Commentary
Mark Nolan, CFA
Vice President,
U.S. Non-Bank FIG - Global FIG
+1 203 883 5834
[email protected]
David Laterza, CPA
Senior Vice President,
Head of U.S Non-Bank FIG – Global FIG
+1 212 806 3270
[email protected]
DBRS: Ally’s 4Q Net Income Down YoY Due to Higher Provisions and Expenses

Ally Financial Inc. (Ally or the Company) reported 4Q16 core pre-tax income of $395 million, down 11% from $446 million year-over-year (YoY), reflecting higher levels
of provisions and noninterest expense. Higher expenses supported new product initiatives, investments in auto loan servicing to support growth, and deposit marketing.
Core basis excludes repositioning items and OID amortization expense.

Originations declined 11.8% YoY to $8.2 billion, as the Company prioritized risk-adjusted returns over volume, to optimize returns. Broadening its auto finance origination
channels, during 4Q16, the Company established a financing agreement with Carvana, in which Ally agreed to finance up to $600 million of retail contracts over the next
twelve months. Additionally, the Company acquired Blue Yield’s technology in 3Q16, which will allow Ally to build a digital direct-to-consumer auto lending platform.

Higher YoY provision expense primarily reflected the Company’s sustained mix shift and asset growth, somewhat offset by lower mortgage loan reserves, driven by strong
credit performance. Overall, asset quality remains sound and within DBRS’s expectations, especially given the changing risk profile of the loan portfolio. Nonetheless,
DBRS would expect Ally to continue to increase its reserves to compensate for the riskier credits that it onboards and the expected future decline in auto residual values.

Importantly, Ally seeks to deepen its relationships with its deposit customers by broadening its product offerings. Indeed, the Company plans to launch its integrated online
brokerage and digital wealth management platform in 1Q17. In 4Q16, Ally launched its direct-to-consumer mortgage product offering and during 3Q16 the Company
enhanced its commercial finance business with the formation of an experienced transportation and equipment financing team.

Regulatory capital remains acceptable, despite stock buybacks. The Company's CET1 ratio was lower quarter-over-quarter, reflecting seasonally higher risk-weighted assets.
Ally Financial Inc.
4Q16
Origination Volumes YoY Growth (%)
ROAA (%)
Net Efficiency Ratio (%)
NPLs/ Total Loans (%)
Common Equity Tier 1 (CET1) Ratio (%)*
Table Key (YoY % Change)
Improvement
Deterioration
Current DBRS Ratings: Ally Financial Inc.
Issuer and Long-Term Debt
Short-Term Instruments
-11.83
0.60
46.40
0.70
9.10
3Q16
-16.17
0.54
45.90
0.66
9.28
2Q16
-13.00
0.92
43.70
0.65
9.31
1Q16
-8.57
0.64
45.00
0.63
9.20
4Q15
3.32
0.67
44.00
0.68
8.74
More than 40%
21% to 40%
11% to 20%
6% to 10%
0% to 5%
Rating
BBB (low)
R-3
Trend
Stable
Stable
DBRS: Ally’s 4Q Net Income Down YoY Due to Higher Provisions and Expenses
DBRS.COM
Note:
All figures are in U.S. Dollars unless otherwise noted.
Sources: 4Q16 from Company Documents with prior periods from SNL Financial.
*CET1 Ratio on a fully phased-in basis.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at [email protected].
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February 1, 2017