Ally Financial Inc. (ALLY) FY 2021 MD&A

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Notice about Forward-Looking Statements and Other Terms

From time to time we have made, and in the future will make, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as “believe,” “expect,” “anticipate,” “intend,” “pursue,” “seek,” “continue,” “estimate,” “project,” “outlook,” “forecast,” “potential,” “target,” “objective,” “trend,” “plan,” “goal,” “initiative,” “priorities,” or other words of comparable meaning or future-tense or conditional verbs such as “may,” “will,” “should,” “would,” or “could.” Forward-looking statements convey our expectations, intentions, or forecasts about future events, circumstances, or results.

This report, including any information incorporated by reference in this report, contains forward-looking statements. We also may make forward-looking statements in other documents that are filed or furnished with the SEC. In addition, we may make forward-looking statements orally or in writing to investors, analysts, members of the media, or others.

All forward-looking statements, by their nature, are subject to assumptions, risks, and uncertainties, which may change over time and many of which are beyond our control. You should not rely on any forward-looking statement as a prediction or guarantee about the future. Actual future objectives, strategies, plans, prospects, performance, conditions, or results may differ materially from those set forth in any forward-looking statement. While no list of assumptions, risks, or uncertainties could be complete, some of the factors that may cause actual results or other future events or circumstances to differ from those in forward-looking statements include:

•evolving local, regional, national, or international business, economic, or political conditions;

•changes in laws or the regulatory or supervisory environment, including as a result of financial-services legislation, regulation, or policies or changes in government officials or other personnel;

•changes in monetary, fiscal, or trade laws or policies, including as a result of actions by governmental agencies, central banks, or supranational authorities;

•changes in accounting standards or policies;

•changes in the automotive industry or the markets for new or used vehicles, including the rise of vehicle sharing and ride hailing, the development of autonomous and alternative-energy vehicles, and the impact of demographic shifts on attitudes and behaviors toward vehicle type, ownership, and use;

•any instability or breakdown in the financial system, including as a result of the failure of a financial institution or other participant in it;

•disruptions or shifts in investor sentiment or behavior in the securities, capital, or other financial markets, including financial or systemic shocks and volatility or changes in market liquidity, interest or currency rates, or valuations;

•the discontinuation of LIBOR and any negative impacts that could result;

•changes in business or consumer sentiment, preferences, or behavior, including spending, borrowing, or saving by businesses or households;

•changes in our corporate or business strategies, the composition of our assets, or the way in which we fund those assets;

•our ability to execute our business strategy for Ally Bank, including its digital focus;

•our ability to optimize our automotive finance and insurance businesses and to continue diversifying into and growing other consumer and commercial business lines, including mortgage lending, point-of-sale personal lending, credit cards, corporate finance, brokerage, and wealth management;

•our ability to develop capital plans acceptable to the FRB and our ability to implement them, including any payment of dividends or share repurchases;

•our ability to conduct appropriate stress tests and effectively plan for and manage capital or liquidity consistent with evolving business or operational needs, risk-management standards, and regulatory or supervisory requirements or expectations;

•our ability to cost-effectively fund our business and operations, including through deposits and the capital markets;

•changes in any credit rating assigned to Ally, including Ally Bank;

•adverse publicity or other reputational harm to us, our service providers, or our senior officers;

•our ability to develop, maintain, or market our products or services or to absorb unanticipated costs or liabilities associated with those products or services;

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•our ability to innovate, to anticipate the needs of current or future customers, to successfully compete, to increase or hold market share in changing competitive environments, or to deal with pricing or other competitive pressures;

•the continuing profitability and viability of our dealer-centric automotive finance and insurance businesses, especially in the face of competition from captive finance companies and their automotive manufacturing sponsors and challenges to the dealer’s role as intermediary between manufacturers and purchasers;

•our ability to appropriately underwrite loans that we originate or purchase and to otherwise manage credit risk;

•changes in the credit, liquidity, or other financial condition of our customers, counterparties, service providers, or competitors;

•our ability to effectively deal with economic, business, or market slowdowns or disruptions;

•our ability to address heightened scrutiny and expectations from supervisory or other governmental authorities and to timely and credibly remediate related concerns or deficiencies;

•judicial, regulatory, or administrative inquiries, examinations, investigations, proceedings, disputes, or rulings that create uncertainty for, or are adverse to, us or the financial services industry;

•the potential outcomes of judicial, regulatory, or administrative inquiries, examinations, investigations, proceedings, or disputes to which we are or may be subject, and our ability to absorb and address any damages or other remedies that are sought or awarded, and any collateral consequences;

•the performance and availability of third-party service providers on whom we rely in delivering products and services to our customers and otherwise conducting our business and operations;

•our ability to manage and mitigate security risks, including our capacity to withstand cyberattacks;

•our ability to maintain secure and functional financial, accounting, technology, data processing, or other operating systems or infrastructure;

•the adequacy of our corporate governance, risk-management framework, compliance programs, or internal controls over financial reporting, including our ability to control lapses or deficiencies in financial reporting or to effectively mitigate or manage operational risk;

•the efficacy of our methods or models in assessing business strategies or opportunities or in valuing, measuring, estimating, monitoring, or managing positions or risk;

•our ability to keep pace with changes in technology that affect us or our customers, counterparties, service providers, or competitors or to maintain rights or interests in associated intellectual property;

•our ability to successfully make and integrate acquisitions;

•the adequacy of our succession planning for key executives or other personnel and our ability to attract or retain qualified employees;

•natural or man-made disasters, calamities, or conflicts, including terrorist events, cyber-warfare, and pandemics (such as adverse effects of the COVID-19 pandemic on us and our customers, counterparties, employees, and service providers);

•our ability to maintain appropriate ESG practices, oversight, and disclosures;

•policies and other actions of governments to manage and mitigate climate and related environmental risks, and the effects of climate change or the transition to a lower-carbon economy on our business, operations, and reputation; or

•other assumptions, risks, or uncertainties described in the Risk Factors (Item 1A), Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 7), or the Notes to the Consolidated Financial Statements (Item 8) in this Annual Report on Form 10-K or described in any of the Company’s annual, quarterly or current reports.

Any forward-looking statement made by us or on our behalf speaks only as of the date that it was made. We do not undertake to update any forward-looking statement to reflect the impact of events, circumstances, or results that arise after the date that the statement was made, except as required by applicable securities laws. You, however, should consult further disclosures (including disclosures of a forward-looking nature) that we may make in any subsequent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, or Current Report on Form 8-K.

Unless the context otherwise requires, the following definitions apply. The term “loans” means the following consumer and commercial products associated with our direct and indirect financing activities: loans, retail installment sales contracts, lines of credit, and other financing products excluding operating leases. The term “operating leases” means consumer- and commercial-vehicle lease agreements where Ally is the lessor and the lessee is generally not obligated to acquire ownership of the vehicle at lease-end or compensate Ally for the vehicle’s residual value. The terms “lend,” “finance,” and “originate” mean our direct extension or origination of loans, our purchase or

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acquisition of loans, or our purchase of operating leases as applicable. The term “consumer” means all consumer products associated with our loan and operating-lease activities and all commercial retail installment sales contracts. The term “commercial” means all commercial products associated with our loan activities, other than commercial retail installment sales contracts. The term “partnerships” means business arrangements rather than partnerships as defined by law.

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Overview

Ally Financial Inc. (together with its consolidated subsidiaries unless the context otherwise requires, Ally, the Company, we, us, or our) is a digital financial-services company committed to its promise to “Do It Right” for its consumer, commercial, and corporate customers. Ally is composed of an industry-leading independent automotive finance and insurance operation, an award-winning digital direct bank (Ally Bank, Member FDIC and Equal Housing Lender, which offers mortgage lending, point-of-sale personal lending, and a variety of deposit and other banking products), a consumer credit card business, a corporate finance business for equity sponsors and middle-market companies, and securities brokerage and investment advisory services. A relentless ally for all things money, Ally helps people save well and earn well, so they can spend for what matters. We are a Delaware corporation and are registered as a BHC under the BHC Act, and an FHC under the GLB Act.

Our Business

Dealer Financial Services

Dealer Financial Services is composed of our Automotive Finance and Insurance segments. Our primary customers are automotive dealers, which are independently owned businesses. A dealer may sell or lease a vehicle for cash but, more typically, enters into a retail installment sales contract or operating lease with the customer and then sells the retail installment sales contract or the operating lease and the leased vehicle, as applicable, to Ally or another automotive-finance provider. The purchase by Ally or another provider is commonly described as indirect automotive lending to the customer.

Our Dealer Financial Services business is one of the largest full-service automotive finance operations in the country and offers a wide range of financial services and insurance products to automotive dealerships and their customers. We have deep dealer relationships that have been built throughout our over 100-year history, and we are leveraging competitive strengths to expand our dealer footprint. Our dealer-centric business model encourages dealers to use our broad range of products through incentive programs like our Ally Dealer Rewards program. Our automotive finance services include purchasing retail installment sales contracts and operating leases from dealers, extending automotive loans directly to consumers, offering term loans to dealers, financing dealer floorplans and providing other lines of credit to dealers, supplying warehouse lines to automotive retailers, offering automotive-fleet financing, providing financing to companies and municipalities for the purchase or lease of vehicles, and supplying vehicle-remarketing services. We also offer retail VSCs and commercial insurance primarily covering dealers’ vehicle inventories. We are a leading provider of VSCs, GAP, and VMCs.

Automotive Finance

Our Automotive Finance operations provide U.S.-based automotive financing services to consumers, automotive dealers, other businesses, and municipalities. Our dealer-focused business model, value-added products and services, full-spectrum financing, and business expertise proven over many credit cycles make us a premier automotive finance company. At December 31, 2021, our Automotive Finance operations had $103.7 billion of assets and generated $5.5 billion of total net revenue in 2021. For consumers, we provide financing for new and used vehicles. In addition, our CSG provides automotive financing for small businesses and municipalities. At December 31, 2021, our CSG had $8.6 billion of loans outstanding. Through our commercial automotive financing operations, we fund dealer purchases of new and used vehicles through wholesale floorplan financing. We manage commercial account servicing on approximately 2,700 dealers that utilize our floorplan inventory lending or other commercial loans. We serviced $84.8 billion consumer loan and operating leases at December 31, 2021, and our commercial automotive loan portfolio was approximately $16.1 billion at December 31, 2021. The extensive infrastructure, technology, and analytics of our servicing operations as well as the experience of our servicing personnel enhance our ability to minimize our loan losses and enable us to deliver a favorable customer experience to both our dealers and retail customers. During 2021, we continued to reposition our origination profile to focus on capital optimization and risk-adjusted returns. In 2021, total consumer automotive originations were $46.3 billion, an increase of $11.1 billion compared to 2020. The shorter-term duration consumer automotive loan and variable-rate commercial loan portfolios offer attractive asset classes where we continue to optimize risk-adjusted returns through origination mix management and pricing and underwriting discipline.

Our success as an automotive finance provider is driven by the consistent and broad range of products and services we offer to dealers. The automotive marketplace is dynamic and evolving, including substantial investments in electrification by automobile manufacturers and suppliers. Ally remains focused on meeting the needs of both our dealer and consumer customers and continuing to strengthen and expand upon the approximately 21,100 dealer relationships we have. We continue to identify and cultivate relationships with automotive retailers including those with leading eCommerce platforms. We also operate Clearlane, our online direct-lending platform, which provides a digital platform for consumers seeking direct financing. We believe these actions will enable us to respond to the growing trends for a more streamlined and digital automotive financing process to serve both dealers and consumers. Furthermore, our strong and expansive dealer relationships, comprehensive suite of products and services, full-spectrum financing, and depth of experience position us to evolve with future shifts in automobile technologies, including electrification. Ally has and continues to provide automobile financing for hybrid and battery-electric vehicles today, and is well positioned to remain a leader in automotive financing as we believe the vast majority of these vehicles will be sold through dealerships with whom we have an established relationship.

The Growth channel was established to focus on developing dealer relationships beyond those relationships that primarily were developed through our previous role as a captive finance company for GM and Stellantis. The Growth channel was expanded to include direct-to-consumer financing through Clearlane and other channels and our arrangements with online automotive retailers. We have established relationships with thousands of Growth channel dealers through our customer-centric approach and specialized incentive programs designed to drive loyalty amongst dealers to our products and services. The success of the Growth channel has been a key enabler in

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evolving our business model from a focused captive finance company to a leading market competitor. In this channel, we currently have approximately 14,800 dealer relationships, of which approximately 74% are franchised dealers (including brands such as Ford, Nissan, Kia, Hyundai, Toyota, Honda, and others), or used vehicle only retailers with a national presence.

Over the past several years, we have continued to focus on the consumer used vehicle segment primarily through franchised dealers, which has resulted in used vehicle financing volume growth, and has positioned us as an industry leader in used vehicle financing. The highly fragmented used vehicle financing market, with a total financing opportunity represented by approximately 284 million vehicles in operation, provides an attractive opportunity that we believe will further expand and support our dealer relationships and increase our risk-adjusted return on retail loan originations.

For consumers, we provide automotive loan financing and leasing for approximately 4.4 million new and used vehicle contracts. Retail financing for the purchase of vehicles by individual consumers generally takes the form of installment sales financing. We originated a total of approximately 1.4 million and 1.3 million automotive loans and operating leases during the years ended December 31, 2021, and 2020, respectively, totaling $46.3 billion and $35.1 billion, respectively.

Our consumer automotive financing operations generate revenue primarily through finance charges on retail installment sales contracts and rental payments on operating lease contracts. For operating leases, when the contract is originated, we estimate the residual value of the leased vehicle at lease termination. Periodically thereafter we revise the projected residual value of the leased vehicle at lease termination and adjust depreciation expense over the remaining life of the lease if appropriate. Given the fluctuations in used vehicle values, our actual sales proceeds from remarketing the vehicle may be higher or lower than the projected residual value, which results in gains or losses on lease termination. While all operating leases are exposed to potential reductions in used vehicle values, only loans where we take possession of the vehicle are affected by potential reductions in used vehicle values. Refer to the Risk Management section of this MD&A for further discussion of credit risk and lease residual risk.

