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, Ally, the Company, or we, us, or our) is a leading digital financial-services company. As a customer-centric company with passionate customer service and innovative financial solutions, we are relentlessly focused on “Doing It Right” and being a trusted financial-services provider to our consumer, commercial, and corporate customers. We are one of the largest full-service automotive finance operations in the country and offer a wide range of financial services and insurance products to dealerships and consumers. Our award-winning online bank (Ally Bank, Member FDIC and Equal Housing Lender) offers mortgage-lending services and a variety of deposit and other banking products, including savings, money-market, and checking accounts, certificates of deposit (CDs), and individual retirement accounts (IRAs). We also support the Ally CashBack Credit Card. Additionally, we offer securities-brokerage and investment-advisory services through Ally Invest. Our robust corporate finance business offers capital for equity sponsors and middle-market companies. We are a Delaware corporation and are registered as a bank holding company (BHC) under the Bank Holding Company Act of 1956, as amended, and a financial holding company (FHC) under the Gramm-Leach-Bliley Act of 1999, as amended.
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, and the determination of the provision for income taxes.
The Condensed Consolidated Financial Statements at March 31, 2019, and for the three months ended March 31, 2019, and 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, 2018, as filed on February 20, 2019, with the U.S. Securities and Exchange Commission (SEC).
Significant Accounting Policies
Lease Accounting
At contract inception, we determine whether the contract is or contains a lease based on the terms and conditions of the contract. Lease contracts are recognized on our Condensed Consolidated Balance 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 one year or less. Lease liabilities and their 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 lease contract is typically 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 amount equal to the lease payments in a similar economic environment. The ROU asset also includes initial direct costs paid less lease incentives received from the lessor. Our lease contracts are generally classified as operating and, as a result, we recognize a single lease cost within other operating expenses on the income statement on a straight-line basis over the lease term. 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 callable at fixed prices on preset dates are amortized to the earliest call date as an adjustment to investment yield. All other premiums and discounts on debt securities are amortized over the stated maturity of the security as an adjustment to investment yield. This method of amortization differs from that described in Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K, which describes our full accounting policy for Investments. This update to our amortization methodology resulted from the adoption of ASU 2017-08 on January 1, 2019, as further described within the section below titled Recently Adopted Accounting Standards.
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 2018 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 2018 Annual Report on Form 10-K regarding additional significant accounting policies.
10
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Recently Adopted Accounting Standards
Leases (ASU 2016-02)
In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02. The amendments in this update primarily replace 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 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 ROU asset and lease liability equal to the present value of the lease payments. The ROU asset and lease liability should be derecognized in a manner that effectively yields a straight line lease expense over the lease term. In addition to the changes to the lessee operating lease accounting requirements, the amendments also change the types of costs that can be capitalized related to a lease agreement for both lessees and lessors. The amendments also require additional disclosures for all lease types for both lessees and lessors. The FASB issued additional ASUs to clarify the guidance and provide certain practical expedients and an additional transition option. We adopted ASU 2016-02 and the subsequent ASUs that modified ASU 2016-02 (collectively, the amendments) on January 1, 2019. This includes the early adoption of ASU 2019-01, which was issued in March 2019 to amend certain provisions included in ASU 2016-02.
We adopted this guidance using the modified retrospective approach on January 1, 2019, and have not adjusted prior period comparative information and will continue to disclose prior period financial information in accordance with the previous lease accounting guidance. We have elected certain practical expedients permitted within the amendments that allow us to not reassess (i) current lease classifications, (ii) whether existing contracts meet the definition of a lease under the amendments to the lease guidance, and (iii) whether current initial direct costs meet the new criteria for capitalization, for all existing leases as of the adoption date. We made an accounting policy election to calculate the impact of adoption using the remaining minimum lease payments and remaining lease term for each contract that was identified as a lease, discounted at our incremental borrowing rate as of the adoption date. The adoption of the amendments resulted in a ROU asset of approximately $161 million from operating leases for our various corporate facilities, a $29 million reduction to accrued expenses and other liabilities for accrued rent and unamortized tenant improvement allowances, and a lease liability of approximately $190 million. The adoption did not change our previously reported 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 in this update require premiums on purchased callable debt securities to be amortized to the security’s earliest call date. Prior to this ASU, premiums and discounts on purchased callable debt securities were generally required to be amortized to the security’s maturity date. The amendments do not require an accounting change for securities held at a discount. We adopted the amendments on January 1, 2019, on a modified retrospective basis, which resulted in an increase to our accumulated deficit of $10 million, net of income taxes, partially offset by an $8 million decrease to accumulated other comprehensive loss, net of income taxes.
