Ally Financial Reports Preliminary Second Quarter 2010 Financial Results

NEW YORK, Aug. 3 /PRNewswire-FirstCall/ -- Ally Financial Inc. (Ally) today reported net income of $565 million for the second quarter of 2010, compared to a net loss of $3.9 billion for the second quarter of 2009.  Core pre-tax income, which reflects income from continuing operations before taxes and original issue discount (OID) amortization expense from bond exchanges, totaled $738 million in the second quarter of 2010, compared to a core pre-tax loss of $1.3 billion in the comparable prior year period.

Core pre-tax income during the quarter was driven by higher net revenue, a lower loan loss provision and a lower noninterest expense compared to the second quarter of 2009.  Results were also positively impacted by certain factors that may moderate over the coming quarters, including gains on the sale of auto loans under forward flow agreements, lease portfolio remarketing gains resulting from high used vehicle prices, legacy mortgage loan sale gains and gains from the insurance investment portfolio.

"Ally made substantial progress in the second quarter with all operating segments posting a profit," said Ally Chief Executive Officer Michael A. Carpenter.  "Ally is a fundamentally stronger organization today than it was a year ago, and we are proud of our central role in the recovery of the U.S. auto industry.  As a result of Ally's quick action and the U.S. government's financial support, approximately 1,400 Chrysler dealers, employing an estimated 70,000 people, were able to keep their businesses open and contribute to the stability of their communities.    

"Over the past twelve months Ally has financed 82 percent of the vehicles sold to nearly 5,000 GM and Chrysler dealers in the U.S.  In addition, the company financed 700,000 new vehicles for GM and Chrysler consumers within the last year," said Carpenter.

"In the first half of 2010, Ally's new consumer auto originations in the U.S. more than doubled compared to the first two quarters of last year to about 400,000 units, reflecting about eight times that of any other lender and demonstrating the company's leadership as a full service auto finance provider," he concluded.

Highlights

• Core auto finance business continues to perform well.
  • No. 1 ranked provider of new car financing in the U.S. during the first half of 2010 (Source: AutoCount).
  • Global consumer financing originations remained strong, as levels increased more than 30 percent from the previous quarter.
  • Non-incentivized business accounted for 52 percent of new GM and Chrysler consumer originations in the U.S., up from 31 percent in the second quarter of 2009.
  • Second quarter 2010 consumer penetration rates for both GM and Chrysler increased compared to the corresponding prior year period.
  • Ally began accepting retail finance applications for recreation vehicles from Thor Industries dealers in early June.
• Announced plans to rebrand the company's consumer and dealer-related auto finance operations in the U.S., Canada and Mexico to leverage the Ally name.
  • Follows the rebranding of the corporation from GMAC Inc. to Ally Financial Inc. on May 10, 2010.
• Net bank deposits grew by approximately $2.3 billion during the second quarter, which was supported by an 82 percent CD retention rate.
• Continued to focus on streamlining non-strategic operations to further improve Ally's cost structure and efficiency.
  • During the second quarter, Ally completed the sale of the North American factoring business, the auto finance retail credit portfolio in Australia, the retail automotive finance operations in Poland and the full-service auto leasing businesses in Australia, Poland, Belgium and France.
  • Ally also reached agreements during the second quarter to sell the reinsurance-related infrastructure, assets and liabilities of GMAC International Insurance, Ltd. and the auto finance retail credit portfolio in New Zealand. In addition, Residential Capital, LLC (ResCap) reached an agreement to sell its European mortgage origination and servicing business.
• Continued to strengthen access to liquidity with more than $25 billion of funding transactions completed to date in 2010.
• Cost of funds has declined more than 100 basis points since becoming a bank holding company.
• Continued to make progress in minimizing legacy mortgage risk during the quarter, as the company executed the sale of domestic non-core and international assets totaling more than $1.2 billion in unpaid principal balance.
• Expense reduction efforts remain on track, with quarterly controllable expenses down $124 million year-over-year.

Liquidity and Capital

Ally's consolidated cash and cash equivalents were $14.3 billion as of June 30, 2010, compared to $14.7 billion at March 31, 2010.  Included in the consolidated cash and cash equivalents balance are: $621 million at ResCap; $2.6 billion at Ally Bank, which excludes certain intercompany deposits; and $823 million at the insurance businesses.  