We continue to maintain a diverse mix of product offerings across a broad risk spectrum, subject to underwriting policies that reflect our risk appetite. Our current operating results increasingly reflect our ongoing strategy to grow used vehicle financing and expand risk-adjusted returns. While we predominately focus on prime-lending markets, we seek to be a meaningful source of financing to a wide spectrum of customers and continue to carefully measure risk versus return. We place great emphasis on our risk management and risk-based pricing policies and practices and employ robust credit decisioning processes coupled with granular pricing that is differentiated across our proprietary credit tiers.

Our commercial automotive financing operations primarily fund dealer inventory purchases of new and used vehicles, commonly referred to as wholesale floorplan financing. This represents the largest portion of our commercial automotive financing business. Wholesale floorplan loans are secured by vehicles financed (and all other vehicle inventory), which provide strong collateral protection in the event of dealership default. Additional collateral or other credit enhancements (for example, personal guarantees from dealership owners) are typically obtained to further mitigate credit risk. The amount we advance to dealers is equal to 100% of the wholesale invoice price of new vehicles, subject to payment curtailment schedules. Interest on wholesale automotive financing is generally payable monthly and is indexed to a floating-rate benchmark. The rate for a particular dealer is based on, among other considerations, competitive factors and the dealer’s creditworthiness. During 2021, we financed an average of $11.2 billion of dealer vehicle inventory through wholesale floorplan financings. Other commercial automotive lending products, which averaged $5.3 billion during 2021, consist of automotive dealer revolving lines of credit, term loans, including those to finance dealership land and buildings, and dealer fleet financing. We also provide comprehensive automotive remarketing services, including the use of SmartAuction, our online auction platform, which efficiently supports dealer-to-dealer and other commercial wholesale vehicle transactions. SmartAuction provides diversified fee-based revenue and serves as a means of deepening relationships with our dealership customers. In 2021, Ally and other parties, including dealers, fleet rental companies, and financial institutions, utilized SmartAuction to sell approximately 261,000 vehicles to dealers and other commercial customers. SmartAuction served as the remarketing channel for 29% of our off-lease vehicles.

Insurance

Our Insurance operations offer both consumer finance protection and insurance products sold primarily through the automotive dealer channel, and commercial insurance products sold directly to dealers. We serve approximately 2.5 million consumers nationwide across F&I and P&C products. In addition, we offer F&I products in Canada, where we serve more than 400 thousand consumers and are the VSC and other protection plan provider for GM Canada and VSC provider for Subaru Canada. Our Insurance operations had $9.4 billion of assets at December 31, 2021, and generated $1.4 billion of total net revenue during 2021. As part of our focus on offering dealers a broad range of consumer F&I products, we offer VSCs, VMCs, and GAP products. We also underwrite selected commercial insurance coverages, which primarily insure dealers’ wholesale vehicle inventory. Ally Premier Protection is our flagship VSC offering, which provides coverage for new and used vehicles of virtually all makes and models. We also offer ClearGuard on the SmartAuction platform, which is a protection product designed to minimize the risk to dealers from arbitration claims for eligible vehicles sold at auction.

From a dealer perspective, Ally provides significant value and expertise, which creates high retention rates and strong relationships. In addition to our product offerings, we provide consultative services and training to assist dealers in optimizing F&I results while achieving high levels of customer satisfaction and regulatory compliance. We also advise dealers regarding necessary liability and physical damage coverages.

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Our F&I products are primarily distributed indirectly through the automotive dealer network. We have established approximately 1,500 F&I dealer relationships nationwide and 550 dealer relationships in Canada, with a focus on growing dealer relationships in the future. Our VSCs for retail customers offer owners and lessees mechanical repair protection and roadside assistance for new and used vehicles beyond the manufacturer’s new vehicle warranty. These VSCs are marketed to the public through automotive dealerships and on a direct response basis. We also offer GAP products, which cover certain amounts owed by a customer beyond their covered vehicle’s value in the event the vehicle is damaged or stolen and declared a total loss. We continue to evolve our product suite and digital capabilities to position our business for future opportunities through growing third-party relationships and sales through our online direct-lending platform, Clearlane.

We have approximately 3,100 dealer relationships within our P&C business to whom we offer a variety of commercial products and levels of coverage. Vehicle inventory insurance for dealers provides physical damage protection for dealers’ floorplan vehicles. Among dealers to whom we provide wholesale financing, our insurance product penetration rate is approximately 78%. Dealers who receive wholesale financing from us are eligible for insurance incentives such as automatic eligibility for our preferred insurance programs.

A significant aspect of our Insurance operations is the investment of proceeds from premiums and other revenue sources. We use these investments to satisfy our obligations related to future claims at the time these claims are settled. Our Insurance operations have an Investment Committee, which develops guidelines and strategies for these investments. The guidelines established by this committee reflect our risk appetite, liquidity requirements, regulatory requirements, and rating agency considerations, among other factors.

Mortgage Finance

Our Mortgage Finance operations consist of the management of held-for-investment and held-for-sale consumer mortgage loan portfolios. Our held-for-investment portfolio includes our direct-to-consumer Ally Home mortgage offering, and bulk purchases of high-quality jumbo and LMI mortgage loans originated by third parties. Our Mortgage Finance operations had $17.8 billion of assets at December 31, 2021, and generated $218 million of total net revenue in 2021.

Through our direct-to-consumer channel, which was introduced late in 2016, we offer a variety of competitively priced jumbo and conforming fixed- and adjustable-rate mortgage products through a third-party fulfillment provider. Under our current arrangement, our direct-to-consumer conforming mortgages are originated as held-for-sale and sold, while jumbo and LMI mortgages are originated as held-for-investment. Loans originated in the direct-to-consumer channel are sourced by existing Ally customer marketing, prospect marketing on third-party websites, and email or direct mail campaigns. In April 2019, we announced a strategic partnership with BMC, which delivers an enhanced end-to-end digital mortgage experience for our customers through our direct-to-consumer channel. Through this partnership, BMC conducts the sales, processing, underwriting, and closing for Ally’s digital mortgage offerings in a highly innovative, scalable, and cost-efficient manner, while Ally retains control of all the marketing and advertising strategies and loan pricing. During the year ended December 31, 2021, we originated $10.4 billion of mortgage loans through our direct-to-consumer channel.

Through the bulk loan channel, we purchase loans from several qualified sellers including direct originators and large aggregators who have the financial capacity to support strong representations and warranties and the industry knowledge and experience to originate high-quality assets. Bulk purchases are made on a servicing-released basis, allowing us to directly oversee servicing activities and manage refinancing through our direct-to-consumer channel. During the year ended December 31, 2021, we purchased $3.9 billion of mortgage loans that were originated by third parties. Our mortgage loan purchases are held-for-investment.

The combination of our direct-to-consumer strategy and bulk portfolio purchase program provides the capacity to expand revenue sources and further grow and diversify our finance receivable portfolio with an attractive asset class while also deepening relationships with existing Ally customers.

Corporate Finance

Our Corporate Finance operations primarily provide senior secured leveraged cash flow and asset-based loans to mostly U.S.-based middle-market companies owned by private equity sponsors, and loans to asset managers that primarily provide leveraged loans. Our Corporate Finance operations had $8.0 billion of assets at December 31, 2021, and generated $436 million of total net revenue during 2021, and continues to offer attractive returns and diversification benefits to our broader lending portfolio. We believe our growing deposit-based funding model coupled with our expanded product offerings and deep industry relationships provide an advantage over our competition, which includes other banks as well as publicly and privately held finance companies. While there continues to be a significant level of liquidity and competition in the middle-market lending space, we have continued to prudently grow our lending portfolio with a focus on a disciplined and selective approach to credit quality, including a greater focus on asset-based loans. We seek markets and opportunities where our clients require customized, highly structured, and time-sensitive financing solutions. Our corporate-finance lending portfolio is generally composed of first-lien, first-out loans.

Our focus is on businesses owned by private equity sponsors with loans typically used for leveraged buyouts, refinancing and recapitalizations, mergers and acquisitions, growth, co-lending arrangements, turnarounds, and debtor-in-possession financings. Loan facilities typically include both a revolver and term loan component. Our target commitment hold level for these individual exposures ranges from $15 million to $150 million, depending on product type. Additionally, our Lender Finance business provides asset managers with facilities from $50 million to up to $500 million to partially fund their direct-lending activities. We also selectively arrange larger transactions that we may retain on-balance sheet or syndicate to other lenders. By syndicating loans to other lenders, we are able to provide financing commitments in excess of our target hold levels to our customers and generate loan syndication fee income while reducing our risk exposure to individual borrowers. All of our loans are floating-rate facilities with maturities typically ranging from two to seven years. In certain

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instances, we may be offered the opportunity to make small equity investments in our borrowers, which provide a potential additional revenue opportunity for our business. The portfolio is well diversified across multiple industries including financials, services, manufacturing distribution, and other specialty sectors. These specialty sectors include our healthcare, technology/venture finance, defense and aerospace, and transportation and logistics. We also provide a healthcare-based commercial real estate product focused on lending to skilled nursing facilities, senior housing, medical office buildings, and hospitals. Other smaller complementary product offerings that help strengthen our reputation as a full-spectrum provider of financing solutions for borrowers include selectively offering second-out loans on certain transactions and issuing letters of credit through Ally Bank.

Corporate and Other

Overview

Corporate and Other primarily consists of centralized corporate treasury activities such as management of the cash and corporate investment securities and loan portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative instruments, original issue discount, and the residual impacts of our corporate FTP and treasury ALM activities. Corporate and Other also includes activity related to certain equity investments, which primarily consist of FHLB and FRB stock as well as other strategic investments, the management of our legacy mortgage portfolio, which primarily consists of loans originated prior to January 1, 2009, the activity related to Ally Invest, Ally Lending, Ally Credit Card, CRA loans and related investments, and reclassifications and eliminations between the reportable operating segments.

Ally Invest

Corporate and Other includes the results of Ally Invest, our digital brokerage and wealth management offering, which enables us to complement our competitive deposit products with low-cost investing. The digital wealth management business aligns with our strategy to create a premier digital financial services company and provides additional sources of fee income through asset management and certain other fees, with minimal balance sheet utilization. This business also provides an additional source of low-cost deposits through arrangements with Ally Invest’s clearing broker.

Through Ally Invest, we are able to offer a broader array of products through a fully integrated digital consumer platform centered around self-directed products and digital advisory services. Ally Invest’s suite of commission-free and low-cost investing options serve both active and passive investors with diverse and evolving financial objectives through a transparent online process. Our digital platform and broad product offerings are enhanced by outstanding client-focused and user-friendly customer service that is generally accessible twenty-four hours a day, seven days a week, via the phone, web or email—consistent with the Ally brand.

Ally Invest provides clients with self-directed trading services for a variety of securities including stocks, options, ETFs, mutual funds, and fixed-income products through Ally Invest Securities. Ally Invest Securities also offers margin lending, which allows customers to borrow money by using securities and cash currently held in their accounts as collateral. Through Ally Invest Forex, we offer self-directed investors and traders the ability to trade over 50 currency pairs through a forex trading platform.

Ally Invest also provides digital advisory services to clients through web-based solutions, informational resources, and virtual interaction through Ally Invest Advisors, an SEC-registered investment advisor. These services have emerged as a fast-growing segment within the financial services industry over the past several years. Ally Invest Advisors provides clients the opportunity to obtain professional portfolio management services in return for a fee based upon the client’s assets under management. We also offer cash enhanced portfolios that incur no management fee. A number of core robo portfolios are offered, which hold ETFs diversified across asset class, industry sector, and geography and which are customized for clients based on risk tolerance, investment time horizon, and wealth ratio.

Ally Lending

Information related to our unsecured personal lending business, Ally Lending, is also included within Corporate and Other. Ally Lending currently serves medical, retail, and home improvement service providers by enabling promotional and fixed rate installment-loan products through a digital application process at point-of-sale. The home improvement segment, which was launched in the second quarter of 2020, now represents approximately 38% of new originations, and is expected to grow. Point-of-sale lending broadens our capabilities, and expands our product offering into consumer unsecured lending, all while helping to further meet the financial needs of our customers.

Ally Credit Card

Additionally, beginning in December 2021 with the acquisition of Fair Square, which we rebranded Ally Credit Card, financial information related to our credit card business is included within Corporate and Other. The acquisition provides us with a scalable, digital-first credit card platform, and advances our evolution as a leading digital consumer bank. Ally Credit Card (formerly Fair Square) features leading-edge technology, and a proprietary, analytics-based underwriting model. We believe the addition of credit card to our suite of products enhances our ability to grow and deepen both new and existing customer relationships. As of December 31, 2021, our credit card business was composed of approximately 750,000 customers. Refer to Note 2 to the Consolidated Financial Statements for additional details on the acquisition of Fair Square.

Corporate Treasury and ALM Activities

The net financing revenue and other interest income of our Automotive Finance, Mortgage Finance, and Corporate Finance operations include the results of an FTP process that insulates these operations from interest rate volatility by matching assets and liabilities with similar interest rate sensitivity. The FTP process assigns charge rates to the assets and credit rates to the liabilities within our Automotive Finance,

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Mortgage Finance, and Corporate Finance operations, based on anticipated maturity and a benchmark rate curve plus an assumed credit spread. The assumed credit spread represents the cost of funds for each asset class based on a blend of funding channels available to the enterprise, including unsecured and secured capital markets, private funding facilities, and deposits. In addition, a risk-based methodology is used to allocate equity to these operations.

Deposits

We are focused on growing and retaining a stable deposit base and deepening relationships with our 2.5 million primary deposit customers by leveraging our compelling brand and strong value proposition. Ally Bank is a digital direct bank with no branch network that obtains retail deposits directly from customers. We have grown our deposits with a strong brand that is based on a promise of being straightforward with our customers and offering high-quality customer service. Ally Bank has consistently increased its share of the direct banking deposit market and remains one of the largest direct banks in terms of retail deposit balances. Our strong customer acquisition and retention rates reflect the strength of our brand and, together with our overall value proposition, continue to drive growth in retail deposits. At December 31, 2021, Ally Bank had $141.6 billion of total deposits—including $134.7 billion of retail deposits, which grew $10.3 billion, or 8% during 2021. Over the past several years, the continued growth of our retail-deposit base has contributed to a more favorable mix of lower cost funding and we continue to focus on efficient deposit growth by continuing to expand the deposit value proposition beyond competitive deposit rates. Our segment results include cost of funds associated with these deposit-product offerings.

