Ally Financial Inc. — 2021 Form 10-K
Business context and period: Annual report for the fiscal year ended December 31, 2021, compared primarily with 2020. Ally is a digital financial-services company focused on auto finance and insurance, with banking, mortgage, corporate finance, brokerage, point-of-sale lending, and credit-card businesses. It reported $182.1 billion in assets.
Financial results and condition
| Metric | 2021 | 2020 |
|---|---|---|
| Total net revenue | $8.206 billion | $6.686 billion |
| Net income | $3.060 billion | $1.085 billion |
| Diluted EPS | $8.22 | $2.88 |
| Net financing revenue and other interest income | $6.167 billion | $4.703 billion |
| Net interest margin | 3.54% | 2.65% |
| Provision for credit losses | $241 million | $1.439 billion |
| Net cash from operating activities | $4.042 billion | $3.739 billion |
- Profit improvement reflected lower funding costs, lower lease depreciation expense, and a sharply lower credit-loss provision as economic conditions recovered. The 2020 comparison included substantial pandemic-related reserve increases.
- Auto finance generated $5.460 billion in net revenue and $3.384 billion in pretax income, versus $4.488 billion and $1.285 billion, respectively, in 2020. Net remarketing gains on off-lease vehicles rose to $344 million from $127 million, amid vehicle supply constraints and strong used-car demand.
- Insurance pretax income was $343 million, up from $284 million; its combined ratio improved to 93.9% from 98.0%, primarily reflecting lower weather-related losses. Mortgage Finance pretax income declined to $32 million from $53 million. Corporate Finance pretax income increased to $282 million from $88 million, including investment gains and lower credit provisions.
- Assets were broadly flat year over year. Deposits rose to $141.6 billion from $137.0 billion, while long-term debt declined to $17.0 billion from $22.0 billion. Total available liquidity fell to $31.2 billion from $40.3 billion, mainly because of lower cash and equivalents; liquid cash and equivalents were $4.4 billion and unencumbered highly liquid securities were $26.8 billion.
- Cash used in investing activities was $11.1 billion, versus $8.4 billion of cash provided in 2020; cash used in financing activities was $3.8 billion. Common equity Tier 1 capital was 10.34%, down from 10.64%; the company reported compliance with regulatory capital requirements.
Material changes, outlook, and risks
- Ally acquired digital credit-card provider Fair Square on December 1, 2021, for $741 million in cash. The acquisition added $953 million in credit-card receivables at year-end and $479 million of goodwill.
- Consumer auto originations increased to $46.3 billion from $35.1 billion. Used vehicles accounted for 60% of consumer auto originations, up from 55%. Commercial floorplan balances and revenue declined as semiconductor-related production constraints reduced dealer inventories.
- Management expected supply-chain disruptions and lower dealer inventory levels to continue limiting commercial wholesale finance-receivable growth through 2022. The filing does not provide a clear consolidated earnings or revenue forecast.
- Management highlighted uncertainty from COVID-19, inflation, interest-rate changes, vehicle supply and used-car prices, credit performance, and the LIBOR transition. Auto concentration remains material: GM and Stellantis represented substantial portions of consumer auto originations and dealer inventory financing. Ally also cited competition, regulatory constraints, cybersecurity and third-party risks, and potential changes in capital requirements.
- Capital actions included $1.994 billion of common-stock repurchases and $0.88 per share in declared common dividends during 2021. In January 2022, the Board authorized up to $2.0 billion in repurchases during 2022 and raised the quarterly common dividend to $0.30, subject to regulatory and Board requirements.
- A class-action settlement received final approval in 2021, involving an $87.5 million cash payment and waiver of $700 million in charged-off deficiency balances. Ally stated that, after considering accruals, it did not believe the ultimate outcomes of current legal matters were likely to be material to consolidated financial condition, while noting that results or cash flows in a particular period could be affected.
Most important facts for investors to verify
- How sustainable 2021 earnings are after separating lower credit provisions and unusually strong vehicle remarketing gains from ongoing operating performance.
- Whether credit losses and reserve needs rise as pandemic-era support fades, and how the acquired credit-card portfolio performs.
- How quickly auto production and dealer inventories recover, and whether used-vehicle prices and lease residual values normalize.
- Whether deposit growth, funding costs, and available liquidity remain adequate as certificates of deposit mature and interest rates change.
- Capital ratios and the impact of CECL capital phase-in beginning in 2022, including any constraints on dividends or repurchases.
- Progress on the Fair Square integration, the LIBOR transition, and resolution of material legal or regulatory matters.