Document
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2017, or
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-3754
ALLY FINANCIAL INC.
(Exact name of registrant as specified in its charter)
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Delaware | | 38-0572512 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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 and posted on its corporate Web site, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for a shorter period that the registrant was required to submit and post such files).
Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer þ | | Accelerated filer o | | Non-accelerated filer o | | Smaller reporting company o |
| | (Do not check if a smaller reporting company) | | Emerging growth company o
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No þ
At July 27, 2017, the number of shares outstanding of the Registrant’s common stock was 449,853,338 shares.
INDEX
Ally Financial Inc. Form 10-Q
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Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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| | PART I — FINANCIAL INFORMATION | | | |
Item 1. Financial Statements
Condensed Consolidated Statement of Comprehensive Income (unaudited)
Ally Financial Inc. • Form 10-Q
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| | Three months ended June 30, | | Six months ended June 30, |
($ in millions) | | 2017 | | 2016 | | 2017 | | 2016 |
Financing revenue and other interest income | | | | | | | | |
Interest and fees on finance receivables and loans | | $ | 1,447 |
| | $ | 1,265 |
| | $ | 2,815 |
| | $ | 2,500 |
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Interest and dividends on investment securities and other earning assets | | 146 |
| | 99 |
| | 280 |
| | 201 |
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Interest on cash and cash equivalents | | 7 |
| | 4 |
| | 12 |
| | 7 |
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Operating leases | | 488 |
| | 701 |
| | 1,031 |
| | 1,470 |
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Total financing revenue and other interest income | | 2,088 |
| | 2,069 |
| | 4,138 |
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| 4,178 |
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Interest expense | | | | | | | | |
Interest on deposits | | 250 |
| | 203 |
| | 481 |
| | 396 |
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Interest on short-term borrowings | | 33 |
| | 12 |
| | 60 |
| | 25 |
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Interest on long-term debt | | 417 |
| | 436 |
| | 841 |
| | 878 |
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Total interest expense | | 700 |
| | 651 |
| | 1,382 |
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| 1,299 |
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Net depreciation expense on operating lease assets | | 321 |
| | 434 |
| | 710 |
| | 944 |
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Net financing revenue and other interest income | | 1,067 |
| | 984 |
| | 2,046 |
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| 1,935 |
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Other revenue | | | | | | | | |
Insurance premiums and service revenue earned | | 227 |
| | 236 |
| | 468 |
| | 466 |
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Gain on mortgage and automotive loans, net | | 36 |
| | 3 |
| | 50 |
| | 4 |
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Loss on extinguishment of debt | | (1 | ) | | — |
| | (2 | ) | | (4 | ) |
Other gain on investments, net | | 23 |
| | 39 |
| | 50 |
| | 93 |
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Other income, net of losses | | 103 |
| | 96 |
| | 218 |
| | 191 |
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Total other revenue | | 388 |
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| 374 |
| | 784 |
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| 750 |
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Total net revenue | | 1,455 |
| | 1,358 |
| | 2,830 |
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| 2,685 |
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Provision for loan losses | | 269 |
| | 172 |
| | 540 |
| | 392 |
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Noninterest expense | | | | | | | | |
Compensation and benefits expense | | 265 |
| | 242 |
| | 550 |
| | 494 |
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Insurance losses and loss adjustment expenses | | 125 |
| | 145 |
| | 213 |
| | 218 |
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Other operating expenses | | 420 |
| | 386 |
| | 825 |
| | 771 |
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Total noninterest expense | | 810 |
| | 773 |
| | 1,588 |
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| 1,483 |
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Income from continuing operations before income tax expense | | 376 |
| | 413 |
| | 702 |
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| 810 |
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Income tax expense from continuing operations | | 122 |
| | 56 |
| | 235 |
| | 206 |
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Net income from continuing operations | | 254 |
| | 357 |
| | 467 |
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| 604 |
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(Loss) income from discontinued operations, net of tax | | (2 | ) | | 3 |
| | (1 | ) | | 6 |
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Net income | | 252 |
| | 360 |
| | 466 |
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| 610 |
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Other comprehensive income, net of tax | | 76 |
| | 120 |
| | 96 |
| | 266 |
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Comprehensive income | | $ | 328 |
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| $ | 480 |
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| $ | 562 |
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| $ | 876 |
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Statement continues on the next page.
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
Condensed Consolidated Statement of Comprehensive Income (unaudited)
Ally Financial Inc. • Form 10-Q
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| | Three months ended June 30, | | Six months ended June 30, |
(in dollars) (a) | | 2017 | | 2016 | | 2017 | | 2016 |
Basic earnings per common share | | | | | | | | |
Net income from continuing operations | | $ | 0.55 |
| | $ | 0.70 |
| | $ | 1.01 |
| | $ | 1.18 |
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(Loss) income from discontinued operations, net of tax | | (0.01 | ) | | 0.01 |
| | — |
| | 0.01 |
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Net income | | $ | 0.55 |
| | $ | 0.71 |
| | $ | 1.01 |
| | $ | 1.20 |
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Diluted earnings per common share | | | | | | | | |
Net income from continuing operations | | $ | 0.55 |
| | $ | 0.70 |
| | $ | 1.01 |
| | $ | 1.18 |
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(Loss) income from discontinued operations, net of tax | | (0.01 | ) | | 0.01 |
| | — |
| | 0.01 |
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Net income | | $ | 0.55 |
| | $ | 0.71 |
| | $ | 1.01 |
| | $ | 1.19 |
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Cash dividends per common share | | $ | 0.08 |
| | $ | — |
| | $ | 0.16 |
| | $ | — |
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(a) | Figures in the table may not recalculate exactly due to rounding. Earnings per share is calculated based on unrounded numbers. |
Refer to Note 17 for additional earnings per share information. The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
Condensed Consolidated Balance Sheet (unaudited)
Ally Financial Inc. • Form 10-Q
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($ in millions, except share data) | | June 30, 2017 | | December 31, 2016 |
Assets | | | | |
Cash and cash equivalents | | | | |
Noninterest-bearing | | $ | 1,514 |
| | $ | 1,547 |
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Interest-bearing | | 2,863 |
| | 4,387 |
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Total cash and cash equivalents | | 4,377 |
| | 5,934 |
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Available-for-sale securities (refer to Note 7 for discussion of investment securities pledged as collateral) | | 21,764 |
| | 18,926 |
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Held-to-maturity securities (fair value of $1,156 and $789) | | 1,189 |
| | 839 |
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Loans held-for-sale, net | | 17 |
| | — |
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Finance receivables and loans, net | | | | |
Finance receivables and loans, net of unearned income | | 120,528 |
| | 118,944 |
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Allowance for loan losses | | (1,225 | ) | | (1,144 | ) |
Total finance receivables and loans, net | | 119,303 |
| | 117,800 |
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Investment in operating leases, net | | 9,717 |
| | 11,470 |
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Premiums receivable and other insurance assets | | 2,025 |
| | 1,905 |
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Other assets | | 5,953 |
| | 6,854 |
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Total assets | | $ | 164,345 |
| | $ | 163,728 |