Our deposit products and services are designed to develop long-term customer relationships and capitalize on the shift in consumer preference for direct banking. Our deposits franchise is key to growing and building momentum across our suite of digital offerings at Ally Home, Ally Invest, Ally Lending, and Ally Credit Card, consistent with our strategic objective to grow multi-product customers. These products and services appeal to a broad group of customers, many of whom appreciate a streamlined digital experience coupled with our strong value proposition. Ally Bank offers a full spectrum of retail deposit products, including online savings accounts, money-market demand accounts, CDs, interest-bearing checking accounts, trust accounts, and IRAs. Our deposit services include Zelle® person-to-person payment services, eCheck remote deposit capture, and mobile banking. As demonstrated with the successful launch of our Smart Savings Tools, Ally continues to deliver innovative digital tools on top of traditional financial products to add incremental value to customers, while also driving increased engagement and loyalty. Over 500,000 customers have adopted our Smart Savings Tools.

We believe we are well-positioned to continue to benefit from the consumer-driven shift from branch banking to direct banking as demonstrated by the growth we have experienced since 2010. Our nearly 2.5 million deposit customers and 4.7 million retail bank accounts as of December 31, 2021, reflect increases from 2.3 million and 4.5 million, respectively, as compared to December 31, 2020. Our customer base spans across diverse demographic segmentations and socioeconomic bands. Our direct bank business model resonates particularly well with the millennial generation, which consistently makes up the largest percentage of our new customers. According to a 2021 American Bankers Association survey, 88% of customers prefer to do their banking most often via digital and other direct channels (internet, mobile, telephone, and mail). Furthermore, over the past five years, estimated direct banking deposits as a percentage of the broader retail deposits market increased by approximately 2 percentage points, from 7% in 2016 to 9% in 2021. We have received a positive response to innovative savings and other deposit products. In October 2021, MONEY® Magazine named Ally to its “Best Online Bank” list for the fourth consecutive year, as well as the ninth time in the past eleven years, and in June 2021, Kiplinger named Ally Bank the “Best Internet Bank” for the fifth consecutive year. Ally Bank’s competitive direct banking includes online and mobile banking features such as electronic bill pay, remote deposit, and electronic funds transfer nationwide, with innovative interfaces such as banking through Alexa-enabled devices, and no minimum balance requirements.

We intend to continue to grow and invest in our digital direct bank and further capitalize on the shift in consumer preference for direct banking with expanded digital capabilities and customer-centric products that utilize advanced analytics for personalized interactions and other technologies that improve efficiency, security, and the customer’s connection to the brand. We are focused on growing, deepening, and further leveraging the customer relationships and brand loyalty that exist with Ally Bank as a catalyst for future loan and deposit growth, as well as revenue opportunities that arise from introducing Ally Bank deposit customers to our digital wealth management offering, Ally Invest.

Funding and Liquidity

Our funding strategy targets a stable retail deposit base, supplemented by brokered deposits, public and private secured debt, and public unsecured debt. These diversified funding sources are managed across products, markets, and investors to enhance funding flexibility and stability, resulting in a more cost-effective long-term funding strategy.

Prudent expansion of asset originations at Ally Bank and continued growth of a stable deposit base continue to be the cornerstone of our long-term liquidity strategy. Our primary funding source is retail deposits, which provide us with stable, low-cost funding. We believe retail deposits are less sensitive to interest rate changes, market volatility, or changes in credit ratings when compared to other funding sources. In addition, we utilize brokered deposits, which are obtained through third-party intermediaries. At December 31, 2021, deposit liabilities totaled $141.6 billion, which reflects an increase of $4.5 billion as compared to December 31, 2020. Deposits as a percentage of total liability-based funding increased four percentage points to 89% at December 31, 2021, as compared to December 31, 2020.

As we continue to migrate assets to Ally Bank and grow our bank funding capabilities, our need for funding at the parent company has been reduced. At December 31, 2021, 95% of Ally’s total assets were within Ally Bank. This compares to approximately 94% as of December 31, 2020. Longer-term unsecured debt is the primary funding source utilized at the parent company. At December 31, 2021, we had $1.1 billion and $2.1 billion of unsecured long-term debt principal maturing in 2022 and 2023, respectively. We have substantially reduced our reliance on market-based funding by continuing to focus on retail deposit funding.

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The strategies outlined above have allowed us to build and maintain a conservative liquidity position. Total available liquidity at December 31, 2021, was $31.2 billion. Absolute levels of liquidity decreased during 2021 primarily as a result of decreased liquid cash and equivalents. Refer to the section below titled Liquidity Management, Funding, and Regulatory Capital for a further discussion about liquidity risk management.

Credit Strategy

Our strategy and approach to extending credit, as well as our management of credit risk, are critical elements of our business. Credit performance is influenced by several factors including our risk appetite, our credit and underwriting processes, our monitoring and collection efforts, the financial condition of our borrowers, the performance of loan collateral, fiscal and monetary stimulus, and various macroeconomic considerations. Most of our businesses offer credit products and services, which drive overall business performance. Consistent with our risk appetite, our business lines operate under credit standards that consider the borrower’s ability and willingness to repay loans. The failure to effectively manage credit risk can have a direct and significant impact on Ally’s earnings, capital position, and reputation. Refer to the Risk Management section of this MD&A for a further discussion of credit risk and performance of our consumer and commercial credit portfolios.

Within our Automotive Finance operations, we serve a mix of consumers across the credit spectrum to achieve portfolio diversification and to optimize the risk and return of our consumer automotive portfolio. This is achieved through the utilization of robust credit decisioning processes coupled with granular pricing that is differentiated across our proprietary credit tiers. While we are a full-spectrum automotive finance lender, the significant majority of our consumer automotive loans are underwritten within the prime-lending segment. We define prime consumer automotive loans primarily as those loans with a FICO® Score at origination of 620 or greater. The carrying value of our nonprime consumer automotive loans before allowance for loan losses, as of December 31, 2021, was approximately 11.3% of our total consumer automotive loans at December 31, 2021. During 2021, our strategy for originations has been to optimize the deployment of capital by focusing on risk-adjusted returns against available origination opportunities, which has included a continued gradual and measured shift toward our Growth channel including used vehicle financings.

The mortgage-finance team focuses on applicants with stronger credit profiles and with income streams to support repayments of the loan and operates under credit standards that consider and assess the value of the underlying real estate in accordance with prudent credit practices and regulatory requirements. Refer to the Mortgage Finance section of the MD&A that follows for credit quality information about purchases and originations of consumer mortgages held-for-investment. We generally rely on appraisals conducted by licensed appraisers in conformance with the expectations and requirements of Fannie Mae and federal regulators. When appropriate, we require credit enhancements such as private mortgage insurance. We price each mortgage loan that we originate based on several factors, including the customer’s FICO® Score, the LTV ratio, and the size of the loan. For bulk purchases, we only purchase loans from sellers with the experience to originate high-quality loans and the financial wherewithal to support their representations and warranties.

Within Ally Lending, our digital payment provider that offers point-of-sale financing to consumers, we serve a mix of consumers across the credit spectrum to achieve portfolio diversification and to optimize the risk and return of our personal lending portfolio. As of December 31, 2021, the amortized cost of our finance receivables related to Ally Lending was $1.0 billion.

Additionally, on December 1, 2021, we acquired Fair Square, which we rebranded Ally Credit Card, a digital credit card provider. This expansion into credit card lending further broadens our consumer finance product portfolio. As of December 31, 2021, the amortized cost of our finance receivables related to Ally Credit Card was $953 million.

Within our commercial lending portfolios, Corporate Finance operations primarily provide senior secured leveraged cash flow and asset-based loans to mostly U.S.-based middle-market companies. Throughout 2021, we continued to prudently grow this portfolio with a disciplined and selective approach to credit quality, which has generally included the avoidance of covenant-light lending arrangements. This includes growth of our lender finance vertical launched in 2019, which provides senior secured revolving credit facilities to asset managers, collateralized by a portfolio of loans. Within our commercial automotive business, we continue to offer a variety of dealer-centric lending products that primarily relate to floorplan financing and term loans. These commercial automotive products are an important aspect of our dealer relationships and offer a secured lending arrangement with strong collateral protections in the event of dealer default. The performance of our commercial credit portfolios continues to remain strong. While nonperforming finance receivables and loans increased $96 million from December 31, 2020, to $257 million at December 31, 2021, our total net charge-offs within our commercial lending portfolio remained low at $11 million for the year ended December 31, 2021, compared to $51 million for the year ended December 31, 2020. Refer to the Risk Management section of the MD&A for further details.

Discontinued Operations

During 2013 and 2012, certain disposal groups met the criteria to be presented as discontinued operations. The remaining activity relates to previous discontinued operations for which we continue to have income taxes, net of valuation allowances, as well as wind-down, legal, and minimal operational costs. For all periods presented, the operating results for these operations have been removed from continuing operations. The MD&A has been adjusted to exclude discontinued operations unless otherwise noted.

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Primary Business Lines

Dealer Financial Services, which includes our Automotive Finance and Insurance operations, Mortgage Finance, and Corporate Finance are our primary business lines. The following table summarizes the operating results excluding discontinued operations of each business line. Operating results for each of the business lines are more fully described in the MD&A sections that follow.

n/m = not meaningful

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Consolidated Results of Operations

The following table summarizes our consolidated operating results for the periods shown. Refer to the reportable operating segment sections of the MD&A that follows for a more complete discussion of operating results by business line. For a discussion of our fiscal 2020 results compared to fiscal 2019, refer to Part II, Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations in our 2020 Annual Report on Form 10-K.

n/m = not meaningful

(a)The ratios were based on average assets and average total equity using an average daily balance methodology.

(b)The common dividend payout ratio was calculated using basic earnings per common share.

2021 Compared to 2020

We earned net income from continuing operations of $3.1 billion for the year ended December 31, 2021, compared to net income of $1.1 billion for the year ended December 31, 2020. During the year ended December 31, 2021, results were favorably impacted by higher net financing revenue driven by lower interest expense and lower net depreciation expense on operating lease assets, and lower provision for credit losses associated with improved macroeconomic conditions. These items were partially offset by higher noninterest expense for the year ended December 31, 2021, as well as increased income tax expense from continuing operations.

Net financing revenue and other interest income increased $1.5 billion for the year ended December 31, 2021, as compared to the year ended December 31, 2020. We experienced lower interest expense for the year ended December 31, 2021, as compared to 2020, driven by market and industry dynamics that drove a decrease in our deposit rates and other funding costs, and our continued shift to more cost-efficient deposit funding. Within our Automotive Finance operations, total net operating lease revenue increased $396 million for the year ended

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December 31, 2021, compared to 2020, driven by strong remarketing gains as a result of continued new vehicle supply constraints and an increase in demand for used vehicles, as well as lower depreciation expense based on revised residual value expectations. Additionally, during the year ended December 31, 2021, consumer automotive revenue increased as higher average consumer assets and higher portfolio yields contributed to the increase in revenue resulting from a continued focus on the used-vehicle portfolio primarily through franchised dealers and growth in application volume from our dealer network. These items were partially offset by lower commercial loan net financing revenue within our Automotive Finance operations, driven by lower outstanding floorplan assets as a result of declining new vehicle inventories due to ongoing production constraints from a global semiconductor chip shortage and strong new vehicle sales during the first half of 2021.

Loss on extinguishment of debt increased $34 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The increase for the year ended December 31, 2021, was primarily driven by $131 million of losses incurred for the full redemption of the Series 2 TRUPs during the year ended December 31, 2021, as compared to a $99 million loss on the early repayment of 13 FHLB advances we elected to prepay and early terminate during 2020.

Other gain on investments was $285 million for the year ended December 31, 2021, compared to $307 million for the year ended December 31, 2020. The decrease for the year ended December 31, 2021, was the result of a decrease in realized gains on available-for-sale securities and higher unrealized losses on equity securities, as compared to 2020. These decreases were partially offset by higher realized gains on equity securities during the year ended December 31, 2021.

Other income, net of losses increased $121 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The increase for the year ended December 31, 2021, was primarily due to an increase in remarketing fee income resulting from higher dealer sales activity. In addition, late fee income increased for the year ended December 31, 2021, as compared to the year ended December 31, 2020, as a result of the suppression of late fees in the prior year, as part of our COVID-19 relief efforts.

The provision for credit losses decreased $1.2 billion for the year ended December 31, 2021, compared to the year ended December 31, 2020. For the year ended December 31, 2021, the decrease in provision for credit losses was primarily driven by reserve increases during the year ended December 31, 2020, associated with deterioration in the macroeconomic environment resulting from the COVID-19 pandemic, compared to reserve declines during the year ended December 31, 2021, as the macroeconomic environment continued to recover. Additionally, the provision decrease during the year ended December 31, 2021, was impacted by lower net charge-offs in our consumer automotive portfolio as we continue to experience strong credit performance and elevated used vehicle values, partially offset by a reserve increase from portfolio growth in our consumer portfolios during the year ended December 31, 2021. Refer to the Risk Management section of this MD&A for further discussion on our provision for credit losses.

Noninterest expense was $4.1 billion for the year ended December 31, 2021, compared to $3.8 billion for the year ended December 31, 2020. The increase for the year ended December 31, 2021, was driven by higher compensation and benefits expense including an update to our retirement eligibility benefits, and increased expenses to support the growth of our consumer product suite and expand our digital capabilities and portfolio of products, as well as $57 million of contributions to the Ally Charitable Foundation during the year ended December 31, 2021, as compared to $35 million of contributions to the Ally Charitable Foundation during the year ended December 31, 2020. The increase in noninterest expense was partially offset by lower insurance losses for the year ended December 31, 2021, as compared to 2020, and a goodwill impairment charge of $50 million related to Ally Invest recognized during the year ended December 31, 2020.

We recognized total income tax expense from continuing operations of $790 million for the year ended December 31, 2021, compared to income tax expense of $328 million for 2020. The increase in income tax expense for the year ended December 31, 2021, was primarily due to the tax effects of an increase in pretax earnings, partially offset by a tax benefit from the release of valuation allowance on foreign tax credit carryforwards during the second quarter of 2021.