Ally's total equity at June 30, 2010, was $20.8 billion, compared to $20.5 billion at March 31, 2010.  Ally's preliminary second quarter 2010 tier 1 capital ratio was 15.3 percent, compared to 14.9 percent in the prior quarter.  Ally's tier 1 capital ratio improved due to net income, the sale of assets and the continued run-off of the lease portfolio, partially offset by growth in consumer and commercial receivables.  

Ally Bank

Ally Bank's deposit-taking capabilities are a significant component of the company's diversified funding strategy.  For the second quarter of 2010, Ally Bank reported pre-tax income of $126 million, compared to a pre-tax loss of $299 million in the corresponding prior year period.  Performance in the quarter was driven by improved margins and a decrease in loan loss provision expense. Total assets at Ally Bank were $61.7 billion at June 30, 2010, compared to $55.2 billion at March 31, 2010.  Higher asset levels were the result of increases in automotive consumer finance receivables, floorplan and warehouse lending, and available-for-sale securities.

Deposits

The company continued to grow its deposit base during the quarter through its subsidiaries, Ally Bank and ResMor Trust.  Ally Bank and ResMor Trust deposits, excluding certain intercompany deposits, increased in the second quarter to $34.3 billion, from $32.0 billion at March 31, 2010.  Retail deposits at Ally Bank were $18.7 billion at June 30, 2010, compared to $17.7 billion at March 31, 2010.  Retail deposits accounted for approximately 60 percent of Ally Bank's total deposits as the company remains focused on growing its retail deposit base.  Brokered deposits at Ally Bank totaled approximately $9.9 billion at quarter-end, compared to $9.8 billion at the end of the first quarter of 2010.

Global Automotive Services

Global Automotive Services consists of Ally's auto-centric businesses around the world, including: North American Automotive Finance, International Automotive Finance and Insurance.   Global Automotive Services reported second quarter 2010 pre-tax income from continuing operations of $843 million, compared to $583 million in the comparable prior year period.  This represents the sixth consecutive profitable quarter from the core automotive business.

North American Automotive Finance, which includes results for the U.S. and Canada, reported pre-tax income from continuing operations of $630 million in the second quarter of 2010, compared to $451 million in the comparable prior year period.  Results were driven by strong growth in originations supported by improved penetration for GM and Chrysler, and remarketing gains due to favorable used vehicle prices.

International Automotive Finance reported pre-tax income from continuing operations of $105 million in the second quarter of 2010, compared to $33 million in the same period last year.  Results in the quarter were favorably affected by a lower noninterest expense and a lower loan loss provision due to improving asset quality.  Ally has significantly streamlined its international presence in recent years to focus on strategic operations and improve financial performance.  The company's international auto finance footprint currently consists of 14 countries, with a focus on five core international markets: Germany, U.K., Brazil, Mexico and China.  

Ally's insurance business reported pre-tax income from continuing operations of $108 million in the second quarter of 2010, compared to $99 million in the prior year period.  Results were primarily driven by improved underwriting income due to lower expenses, partially offset by lower earned premiums on the extended service contracts written in prior periods.  In addition, investment income remained strong during the quarter.  Ally remains focused on streamlining its insurance segment to focus primarily on dealer-centric products, such as extended service contracts and dealer inventory insurance.

Automotive originations and penetration

Total consumer financing originations during the second quarter of 2010 were $10.7 billion.  This included $8.4 billion of new originations, $1.4 billion of used originations and approximately $900 million of new leases.  Second quarter 2009 consumer financing originations totaled $6.1 billion, which included $5.3 billion of new originations, approximately $600 million of used originations and approximately $200 million of new leases.  Growth in consumer financing originations was driven by improved conditions in the auto market, increased consumer penetration rates for GM and Chrysler, higher used vehicle originations and continued improvement in leasing levels.

North American consumer financing originations in the second quarter of 2010 were $9.1 billion, which included $8.0 billion in the U.S.  Second quarter 2009 consumer financing originations in North America were $4.6 billion, which included approximately $4.4 billion in the U.S.

International consumer originations, which include a non-consolidated joint venture in China, were $1.7 billion during the second quarter of 2010, compared to $1.5 billion in the second quarter of 2009.  International consumer originations continue to be driven by Ally's five key markets with strong growth in China and Brazil.  Consumer originations in the quarter increased 95 percent in Brazil and 83 percent in China compared to the second quarter of 2009.

