Management's Discussion and Analysis Ally Financial Inc. • Form 10-Q Item 2. 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 (Part
II, Item 1A herein), Management's Discussion and Analysis of Financial Condition
and Results of Operations (Part I, Item 2 herein), or the Notes to the Condensed
Consolidated Financial Statements (Part I, Item 1 herein) in this Quarterly
Report on Form 10-Q 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
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vehicle's residual value. The terms "lend," "finance," and "originate" mean our
direct extension or origination of loans, our purchase or 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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Ally Financial Inc. • Form 10-Q
Overview

Ally Financial Inc. (together with its consolidated subsidiaries unless the
context otherwise requires, Ally, the Company, we, us, or our) is a
financial-services company with the nation's largest all-digital bank and an
industry-leading automotive financing and insurance business, driven by a
mission to "Do It Right" and be a relentless ally for customers and communities.
The Company serves customers through a full range of online banking services
(including deposits, mortgage lending, point-of-sale personal lending and
credit-card products) and securities brokerage and investment advisory services.
The Company also includes a corporate finance business that offers capital for
equity sponsors and middle-market companies. Ally is a Delaware corporation and
is registered as a BHC under the BHC Act and an FHC under the GLB Act.

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 remaining activity is reported in Corporate and Other, which
primarily consists of centralized treasury activities as well as Ally Invest,
our digital brokerage and wealth management offering, Ally Lending, our
point-of-sale financing business, Ally Credit Card, CRA loans and related
investments, and certain strategic investments. 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.

                                                                               Three months ended March 31,
($ in millions)                                              2023              2022           Favorable/(unfavorable) % change
Total net revenue
Dealer Financial Services
Automotive Finance                                        $  1,399          $ 1,363                           3
Insurance                                                      407              287                          42
Mortgage Finance                                                58               67                         (13)
Corporate Finance                                              132              107                          23
Corporate and Other                                            104              311                         (67)
Total                                                     $  2,100          $ 2,135                          (2)
Income (loss) from continuing operations before income
tax expense
Dealer Financial Services
Automotive Finance                                        $    442          $   725                         (39)
Insurance                                                       92               13                          n/m
Mortgage Finance                                                21               11                          91
Corporate Finance                                               72               64                          13
Corporate and Other                                           (239)              33                          n/m
Total                                                     $    388          $   846                         (54)


n/m = not meaningful

•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. Dealer Financial Services comprises our Automotive Finance and
Insurance segments.

Our Automotive Finance operations include purchasing retail installment sales
contracts and operating leases from dealers and automotive retailers, 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. Our
dealer-centric 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. Our success as an automotive finance
provider is driven by the consistent and broad range of products and services we
offer to dealers and automotive retailers. The automotive marketplace is dynamic
and evolving, including substantial investments in electrification by automobile
manufacturers and suppliers. We remain focused on meeting the needs of both our
dealer and consumer customers, and continuing to strengthen and expand upon our
approximately 22,700 dealer relationships. We continue to identify and cultivate
relationships with automotive retailers, including those with leading eCommerce
platforms. We also operate an online direct-lending 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. Additionally, we provide
comprehensive automotive remarketing services, including the use of
SmartAuction, our online auction platform, which efficiently supports
dealer-to-dealer
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and other commercial wholesale vehicle transactions. SmartAuction provides
diversified fee-based revenue and serves as a means of deepening relationships
with our dealership customers. 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. We have provided and
continue to provide automobile financing for hybrid and battery-electric
vehicles, including brands such as Jeep, Tesla, Ford, and BMW. This positions us
to remain a leader in automotive financing as we believe the majority of these
vehicles will be sold through dealerships and automotive retailers with whom we
have an established relationship.

We have focused on developing dealer relationships beyond those relationships
that primarily were developed through our previous role as a captive finance
company for GM and Stellantis. We have established relationships with thousands
of automotive dealers through our customer-centric approach and specialized
incentive programs designed to drive loyalty amongst dealers to our products and
services. Our Growth channel includes brands such as Ford, Nissan, Kia, Hyundai,
Toyota, and Honda, as well as used-vehicle-only retailers with a national
presence and online-only automotive retailers. As of March 31, 2023,
approximately 68% of our Growth channel dealer relationships were with
franchised dealers and dealers with a national presence.

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
preferred VSC and other protection plan provider for GM Canada and VSC provider
for Subaru Canada. In 2022, we entered into a long-term commitment to continue
as the preferred VSC and other protection plan provider for GM Canada.

As part of our focus on offering dealers a broad range of consumer F&I products,
we offer VSCs, VMCs, and GAP products. 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. We also underwrite
selected commercial insurance coverages, which primarily insure dealers'
wholesale vehicle inventory, and offer additional products to protect a dealer's
business, including property and liability coverage that is underwritten by a
third-party carrier with a portion of the insurance risk assumed through a quota
share agreement. On a smaller scale, we also periodically assume other insurance
risks through quota share arrangements and perform services as an underwriting
carrier for an insurance program managed by a third-party where we cede the
majority of such business to external reinsurance markets.

•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.

Through our direct-to-consumer channel, we offer a variety of competitively
priced jumbo and conforming fixed- and adjustable-rate mortgage products through
a third party. 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 and subserviced by a third
party. 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. This partnership with BMC limits
operational volatility as the mortgage industry continues to evolve in the
current interest rate environment. During the three months ended March 31, 2023,
we originated $197 million of mortgage loans through our direct-to-consumer
channel. During 2018, we made a strategic equity investment in the parent of BMC
(BMC Holdco) that was subsequently increased in 2019 and 2020. The carrying
value of this investment was $19 million as of March 31, 2023. This investment
is recognized as a nonmarketable equity investment within other assets of our
Condensed Consolidated Balance Sheet and is included in Corporate and Other.

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 three months ended March 31, 2023, we purchased $2 million 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.

•Our Corporate Finance operations primarily offer senior-secured loans to
private equity sponsor-owned U.S.-based middle-market companies and to
well-established asset managers that mostly provide leveraged loans. The
portfolio is composed of floating-rate leveraged asset-based and cash
flow/enterprise value loans. Our Sponsor Finance business focuses on companies
owned by private-

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equity sponsors with loans typically used for leveraged buyouts, refinancing and
recapitalizations, mergers and acquisitions, growth, turnarounds, and
debtor-in-possession financings. Additionally, our Lender Finance business
provides asset managers with facilities to partially fund their direct-lending
activities. We also provide a commercial real estate product, currently focused
on lending to skilled nursing facilities, senior housing, and medical office
buildings.

•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 equity investments through Ally
Ventures, our strategic investment business. Additionally, Corporate and Other
includes the management of our legacy mortgage portfolio, which primarily
consists of loans originated prior to January 1, 2009, CRA loans and related
investments, and reclassifications and eliminations between the reportable
operating segments. Costs that are not allocated to our reportable operating
segments as part of our COH methodology, which involves management judgment, are
also included in Corporate and Other.

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.

Information related to our point-of-sale financing business, Ally Lending, is
also included within Corporate and Other. Ally Lending primarily serves medical
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 vertical had originations of $252 million
during the first quarter of 2023 and now represents approximately 57% of new
originations. Point-of-sale lending broadens our capabilities, and expands our
product offering into consumer unsecured personal lending, all while helping to
further meet the financial needs of our customers.

Financial information related to our credit card business, Ally Credit Card, is
included within Corporate and Other. Ally Credit Card is our scalable,
digital-first credit card platform and features leading-edge technology, and a
proprietary, analytics-based underwriting model. We believe Ally Credit Card
enhances our ability to grow and deepen both new and existing customer
relationships.
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