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Ally Financial Inc. • Form 10-K

Dealer Financial Services

Results for Dealer Financial Services are presented by reportable operating segment, which includes our Automotive Finance and Insurance operations.

Automotive Finance

Results of Operations

The following table summarizes the operating results of our Automotive Finance operations. The amounts presented are before the elimination of balances and transactions with our other reportable operating segments.

(a)Includes net remarketing gains of $344 million, $127 million, and $69 million for the years ended December 31, 2021, 2020, and 2019, respectively.

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The following table presents the average balance and yield of the loan and operating lease portfolios of our Automotive Financing operations.

(a)Average balances are calculated using an average daily balance methodology.

(b)Nonperforming finance receivables and loans are included in the average balances. For information on our accounting policies regarding nonperforming status, refer to Note 1 to the Consolidated Financial Statements.

(c)Includes the effects of derivative financial instruments designated as hedges, which is included within Corporate and Other. Excluding the impact of hedging activities, the yield was 6.87%, 6.77%, and 6.61% for the years ended December 31, 2021, 2020, and 2019, respectively.

(d)Includes the effects of derivative financial instruments designated as hedges, which is included within Corporate and Other. Excluding the impact of hedging activities, the yield was 2.61%, 3.07%, and 4.60% for the years ended December 31, 2021, 2020, and 2019, respectively.

(e)Consists primarily of automotive dealer term loans, including those to finance dealership land and buildings, and dealer fleet financing.

(f)Yield includes net gains on the sale of off-lease vehicles of $344 million, $127 million, and $69 million for the years ended December 31, 2021, 2020, and 2019, respectively. Excluding these gains and losses on sale, the yield was 6.05% for the year ended December 31, 2021, and 4.93% for both the years ended December 31, 2020, and 2019. The shift in off-lease vehicle disposition mix is expected to continue in the near term and may limit our ability to optimize remarketing proceeds. Refer to the Operating Lease Residual Risk Management section of this MD&A for further discussion.

2021 Compared to 2020

Our Automotive Finance operations earned income from continuing operations before income tax expense of $3.4 billion for the year ended December 31, 2021, compared to $1.3 billion for the year ended December 31, 2020. For the year ended December 31, 2021, the increase was due primarily to lower provision for credit losses and lower interest expense, as well as lower net depreciation expense on operating lease assets.

Consumer automotive loan financing revenue increased $267 million for the year ended December 31, 2021, compared to 2020. Higher average consumer assets and higher portfolio yields contributed to the increase in revenue resulting from a continued focus on the used-vehicle portfolio primarily through franchised dealers and growth in application volume from our dealer network. Through these actions, we continue to optimize risk adjusted returns through our origination mix.

Commercial loan financing revenue decreased $319 million for the year ended December 31, 2021, compared to 2020. The decrease was driven by lower outstanding floorplan assets as a result of declining new vehicle inventories due to ongoing production constraints from a global semiconductor chip shortage and strong new vehicle sales during the first half of 2021.

Interest expense was $1.5 billion for the year ended December 31, 2021, compared to $2.1 billion for the year ended December 31, 2020. The decrease was primarily due to market and industry dynamics, which drove a decrease in our deposit rates and other funding costs, as we continue to shift towards a more favorable mix of lower cost funding.

Other income was $251 million for the year ended December 31, 2021, compared to $204 million for 2020. The increase during the year ended December 31, 2021, was primarily due to an increase in remarketing fee income resulting from higher dealer sales activity during the year ended December 31, 2021. In addition, late fee income increased for the year ended December 31, 2021, as compared to the year ended December 31, 2020, as a result of the suppression of late fees in the prior year, as part of our COVID-19 relief efforts.

Total net operating lease revenue increased $396 million for the year ended December 31, 2021, compared to 2020. We recognized remarketing gains of $344 million for the year ended December 31, 2021, compared to remarketing gains of $127 million for the year ended December 31, 2020, while depreciation expense on operating lease assets decreased $64 million for the year ended December 31, 2021, compared to 2020. The increase in net operating lease revenue was primarily driven by strong remarketing gains as a result of continued new vehicle supply constraints and an increase in demand for used vehicles. The increase was also impacted by an increase in yield primarily resulting from lower depreciation expense resulting from downward adjustments to the rate of depreciation during the year ended December 31, 2021, as well as asset growth. Refer to the Operating Lease Residual Risk Management section of this MD&A for further discussion.

The provision for credit losses decreased $1.2 billion for the year ended December 31, 2021, compared to the year ended December 31, 2020. For the year ended December 31, 2021, the decrease in provision for credit losses was primarily driven by reserve increases during the year ended December 31, 2020, associated with deterioration in the macroeconomic environment resulting from the COVID-19 pandemic, compared to reserve declines during the year ended December 31, 2021, as the macroeconomic environment continued to recover. Additionally, the provision decrease during the year ended December 31, 2021, was driven by lower net charge-offs in our consumer and

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commercial automotive portfolios as we continue to experience strong credit performance. Additionally, we continue to benefit from elevated used vehicle values in our consumer automotive portfolio. The decrease in provision was partially offset by a reserve increase from portfolio growth in our consumer automotive portfolio during the year ended December 31, 2021. Refer to the Risk Management section of this MD&A for further discussion on our provision for credit losses.

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Ally Financial Inc. • Form 10-K

Automotive Financing Volume

Our Automotive Finance operations provide automotive financing services to consumers and automotive dealers. For consumers, we provide retail financing and leasing for new and used vehicles, and through our commercial automotive financing operations, we fund dealer purchases of new and used vehicles through wholesale floorplan financing and provide dealer term and revolving loans and automotive fleet financing.

Acquisition and Underwriting

Our consumer underwriting process is focused on multidimensional risk factors and data driven risk-adjusted probabilities that are continuously monitored and routinely updated. Each application is placed into an analytical category based on specific aspects of the applicant’s credit profile and loan structure. We then evaluate the application by applying a proprietary credit scoring algorithm tailored to its applicable category. Inputs into this algorithm include, but are not limited to, proprietary scores and deal structure variables such as LTV, new or used vehicle collateral, and term of financing. The output of the algorithm is used to sort applications into various credit tiers (S, A, B, C, D, and E). Credit tiers help determine our primary indication of credit quality and pricing, and are also communicated to the dealer that submitted the application. This process is built on long established credit risk fundamentals to determine both the applicant’s ability and willingness to repay. While advances in excess of 100% of the vehicle collateral value at loan origination—notwithstanding cash down and vehicle trade in value—are typical in the industry (primarily due to additional costs such as mechanical warranty contracts, taxes, license, and title fees), our pricing, risk, and underwriting processes are rooted in statistical analysis to manage this risk.

Our underwriting process uses a combination of automated strategies and manual evaluation by an experienced team of dedicated underwriters. Continued advancements in our data-driven risk assessment process have allowed us to methodically increase our use of automated credit decisioning in recent years. This increase in automated decisioning has enhanced the buying experience for our dealer and consumer customers through improved response times, and more consistent credit decisions. Underwriting is also governed by our credit policies, which set forth guidelines such as acceptable transaction parameters and verification requirements. For higher-risk approved transactions, these guidelines require verification of details such as applicant income and employment through documentation provided by the applicant or other data sources.

Underwriters have a limited ability to approve exceptions to the guidelines in our credit policies. For example, an exception may be approved to allow a term or a ratio of payment-to-income, debt-to-income, or LTV greater than that in the guidelines. Exceptions must be approved by underwriters with appropriate approval authority and generally are based on compensating factors. We monitor exceptions with the goal of limiting them to a small portion of approved applications and originated loans, and rarely permit more than a single exception to avoid layered risk.

Consumer Automotive Financing

New- and used-vehicle consumer financing through dealerships takes one of two forms: retail installment sales contracts (retail contracts) and operating lease contracts. We purchase retail contracts for new and used vehicles and operating lease contracts from dealers after those contracts are executed by the dealers and the consumers. Our consumer automotive financing operations generate revenue primarily through finance charges on retail contracts and rental payments on operating lease contracts. In connection with operating lease contracts, we recognize depreciation expense on the vehicle over the operating lease contract period and we may also recognize a gain or loss on the remarketing of the vehicle at the end of the lease.

The amount we pay a dealer for a retail contract is based on the rate of finance charge agreed by the dealer and customer, the negotiated purchase price of the vehicle, any other products such as service contracts, less any vehicle trade-in value, any down payment from the consumer, and any available automotive manufacturer incentives. Under the retail contract, the consumer is obligated to make payments in an amount equal to the purchase price of the vehicle (less any trade-in or down payment) plus finance charges at a rate negotiated between the consumer and the dealer. In addition, the consumer is responsible for charges related to past-due payments. Consistent with industry practice, when we purchase the retail contract, we pay the dealer at a rate discounted below the rate agreed by the dealer and the consumer (generally described in the industry as the “buy rate”). Our agreements with dealers limit the amount of the discount that we will accept. Although we do not own the vehicles that we finance through retail contracts, our agreements require that we hold a perfected security interest in those vehicles.

With respect to consumer leasing, we purchase operating lease contracts and the associated vehicles from dealerships after those contracts are executed by the dealers and the consumers. The amount we pay a dealer for an operating lease contract is based on the negotiated price for the vehicle, less any vehicle trade-in, any down payment from the consumer, and any available automotive manufacturer incentives. Under an operating lease, the consumer is obligated to make payments in amounts equal to the amount by which the negotiated purchase price of the vehicle (less any trade-in value, down payment, or any available manufacturer incentives) exceeds the contract residual value (including residual support) of the vehicle at lease termination, plus operating lease rental charges. The consumer is also generally responsible for charges related to past-due payments, excess mileage, excessive wear and tear, and certain disposal fees where applicable. At contract inception, we determine pricing based on the projected residual value of the leased vehicle. This evaluation is primarily based on a proprietary model, which includes variables such as vehicle age, expected mileage, seasonality, segment factors, vehicle type, economic indicators, production cycle, automotive manufacturer incentives, and shifts in used vehicle supply. This internally generated data is compared against third-party, independent data for reasonableness.

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Periodically, we revise the projected value of the leased vehicle at termination based on then-current market conditions and adjust depreciation expense, if appropriate, over the remaining life of the contract. Upon termination of the lease, lessees generally have the ability to exercise a purchase option at the stated contractual amount. If the lessee declines to exercise the purchase option, the dealer then has the ability to buy out the vehicle. If neither the lessee or dealer completes the buyout, the vehicle is returned to us and we remarket the vehicle. At termination, our actual sales proceeds from remarketing the vehicle may be higher or lower than the estimated residual value resulting in a gain or loss on remarketing recorded through depreciation expense.

Our standard consumer operating lease contract, SmartLease, requires a monthly payment by the consumer. We also offer an alternative leasing plan, SmartLease Plus, which requires one up-front payment of all operating lease amounts at the time the consumer takes possession of the vehicle.

Our standard consumer lease contracts are operating leases; therefore, credit losses on the operating lease portfolio are not as significant as losses on retail contracts because lease credit losses are primarily limited to past-due payments and assessed fees. Since some of these fees are not assessed until the vehicle is returned, these losses on the operating lease portfolio are correlated with lease termination volume. Operating lease accounts over 30 days past due represented 0.8% and 1.1% of the portfolio at December 31, 2021, and 2020, respectively.

With respect to all financed vehicles, whether subject to a retail contract or an operating lease contract, we require that property damage insurance be obtained by the consumer. In addition, for operating lease contracts, we require that bodily injury, collision, and comprehensive insurance be obtained by the consumer.

Our portfolio yield for investment in operating leases, net, including net gains on the sale of off-lease vehicles, increased over 300 basis points to 9.3% for the year ended December 31, 2021, as compared to 6.3% for the year ended December 31, 2020. Our portfolio yield for consumer automotive loans, excluding the impact of hedging activities, increased approximately 10 basis points for the year ended December 31, 2021, relative to the year ended December 31, 2020. We set our buy rates using a granular, risk-based methodology factoring in several variables including interest costs, projected net average annualized loss rates at the time of origination, anticipated operating costs, and targeted return on equity. Our underwriting capabilities allow us to manage our risk tolerance levels to quickly react to major changes in the economy, including the current pandemic environment. Over the past several years, we have continued to focus on optimizing pricing relative to market interest rates as well as portfolio diversification and the used-vehicle segment, primarily through franchised dealers, which has contributed to higher yields on our consumer automotive loan portfolio. Commensurate with this shift in origination mix, we continue to maintain disciplined underwriting within our new and used consumer automotive loan originations. The carrying value of our nonprime consumer automotive loans before allowance for loan losses was $8.8 billion, or approximately 11.3%, of our total consumer automotive loans at December 31, 2021, as compared to $8.6 billion, or approximately 11.7% of our total consumer automotive loans at December 31, 2020.

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Ally Financial Inc. • Form 10-K

The following table presents retail loan originations by credit tier and product type.

(a)Represents Ally’s internal credit score, incorporating numerous borrower and structure attributes including: severity and aging of delinquency; number of credit inquiries; LTV ratio; and payment-to-income ratio. We periodically update our underwriting scorecard, which can have an impact on our credit tier scoring.

The following table presents the percentage of total retail loan originations, in dollars, by the loan term in months.

Retail originations with a term of 76 months or more represented 19% of total retail originations for the year ended December 31, 2021, compared to 17% for the year ended December 31, 2020, and 15% for the year ended December 31, 2019. Substantially all of the loans originated with a term of 76 months or more during the years ended December 31, 2021, 2020, and 2019, were considered to be prime and in credit tiers S, A, or B. We define prime consumer automotive loans primarily as those loans with a FICO® Score at origination of 620 or greater.

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The following table presents the percentage of total outstanding retail loans by origination year.

The following tables present the total retail loan and operating lease origination dollars and percentage mix by product type and by channel.

(a)Includes CSG originations of $4.7 billion, $3.8 billion, and $4.0 billion for the years ended December 31, 2021, 2020, and 2019 respectively.

Total consumer automotive loan and operating lease originations increased $11.1 billion for the year ended December 31, 2021, compared to 2020. The increase for the year ended December 31, 2021, as compared to 2020, was primarily driven by higher consumer demand and higher financed transaction amounts, as well as increased application flow and decisioning speeds. Additionally, originations for the year ended December 31, 2020, were impacted by the COVID-19 pandemic that temporarily shut down or restricted operations at automotive dealers. These restrictions, along with the industry-wide halt of new vehicle production, drove a significant decrease in industry automotive light vehicle sales.