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Liabilities | | | | |
Deposit liabilities | | | | |
Noninterest-bearing | | $ | 107 |
| | $ | 84 |
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Interest-bearing | | 86,076 |
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| 78,938 |
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Total deposit liabilities | | 86,183 |
| | 79,022 |
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Short-term borrowings | | 10,712 |
| | 12,673 |
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Long-term debt | | 49,145 |
| | 54,128 |
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Interest payable | | 399 |
| | 351 |
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Unearned insurance premiums and service revenue | | 2,541 |
| | 2,500 |
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Accrued expenses and other liabilities | | 1,892 |
| | 1,737 |
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Total liabilities | | 150,872 |
| | 150,411 |
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Contingencies (refer to Note 25) | | | | |
Equity | | | | |
Common stock and paid-in capital ($0.01 par value, shares authorized 1,100,000,000; issued 489,581,850 and 485,707,644; and outstanding 452,291,918 and 467,000,306) | | 21,208 |
| | 21,166 |
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Accumulated deficit | | (6,760 | ) | | (7,151 | ) |
Accumulated other comprehensive loss | | (245 | ) | | (341 | ) |
Treasury stock, at cost (37,289,932 and 18,707,338 shares) | | (730 | ) | | (357 | ) |
Total equity | | 13,473 |
| | 13,317 |
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Total liabilities and equity | | $ | 164,345 |
| | $ | 163,728 |
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The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
Condensed Consolidated Balance Sheet (unaudited)
Ally Financial Inc. • Form 10-Q
The assets of consolidated variable interest entities, presented based upon the legal transfer of the underlying assets in order to reflect legal ownership, that can be used only to settle obligations of the consolidated variable interest entities and the liabilities of these entities for which creditors (or beneficial interest holders) do not have recourse to our general credit were as follows.
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($ in millions) | | June 30, 2017 | | December 31, 2016 |
Assets | | | | |
Finance receivables and loans, net | | | | |
Finance receivables and loans, net of unearned income | | $ | 22,035 |
| | $ | 24,630 |
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Allowance for loan losses | | (140 | ) | | (173 | ) |
Total finance receivables and loans, net | | 21,895 |
| | 24,457 |
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Investment in operating leases, net | | 907 |
| | 1,745 |
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Other assets | | 827 |
| | 1,390 |
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Total assets | | $ | 23,629 |
| | $ | 27,592 |
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Liabilities | | | | |
Long-term debt | | $ | 12,499 |
| | $ | 13,259 |
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Accrued expenses and other liabilities | | 12 |
| | 12 |
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Total liabilities | | $ | 12,511 |
| | $ | 13,271 |
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The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
Condensed Consolidated Statement of Changes in Equity (unaudited)
Ally Financial Inc. • Form 10-Q
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($ in millions) | | Common stock and paid-in capital | | Preferred stock | | Accumulated deficit | | Accumulated other comprehensive (loss) income | | Treasury stock | | Total equity |
Balance at January 1, 2016 | | $ | 21,100 |
| | $ | 696 |
| | $ | (8,110 | ) | | $ | (231 | ) | | $ | (16 | ) | | $ | 13,439 |
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Net income | |
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| | 610 |
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| | 610 |
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Preferred stock dividends | |
| |
| | (30 | ) | |
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| | (30 | ) |
Series A preferred stock redemption | | | | (696 | ) | | | | | | | | (696 | ) |
Share-based compensation | | 36 |
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| | 36 |
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Other comprehensive income | |
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| | 266 |
| |
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| | 266 |
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Share repurchases related to employee stock-based compensation awards | |
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| | (14 | ) | | (14 | ) |
Balance at June 30, 2016 | | $ | 21,136 |
| | $ | — |
| | $ | (7,530 | ) | | $ | 35 |
| | $ | (30 | ) | | $ | 13,611 |
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Balance at January 1, 2017 | | $ | 21,166 |
| | $ | — |
| | $ | (7,151 | ) | | $ | (341 | ) | | $ | (357 | ) | | $ | 13,317 |
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Net income | |
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| | 466 |
| |
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| | 466 |
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Share-based compensation | | 42 |
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| | 42 |
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Other comprehensive income | |
| |
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| | 96 |
| |
| | 96 |
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Common stock repurchases (a) | |
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| | (373 | ) | | (373 | ) |
Common stock dividends ($0.16 per share) | |
| |
| | (75 | ) | |
| |
|
| | (75 | ) |
Balance at June 30, 2017 | | $ | 21,208 |
| | $ | — |
| | $ | (6,760 | ) | | $ | (245 | ) | | $ | (730 | ) | | $ | 13,473 |
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(a) | Includes shares repurchased related to employee stock-based compensation awards. |
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
Condensed Consolidated Statement of Cash Flows (unaudited)
Ally Financial Inc. • Form 10-Q
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Six months ended June 30, ($ in millions) | | 2017 | | 2016 |
Operating activities |
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Net income |
| $ | 466 |
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| $ | 610 |
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Reconciliation of net income to net cash provided by operating activities |
| |
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Depreciation and amortization |
| 1,003 |
|
| 1,241 |
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Provision for loan losses |
| 540 |
|
| 392 |
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Gain on mortgage and automotive loans, net |
| (50 | ) |
| (4 | ) |
Other gain on investments, net |
| (50 | ) |
| (93 | ) |
Loss on extinguishment of debt |
| 2 |
|
| 4 |
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Originations and purchases of loans held-for-sale |
| (202 | ) |
| (44 | ) |
Proceeds from sales and repayments of loans originated as held-for-sale |
| 187 |
|
| 144 |
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Net change in |
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Deferred income taxes |
| 203 |
|
| 193 |
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Interest payable |
| 48 |
|
| 76 |
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Other assets |
| (94 | ) |
| 17 |
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Other liabilities |
| (50 | ) |
| (55 | ) |
Other, net |
| 67 |
|
| (45 | ) |
Net cash provided by operating activities |
| 2,070 |
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| 2,436 |
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Investing activities |
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Purchases of available-for-sale securities |
| (5,853 | ) |
| (8,657 | ) |
Proceeds from sales of available-for-sale securities |
| 2,162 |
|
| 6,584 |
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Proceeds from maturities and repayments of available-for-sale securities |
| 1,230 |
|
| 1,536 |
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Purchases of held-to-maturity securities |
| (313 | ) |
| (571 | ) |
Proceeds from maturities and repayments of held-to-maturity securities |
| 17 |
|
| — |
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Purchases of finance receivables and loans held-for-investment |
| (1,817 | ) |
| (2,442 | ) |
Proceeds from sales of finance receivables and loans originated as held-for-investment |
| 1,280 |
|
| 4,156 |
|
Originations and repayments of finance receivables and loans held-for-investment and other, net | | (1,588 | ) | | (3,211 | ) |
Purchases of operating lease assets |
| (1,965 | ) |
| (1,472 | ) |
Disposals of operating lease assets |
| 3,043 |
|
| 3,047 |
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Acquisitions, net of cash acquired |
| — |
|
| (288 | ) |
Net change in restricted cash |
| 474 |
|
| 482 |
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Net change in nonmarketable equity investments |
| 107 |
|
| (354 | ) |
Other, net |
| (93 | ) |
| (69 | ) |
Net cash used in investing activities |
| (3,316 | ) |
| (1,259 | ) |
Statement continues on the next page.