Ally's U.S. wholesale penetration for GM dealer stock was 84.4 percent at June 30, 2010, compared to 87.7 percent at March 31, 2010, and 83.0 percent at June 30, 2009.  U.S. consumer penetration for GM was 34.4 percent during the second quarter of 2010, compared to 33.5 percent in the prior quarter and 30.6 percent in the second quarter of 2009.  GM consumer penetration levels in the U.S. remained stable despite lower incentivized originations, which dropped to 41.7 percent of new units in the second quarter of 2010 from 46.0 percent in the prior quarter and 72.7 percent in the second quarter of 2009.

Ally's U.S. wholesale penetration for Chrysler dealer stock was 74.9 percent at June 30, 2010, compared to 76.4 percent at March 31, 2010.  Ally's U.S. consumer penetration for Chrysler during the second quarter of 2010 improved significantly to 52.5 percent, compared to 42.1 percent in the first quarter of 2010.  

Global automotive delinquencies and credit losses

Delinquencies, defined as the dollar amount of accruing contracts greater than 30 days past due, from continuing operations were 2.93 percent in the second quarter of 2010, compared to 2.87 percent in the first quarter of 2010 and 3.27 percent in the second quarter of 2009.  Delinquency trends remained relatively stable in the second quarter.  This reflects improved economic conditions, continued focus on collection efforts and higher quality credit in more recent vintages.  Excluding the Nuvell subprime legacy portfolio, delinquencies continued to fall on a sequential quarter basis.

Annualized credit losses from continuing operations declined in the second quarter of 2010 to 1.05 percent of average managed retail contract assets, versus 2.04 percent in the prior quarter and 2.29 percent in the second quarter of 2009.  The decline from the prior quarter reflects significantly lower losses in both the core auto portfolio and the Nuvell portfolio due to a favorable used car market, lower loss frequency, consumer loss recoveries and stronger performance on more recent vintages.  The Nuvell portfolio continues to run-off, as the balance of its consumer auto portfolio declined to $3.1 billion at quarter end.

Mortgage Operations

Ally's Mortgage Operations, which includes ResCap and the mortgage activities of Ally Bank and ResMor Trust, ranks as the fourth largest originator and the fifth largest servicer in the U.S. (Source: Inside Mortgage Finance).  The segment reported pre-tax income from continuing operations of $230 million during the second quarter of 2010, versus a pre-tax loss from continuing operations of $1.3 billion in the comparable prior year period.  Results in the second quarter of 2010 were driven by improved performance in the origination and servicing business, strong margins, lower operating expenses and gains on the sale of legacy mortgage assets.  In addition, loan loss provision and repurchase reserve expenses were significantly lower from the corresponding period a year ago, due to the strategic actions taken in the fourth quarter of 2009 and the settlement reached with The Federal Home Loan Mortgage Corporation (Freddie Mac) for representation and warranty claims in the first quarter of 2010.

Ally continues to make progress in minimizing legacy mortgage risk, while asset values have remained stable.  During the quarter, the company executed the sales of domestic non-core assets with an unpaid principal balance of $510 million.  The sales of these assets generated cash proceeds of $308 million and a gain to book value of $73 million.  In addition, the company sold international assets totaling $723 million of unpaid principal balance.  The cash proceeds for the international sales were $447 million with a gain to book value of $93 million.  The revenue generated from the international sales is reflected in discontinued operations, beginning in the second quarter of 2010.

The ResCap legal entity reported its second consecutive profitable quarter, as second quarter 2010 net income totaled $364 million, compared to a net loss of $841 million in the comparable prior year period.  Pre-tax income from continuing operations was $263 million for the 2010 second quarter, compared to a pre-tax loss from continuing operations of $205 million in the second quarter of 2009.  The entity required no additional capital or liquidity support in the 2010 second quarter.

Total mortgage loan production in the second quarter of 2010 was $13.5 billion, compared to $13.3 billion in the first quarter of 2010 and $18.8 billion in the second quarter of 2009.  The majority of second quarter 2010 production was driven by prime conforming and government loans.  Production increased marginally compared to the prior quarter, as market demand remained strong due to low mortgage interest rate levels.  

Corporate and Other

Corporate and Other reported a second quarter 2010 core pre-tax loss of $335 million, compared to a core pre-tax loss of $556 million in the second quarter of 2009.  Including OID, Corporate and Other reported a pre-tax loss from continuing operations of $627 million in the second quarter of 2010, compared to a pre-tax loss from continuing operations of $831 million in the comparable prior year period.  The main performance drivers in the second quarter of 2010 were treasury asset liability management activities, which include corporate interest expense, and $292 million of OID amortization expense.  Approximately $600 million of OID is expected to amortize over the remainder of 2010, with the expense moderating significantly after 2011.