We have included origination metrics by loan term and FICO® Score within this MD&A. However, we employ our own risk evaluation, including proprietary risk models, in evaluating credit risk, as described in the section above titled Acquisition and Underwriting.

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The following table presents the percentage of retail loan and operating lease originations, in dollars, by FICO® Score and product type.

(a)Unscored are primarily CSG contracts with business entities that have no FICO® Score.

Originations with a FICO® Score of less than 620 (considered nonprime) represented 9% of total consumer loan and operating lease originations for the year ended December 31, 2021, compared to 10% for the year ended December 31, 2020, and 11% for the year ended December 31, 2019. Consumer loans and operating leases with FICO® Scores of less than 540 composed 1% of total originations for the year ended December 31, 2021. Nonprime applications are subject to more stringent underwriting criteria (for example, minimum payment-to-income ratio, maximum debt-to-income ratio, and maximum amount financed), and our nonprime loan portfolio generally does not include any loans with a term of 76 months or more. For discussion of our credit-risk-management practices and performance, refer to the section titled Risk Management.

Manufacturer Marketing Incentives

Automotive manufacturers may elect to sponsor incentive programs on retail contracts and operating leases by subsidizing finance rates below market rates. These marketing incentives are also referred to as rate support or subvention. When an automotive manufacturer subsidizes the finance rate, we are compensated at contract inception for the present value of the difference between the manufacturer-supported customer rate and our standard rate. For a retail contract, we defer and recognize this amount as a yield adjustment over the life of the contract. For an operating lease contract, this payment reduces our cost basis in the underlying operating lease asset.

Automotive manufacturers may also elect to sponsor incentives, referred to as residual support, on operating leases. When an automotive manufacturer provides residual support, we receive payment at contract inception that increases the contractual operating lease residual value resulting in a lower operating lease payment from the customer. The payment received from the automotive manufacturer reduces our cost basis in the underlying operating lease asset. Other operating lease incentive programs sponsored by automotive manufacturers may be made at contract inception indirectly through dealers, which also reduces our cost basis in the underlying operating lease asset.

Under what the automotive finance industry refers to as “pull-ahead programs,” consumers may be encouraged by the manufacturer to terminate operating leases early in conjunction with the acquisition of a new vehicle. As part of these programs, we may waive all or a portion of the customer’s remaining payment obligation. Under most programs, the automotive manufacturer compensates us for a portion of the foregone revenue from the waived payments. This compensation may be partially offset to the extent that our remarketing sales proceeds are higher than otherwise would be realized if the vehicle had been remarketed upon contract maturity.

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Ally Financial Inc. • Form 10-K

Servicing

We have historically serviced all retail contracts and operating leases we originated. However, our expansion into direct-to-consumer lending and other relationships have resulted in the employment of third-party servicers for a small portion of the portfolio. On occasion, we have sold a portion of the retail contracts we originated through whole-loan sales and securitizations, but generally retained the right to service and earn a servicing fee for our servicing functions.

Servicing activities consist largely of collecting and processing customer payments, responding to customer concerns and inquiries, processing customer requests (including those for payoff quotes, total-loss handling, and payment modifications), maintaining a perfected security interest in the financed vehicle, engaging in collections activity, and disposing of off-lease and repossessed vehicles. Servicing activities are generally consistent across our Automotive Finance operations; however, certain practices may be influenced by state laws.

Our customers have the option to receive monthly billing statements and remit payment by mail or through electronic fund transfers, or to establish online web-based account administration through Ally Auto Online Services. Customer payments are processed by regional third-party processing centers that electronically transfer payment information to customers’ accounts.

Collections activity includes initiating contact with customers who fail to comply with the terms of the retail contract or operating lease agreement by sending reminder notices or contacting customers via various channels when an account becomes 3 to 7 days past due. The type of collection treatment and level of intensity increases as the account becomes more delinquent. The nature and timing of these activities depend on the repayment risk of the account.

During the collections process, we may offer a payment extension to a customer experiencing temporary financial difficulty. A payment extension enables the customer to delay monthly payments for 30, 60, or 90 days. Extensions granted to a customer typically do not exceed 90 days in the aggregate during any 12-month period or 180 days in aggregate over the life of the contract. During the extension period, finance charges continue to accrue. If the customer’s financial difficulty is not temporary but we believe the customer is willing and able to repay their loan at a lower payment amount, we may offer to modify the remaining obligation, extending the term and lowering the scheduled monthly payment. In those cases, the outstanding balance generally remains unchanged. The use of extensions and modifications helps us mitigate financial loss. Extensions may assist in cases where we believe the customer will recover from short-term financial difficulty and resume regularly scheduled payments. Modifications may also be utilized in cases where we believe customers can fulfill the obligation with lower payments over a longer period. Before offering an extension or modification, we evaluate and take into account the capacity of the customer to meet the revised payment terms. Generally, we believe extensions that fall within our policy guidelines to represent more than an insignificant delay in payment, and therefore, they are not considered a TDR. Although the granting of an extension could delay the eventual charge-off of an account, typically we are able to repossess and sell the related collateral, thereby mitigating the loss. At December 31, 2021, 18.8% of the total amount outstanding in the servicing portfolio had been granted an extension or was rewritten, compared to 30.9% at December 31, 2020. This decrease was largely due to the impacts caused by the COVID-19 pandemic and our related relief-programs to support our customers during the year ended December 31, 2020. These programs have since been terminated.

Subject to legal considerations, we generally begin repossession activity once an account is at least 90 days past due. Repossession may occur earlier if we determine the customer is unwilling to pay, the vehicle is in danger of being damaged or hidden, or the customer voluntarily surrenders the vehicle. Approved third-party repossession vendors handle the repossession activity. Generally, after repossession, the customer is given a period of time to redeem the vehicle or reinstate the contract by paying off the account or bringing the account current, respectively. If the vehicle is not redeemed or the contract is not reinstated, the vehicle is sold at auction. Generally, the proceeds do not cover the unpaid balance, including unpaid earned finance charges and allowable expenses, and the resulting deficiency is charged-off. Asset recovery centers pursue collections on accounts that have been charged-off, including those accounts where the vehicle was repossessed, and skip accounts where the vehicle cannot be located.

Our total consumer automotive serviced portfolio, as well as our consumer automotive on-balance-sheet serviced portfolio, was $84.8 billion and $80.2 billion at December 31, 2021, and 2020, respectively.

Remarketing and Sales of Leased Vehicles

When we acquire an operating lease, we assume ownership of the vehicle from the dealer. Neither the consumer nor the dealer is responsible for the value of the vehicle at the time of lease termination. When vehicles are not purchased by customers or the receiving dealer at scheduled lease termination, the vehicle is returned to us for remarketing. We generally bear the risk of loss to the extent the value of a leased vehicle upon remarketing is below the expected residual value. Conversely, we may recognize a remarketing gain when the proceeds from a returned vehicle are greater than the expected residual value. Our ability to efficiently process and effectively market off-lease vehicles affects the disposal costs and the proceeds realized from vehicle sales. Our methods of vehicle sales at lease termination primarily include the following:

•Sale to dealer — After the lessee declines an option to purchase the off-lease vehicle, the dealer who accepts it has the opportunity to purchase it directly from us at a price we define.

•Internet auctions — Once the lessee and the dealer decline to purchase the off-lease vehicle, we offer it to dealers and other third parties through our proprietary internet site (SmartAuction). Through SmartAuction, we seek to maximize the net sales proceeds from an off-lease vehicle by reducing the time between vehicle return and ultimate disposition, reducing holding costs, and broadening the number of prospective buyers. We use SmartAuction for our own vehicles and make it available for third-party use.

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Ally Financial Inc. • Form 10-K

We earn a service fee for every third-party vehicle sold through SmartAuction, which includes the cost of ClearGuard coverage, our protection product designed to assist in minimizing the risk to dealers of arbitration claims for eligible vehicles. In 2021, approximately 261,000 vehicles were sold through SmartAuction, as compared to approximately 258,000 vehicles in 2020.

•Physical auctions — We dispose of an off-lease vehicle not purchased at termination by the lessee or dealer or sold on SmartAuction through traditional third-party, physical auctions. We are responsible for handling decisions at the auction including arranging for inspections, authorizing repairs and reconditioning, and determining whether bids received at auction should be accepted.

We employ an internal team, including statisticians, to manage our analysis of projected used vehicle values and residual risk. This team aids in the pricing of new operating leases, managing the disposal process including vehicle concentration risk, geographic optimization of vehicles to maximize gains, disposal platform (internet vs. physical), and evaluating our residual risk on a real-time basis. This team tracks market movements of used vehicles using data down to the VIN level including trim and options, vehicle age, mileage, and seasonality factors that we feel are more relevant than other published indices (for example, Manheim, NADA). This analysis includes vehicles sold on our SmartAuction platform, as well as vehicles sold through Manheim, ADESA, and over 200 independent physical auction sites. We believe this analysis gives us a competitive advantage over our peers.

Commercial Automotive Financing

Automotive Wholesale Dealer Financing

One of the most important aspects of our dealer relationships is providing wholesale floorplan financing for new- and used-vehicle inventories at dealerships. Wholesale floorplan financing, including syndicated loan arrangements, represents the largest portion of our commercial automotive financing business and is the primary source of funding for dealers’ purchases of new and used vehicles.

Wholesale floorplan financing is generally extended in the form of lines of credit to individual dealers. These lines of credit are secured by the vehicles financed and all other vehicle inventory, which provide strong collateral protection in the event of dealership default. Additional collateral (for example, blanket lien over all dealership assets) or other credit enhancements (for example, personal guarantees from dealership owners) are generally obtained to further mitigate credit risk. Furthermore, in some cases, we may benefit from situations where an automotive manufacturer repurchases vehicles. These repurchases may serve as an additional layer of protection in the event of repossession of dealership new-vehicle inventory or dealership franchise termination. The amount we advance to dealers for a new vehicle is equal to 100% of the manufacturer’s wholesale invoice price, subject to payment curtailment schedules. The amount we advance to dealers for a used vehicle is typically 90–100% of the dealer’s cost of acquiring it. Interest on wholesale floorplan financing is generally payable monthly. The majority of wholesale floorplan financing is structured to yield interest at a floating rate indexed to LIBOR or the Prime Rate. We have established an enterprise-wide LIBOR transition program to manage the discontinuance of LIBOR. Refer to the section titled LIBOR Transition within the MD&A for further details. The rate for a particular dealer is based on, among other things, competitive factors, the size of the account, and the dealer’s creditworthiness. Additionally, under our Ally Dealer Rewards Program, dealers benefit in certain circumstances from wholesale-floorplan-financing incentives, which we pay and account for as a reduction to interest income in the period they are earned.

Under our wholesale-floorplan-financing agreement, a dealership is generally required to pay the principal amount financed for a vehicle within a specified number of days following the dealership’s sale or lease of the vehicle. The agreement also affords us the right to demand payment of all amounts owed under the wholesale credit line at any time. We, however, generally make this demand only if we terminate the credit line, the dealer defaults, or a risk-based reason exists to do so.

Commercial Wholesale Financing Volume

The following table presents the percentage of average balance of our commercial wholesale floorplan finance receivables, in dollars, by product type and by channel.

Average commercial wholesale financing receivables outstanding decreased $8.1 billion during the year ended December 31, 2021, compared to 2020. The decrease was primarily due to lower dealer inventory levels, driven by strong consumer demand for vehicles that outpaced lower automotive production levels due to the global semiconductor chip shortage. The decline was also impacted by a reduction in the number of GM dealer relationships due to the competitive environment across the automotive lending market. Dealer inventory levels are dependent on a number of factors, including manufacturer production schedules and vehicle mix, sales incentives, and industry sales.

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-K

Manufacturer production and corresponding dealer stock levels, as well as dealer penetration levels, may continue to influence our future wholesale balances. While the severity and duration of these supply chain disruptions is not currently clear, we anticipate this will continue to limit the growth in commercial wholesale finance receivables throughout 2022 commensurate with lower dealer inventory levels.

Other Commercial Automotive Financing

We also provide other forms of commercial financing for the automotive industry including automotive dealer term and revolving loans and automotive fleet financing. Automotive dealer term and revolving loans are loans that we make to dealers to finance other aspects of the dealership business, including acquisitions. These loans are usually secured by real estate or other dealership assets and are typically personally guaranteed by the individual owners of the dealership. Additionally, these loans generally include cross-collateral and cross-default provisions. Automotive fleet financing credit lines may be obtained by dealers, their affiliates, and other independent companies that are used to purchase vehicles, which they lease or rent to others. The average balances of other commercial automotive loans decreased $467 million for the year ended December 31, 2021, compared to 2020, to an average of $5.3 billion.

Servicing and Monitoring

We service all of the wholesale credit lines in our portfolio and the associated wholesale automotive finance receivables. A statement setting forth billing and account information is distributed on a monthly basis to each dealer. Interest and other nonprincipal charges are billed in arrears and are required to be paid immediately upon receipt of the monthly billing statement. Generally, dealers remit payments to us through ACH transactions initiated by the dealer through a secure web application.

We manage risk related to wholesale floorplan financing by assessing dealership borrowers using a proprietary model based on various factors, including their capital sufficiency, operating performance, and credit and payment history. This model assigns dealership borrowers a risk rating that affects the amount of the line of credit and the ongoing risk management of the account. We monitor the level of borrowing under each dealer’s credit line daily. We may adjust the dealer’s credit line if warranted, based on the dealership’s vehicle sales rate, and temporarily suspend the granting of additional credit, or take other actions following evaluation and analysis of the dealer’s financial condition.

We periodically inspect and verify the existence of dealer vehicle inventories. The timing of these collateral audits varies, and no advance notice is given to the dealer. Among other things, audits are intended to assess dealer compliance with the financing agreement and confirm the status of our collateral.

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-K

Insurance

Results of Operations

The following table summarizes the operating results of our Insurance operations. The amounts presented are before the elimination of balances and transactions with our other reportable segments.

(a)Includes interest expense of $58 million, $80 million, and $79 million for the years ended December 31, 2021, 2020, and 2019, respectively.

