ALLY FINANCIAL INC., 10-Q filed on 11/3/2020
Quarterly Report
v3.20.2
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2020
Oct. 30, 2020
Entity Information [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2020  
Document Transition Report false  
Entity File Number 1-3754  
Entity Registrant Name ALLY FINANCIAL INC.  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 38-0572512  
Entity Address, Address Description Ally Detroit Center  
Entity Address, Address Line One 500 Woodward Ave.  
Entity Address, Address Line Two Floor 10  
Entity Address, City or Town Detroit  
Entity Address, State or Province MI  
Entity Address, Postal Zip Code 48226  
City Area Code 866  
Local Phone Number 710-4623  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   373,857,264
Entity Central Index Key 0000040729  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q3  
Amendment Flag false  
Common stock    
Entity Information [Line Items]    
Security Exchange Name NYSE  
Title of 12(b) Security Common Stock, par value $0.01 per share  
Trading Symbol ALLY  
Trust Preferred Securities Subject to Mandatory Redemption    
Entity Information [Line Items]    
Security Exchange Name NYSE  
Title of 12(b) Security 8.125% Fixed Rate/Floating Rate Trust Preferred Securities, Series 2 of GMAC Capital Trust I  
Trading Symbol ALLY PRA  
v3.20.2
Consolidated Statement of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Financing Revenue and Other Income [Abstract]        
Interest and fees on finance receivables and loans $ 1,602 $ 1,859 $ 4,974 $ 5,526
Interest on loans held-for-sale 5 8 11 13
Interest and dividends on investment securities and other earning assets 173 237 596 721
Interest on cash and cash equivalents 5 19 23 63
Operating leases 360 368 1,070 1,092
Total financing revenue and other interest income 2,145 2,491 6,674 7,415
Interest Expense [Abstract]        
Interest on deposits 452 658 1,585 1,901
Interest on short-term borrowings 9 33 39 114
Interest on long-term debt 309 378 975 1,204
Total interest expense 770 1,069 2,599 3,219
Net depreciation expense on operating lease assets 175 234 675 719
Net financing revenue and other interest income 1,200 1,188 3,400 3,477
Other revenue [Abstract]        
Insurance premiums and service revenue earned 276 280 816 802
Gain on mortgage and automotive loans, net 33 10 35 22
Gain (Loss) on Extinguishment of Debt (49) 1 (50) (2)
Other gain on investments, net 64 27 173 174
Other income, net of losses 160 95 331 278
Total other revenue 484 413 1,305 1,274
Total net revenue 1,684 1,601 4,705 4,751
Provision for credit losses 147 263 1,337 722
Noninterest Expense [Abstract]        
Compensation and benefits expense 342 296 1,036 910
Insurance losses and loss adjustment expenses 85 74 301 260
Goodwill impairment 0 0 50 0
Other operating expenses 478 468 1,423 1,379
Total noninterest expense 905 838 2,810 2,549
Income from continuing operations before income tax expense 632 500 558 1,480
Statement [Abstract]        
Income tax expense from continuing operations 156 119 159 140
Net income from continuing operations 476 381 399 1,340
Loss from discontinued operations, net of tax 0 0 (1) (3)
Net income 476 381 398 1,337
Other comprehensive income, net of tax (120) 106 572 721
Comprehensive Income $ 356 $ 487 $ 970 $ 2,058
Earnings Per Share, Basic [Abstract]        
Net income from continuing operations, basic earnings per common share $ 1.27 $ 0.98 $ 1.06 $ 3.37
Loss from Discontinued Operations and Disposal of Discontinued Operations, Net of Tax, Per Basic Share 0 0 0 (0.01)
Net income, basic earnings per common share 1.27 0.97 1.06 3.36
Earnings Per Share, Diluted [Abstract]        
Net income from continuing operations, diluted earnings per common share 1.26 0.97 1.06 3.35
Loss from Discontinued Operations and Disposal of Discontinued Operations, Net of Tax, Per Diluted Share 0 0 0 (0.01)
Net income, diluted earnings per common share 1.26 0.97 1.06 3.35
Cash dividends declared per common share $ 0.19 $ 0.17 $ 0.57 $ 0.51
v3.20.2
Condensed Consolidated Balance Sheet & Mini Balance Sheet - USD ($)
$ in Millions
Sep. 30, 2020
Dec. 31, 2019
Assets [Abstract]    
Cash and cash equivalents, noninterest-bearing $ 719 $ 619
Cash and cash equivalents, interest-bearing 19,220 2,936
Total cash and cash equivalents 19,939 3,555
Equity securities 627 616
Available-for-sale securities 29,989 30,284
Held-to-maturity securities, fair value 1,336 1,600
Held-to-maturity securities 1,255 1,568
Loans held-for-sale, net 441 158
Finance receivables and loans, net [Abstract]    
Finance receivables and loans, net 118,028 128,231
Allowance for loan losses 3,379 1,263
Total finance receivables and loans, net 114,649 126,968
Investment in operating leases, net 9,454 8,864
Premiums receivable and other insurance assets 2,662 2,558
Other assets 6,254 6,073
Total assets 185,270 180,644
Liabilities and Equity [Abstract]    
Deposit liabilities, noninterest-bearing 159 119
Deposit liabilities, interest-bearing 134,779 120,633
Total deposit liabilities 134,938 120,752
Short-term borrowings 3,032 5,531
Long-term debt 25,704 34,027
Interest payable 748 641
Unearned insurance premiums and service revenue 3,401 3,305
Accrued expenses and other liabilities 3,321 1,972
Total liabilities $ 171,144 $ 166,228
Equity [Abstract]    
Common stock, par value per share $ 0.01 $ 0.01
Common stock, shares authorized 1,100,000,000 1,100,000,000
Common stock, shares issued 500,382,748 496,957,805
Common stock, shares outstanding 373,857,264 374,331,998
Common Stocks, Including Additional Paid in Capital $ 21,517 $ 21,438
Accumulated deficit (4,893) (4,057)
Accumulated other comprehensive income (loss) $ 695 $ 123
Treasury stock, shares 126,525,484 122,625,807
Treasury stock, at cost $ (3,193) $ (3,088)
Total equity 14,126 14,416
Total liabilities and equity 185,270 180,644
On-balance sheet variable interest entities    
Finance receivables and loans, net [Abstract]    
Finance receivables and loans, net 14,779 18,710
Allowance for loan losses 349 153
Total finance receivables and loans, net 14,430 18,557
Other assets 721 787
Total assets 15,151 19,344
Liabilities and Equity [Abstract]    
Long-term debt 5,869 9,087
Accrued expenses and other liabilities 6 11
Total liabilities $ 5,875 $ 9,098
v3.20.2
Condensed Consolidated Statement of Changes in Equity - USD ($)
$ in Millions
Total
Cumulative Effect, Period of Adoption, Adjusted Balance
Revision of Prior Period, Accounting Standards Update, Adjustment
Common stock and paid-in capital
Common stock and paid-in capital
Cumulative Effect, Period of Adoption, Adjusted Balance
Accumulated Deficit
Accumulated Deficit
Cumulative Effect, Period of Adoption, Adjusted Balance
Accumulated Deficit
Revision of Prior Period, Accounting Standards Update, Adjustment
Accumulated other comprehensive (loss) income
Accumulated other comprehensive (loss) income
Cumulative Effect, Period of Adoption, Adjusted Balance
Accumulated other comprehensive (loss) income
Revision of Prior Period, Accounting Standards Update, Adjustment
Treasury stock
Treasury stock
Cumulative Effect, Period of Adoption, Adjusted Balance
Increase (Decrease) in Stockholders' Equity [Roll Forward]                          
Equity $ 13,268 $ 13,266   $ 21,345 $ 21,345 $ (5,489) $ (5,499)   $ (539) $ (531)   $ (2,049) $ (2,049)
Equity | Accounting Standards Update 2017-08     $ (2)         $ (10)     $ 8    
Common stock dividends, amount per share $ 0.51                        
Net income (loss) $ 1,337         1,337              
Share-based compensation 72     72                  
Other comprehensive income (721)               (721)        
Common stock repurchases (740)                     (740)  
Common stock dividends (206)         (206)              
Equity $ 14,316     21,403   (4,682)     84     (2,489)  
Common stock dividends, amount per share $ 0.17                        
Net income (loss) $ 381         381              
Share-based compensation 14     14                  
Other comprehensive income (106)               (106)        
Common stock repurchases (300)                     (300)  