Recently Issued Accounting Standards
Financial Instruments—Credit Losses (ASU 2016-13)
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (CECL). The amendments in this update introduce a new accounting model to measure credit losses for financial assets measured at amortized cost. 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 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. We plan to adopt these amendments on January 1, 2020, and expect to utilize the modified retrospective approach as required.
The new accounting model for credit losses represents a significant departure from existing GAAP, and will 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. 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 refining and testing the models and procedures that will be used to calculate the credit loss reserves in accordance with these amendments. We performed a limited parallel run during the first quarter of 2019, and will continue to refine and enhance our estimation process with additional parallel testing throughout 2019. Additionally, we do not 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.
11
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
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 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 this standard. Certain noninsurance contracts within our Insurance operations, including vehicle service contracts (VSCs), guaranteed asset protection (GAP) contracts, and vehicle maintenance contracts (VMCs), are included in the scope of this standard. All revenue associated with noninsurance contracts is recognized over the contract term on a basis proportionate to the anticipated cost emergence. Further, commissions and sales expense incurred to obtain these contracts are amortized over the terms of the related policies and service contracts on the same basis as premiums and service revenue are earned, and all advertising costs are recognized as expense when incurred.
The following table presents a disaggregated view of our revenue from contracts with customers included in other revenue that falls within the scope of the revenue recognition principles of ASC 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 Consolidated Financial Statements in our 2018 Annual Report on Form 10-K.
Three months ended March 31, ($ 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 (a) (b) (c) | $ | — | $ | 131 | $ | — | $ | — | $ | — | $ | 131 | ||||||||||||
Remarketing fee income | 18 | — | — | — | — | 18 | ||||||||||||||||||
Brokerage commissions and other revenue | — | — | — | — | 17 | 17 | ||||||||||||||||||
Deposit account and other banking fees | — | — | — | — | 5 | 5 | ||||||||||||||||||
Brokered/agent commissions | — | 3 | — | — | — | 3 | ||||||||||||||||||
Other | 5 | — | — | — | — | 5 | ||||||||||||||||||
Total revenue from contracts with customers | 23 | 134 | — | — | 22 | 179 | ||||||||||||||||||
All other revenue | 45 | 226 | 2 | 11 | 3 | 287 | ||||||||||||||||||
Total other revenue (d) | $ | 68 | $ | 360 | $ | 2 | $ | 11 | $ | 25 | $ | 466 | ||||||||||||
2018 | ||||||||||||||||||||||||
Revenue from contracts with customers | ||||||||||||||||||||||||
Noninsurance contracts (a) (b) (c) | $ | — | $ | 123 | $ | — | $ | — | $ | — | $ | 123 | ||||||||||||
Remarketing fee income | 23 | — | — | — | — | 23 | ||||||||||||||||||
Brokerage commissions and other revenue | — | — | — | — | 16 | 16 | ||||||||||||||||||
Deposit account and other banking fees | — | — | — | — | 3 | 3 | ||||||||||||||||||
Brokered/agent commissions | — | 4 | — | — | — | 4 | ||||||||||||||||||
Other | 2 | 1 | — | — | — | 3 | ||||||||||||||||||
Total revenue from contracts with customers | 25 | 128 | — | — | 19 | 172 | ||||||||||||||||||
All other revenue | 41 | 118 | 1 | 8 | 14 | 182 | ||||||||||||||||||
Total other revenue (d) | $ | 66 | $ | 246 | $ | 1 | $ | 8 | $ | 33 | $ | 354 | ||||||||||||
(a) | We had $2.6 billion and $2.5 billion in unearned revenue associated with outstanding contracts at January 1, 2019, and January 1, 2018, respectively, and $199 million and $194 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 March 31, 2019, and March 31, 2018, respectively. |
(b) | At March 31, 2019, we had unearned revenue of $2.7 billion associated with outstanding contracts, and with respect to this balance we expect to recognize revenue of $554 million during the remainder of 2019, $672 million in 2020, $562 million in 2021, $424 million in 2022, and $477 million thereafter. At March 31, 2018, we had unearned revenue of $2.5 billion associated with outstanding contracts. |
(c) | We had opening and closing balances of deferred insurance assets of $1.5 billion and $1.6 billion at January 1, 2019, and March 31, 2019, respectively, and recognized $111 million of expense during the three months ended March 31, 2019. We had opening and closing balances of deferred insurance assets of $1.4 billion at both January 1, 2018, and March 31, 2018, and recognized $103 million of expense during the three months ended March 31, 2018. |
(d) | Represents a component of total net revenue. Refer to Note 21 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 $15 million and $18 million for the three months ended March 31, 2019, and March 31, 2018, respectively, on the sale of off-lease vehicles. These gains are included in depreciation expense on operating lease assets in our Condensed Consolidated Statement of Comprehensive Income.