(b)Includes net unrealized losses on equity securities of $10 million for the year ended December 31, 2021, and net unrealized gains on equity securities of $31 million and $88 million for the years ended December 31, 2020, and 2019 respectively.

(c)Management uses a combined ratio as a primary measure of underwriting profitability. Underwriting profitability is indicated by a combined ratio under 100% and is calculated as the sum of all incurred losses and expenses (excluding interest and income tax expense) divided by the total of premiums and service revenues earned and other income.

2021 Compared to 2020

Our Insurance operations earned income from continuing operations before income tax expense of $343 million for the year ended December 31, 2021, compared to $284 million for the year ended December 31, 2020. The increase for the year ended December 31, 2021, was primarily driven by a $102 million decrease in insurance losses and loss adjustment expenses primarily from lower weather-related losses within our P&C business, partially offset by higher acquisition and underwriting expenses.

Insurance premiums and service revenue earned was $1.1 billion for both the years ended December 31, 2021, and 2020. The activity for the year ended December 31, 2021, included $63 million in higher earned revenue from our F&I products, as revenue is earned over the life of the contracts on a basis proportionate to the anticipated loss pattern. The increase was partially offset by $49 million in lower earned premiums driven by lower dealer vehicle inventory levels.

Other gain on investments, net was $216 million for the year ended December 31, 2021, compared to $220 million for the same period during 2020. The decrease was driven by net unrealized losses on equity securities of $10 million during 2021 as compared to net unrealized gains of $31 million during 2020. This decrease was partially offset by higher realized gains of $37 million from the investment securities portfolio.

Insurance losses and loss adjustment expenses totaled $261 million for the year ended December 31, 2021, compared to $363 million for the same period in 2020. The decrease was primarily driven by lower weather-related losses within our P&C business.

Total acquisition and underwriting expense increased $71 million for the year ended December 31, 2021, as compared to the same period in 2020. The increase was primarily due to an increase in insurance commissions, commensurate with higher earned premiums from our F&I products.

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Ally Financial Inc. • Form 10-K

Lower weather losses from our P&C business drove a decrease in the combined ratio to 93.9% for the year ended December 31, 2021, compared to 98.0% for the year ended December 31, 2020. In April 2021, we renewed our annual excess of loss reinsurance agreement and continue to utilize this coverage for our vehicle inventory insurance to manage our risk of weather-related loss.

Premium and Service Revenue Written

The following table summarizes premium and service revenue written by product, net of premiums ceded to reinsurers. VSC and GAP revenue are earned over the life of the service contract on a basis proportionate to the anticipated loss pattern. Refer to Note 3 to the Consolidated Financial Statements for further discussion of this revenue stream.

(a)Other products include VMCs, ClearGuard, and other ancillary products.

(b)P&C insurance include vehicle inventory insurance and dealer ancillary products.

Insurance premiums and service revenue written was $1.2 billion for both the years ended December 31, 2021, and 2020. F&I premiums written on VSCs declined for the year ended December 31, 2021, due to lower volume partially offset by higher rates. F&I premiums written on GAP and other F&I products increased for the year ended December 31, 2021, due to both increased volume and higher rates. P&C premiums written declined during the year ended December 31, 2021, driven by lower dealer vehicle inventory levels resulting from lower manufacturer production levels, which have been impacted by supply chain disruptions including shortages of semiconductor chips. This decline in P&C premiums written was partially offset by lower dealer inventory reinsurance costs. While the severity and duration of these supply chain disruptions is not currently clear, we anticipate that written premium levels will continue to be impacted by trends related to automotive manufacturer vehicle production and dealer inventory levels.

Cash and Investments

A significant aspect of our Insurance operations is the investment of proceeds from premiums and other revenue sources. We use these investments to satisfy our obligations related to future claims at the time these claims are settled. Our Insurance operations have an Investment Committee, which develops guidelines and strategies for these investments. The guidelines established by this committee reflect our risk appetite, liquidity requirements, regulatory requirements, and rating agency considerations, among other factors.

The following table summarizes the composition of our Insurance operations cash and investment portfolio at fair value.

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-K

In addition to these cash and investment securities, the Insurance segment has an interest-bearing intercompany arrangement with the Corporate and Other segment, callable on demand. The intercompany loan balance due to Insurance was $923 million and $830 million at December 31, 2021, and December 31, 2020, respectively, and interest income of $14 million and $1 million of interest income was recognized for the years ended December 31, 2021, and December 31, 2020, respectively.

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-K

Mortgage Finance

Results of Operations

The following table summarizes the activities of our Mortgage Finance operations. The amounts presented are before the elimination of balances and transactions with our reportable segments.

n/m = not meaningful

2021 Compared to 2020

Our Mortgage Finance operations earned income from continuing operations before income tax expense of $32 million for the year ended December 31, 2021, compared to $53 million for the year ended December 31, 2020. The decrease for the year ended December 31, 2021, was driven by an increase in noninterest expense and lower net gains on the sale of mortgage loans, partially offset by higher net financing revenue and other interest income and a decrease in the provision for credit losses.

Net financing revenue and other interest income was $124 million for the year ended December 31, 2021, compared to $118 million for the year ended December 31, 2020. The increase in net financing revenue and other interest income for the year ended December 31, 2021, was primarily due to lower prepayment activity, driven by a higher interest rate environment, which resulted in lower premium amortization. Premium amortization was $92 million for the year ended December 31, 2021, compared to $123 million for the year ended December 31, 2020. This benefit was partially offset by the impact of lower average balances and net interest rate margin in 2021. During the year ended December 31, 2021, we purchased $3.9 billion of mortgage loans that were originated by third parties, compared to $4.2 billion for the year ended December 31, 2020. We originated $7.0 billion of mortgage loans held-for-investment during the year ended December 31, 2021, compared to $2.0 billion, during the year ended December 31, 2020.

Gain on sale of mortgage loans, net, was $87 million for the year ended December 31, 2021, compared to $93 million for the year ended December 31, 2020. The decrease was attributable to margin normalization for direct-to-consumer mortgage originations and the subsequent sale of these loans to our fulfillment provider. During the year ended December 31, 2021, we originated $3.4 billion of loans held-for-sale, compared to $2.7 billion during the year ended December 31, 2020.

The provision for credit losses decreased $8 million for the year ended December 31, 2021, compared to the year ended December 31, 2020. The decrease in provision for credit losses was primarily driven by a reserve increase during the year ended December 31, 2020, associated with deterioration in the macroeconomic environment resulting from the COVID-19 pandemic, compared to a reserve decline during the year ended December 31, 2021, as the macroeconomic environment continued to recover. Refer to the Risk Management section of this MD&A for further discussion on our provision for credit losses.

Total noninterest expense was $187 million for the year ended December 31, 2021, compared to $160 million for the year ended December 31, 2020. The increase was primarily driven by continued growth in direct-to-consumer mortgage originations.

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-K

The following table presents the total UPB of purchases and originations of consumer mortgages held for investment, by FICO® Score at the time of acquisition.

The following table presents the net UPB, net UPB as a percentage of total, WAC, premium net of discounts, LTV, and FICO® Scores for the products in our Mortgage Finance held-for-investment loan portfolio.

(a)Represents UPB, net of charge-offs.

(b)Updated home values were derived using a combination of appraisals, broker price opinions, automated valuation models, and metropolitan statistical area level house price indices.

(c)Updated to reflect changes in credit score since loan origination.

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Ally Financial Inc. • Form 10-K

Corporate Finance

Results of Operations

The following table summarizes the activities of our Corporate Finance operations. The amounts presented are before the elimination of balances and transactions with our reportable segments.

n/m = not meaningful

2021 Compared to 2020

Our Corporate Finance operations earned income from continuing operations before income tax expense of $282 million for the year ended December 31, 2021, compared to income earned of $88 million for the year ended December 31, 2020. The increase for the year ended December 31, 2021, was primarily due to higher other revenue driven by significant investment gains and strong fee income generation as well as a lower provision for credit losses.

Net financing revenue and other interest income was $308 million for the year ended December 31, 2021, compared to $299 million for the year ended December 31, 2020. The increase for the year ended December 31, 2021, was primarily due to higher average assets from continued growth in the portfolio in 2021.

Other revenue increased $83 million for the year ended December 31, 2021, compared to the year ended December 31, 2020. The increase was driven by $63 million in investment income as compared to investment losses of $7 million for the year ended December 31, 2020. Investment income included both realized gains from sales of certain nonmarketable equity securities and unrealized gains on investments carried at fair market value as well as a $16 million gain on the sale of an investment in a non performing healthcare exposure that was acquired as part of a loan restructure in a prior period. The increase was also driven by higher fee income for the year ended December 31, 2021, compared to 2020.

The provision for credit losses decreased $111 million for the year ended December 31, 2021, compared to the year ended December 31, 2020. For the year ended December 31, 2021, the decrease in provision for credit losses was driven by a reserve increase during the year ended December 31, 2020, associated with deterioration in the macroeconomic environment resulting from the COVID-19 pandemic, compared to a partial release of this reserve during 2021, as the macroeconomic environment continued to recover. The decrease in provision for credit losses for the year ended December 31, 2021, was partially offset by increased provision driven by asset growth. Refer to the Risk Management section of this MD&A for further discussion on our provision for credit losses.

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Ally Financial Inc. • Form 10-K

Credit Portfolio

The following table presents loans held for sale, the amortized cost of finance receivables and loans outstanding, unfunded commitments to lend, and total serviced loans of our Corporate Finance operations.

(a)Includes unused revolving credit line commitments for loans held for sale and finance receivables and loans, signed commitment letters, and standby letter of credit facilities, which are issued on behalf of clients and may contingently require us to make payments to a third-party beneficiary in the event of a draw by the beneficiary thereunder. As many of these commitments are subject to borrowing base agreements and other restrictive covenants or may expire without being fully drawn, the stated amounts of these unfunded commitments are not necessarily indicative of future cash requirements.

The following table presents the percentage of total finance receivables and loans of our Corporate Finance operations by industry concentration. The finance receivables and loans are reported at amortized cost.

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-K

Corporate and Other

The following table summarizes the activities of Corporate and Other, which primarily consist of centralized corporate treasury activities such as management of the cash and corporate investment securities and loan portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative instruments, original issue discount, and the residual impacts of our corporate FTP and treasury ALM activities. Corporate and Other also includes certain equity investments, which primarily consist of FHLB and FRB stock as well as other strategic investments, the management of our legacy mortgage portfolio, which primarily consists of loans originated prior to January 1, 2009, the activity related to Ally Invest, Ally Lending, Ally Credit Card, CRA loans and related investments, and reclassifications and eliminations between the reportable operating segments.

n/m = not meaningful

(a)Primarily related to impacts associated with hedging activities within our automotive loan portfolio, consumer unsecured lending activity, and financing revenue from our legacy mortgage portfolio.

(b)Amortization is included as interest on long-term debt in the Consolidated Statement of Income.

(c)Includes the residual impacts of our FTP methodology and impacts of hedging activities of certain debt obligations.

(d)Includes reductions of $1.1 billion, $986 million, and $899 million for the years ended December 31, 2021, 2020, and 2019, respectively, related to the allocation of corporate overhead expenses to other segments. The receiving segments record their allocation of corporate overhead expense within other operating expense.

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-K

The following table presents the scheduled remaining amortization of the original issue discount at December 31, 2021.

(a)The maximum annual scheduled amortization for any individual year is $141 million in 2030.

(b)The amortization is included as interest on long-term debt in the Consolidated Statement of Income.

2021 Compared to 2020

Corporate and Other incurred a loss from continuing operations before income tax expense of $186 million for the year ended December 31, 2021, compared to a loss of $296 million for the year ended December 31, 2020. The decrease in loss was primarily driven by a decrease in total interest expense resulting from a lower interest rate environment, as well as a continued shift to lower-cost deposit funding. This decrease was partially offset by an increase in noninterest expense, a decrease in total financing revenue, and an increase in the provision for credit losses during the year ended December 31, 2021.

Total financing revenue and other interest income was $520 million for the year ended December 31, 2021, compared to $624 million for the year ended December 31, 2020. The decrease was primarily driven by the impacts of a lower interest rate environment on the investment securities portfolio and on hedging activities.

Interest expense decreased $611 million for the year ended December 31, 2021, compared to the year ended December 31, 2020. The decrease was primarily driven by market and industry dynamics that drove a decrease in our deposit rates and other funding costs, and our continued shift to more cost-efficient deposit funding, as well as the residual impacts of our FTP methodology.

Total other revenue decreased $77 million for the year ended December 31, 2021, compared to the year ended December 31, 2020. The decrease for the year ended December 31, 2021, was primarily driven by lower upwards adjustments related to equity securities without a readily determinable fair value and a reduction in other gains on investments, net. Additionally, the decrease was impacted by $131 million of losses incurred for the full redemption of the Series 2 TRUPs during the year ended December 31, 2021, as compared to a $99 million loss on the early repayment of 13 FHLB advances we elected to prepay and early terminate during 2020. The decrease was partially offset by favorable hedging activity related to equity derivatives during the year ended December 31, 2020.

The provision for credit losses increased $104 million for the year ended December 31, 2021, compared to the year ended December 31, 2020. For the year ended December 31, 2021, the increase in provision for credit losses was primarily driven by the establishment of reserves upon the acquisition of Fair Square. Refer to the Risk Management section of this MD&A for further discussion on our provision for credit losses, and Note 2 to the Consolidated Financial Statements for further discussion on our acquisition of Fair Square.

Noninterest expense increased $216 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The increase for the year ended December 31, 2021, was driven by increased compensation and benefits expense. We also incurred increased expenses to support the growth of our consumer product suite, as we continue to make investments in our technology and cybersecurity platforms to enhance the customer experience and expand our digital capabilities and portfolio of products, as well as $57 million of contributions to the Ally Charitable Foundation during the year ended December 31, 2021. The increase in noninterest expense was partially offset by a goodwill impairment charge of $50 million related to Ally Invest and $35 million of contributions to the Ally Charitable Foundation for the year ended December 31, 2020.

Total assets were $43.3 billion as of December 31, 2021, compared to $47.2 billion as of December 31, 2020. This decrease was primarily the result of a reduction in our total cash and cash equivalents portfolio. Additionally, as of December 31, 2021, the amortized cost of the legacy mortgage portfolio was $368 million, compared to $495 million at December 31, 2020, which also contributed to the decrease.