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
Condensed Consolidated Statement of Cash Flows (unaudited)
Ally Financial Inc. • Form 10-Q
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Six months ended June 30, ($ in millions) | | 2017 | | 2016 |
Financing activities |
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Net change in short-term borrowings |
| (1,962 | ) |
| (2,112 | ) |
Net increase in deposits |
| 7,133 |
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| 6,308 |
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Proceeds from issuance of long-term debt |
| 9,330 |
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| 9,020 |
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Repayments of long-term debt |
| (14,366 | ) |
| (14,305 | ) |
Repurchase and redemption of preferred stock |
| — |
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| (696 | ) |
Repurchase of common stock | | (373 | ) | | (14 | ) |
Dividends paid |
| (75 | ) |
| (30 | ) |
Net cash used in financing activities |
| (313 | ) |
| (1,829 | ) |
Effect of exchange-rate changes on cash and cash equivalents |
| 2 |
|
| 3 |
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Net decrease in cash and cash equivalents |
| (1,557 | ) |
| (649 | ) |
Cash and cash equivalents at beginning of year |
| 5,934 |
|
| 6,380 |
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Cash and cash equivalents at June 30, |
| $ | 4,377 |
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| $ | 5,731 |
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Supplemental disclosures |
| | | |
Cash paid for |
| | | |
Interest |
| $ | 1,331 |
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| $ | 1,234 |
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Income taxes |
| 28 |
|
| 12 |
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Noncash items |
| | | |
Held-to-maturity securities received in consideration for loans sold | | 56 |
| | — |
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Finance receivables and loans transferred to loans held-for-sale |
| 1,298 |
|
| 4,174 |
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Other disclosures |
| | | |
Proceeds from repayments of mortgage loans held-for-investment originally designated as held-for-sale |
| 20 |
|
| 18 |
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The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
1. Description of Business, Basis of Presentation, and Changes in Significant Accounting Policies
Ally Financial Inc. (together with its consolidated subsidiaries unless the context requires otherwise, Ally, the Company, or we, us, or our) is a leading digital financial services company offering diversified financial products for consumers, businesses, automotive dealers and corporate clients. Our legacy dates back to 1919, and Ally was redesigned in 2009 with a distinctive brand and relentless focus on our customers. We reconverted to a Delaware corporation in 2009 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 banking subsidiary, Ally Bank, is an award-winning online bank, and an indirect, wholly-owned subsidiary of Ally Financial Inc. Collectively, Ally Financial Inc. and its subsidiaries offer a variety of deposit and banking products including CDs, online savings, money market and checking accounts, IRA products, automotive lending products to customers and dealers, corporate finance lending, insurance products and services, a cash back credit card, mortgage lending offerings through Ally Home, and wealth management solutions through Ally Invest.
Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (GAAP). Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and that affect income and expenses during the reporting period and related disclosures. In developing the estimates and assumptions, management uses all available evidence; however, actual results could differ because of uncertainties associated with estimating the amounts, timing, and likelihood of possible outcomes. Our most significant estimates pertain to the allowance for loan losses, valuations of automotive lease assets and residuals, fair value of financial instruments, legal and regulatory reserves, and the determination of the provision for income taxes.
The Condensed Consolidated Financial Statements at June 30, 2017, and for the three months and six months ended June 30, 2017, and 2016, 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, 2016, as filed on February 27, 2017, with the U.S. Securities and Exchange Commission (SEC).
Significant Accounting Policies
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 2016 Annual Report on Form 10-K, which describes our annual significant income tax accounting policy and related methodology.
Securitizations and Variable Interest Entities
We securitize, transfer, and service consumer and commercial automotive loans and operating leases. Securitization transactions typically involve the use of variable interest entities (VIEs) and are accounted for either as sales or secured borrowings. We may retain economic interests in securitized and sold assets, which are generally in the form of senior or subordinated interests, other residual interests, and servicing rights.
In order to conclude whether or not a VIE is required to be consolidated, careful consideration and judgment must be given to our continuing involvement with the VIE. In circumstances where we have both the power to direct the activities of the entity that most significantly impact the entity's performance and the obligation to absorb losses or the right to receive benefits of the entity that could be significant, we would conclude that we would consolidate the entity, which would also preclude us from recording an accounting sale on the transaction. In the case of a consolidated VIE, the accounting is consistent with a secured borrowing, (e.g., we continue to carry the loans and we record the related securitized debt on our Condensed Consolidated Balance Sheet).
In transactions where we are not determined to be the primary beneficiary of the VIE, we must determine whether or not we achieve a sale for accounting purposes. In order to achieve a sale for accounting purposes, the assets being transferred must be legally isolated, not be constrained by restrictions from further transfer, and be deemed to be beyond our control. If we were to fail any of the three criteria for sale accounting, the accounting would be consistent with the preceding paragraph (i.e., a secured borrowing). Refer to Note 10 to the Condensed Consolidated Financial Statements for discussion on VIEs.
Gains or losses on off-balance sheet securitizations take into consideration the fair value of any retained interests including the value of certain servicing assets or liabilities, if any, which are initially recorded at fair value at the date of sale. The estimate of the fair value of the retained interests and servicing requires us to exercise significant judgment about the timing and amount of future cash flows from the interests. Refer to Note 21 to the Condensed Consolidated Financial Statements for a discussion of fair value estimates.
Gains or losses on off-balance sheet securitizations and sales are reported in gain on mortgage and automotive loans, net, in our Condensed Consolidated Statement of Comprehensive Income. Retained interests are classified as securities or as other assets depending on their nature. On December 24, 2016, the risk retention rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Frank Act) of 2010 became effective, requiring us to retain at least five percent of the credit risk of the assets underlying asset-backed securitizations. This note was updated to address the Dodd-Frank Act risk retention rules and differs from our description in Note 1 to the Consolidated Financial Statements in our 2016 Annual Report on Form 10-K.