12
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
3. Other Income, Net of Losses
Details of other income, net of losses, were as follows.
Three months ended March 31, | ||||||||
($ in millions) | 2019 | 2018 | ||||||
Late charges and other administrative fees | $ | 29 | $ | 29 | ||||
Remarketing fees | 18 | 23 | ||||||
Servicing fees | 6 | 8 | ||||||
Income from equity-method investments | 4 | 6 | ||||||
Other, net | 30 | 43 | ||||||
Total other income, net of losses | $ | 87 | $ | 109 | ||||
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) | 2019 | 2018 | ||||||
Total gross reserves for insurance losses and loss adjustment expenses at January 1, | $ | 134 | $ | 140 | ||||
Less: Reinsurance recoverable | 96 | 108 | ||||||
Net reserves for insurance losses and loss adjustment expenses at January 1, | 38 | 32 | ||||||
Net insurance losses and loss adjustment expenses incurred related to: | ||||||||
Current year | 59 | 60 | ||||||
Prior years (a) | — | 3 | ||||||
Total net insurance losses and loss adjustment expenses incurred | 59 | 63 | ||||||
Net insurance losses and loss adjustment expenses paid or payable related to: | ||||||||
Current year | (33 | ) | (31 | ) | ||||
Prior years | (23 | ) | (19 | ) | ||||
Total net insurance losses and loss adjustment expenses paid or payable | (56 | ) | (50 | ) | ||||
Net reserves for insurance losses and loss adjustment expenses at March 31, | 41 | 45 | ||||||
Plus: Reinsurance recoverable | 94 | 112 | ||||||
Total gross reserves for insurance losses and loss adjustment expenses at March 31, | $ | 135 | $ | 157 | ||||
(a) | There have been no material adverse changes to the reserve for prior years. |
13
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
5. Other Operating Expenses
Details of other operating expenses were as follows.
Three months ended March 31, | |||||||
($ in millions) | 2019 | 2018 | |||||
Insurance commissions | $ | 114 | $ | 110 | |||
Technology and communications | 77 | 71 | |||||
Advertising and marketing | 48 | 39 | |||||
Lease and loan administration | 39 | 42 | |||||
Professional services | 29 | 32 | |||||
Regulatory and licensing fees | 28 | 30 | |||||
Vehicle remarketing and repossession | 27 | 32 | |||||
Premises and equipment depreciation | 22 | 20 | |||||
Occupancy | 13 | 11 | |||||
Non-income taxes | 9 | 8 | |||||
Amortization of intangible assets | 3 | 3 | |||||
Other | 44 | 47 | |||||
Total other operating expenses | $ | 453 | $ | 445 | |||
14
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
6. Investment Securities
Our investment portfolio includes various debt and equity securities. Our debt securities, which are classified as available-for-sale and held-to-maturity, include government securities, corporate bonds, asset-backed securities, and mortgage-backed securities. The cost, fair value, and gross unrealized gains and losses on available-for-sale and held-to-maturity debt securities were as follows.