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Ally Financial Inc. • Form 10-K

Cash and Securities

The following table summarizes the composition of the cash and securities portfolio at fair value for Corporate and Other.

Ally Invest

Ally Invest is our digital brokerage and wealth management offering, which enables us to complement our competitive deposit products with low-cost and commission-free investing. The following table presents trading days and average customer trades per day, the number of funded accounts, total net customer assets, and total customer cash balances as of the end of each of the last five quarters.

(a)Represents the number of days the New York Stock Exchange and other U.S. stock exchange markets are open for trading. A half day represents a day when the U.S. markets close early.

(b)Represents activity across both the brokerage and robo portfolios.

During the year ended December 31, 2021, higher customer engagement drove higher trade activity and funded accounts. Total funded accounts increased 11% from the fourth quarter of 2020. The fourth quarter of 2021 included a 6,000 account escheatment event reducing total funded accounts during the period. Average customer trades per day decreased 29% from the fourth quarter of 2020, driven primarily by changes in market volatility as overall trade activity approached pre-pandemic levels. Additionally, net customer assets increased 24% from the fourth quarter of 2020, as a result of equity market appreciation and increased customer account openings.

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Ally Financial Inc. • Form 10-K

Ally Lending

Ally Lending is our unsecured personal-lending offering, which currently serves medical, retail, and home improvement service providers by enabling promotional and fixed rate installment-loan products through a digital application process at point-of-sale. The following table presents consumer unsecured originations by FICO® Score.

(a)Includes acquired loans, for which we have elected the fair value option measurement.

During the year ended December 31, 2021, personal lending originations increased $738 million to $1.2 billion, as compared to the year ended December 31, 2020. We continue to expand our relationships across all verticals, including the home improvement, retail, and medical segments.

The carrying value of our personal lending portfolio was $1.0 billion at December 31, 2021, compared to $407 million at December 31, 2020, while the associated yield was 13.8% for the year ended December 31, 2021, as compared to 15.8% for the year ended December 31, 2020.

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Ally Financial Inc. • Form 10-K

Risk Management

Managing the risk/reward trade-off is a fundamental component of operating our businesses, and all employees are responsible for managing risk. We use multiple layers of defense to identify, monitor, and manage current and emerging risks.

•Business lines — Responsible for owning and managing all of the risks that emanate from their risk-taking activities, including business units and support functions.

•Independent risk management — Operates independent of the business lines and is responsible for establishing and maintaining our risk-management framework and promulgating it enterprise-wide. Independent risk management also provides an objective, critical assessment of risks and—through oversight, effective challenge, and other means—evaluates whether Ally remains aligned with its risk appetite.

•Internal audit — Provides its own independent assessments regarding the quality of our loan portfolios as well as the effectiveness of our risk management, internal controls, and governance. Internal audit includes Audit Services and the Loan Review Group.

Our risk-management framework is overseen by the RC of our Board. The RC sets the risk appetite across our company while risk-oriented management committees, the executive leadership team, and our associates identify and monitor current and emerging risks and manage those risks within our risk appetite. Our primary types of risks include the following:

•Credit risk — The risk of loss arising from an obligor not meeting its contractual obligations to us.

•Insurance/underwriting risk — The risk of loss or of adverse change in the value of insurance liabilities, due to inadequate pricing and provisioning assumptions.

•Liquidity risk — The risk that our financial condition or overall safety and soundness is adversely affected by the actual or perceived inability to liquidate assets or obtain adequate funding or to easily unwind or offset specific exposures without significantly lowering market prices because of inadequate market depth or market disruptions. Refer to discussion in the section titled Liquidity Management, Funding, and Regulatory Capital within this MD&A.

•Market risk — The risk that movements in market variables such as benchmark interest rates, investors’ required risk premium, foreign-exchange rates, equity prices, and used car prices may adversely affect our earnings, capital, or economic value. Market risk includes interest rate risk, investment risk, and lease residual risk.

•Business/strategic risk — The risk resulting from the pursuit of business plans that turn out to be unsuccessful due to a variety of factors.

•Reputation risk — The risk arising from negative public opinion on our business practices, whether true or not, that could cause a decline in the customer base, litigation, or revenue reductions.

•Operational risk — Operational risk is the risk of loss or harm arising from inadequate or failed processes or systems, human factors, or external events and is inherent in all of our risk-generating activities.

•Information technology/cybersecurity risk — The risk resulting from the failure of, or insufficiency in, information technology (for example, a system outage) or intentional or accidental unauthorized access, sharing, removal, tampering, or disposal of company and customer data or records (for example, cybersecurity).

•Compliance risk — The risk of legal or regulatory sanctions, financial loss, or damage to reputation resulting from failure to comply with laws, regulations, rules, other regulatory requirements, or codes of conduct and other standards of self-regulatory organizations applicable to the banking organization (applicable rules and standards).

•Conduct risk — The risk of customer harm, employee harm, reputational damage, regulatory sanction, or financial loss resulting from the behavior of our employees and contractors toward customers, counterparties, other employees and contractors, or the markets in which we operate.

Our risk-governance structure starts within each business line, including committees established to oversee risk in their respective areas. The business lines are responsible for their risk-based performance and compliance with risk-management policies and applicable law. The independent risk-management function is accountable for independently identifying, monitoring, measuring, and reporting on our various risks and for designing an effective risk-management framework and structure. The independent risk-management function is also responsible for developing, maintaining, and implementing enterprise risk-management. In addition, the ERMC is responsible for supporting the Chief Risk Officer’s oversight of senior management’s responsibility to execute on our strategy within our risk appetite set by the RC, and the Chief Risk Officer’s implementation of our independent risk-management program. The Chief Risk Officer reports to the RC, as well as administratively to the Chief Executive Officer.

All business lines are subject to full and unrestricted audits by Audit Services. The Chief Audit Executive reports to the AC, as well as administratively to the Chief Executive Officer, and is primarily responsible for assisting the AC in fulfilling its governance and oversight

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responsibilities. Audit Services is granted free and unrestricted access to any and all of our records, physical properties, technologies, management, and employees.

In addition, our Loan Review Group provides an independent assessment of the quality of our extensions of credit and credit-risk-management practices, and all business lines that create or influence credit risk are subject to full and unrestricted reviews by the Loan Review Group. This group is also granted free and unrestricted access to any and all of our records, physical properties, technologies, management and employees, and reports directly to the RC.

In addition to the primary risks that we manage, climate-related risk has been identified as an emerging risk. Climate-related risk refers to the risk of loss or change in business activities arising from climate change and represents a transverse risk that could impact other risks within our risk-management framework, such as credit risk from negatively impacted borrowers, reputation risk from increased stakeholder concerns, and operational risk from physical climate risks. Refer to section titled Climate-Related Risk within this section for more information.

Loan and Operating Lease Exposure

The following table summarizes the exposures from our loan and operating-lease activities.

(a)Includes $368 million and $495 million of consumer mortgage loans in our legacy mortgage portfolio at December 31, 2021, and December 31, 2020, respectively.

(b)Represents the current balance of conforming mortgages originated directly to the held-for-sale portfolio.

The risks inherent in our loan and operating lease exposures are largely driven by changes in the overall economy, used vehicle and housing prices, unemployment levels, real personal income, and their impact on our borrowers. The potential financial statement impact of these exposures varies depending on the accounting classification and future expected disposition strategy. We retain most of our consumer automotive loans as they complement our core business model, but we do sell loans from time to time on an opportunistic basis. We ultimately manage the associated risks based on the underlying economics of the exposure. Our operating lease residual risk may be more volatile than credit risk in stressed macroeconomic scenarios. While all operating leases are exposed to potential reductions in used vehicle values, only loans where we take possession of the vehicle are affected by potential reductions in used vehicle values.

•Finance receivables and loans — Loans that we have the intent and ability to hold for the foreseeable future or until maturity, or loans associated with an on-balance-sheet securitization classified as a secured borrowing. Finance receivables and loans are reported at their amortized cost, 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 losses as the net carrying value in finance receivables and loans. We manage the economic risks of these exposures, including credit risk, by adjusting underwriting standards and risk limits, augmenting our servicing and collection activities (including loan modifications and restructurings), and optimizing our product and geographic concentrations. Additionally, we may elect to account for certain loans at fair value. Changes in the fair value of these loans are recognized in a valuation allowance separate from the allowance for loan losses and are reflected in current period earnings. We may use market-based instruments, such as derivatives, to hedge changes in the fair value of these loans.

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•Loans held-for-sale — Loans that we do not have the intent and ability to hold for the foreseeable future or until maturity. These loans are recorded on our balance sheet at the lower of their net carrying value or fair market value and are evaluated by portfolio and product type. We manage the economic risks of these exposures, including market and credit risks, in various ways including the use of market-based instruments, such as derivatives.

•Off-balance-sheet securitized loans — Loans that we transfer off-balance sheet to nonconsolidated VIEs. Our exposure is primarily limited to customary representation, warranty, and covenant provisions. Similar to finance receivables and loans, we manage the economic risks of these exposures through activities including servicing and collections.

•Whole-loan sales — Loans that we transfer off-balance sheet to third-party investors. Our exposure is primarily limited to customary representation, warranty and covenant provisions. Similar to finance receivables and loans, we manage the economic risks of these exposures through activities including servicing and collections.

•Operating lease assets — The net book value of the automotive assets we lease includes the expected residual values upon remarketing the vehicles at the end of the lease and is reported net of accumulated depreciation. We are exposed to fluctuations in the expected residual value upon remarketing the vehicle at the end of the lease, and accordingly at contract inception, we determine pricing based on the projected residual value of the leased vehicle. This evaluation is primarily based on a proprietary model, which includes variables such as age, expected mileage, seasonality, segment factors, vehicle type, economic indicators, production cycle, automotive manufacturer incentives, and shifts in used vehicle supply. This internally generated data is compared against third-party, independent data for reasonableness. Periodically, we revise the projected value of the leased vehicle at termination based on current market conditions and adjust depreciation expense appropriately over the remaining life of the contract. At termination, our actual sales proceeds from remarketing the vehicle may be higher or lower than the estimated residual value resulting in a gain or loss on remarketing recorded through depreciation expense. The balance sheet reflects both the operating lease asset as well as any associated rent receivables. The operating lease rent receivable is accrued when collection is reasonably assured and presented as a component of other assets. The operating lease asset is reviewed for impairment in accordance with applicable accounting standards.

Refer to the section titled Critical Accounting Estimates within this MD&A and Note 1 to the Consolidated Financial Statements for further information.

Credit Risk

Credit risk is defined as the risk of loss arising from an obligor not meeting its contractual obligations to us. Credit risk includes consumer credit risk, commercial credit risk, and counterparty credit risk.

Credit risk is a major source of potential economic loss to us. Credit risk is monitored by the RC, executive leadership team, and our associates. Together, they oversee credit decisioning, account servicing activities, and credit-risk-management processes, and manage credit risk exposures within our risk appetite. In addition, our Loan Review Group provides an independent assessment of the quality of our credit portfolios and credit-risk-management practices and reports its findings to the RC on a regular basis.

To mitigate risk, we have implemented specific policies and practices across business lines, utilizing both qualitative and quantitative analyses. This reflects our commitment to maintaining an independent and ongoing assessment of credit risk and credit quality. Our policies require an objective and timely assessment of the overall quality of the consumer and commercial loan and operating lease portfolios. This includes the identification of relevant trends that affect the collectability of the portfolios, segments of the portfolios that are potential problem areas, loans and operating leases with potential credit weaknesses, and the assessment of the adequacy of internal credit risk policies and procedures. Our consumer and commercial loan and operating lease portfolios are subject to regular stress tests that are based on economic scenarios developed and distributed by the FRB to assess how the portfolios may perform in a severe economic downturn. In addition, we establish and maintain underwriting policies and limits across our portfolios and higher risk segments (for example, nonprime) based on our risk appetite.

Another important aspect to managing credit risk involves the need to carefully monitor and manage the performance and pricing of our loan products with the aim of generating appropriate risk-adjusted returns. When considering pricing, various granular risk-based factors are considered such as expected loss rates, loss volatility, anticipated operating costs, and targeted returns on equity. We carefully monitor credit losses and trends in credit losses relative to expected credit losses at contract inception. We closely monitor our loan performance and profitability in light of forecasted economic conditions and manage credit risk and expectations of losses in the portfolio.

We manage credit risk based on the risk profile of the borrower, the source of repayment, the underlying collateral, and current market conditions. We monitor the credit risk profile of individual borrowers, various segmentations (for example, geographic region, product type, industry segment), as well as the aggregate portfolio. We perform quarterly analyses of the consumer automotive, consumer mortgage, consumer other, and commercial portfolios to assess the adequacy of the allowance for loan losses based on historical and anticipated trends. Refer to Note 9 to the Consolidated Financial Statements for additional information.

Additionally, we utilize numerous collection strategies to mitigate loss and provide ongoing support to customers in financial distress. For consumer automotive loans, we work with customers when they become delinquent on their monthly payment. In lieu of repossessing their vehicle, we may offer several types of assistance to aid our customers based on their willingness and ability to repay their loan. Loss mitigation may include payment extensions and rewrites of the loan terms. For mortgage loans, as part of certain programs, we offer mortgage

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loan modifications to qualified borrowers. These programs are in place to provide support to our mortgage customers in financial distress, including maturity extensions, delinquent interest capitalization, changes to contractual interest rates, and principal forgiveness.

Furthermore, we manage our credit exposure to financial counterparties based on the risk profile of the counterparty. Within our policies we have established standards and requirements for managing counterparty risk exposures in a safe and sound manner. Counterparty credit risk is derived from multiple exposure types including derivatives, securities trading, securities financing transactions, and certain cash balances. For more information on derivative counterparty credit risk, refer to Note 21 to the Consolidated Financial Statements.

