Ally Bank 2014 Annual Report Download - page 40

Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
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our retail deposits while our brokered deposits have remained at historical levels. Strong retention rates, reflecting the strength of the
franchise, have materially contributed to our growth in retail deposits.
We believe Ally Bank is well-positioned to continue to benefit from the consumer driven-shift from branch banking to direct banking.
According to a 2014 American Bankers Association survey, the percentage of customers who prefer to do their banking via direct channels
(internet, mail, phone, and mobile) increased from 21% to 54% between 2007 and 2014, while those who prefer branch banking declined
from 39% to 21% over the same period. Ally Bank has received a positive response to innovative savings and other deposit products,
including receiving Money Magazine's "Best Online Bank" designation four consecutive years. Ally Bank's products include savings and
money market accounts, CDs, interest-bearing checking accounts, trust accounts, and individual retirement accounts. Ally Bank's competitive
direct banking features include online and mobile banking, electronic bill pay, remote deposit, electronic funds transfer nationwide, ATM fee
reimbursements, and no minimum balance requirements.
In the future, we intend to continue to grow and invest in the Ally Bank direct banking franchise and to further capitalize on the shift in
consumer preference for direct banking. We are focused on growing, deepening, and further leveraging the customer relationships and brand
loyalty that exist with Ally Bank and its customers as a catalyst for future loan and deposit growth, as well as revenue opportunities.
Funding and Liquidity
Our funding strategy largely focuses on maintaining a diversified mix of retail and brokered deposits, public and private asset-backed
securitizations, committed credit facilities, and public unsecured debt. These funding sources are managed across products, markets, and
investors to enhance funding flexibility, limit dependence on any one source and result in a more cost-effective long term funding strategy.
As part of our overall transformation from an independent financial services company to a BHC in 2008, we took actions to further
diversify and develop more stable funding sources and, in particular, embarked upon initiatives to grow our consumer deposit-taking
capabilities within Ally Bank. In addition, we began distinguishing our liquidity management strategies between bank funding and nonbank
funding.
Maximizing bank funding continues to be the cornerstone of our long-term liquidity strategy. We have made significant progress in
growing the assets and retail deposit base of Ally Bank since becoming a BHC. Retail deposits provide a low-cost source of funds that are less
sensitive to interest rate changes, market volatility, or changes in our credit ratings than other funding sources. At December 31, 2014, deposit
liabilities totaled $58.2 billion, which constituted 44% of our total funding. This compares to just 29% at December 31, 2010.
In addition to building a larger deposit base, we continue to remain active in the securitization markets to finance Ally Bank's automotive
loan portfolios. During 2014, we issued $11.6 billion in secured funding backed by retail automotive loans and leases as well as dealer
floorplan automotive loans of Ally Bank. Continued structural efficiencies in securitizations combined with favorable market conditions have
resulted in a reduction in the cost of funds achieved through secured funding transactions, making them a very attractive source of funding.
Additionally, for retail loans and leases, the term structure of the transaction locks in funding for a specified pool of loans and leases for the
life of the underlying assets. Once a pool of retail automotive loans is selected and placed into a securitization, the underlying assets and
corresponding debt amortize simultaneously resulting in committed and matched funding for the life of the asset. We manage the execution
risk arising from secured funding by maintaining a diverse investor base and maintaining committed secured facilities.
As we have shifted our focus to migrating assets to Ally Bank and growing our bank funding capabilities, our reliance on parent
company liquidity has consequently been reduced. Funding sources at the parent company generally consist of longer-term unsecured debt,
asset-backed securitizations, and private committed credit facilities. In 2014, we issued nearly $3.1 billion of unsecured debt through several
issuances and raised $2.7 billion through three public securitization transactions comprised of nonprime retail automotive loan collateral. At
December 31, 2014, we had $4.9 billion and $1.9 billion of outstanding unsecured long-term debt with maturities in 2015 and 2016,
respectively. To fund these maturities, we expect to use a combination of existing liquidity and opportunistic new issuances.
The strategies outlined above have allowed us to build and maintain a conservative liquidity position. Total available liquidity at
December 31, 2014 for the parent company and Ally Bank was $8.8 billion and $7.8 billion, respectively. Parent company liquidity is defined
as liquidity from consolidated operations less liquidity at Ally Bank and the regulated subsidiaries of Ally Insurance's holding company.
Absolute levels of liquidity decreased as a result of liability and equity management transactions. At the same time, these strategies have also
resulted in a consolidated cost of funds improvement of approximately 125 basis points since the first quarter of 2012.
Credit Strategy
Within our Automotive Finance operations, we are a full spectrum automotive finance lender with most of our loan originations
underwritten within the prime-lending markets. During 2014, we continued the execution of our underwriting strategy to expand our
originations across a broad risk spectrum, including used, nonprime, extended term, Non-GM/Chrysler, and non-subvented finance
receivables and loans. Within our Mortgage operations, we sold our business lending operations, completed the sales of agency MSRs, and
exited the correspondent and direct lending channels during 2013. 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 mortgage loans. We expect
this activity to continue in support of our treasury ALM activities and diversification.
During the year ended December 31, 2014, the credit performance of our portfolios remained strong overall as our asset quality trends
within our automotive and mortgage portfolios were relatively stable. Nonperforming loans continued to decline primarily due to the