Ally Financial Inc.

Good day, and thank you for standing by. Welcome to the second quarter 2022 Ally Financial Earnings Conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speakers today. Sean Leary, Head of Investor Relations, please go ahead.

Thank you, Catherine. Good morning and welcome to Ally Financial's second quarter 2022 earnings call. This morning, our CEO, Jeff Brown, and our CFO, Jen LeClair, will review Ally's results before taking questions. The presentation we'll reference on today's call can be found on the investor relations section of our website, ally.com. Forward-looking statements and risk factor language governing today's call are on slide two. Gap and non-gap measures pertaining to our operating performance and capital results are on slide three. As a reminder, non-GAAP or core metrics are supplemental to and not a substitute for U.S. GAAP measures. Definitions and reconciliations can be found in the appendix. And with that, I'll turn the call over to JB.

Thank you, Sean. Good morning. We appreciate everyone joining us this morning. I'll begin on slide number four. Financial and operational results remain strong and demonstrate the unique scale and positioning of our businesses. Broadly speaking, macro uncertainty and market volatility are elevated. The challenges of persistent inflation, rapidly rising interest rates, quantitative tightening, and geopolitical conflict are very real. The combination of these events occurring simultaneously presents unique challenges that are likely to continue in the quarters ahead. However, I remain optimistic in Ally's outlook, given the strength of our businesses and the power of our people and culture. Staying true to our culture has enabled us to successfully grow through various economic environments in the past and that will continue as we navigate the environment ahead. Our focus and actions for all stakeholders will remain rooted in our do it right philosophy. In June, we pledged to reach equal media spend across men's and women's sports beyond the financial impact Supporting equality is the right thing to do, and we hope our pledge inspires others as well. We're well underway with our recognition of Supplier Diversity Month in July. This initiative is integral to our broader goals for financial and social inclusion, and while we aren't done, we've seen a significant increase in diverse spend since the program's inception. Ally will remain nimble and ready to pivot quickly to the evolving landscape. We remain intensely focused on controlling what we can control and have further heightened our emphasis on prudent investment discipline and expense management given the range of possible economic outcomes. Jen and I are deeply engaged with our business leaders on ensuring only the most essential projects and hires are prioritized. Our industry-leading auto and insurance businesses have deep relationships with thousands of dealer customers. Over Ally's history, we have proven to be a reliable and adaptable partner, driving growth and value creation, again, through various economic cycles. Across Ally Bank, we continue to see solid customer momentum and engagement across the array of complementary businesses. So while different operating and economic environments will be encountered, we remain true to our long-term strategy of serving customers and staying nimble as operators. Let's turn to slide number five, where I'll touch on a few highlights from 2Q. Second quarter adjusted EPS of $1.76, core ROTC of 23.2%, and revenues of $2.2 billion reflected another strong quarter of financial results. ROTC was approximately 19%, excluding the impact of OCI. The scale and depth of dealer relationships coupled with healthy consumer demand drove strong originations in the quarter. That requires a meaningful initial provision expense under CECL, but positions us well to drive accretive risk-adjusted returns going forward. Recent CCAR results conveyed the strength and resilience of our company overall. Our preliminary SCB of 2.5% was down 100 basis points from the 2020 exam. Capital and liquidity levels also remain healthy. Within auto, consumer originations of $13.3 billion represented our highest quarterly flows since 2006, and originated yields expanded 75 basis points quarter over quarter to 7.8%. Industry vehicle sales were down 21% and 17% year over year across new and used respectively. Despite that headwind, our ability to generate strong consumer originations shows the scale of our auto business and depth of application flow. Credit normalization in the second quarter continued in line with expectations, and retail MCOs of 54 basis points remained well below pre-pandemic levels. We are monitoring for market indicators of consumer health, including wage and price inflation, employment conditions, deposit balance changes, and overall debt payment trends. From an auto industry production perspective, the story remains consistent. Supply chain challenges continue and demand remains robust, resulting