March 31, 2019 | December 31, 2018 | |||||||||||||||||||||||||||||||
Amortized cost | Gross unrealized | Fair value | Amortized cost | Gross unrealized | Fair value | |||||||||||||||||||||||||||
($ in millions) | gains | losses | gains | losses | ||||||||||||||||||||||||||||
Available-for-sale securities | ||||||||||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||||||||||
U.S. Treasury and federal agencies | $ | 1,990 | $ | 1 | $ | (49 | ) | $ | 1,942 | $ | 1,911 | $ | — | $ | (60 | ) | $ | 1,851 | ||||||||||||||
U.S. States and political subdivisions | 771 | 13 | (3 | ) | 781 | 816 | 3 | (17 | ) | 802 | ||||||||||||||||||||||
Foreign government | 170 | 2 | — | 172 | 145 | 1 | (1 | ) | 145 | |||||||||||||||||||||||
Agency mortgage-backed residential | 18,939 | 98 | (193 | ) | 18,844 | 17,486 | 47 | (395 | ) | 17,138 | ||||||||||||||||||||||
Agency mortgage-backed commercial | 316 | 4 | — | 320 | 3 | — | — | 3 | ||||||||||||||||||||||||
Mortgage-backed residential | 2,912 | 7 | (33 | ) | 2,886 | 2,796 | 1 | (111 | ) | 2,686 | ||||||||||||||||||||||
Mortgage-backed commercial | 725 | — | (2 | ) | 723 | 715 | 1 | (2 | ) | 714 | ||||||||||||||||||||||
Asset-backed | 665 | 4 | (1 | ) | 668 | 723 | 2 | (2 | ) | 723 | ||||||||||||||||||||||
Corporate debt | 1,301 | 7 | (14 | ) | 1,294 | 1,286 | 1 | (46 | ) | 1,241 | ||||||||||||||||||||||
Total available-for-sale securities (a) (b) (c) | $ | 27,789 | $ | 136 | $ | (295 | ) | $ | 27,630 | $ | 25,881 | $ | 56 | $ | (634 | ) | $ | 25,303 | ||||||||||||||
Held-to-maturity securities | ||||||||||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||||||||||
Agency mortgage-backed residential (d) | $ | 2,351 | $ | 15 | $ | (28 | ) | $ | 2,338 | $ | 2,319 | $ | 6 | $ | (61 | ) | $ | 2,264 | ||||||||||||||
Asset-backed retained notes | 36 | — | — | 36 | 43 | — | — | 43 | ||||||||||||||||||||||||
Total held-to-maturity securities | $ | 2,387 | $ | 15 | $ | (28 | ) | $ | 2,374 | $ | 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 March 31, 2019, and December 31, 2018. |
(b) | Certain available-for-sale securities are included in fair value hedging relationships. Refer to Note 17 for additional information. |
(c) | Available-for-sale securities with a fair value of $4.1 billion and $9.2 billion at March 31, 2019, and December 31, 2018, respectively, were pledged to secure advances from the 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 $985 million and $821 million of the underlying investment securities at March 31, 2019, and December 31, 2018, respectively. |
(d) | Held-to-maturity securities with a fair value of $1.3 billion and $1.2 billion at March 31, 2019, and December 31, 2018, respectively, were pledged to secure advances from the FHLB. |
15
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The maturity distribution of debt securities outstanding is summarized in the following tables. Call or prepayment options may cause actual maturities to differ from contractual maturities.
Total | Due in one year or less | Due after one year through five years | Due after five years through ten years | Due after ten years | |||||||||||||||||||||||||||||||
($ in millions) | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | |||||||||||||||||||||||||
March 31, 2019 | |||||||||||||||||||||||||||||||||||
Fair value of available-for-sale securities (a) | |||||||||||||||||||||||||||||||||||
U.S. Treasury and federal agencies | $ | 1,942 | 1.7 | % | $ | 28 | 1.7 | % | $ | 1,341 | 1.6 | % | $ | 573 | 1.9 | % | $ | — | — | % | |||||||||||||||
U.S. States and political subdivisions | 781 | 3.2 | 52 | 2.7 | 43 | 2.5 | 212 | 2.7 | 474 | 3.5 | |||||||||||||||||||||||||
Foreign government | 172 | 2.3 | 41 | 2.1 | 55 | 2.3 | 73 | 2.4 | 3 | 2.7 | |||||||||||||||||||||||||
Agency mortgage-backed residential | 18,844 | 3.4 | — | — | — | — | 52 | 1.9 | 18,792 | 3.4 | |||||||||||||||||||||||||