Common stock dividends (67)         (67)              
Equity 14,450     21,417   (4,368)     190     (2,789)  
Equity $ 14,416 $ 13,399   21,438 $ 21,438 (4,057) $ (5,074)   123 $ 123   (3,088) $ (3,088)
Equity | Accounting Standards Update 2016-13     $ (1,017)         $ (1,017)          
Common stock dividends, amount per share $ 0.57                        
Net income (loss) $ 398         398              
Share-based compensation 79     79                  
Other comprehensive income (572)               (572)        
Common stock repurchases (105)                     (105)  
Common stock dividends (217)         (217)              
Equity $ 13,826     21,499   (5,296)     815     (3,192)  
Common stock dividends, amount per share $ 0.19                        
Net income (loss) $ 476         476              
Share-based compensation 18     18                  
Other comprehensive income 120               120        
Common stock repurchases (1)                     (1)  
Common stock dividends (73)         (73)              
Equity $ 14,126     $ 21,517   $ (4,893)     $ 695     $ (3,193)  
v3.20.2
Condensed Consolidated Statement of Cash Flows - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Statement of Cash Flows [Abstract]    
Net income (loss) $ 398 $ 1,337
Net Cash Provided by (Used in) Operating Activities [Abstract]    
Depreciation and amortization 1,159 1,136
Goodwill impairment 50 0
Provision for credit losses 1,337 722
Gain on mortgage and automotive loans, net (35) (22)
Other gain on investments, net (173) (174)
Change in Gain (Loss) On Extinguishment Of Debt 50 2
Originations and purchases of loans held-for-sale (2,241) (952)
Proceeds from sales and repayments of loans held-for-sale 2,107 788
Increase (decrease) in deferred income taxes 122 86
Increase (decrease) in interest payable 107 371
Increase (decrease) in other assets (196) (25)
Increase (decrease) in other liabilities (29) (98)
Increase (decrease) in other assets and liabilities, net (52) (38)
Net cash provided by operating activities 2,604 3,133
Net Cash (Used in) Provided by Investing Activities [Abstract]    
Purchases of equity securities (816) (301)
Proceeds from sales of equity securities 936 615
Purchases of available-for-sale securities 12,013 11,214
Proceeds from Sale of Debt Securities, Available-for-sale 6,350 5,699
Proceeds from repayments of available-for-sale securities 7,846 3,246
Purchases of held-to-maturity securities 0 (514)
Proceeds from repayments of held-to-maturity securities 306 195
Purchases of finance receivables and loans held-for-investment (5,188) (3,322)
Proceeds from sales of finance receivables and loans initially held-for-investment 122 427
Originations and repayments of finance receivables and loans held-for-investment and other, net 14,745 3,069
Purchases of operating lease assets (3,226) (2,937)
Disposals of operating lease assets 1,946 2,016
Net change in nonmarketable equity investments 305 179
Payments for (proceeds from) other, net (308) (306)
Net cash provided by (used in) investing activities 11,005 (3,148)
Net Cash Provided by (Used in) Financing Activities [Abstract]    
Net change in short-term borrowings 2,499 4,652
Net increase in deposits 14,168 13,032
Proceeds from issuance of long-term debt 3,174 5,438
Repayments of long-term debt (11,887) (14,114)
Repurchase of common stock (105) (740)
Dividends paid (217) (206)
Net cash provided by (used in) financing activities 2,634 (1,242)
Effect of exchange-rate changes on cash and cash equivalents and restricted cash (1) 2
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents [Abstract]    
Net increase (decrease) in cash and cash equivalents and restricted cash 16,242 (1,255)
Cash and cash equivalents and restricted cash [Roll Forward]    
Cash and cash equivalents and restricted cash 4,380 5,626
Cash and cash equivalents and restricted cash 20,622 4,371
Supplemental Cash Flow Information [Abstract]    
Cash paid for interest 2,414 2,781
Cash paid for income taxes 8 31
Loans held-for-sale transferred to finance receivables and loans held-for-investment 74 125
Finance receivables and loans transferred to loans held-for-sale, noncash 128 964
In-kind distribution from equity method investee 126 0
Equity consideration received in exchange for restructured loans 5 0
Decrease in held-to-maturity securities due to the consolidation of a VIE 5 0
Increase in held-for-investment loans and other, net due to the consolidation of a VIE 114 0
Increase in collateralized borrowings, net due to the consolidation of a VIE 109 0
Restricted Cash [Abstract]    
Cash and cash equivalents as disclosed on the Condensed Consolidated Balance Sheet 19,939 3,617
Restricted cash included in other assets on the Condensed Consolidated Balance Sheet $ 683 $ 754
v3.20.2
Description of Business, Basis of Presentation, and Changes in Significant Accounting Policies
9 Months Ended
Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies [Text Block] Description of Business, Basis of Presentation, and Changes in Significant Accounting Policies
Ally Financial Inc. (together with its consolidated subsidiaries unless the context otherwise requires, Ally, the Company, or we, us, or our) is a leading digital financial-services company. As a customer-centric company with passionate customer service and innovative financial solutions, we are relentlessly focused on “Doing It Right” and being a trusted financial-services provider to our consumer, commercial, and corporate customers. We are one of the largest full-service automotive finance operations in the country and offer a wide range of financial services and insurance products to automotive dealerships and consumers. Our award-winning online bank (Ally Bank, Member FDIC and Equal Housing Lender) offers mortgage lending, personal lending, and a variety of deposit and other banking products, including savings, money-market, and checking accounts, CDs, and IRAs. Additionally, we offer securities-brokerage and investment-advisory services through Ally Invest. Our robust corporate-finance business offers capital for equity sponsors and middle-market companies. We are a Delaware corporation and are registered as a BHC under the Bank Holding Company Act of 1956, as amended, and an FHC under the Gramm-Leach-Bliley Act of 1999, as amended.
Our accounting and reporting policies conform to U.S. GAAP. Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and that affect income and expenses during the reporting period and related disclosures. In developing the estimates and assumptions, management uses all available evidence; however, actual results could differ because of uncertainties associated with estimating the amounts, timing, and likelihood of possible outcomes. Our most significant estimates pertain to the allowance for loan losses, valuations of automotive lease assets and residuals, fair value of financial instruments, and the determination of the provision for income taxes.
The Condensed Consolidated Financial Statements at September 30, 2020, and for the three months and nine months ended September 30, 2020, and 2019, are unaudited but reflect all adjustments that are, in management’s opinion, necessary for the fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements (and the related Notes) included in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed on February 25, 2020, with the SEC.
Significant Accounting Policies
On January 1, 2020, we adopted ASU 2016-13, Financial InstrumentsCredit Losses: Measurement of Credit Losses on Financial Instruments, using the modified retrospective approach, as further described in the section below titled Recently Adopted Accounting Standards. Adoption of the standard resulted in changes to our Investments, Finance Receivables and Loans, and Allowance for Loan Losses policies, as presented below. Refer to Note 1 to the Consolidated Financial Statements in our 2019 Annual Report on Form 10-K regarding additional significant accounting policies, including accounting policies in effect prior to the adoption of the CECL standard.
