Ally Bank 2014 Annual Report Download - page 44

Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
32
We earned net servicing income of $31 million for the year ended December 31, 2014, compared to a net servicing loss of $87 million in
2013. The increase was primarily due to the completed sales of our agency MSRs portfolio in the second quarter of 2013, partially offset by
lower levels of off-balance sheet automotive retail serviced assets.
Gain on mortgage and automotive loans decreased 87% for the year ended December 31, 2014, compared to 2013. The decrease was
primarily related to our decision to cease mortgage-lending production through our direct lending channel in 2013, and margins associated
with government-sponsored refinancing programs, partially offset by the completed sale of a $40 million student lending portfolio during the
second quarter of 2014.
Loss on extinguishment of debt increased $143 million for the year ended December 31, 2014, compared to 2013. The increase was
primarily due to the completion of a tender offer to buy back $750 million of our long-dated high-coupon debt in October 2014. We recorded
a loss of $156 million on extinguishment of debt in 2014 related to this transaction. The increase was partially offset by a decrease in the
accelerated recognition of issuance expenses related to calls of redeemable debt during 2014.
Other income, net of losses, decreased 27% for the year ended December 31, 2014, compared to 2013. The decrease was primarily due to
lower fee income and net origination revenue related to our exit from consumer mortgage-lending production associated with government-
sponsored refinancing programs, and unfavorable derivative activity as a result of changes in rates and their impact on economic hedge
positions. These decreases were partially offset by higher remarketing fee income.
The provision for loan losses was $457 million for the year ended December 31, 2014, compared to $501 million in 2013. The decrease
was driven by 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.
Total noninterest expense decreased 13% for the year ended December 31, 2014, compared to 2013. The decrease was primarily due to
the overall streamlining of the company and increased operating efficiencies. Compensation and benefits expense decreased 7% due in part to
headcount reductions in centralized support functions. Further, expenses have benefited from strategic actions, including our exit of all non-
strategic mortgage-related activities that resulted in lower broker fees from consumer mortgage-lending production associated with
government-sponsored refinancing programs, and lower representation and warranty expense due to decreased repurchase risk associated with
the sale of our agency MSRs portfolio. Further contributing to the decrease were the non-recurrence of a $98 million charge in the fourth
quarter of 2013 relating to the execution of Consent Orders issued by the Consumer Financial Protection Bureau (CFPB) and the U.S.
Department of Justice (DOJ) pertaining to the allegation of disparate impact in the automotive finance business, as well as a reduction of
expenses related to our arrangement with GM that provided for certain exclusivity privileges related to subvention programs that they offered,
which expired in February 2014. Refer to Note 30 to the Consolidated Financial Statements for additional details on these matters.
We recognized consolidated income tax expense from continuing operations of $321 million for the year ended December 31, 2014,
compared to income tax benefit of $59 million in 2013. The increase in income tax expense for the year ended December 31, 2014, was
driven by tax expense primarily attributable to higher pretax earnings.
2013 Compared to 2012
We earned net income from continuing operations of $416 million for the year ended December 31, 2013, compared to $1.4 billion for
the year ended December 31, 2012. Net income from continuing operations for the year ended December 31, 2013, declined $853 million in
our Mortgage operations, primarily due to the exit of all non-strategic mortgage-related activities, including consumer mortgage-lending
production associated with government-sponsored refinancing programs, our warehouse lending operations, and our agency MSRs portfolio.
Results for the year ended December 31, 2013 were also impacted by a decrease in income tax benefit. The decreases were partially offset by
lower OID amortization expense related to bond maturities and normal monthly amortization, and lower funding costs.
Total financing revenue and other interest income increased $751 million for the year ended December 31, 2013, compared to 2012. The
increase resulted primarily from an increase in operating lease revenue and consumer financing revenue for our Automotive Finance
operations driven primarily by an increase in consumer asset levels as a result of strong lease originations. Additionally, we continued to
prudently expand our nonprime origination volume across a broader credit spectrum, effecting margin expansion. This increase was partially
offset by lower mortgage loan production as a result of the wind-down of our consumer held-for-sale portfolio, run-off of our held-for-
investment portfolio, and the shutdown of our warehouse lending operations.
Interest expense decreased 18% for the year ended December 31, 2013, compared to 2012, primarily due to lower funding costs as a
result of continued deposit growth and the refinancing of higher-cost legacy debt, and a decrease in OID amortization expense. Including a
decrease in OID amortization expense of $87 million, total interest expense on long-term debt decreased $734 million for the year ended
December 31, 2013, compared to 2012.
Depreciation expense on operating lease assets increased 43% for the year ended December 31, 2013, compared to 2012, primarily due
to higher lease asset balances as a result of strong lease origination volume, partially offset by higher lease remarketing gains.
We incurred a net servicing loss of $87 million for the year ended December 31, 2013, compared to net servicing income of $405 million
in 2012. The decrease was primarily due to the completed sales of our agency MSRs portfolio in the second quarter of 2013, including the
valuation of the portfolio in conjunction with the sale and the unwinding of all related derivative activity.