Agency mortgage-backed commercial | 320 | 3.2 | — | — | 3 | 3.1 | 83 | 3.3 | 234 | 3.2 | |||||||||||||||||||||||||
Mortgage-backed residential | 2,886 | 3.3 | — | — | — | — | — | — | 2,886 | 3.3 | |||||||||||||||||||||||||
Mortgage-backed commercial | 723 | 3.8 | — | — | — | — | 36 | 4.0 | 687 | 3.8 | |||||||||||||||||||||||||
Asset-backed | 668 | 3.5 | — | — | 390 | 3.4 | 165 | 4.0 | 113 | 3.3 | |||||||||||||||||||||||||
Corporate debt | 1,294 | 3.2 | 152 | 3.1 | 512 | 2.9 | 606 | 3.4 | 24 | 5.9 | |||||||||||||||||||||||||
Total available-for-sale securities | $ | 27,630 | 3.3 | $ | 273 | 2.7 | $ | 2,344 | 2.2 | $ | 1,800 | 2.8 | $ | 23,213 | 3.4 | ||||||||||||||||||||
Amortized cost of available-for-sale securities | $ | 27,789 | $ | 273 | $ | 2,376 | $ | 1,814 | $ | 23,326 | |||||||||||||||||||||||||
Amortized cost of held-to-maturity securities | |||||||||||||||||||||||||||||||||||
Agency mortgage-backed residential | $ | 2,351 | 3.2 | % | $ | — | — | % | $ | — | — | % | $ | — | — | % | $ | 2,351 | 3.2 | % | |||||||||||||||
Asset-backed retained notes | 36 | 2.1 | — | — | 36 | 2.1 | — | — | — | — | |||||||||||||||||||||||||
Total held-to-maturity securities | $ | 2,387 | 3.2 | $ | — | — | $ | 36 | 2.1 | $ | — | — | $ | 2,351 | 3.2 | ||||||||||||||||||||
December 31, 2018 | |||||||||||||||||||||||||||||||||||
Fair value of available-for-sale securities (a) | |||||||||||||||||||||||||||||||||||
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 | 802 | 3.0 | 49 | 1.9 | 43 | 2.3 | 252 | 2.6 | 458 | 3.4 | |||||||||||||||||||||||||
Foreign government | 145 | 2.4 | 18 | 3.1 | 60 | 2.3 | 67 | 2.4 | — | — | |||||||||||||||||||||||||
Agency mortgage-backed residential | 17,138 | 3.3 | — | — | — | — | 54 | 1.9 | 17,084 | 3.3 | |||||||||||||||||||||||||
Agency mortgage-backed commercial | 3 | 3.1 | — | — | 3 | 3.1 | — | — | — | — | |||||||||||||||||||||||||
Mortgage-backed residential | 2,686 | 3.3 | — | — | — | — | — | — | 2,686 | 3.3 | |||||||||||||||||||||||||
Mortgage-backed commercial | 714 | 3.8 | — | — | — | — | 46 | 3.9 | 668 | 3.8 | |||||||||||||||||||||||||
Asset-backed | 723 | 3.5 | — | — | 478 | 3.4 | 121 | 4.0 | 124 | 3.3 | |||||||||||||||||||||||||
Corporate debt | 1,241 | 3.1 | 144 | 2.8 | 496 | 2.9 | 581 | 3.3 | 20 | 5.5 | |||||||||||||||||||||||||
Total available-for-sale securities | $ | 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 | $ | 25,881 | $ | 224 | $ | 2,405 | $ | 1,743 | $ | 21,509 | |||||||||||||||||||||||||
Amortized cost of held-to-maturity securities | |||||||||||||||||||||||||||||||||||
Agency mortgage-backed residential | $ | 2,319 | 3.2 | % | $ | — | — | % | $ | — | — | % | $ | — | — | % | $ | 2,319 | 3.2 | % | |||||||||||||||
Asset-backed retained notes | 43 | 2.0 | — | — | 42 | 2.0 | 1 | 3.3 | — | — | |||||||||||||||||||||||||
Total held-to-maturity securities | $ | 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 $56 million and $35 million at March 31, 2019, and December 31, 2018, respectively, and were composed primarily of money-market accounts and short-term securities, including U.S. Treasury bills.
16
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following table presents interest and dividends on investment securities.
Three months ended March 31, | |||||||
($ in millions) | 2019 | 2018 | |||||
Taxable interest | $ | 214 | $ | 154 | |||
Taxable dividends | 3 | 3 | |||||
Interest and dividends exempt from U.S. federal income tax | 5 | 6 | |||||
Interest and dividends on investment securities | $ | 222 | $ | 163 | |||
The following table presents gross gains and losses realized upon the sales of available-for-sale securities, and net gains or losses on equity securities held during the period. There were no other-than-temporary impairments of available-for-sale securities for the periods presented.
