Ally Bank 2011 Annual Report Download - page 44

Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10−K
sales, increased used vehicle financing volume, and higher on−balance sheet retention. Additionally, we continue to prudently expand our nonprime
origination volume and introduce innovative finance products to the marketplace. The increase in consumer revenue was partially offset by lower yields as a
result of an increasingly competitive market environment and a change in the consumer asset mix, including the runoff of the higher−yielding Nuvell
nonprime automotive financing portfolio.
Loans held−for−sale financing revenue decreased $107 million for the year ended December 31, 2011, compared to 2010, due to the expiration of
forward flow agreements during the fourth quarter of 2010. Subsequent to the expiration of these agreements, consumer loan originations have largely been
retained on−balance sheet utilizing deposit funding from Ally Bank and on−balance sheet securitization transactions.
Operating lease revenue decreased 36% for the year ended December 31, 2011, compared to 2010. Operating lease revenue and depreciation expense
declined due to a lower average operating lease portfolio balance. Depreciation expense was also impacted by lower remarketing gains due primarily to a
decline in lease termination volume. In 2008 and 2009, we significantly curtailed our lease product offerings in the United States and Canada. During the
latter half of 2009, we re−entered the U.S. leasing market with targeted lease product offerings and have continued to expand lease volume since that time.
Servicing fee income decreased $65 million for the year ended December 31, 2011, compared to 2010, due to lower levels of off−balance sheet retail
serviced assets driven by a reduction of new whole−loan sales subsequent to the expiration of our forward flow agreements in the fourth quarter of 2010.
Net gain on automotive loans decreased $201 million for the year ended December 31, 2011, compared to 2010, primarily due to the expiration of our
forward flow agreements during the fourth quarter of 2010. In prior years, we have opportunistically utilized whole−loan sales as part of our funding
strategy; however, during 2011, we have primarily utilized deposit funding and on−balance sheet funding transactions.
The provision for loan losses was $93 million for the year ended December 31, 2011, compared to $286 million in 2010. The decrease was primarily
due to improved credit quality that drove improved loss performance in the consumer loan portfolio, continued runoff of our Nuvell nonprime consumer
portfolio, and continued strength in the used vehicle market, partially offset by continued growth in the consumer loan portfolio.
2010 Compared to 2009
Our North American Automotive Finance operations earned income before income tax expense of $2.3 billion for the year ended December 31, 2010,
compared to $1.6 billion for the year ended December 31, 2009. Results for the year ended December 31, 2010, were favorably impacted by increased loan
origination volume related to improved economic conditions, the growth of our non−GM consumer and commercial automotive financing business, and
favorable remarketing results, which reflected continued strength in the used vehicle market.
Consumer financing revenue (combined with interest income on consumer loans held−for−sale) increased 15% during the year ended December 31,
2010, primarily due to an increase in consumer loan origination volume as a result of improved economic conditions and increased volume from non−GM
channels. Additionally, consumer asset levels increased due to the consolidation of consumer loans included in securitization transactions that were
previously classified as off−balance sheet. Refer to Note 11 to the Consolidated Financial Statements for further information regarding the consolidation of
these assets. The increase was partially offset by a change in the consumer asset mix including the runoff of the higher−yielding Nuvell nonprime
automotive financing portfolio.
Commercial revenue increased 25%, compared to the year ended December 31, 2009, primarily due to an increase in dealer wholesale funding driven
by improved economic conditions, the growth of non−GM wholesale floorplan business, and the recognition of all wholesale funding transactions
on−balance sheet in 2010 compared to certain transactions that were off−balance sheet in 2009.
Operating lease revenue (along with the related depreciation expense) decreased 12% for the year ended December 31, 2010, compared to 2009,
primarily due to a decline in the size of our operating lease portfolio resulting from our decision in late 2008 to significantly curtail leasing. This decision
was based on the significant decline in used vehicle prices that resulted in increasing residual losses during 2008 and an impairment of our lease portfolio.
During the latter half of 2009, we selectively re−entered the U.S. leasing market with more targeted lease product offerings. As a result, runoff of the legacy
portfolio exceeded new origination volume. The decrease in operating lease revenue was largely offset by an associated decline in depreciation expense,
which was also favorably impacted by remarketing gains as a result of continued strength in the used vehicle market and higher remarketing volume.
Other interest income decreased 45% for the year ended December 31, 2010, compared to 2009, primarily due to a change in funding mix including
lower levels of off−balance sheet securitizations.
Net gain on automotive loans increased 13% for the year ended December 31, 2010, compared to 2009. The increase was primarily related to higher
levels of retail whole−loan sales in 2010, higher gains on the sale of loans during 2010, and unfavorable valuation adjustments taken during 2009 on the
held−for−sale portfolio. The increase was partially offset by higher gains on the sale of wholesale receivables during 2009 as there were no off−balance
sheet wholesale funding transactions during 2010.
Other income decreased 28% for the year ended December 31, 2010, compared to 2009. The decrease was primarily due to unfavorable swap
mark−to−market activity related to the held−for−sale loan portfolio in 2010.
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