Strategic Direction

The company continued to make significant progress on its strategic priorities during the second quarter with strong auto origination levels, ongoing cost reduction efforts, growth in the deposit base at Ally Bank, and the continued minimization of risk associated with the legacy mortgage business.  While certain drivers of earnings in the first half of the year may moderate in the coming quarters, Ally expects that successful execution of its six priorities will lead to sustained positive core income going forward and aid in the timely repayment of the U.S. Treasury investments.

Ally's six key priorities are:

• Become the premier global auto finance provider for dealers and consumers.
• Improve our cost structure and efficiency.
• Improve our access to the capital markets, our debt ratings and cost of funds.
• Fully transition to a bank holding company model.
• Improve our liquidity position by building deposits at Ally Bank.
• Continue to de-risk our mortgage business and define a viable long-term strategy for our mortgage origination and servicing business.

About Ally Financial Inc.

Ally Financial Inc. (formerly GMAC Inc.) is one of the world's largest automotive financial services companies.  The company offers a full suite of automotive financing products and services in key markets around the world.  Ally's other business units include mortgage operations and commercial finance, and the company's subsidiary, Ally Bank, offers online retail banking products.  With more than $176 billion in assets as of June 30, 2010, Ally operates as a bank holding company.  For more information, visit the Ally media site at http://media.ally.com.

Forward-Looking Statements

In this earnings release and in comments by Ally Financial Inc. ("Ally") management, the use of the words "expect," "anticipate," "estimate," "forecast," "initiative," "objective," "plan," "goal," "project," "outlook," "priorities," "target," "explore," "positions," "intend," "evaluate," "pursue," "seek," "may," "would," "could," "should," "believe," "potential," "continue," or the negative of any of those words or similar expressions is intended to identify forward-looking statements. All statements herein and in related charts and management comments, other than statements of historical fact, including without limitation, statements about future events and financial performance, are forward-looking statements that involve certain risks and uncertainties.

While these statements represent our current judgment on what the future may hold, and we believe these judgments are reasonable, these statements are not guarantees of any events or financial results, and Ally's actual results may differ materially due to numerous important factors that are described in the most recent reports on SEC Forms 10-K and 10-Q for Ally, each of which may be revised or supplemented in subsequent reports on SEC Forms 10-Q and 8-K. Such factors include, among others, the following: our inability to repay our outstanding obligations to the U.S. Department of the Treasury, or to do so in a timely fashion and without disruption to our business; uncertainty of Ally's ability to enter into transactions or execute strategic alternatives to realize the value of its Residential Capital, LLC ("ResCap") operations; our inability to successfully accommodate the additional risk exposure relating to providing wholesale and retail financing to Chrysler dealers and customers and the resulting impact to our financial stability; uncertainty related to Chrysler's and GM's recent exits from bankruptcy; uncertainty related to the new financing arrangement between Ally and Chrysler; securing low cost funding for Ally and ResCap and maintaining the mutually beneficial relationship between Ally and GM, and Ally and Chrysler; our ability to maintain an appropriate level of debt and capital; the profitability and financial condition of GM and Chrysler; our ability to realize the anticipated benefits associated with our recent conversion to a bank holding company, and the increased regulation and restrictions that we are now subject to; continued challenges in the residential mortgage and capital markets; the potential for deterioration in the residual value of off-lease vehicles; the continuing negative impact on ResCap of the decline in the U.S. housing market; changes in U.S. government-sponsored mortgage programs or disruptions in the markets in which our mortgage subsidiaries operate; disruptions in the market in which we fund Ally's and ResCap's operations, with resulting negative impact on our liquidity; changes in our accounting assumptions that may require or that result from changes in the accounting rules or their application, which could result in an impact on earnings; changes in the credit ratings of ResCap, Ally, Chrysler or GM; changes in economic conditions, currency exchange rates or political stability in the markets in which we operate; and changes in the existing or the adoption of new laws, regulations, policies or other activities of governments, agencies and similar organizations (including as a result of the recently enacted financial regulatory reform bill).  

Investors are cautioned not to place undue reliance on forward-looking statements. Ally undertakes no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or other such factors that affect the subject of these statements, except where expressly required by law.

SOURCE Ally Financial Inc.

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