We employ an internal team of economists to enhance our planning and forecasting capabilities. This team conducts industry and market research, monitors economic risks, and helps support various forms of scenario planning. This group closely monitors macroeconomic trends given the nature of our business and the potential impacts on our exposure to credit risk. During 2021, the U.S. economy has continued to recover from shutdowns that resulted from the COVID-19 pandemic. After peaking at 14.7%, as adjusted, in April 2020, the unemployment rate declined to 3.9% as of December 31, 2021. As a result of the economic disruption from COVID-19, sales of light motor vehicles fell to an annual pace of 8.6 million, as adjusted, in April 2020, a 49-year low, before recovering to an average 15.0 million annual pace during the year ended December 31, 2021. Sales of new light motor vehicles remain below the pre-pandemic annual pace of 17.0 million during the year ended December 31, 2019, driving an increase in used vehicle values, as further described in the section below titled Operating Lease Vehicle Terminations and Remarketing. Additionally, used vehicle values may also be impacted by availability or changes in customer preferences, including alternative transportation methods such as public transportation, vehicle sharing, and ride hailing.

Consumer Credit Portfolio

Our consumer loan portfolio primarily consists of automotive loans, first-lien mortgages, home equity loans, personal loans, and credit card loans. Loan losses in our consumer loan portfolio are influenced by general business and economic conditions including unemployment rates, bankruptcy filings, and home and used vehicle prices. Additionally, our consumer credit exposure is significantly concentrated in automotive lending.

Credit risk management for the consumer loan portfolio begins with the initial underwriting and continues throughout a borrower’s credit life cycle. We manage consumer credit risk through our loan origination and underwriting policies and the credit approval process. We use proprietary credit-scoring models to differentiate the expected default rates of credit applicants enabling us to better evaluate credit applications for approval and to tailor the pricing and financing structure according to this assessment of credit risk. We continuously monitor and routinely update the inputs of the credit scoring models. These and other actions mitigate but do not eliminate credit risk. Ineffective evaluations of a borrower’s creditworthiness, fraud, or changes in the applicant’s financial condition after approval could negatively affect the quality of our portfolio, resulting in loan losses.

Our servicing activities are another important factor in managing consumer credit risk. Servicing activities consist of collecting and processing customer payments, responding to customer concerns and inquiries, processing customer requests (including those for payoff quotes, total-loss handling, and payment modifications), maintaining a perfected security interest in the financed vehicle, engaging in collections activity, and disposing of off-lease and repossessed vehicles. Servicing activities are generally consistent across our Automotive Finance operations; however, certain practices may be influenced by state laws.

During the year ended December 31, 2021, the credit performance of the consumer loan portfolio reflected our underwriting strategy to originate a diversified portfolio of consumer automotive loan assets, including new, used, prime and nonprime finance receivables and loans, high-quality jumbo and LMI mortgage loans that are acquired through bulk loan purchases and direct-to-consumer mortgage originations, as well as point-of-sale personal lending through Ally Lending. Additionally, beginning in December 2021 with the acquisition of Fair Square, financial information related to our credit card business is included within Corporate and Other. Credit performance of the consumer loan portfolio was impacted by fiscal and monetary stimulus deployed by governmental authorities to partially mitigate the adverse effects from the COVID-19 pandemic on households and businesses. The carrying value of our nonprime consumer automotive loans before allowance for loan losses represented approximately 11.3% and 11.7% of our total consumer automotive loans at December 31, 2021, and December 31, 2020, respectively. For information on our consumer credit risk practices and policies regarding delinquencies, nonperforming status, and charge-offs, refer to Note 1 to the Consolidated Financial Statements.

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The following table includes consumer finance receivables and loans recorded at amortized cost.

(a)Includes nonaccrual TDR loans of $714 million and $745 million at December 31, 2021, and December 31, 2020, respectively.

(b)Loans are generally in nonaccrual status when principal or interest has been delinquent for 90 days or more, or when full collection is not expected. Refer to Note 1 to the Consolidated Financial Statements for a description of our accounting policies for finance receivables and loans.

(c)Certain finance receivables and loans are included in fair value hedging relationships. Refer to Note 21 to the Consolidated Financial Statements for additional information.

(d)Includes outstanding CSG loans of $8.6 billion and $8.2 billion at December 31, 2021, and December 31, 2020, respectively, and RV loans of $763 million and $1.1 billion at December 31, 2021, and December 31, 2020, respectively.

(e)Excludes finance receivables of $7 million and $8 million at December 31, 2021, and December 31, 2020, respectively, for which we have elected the fair value option.

Total consumer finance receivables and loans increased $9.0 billion at December 31, 2021, compared with December 31, 2020. The increase consists of $4.6 billion of consumer automotive finance receivables and loans, $2.9 billion of consumer mortgage finance receivables and loans and $1.6 billion of consumer other finance receivables and loans. The increase was primarily due to an increase in consumer automotive finance receivables and loans, primarily related to continued momentum in our used vehicle lending, as well as an increase in consumer mortgage finance receivables and loans as a result of bulk loan purchases and direct-to-consumer origination volume, which exceeded loan pay-offs. Growth in consumer other finance receivables and loans was related to the acquisition of Fair Square, as well as Ally Lending loan originations, which outpaced portfolio runoff.

Total consumer nonperforming finance receivables and loans at December 31, 2021, decreased $182 million to $1.2 billion from December 31, 2020. The decrease in our consumer automotive loan portfolio was driven by strong credit performance, while the decrease in our consumer mortgage portfolio was driven by strong consumer payment activity due to favorable macroeconomic conditions. These decreases were partially offset by an increase in our consumer other portfolio related to the acquisition of Fair Square. Refer to Note 9 to the Consolidated Financial Statements for additional information. Nonperforming consumer finance receivables and loans as a percentage of total outstanding consumer finance receivables and loans were 1.2% and 1.5% at December 31, 2021, and December 31, 2020, respectively.

Total consumer TDRs outstanding at December 31, 2021, increased $239 million since December 31, 2020, to $2.2 billion. Results primarily reflect a $239 million increase in our consumer automotive loan portfolio. This increase was driven by an increase in deferrals offered through our established risk management policies and practices to customers subsequent to a COVID-19 deferral, where the loan modification in connection with other factors resulted in a TDR classification. Refer to Note 9 to the Consolidated Financial Statements for additional information.

Consumer automotive loans accruing and past due 30 days or more decreased $157 million to $1.7 billion at December 31, 2021, compared to December 31, 2020, which was driven by strong credit performance.

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The following table includes consumer net charge-offs from finance receivables and loans at amortized cost and related ratios.

(a)Net charge-off ratios are calculated as net charge-offs divided by average outstanding finance receivables and loans excluding loans measured at fair value and loans held for sale during the period for each loan category.

Our net charge-offs from total consumer finance receivables and loans were $258 million for the year ended December 31, 2021, compared to $713 million for the year ended December 31, 2020. Net charge-offs for our consumer automotive portfolio decreased by $465 million for the year ended December 31, 2021, driven by strong payment performance, elevated recoveries, and lower loss severity as a result of elevated used vehicle values. While economic conditions have improved since the beginning of the pandemic, and we have taken a number of actions including the utilization of loan modification programs to support our customers and manage credit risk, we may incur higher net charge-offs in future periods as a result of continued economic dislocation resulting from the impacts of COVID-19.

The following table summarizes total consumer loan originations for the periods shown. Total consumer loan originations include loans classified as finance receivables and loans held-for-sale during the period.

(a)Excludes bulk loan purchases associated with our Mortgage Finance operations, and includes $3.4 billion of loans originated as held for sale for the year ended December 31, 2021, and $2.7 billion for the year ended December 31, 2020.

(b)Includes acquired loans related to our Ally Lending business, for which we have elected the fair value option measurement.

(c)Excludes credit card loans which are revolving in nature.

Total consumer loan originations increased $16.9 billion for the year ended December 31, 2021, compared to the year ended December 31, 2020. The increase for the year ended December 31, 2021, as compared to 2020, was driven by increased consumer demand, higher financed transaction amounts, and increased application flow and decisioning speeds in the consumer automotive portfolio. The increase for the year ended December 31, 2021, was also impacted by growth in the direct-to-consumer mortgage business driven by the lower interest rate environment in 2021. Additionally, originations for the year ended December 31, 2020, were impacted by the COVID-19 pandemic that temporarily shut down or restricted operations at automotive dealers. These restrictions, along with the industry-wide halt of new vehicle production, drove a significant decrease in industry automotive light vehicle sales.

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The following table shows the percentage of consumer automotive and consumer mortgage finance receivables and loans by state concentration based on amortized cost. Total consumer automotive loans were $78.3 billion and $73.7 billion at December 31, 2021, and December 31, 2020, respectively. Total consumer mortgage loans were $18.0 billion and $15.1 billion at December 31, 2021, and December 31, 2020, respectively.

(a)Presentation is in descending order as a percentage of total consumer finance receivables and loans at December 31, 2021.

We monitor our consumer loan portfolio for concentration risk across the states in which we lend. The highest concentrations of consumer loans are in California and Texas, which represented an aggregate of 26.4% and 24.7% of our total outstanding consumer finance receivables and loans at December 31, 2021, and December 31, 2020, respectively. Our consumer mortgage loan portfolio concentration within California, which is primarily composed of high-quality jumbo mortgage loans, generally aligns to the California share of jumbo mortgages nationally.

Repossessed and Foreclosed Assets

We classify an asset as repossessed or foreclosed, which is included in other assets on our Consolidated Balance Sheet, when physical possession of the collateral is taken. We dispose of the acquired collateral in a timely fashion in accordance with regulatory requirements. For more information on repossessed and foreclosed assets, refer to Note 1 to the Consolidated Financial Statements.

Repossessed consumer automotive loan assets in our Automotive Finance operations were $120 million and $186 million at December 31, 2021, and December 31, 2020, respectively, and foreclosed mortgage assets were $1 million and $2 million at December 31, 2021, and December 31, 2020, respectively.

Commercial Credit Portfolio

Our commercial portfolio consists primarily of automotive loans through the extension of wholesale floorplan financing, automotive dealer term real estate loans, and automotive fleet financing, as well as other commercial loans from our Corporate Finance operations. Wholesale floorplan loans are secured by the vehicles financed (and all other vehicle inventory), which provides strong collateral protection in the event of dealership default. Additional collateral (for example, a blanket lien over all dealership assets) or other credit enhancements (for example, personal guarantees from dealership owners) are typically obtained to further mitigate credit risk. Furthermore, in some cases, we may benefit from situations where an automotive manufacturer repurchases vehicles. These repurchases may serve as an additional layer of protection in the event of repossession of new-vehicle dealership inventory or dealership franchise termination.

Within our commercial portfolio, we utilize proprietary risk rating models that are fundamental to managing credit risk exposure consistently across various types of commercial borrowers and captures critical risk factors for each borrower. The ratings are used for many areas of credit risk management, including loan origination, portfolio risk monitoring, management reporting, and loan loss reserves analyses. Therefore, the rating systems are critical to an effective and consistent credit-risk-management framework.

During the year ended December 31, 2021, the credit performance of the commercial portfolio remained strong. While nonperforming finance receivables and loans increased as a result of specific exposures within our Corporate Finance operations, our net charge-offs remained low. For information on our commercial credit risk practices and policies regarding delinquencies, nonperforming status, and charge-offs, refer to Note 1 to the Consolidated Financial Statements.

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The following table includes total commercial finance receivables and loans reported at amortized cost.

(a)Includes nonaccrual TDR loans of $117 million and $125 million at December 31, 2021, and December 31, 2020, respectively.

(b)Loans are generally in nonaccrual status when principal or interest has been delinquent for 90 days or more, or when full collection is not expected. Refer to Note 1 to the Consolidated Financial Statements for a description of our accounting policies for finance receivables and loans.

(c)Other commercial and industrial primarily includes senior secured commercial lending largely associated with our Corporate Finance operations.

Total commercial finance receivables and loans outstanding decreased $5.3 billion from December 31, 2020, to $24.0 billion at December 31, 2021. Results primarily reflect a $6.9 billion decrease in our commercial automotive loan portfolio within the commercial and industrial receivables class due to lower dealer inventory levels, driven by strong consumer demand for vehicles that outpaced lower automotive production levels due to the global semiconductor chip shortage. This decrease was partially offset by a $1.6 billion increase to commercial other loans within the commercial and industrial portfolio class, driven primarily by asset-based lending, mostly through our Corporate Finance lender finance vertical, which provides asset managers with partial funding for their direct lending activities.

Total commercial nonperforming finance receivables and loans were $257 million at December 31, 2021, reflecting an increase of $96 million compared to December 31, 2020. The increase was primarily due to the downgrade of four exposures to nonaccrual status within commercial other in our Commercial and Industrial portfolio class. This increase was partially offset by a decrease due to lower dealer inventory levels in our commercial automotive portfolio driven by lower production levels due to the global semiconductor chip shortage. Nonperforming commercial finance receivables and loans as a percentage of outstanding commercial finance receivables and loans increased to 1.1% at December 31, 2021, compared to 0.5% at December 31, 2020.

Total commercial TDRs outstanding at December 31, 2021, decreased $32 million since December 31, 2020, to $171 million. The decrease was primarily driven by a reduction in the outstanding balances of several existing TDRs, partially offset by the restructuring of one exposure within commercial other in our Commercial and Industrial portfolio class. The decrease was also impacted by the restructuring of three exposures within our commercial automotive portfolio during the year ended December 31, 2020. Refer to Note 9 to the Consolidated Financial Statements for additional information.

The following table includes total commercial net charge-offs from finance receivables and loans at amortized cost and related ratios.

(a)Net charge-off ratios are calculated as net charge-offs divided by average outstanding finance receivables and loans excluding loans measured at fair value and loans held for sale during the period for each loan category.

Our net charge-offs from total commercial finance receivables and loans were $11 million for the year ended December 31, 2021, compared to net charge-offs of $51 million for the year ended December 31, 2020. The decrease for the year ended December 31, 2021, was primarily driven by our Corporate Finance portfolio and included the partial net charge-off of two exposures in 2021. These charge-offs were lower than the total charge-offs related to two exposures, including the full charge-off of one exposure during the year ended December 31, 2020. This decrease was also impacted by the charge-offs of four exposures in our commercial automotive portfolio during the year ended December 31, 2020.

Commercial Real Estate

The commercial real estate portfolio consists of finance receivables and loans issued primarily to automotive dealers. Commercial real estate finance receivables and loans were $4.9 billion and $5.0 billion at December 31, 2021, and December 31, 2020, respectively.

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The following table presents the percentage of total commercial real estate finance receivables and loans by state concentration based on amortized cost.