Ally Financial Inc.

Good day, and thank you for standing by. Welcome to the fourth quarter Ally Financial Link earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you will need to press star 1-1 on your telephone. You will hear a message, Advice in Your Hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Mr. Sean Leary, head of investor relations. Please go ahead.

Thank you, Carmen. Good morning and welcome to Ally Financial's fourth quarter and full year 2022 earnings call. This morning, our CEO, Jeff Brown, and our interim CFO, Brad Brown, will review Ally's results before taking questions. The presentation we'll reference 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. GAAP and non-GAAP measures pertaining to our operating performance and capital results are on slides three and four. 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 you joining us to review our fourth quarter and full year results. I'll start on page number five. Full year adjusted EPS of $6.06, core ROTCE of 20.5%, and revenues of $8.7 billion reflected another year of solid financial results. ROTCE was approximately 16%. excluding the impact of OCI. We completed 1.7 billion of share repurchases over the course of the year, and this week our board approved a first quarter 2023 common dividend of 30 cents per share. We built businesses that are nimble and able to pivot against the fluid backdrop. We maintain healthy levels of capital, reserves, and liquidity, which position us well for this dynamic environment. Within AutoFinance, consumer originations of 46 billion were sourced from 12.5 million applications across more than 23,000 dealer relationships. The average originated yield of 824 basis points expanded 114 basis points on a full year basis. In total, we put nearly 400 basis points of price into the market largely in line with changes in the Fed funds rate. Industry vehicle sales remain below pre-pandemic levels, but our ability to generate strong originations shows the benefits of our scale and depth of application flow. Net charge-offs in retail auto were 97 basis points for the year. In the fourth quarter, net charge-offs increased to 166 basis points as we saw accelerated normalization within the quarter. Brad will cover losses in more detail as well as our current thinking for this year. Within insurance, written premiums again exceeded $1 billion driven by strong relationships with 4,600 dealers. Our insurance team remains focused on leveraging synergies with the auto finance sales team and we remain optimistic about the organic growth opportunities for this business going forward. Turning to Allied Bank, retail deposit balances increased $3 billion year-over-year, ending at nearly $138 billion. We generated $7 billion in retail deposit growth in the second half of the year while maintaining a very balanced approach to pricing. We continue to see strong momentum in retail deposit customer growth and ended the year with 2.7 million customers, up 8% year over year. We've seen increased consumer engagement and adoption trends across other Ally Bank product offerings. Ally Home originations of 3.3 billion were down year over year, reflecting broader mortgage market conditions. Equity market trends resulted in a decline in Ally Invest assets while active accounts increased to 518,000. Ally Lending generated origination volume of $2.1 billion as we added merchant relationships across home improvement and healthcare verticals. Ally Credit Card reached $1.6 billion of loan balances from more than 1 million active cardholders. The card team also reached a key milestone in the fourth quarter as we rolled out a lineup of Ally branded credit cards. I'm proud of what we've accomplished on the integration over the past 12 months and excited about the continued opportunities which lie ahead. Corporate finance continues to generate steady loan growth with the held for investment portfolio reaching 10 billion with growth coming primarily from asset based lending. Turning to slide number six, our long-term strategic priorities remain unchanged even as we navigate this dynamic environment. Our teammates are well prepared to handle near-term challenges while remaining focused on driving long-term value. Our culture is the driving force behind everything we do as a company, and I'll share more on that on the next page. Since the launch of Ally Bank, we've challenged ourselves to provide differentiated and frictionless products in the market. Consumer preferences have evolved over the past decade, and we've always strived to deliver leading digital experiences, allowing us to be an ally for our customers. Our dominant positions in auto and deposits continue to fuel consolidated earnings today, and we see growth opportunities across the company which will drive continued asset and revenue diversification as we further scale our newer businesses. Central to all our lending products is a disciplined approach to credit risk, and we view the ability to underwrite and manage risk as our most critical core competency. And lastly, disciplined capital deployment is a foundational aspect of our strategy to deliver strong returns and add value for all stakeholders. Turning to slide number seven, the building, caring, and nurturing of our culture is what has given me the greatest joy in leading our company over the past eight years, and it remains a huge priority for me. Our culture is not about the CEO's culture. It's a culture that harnesses the true power of over 11,500 teammates and empowers everyone to make a difference. I firmly believe a strong culture is essential to delivering for our customers, communities, and stakeholders, and that all starts with taking care of our employees. We've consistently prioritized investment in our people and culture, and our actions in 2022 reflect that commitment. In the past 12 months, we've increased our minimum wage by 15% to $23 an hour, which makes a meaningful difference for thousands of our teammates. We recently announced another year of our Own It grant program, which provides every employee 100 shares of Ally stock and empowers them to act as owners of the company. We've expanded mental health benefits for employees and their families this year, and expanded upon our benefits for new parents. The investments that we've made in our deliberate focus on culture has resulted in a highly engaged workforce. We're in the top 10% of companies when it comes to employee engagement and well above industry averages. Our employee resource groups, or ERGs, were launched five years ago as we expanded our DE&I initiatives And I'm proud to say over 50% of our workforce volunteers and is active in at least one ERG. Creating an engaged workforce that embraces our do-it-right approach improves every aspect of our business as we serve our growing customer base, now 11 million strong. Retention levels at Ally Bank remain industry leading along with compelling customer satisfaction rates. We've consistently rallied around initiatives that help us better our customers and drive industry change. And our teammates continue to invest in the communities we live and work in. We work hard to nurture this culture across the enterprise, and I'm confident it will be a differentiator for Ally now more than ever. Let's start at slide number eight. Before diving into the fourth quarter details, I'd like to highlight allies multi-year strategic and financial transformation, which demonstrate the steady