Investments
Our investment portfolio includes various debt and equity securities. Our debt securities include government securities, corporate bonds, ABS, and MBS. Debt securities are classified based on management’s intent to sell or hold the security. We classify debt securities as held-to-maturity only when we have both the intent and ability to hold the securities to maturity. We classify debt securities as trading when the securities are acquired for the purpose of selling or holding them for a short period of time. Debt securities not classified as either held-to-maturity or trading are classified as available-for-sale.
Our portfolio includes debt securities classified as available-for-sale and held-to-maturity. Our available-for-sale securities are carried at fair value with unrealized gains and losses included in accumulated other comprehensive income, while our held-to-maturity securities are carried at amortized cost.
We establish an allowance for credit losses for lifetime expected credit losses on our held-to-maturity securities. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Accrued interest receivable on held-to-maturity securities is excluded from the estimate of credit losses. Our held-to-maturity securities portfolio is mostly comprised of residential mortgage-backed debt securities that are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major ratings agencies, and have a long history of zero credit losses.
We regularly assess our available-for-sale securities for impairment. When the cost of an available-for-sale security exceeds its fair value, the security is impaired. If we determine that we intend to sell, or it is more likely than not we will be required to sell the security before recovery of the amortized cost basis, any allowance for credit losses, if previously recorded, is written off and the security’s amortized cost basis is written down to fair value at the reporting date, with any incremental impairment recorded through earnings.
Alternatively, if we do not intend to sell, or it is not more likely than not that we will be required to sell the security before anticipated recovery of the amortized cost basis, we evaluate, among other factors, the magnitude of the decline in fair value, the financial health of and business outlook for the issuer, and the performance of the underlying assets for interests in securitized assets to determine if a credit loss has occurred.
The present value of expected future cash flows are compared to the security’s amortized cost basis to measure the credit loss component of the impairment after determining a credit loss has occurred. If the present value of expected cash flows is less than the amortized cost basis, we record an allowance for credit losses for that difference. The amount of credit loss is limited to the difference between the security’s amortized cost basis and its fair value. Any remaining impairment is considered a noncredit loss and is recorded in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for, or reversal of, provision for credit losses.
Accrued interest receivable on available-for-sale securities is excluded from the estimate of credit losses.
Premiums and discounts on debt securities are generally amortized over the stated maturity of the security as an adjustment to investment yield. Premiums on debt securities that have non-contingent call features that are callable at fixed prices on preset dates are amortized to the earliest call date as an adjustment to investment yield.
A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days past due. The receivable for interest income that is accrued but not collected is reversed against interest income when the debt security is placed on nonaccrual status.
Our investments in equity securities include securities that are recognized at fair value with changes in the fair value recorded in earnings, and equity securities that are recognized using other measurement principles.
Equity securities that have a readily determinable fair value are recorded at fair value with changes in fair value recorded in earnings and reported in other gain on investments, net in our Condensed Consolidated Statement of Comprehensive Income. These investments, which are primarily attributable to the investment portfolio of our Insurance operations, are included in equity securities on our Condensed Consolidated Balance Sheet. We also hold certain equity investments that do not have a readily determinable fair value and are not eligible to be recognized using other measurement principles, that are held at fair value. Refer to Note 20 for further information on equity securities that are held at fair value.
Our equity securities recognized using other measurement principles include investments in FHLB and FRB stock held to meet regulatory requirements, equity investments related to LIHTCs and the CRA, which do not have a readily determinable fair value, and other equity investments that do not have a readily determinable fair value. Our LIHTC investments are accounted for using the proportional amortization method of accounting for qualified affordable housing investments. Our obligations related to unfunded commitments for our LIHTC investments are included in other liabilities. The majority of our other CRA investments are accounted for using the equity method of accounting. Our investments in LIHTCs and other CRA investments are included in investments in qualified affordable housing projects and equity-method investments, respectively, in other assets on our Condensed Consolidated Balance Sheet. Our investments in FHLB and FRB stock are carried at cost, less impairment. Our remaining investments in equity securities are recorded at cost, less impairment and adjusted for observable price changes under the measurement alternative provided under GAAP. These investments, along with our investments in FHLB and FRB stock, are included in nonmarketable equity investments in other assets on our Condensed Consolidated Balance Sheet. Investments recorded under the measurement alternative are also reviewed at each reporting period to determine if any adjustments are required for observable price changes in identical or similar securities of the same issuer. As conditions warrant, we review these investments for impairment and adjust the carrying value of the investment if it is deemed to be impaired. Adjustments related to observable price changes or impairment on securities using the measurement alternative are recorded in earnings and reported in other income, net in our Condensed Consolidated Statement of Comprehensive Income.
Realized gains and losses on the sale of debt securities and equity securities with a readily determinable fair value are determined using the specific identification method and are reported in other gain on investments, net in our Condensed Consolidated Statement of Comprehensive Income.
Finance Receivables and Loans
We initially classify finance receivables and loans as either loans held-for-sale or loans held-for-investment based on management’s assessment of our intent and ability to hold the loans for the foreseeable future or until maturity. Management’s view of the foreseeable future is based on the longest reasonably reliable net income, liquidity, and capital forecast period. Management’s intent and ability with respect to certain loans may change from time to time depending on a number of factors, for example economic, liquidity, and capital conditions. In order to reclassify loans to held-for-sale, management must have the intent to sell the loans and reasonably identify the specific loans to be sold.
Loans classified as held-for-sale are presented as loans held-for-sale, net on our Condensed Consolidated Balance Sheet and are carried at the lower of their net carrying value or fair value, unless the fair value option was elected, in which case those loans are carried at fair value. Loan origination fees and costs are included in the initial carrying value of loans originated as held-for-sale for which we have not elected the fair value option. Loan origination fees and costs are recognized in earnings when earned or incurred, respectively, for loans classified as held-for-sale for which we have elected the fair value option. We have elected the fair value option for conforming mortgage direct-to-consumer originations for which we have a commitment to sell. The interest rate lock commitment that we enter into for a mortgage loan originated as held-for-sale and certain forward commitments are considered derivatives, which are carried at fair value on our Condensed Consolidated Balance Sheet. We have elected the fair value option to measure our nonderivative forward commitments. Changes in the fair value of our interest rate lock commitments, derivative forward commitments, and nonderivative forward commitments related to mortgage loans originated as held-for-sale, as well as changes in the carrying value of loans classified as held-for-sale, are reported through gain on mortgage and automotive loans, net in our Condensed Consolidated Statement of Comprehensive Income. Interest income on our loans
classified as held-for-sale is recognized based upon the contractual rate of interest on the loan and the unpaid principal balance. We report accrued interest receivable on our loans classified as held-for-sale in other assets on our Condensed Consolidated Balance Sheet.
We have also elected the fair value option for certain loans acquired within our consumer other portfolio segment. Changes in fair value related to these loans are reported through other income, net of losses in our Condensed Consolidated Statement of Comprehensive Income.
Loans classified as held-for-investment are presented as finance receivables and loans, net on our Condensed Consolidated Balance Sheet. Finance receivables and loans are reported at their amortized cost basis, which includes the principal amount outstanding, net of unamortized deferred fees and costs on originated loans, unamortized premiums and discounts on purchased loans, unamortized basis adjustments arising from the designation of finance receivables and loans as the hedged item in qualifying fair value hedge relationships, and cumulative principal charge-offs. We refer to the amortized cost basis less the allowance for loan loss as the net carrying value in finance receivables and loans. Unearned rate support received from an automotive manufacturer on certain automotive loans, deferred origination fees and costs, and premiums and discounts on purchased loans, are amortized over the contractual life of the related finance receivable or loan using the effective interest method. We make various incentive payments for consumer automotive loan originations to automotive dealers and account for these payments as direct loan origination costs. Additionally, we make incentive payments to certain commercial automobile wholesale borrowers and account for these payments as a reduction to interest income in the period they are earned. Interest income on our finance receivables and loans is recognized based on the contractual rate of interest plus the amortization of deferred amounts using the effective interest method. We report accrued interest receivable on our finance receivables and loans in other assets on our Condensed Consolidated Balance Sheet. Loan commitment fees are generally deferred and amortized over the commitment period. For information on finance receivables and loans, refer to Note 8.