We retain servicing responsibilities for all of our consumer and commercial automotive loan and operating lease securitizations. We may receive servicing fees for off-balance sheet securitizations based on the securitized loan balances and certain ancillary fees, all of which are reported in servicing fees in the Condensed Consolidated Statement of Comprehensive Income. Typically, the fee we are paid for servicing consumer automotive finance receivables represents adequate compensation, and consequently, we do not recognize a servicing asset or liability.
Whether on- or off-balance sheet, the investors in the securitization trusts generally have no recourse to our assets outside of protections afforded through customary market representation and warranty repurchase provisions.
Refer to Note 1 to the Consolidated Financial Statements in our 2016 Annual Report on Form 10-K regarding additional significant accounting policies.
Recently Adopted Accounting Standards
Stock Compensation — Improvements to Employee Share-Based Payment Accounting (ASU 2016-09)
As of December 31, 2016, we adopted Accounting Standards Update (ASU) 2016-09. The amendments in this update changed several aspects of share-based payment accounting. The amendments allowed for an entity-wide accounting policy election to either account for forfeitures as they occur or estimate the number of awards that are expected to vest. We elected to account for forfeitures as they occur. The amendments modified the tax withholding requirements to allow entities to withhold an amount up to the employee’s maximum individual statutory tax rates without resulting in a liability classification of the award as opposed to limiting the withholding to the minimum statutory tax rates as required under previous accounting guidance. The amendments required that all excess tax benefits and tax deficiencies related to share-based payment awards be recognized in income tax expense or benefit in the income statement in the period in which they occur. The adoption of these amendments did not have a material impact to the financial statements. The amendments also addressed the classification and presentation of certain items on the cash flow statement. Specifically, cash flows related to excess tax benefits should be classified as an operating activity instead of a financing activity and cash flows related to cash paid to a tax authority by an employer when withholding shares from an employee’s award for tax withholding purposes should be classified as a financing activity. The adoption of the amendment requiring excess tax benefits to be classified as an operating activity did not have a material impact to our Condensed Consolidated Statement of Cash Flows. The adoption of the amendment requiring amounts paid to a tax authority by an employer when withholding shares from an employee’s award for tax withholding purposes to be classified as a financing activity resulted in the reclassification of cash flows in our Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2016, of $14 million from operating activities to financing activities.
Recently Issued Accounting Standards
Revenue from Contracts with Customers (ASU 2014-09) and Revenue from Contracts with Customers — Deferral of the Effective Date (ASU 2015-14)
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09. The purpose of this guidance is to streamline and consolidate existing revenue recognition principles in GAAP and to converge revenue recognition principles with International Financial Reporting Standards (IFRS). The core principle of the amendments is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. The amendments include a five step process for consideration of the core principle, guidance on the accounting treatment for costs associated with a contract, and disclosure requirements related to the revenue process. As originally issued, the amendments in ASU 2014-09 were to be effective beginning on January 1, 2017. However, in August 2015, the FASB issued ASU 2015-14, which deferred the effective date of the guidance until January 1, 2018, and permitted early adoption as of the original effective date in ASU 2014-09. The FASB created a transition resource group to work with stakeholders and clarify the new guidance as necessary. The FASB has issued several additional ASUs to clarify guidance and provide implementation support for ASU 2014-09. The clarifying guidance elaborates on the key concepts within ASU 2014-09 and clarifies how those concepts interact with other GAAP requirements. Management has considered these additional ASUs when assessing the overall impact of ASU 2014-09. The amendments to the revenue recognition principles can be applied on adoption either through a full retrospective application or on a modified retrospective basis with a cumulative effect adjustment on the date of initial adoption with certain practical expedients. A majority of our revenue streams are not within the scope of this ASU as they are governed by other accounting standards. Management has determined that certain revenue streams and contractual arrangements are in scope of this guidance, including deposit fees, revenue on certain noninsurance contracts, brokering commissions through our insurance operations, sales of other real estate owned, sales of repossessed and off-lease vehicles, remarketing fee income through SmartAuction, and fee income generated through Ally Invest. Management does not expect these amendments to impact current revenue recognition patterns for a majority of the in scope revenue streams and contracts. However, we expect that the application of this guidance to noninsurance contracts within our insurance business will result in the deferral of certain amounts we currently recognize as revenue and expense upon the origination of the contract and the immediate recognition of certain expenses upon the origination of the contract that are currently deferred. Our assessment is not final; however, we do not expect the impact of the new guidance to these specific contracts to be material to the financial statements. We currently plan to adopt this guidance as of January 1, 2018, and expect to use the modified retrospective approach.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Financial Instruments — Recognition and Measurement of Financial Assets (ASU 2016-01)
In January 2016, the FASB issued ASU 2016-01. The amendments in this update modify the requirements related to the measurement of certain financial instruments in the statement of financial condition and results of operations. For equity investments (other than investments accounted for using the equity method), entities must measure such instruments at fair value with changes in fair value recognized in net income. Changes in fair value for available-for-sale equity securities will no longer be recognized through other comprehensive income. Reporting entities may continue to elect to measure equity investments that do not have a readily determinable fair value at cost with adjustments for impairment and observable changes in price. In addition, for a liability (other than a derivative liability) that an entity measures at fair value, any change in fair value related to the instrument-specific credit risk, that is the entity’s own-credit, should be presented separately in other comprehensive income and not as a component of net income. The amendments are effective on January 1, 2018, with early adoption permitted solely for the provisions pertaining to instrument-specific credit risk for liabilities measured at fair value. The amendments must be applied on a modified retrospective basis with a cumulative effect adjustment as of the beginning of the fiscal year of initial adoption. The amendment requiring equity investments to be measured at fair value with changes in fair value recognized in net income will create additional volatility in our consolidated results of operations since changes in fair value for available-for-sale securities will be recognized in net income as opposed to other comprehensive income as required under existing accounting guidance. Management continues to evaluate the impact of the other amendments. However, we do not anticipate the other amendments to have a material impact to our financial statements. We currently plan to adopt these amendments on January 1, 2018, and expect to use the modified retrospective approach as required.
