Ally Bank 2014 Annual Report Download - page 26

Table of Contents
Ally Financial Inc. • Form 10-K
14
these facilities and increase the costs of bank funding. Ally and Ally Bank also continue to access the securitization markets. While markets
have continued to stabilize following the 2008 liquidity crisis, there can be no assurances these sources of liquidity will remain available to
us.
Our indebtedness and other obligations are significant and could materially and adversely affect our business.
We have a significant amount of indebtedness. At December 31, 2014, we had approximately $74.6 billion in principal amount of
indebtedness outstanding (including $47.9 billion in secured indebtedness). Interest expense on our indebtedness constituted approximately
25% of our total financing revenue and other interest income for the year ended December 31, 2014. In addition, during the twelve months
ending December 31, 2014, we declared and paid preferred stock dividends of $268 million in the aggregate.
We have the ability to create additional unsecured indebtedness. If our debt service obligations increase, whether due to the increased
cost of existing indebtedness or the incurrence of additional indebtedness, we may be required to dedicate a significant portion of our cash
flow from operations to the payment of principal of, and interest on, our indebtedness, which would reduce the funds available for other
purposes. Our indebtedness also could limit our ability to withstand competitive pressures and reduce our flexibility in responding to
changing business and economic conditions.
The market for automotive financing industry is extremely competitive. If we are unable to compete successfully, if current competitive
conditions tighten, or if there is increased competition in the automotive financing and/or insurance markets or generally in the markets for
securitizations or asset sales, our business could be negatively affected.
The markets for automotive financing, insurance, and banking are highly competitive. We directly compete in the automotive financing
market with banks, credit unions, captive automotive finance, and independent finance companies. Our insurance business also faces
significant competition from automotive manufacturers, captive automotive finance companies, insurance carriers, third-party administrators,
brokers, and other insurance-related companies. Some of these competitors have certain exclusivity privileges with automotive manufacturing
companies whose customers and dealers compose a significant portion of our customer base. In addition, Ally Bank faces significant
competition from commercial banks, savings institutions, and other financial institutions. Many of our competitors have substantial positions
nationally or in the markets in which they operate. Some of our competitors have lower cost structures, substantially lower costs of capital,
and are much less reliant on securitization activities, unsecured debt, and other public markets. Our competitors may be subject to different,
and in some cases, less stringent, legislative and regulatory regimes than we are, thus putting us at a competitive disadvantage to these
competitors. We face significant competition in most areas including product offerings, rates, pricing and fees, and customer service. If we are
unable to compete effectively in the markets in which we operate, our profitability and financial condition would be negatively affected.
The markets for asset securitizations and whole-loan sales are competitive, and other issuers and originators could increase the amount of
their issuances and sales. In addition, lenders and other investors within those markets often establish limits on their credit exposure to
particular issuers, originators, and asset classes, or they may require higher returns to increase the amount of their exposure. Increased
issuance by other participants in the market or decisions by investors to limit their credit exposure to (or to require a higher yield for) us or to
automotive securitizations or whole-loans could negatively affect our ability and that of our subsidiaries to price our securitizations and
whole-loan sales at attractive rates. The result would be lower proceeds from these activities and lower profits for our subsidiaries and us.
Our allowance for loan losses may not be adequate to cover actual losses, and we may be required to materially increase our allowance,
which may adversely affect our capital, financial condition, and results of operations.
We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expenses, which
represents management’s best estimate of probable credit losses that have been incurred within the existing portfolio of loans, all as described
in Note 1 to the Consolidated Financial Statements. The allowance, in the judgment of management, is established to reserve for estimated
loan losses and risks inherent in the loan portfolio. The determination of the appropriate level of the allowance for loan losses inherently
involves a high degree of subjectivity and requires us to make significant estimates of current credit risks using existing qualitative and
quantitative information, all of which may undergo material changes. Changes in economic conditions affecting borrowers, accounting rules
and related guidance, new information regarding existing loans, identification of additional problem loans, portfolio size, and other factors,
both within and outside of our control, may require an increase in the allowance for loan losses. In addition, our continued expansion of our
originations across a broad risk spectrum could increase our allowance for loan losses in the future.
Bank regulatory agencies periodically review our allowance for loan losses, as well as our methodology for calculating our allowance for
loan losses and may require an increase in the provision for loan losses or the recognition of additional loan charge-offs, based on judgments
different than those of management. An increase in the allowance for loan losses results in a decrease in net income and capital and may have
a material adverse effect on our capital, financial condition, and results of operations.