We have elected to exclude accrued interest receivable from the measurement of our allowance for credit losses for each class of financing receivables. We have also elected to write-off accrued interest receivable by reversing interest income when loans are placed on nonaccrual status for each class of financing receivable.
Our portfolio segments are based on the level at which we develop and document our methodology for determining the allowance for loan losses. Additionally, the classes of finance receivables are based on several factors including the method for monitoring and assessing credit risk, the method of measuring carrying value, and the risk characteristics of the finance receivable. Based on an evaluation of our process for developing the allowance for loan losses including the nature and extent of exposure to credit risk arising from finance receivables, we have determined our portfolio segments to be consumer automotive, consumer mortgage, consumer other, and commercial.
Consumer automotive — Consists of retail automotive financing for new and used vehicles.
Consumer mortgage — Consists of the following classes of finance receivables.
Mortgage Finance — Consists of consumer first-lien mortgages from our ongoing mortgage operations including bulk acquisitions, direct-to-consumer originations, and refinancing of high-quality jumbo mortgages and LMI mortgages.
Mortgage — Legacy — Consists of consumer mortgage assets originated prior to January 1, 2009, including first-lien mortgages, subordinate-lien mortgages, and home equity mortgages.
Consumer other — Consists of unsecured consumer lending from point-of-sale financing.
Commercial — Consists of the following classes of finance receivables.
Commercial and Industrial
Automotive — Consists of financing operations to fund dealer purchases of new and used vehicles through wholesale floorplan financing. Additional commercial offerings include automotive dealer term loans, revolving lines, and dealer fleet financing.
Other — Consists primarily of senior secured leveraged cash flow and asset-based loans related to our Corporate-Finance business.
Commercial Real Estate Consists of term loans primarily secured by dealership land and buildings, and other commercial lending secured by real estate.
Nonaccrual Loans
Generally, we recognize loans of all classes as past due when they are 30 days delinquent on making a contractually required payment, and loans are placed on nonaccrual status when principal or interest has been delinquent for at least 90 days, or when full collection is not expected. Interest income recognition is suspended when finance receivables and loans are placed on nonaccrual status. Additionally, amortization of premiums and discounts and deferred fees and costs ceases when finance receivables and loans are placed on nonaccrual. Exceptions include commercial real estate loans that are placed on nonaccrual status when delinquent for 60 days or when full collection is not probable, if sooner. Additionally, our policy is to generally place all loans that have been modified in a TDR on nonaccrual status until the loan has been brought fully current, the collection of contractual principal and interest is reasonably assured, and six consecutive months of
repayment performance is achieved. In certain cases, if a borrower has been current up to the time of the modification and repayment of the debt subsequent to the modification is reasonably assured, we may choose to continue to accrue interest on the loan.
Nonperforming loans on nonaccrual status are reported in Note 8. The receivable for interest income that is accrued, but not collected, at the date finance receivables and loans are placed on nonaccrual status is reversed against interest income and subsequently recognized only to the extent it is received in cash or until it qualifies for return to accrual status. However, where there is doubt regarding the ultimate collectability of loan principal, all cash received is applied to reduce the carrying value of such loans. Generally, finance receivables and loans are restored to accrual status only when contractually current and the collection of future payments is reasonably assured.
Troubled Debt Restructurings
When the terms of finance receivables or loans are modified, consideration must be given as to whether or not the modification results in a TDR. A modification is considered to be a TDR when both the borrower is experiencing financial difficulty and we grant a concession to the borrower. These considerations require significant judgment and vary by portfolio segment. In all cases, the cumulative impacts of all modifications are considered at the time of the most recent modification.
For consumer loans of all classes, various qualitative factors are utilized for assessing the financial difficulty of the borrower. These include, but are not limited to, the borrower’s default status on any of its debts, bankruptcy, and recent changes in financial circumstances (for instance, loss of job). A concession has been granted when as a result of the modification we do not expect to collect all amounts due under the original loan terms, including interest accrued at the original contract rate. Types of modifications that may be considered concessions include, but are not limited to, extensions of terms at a rate that does not constitute a market rate, a reduction, deferral or forgiveness of principal or interest owed and loans that have been discharged in a Chapter 7 Bankruptcy and have not been reaffirmed by the borrower.
In addition to the modifications noted above, in our consumer automotive portfolio segment of loans we also provide extensions or deferrals of payments to borrowers whom we deem to be experiencing only temporary financial difficulty. In these cases, there are limits within our operational policies to minimize the number of times a loan can be extended, as well as limits to the length of each extension, including a cumulative cap over the life of the loan. If these limits are breached, the modification is considered a TDR as noted in the following paragraph. Before offering an extension or deferral, we evaluate the capacity of the customer to make the scheduled payments after the deferral period. During the deferral period, we continue to accrue interest on the loan as part of the deferral agreement. We grant these extensions or deferrals when we expect to collect all amounts due including interest accrued at the original contract rate. However, in response to the COVID-19 pandemic, we offered broad-based deferral programs to all of our customers who requested assistance with their loans.
A restructuring that results in only a delay in payment that is deemed to be insignificant is not a concession and the modification is not considered to be a TDR. In order to assess whether a restructuring that results in a delay in payment is insignificant, we consider the amount of the restructured payments subject to delay in conjunction with the unpaid principal balance or the collateral value of the loan, whether or not the delay is significant with respect to the frequency of payments under the original contract, or the loan’s original expected duration. In the cases where payment extensions on our automotive loan portfolio cumulatively extend beyond 90 days and are more than 10% of the original contractual term or where the cumulative payment extension is beyond 180 days, we deem the delay in payment to be more than insignificant, and as such, classify these types of modifications as TDRs. Otherwise, we believe that the modifications do not represent a concessionary modification and accordingly, they are not classified as TDRs. Additionally, based on guidance issued by federal and state regulatory agencies, loan modifications made in response to the COVID-19 pandemic are not considered TDRs if accounts were considered current at the date the modification program was implemented. Refer to Note 8 for additional information.
For commercial loans of all classes, similar qualitative factors are considered when assessing the financial difficulty of the borrower. In addition to the factors noted above, consideration is also given to the borrower’s forecasted ability to service the debt in accordance with the contractual terms, possible regulatory actions, and other potential business disruptions (for example, the loss of a significant customer or other revenue stream). Consideration of a concession is also similar for commercial loans. In addition to the factors noted above, consideration is also given to whether additional guarantees or collateral have been provided.
For all loans, TDR classification typically results from our loss mitigation activities. For loans held-for-investment that are not carried at fair value and are TDRs, impairment is typically measured based on the difference between the amortized cost basis of the loan and the present value of the expected future cash flows of the loan. The present value is calculated using the loan’s original interest rate, as opposed to the interest rate specified within the restructuring. The loan may also be measured for impairment based on the fair value of the underlying collateral less costs to sell for loans that are collateral dependent. We recognize impairment by either establishing a valuation allowance or recording a charge-off.
The financial impacts of modifications that meet the definition of a TDR are reported in the period in which they are identified as TDRs. Additionally, if a loan that is classified as a TDR redefaults within 12 months of the modification, we are required to disclose the instances of redefault. For the purpose of this disclosure, we have determined that a loan is considered to have redefaulted when the loan meets the requirements for evaluation under our charge-off policy except for commercial loans where redefault is defined as 90 days past due. Nonaccrual loans may return to accrual status as discussed in the preceding nonaccrual loan section at which time, the normal accrual of interest income resumes.