Leases (ASU 2016-02)
In February 2016, the FASB issued ASU 2016-02. The amendments in this update primarily replace the existing accounting requirements for operating leases for lessees. Lessee accounting requirements for finance leases and lessor accounting requirements for operating leases and sales type and direct financing leases (sales type and direct financing leases were both previously referred to as capital leases) are largely unchanged. The amendments require the lessee of an operating lease to record a balance sheet gross-up upon lease commencement by recognizing a right-of-use asset and lease liability equal to the present value of the lease payments. The right-of-use 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 for all types of leases. The amendments also require additional disclosures for all lease types for both lessees and lessors. The amendments are effective on January 1, 2019, with early adoption permitted. The amendments must be applied on a modified retrospective basis with a cumulative adjustment to the beginning of the earliest fiscal year presented in the financial statements in the period of adoption. Management is currently evaluating the impact of these amendments. Upon adoption, we expect to record a balance sheet gross-up, reflecting our right-of-use asset and lease liability for our operating leases where we are the lessee (for example, our facility leases). We are currently reviewing our operating lease contracts where we are the lessee to determine the impact of the gross-up and the changes to capitalizable costs. We are also reviewing our leases where we are the lessor to determine the impact of the changes to capitalizable costs. We currently plan to adopt these amendments on January 1, 2019, and expect to use the modified retrospective approach as required.
Financial Instruments — Credit Losses (ASU 2016-13)
In June 2016, the FASB issued ASU 2016-13. The amendments in this update introduce a new accounting model to measure credit losses for financial assets measured at amortized cost. Credit losses for financial assets measured at amortized cost should be determined based on the total current expected credit losses over the life of the financial asset or group of financial assets. In effect, the financial asset or group of financial assets should be presented at the net amount expected to be collected. Credit losses will no longer be measured as they are incurred for financial assets measured at amortized cost. The amendments also modify the accounting for available-for-sale debt securities whereby credit losses will be recorded through an allowance for credit losses rather than a write-down to the security’s cost basis, which allows for reversals of credit losses when estimated credit losses decline. Credit losses for available-for-sale debt securities should be measured in a manner similar to current GAAP. The amendments are effective on January 1, 2020, with early adoption permitted as of January 1, 2019. The amendments must be applied using a modified retrospective approach with a cumulative-effect adjustment through retained earnings as of the beginning of the fiscal year upon adoption. The new accounting model for credit losses represents a significant departure from existing GAAP, and will likely materially increase the allowance for credit losses with a resulting negative adjustment to retained earnings. Management created a formal working group to govern the implementation of these amendments consisting of key stakeholders from finance, risk, and accounting and is currently evaluating the impact of the amendments. We are in the process of designing and building the models and procedures that will be used to calculate the credit loss reserves in accordance with these amendments. We currently plan to adopt these amendments on January 1, 2020, and expect to use the modified retrospective approach as required.
Statement of Cash Flows — Restricted Cash (ASU 2016-18)
In November 2016, the FASB issued ASU 2016-18. The amendments in this update require that amounts classified as restricted cash and restricted cash equivalents be included within the beginning-of-period and end-of-period amounts along with cash and cash equivalents on the statement of cash flows. Prior to this ASU, specific guidance on the presentation of changes in restricted cash and restricted cash equivalents within the statement of cash flows did not exist. The amendments are effective on January 1, 2018, with early adoption permitted. The amendments must be applied retrospectively to all periods presented within the statement of cash flows upon adoption. The amendments will not impact financial results, but will result in a change in the presentation of restricted cash and restricted cash equivalents within the statement of cash flows. We currently plan to adopt these amendments on January 1, 2018, and expect to use the retrospective approach as required.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Receivables — Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities (ASU 2017-08)
In March 2017, the FASB issued ASU 2017-08. The amendments in this update require premiums on purchased callable debt securities to be amortized to the security’s earliest call date. Prior to this ASU, premiums and discounts on purchased callable debt securities were generally required to be amortized to the security’s maturity date. The amendments do not require an accounting change for securities held at a discount. The amendments are effective on January 1, 2019, with early adoption permitted. The amendments must be applied using a modified retrospective approach with a cumulative-effect adjustment through retained earnings as of the beginning of the fiscal year upon adoption. Management is currently evaluating the impact of these amendments. We currently plan to adopt these amendments on January 1, 2019, and expect to use the modified retrospective approach as required.
2. Acquisitions
On June 1, 2016, we acquired 100% of the equity of TradeKing Group, Inc. (TradeKing), a digital wealth management company with an online broker-dealer, digital portfolio management platform, and educational content for $298 million in cash. TradeKing, which has been rebranded as Ally Invest, operates as a wholly-owned subsidiary of Ally Financial Inc. The addition of brokerage and wealth management is a natural extension of our online banking franchise, creating a full suite of financial products for savings and investments. We applied the acquisition method of accounting to this transaction, which generally requires the initial recognition of assets acquired, including identifiable intangible assets, and liabilities assumed at their respective fair value. Goodwill is recognized as the excess of the acquisition price after the recognition of the net assets, including the identifiable intangible assets. Beginning in June 2016, financial information related to Ally Invest is included within Corporate and Other.
The following table summarizes the allocation of cash consideration paid for TradeKing and the amounts of the identifiable assets acquired and liabilities assumed recognized at the acquisition date.
|
| | | |
($ in millions) | |
Purchase price | |
Cash consideration | $ | 298 |
|
Allocation of purchase price to net assets acquired | |
Intangible assets (a) | 82 |
|
Cash and short-term investments (b) | 50 |
|
Other assets | 14 |
|
Deferred tax asset, net | 4 |
|
Employee compensation and benefits | (41 | ) |
Other liabilities | (4 | ) |
Goodwill | $ | 193 |
|
| |
(a) | We recorded $2 million and $5 million of amortization on these intangible assets during the three months and six months ended June 30, 2017, respectively. |
| |
(b) | Includes $40 million in cash proceeds from the acquisition transaction in order to pay employee compensation and benefits that vested upon acquisition as a result of the change in control. |
The goodwill of $193 million arising from the acquisition consists largely of expected growth of the business as we leverage the Ally brand and our marketing capabilities to scale the acquired technology platform and expand the suite of financial products we offer to our existing growing customer base. None of the goodwill recognized is expected to be deductible for income tax purposes. Refer to Note 12 for a reconciliation of the carrying amount of goodwill at the beginning and end of the reporting period.
On August 1, 2016, we acquired assets that constitute a business from Blue Yield, an online automotive lender exchange which we rebranded as Clearlane, as we continue to expand our automotive finance offerings to include a direct-to-consumer option. We completed the acquisition for $28 million of total consideration. As a result of the purchase, we recognized $20 million of goodwill within Automotive Finance operations.
