Ally Bank 2012 Annual Report Download - page 60

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Total nonperforming loans at December 31, 2012, decreased $3.1 billion to $883 million from December 31, 2011, reflecting a decrease
of $2.9 billion of consumer nonperforming loans and a decrease of $123 million of commercial nonperforming loans. The decrease in total
nonperforming loans from December 31, 2011, was primarily due to the deconsolidation of ResCap. Nonperforming loans include finance
receivables and loans on nonaccrual status when the principal or interest has been delinquent for 90 days or when full collection is determined
not to be probable. Refer to Note 1 to the Consolidated Financial Statements for additional information.
The following table includes consumer and commercial net charge-offs from finance receivables and loans at historical cost and related
ratios reported at carrying value before allowance for loan losses.
Net charge-offs (recoveries) Net charge-off ratios (a)
Year ended December 31, ($ in millions)2012 2011 2012 2011
Consumer
Finance receivables and loans at historical cost $ 507 $ 514 0.7% 0.7%
Commercial
Finance receivables and loans at historical cost (33) 39 (0.1) 0.1
Total finance receivables and loans at historical cost $ 474 $ 553 0.4 0.5
(a) Net charge-off ratios are calculated as net charge-offs divided by average outstanding finance receivables and loans excluding loans measured at fair value
and loans held-for-sale during the year for each loan category.
Net charge-offs were $474 million for the year ended December 31, 2012, compared to $553 million for the year ended December 31,
2011. The decrease in net charge-offs for the year ended December 31, 2012, was largely due to recoveries in the commercial portfolio. Loans
held-for-sale are accounted for at the lower-of-cost or fair value, and therefore we do not record charge-offs.
The Consumer Credit Portfolio and Commercial Credit Portfolio discussions that follow relate to consumer and commercial finance
receivables and loans recorded at historical cost. Finance receivables and loans recorded at historical cost have an associated allowance for
loan losses. Finance receivables and loans measured at fair value were excluded from these discussions since those exposures are not
accounted for within our allowance for loan losses.
Consumer Credit Portfolio
Our consumer portfolio primarily consists of automobile loans, first mortgages, and home equity loans (we ceased originating home
equity loans in 2009). Loan losses in our consumer portfolio are influenced by general business and economic conditions including
unemployment rates, bankruptcy filings, and home and used vehicle prices. Additionally, our consumer credit exposure is significantly
concentrated in automobile lending (largely through GM and Chrysler dealerships). Due to our subvention relationships, we are able to
mitigate some interest income exposure to certain consumer defaults by receiving a rate support payment directly from the automotive
manufacturers at origination.
Credit risk management for the consumer portfolio begins with the initial underwriting and continues throughout a borrower's credit
cycle. We manage consumer credit risk through our loan origination and underwriting policies, credit approval process, and servicing
capabilities. We use proprietary credit-scoring models to differentiate the expected default rates of credit applicants enabling us to better
evaluate credit applications for approval and to tailor the pricing and financing structure according to this assessment of credit risk. We
regularly review the performance of the credit scoring models and update them for historical information and current trends. These and other
actions mitigate but do not eliminate credit risk. Improper evaluations of a borrower's creditworthiness, fraud, and/or changes in the
applicant's financial condition after approval could negatively affect the quality of our receivables portfolio, resulting in loan losses.
Our servicing activities are another key factor in managing consumer credit risk. Servicing activities consist largely of collecting and
processing customer payments, responding to customer inquiries such as requests for payoff quotes, and processing customer requests for
account revisions (such as payment extensions and refinancings). Servicing activities are generally consistent across our operations; however,
certain practices may be influenced by local laws and regulations.
During the year ended December 31, 2012, the credit performance of the consumer portfolio remained strong as our charge-off rate was
relatively stable. For information on our consumer credit risk practices and policies regarding delinquencies, nonperforming status, and
charge-offs, refer to Note 1 to the Consolidated Financial Statements.
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K