Ally Bank 2011 Annual Report Download - page 36

Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10−K
Temporary Liquidity Guaranty Program (TLGP), Term Auction Facility, and Term Asset−Backed Securities Loan Facility. Our diversification strategy and
participation in these programs helped us to maintain sufficient liquidity during this period of financial distress to meet all maturing unsecured debt
obligations and to continue our lending and operating activities.
During 2009, as part of our overall transformation from an independent financial services company to a bank holding company, we took actions to
further diversify and develop more stable funding sources and, in particular, embarked upon initiatives to grow our consumer deposit−taking capabilities
within Ally Bank. In addition, we began distinguishing our liquidity management strategies between bank funding and nonbank funding.
Maximizing bank funding continues to be the cornerstone of our long−term liquidity strategy. We have made significant progress in migrating assets
to Ally Bank and growing our retail deposit base since becoming a bank holding company. Retail deposits provide a low−cost source of funds that are less
sensitive to interest rate changes, market volatility or changes in our credit ratings than other funding sources. At December 31, 2011, deposit liabilities
totaled $45.1 billion, which constituted 31% of our total funding. This compares to just 14% at December 31, 2008.
In addition to building a larger deposit base, we continue to remain active in the securitization markets to finance our Ally Bank automotive loan
portfolios. During 2011, we issued $9.3 billion in secured funding backed by retail automotive loans and leases as well as dealer floorplan automotive loans
of Ally Bank. Continued structural efficiencies in securitizations combined with improving capital market conditions have resulted in a reduction in the cost
of funds achieved through secured funding transactions, making them a very attractive source of funding. Additionally, for retail loans and leases, the term
structure of the transaction locks in funding for a specified pool of loans and leases for the life of the underlying asset. Once a pool of retail automobile
loans are selected and placed into a securitization, the underlying assets and corresponding debt amortize simultaneously resulting in committed and
matched funding for the life of the asset. We manage the execution risk arising from secured funding by maintaining a diverse investor base and maintaining
committed secured facilities.
As we have shifted our focus to migrating assets to Ally Bank and growing our bank funding capabilities, our reliance on parent company liquidity has
consequently been reduced. Funding sources at the parent company generally consist of longer−term unsecured debt, private credit facilities, and
asset−backed securitizations. Historically, the unsecured term debt markets were a key source of long−term financing for us. However, given our ratings
profile and market environment, during the second half of 2007 and throughout 2008 and 2009 we chose not to target transactions in the unsecured term
debt markets due to the expected high market rates and alternative funding sources. In 2010, we re−entered the unsecured term debt market with several
issuances that year. In the first half of 2011, we issued over $3.7 billion of unsecured debt globally through several issuances. However, in the second half
of 2011, we chose not to issue unsecured term debt given the extreme market volatility and expected high cost of issuance. At December 31, 2011, we had
$12.0 billion and $2.3 billion of outstanding unsecured long−term debt with maturities in 2012 and 2013, respectively. To fund these maturities, we expect
to use existing pre−issued liquidity combined with maintaining an opportunistic approach to new issuance.
The strategies outlined above have allowed us to build and maintain a conservative liquidity position. Total available liquidity at the parent company
was $26.9 billion, and Ally Bank had $10.0 billion of available liquidity at December 31, 2011. For discussion purposes within the funding and liquidity
section, parent company includes our consolidated operations less our Insurance operations, ResCap, and Ally Bank. At the same time, these strategies have
also resulted in a cost of funds improvement of approximately 178 basis points since the first quarter of 2009. Looking forward, given our enhanced
liquidity and capital position and generally improved credit ratings, we expect that our cost of funds will continue to improve over time.
Credit Strategy
We are a full spectrum automotive finance lender with most of our automotive loan originations underwritten within the prime−lending markets as we
continue to prudently expand in nonprime markets. Our Mortgage Origination and Servicing operations primarily focus on selling conforming mortgages
we originate or purchase in sales that take the form of securitizations guaranteed by Fannie Mae or Freddie Mac and sell government−insured mortgage
loans we originate or purchase in securitizations guaranteed by Ginnie Mae (collectively, the Government−sponsored Enterprises or GSEs).
During 2011, we continued to recognize improvement in our credit risk profile as a result of proactive credit risk initiatives that were taken in 2009
and 2010 and modest improvement in the overall economic environment. We discontinued and sold multiple nonstrategic operations, mainly in our
international businesses, including our commercial construction portfolio. Within our Automotive Finance operations, we exited certain underperforming
dealer relationships. Within our Mortgage operations, we have taken action to reduce the focus on the correspondent mortgage−lending channel; however,
we will maintain correspondent relationships with key customers.
During the year ended December 31, 2011, the credit performance of our portfolios improved overall as we benefited from lower frequency and
severity of losses within our automotive portfolios and stabilization of asset quality trends within our mortgage portfolios. Nonperforming loans and
charge−offs declined, and our provision for loan losses decreased to $219 million in 2011 from $442 million in 2010.
We continue to see signs of economic stabilization in the housing and vehicle markets, although our total credit portfolio will continue to be affected
by sustained levels of high unemployment and continued uncertainty in the housing market.
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