3. Discontinued Operations
Prior to the adoption of ASU 2014-08, which was prospectively applied only to newly identified disposals that qualify as discontinued operations beginning after January 1, 2015, we have classified operations as discontinued when operations and cash flows will be eliminated from our ongoing operations and we do not expect to retain any significant continuing involvement in their operations after the respective sale or disposal transactions. For all periods presented, the operating results for these discontinued operations have been removed from continuing operations and presented separately as discontinued operations, net of tax, in the Condensed Consolidated Statement of Comprehensive Income. The Notes to the Condensed Consolidated Financial Statements have been adjusted to exclude discontinued operations unless otherwise noted.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
Our discontinued operations relate to previous discontinued operations in our Automotive Finance operations, Insurance operations, and Corporate Finance operating segments, and other operations for which we continue to have wind-down, legal, and minimal operational costs. Select financial information of discontinued operations is summarized below.
|
| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
($ in millions) | 2017 | | 2016 | | 2017 | | 2016 |
Pretax (loss) income | $ | (2 | ) | | $ | (2 | ) | | $ | (1 | ) | | $ | 2 |
|
Tax benefit | — |
| | (5 | ) | | — |
| | (4 | ) |
4. Other Income, Net of Losses
Details of other income, net of losses, were as follows.
|
| | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
($ in millions) | | 2017 | | 2016 | | 2017 | | 2016 |
Remarketing fees | | $ | 27 |
| | $ | 25 |
| | $ | 56 |
| | $ | 53 |
|
Late charges and other administrative fees | | 25 |
| | 22 |
| | 52 |
| | 47 |
|
Servicing fees | | 14 |
| | 18 |
| | 30 |
| | 31 |
|
Income from equity-method investments | | 5 |
| | 5 |
| | 5 |
| | 11 |
|
Other, net | | 32 |
| | 26 |
| | 75 |
| | 49 |
|
Total other income, net of losses | | $ | 103 |
|
| $ | 96 |
|
| $ | 218 |
|
| $ | 191 |
|
5. Reserves for Insurance Losses and Loss Adjustment Expenses
The following table shows a rollforward of our reserves for insurance losses and loss adjustment expenses.
|
| | | | | | |
($ in millions) | 2017 | 2016 |
Total gross reserves for insurance losses and loss adjustment expenses at January 1, | $ | 149 |
| $ | 169 |
|
Less: Reinsurance recoverable | 108 |
| 120 |
|
Net reserves for insurance losses and loss adjustment expenses at January 1, | 41 |
| 49 |
|
Net insurance losses and loss adjustment expenses incurred related to: | | |
Current year | 211 |
| 221 |
|
Prior years (a) | 2 |
| (3 | ) |
Total net insurance losses and loss adjustment expenses incurred | 213 |
| 218 |
|
Net insurance losses and loss adjustment expenses paid or payable related to: | | |
Current year | (183 | ) | (184 | ) |
Prior years | (27 | ) | (25 | ) |
Total net insurance losses and loss adjustment expenses paid or payable | (210 | ) | (209 | ) |
Net reserves for insurance losses and loss adjustment expenses at June 30, | 44 |
| 58 |
|
Plus: Reinsurance recoverable | 135 |
| 106 |
|
Total gross reserves for insurance losses and loss adjustment expenses at June 30, | $ | 179 |
| $ | 164 |
|
| |
(a) | There have been no material adverse changes to the reserve for prior years. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
6. Other Operating Expenses
Details of other operating expenses were as follows.
|
| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
($ in millions) | 2017 | | 2016 | | 2017 | | 2016 |
Insurance commissions | $ | 104 |
| | $ | 97 |
| | $ | 203 |
| | $ | 191 |
|
Technology and communications | 71 |
| | 67 |
| | 140 |
| | 133 |
|
Lease and loan administration | 39 |
| | 34 |
| | 75 |
| | 66 |
|
Advertising and marketing | 33 |
| | 21 |
| | 63 |
| | 48 |
|
Regulatory and licensing fees | 28 |
| | 21 |
| | 55 |
| | 42 |
|
Vehicle remarketing and repossession | 25 |
| | 22 |
| | 53 |
| | 46 |
|
Professional services | 27 |
| | 26 |
| | 53 |
| | 50 |
|
Premises and equipment depreciation | 23 |
| | 21 |
| | 45 |
| | 42 |
|
Occupancy | 11 |
| | 12 |
| | 23 |
| | 25 |
|
Non-income taxes | 8 |
| | 8 |
| | 16 |
| | 17 |
|
Other | 51 |
| | 57 |
| | 99 |
| | 111 |
|
Total other operating expenses | $ | 420 |
| | $ | 386 |
| | $ | 825 |
| | $ | 771 |
|
7. Investment Securities
Our portfolio of securities includes bonds, equity securities, asset-backed securities, commercial and residential mortgage-backed securities, and other investments. The cost, fair value, and gross unrealized gains and losses on investment securities were as follows.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2017 | | December 31, 2016 |
|
| 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 |
| $ | 1,891 |
|
| $ | — |
|
| $ | (39 | ) |
| $ | 1,852 |
|
| $ | 1,680 |
|
| $ | — |
|
| $ | (60 | ) |
| $ | 1,620 |
|
U.S. States and political subdivisions |
| 780 |
|
| 13 |
|
| (11 | ) |
| 782 |
|
| 794 |
|
| 7 |
|
| (19 | ) |
| 782 |
|
Foreign government |
| 148 |
|
| 2 |
|
| — |
|
| 150 |
|
| 157 |
|
| 5 |
|
| — |
|
| 162 |
|
Agency mortgage-backed residential |
| 13,809 |
|
| 39 |
|
| (172 | ) |
| 13,676 |
|
| 10,473 |
|
| 29 |
|
| (212 | ) |
| 10,290 |
|
Mortgage-backed residential | | 2,063 |
| | 11 |
| | (36 | ) | | 2,038 |
| | 2,162 |
| | 5 |
| | (70 | ) | | 2,097 |
|
Mortgage-backed commercial |
| 474 |
|
| 2 |
|
| (1 | ) |
| 475 |
|
| 537 |
|
| 2 |
|
| (2 | ) |
| 537 |
|
Asset-backed |
| 1,010 |
|
| 6 |
|
| (2 | ) |
| 1,014 |
|
| 1,396 |
|
| 6 |
|
| (2 | ) |
| 1,400 |
|
Corporate debt |
| 1,273 |
|
| 8 |
|
| (9 | ) |
| 1,272 |
|
| 1,452 |
|
| 7 |
|
| (16 | ) |
| 1,443 |
|
Total debt securities (a) (b) |
| 21,448 |
|
| 81 |
|
| (270 | ) |
| 21,259 |
|
| 18,651 |
|
| 61 |
|
| (381 | ) |
| 18,331 |
|
Equity securities |
| 549 |
|
| 9 |
|
| (53 | ) |
| 505 |
|
| 642 |
|
| 7 |
|
| (54 | ) |
| 595 |
|
Total available-for-sale securities |
| $ | 21,997 |
|
| $ | 90 |
|
| $ | (323 | ) |
| $ | 21,764 |
|
| $ | 19,293 |
|
| $ | 68 |
|
| $ | (435 | ) |
| $ | 18,926 |
|
Held-to-maturity securities | | | | | | | | | | | | | | | | |
Debt securities | | | | | | | | | | | | | | | | |
