Ally Bank 2014 Annual Report Download - page 39

Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
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response basis. The VSCs cover virtually all vehicle makes and models. We also offer GAP products, which allow the recovery of a specified
economic loss beyond the covered vehicle's value in the event the vehicle is damaged and declared a total loss.
As part of our continued efforts to diversify, we previewed our new, flagship VSC, Ally Premier Protection, in January 2015. Ally
Premier Protection will be available for new and used vehicles of virtually all makes and models later in 2015 and replaces the General
Motors Protection Plan (GMPP) nameplate.
Wholesale vehicle inventory insurance for dealers provides physical damage protection for dealers' floorplan vehicles. Dealers are
generally required to maintain this insurance by their floorplan finance provider. During 2014, these insurance products were purchased by
approximately 3,500 dealers. Among U.S. GM franchised dealers to whom we provide wholesale financing, our wholesale insurance product
penetration rate is approximately 83%. Dealers who receive wholesale financing from Ally are eligible for wholesale insurance incentives,
such as automatic eligibility in our preferred insurance programs and increased financial benefits.
A significant aspect of our Insurance operations is the investment of proceeds from premiums and other revenue sources. We use these
investments to satisfy our obligations related to future claims at the time these claims are settled. Our Insurance operations have an
Investment Committee, which develops investment guidelines and strategies. The guidelines established by this committee reflect our risk
tolerance, liquidity requirements, regulatory requirements, and rating agency considerations, among other factors.
Mortgage
Our Mortgage operations were historically a significant portion of our operations and were conducted primarily through the Residential
Capital, LLC (ResCap) subsidiary. On May 14, 2012, ResCap and certain of its wholly-owned direct and indirect subsidiaries filed voluntary
petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York
(Bankruptcy Court). The Bankruptcy Court entered an order confirming a bankruptcy plan on December 11, 2013, which became effective on
December 17, 2013.
During 2013, we sold our business lending operations, completed the sales of agency mortgage servicing rights (MSRs), and exited the
correspondent lending channel. Our ongoing Mortgage operations are limited to the management of our held-for-investment and held-for-sale
mortgage loan portfolios and includes the execution of bulk purchases of high-quality jumbo mortgage loans originated by third parties. We
expect this activity to continue in 2015 in support of our treasury asset liability management (ALM) activities and diversification. Our
Mortgage operations had $7.9 billion of assets at December 31, 2014, and generated $60 million of total net revenue in 2014.
Corporate and Other
Corporate and Other primarily consists of Corporate Finance, centralized corporate treasury activities, such as management of the cash
and corporate investment securities and loan portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative
instruments, the amortization of the discount associated with debt issuances and bond exchanges, and the residual impacts of our corporate
funds-transfer pricing (FTP) and treasury ALM activities. Corporate and Other also includes certain equity investments, reclassifications and
eliminations between the reportable operating segments, and overhead that was previously allocated to operations that have since been sold or
classified as discontinued operations. Corporate Finance provides senior secured commercial-lending products to primarily U.S.-based middle
market companies.
The net financing revenue of our Automotive Finance and Mortgage operations includes the results of an FTP process that insulates these
operations from interest rate volatility by matching assets and liabilities with similar interest rate sensitivity and maturity characteristics. The
FTP process assigns charge rates to the assets and credit rates to the liabilities within our Automotive Finance and Mortgage operations,
respectively, based on anticipated maturity and a benchmark index plus an assumed credit spread. The assumed credit spread represents the
cost of funds for each asset class based on a blend of funding channels available to the enterprise, including unsecured and secured capital
markets, private funding facilities, and deposits. In addition, a risk-based methodology, which incorporates each operations credit, market, and
operational risk components is used to allocate equity to these operations.
Ally Bank
Ally Bank, our direct banking platform, is focused on the continued prudent expansion of assets and further building a stable deposit
base through growing and deepening relationships with its over 900,000 primary customers driven by its compelling brand and strong value
proposition. Ally Bank raises deposits directly from customers through direct banking via the internet, telephone, mobile, and mail channels.
Ally Bank has established a strong and growing retail banking franchise that is based on a promise of being straightforward, easy to use, and
offering high-quality customer service. Ally Bank's products and services are designed to develop long-term customer relationships and
capitalize on the shift in consumer preference for direct banking. Ally Bank funded $29.8 billion of finance receivables, loans, and operating
leases during 2014, and had total assets of $104.5 billion at December 31, 2014.
Ally Bank offers a full spectrum of deposit product offerings, such as checking, savings, and certificates of deposit (CDs), as well as
several raise-your-rate CD terms, IRA deposit products, Popmoney person-to-person transfer service, eCheck remote deposit capture, Ally
Perks debit rewards program, and Mobile Banking. In addition, brokered deposits are obtained through third-party intermediaries. At
December 31, 2014, Ally Bank had $57.9 billion of deposits, including $48.0 billion of retail deposits. The continued growth of our retail
base, combined with favorable capital market conditions and a lower interest rate environment, have contributed to a reduction in our
consolidated cost of funds of approximately 125 basis points since the first quarter of 2012. The growth in deposits is primarily attributable to