Ally Bank 2012 Annual Report Download - page 36

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Depreciation expense on operating lease assets increased 49% for the year ended December 31, 2012, compared to 2011, primarily due
to higher lease asset balances as a result of strong lease origination volume and lower lease remarketing gains primarily due to lower lease
remarketing volume. 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.
Net servicing income was $693 million for the year ended December 31, 2012, compared to $569 million in 2011. The increase was
primarily due to the performance of the derivative servicing hedge as compared to a less favorable hedge performance in 2011, partially offset
by lower servicing fees due to the deconsolidation of ResCap.
Insurance premiums and service revenue earned decreased 9% for the year ended December 31, 2012, compared to 2011, primarily due
to declining U.S. vehicle service contracts written between 2007 and 2009 as a result of lower domestic vehicle sales volume.
Gain on mortgage and automotive loans increased 13% for the year ended December 31, 2012, compared to 2011. Though we
deconsolidated ResCap during the second quarter of 2012, the increase was primarily due to higher consumer mortgage-lending production
through our direct lending channel and margins associated with government-sponsored refinancing programs, higher margins on warehouse
and correspondent lending due to decreased competition and more selective originations from these channels, and improved gains on
specified pooled mortgage loans.
Loss on extinguishment of debt increased $84 million for the year ended December 31, 2012, compared to the same period in 2011,
primarily due to fees incurred related to the early termination of FHLB debt as a result of replacing our higher-cost long-term debt structure in
favor of a lower-cost short-term FHLB debt structure.
Other gain on investments, net, was $146 million for the year ended December 31, 2012, compared to $259 million in 2011. The
decrease was primarily due to the recognition of $61 million other-than-temporary impairment on certain equity securities in 2012 and lower
realized investment gains.
Other income, net of losses, increased 52% for the year ended December 31, 2012, compared to 2011. The increase was primarily due to
higher fee income and net origination revenue related to increased consumer mortgage-lending production associated with government-
sponsored refinancing programs and a decrease in fair value option election valuation losses related to the deconsolidation of ResCap,
partially offset by lower remarketing fee income from our Automotive Finance operations driven by lower remarketing volumes through our
proprietary SmartAuction platform.
The provision for loan losses was $329 million for the year ended December 31, 2012, compared to $188 million in 2011. The increase
was driven primarily by higher asset levels in the consumer automotive portfolio and our prudent expansion of underwriting strategy to
originate volumes across a broader credit spectrum, which was significantly narrowed during the recession.
Other operating expenses increased 19% for the year ended December 31, 2012, compared to 2011. The increase was primarily due to a
$1.2 billion charge related to ResCap's Chapter 11 filing (refer to Note 1 for more information regarding the Debtors' bankruptcy,
deconsolidation, and this charge), a $90 million expense related to penalties imposed by certain regulators and other governmental agencies in
connection with mortgage foreclosure-related matters during the second quarter of 2012, and higher professional services expense, partially
offset by lower mortgage representation and warranty expense related to the deconsolidation of ResCap.
We recognized consolidated income tax benefit from continuing operations of $1.3 billion for the year ended December 31, 2012,
compared to income tax expense of $51 million in 2011. In 2011, we had a full valuation allowance against our domestic net deferred tax
assets and certain international net deferred tax assets. For the year ended December 31, 2012, our results from operations benefited $1.3
billion from the release of U.S. federal and state valuation allowances and related effects on the basis of management's reassessment of the
amount of its deferred tax assets that are more likely than not to be realized. Refer to Note 23 to the Consolidated Financial Statements for
further information.
2011 Compared to 2010
We incurred a net loss from continuing operations of $1.0 billion for the year ended December 31, 2011, compared to net income from
continuing operations of $288 million for the year ended December 31, 2010. Continuing operations for the year ended December 31, 2011,
were unfavorably impacted by a decrease in net servicing income due to a drop in interest rates and increased market volatility, lower gains on
the sale of loans, and a $230 million expense related to penalties imposed by certain regulators and other governmental agencies in connection
with mortgage foreclosure-related matters. Partially offsetting these decreases were lower representation and warranty expense and provision
for loan losses.
Total financing revenue and other interest income decreased by 12% for the year ended December 31, 2011, compared to 2010.
Operating lease revenue and the related depreciation expense at our Automotive Finance operations declined due to a lower average operating
lease portfolio balance as a result of our decision in late 2008 to significantly curtail leasing. Depreciation expense was also impacted by
lower lease remarketing gains resulting from lower lease termination volumes. The decrease in our Mortgage operations resulted from a
decline in average asset levels due to loan sales, the deconsolidation of previously on-balance sheet securitizations, and portfolio runoff.
Partially offsetting the decrease was an increase in consumer financing revenue at our Automotive Finance operations driven primarily by an
increase in consumer asset levels related to strong loan origination volume during 2010 and 2011 resulting primarily from higher automotive
industry sales, increased used vehicle financing volume, and higher on-balance sheet retention.
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K