Net Charge-offs
We disclose the measurement of net charge-offs as the amount of gross charge-offs recognized less recoveries received. Gross charge-offs reflect the amount of the amortized cost basis directly written-off. Generally, we recognize recoveries when they are received and record them as an increase to the allowance for loan losses. As a general rule, consumer automotive loans are written down to estimated collateral value, less costs to sell, if repossession is assured and in process once a loan becomes 120 days past due. In our consumer mortgage portfolio segment, first-lien mortgages and a subset of our home equity portfolio that are secured by real estate in a first-lien position are written down to the estimated fair value of the collateral, less costs to sell, once a mortgage loan becomes 180 days past due. Consumer mortgage loans that represent second-lien positions are charged off at 180 days past due. Loans in our consumer other segment are charged off at 120 days past due. Within 60 days of receipt of notification of filing from the bankruptcy court, or within the time frames noted above, consumer automotive and first-lien consumer mortgage loans in bankruptcy are written down to their expected future cash flows, which is generally fair value of the collateral, less costs to sell, and second-lien consumer mortgage loans and consumer other loans are fully charged-off, unless it can be clearly demonstrated that repayment is likely to occur. Regardless of other timelines noted within this policy, loans are considered collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to only be through sale or operation of the collateral. Collateral dependent loans are charged-off to the estimated fair value of the underlying collateral, less costs to sell when foreclosure or repossession proceedings begin.
Commercial loans are individually evaluated and are written down to the estimated fair value of the collateral less costs to sell when collectability of the recorded balance is in doubt. Generally, all commercial loans are charged-off when it becomes unlikely that the borrower is willing or able to repay the remaining balance of the loan and any underlying collateral is not sufficient to recover the outstanding principal. Collateral dependent loans are charged-off to the fair market value of collateral less costs to sell when appropriate. Noncollateral dependent loans are fully written-off.
Allowance for Loan Losses
The allowance for loan losses (the allowance) is deducted from, or added to, the loan’s amortized cost basis to present the net amount expected to be collected from our lending portfolios. We estimate the allowance using relevant available information, which includes both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Additions to the allowance are charged to current period earnings through the provision for loan losses; amounts determined to be uncollectible are charged directly against the allowance, net of amounts recovered on previously charged-off accounts. Expected recoveries do not exceed the total of amounts previously charged-off and amounts expected to be charged-off.
Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions or renewals, unless the extension or renewal option is included in the original or modified contract at the reporting date and we are not able to unconditionally cancel the option. Expected loan modifications are also not included in the contractual term, unless we have a reasonable expectation at period end that a TDR will be executed with a borrower.
For the purpose of calculating portfolio-level reserves, we have grouped our loans into four portfolio segments: consumer automotive, consumer mortgage, consumer other, and commercial. The allowance for loan losses is measured on a collective basis using statistical models when loans have similar risk characteristics. These statistical models are designed to correlate certain macroeconomic variables to expected future credit losses. The macroeconomic data used in the models are based on forecasted factors for the next 12-months. These forecasted variables are derived from both internal and external sources. Beyond this forecast period, we revert each variable to a historical average. This reversion to the mean is performed on a straight-line basis over 24 months. The historical average is calculated using historical data beginning in January 2008 through the current period.
Loans that do not share similar risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation.
The allowance calculation is also supplemented with qualitative reserves that take into consideration current portfolio and asset-level factors, such as the impacts of changes in underwriting standards, collections and account management effectiveness, geographic concentrations, and economic events that have occurred but are not yet reflected in the quantitative model component. Qualitative adjustments are documented, reviewed, and approved through our established risk governance processes and follow regulatory guidance.
Management also considers the need for a reserve on unfunded nonderivative loan commitments across our portfolio segments, including lines of credit and standby letters of credit. We estimate expected credit losses over the contractual period in which we are exposed to credit risk, unless we have the option to unconditionally cancel the obligation. Expected credit losses include consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over the estimated life. The reserve for unfunded loan commitments is recorded within other liabilities on our Condensed Consolidated Balance Sheet. Refer to Note 28 to the Consolidated Financial Statements in our 2019 Annual Report on Form 10-K for information on our unfunded loan commitments.
Consumer Automotive
The allowance for loan losses within the consumer automotive portfolio segment is calculated using proprietary statistical models and other risk indicators applied to pools of loans with similar risk characteristics, including credit bureau score and LTV ratios.
The model generates projections of default rates, prepayment rates, loss severity rates, and recovery rates using macroeconomic and historical loan data. These projections are used to develop transition scenarios to predict the portfolio’s migration from the current past-due
status to various future states over the life of the loan. While the macroeconomic data that is used to calculate expected credit losses includes interest rate indices and national and state-level home price indices, national and state-level unemployment rates are the most impactful macroeconomic factors in calculating expected lifetime credit losses. The loss severity within the consumer automotive portfolio segment is impacted by the market values of vehicles that are repossessed. Vehicle market values are affected by numerous factors including vehicle supply, the condition of the vehicle upon repossession, the overall price and volatility of gasoline or diesel fuel, consumer preference related to specific vehicle segments, and other factors. The model output is then aggregated to calculate expected lifetime credit losses.
Consumer Mortgage
The allowance for loan losses within the consumer mortgage portfolio segment is calculated by using statistical models based on pools of loans with similar risk characteristics, including credit score, LTV, loan age, documentation type, product type, and loan purpose.
Expected losses are statistically derived based on a suite of behavioral based transition models. This transition framework predicts various stages of delinquency, default, and voluntary prepayment over the course of the life of the loan. The transition probability is a function of certain loan and borrower characteristics, including factors, such as loan balance and term, the borrower’s credit score, and loan-to-value ratios, and economic variables, as well as consideration of historical factors such as loss frequency and severity. When a default event is predicted, a severity model is applied to estimate future loan losses. Loss severity within the consumer mortgage portfolio segment is impacted by the market values of foreclosed properties, which is affected by numerous factors, including geographic considerations and the condition of the foreclosed property. Macroeconomic data that is used to calculate expected credit losses includes certain interest rates and home price indices. The model output is then aggregated to calculate expected lifetime credit losses.
Consumer Other
The allowance for loan losses within the consumer other portfolio segment is calculated by using a vintage analysis that analyzes historical performance for groups of loans with similar risk characteristics, including vintage level historical balance paydown rates and delinquency and roll rate behaviors by risk tier and product type, to arrive at an estimate of expected lifetime credit losses. The risk tier segmentation is based upon borrower risk characteristics, including credit score and past performance history, as well as certain loan specific characteristics, such as loan type and origination year.
Commercial Loans
The allowance for loan losses within the commercial loan portfolio segment is calculated using risk rating models that use historical loss experience, concentrations, macroeconomic factors, and performance trends. The determination of the allowance is influenced by numerous assumptions and factors that may materially affect estimates of loss, including changes to the PD, LGD, and EAD. PD factors are determined based on our historical performance data, which considers on-going reviews of the financial performance of the specific borrower, including cash flow, debt-service coverage ratio, and an assessment of the borrower’s industry and future prospects. The determination of PD also incorporates historical loss performance and, when necessary, macroeconomic information obtained from external sources. LGD factors consider the type of collateral, relative loan-to-value ratios, and historical loss information. In addition, LGD factors may be influenced by situations in which automotive manufacturers repurchase vehicles used as collateral to secure the loans in default situations. EAD factors are derived from outstanding balance levels, including estimated prepayment assumptions based on historical performance.
Refer to Note 8 for information on the allowance for loan losses.
Goodwill and Other Intangibles
On January 1, 2020, we adopted ASU 2017-04, Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment, on a prospective basis, resulting in an update to our accounting policy. Goodwill and intangible assets, net of accumulated amortization, are reported in other assets in our Condensed Consolidated Balance Sheet.