Three months ended March 31, | |||||||
($ in millions) | 2019 | 2018 | |||||
Available-for-sale securities | |||||||
Gross realized gains | $ | 10 | $ | 6 | |||
Gross realized losses (a) | (1 | ) | — | ||||
Net realized gains on available-for-sale securities | 9 | 6 | |||||
Net realized gain on equity securities | 29 | 22 | |||||
Net unrealized gain (loss) on equity securities | 70 | (40 | ) | ||||
Other gain (loss) on investments, net | $ | 108 | $ | (12 | ) | ||
(a) | Certain available-for-sale securities were sold at a loss during the three months ended March 31, 2019, as a result of market conditions within these periods (e.g., a downgrade in the rating of a debt security) or based on corporate actions outside of our control (such as a call by the issuer). Any such sales were made in accordance with our risk-management policies and practices. |
17
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. For additional information on our methodology, refer to Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K. As of March 31, 2019, we did not have the intent to sell the available-for-sale or held-to-maturity securities with an unrealized loss position and we do not believe it is more likely than not that we will be required to sell these securities before recovery of their amortized cost basis. As a result of this evaluation, we believe that the securities with an unrealized loss position are not considered to be other-than-temporarily impaired at March 31, 2019.
March 31, 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 | $ | 42 | $ | — | $ | 1,749 | $ | (49 | ) | $ | 31 | $ | — | $ | 1,758 | $ | (60 | ) | ||||||||||||||
U.S. States and political subdivisions | 23 | — | 189 | (3 | ) | 259 | (3 | ) | 317 | (14 | ) | |||||||||||||||||||||
Foreign government | 4 | — | 22 | — | 6 | — | 74 | (1 | ) | |||||||||||||||||||||||
Agency mortgage-backed residential | 510 | (1 | ) | 11,145 | (192 | ) | 5,537 | (94 | ) | 7,808 | (301 | ) | ||||||||||||||||||||
Agency mortgage-backed commercial | 30 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Mortgage-backed residential | 131 | — | 1,676 | (33 | ) | 1,024 | (20 | ) | 1,360 | (91 | ) | |||||||||||||||||||||
Mortgage-backed commercial | 517 | (2 | ) | 41 | — | 347 | (1 | ) | 36 | (1 | ) | |||||||||||||||||||||
Asset-backed | 6 | — | 214 | (1 | ) | 294 | (1 | ) | 124 | (1 | ) | |||||||||||||||||||||
Corporate debt | 105 | — | 764 | (14 | ) | 576 | (19 | ) | 569 | (27 | ) | |||||||||||||||||||||
Total temporarily impaired available-for-sale securities | $ | 1,368 | $ | (3 | ) | $ | 15,800 | $ | (292 | ) | $ | 8,074 | $ | (138 | ) | $ | 12,046 | $ | (496 | ) | ||||||||||||
Held-to-maturity securities | ||||||||||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||||||||||
Agency mortgage-backed residential | $ | 86 | $ | — | $ | 1,376 | $ | (28 | ) | $ | 457 | $ | (6 | ) | $ | 1,376 | $ | (55 | ) | |||||||||||||
Asset-backed retained notes | — | — | 16 | — | 16 | — | 19 | — | ||||||||||||||||||||||||
Total held-to-maturity debt securities | $ | 86 | $ | — | $ | 1,392 | $ | (28 | ) | $ | 473 | $ | (6 | ) | $ | 1,395 | $ | (55 | ) | |||||||||||||
18
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) | March 31, 2019 | December 31, 2018 | ||||||
Consumer automotive (a) | $ | 71,553 | $ | 70,539 | ||||
Consumer mortgage | ||||||||
Mortgage Finance (b) | 16,225 | 15,155 | ||||||
Mortgage — Legacy (c) | 1,433 | 1,546 | ||||||
Total consumer mortgage | 17,658 | 16,701 | ||||||
Total consumer | 89,211 | 87,240 | ||||||
Commercial | ||||||||
Commercial and industrial | ||||||||
Automotive | 31,559 | 33,672 | ||||||
Other | 4,516 | 4,205 | ||||||
Commercial real estate | 4,769 | 4,809 | ||||||
Total commercial | 40,844 | 42,686 | ||||||
Total finance receivables and loans (d) | $ | 130,055 | $ | 129,926 | ||||
(a) | Certain finance receivables and loans are included in fair value hedging relationships. Refer to Note 17 for additional information. |
(b) | Includes loans originated as interest-only mortgage loans of $17 million and $18 million at March 31, 2019, and December 31, 2018, respectively, 33% of which are expected to start principal amortization in 2019, and 40% in 2020. The remainder of these loans have exited the interest-only period. |
(c) | Includes loans originated as interest-only mortgage loans of $305 million and $341 million at March 31, 2019, and December 31, 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 $584 million and $587 million at March 31, 2019, and December 31, 2018, respectively. |
19
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following tables present an analysis of the activity in the allowance for loan losses on finance receivables and loans.
