Ally Bank 2012 Annual Report Download - page 31

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which 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 offers a full spectrum of deposit product offerings, such as checking, savings, and certificates of deposit (CDs), as well as 48-
month raise your rate CDs, 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,
2012, Ally Bank had $46.9 billion of deposits, including $35.0 billion of retail deposits. The growth of our retail base from $7.2 billion at the
end of 2008 to $35.0 billion at December 31, 2012, has enabled us to reduce our cost of funds during that period. The growth in deposits is
primarily attributable to 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.
Funding and Liquidity
Our funding strategy largely focuses on the development of diversified funding sources which we manage across products, programs,
markets, and investor groups. We fund our assets primarily with a mix of retail and brokered deposits, public and private asset-backed
securitizations, asset sales, committed and uncommitted credit facilities and public unsecured debt.
The diversity of our funding sources enhances funding flexibility, limits dependence on any one source and results in a more cost-
effective funding strategy over the long term. Throughout 2008 and 2009, the global credit markets experienced extraordinary levels of
volatility and stress. As a result, access by market participants, including Ally, to the capital markets was significantly constrained and
borrowing costs increased. In response, numerous government programs were established aimed at improving the liquidity position of U.S.
financial services firms. After converting to a bank holding company in late 2008, we participated in several of the programs, including
Temporary Liquidity Guaranty Program (TLGP), Term Auction Facility, and Term Asset-Backed Securities Loan Facility. Our diversification
strategy and participation in these programs helped us to maintain sufficient liquidity during this period of financial distress to meet all
maturing unsecured debt obligations and to continue our lending and operating activities. During 2012, we repaid the TLGP debt and the
other programs were discontinued prior to 2012.
As part of our overall transformation from an independent financial services company to a bank holding company, 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
migrating assets to Ally Bank and growing our retail deposit base since becoming a bank holding company. 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, 2012, deposit liabilities totaled $47.9 billion, which constituted 37% of our total funding. This compares to just 14% at
December 31, 2008.
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 2012, we issued $11.8 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 improving capital 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 asset. Once a pool of retail automobile loans are 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,
private credit facilities, and asset-backed securitizations. In 2012, we issued over $3.6 billion of unsecured debt globally through several
issuances. At December 31, 2012, we had $1.3 billion and $5.6 billion of outstanding unsecured long-term debt with maturities in 2013 and
2014, respectively. To fund these maturities, we expect to use existing pre-issued liquidity combined with maintaining an opportunistic
approach to new issuance.
The strategies outlined above have allowed us to build and maintain a conservative liquidity position. Total available liquidity at the
parent company was $15.6 billion and Ally Bank had $13.2 billion of available liquidity at December 31, 2012. Parent company liquidity is
defined as our consolidated operations less Ally Bank and the subsidiaries of Ally Insurance's holding company. At the same time, these
strategies have also resulted in a cost of funds improvement of approximately 95 basis points since the first quarter of 2011. Looking forward,
given our enhanced liquidity and capital position and generally improved credit ratings, we expect that our cost of funds will continue to
improve over time.
Credit Strategy
We are a full spectrum automotive finance lender with most of our automotive loan originations underwritten within the prime-lending
markets as we continue to prudently expand in nonprime markets. During 2012, we continued to recognize improvement in our credit risk
profile as a result of proactive credit risk initiatives that were taken in 2009 and 2010 and modest improvement in the overall economic
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K