Our intangible assets primarily consist of acquired customer relationships and developed technology, and are amortized using a straight-line methodology over their estimated useful lives. We review intangible assets for impairment at least annually, or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If it is determined the carrying amount of the asset is not recoverable, an impairment charge is recorded.
Goodwill represents the excess of the cost of an acquisition over the fair value of net assets acquired, including identifiable intangibles. We allocate goodwill to applicable reporting units based on the relative fair value of the other net assets allocated to those reporting units at the time of the acquisition. In the event we restructure our business, we may reallocate goodwill. We test goodwill for impairment annually, or more frequently if events and changes in circumstances indicate that it is more likely than not that impairment exists. Historically, our annual goodwill impairment test was performed as of August 31 of each year, however beginning in 2020, the testing date was moved forward to July 31 of each year. We do not consider this change to be material, and the change in assessment date did not delay, accelerate, or avoid a potential impairment charge. This change is within the same reporting period of our historic assessment and our testing methods and valuation inputs are not significantly different than they would be had we maintained our historic goodwill test date, resulting in consistent conclusions. In certain situations, we may perform a qualitative assessment to test goodwill for impairment. We may also decide to bypass the qualitative assessment and perform a quantitative assessment. If we perform the qualitative assessment to test goodwill for impairment and conclude that it is more likely than not that the reporting unit’s fair value is greater than its carrying value, then the quantitative assessment is not required. However, if we perform the qualitative assessment and determine that it is more likely than not that a reporting unit’s fair value is less than its carrying value, then we must perform the quantitative assessment. The quantitative assessment requires us to compare the fair
value of each of the reporting units to their respective carrying value. The fair value of the reporting units in our quantitative assessment is determined based on various analyses including discounted cash flow projections using assumptions a market participant would use. If the fair value of a reporting unit exceeds its carrying amount, goodwill is not considered impaired. If the carrying amount of a reporting unit exceeds its fair value, a goodwill impairment loss is recorded for the excess of the carrying value of the reporting unit over its fair value.
Income Taxes
In calculating the provision for interim income taxes, in accordance with ASC Topic 740, Income Taxes, we apply an estimated annual effective tax rate to year-to-date ordinary income. At the end of each interim period, we estimate the effective tax rate expected to be applicable for the full fiscal year. This method differs from that described in Note 1 to the Consolidated Financial Statements in our 2019 Annual Report on Form 10-K, which describes our annual significant income tax accounting policy and related methodology.
Refer to Note 1 to the Consolidated Financial Statements in our 2019 Annual Report on Form 10-K regarding additional significant accounting policies.
Recently Adopted Accounting Standards
Financial Instruments—Credit Losses (ASU 2016-13)
In June 2016, the FASB issued ASU 2016-13, Financial InstrumentsCredit Losses: Measurement of Credit Losses on Financial Instruments. The amendments in this update introduced a new accounting model to measure credit losses for financial assets measured at amortized cost. The FASB has also issued additional ASUs that clarified the scope and provided additional guidance for ASU 2016-13. Credit losses for financial assets measured at amortized cost will now be determined based on the total current expected credit losses over the life of the financial asset or group of financial assets. In effect, the financial asset or group of financial assets will be presented at the net amount expected to be collected. Credit losses are no longer recorded under the current incurred loss model for financial assets measured at amortized cost. The amendments also modified the accounting for available-for-sale securities whereby credit losses are now recorded through an allowance for credit losses rather than a write-down to the security’s cost basis, which allows for reversals of credit losses when estimated credit losses decline. Credit losses for available-for-sale securities are measured in a manner similar to current GAAP.
On January 1, 2020, we adopted ASU 2016-13 and all subsequent ASUs that modified ASU 2016-13 (collectively, the amendments to the credit loss standard), which have been codified under ASC 326, Financial Instruments - Credit Losses. We adopted this guidance using the modified retrospective approach, as required, and have not adjusted prior period comparative information and will continue to disclose prior period financial information in accordance with the previous accounting guidance. While the standard modified the measurement of the allowance for credit losses, it did not alter the credit risk of our finance receivables and loan portfolio.
The adoption of the amendments resulted in a reduction to our opening retained earnings of approximately $1.0 billion, net of income taxes, resulting from a pretax increase to our allowance for credit losses of approximately $1.3 billion, primarily driven by our consumer automotive loan portfolio. The increase is primarily related to the difference between loss emergence periods previously utilized, as compared to estimating lifetime credit losses as required by the CECL standard. We did not experience a material impact to the allowance for loan losses from any of our other lending portfolios. Additionally, the adoption of CECL did not result in a material impact to our held-to-maturity securities portfolio, which is primarily composed of agency-backed mortgage securities, or our available-for-sale securities portfolio. We have elected to phase the estimated impact of CECL into regulatory capital in accordance with the interim final rule of the FRB and other U.S. banking agencies that became effective on March 31, 2020, and was subsequently clarified and adjusted in a final rule effective September 30, 2020. As a result, we will delay recognizing the estimated impact of CECL on regulatory capital until after a two-year deferral period, which for us extends through December 31, 2021. Beginning on January 1, 2022, we will be required to phase in 25% of the previously deferred estimated capital impact of CECL, with an additional 25% to be phased in at the beginning of each subsequent year until fully phased in by the first quarter of 2025. Under the final rule, the estimated impact of CECL on regulatory capital that we will defer and later phase in is calculated as the entire day-one impact at adoption plus 25% of the subsequent change in allowance during the two-year deferral period. Refer to Note 17 for further details about the impact of CECL on regulatory capital.
Our quantitative allowance for loan loss estimates under CECL is impacted by certain forecasted economic factors. In order to estimate the quantitative portion of our allowance for loan losses under CECL, our modeling processes rely on a single forecast scenario for each macroeconomic factor incorporated. To derive macroeconomic assumptions in this single scenario, we have elected to forecast these macroeconomic factors over a 12-month period, which we have determined to be reasonable and supportable. After the 12-month reasonable and supportable forecast period, we have elected to revert on a straight-line basis over a 24-month period to a historical mean for each macroeconomic factor. The mean is calculated from historical data spanning from January 2008 through the most current period, and as a result, includes data points from the last recessionary period. In addition to our quantitative allowance for loan losses, we also incorporate qualitative adjustments that may relate to idiosyncratic risks, changes in current economic conditions that may not be reflected in quantitatively derived results, or other relevant factors to further inform our estimate of the allowance for credit losses.
Additionally, due to the expansion of the time horizon over which we are required to estimate future credit losses, we may experience increased volatility in our future provisions for credit losses. Factors that could contribute to such volatility include, but are not limited to, changes in the composition and credit quality of our financing receivables and loan portfolio and investment securities portfolios, economic conditions and forecasts, the allowance for credit loss models that are used, the data that is included in the models, the associated qualitative allowance framework, and our estimation techniques.
Reference Rate Reform (ASU 2020-04)
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide temporary, optional guidance to ease the potential burden in accounting for reference rate reform. The amendments provide optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The amendments primarily include relief related to contract modifications and hedging relationships, as well as providing a one-time election for the sale or transfer of debt securities classified as held to maturity. The relief provided by this ASU does not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. However, hedging relationships that apply certain optional expedients prior to December 31, 2022, will be retained through the end of the hedging relationship, including for periods after December 31, 2022.