Three months ended March 31, 2019 ($ in millions) | Consumer automotive | Consumer mortgage | Commercial | Total | ||||||||||||
Allowance at January 1, 2019 | $ | 1,048 | $ | 53 | $ | 141 | $ | 1,242 | ||||||||
Charge-offs (a) | (352 | ) | (3 | ) | (5 | ) | (360 | ) | ||||||||
Recoveries | 118 | 5 | — | 123 | ||||||||||||
Net charge-offs | (234 | ) | 2 | (5 | ) | (237 | ) | |||||||||
Provision for loan losses | 257 | (3 | ) | 28 | 282 | |||||||||||
Other (b) | (1 | ) | — | 2 | 1 | |||||||||||
Allowance at March 31, 2019 | $ | 1,070 | $ | 52 | $ | 166 | $ | 1,288 | ||||||||
Allowance for loan losses at March 31, 2019 | ||||||||||||||||
Individually evaluated for impairment | $ | 46 | $ | 22 | $ | 58 | $ | 126 | ||||||||
Collectively evaluated for impairment | 1,024 | 30 | 108 | 1,162 | ||||||||||||
Finance receivables and loans at gross carrying value | ||||||||||||||||
Ending balance | $ | 71,553 | $ | 17,658 | $ | 40,844 | $ | 130,055 | ||||||||
Individually evaluated for impairment | 501 | 227 | 269 | 997 | ||||||||||||
Collectively evaluated for impairment | 71,052 | 17,431 | 40,575 | 129,058 | ||||||||||||
(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 2018 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-sale to held-for-investment. |
Three months ended March 31, 2018 ($ in millions) | Consumer automotive | Consumer mortgage | Commercial | Total | ||||||||||||
Allowance at January 1, 2018 | $ | 1,066 | $ | 79 | $ | 131 | $ | 1,276 | ||||||||
Charge-offs (a) | (365 | ) | (12 | ) | — | (377 | ) | |||||||||
Recoveries | 112 | 6 | — | 118 | ||||||||||||
Net charge-offs | (253 | ) | (6 | ) | — | (259 | ) | |||||||||
Provision for loan losses | 253 | 1 | 7 | 261 | ||||||||||||
Allowance at March 31, 2018 | $ | 1,066 | $ | 74 | $ | 138 | $ | 1,278 | ||||||||
Allowance for loan losses at March 31, 2018 | ||||||||||||||||
Individually evaluated for impairment | $ | 40 | $ | 27 | $ | 21 | $ | 88 | ||||||||
Collectively evaluated for impairment | 1,026 | 47 | 117 | 1,190 | ||||||||||||
Finance receivables and loans at gross carrying value | ||||||||||||||||
Ending balance | $ | 69,318 | $ | 14,683 | $ | 41,326 | $ | 125,327 | ||||||||
Individually evaluated for impairment | 463 | 230 | 147 | 840 | ||||||||||||
Collectively evaluated for impairment | 68,855 | 14,453 | 41,179 | 124,487 | ||||||||||||
(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 2018 Annual Report on Form 10-K for more information regarding our charge-off policies. |
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 March 31, | ||||||||
($ in millions) | 2019 | 2018 | ||||||
Consumer automotive | $ | 20 | $ | — | ||||
Consumer mortgage | — | 1 | ||||||
Total sales and transfers (a) | $ | 20 | $ | 1 | ||||
(a) | During the three months ended March 31, 2019, we also sold $128 million of finance receivables that were classified as held-for-sale and transferred $63 million of finance receivables from held-for-sale to held-for-investment as of March 31, 2019, both relating to equipment finance receivables from our commercial automotive business. |
20
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following table presents information about significant purchases of finance receivables and loans based on unpaid principal balance at the time of purchase.
Three months ended March 31, | ||||||||
($ in millions) | 2019 | 2018 | ||||||
Consumer automotive | $ | 99 | $ | 168 | ||||
Consumer mortgage | 1,235 | 1,295 | ||||||
Total purchases of finance receivables and loans | $ | 1,334 | $ | 1,463 | ||||
The following table presents an analysis of our past-due finance receivables and loans recorded at gross carrying value.
