Ally Financial Inc.

Good day, and thank you for standing by. Welcome to the second quarter 2024 Ally Financial 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 the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Sean Leary, Head of Investor Relations. Please go ahead.

Thank you, Elizabeth. Good morning and welcome to Ally Financial's second quarter 2024 earnings call. This morning, our CEO, Michael Rhodes, and our CFO, Russ Hutchinson, 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 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 Michael.

Thank you, Sean. Good morning, everyone, and thank you for joining the call. I'll start by saying I'm so proud to address you all for the first time as CEO of Ally. I feel privileged to have the opportunity to lead this incredible company. Now, I want to start by acknowledging the horrific assassination attempt on former President Trump and the innocent loss of life that occurred over the weekend. Political violence has no place in our democracy, and I hope we can all use this moment to put aside our differences and come together as a country to condemn this senseless act of violence and commit to peacefully upholding our shared American values. Now, recognizing there's no easier way to transition from such a serious topic, let's move to slide four. So I believe what this team has built and delivered over the years is remarkable. I would like to express my gratitude to the entire Ally team and the board for placing trust in me to build on that momentum. One of the many things that excites me about Ally was the strength and scale of our business. We've been in auto finance for more than 100 years and are the largest bank auto finance provider in the US, serving 22,000 dealers and decisioning $400 billion in application volume annually. On the consumer bank side, It's amazing what we've done in just 15 years. Ally has built the largest all-digital direct bank, serving more than 3 million customers. In fact, Ally was recently named to the top three on Time Magazine's list of the best midsize companies of 2024, and number one in banking and financial services. I believe this recognition reaffirms what this team has done here is unique. and differentiates our leading franchises in the marketplace. A big part of the success of these franchises is our brand. It's one of the most relevant and differentiated brands in banking. This has allowed us to create strong levels of preference among consumers. None of what this team has done is possible without a strong culture, and that permeates throughout the organization. Before joining Ally, I followed the story from a distance. I heard a lot about the culture, and that was a key factor in my decision to join. I learned quickly that everything I heard about the culture was true. The opportunity to lead Ally and do my part to nurture our culture brings me immense pride. I'm convinced that one of the many things that truly sets Ally apart is our extraordinary purpose-driven culture centered around our lead core values and our do-it-right approach to serve customers, communities, and employees. Our culture isn't just a buzzword. It's the backbone of how we operate. It's about integrity, innovation, customer obsession, and a relentless focus on execution. At Ally, we foster an environment where diverse perspectives are valued. I believe that this is a key driver of success and that our people are our greatest assets. I've been fortunate to spend time with many of my teammates and dealer customers in the first two months. My respect for Ally's legacy has only deepened during that time. It's clear to me that we are well-positioned to continue creating long-term shareholder value. We have great market-leading franchises and consistent execution over the past several years has set up a uniquely compelling financial trajectory. I could not be more thrilled to launch the next chapter of Ally's evolution with my 11,000 teammates. With that, let's turn to slide five. As an outsider, I admired Ally's auto business. When I got here, I realized it's even stronger than I appreciated. Our auto and insurance franchises revolves around the dealer and our approach is simple. We help them sell as many vehicles as possible and be successful in all areas of their business. Our products are comprehensive and focused on serving our dealer partners. We deliver a differentiated value proposition that is both high-tech and high-touch. We provide vehicle financing to nearly 4 million consumers across the credit spectrum, lending solutions for dealer inventory and other dealer financing needs, as well as specialty offerings. These are unique to Ally, such as smart auction and pass-through products that enhance our overall dealer value proposition. Our insurance business is well established as a leading consumer F&I provider and market-leading provider of commercial P&C products to help protect dealer businesses. Our insurance products are highly complementary to our auto finance business. We aim to provide all-in value to our dealer partners. Insurance has steadily produced over $1 billion in annual written premiums, including $1.3 billion in 2023. That's the highest since our IPO. Going forward, our insurance teammates remain focused on leveraging our broad dealer network to grow our leading position in the marketplace. As I mentioned, I admire what this team has built over the years. The transformation from captive auto finance company primarily supporting OEM new vehicle sales to the largest bank auto finance provider in the country has been deliberate and remarkable. The investment Ally has made over the past decade has resulted in unique scale, expertise in prime auto, and mutually beneficial relationships with our dealer customers. We have 4,500 teammates across the auto finance business with significant resources dedicated to fully serving our $90 billion consumer portfolio. An