We adopted the amendments in ASU 2020-04 as of the March 12, 2020 issuance date, on a prospective basis. The adoption did not have an immediate direct impact to our financial statements. As contracts are modified through December 2022, we will assess the impact based on this guidance. We do not expect there will be a material impact to our financial statements.
v3.20.2
Acquisitions
9 Months Ended
Sep. 30, 2020
Business Combinations [Abstract]  
Business Combination Disclosure [Text Block] Acquisitions
On October 1, 2019, we acquired 100% of the equity of Credit Services Corporation, LLC, including its wholly owned subsidiary, Health Credit Services LLC (collectively Health Credit Services), a digital point-of-sale payment provider that offers financing to consumers for various healthcare procedures or services, for $177 million in cash. Health Credit Services operates as a wholly owned subsidiary of Ally. Beginning in October 2019, financial information related to Health Credit Services, which we renamed Ally Lending, is included within Corporate and Other. For further information on our acquisition of Health Credit Services, refer to Note 2 in our 2019 Annual Report on Form 10-K.
Additionally, in February 2020, we entered into a merger agreement to acquire Cardholder Management Services, Inc. and its subsidiaries, including CardWorks, Inc. and Merrick Bank Corporation (collectively, CardWorks). CardWorks is a nonprime credit-card and consumer-finance provider in the United States with servicing and merchant-service capabilities across the credit spectrum. On June 24, 2020, the parties to the merger agreement (other than the stockholders’ representative) mutually agreed to terminate it. We did not incur any termination or breakup fees as a result of the execution of the mutual termination agreement.
v3.20.2
Revenue from Contracts with Customers
9 Months Ended
Sep. 30, 2020
Revenue from Contract with Customer [Abstract]  
Revenue from Contracts with Customers Revenue from Contracts with CustomersOur primary revenue sources, which include financing revenue and other interest income, are addressed by other GAAP and are not in the scope of ASC Topic 606, Revenue from Contracts with Customers. As part of our Insurance operations, we recognize revenue from insurance contracts, which are addressed by other GAAP and are not included in the scope of this standard. Certain noninsurance contracts within our Insurance operations, including VSCs, GAP contracts, and VMCs, are included in the scope of this standard. All revenue associated with noninsurance contracts is recognized over the contract term on a basis proportionate to the anticipated cost emergence. Further, commissions and sales expense incurred to obtain these contracts are amortized over the terms of the related policies and service contracts on the same basis as premiums and service revenue are earned, and all advertising costs are recognized as expense when incurred.
The following tables present a disaggregated view of our revenue from contracts with customers included in other revenue that falls within the scope of the revenue recognition principles of ASC Topic 606, Revenue from Contracts with Customers. For further information regarding our revenue recognition policies and details about the nature of our respective revenue streams, refer to Note 1 and Note 3 to the Consolidated Financial Statements in our 2019 Annual Report on Form 10-K.
Three months ended September 30, ($ in millions)
Automotive Finance operationsInsurance operationsMortgage Finance operationsCorporate Finance operationsCorporate and OtherConsolidated
2020
Revenue from contracts with customers
Noninsurance contracts (a) (b) (c)$ $148 $ $ $ $148 
Remarketing fee income
20     20 
Brokerage commissions and other revenue
    12 12 
Brokered/agent commissions 4    4 
Deposit account and other banking fees    4 4 
Other3     3 
Total revenue from contracts with customers
23 152   16 191 
All other revenue
38 186 36 9 24 293 
Total other revenue (d)$61 $338 $36 $9 $40 $484 
2019
Revenue from contracts with customers
Noninsurance contracts (a) (b) (c)$— $138 $— $— $— $138 
Remarketing fee income
19 — — — — 19 
Brokerage commissions and other revenue
— — — — 16 16 
Brokered/agent commissions— — — — 
Deposit account and other banking fees— — — — 
Other— — — — 
Total revenue from contracts with customers
24 141 — — 19 184 
All other revenue
35 148 10 27 229 
Total other revenue (d)$59 $289 $10 $$46 $413 
(a)We had opening balances of $2.9 billion and $2.8 billion in unearned revenue associated with outstanding contracts at July 1, 2020, and July 1, 2019, respectively, and $218 million and $206 million of these balances were recognized as insurance premiums and service revenue earned in our Condensed Consolidated Statement of Comprehensive Income during the three months ended September 30, 2020, and September 30, 2019.
(b)At September 30, 2020, we had unearned revenue of $3.0 billion associated with outstanding contracts, and with respect to this balance we expect to recognize revenue of $210 million during the remainder of 2020, $779 million in 2021, $689 million in 2022, $568 million in 2023, and $722 million thereafter. At September 30, 2019, we had unearned revenue of $2.8 billion associated with outstanding contracts.
(c)We had deferred insurance assets of $1.8 billion at both July 1, 2020, and September 30, 2020, and recognized $125 million of expense during the three months ended September 30, 2020. We had deferred insurance assets of $1.6 billion and $1.7 billion at July 1, 2019, and September 30, 2019, respectively, and recognized $119 million of expense during the three months ended September 30, 2019.
(d)Represents a component of total net revenue. Refer to Note 22 for further information on our reportable operating segments.
Nine months ended September 30, ($ in millions)
Automotive Finance operationsInsurance operationsMortgage Finance operationsCorporate Finance operationsCorporate and OtherConsolidated
2020
Revenue from contracts with customers
Noninsurance contracts (a) (b)$ $433 $ $ $ $433 
Remarketing fee income52     52 
Brokerage commissions and other revenue    39 39 
Brokered/agent commissions 12    12 
Deposit account and other banking fees    9 9 
Other11     11 
Total revenue from contracts with customers
63 445   48 556 
All other revenue
85 468 65 28 103 749 
Total other revenue (c)$148 $913 $65 $28 $151 $1,305 
2019
Revenue from contracts with customers
Noninsurance contracts (a) (b)$— $403 $— $— $— $403 
Remarketing fee income56 — — — — 56 
Brokerage commissions and other revenue— — — — 50 50 
Brokered/agent commissions— 10 — — — 10 
Deposit account and other banking fees— — — — 12 12 
Other15 — — — — 15 
Total revenue from contracts with customers
71 413 — — 62 546 
All other revenue
117 522 16 30 43 728 
Total other revenue (c)$188 $935 $16 $30 $105 $1,274 
(a)We had opening balances of $2.9 billion and $2.6 billion in unearned revenue associated with outstanding contracts at January 1, 2020, and January 1, 2019, respectively, and $643 million and $607 million of these balances were recognized as insurance premiums and service revenue earned in our Condensed Consolidated Statement of Comprehensive Income during the nine months ended September 30, 2020, and September 30, 2019.
(b)We had deferred insurance assets of $1.7 billion and $1.8 billion at January 1, 2020, and September 30, 2020, respectively, and recognized $371 million of expense during the nine months ended September 30, 2020. We had deferred insurance assets of $1.5 billion and $1.7 billion at January 1, 2019, and September 30, 2019, respectively, and recognized $344 million of expense during the nine months ended September 30, 2019.
(c)Represents a component of total net revenue. Refer to Note 22 for further information on our reportable operating segments.
In addition to the components of other revenue presented above, as part of our Automotive Finance operations, we recognized net remarketing gains of $71 million and $62 million for the three months and nine months ended September 30, 2020, respectively, and $28 million and $66 million for the three months and nine months ended September 30, 2019, on the sale of off-lease vehicles. These gains are included in depreciation expense on operating lease assets in our Condensed Consolidated Statement of Comprehensive Income.
v3.20.2
Other Income, Net of Losses
9 Months Ended
Sep. 30, 2020
Other Nonoperating Income (Expense) [Abstract]  
Other Income and Other Expense Disclosure Other Income, Net of Losses
Details of other income, net of losses, were as follows.