in low levels of inventory and therefore support for used vehicle values. Dealer health also remains very strong. Jen will discuss used vehicle dynamics in more detail in a moment, and I think it is very important for you to understand what's actually happening in the industry. Frankly, I'm not sure the constant focus on used car price implications on allies' earnings is warranted. Within insurance, written premiums of $262 million reflected lower overall inventory levels in industry sales. Investment portfolio performance remained solid but below last year's record levels. Turning to Ally Bank, retail deposit customers exceeded $2.5 million, expanding 6% year-over-year and representing our 53rd consecutive quarter of customer growth. As we've indicated in recent months, retail balances were pressured by elevated tax payments observed across the industry. While retail balances declined nearly $5 billion in the quarter, they were up year over year, and total deposits of $140 billion account for roughly 85% of our funding profile. Our compelling consumer engagement and product adoption trends remain compelling. Ally Home originated $900 million in the quarter, reflecting a disciplined approach to navigating a rising interest rate environment. I also think it's important to note that our partnership model isolated us from some of the substantial operating volatility others have reported. Equity markets resulted in a decline in Ally Invest assets, while accounts actually increased 5% versus prior year. Ally Lending generated record origination volume of $591 million, which nearly doubled year-over-year as we continued our expansion of merchant relationships and volume in the healthcare and home improvement verticals. Ally Credit Card reached $1.2 billion of loan balances, up more than 90% year-over-year, and now has over 900,000 active cardholders, up 58% from prior year. And corporate finance generated another solid quarter of loan growth, with the held for investment portfolio reaching $8.5 billion. Deep partner relationships and expansion into new verticals has enabled steady, disciplined growth in that business. Let's turn to slide number six, where I'll touch on the value proposition we've established. Ally has a unique combination of established, leading, and scale businesses coupled with newer and growing businesses. Specifically, more than 10.5 million customers span our leading auto and deposit businesses, and more recently, we've benefited from accelerating growth from card, lending, and invest, areas we saw as white spaces for our company. At Ally Bank, our position as the number one all-digital bank is fueled by more than 2.5 million deposit customers which have grown at a nearly 20% annual rate since its founding in 2009. We've been relentlessly focused on digital disruption and leveraging shifts in consumer preferences, including nearly 100% digital interactions within deposits and invests. Within auto, our 100% plus year history has positioned Ally as the number one prime auto lender as we've simultaneously grown dealer relationships to over 22,000, up more than 20% in the past few years. The scale of our operations enables our full spectrum, adaptable approach to consumer and commercial auto lending that has proven resilient as operating and economic conditions change. Our all-digital auto auction platform provides an attractive disposition channel and real-time data into used vehicle trends nationwide. Our auto collections team has also enhanced its digital engagement with consumers. From here, we're focused on strengthening all of our customer relationships as higher engagement has significant benefits with a few examples just mentioned and also highlighted on the page. Looking ahead, we know our customer-centric, modern, digital-first approach will position us to drive further customer growth, strong engagement, and value in the years ahead. I think the important takeaway is that while COVID might have accelerated the benefits of our business model, we don't believe a great online will happen now that the pandemic is slowing. Our model was built because we believe it is how consumers want to bank today and in the future. We also think car ownership was, again, proven to be a mainstay in consumers' lives. Yes, we will have fluctuations in various quarters, just like everyone, but long-term, the company remains poised for substantial value creation. Last quarter, one of our key stakeholders perhaps said it best, Ally is one of the great corporate transformation stories of our lifetimes. Obviously, I could not agree any more and suggest that a longer-term focus on our evolution and sustainable earnings power is a much better indicator of our focus and success. So we will keep our head down, we will keep taking care of customers, we will be smart and dynamic operators, and we will be disciplined stewards of capital deployment. I still firmly believe that is what drives long-term value creation, and that is our focus. And with that, Jen, over to you.