Ally Bank 2014 Annual Report Download - page 41

Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
29
successful rehabilitation of certain accounts within the commercial automotive portfolio. Charge-offs increased primarily due to the change in
the composition of our consumer automotive portfolio as we continued the execution of our underwriting strategy to originate consumer
automotive assets across a broad risk spectrum. Charge-offs of our mortgage assets decreased primarily due to continued runoff of our legacy
mortgage portfolio. Our provision for loan losses decreased to $457 million in 2014 from $501 million in 2013. This decrease was primarily
due to lower reserve requirements in our Mortgage operations as a result of the continued runoff of legacy mortgage assets, partially offset by
the continued execution of our underwriting strategy to originate consumer automotive assets across a broad risk spectrum and growth in our
consumer automotive portfolio.
We continue to see signs of economic stabilization as the labor market recovered further during the year, with nonfarm payrolls
increasing and the annual unemployment rate falling. Our credit portfolio will continue to be impacted by the overall economy, used vehicle
and housing price levels, unemployment levels, and their impact to our borrowers.
U.S. Department of Treasury Investments
During 2008, and continuing into 2009, the credit, capital, and mortgage markets became increasingly disrupted. This disruption led to
severe reductions in liquidity and adversely affected our capital position. As a result, Ally sought approval to become a BHC to obtain access
to capital at a lower cost to remain competitive in our markets. The U.S. Department of Treasury (Treasury) made an initial preferred stock
investment in Ally on December 29, 2008, pursuant to the Troubled Asset Relief Program (TARP), and made additional investments pursuant
to TARP thereafter, including investments in additional preferred stock, common stock, and trust preferred securities. On November 20, 2013
Ally completed the repurchase of all remaining outstanding shares of its Fixed Rate Cumulative Mandatorily Convertible Preferred Stock,
Series F-2, which was all of the remaining preferred stock held by Treasury, and elimination of the share adjustment right. In April 2014, we
completed our IPO pursuant to which Treasury sold approximately 102 million shares of Ally common stock, after which Treasury continued
to hold approximately 11.4% of Ally common stock. In December 2014, Treasury sold all of its remaining shares of Ally common stock,
resulting in our exit from TARP.
Tax Assets Protective Measures
In January 2014, the Ally Board of Directors (the Board) implemented measures intended to help protect certain tax benefits primarily
associated with Ally’s net operating losses and tax credit carryovers (collectively, Tax Benefits). Ally’s use of the Tax Benefits in the future
may be significantly limited if it experiences an “ownership change” (within the meaning of Section 382 of the Internal Revenue Code of
1986, as amended (the Code)) for U.S. federal income tax purposes. In general, an ownership change will occur when the percentage of Ally’s
ownership (by value) of one or more “5-percent shareholders” (as defined in Code) has increased by more than 50 percent over the lowest
percentage owned by such shareholders at any time during the prior three years (calculated on a rolling basis).
On January 9, 2014, the Board approved an amendment (the Protective Amendment) to Ally’s Amended and Restated Certificate of
Incorporation that is intended to help protect the Tax Benefits. The Protective Amendment generally restricts any transfer of Ally’s common
stock if the effect of the transfer would be to either (i) increase the direct or indirect ownership of any of Ally common stock by any Person
(as defined in the Code) to 4.99% or more; or (ii) increase the percentage of Ally Capital Stock owned directly or indirectly by any Person
that was a Five Percent Stockholder, subject to certain exceptions. Unless extended, the Protective Amendment expires on January 8, 2017.
In addition, on January 9, 2014, the Board approved the adoption of a Tax Asset Protection Plan (the Plan) and Ally entered into the Plan
on January 10, 2014. The Plan is designed to reduce the likelihood that Ally will experience an “ownership change” for U.S. federal income
tax purposes (as described above) by (i) discouraging any person or group from becoming a holder of 4.99 percent or more of the outstanding
shares of Ally common stock; and (ii) discouraging any existing holder of 4.99 percent or more of Ally common stock from acquiring
additional shares of Ally common stock, subject to certain exceptions. Unless extended, the Protective Amendment expires on January 8,
2017.
Discontinued Operations
During 2013 and 2012, certain disposal groups met the criteria to be presented as discontinued operations. For all periods presented, the
operating results for these operations have been removed from continuing operations. Refer to Note 2 to the Consolidated Financial
Statements for more details. MD&A has been adjusted to exclude discontinued operations unless otherwise noted.