Three months ended September 30,Nine months ended September 30,
($ in millions)2020201920202019
Income from equity-method investments$63 $$115 $19 
Late charges and other administrative fees28 28 65 85 
Remarketing fees20 19 52 56 
Servicing fees3 8 14 
Other, net46 37 91 104 
Total other income, net of losses$160 $95 $331 $278 
v3.20.2
Reserves for Insurance Losses and Loss Adjustment Expenses
9 Months Ended
Sep. 30, 2020
Short-duration Insurance Contracts, Liability for Unpaid Claims and Allocated Claim Adjustment Expense, Net [Abstract]  
Reserves for Insurance Losses and Loss Adjustment Expenses Reserves for Insurance Losses and Loss Adjustment Expenses
The following table shows a rollforward of our reserves for insurance losses and loss adjustment expenses.
($ in millions)20202019
Total gross reserves for insurance losses and loss adjustment expenses at January 1,$122 $134 
Less: Reinsurance recoverable88 96 
Net reserves for insurance losses and loss adjustment expenses at January 1,34 38 
Net insurance losses and loss adjustment expenses incurred related to:
Current year298 259 
Prior years (a)3 
Total net insurance losses and loss adjustment expenses incurred301 260 
Net insurance losses and loss adjustment expenses paid or payable related to:
Current year(271)(227)
Prior years(27)(29)
Total net insurance losses and loss adjustment expenses paid or payable(298)(256)
Net reserves for insurance losses and loss adjustment expenses at September 30,37 42 
Plus: Reinsurance recoverable88 93 
Total gross reserves for insurance losses and loss adjustment expenses at September 30,$125 $135 
(a)There have been no material adverse changes to the reserve for prior years.
v3.20.2
Other Operating Expenses
9 Months Ended
Sep. 30, 2020
Operating Expenses [Abstract]  
Other Operating Income and Expense Other Operating Expenses
Details of other operating expenses were as follows.
Three months ended September 30,Nine months ended September 30,
($ in millions)2020201920202019
Insurance commissions$130 $120 $383 $351 
Technology and communications77 77 236 227 
Lease and loan administration57 40 141 122 
Advertising and marketing36 46 112 129 
Property and equipment depreciation34 25 102 72 
Professional services28 32 87 91 
Regulatory and licensing fees18 29 76 85 
Vehicle remarketing and repossession17 26 51 78 
Occupancy14 14 43 43 
Non-income taxes9 23 29 
Amortization of intangible assets4 14 
Other54 48 155 144 
Total other operating expenses$478 $468 $1,423 $1,379 
v3.20.2
Investment Securities
9 Months Ended
Sep. 30, 2020
Investments, Debt and Equity Securities [Abstract]  
Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure Investment Securities
Our investment portfolio includes various debt and equity securities. Our debt securities, which are classified as available-for-sale or held-to-maturity, include government securities, corporate bonds, asset-backed securities, and mortgage-backed securities. The cost, fair value, and gross unrealized gains and losses on available-for-sale and held-to-maturity securities were as follows.
September 30, 2020December 31, 2019
Amortized costGross unrealized
Fair value
Amortized costGross unrealized
Fair value
($ in millions)gainslossesgainslosses
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies$784 $22 $ $806 $2,059 $$(17)$2,048 
U.S. States and political subdivisions937 40  977 623 19 (1)641 
Foreign government186 10  196 184 (1)186 
Agency mortgage-backed residential
19,887 613 (5)20,495 21,183 257 (36)21,404 
Mortgage-backed residential2,982 55 (1)3,036 2,841 20 (11)2,850 
Agency mortgage-backed commercial2,115 131 (2)2,244 1,344 44 (6)1,382 
Mortgage-backed commercial    41 — 42 
Asset-backed384 5  389 365 — 368 
Corporate debt1,763 88 (5)1,846 1,327 37 (1)1,363 
Total available-for-sale securities (a) (b) (c) (d) (e)
$29,038 $964 $(13)$29,989 $29,967 $390 $(73)$30,284 
Held-to-maturity securities
Debt securities
Agency mortgage-backed residential$1,249 $81 $ $1,330 $1,547 $38 $(6)$1,579 
Asset-backed retained notes6   6 21 — — 21 
Total held-to-maturity securities (e) (f) (g)
$1,255 $81 $ $1,336 $1,568 $38 $(6)$1,600 
(a)Certain entities related to our Insurance operations are required to deposit securities with state regulatory authorities. These deposited securities totaled $13 million and $12 million at September 30, 2020, and December 31, 2019, respectively.
(b)Certain available-for-sale securities are included in fair value hedging relationships. Refer to Note 18 for additional information.
(c)Available-for-sale securities with a fair value of $121 million and $1.9 billion at September 30, 2020, and December 31, 2019, respectively, were pledged to secure advances from the FHLB, repurchase agreements, other short-term borrowings, or for other purposes as required by contractual obligation or law. Under these agreements, we granted the counterparty the right to sell or pledge $121 million and $118 million of the underlying investment securities at September 30, 2020, and December 31, 2019, respectively.
(d)Totals do not include accrued interest receivable, which was $91 million and $98 million at September 30, 2020, and December 31, 2019, respectively. Accrued interest receivable is included in other assets on our Condensed Consolidated Balance Sheet.
(e)There was no allowance for credit losses recorded at September 30, 2020, as management determined that credit losses did not exist for our portfolio of available-for-sale and held-to-maturity securities.
(f)Held-to-maturity securities with a fair value of $915 million at December 31, 2019, were pledged to secure advances from the FHLB. We did not pledge any held-to-maturity securities at September 30, 2020.
(g)Totals do not include accrued interest receivable, which was $3 million at both September 30, 2020, and December 31, 2019. Accrued interest receivable is included in other assets on our Condensed Consolidated Balance Sheet.
The maturity distribution of debt securities outstanding is summarized in the following tables based upon contractual maturities. Call or prepayment options may cause actual maturities to differ from contractual maturities.
TotalDue in one year or lessDue after one year through five yearsDue after five years through ten yearsDue after ten years
($ in millions)AmountYieldAmountYieldAmountYieldAmountYieldAmountYield
September 30, 2020
Fair value of available-for-sale securities (a)
U.S. Treasury and federal agencies$806 1.2 %$11  %$712 1.1 %$83 1.7 %$  %
U.S. States and political subdivisions977 3.0 33 1.4 103 2.3 201 2.9 640 3.3 
Foreign government196 1.8 35 0.5 83 2.3 78 1.9   
Agency mortgage-backed residential20,495 3.2     40 2.0 20,455 3.2 
Mortgage-backed residential3,036 3.2       3,036 3.2 
Agency mortgage-backed commercial2,244 2.3   3 3.3 1,234 2.6 1,007 1.9 
Asset-backed389 3.2   336 3.3 21 2.3 32 3.1 
Corporate debt1,846 2.8 157 2.8 633 2.9 1,008 2.7 48 2.0 
Total available-for-sale securities$29,989 3.0 $236 2.2 $1,870 2.3 $2,665 2.6 $25,218 3.1 
Amortized cost of available-for-sale securities
$29,038 $234 $1,810 $2,488 $24,506 
Amortized cost of held-to-maturity securities
Agency mortgage-backed residential
$1,249 3.2 %$  %$  %$  %$1,249 3.2 %
Asset-backed retained notes
6 2.5   6 2.5     
Total held-to-maturity securities
$1,255 3.2 $  $6 2.5 $  $1,249 3.2 
December 31, 2019
Fair value of available-for-sale securities (a)
U.S. Treasury and federal agencies$2,048 1.5 %$65 2.1 %$1,590 1.4 %$393 1.7 %$— — %
U.S. States and political subdivisions641 3.1 22 2.7 75 2.3 159 2.8 385 3.4 
Foreign government186 1.9 35 0.4 65 2.3 86 2.3 — — 
Agency mortgage-backed residential21,404 3.2 — — — — 47 2.0 21,357 3.2 
Mortgage-backed residential2,850 3.2 — — — — — — 2,850 3.2 
Agency mortgage-backed commercial1,382 2.9 — — 3.2 1,109 3.0 270 2.4