experienced collection organization gives us the confidence to underwrite across the credit spectrum and through the cycle. On the origination side, we have more than 600 experienced underwriters committed to supporting our dealers while remaining disciplined on where we put capital to work. And we've made significant investments to modernize our technology platform, including the core operating system of the auto finance business and ongoing investments in data and analytics. The technology and human capital investments required to win in Prime Auto are significant. What this team has built is unique and has driven a remarkable transformation during our time as a publicly traded company. We have grown dealers and applications, resulting in a robust application funnel from which we source origination volume. We offer quick decision time to the dealer, a skilled team to evaluate and rework transactions where appropriate, and options for a dealer when a credit doesn't fit our risk appetite. These efforts have led to some of our most profitable originations we've ever seen and position us well to continue growing our market-leading position in auto in the years to come. Let's turn to slide six and talk about the bank. Everyone wants to build a digital bank, and this team did it better than anyone. Over the past 15 years, we've earned our customers' trust with leading customer service, consumer-friendly product offerings, including no overdraft fees, and a frictionless all-digital user experience. Our approach has resulted in an engaged customer base More than one million savings customers engage with core products, and we've consistently grown multi-product relationships. Providing a comprehensive consumer value proposition that extends beyond rates and being at the forefront of the shift to consumer preferences has proven to be our competitive advantage. Ally Invest and Ally Home are key components to the overall depositor value proposition. Customers are primarily sourced from existing Ally depositors And we've built a solid foundation focused on strengthening the customer experience. And Ally Credit Card provides an opportunity to add a floating rate product with attractive returns to the balance sheet. Our corporate finance team is highly respected within the industry and has a long history of generating compelling returns. In fact, I had the pleasure of celebrating corporate finance business's 25th anniversary in June with the entire team. Fittingly, the team just delivered its highest quarterly earnings ever. Our success in corporate finance is driven by the same customer-focused approach we deliver across dealer financial services and our direct consumer products at the bank. We have been a consistent provider of financing solutions and are relentless allies when it comes to helping our partners succeed. As a result, corporate finance has built and maintained mutually beneficial relationships with our customers, the largest of which spanned decades. It's a business we're proud of, and we expect to continue to grow and give us impressive risk-adjusted returns, and the team continues to deliver. I'm energized by our market-leading position in our two dominant franchises. The opportunity in front of us is inspiring. Our culture of customer obsession and focused execution position us well for continued success in our respective markets. Now let's turn to page seven to cover the second quarter highlights. Second quarter adjusted EPS of 97 cents and $2 billion in revenue reflects solid financial results from consistent operational execution. We saw strong improvements following the first quarter earnings trough that we've messaged for some time. NIM excluding OID of 3.3% is up 14 basis points quarter over quarter, driven by momentum on both sides of the balance sheet, and we expect continued expansion from here. On the capital front, we recently closed our first credit risk transfer transaction, which had strong investor demand, leading to strong pricing and execution. CRTs are another tool in our toolkit to generate capital and better serve our dealer customers. Last month, we received Fed stress test results. Our preliminary stress capital buffer is 2.6% effective October 1st, 2024. As most of you are aware, we operate with a significant buffer to the SCB. Moving to operational results. In auto, we decision to a Q2 record 3.7 million consumer auto applications and generated $9.8 billion originations. Retail auto originated yields of 10.6% with 44% of the volume in our highest credit tier. This reflects our strong pricing position and strategic underwriting approach and 181 points of retail auto net charge-offs were in line with recent investor guidance at a conference last month. Insurance written premium of $344 million are up 15% year-over-year, driven by continued momentum in our F&I and P&C products. Turning to Ally Bank, deposits were down quarter-over-quarter and flat for the year, in line with our expectations for seasonal tax outflows. In the quarter, we added 54,000 customers and now have 3.2 million depositors. We are fully funded with deposits, and given our outlook for a largely flat balance sheet, we are well positioned to continue leveraging our high-quality deposit portfolio to generate strong returns across our businesses. We've been very measured on our growth in the credit card business, including curtailment actions over the past 18 months. Credit performance in this portfolio is in line with expectations. Corporate finance balances remain steady quarter over quarter, and the portfolio, which is 100% first lean, continued to generate steady returns. Second quarter ROE was north of 30%, and we continue to provide resources to help our team serve our customers. We're pleased with the solid financial and operational results this quarter, And we remain confident in our ability to grow earnings from here. And with that, I'll turn it over to Russ.