Ally Bank 2014 Annual Report Download - page 47

Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
35
2014 Compared to 2013
Our Automotive Finance operations earned income from continuing operations before income tax expense of $1.5 billion for the year
ended December 31, 2014, compared to $1.3 billion for the year ended December 31, 2013. Results for the year ended December 31, 2014
were favorably impacted primarily by higher operating lease revenue driven by increases in lease remarketing gains due to increases in
termination volumes. Lease terminations totaled 296,393 for the year ended December 31, 2014, compared to 148,587 for the year ended
December 31, 2013, reflecting an increase of 99%. The favorability was partially offset by higher depreciation expense on the operating lease
portfolio and higher provision for loan losses resulting from consumer portfolio growth.
Consumer financing revenue increased $42 million for the year ended December 31, 2014, compared to 2013, primarily due to continued
origination growth. GM and Non-GM/Chrysler consumer originations increased 7% and 45%, respectively, for the year ended December 31,
2014, compared to 2013. This increase was partially offset by lower yields as a result of higher-quality asset originations and increased
competition.
Commercial financing revenue decreased $37 million for the year ended December 31, 2014, compared to 2013, primarily due to lower
yields as a result of increased competition in the wholesale marketplace.
Net operating lease revenue increased 11% for the year ended December 31, 2014, compared to 2013. The increase was primarily due to
higher lease asset balances resulting from strong origination volume and higher lease remarketing gains due to increased termination volumes.
We recognized remarketing gains of $433 million for the year ended December 31, 2014, compared to $332 million in 2013. The increases in
revenue and lease remarketing gains were partially offset by an increase in depreciation expense due to higher lease asset balances resulting
from strong lease origination volume. For further details on our lease business, refer to Manufacturer Marketing Incentives within this
MD&A.
Servicing fee income decreased 47% for the year ended December 31, 2014, compared to 2013, due to lower levels of off-balance sheet
retail serviced assets.
Other income increased $13 million for the year ended December 31, 2014, compared to 2013, primarily due to higher remarketing fee
income driven by an increase in lease terminations.
The provision for loan losses was $542 million for the year ended December 31, 2014, compared to $494 million in 2013. The increase
was primarily due to the continued execution of our underwriting strategy to originate consumer assets across a broad risk spectrum and
growth in our consumer automotive portfolio.
Total noninterest expense decreased 9% for the year ended December 31, 2014, compared to 2013. The decrease was primarily due to
the non-recurrence of a $98 million charge in the fourth quarter of 2013 relating to the execution of Consent Orders issued by the CFPB and
the DOJ pertaining to the allegation of disparate impact in the automotive finance business. Also contributing to the overall decrease was 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.
2013 Compared to 2012
Our Automotive Finance operations earned income from continuing operations before income tax expense of $1.3 billion for the year
ended December 31, 2013, compared to $1.4 billion for the year ended December 31, 2012. Results for the year ended December 31, 2013
were unfavorably impacted by lower commercial and other revenue, higher depreciation expense on operating lease assets related to growth
in the lease portfolio, recognition of a charge related to a settlement with the CFPB and DOJ, and higher provision for loan losses primarily
driven by the continued execution of our underwriting strategy to prudently expand our originations of consumer automotive assets across a
broader credit spectrum, offset mostly by higher consumer and operating lease revenues driven by growth in the consumer loan and operating
lease portfolios.
Consumer financing revenue increased 6% for the year ended December 31, 2013, compared to 2012, due to an increase in consumer
asset levels primarily related to continued strong loan origination volumes relative to the pay-down of the existing portfolio despite lower
penetration levels for new GM and Chrysler retail automotive loans. Additionally, our originations of Chrysler subvented retail financing and
leases have ceased, but we continue to participate in standard rate consumer loan and lease products in the Chrysler channel. The increase in
consumer revenue from higher consumer asset levels was partially offset by slightly lower margins as a result of the competitive market
environment for automotive financing.
Commercial financing revenue decreased $91 million for the year ended December 31, 2013, compared to 2012. The decrease was
primarily due to lower yields as a result of competitive markets for automotive commercial financing, despite asset balances remaining stable.
Operating lease revenue increased 35% for the year ended December 31, 2013, compared to 2012, primarily due to higher lease asset
balances as a result of strong origination volume primarily driven by an increase in GM marketing incentives.
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.