Agency mortgage-backed residential (c) | | $ | 1,143 |
| | $ | 2 |
| | $ | (35 | ) | | $ | 1,110 |
| | $ | 839 |
| | $ | — |
| | $ | (50 | ) | | $ | 789 |
|
Asset-backed retained notes | | 46 |
| | — |
| | — |
| | 46 |
| | — |
| | — |
| | — |
| | — |
|
Total held-to-maturity securities |
| $ | 1,189 |
|
| $ | 2 |
|
| $ | (35 | ) |
| $ | 1,156 |
|
| $ | 839 |
| | $ | — |
| | $ | (50 | ) | | $ | 789 |
|
| |
(a) | Certain entities related to our Insurance operations are required to deposit securities with state regulatory authorities. These deposited securities totaled $12 million and $14 million at June 30, 2017, and December 31, 2016, respectively. |
| |
(b) | Investment securities with a fair value of $3,316 million and $4,881 million at June 30, 2017, and December 31, 2016, respectively, were pledged to secure advances from the Federal Home Loan Bank (FHLB), short-term borrowings or repurchase agreements and for other purposes as required by contractual obligation or law. Under these agreements, Ally has granted the counterparty the right to sell or pledge $1,420 million and $737 million of the underlying investment securities at June 30, 2017, and December 31, 2016, respectively. |
| |
(c) | Agency mortgage-backed residential debt securities are held for liquidity purposes. Securities with a fair value of $0 million and $87 million at June 30, 2017, and December 31, 2016, respectively, were pledged to secure advances from the FHLB. |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The maturity distribution of investment securities outstanding is summarized in the following tables. Call or prepayment options may cause actual maturities to differ from contractual maturities.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Total |
| Due in one year or less |
| Due after one year through five years |
| Due after five years through ten years |
| Due after ten years |
($ in millions) |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
June 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of available-for-sale debt securities (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
| $ | 1,852 |
|
| 1.7 | % |
| $ | — |
|
| — | % |
| $ | 21 |
|
| 1.7 | % |
| $ | 1,831 |
|
| 1.7 | % |
| $ | — |
|
| — | % |
U.S. States and political subdivisions |
| 782 |
|
| 3.1 |
|
| 38 |
|
| 2.5 |
|
| 45 |
|
| 2.4 |
|
| 165 |
|
| 2.8 |
|
| 534 |
|
| 3.3 |
|
Foreign government |
| 150 |
|
| 2.5 |
|
| — |
|
| — |
|
| 68 |
|
| 2.6 |
|
| 82 |
|
| 2.4 |
|
| — |
|
| — |
|
Agency mortgage-backed residential | | 13,676 |
| | 3.0 |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| | 2.9 |
| | 13,673 |
| | 3.0 |
|
Mortgage-backed residential |
| 2,038 |
|
| 2.9 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 2,038 |
|
| 2.9 |
|
Mortgage-backed commercial |
| 475 |
|
| 3.1 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3 |
|
| 2.9 |
|
| 472 |
|
| 3.1 |
|
Asset-backed |
| 1,014 |
|
| 2.9 |
|
| — |
|
| — |
|
| 801 |
|
| 3.0 |
|
| 57 |
|
| 2.9 |
|
| 156 |
|
| 2.7 |
|
Corporate debt |
| 1,272 |
|
| 2.9 |
|
| 125 |
|
| 2.3 |
|
| 617 |
|
| 2.6 |
|
| 496 |
|
| 3.2 |
|
| 34 |
|
| 5.2 |
|
Total available-for-sale debt securities |
| $ | 21,259 |
|
| 2.9 |
|
| $ | 163 |
|
| 2.3 |
|
| $ | 1,552 |
|
| 2.8 |
|
| $ | 2,637 |
|
| 2.1 |
|
| $ | 16,907 |
|
| 3.0 |
|
Amortized cost of available-for-sale debt securities |
| $ | 21,448 |
|
|
|
| $ | 163 |
|
|
|
| $ | 1,545 |
|
|
|
| $ | 2,675 |
|
|
|
| $ | 17,065 |
|
|
|
Amortized cost of held-to-maturity securities | |
|
| | | | | | | | | | | | | | | | | | |
Agency mortgage-backed residential | | $ | 1,143 |
| | 3.0 | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | 1,143 |
| | 3.0 | % |
Asset-backed retained notes | | 46 |
| | 1.6 |
| | 4 |
| | 0.8 |
| | 41 |
| | 1.6 |
| | 1 |
| | 3.0 |
| | — |
| | — |
|
Total held-to-maturity securities | | $ | 1,189 |
| | 2.9 |
| | $ | 4 |
| | 0.8 |
| | $ | 41 |
| | 1.6 |
| | $ | 1 |
| | 3.0 |
| | $ | 1,143 |
| | 3.0 |
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of available-for-sale debt securities (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
| $ | 1,620 |
|
| 1.7 | % |
| $ | 2 |
|
| 4.6 | % |
| $ | 60 |
|
| 1.6 | % |
| $ | 1,558 |
|
| 1.7 | % |
| $ | — |
|
| — | % |
U.S. States and political subdivisions |
| 782 |
|
| 3.1 |
|
| 64 |
|
| 1.7 |
|
| 29 |
|
| 2.3 |
|
| 172 |
|
| 2.8 |
|
| 517 |
|
| 3.4 |
|
Foreign government |
| 162 |
|
| 2.6 |
|
| — |
|
| — |
|
| 58 |
|
| 2.8 |
|
| 104 |
|
| 2.4 |
|
| — |
|
| — |
|
Agency mortgage-backed residential | | 10,290 |
| | 2.9 |
| | — |
| | — |
| | — |
| | — |
| | 29 |
| | 2.6 |
| | 10,261 |
| | 2.9 |
|
Mortgage-backed residential |
| 2,097 |
|
| 2.9 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 2,097 |
|
| 2.9 |
|
Mortgage-backed commercial |
| 537 |
|
| 2.6 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3 |
|
| 2.8 |
|
| 534 |
|
| 2.6 |
|
Asset-backed |
| 1,400 |
|
| 2.8 |
|
| — |
|
| — |
|
| 1,059 |
|
| 2.8 |
|
| 143 |
|
| 3.2 |
|
| 198 |
|
| 2.6 |
|
Corporate debt |
| 1,443 |
|
| 2.8 |
|
| 72 |
|
| 2.2 |
|
| 840 |
|
| 2.6 |
|
| 489 |
|
| 3.2 |
|
| 42 |
|
| 4.7 |
|
Total available-for-sale debt securities |
| $ | 18,331 |
|
| 2.8 |
|
| $ | 138 |
|
| 2.0 |
|
| $ | 2,046 |
|
| 2.7 |
|
| $ | 2,498 |
|
| 2.2 |
|
| $ | 13,649 |
|
| 2.9 |
|
Amortized cost of available-for-sale debt securities |
| $ | 18,651 |
|
|
|
|
| $ | 138 |
|
|
|
|
| $ | 2,040 |
|
|
|
|
| $ | 2,563 |
|
|
|
|
| $ | 13,910 |
|
|
|
|
Amortized cost of held-to-maturity securities (b) |
| $ | 839 |
|
| 2.9 | % |
| $ | — |
|
| — | % |
| $ | — |
|
| — | % |
| $ | — |
|
| — | % |
| $ | 839 |
|
| 2.9 | % |
| |
(a) | Yield is calculated using the effective yield of each security at the end of the period, weighted based on the market value. The effective yield considers the contractual coupon and amortized cost, and excludes expected capital gains and losses. |
| |
(b) | Our held-to-maturity securities portfolio as of December 31, 2016, consisted of agency mortgage-backed residential debt securities. |
The balances of cash equivalents were $1.2 billion and $291 million at June 30, 2017, and December 31, 2016, respectively, and were composed primarily of money market accounts and short-term securities, including U.S. Treasury bills.