execution and strong performance over a longer lens than a quarter or two. In nearly 10 years as a publicly traded company, we've consistently worked to remain a disruptor and execute against our long-term priorities, which has resulted in sustained improvements in operational and financial results. Within auto and insurance, We've transitioned from a captive auto finance company to a market-leading diversified lender with dealer relationships of 23,000, increasing roughly 50%, while application flow of nearly 13 million is up almost 40%. Ally Bank remains the largest all-digital bank in the U.S. While the direct banking industry was largely unproven when we launched Ally Bank, Our steady growth to $138 billion of retail deposits and 4 million customers make it clear our model and our brand resonates with consumers. Our balance sheet has evolved through optimization within auto finance along with expansion into other consumer lending verticals. Overall earning assets are up $44 billion since our IPO, which includes $28 billion of non-auto loan growth. This growth has generated $3.7 billion of revenue expansion. This evolution has created a structurally more profitable company. NIM of 3.88% is up 134 basis points from where we were in 2014 and is driven by optimization on both sides of the balance sheet. Throughout this transformation, we've remained disciplined on capital allocation and ensured we're adequately reserved. Shares outstanding have declined 38%. Book value, excluding the temporary headwind from OCI, has effectively doubled, and we maintain a $3.7 billion loan loss reserve. These metrics reflect years of consistent execution and give me confidence in our ability to deliver in the years ahead. Slide number nine reflects our focus on growing an engaged customer base. We now serve 11 million customers across our businesses, which represents a 58% increase since 2014. Ally Bank customers have more than quadrupled over this timeframe as we've evolved, expanded, and enhanced our digital capabilities. Our consumer lending products are resonating, and customers want to deepen their relationship with Ally evidenced by the significant growth in multi-product customers shown at the bottom of the page. Across auto and insurance, we've added 500,000 customers as we've leveraged our strength and scale in the market as the leading independent full spectrum lender. This product expansion and customer growth have translated into improved balance sheet composition and expanded earnings, which I'll cover over the next few pages. Turning to slide number 10, since 2014, we've significantly transformed our balance sheet as we've optimized auto and expanded additional consumer offerings. Loans and leases have increased 31 billion or 26% since 2014 through disciplined expansion across all our lending products. Auto assets have been relatively stable as growth in higher yielding retail assets has been offset by the decline in floor plan balances. While not reflected in the charts, the return profile of the auto finance business has dramatically improved as we strategically shifted into the intersection of prime and used. Ally Bank consumer and commercial products have grown 6x since 2014 and now make up $33 billion of balances. And it's important to keep in mind that while we've recently added point of sale lending and credit card capabilities, our balance sheet remains 95% secured. On slide number 11, you can see we've driven substantially higher net interest margin given the optimization across both sides of our balance sheet. NIM increased 134 basis points from 2014 given expanded earning asset yields and an improved liability construct. The optimization within auto has increased yields while expanded consumer lending offerings have provided incremental tailwinds. Our liability stack shows equally meaningful progress. In 2014, we were only 41% deposit funded relative to 88% today. Market-based funding has declined by more than $50 billion. The transformation of our funding profile has driven cost of funds down nearly 30 basis points, despite average fed funds being 160 basis points higher. While we face near-term pressure on margin, given our liability-sensitive position, this optimization on both sides of the balance sheet positions us with a much improved NIM despite the rapid rise in interest rates. Brad will share more on margin dynamics later. Turning to slide number 12, total revenue of $8.7 billion represents a 74% increase since 2014. Net financing revenue of $6.9 billion has nearly doubled through balance sheet transformation and the strategic positioning of the auto finance business. Other revenue has also expanded as we've grown fee generating businesses like insurance and smart auction. Investment gains will fluctuate with market conditions but we see a path to a $2 billion plus annual other revenue stream. The bottom of the page highlights the significant progress across our Ally Bank businesses. Revenue in 2022 of $1.2 billion has increased more than $1 billion since our IPO and is up 75% in just the last few years. Moving to slide number 13, we show the consistent credit performance of our largely secured balance sheet and significant reserve coverage relative to losses. On a consolidated basis, net charge-offs of 74 basis points compared to a coverage rate of 2.72%. Within retail auto, net charge-offs of 97 basis points reflect normalization off historical lows. The retail auto reserve of 3.6% remains elevated versus CECL day one. We feel comfortable our reserves position us well for a variety of environments as we've consistently taken a conservative approach in our reserve methodology. Slide number 14 adds additional perspective on absolute levels of our reserves and excess capital. The $3.7 billion allowance on our balance sheet is roughly $1.1 billion higher than CECL Day 1 and positions us well to absorb expected lifetime losses based on the current economic outlook. And our capital position creates significant buffer against unexpected losses and volatility. While we've largely normalized excess capital relative to our internal targets, we continue to maintain $3.6 billion of CET1 above our regulatory minimum under the SEB framework. The ultimate path of the economy over the near term remains fluid, but we feel very good about the reserve and capital position of the company. Moving to slide number 15, we've highlighted our steady growth in book value per share. At year end, book value per share excluding the impact of OCI was $44, up 92% since 2014. We understand the magnitude of interest rate movements has heightened the focus on AOCI and the mark on our securities book, but we feel the $44 figure is a better representation of the true intrinsic value of our company. The existing mark will fully amortize back to par over time in declines in rates like we saw in the fourth quarter will accelerate book value generation. The bottom of the page shows the progress we've made in buying back shares at levels below the intrinsic value of the company. Since the inception of our repurchase program in 2016, shares outstanding are down 38%, creating significant value for long-term holders. We recognize there's a lot of focus on our earnings trajectory over the next few quarters, but it's important to consider the tailwinds that have been created by a fundamental transformation over the past several years. And with that, I'll turn it over to Brad to cover our detailed financial results.