($ in millions) | 30–59 days past due | 60–89 days past due | 90 days or more past due | Total past due | Current | Total finance receivables and loans | ||||||||||||||||||
March 31, 2019 | ||||||||||||||||||||||||
Consumer automotive | $ | 1,575 | $ | 379 | $ | 260 | $ | 2,214 | $ | 69,339 | $ | 71,553 | ||||||||||||
Consumer mortgage | ||||||||||||||||||||||||
Mortgage Finance | 52 | 8 | 9 | 69 | 16,156 | 16,225 | ||||||||||||||||||
Mortgage — Legacy | 31 | 11 | 36 | 78 | 1,355 | 1,433 | ||||||||||||||||||
Total consumer mortgage | 83 | 19 | 45 | 147 | 17,511 | 17,658 | ||||||||||||||||||
Total consumer | 1,658 | 398 | 305 | 2,361 | 86,850 | 89,211 | ||||||||||||||||||
Commercial | ||||||||||||||||||||||||
Commercial and industrial | ||||||||||||||||||||||||
Automotive | 1 | 8 | 78 | 87 | 31,472 | 31,559 | ||||||||||||||||||
Other | — | — | 2 | 2 | 4,514 | 4,516 | ||||||||||||||||||
Commercial real estate | — | — | 2 | 2 | 4,767 | 4,769 | ||||||||||||||||||
Total commercial | 1 | 8 | 82 | 91 | 40,753 | 40,844 | ||||||||||||||||||
Total consumer and commercial | $ | 1,659 | $ | 406 | $ | 387 | $ | 2,452 | $ | 127,603 | $ | 130,055 | ||||||||||||
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 | ||||||||||||
21
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) | March 31, 2019 | December 31, 2018 | ||||||
Consumer automotive | $ | 643 | $ | 664 | ||||
Consumer mortgage | ||||||||
Mortgage Finance | 13 | 9 | ||||||
Mortgage — Legacy | 62 | 70 | ||||||
Total consumer mortgage | 75 | 79 | ||||||
Total consumer | 718 | 743 | ||||||
Commercial | ||||||||
Commercial and industrial | ||||||||
Automotive | 138 | 203 | ||||||
Other | 125 | 142 | ||||||
Commercial real estate | 6 | 4 | ||||||
Total commercial | 269 | 349 | ||||||
Total consumer and commercial finance receivables and loans | $ | 987 | $ | 1,092 | ||||
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 2018 Annual Report on Form 10-K for additional information.
March 31, 2019 | December 31, 2018 | |||||||||||||||||||||||
($ in millions) | Performing | Nonperforming | Total | Performing | Nonperforming | Total | ||||||||||||||||||
Consumer automotive | $ | 70,910 | $ | 643 | $ | 71,553 | $ | 69,875 | $ | 664 | $ | 70,539 | ||||||||||||
Consumer mortgage | ||||||||||||||||||||||||
Mortgage Finance | 16,212 | 13 | 16,225 | 15,146 | 9 | 15,155 | ||||||||||||||||||
Mortgage — Legacy | 1,371 | 62 | 1,433 | 1,476 | 70 | 1,546 | ||||||||||||||||||
Total consumer mortgage | 17,583 | 75 | 17,658 | 16,622 | 79 | 16,701 | ||||||||||||||||||
Total consumer | $ | 88,493 | $ | 718 | $ | 89,211 | $ | 86,497 | $ | 743 | $ | 87,240 | ||||||||||||
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.
March 31, 2019 | December 31, 2018 | |||||||||||||||||||||||
($ in millions) | Pass | Criticized (a) | Total | Pass | Criticized (a) | Total | ||||||||||||||||||
Commercial and industrial | ||||||||||||||||||||||||
Automotive | $ | 28,774 | $ | 2,785 | $ | 31,559 | $ | 30,799 | $ | 2,873 | $ | 33,672 | ||||||||||||
Other | 3,711 | 805 | 4,516 | 3,373 | 832 | 4,205 | ||||||||||||||||||
Commercial real estate | 4,526 | 243 | 4,769 | 4,538 | 271 | 4,809 | ||||||||||||||||||
Total commercial | $ | 37,011 | $ | |||||||||||||||||||||