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
The following table presents interest and dividends on investment securities.
|
| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
($ in millions) | 2017 | | 2016 | | 2017 | | 2016 |
Taxable interest | $ | 130 |
|
| $ | 89 |
| | $ | 249 |
| | $ | 183 |
|
Taxable dividends | 3 |
|
| 5 |
| | 5 |
| | 9 |
|
Interest and dividends exempt from U.S. federal income tax | 6 |
|
| 5 |
| | 11 |
| | 9 |
|
Interest and dividends on investment securities | $ | 139 |
|
| $ | 99 |
| | $ | 265 |
| | $ | 201 |
|
The following table presents gross gains and losses realized upon the sales of available-for-sale securities. There were no other-than-temporary impairments upon the sales of available-for-sale securities for either period.
|
| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
($ in millions) | 2017 | | 2016 | | 2017 | | 2016 |
Gross realized gains | $ | 24 |
| | $ | 40 |
| | $ | 51 |
| | $ | 94 |
|
Gross realized losses (a) | (1 | ) | | (1 | ) | | (1 | ) | | (1 | ) |
Other gain on investments, net | $ | 23 |
| | $ | 39 |
| | $ | 50 |
| | $ | 93 |
|
| |
(a) | Certain available-for-sale securities were sold at a loss in 2017 and 2016 as a result of market conditions within these respective periods (e.g., a downgrade in the rating of a debt security). Any such sales were made in accordance with our risk management policies and practices. |
The table below summarizes available-for-sale securities in an unrealized loss position in accumulated other comprehensive income. Based on the assessment of whether such losses were deemed to be other-than-temporary, we believe that the unrealized losses are not indicative of an other-than-temporary impairment of these securities. As of June 30, 2017, we did not have the intent to sell the debt securities with an unrealized loss position in accumulated other comprehensive income, it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis, and we expect to recover the entire amortized cost basis of the securities. As of June 30, 2017, we had the ability and intent to hold equity securities with an unrealized loss position in accumulated other comprehensive income, and it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis. As a result, we believe that the securities with an unrealized loss position in accumulated other comprehensive income are not considered to be other-than-temporarily impaired at June 30, 2017. Refer to Note 1 to the Consolidated Financial Statements in our 2016 Annual Report on Form 10-K for additional information related to investment securities and our methodology for evaluating potential other-than-temporary impairments.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2017 | | December 31, 2016 |
|
| 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 |
| $ | 1,829 |
|
| $ | (39 | ) |
| $ | — |
|
| $ | — |
|
| $ | 1,612 |
|
| $ | (60 | ) |
| $ | — |
|
| $ | — |
|
U.S. States and political subdivisions |
| 401 |
|
| (10 | ) |
| 15 |
|
| (1 | ) |
| 524 |
|
| (19 | ) |
| — |
|
| — |
|
Foreign government |
| 26 |
|
| — |
|
| — |
|
| — |
|
| 38 |
|
| — |
|
| — |
|
| — |
|
Agency mortgage-backed residential | | 9,293 |
| | (162 | ) | | 448 |
| | (10 | ) | | 8,052 |
| | (196 | ) | | 587 |
| | (16 | ) |
Mortgage-backed residential |
| 410 |
|
| (6 | ) |
| 763 |
|
| (30 | ) |
| 813 |
|
| (17 | ) |
| 860 |
|
| (53 | ) |
Mortgage-backed commercial | | 102 |
| | (1 | ) | | 49 |
| | — |
| | 47 |
| | (1 | ) | | 149 |
| | (1 | ) |
Asset-backed |
| 293 |
|
| (1 | ) |
| 107 |
|
| (1 | ) |
| 375 |
|
| (2 | ) |
| 127 |
|
| — |
|
Corporate debt |
| 495 |
|
| (7 | ) |
| 36 |
|
| (2 | ) |
| 744 |
|
| (14 | ) |
| 46 |
|
| (2 | ) |
Total temporarily impaired debt securities |
| 12,849 |
|
| (226 | ) |
| 1,418 |
|
| (44 | ) |
| 12,205 |
|
| (309 | ) |
| 1,769 |
|
| (72 | ) |
Temporarily impaired equity securities |
| 140 |
|
| (9 | ) |
| 124 |
|
| (44 | ) |
| 151 |
|
| (8 | ) |
| 269 |
|
| (46 | ) |
Total temporarily impaired available-for-sale securities |
| $ | 12,989 |
|
| $ | (235 | ) |
| $ | 1,542 |
|
| $ | (88 | ) |
| $ | 12,356 |
|
| $ | (317 | ) |
| $ | 2,038 |
|
| $ | (118 | ) |
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q
8. Finance Receivables and Loans, Net
The composition of finance receivables and loans reported at gross carrying value was as follows.
|
| | | | | | | | |
($ in millions) | | June 30, 2017 | | December 31, 2016 |
Consumer automotive (a) | | $ | 66,774 |
| | $ | 65,793 |
|
Consumer mortgage | | | | |
Mortgage Finance (b) | | 8,866 |
| | 8,294 |
|
Mortgage — Legacy (c) | | 2,428 |
| | 2,756 |
|
Total consumer mortgage | | 11,294 |
| | 11,050 |
|
Total consumer | | 78,068 |
| | 76,843 |
|
Commercial | | | | |
Commercial and industrial | | | | |
|