Ally Financial Inc. (ALLY) Earnings Call Transcript & Summary

Good afternoon, BAB attendees. This is Dan Goldfarb, and it's my great pleasure to introduce today Di Morais more, President of Consumer & Commercial Banking at Ally Financial. Di has been with the company for almost 13 years. Where she came -- before that, she came from BAC, where she was Head of Deposit Gathering. We're very fortunate to have her here today, and I'll give her the floor. Thank you, Di.

Well, I'm thrilled to be here, and thank you so much for including Ally in this conference. We are really excited to tell the Ally story.

We're happy to hear it. All right. So with that, to BAB attendees, I'm going to be asking a series of questions to Di. If at the end of this, there is time for Q&A from the group, we'll go and find it and repeat some of those questions.

So the first one for Di is what are different -- some of the differences between commercial and consumer activity in the current environment at Ally?

So it's been such an incredibly interesting year. That's probably the understatement of the century. And we continue to be very pleased with the resiliency of our businesses and our company as we've navigated over the last 6, 7 months. The consumer has held up extraordinarily well. We continue to see strength really across all of our core operating metrics, be that deposit growth, customer household acquisition, new accounts coming into our Ally Invest business and just record volumes in trading and investing activity and strength in the housing market, obviously, helped by record low interest rates. And the business that I don't run for Ally, our auto business, has continued to perform exceptionally well through this pandemic. And so we see very strong and resilient trends really across the entire company.

That's fantastic. And so what are some of the more important ways that Ally is providing assistance to those customers who may need it at this time?

So we are a customer-obsessed company. It is part of our DNA. It is exactly how we founded the entire brand around consumer pain points. So on March 12, we went to work from home, as did many other companies, and we quickly mobilized that very day and said, what do we need to do to help consumers through the months and days ahead, not knowing at that point that we would still be sitting here, experiencing what we're all experiencing. But we're incredibly proud that we were one of the first banks to come out with a very proactive and strong customer relief package across all of our businesses. So we instituted 120-day deferrals on all of our lending products, our largest business, again, being auto, but our mortgage business, our point-of-sale Ally Lending business. We proactively took a number of steps in our deposit business around waiving fees, forgiving overdraft balances in advance of when the stimulus checks hit because we wanted any customer who may have been receiving a stimulus payment to be able to take full advantage of that amount. And so we have empowered our frontline people and have lots of communication with our customers, really always -- again, we were in a meeting earlier and the phraseology we use is, Ally being ally. And I think we are all incredibly proud of what we were doing for consumers. And more importantly, we've heard back from consumers in droves about how much they appreciated the steps Ally took to help them. What we saw many customers might have signed up for a forbearance or a deferral program, not knowing what the future would hold, many of them did not ultimately need that assistance. And most of those programs expired late June, early July, but we remain very open and flexible. If a consumer needs help, we're there to help them. And so again, I think it's a pride point for our entire employee base. And our senior leadership team was just meeting today, and it was one of the high points. We're very pleased with how our company was able to step up and help our customers.

Fantastic. And of that customer base, who or what type was most impacted? And how does this then translate into, for us, we care about profitability and other profit margin and ratios?

So the question of who was impacted, I would say we saw a pretty high take rate on our auto deferrals. But those customers, again, have now rolled out of that program and are performing very much within our expectations, maybe a little better. And what we've seen, again, back to my first point, we've seen very strong performance. And I think the question, we know we're still potentially early innings. But our consumer has held up very well. And so what -- you all have probably seen Ally's third quarter earnings. We had a record quarter on many dimensions, and we see continued strength. So the financial question of, okay, where will this ultimately play itself out. I think the consumer today is still healthy. We'll see what happens with the second stimulus. That will help. But so far, so good, knowing that it's still early innings.

Okay. How has the attitude of the consumer changed in these 9 months?

Well, Ally is a digitally-born, digitally-raised company. So being digital absolutely was a benefit for us. We see consumers, obviously, all of us probably finding new ways to do things that have more of a digital feel, right, whether it's grocery shopping, pick your thing. And so that really worked to Ally's favor because we -- that's how we operate, right. So we've seen even more digital usage and mobile app downloads. And that, again, is core to our strategy. So it wasn't something that we had to scramble to really put in place for consumers. I think consumers are looking for transparency, fairness, and that's what we provide every day. That's sort of what drives us.

All right. So it sounds like these changes are -- will last longer than 9 months. And so the question is how long do you think that might last? And what might be coming to promote even more digital use by your customer base?

Well, if I knew how long things would last, that crystal ball that we all wish we had, right? So I don't have one. Hopefully, not that much longer. I think we're all ready to get back to whatever the new normal will look like and feel like. But I think what won't change is that some fundamental consumer behaviors will not go backwards. So many people who may not have previously been comfortable banking digitally are becoming and have become comfortable with that. And so Ally, again, has been well positioned to take advantage of that. We've seen continuous, very strong customer inflows throughout this whole time frame, and we expect that to continue. And I think what we'll continue to see, and we hear this from our customers, how do you make my life easier? Help me. Give me tools and things that I may need. And customers may not always be able to express exactly what the solution looks like. But they may be having trouble saving, may be having trouble in other dimensions of, I know I should be investing in the market. I'm not really sure how to start. Help me. And so again, that, we think, is very much part of our DNA and part of the value proposition that Ally has cultivated over the last 11, 12 years, continuing to be an ally for consumers and their money.

Great. And what has surprised you this year from an overall business environment standpoint?

Well, we went, as I mentioned, to a fully work-from-home model in early March, March 12, to be exact. We were counting days for a while. We've stopped. But what has surprised me, and I guess I shouldn't be surprised because we take great pride in the culture that we've created here at Ally. And it is a very strong sense of purpose for why we're here. And we're here to serve our customers, our communities. We put our employees at the front of that line and said, we're going to take care of our people and keep them safe. Send them home. Give them the tools they need to be able to effectively serve our customers in a work-from-home environment. And in taking care of our people and prioritizing what they need, we know that then, in turn, they'll be able to care for our customers, and obviously, our communities and shareholders. It hasn't -- I shouldn't say I'm surprised by it because we have incredible people at this company. But people have been incredibly resilient. We have figured out many new ways to do things. For example, we used to hire and train people in person. We couldn't do that anymore. We used to have side-by-side training if we were getting people onto our customer care phone line, if you will. And I think the ability for us to continue to innovate and drive value for our customers has persisted. The other thing that we started this year with was a distinct focus on what we call essentialism, which is the disciplined pursuit of less. And we started those conversations in the earliest part of the year, in January and February. And it came in incredibly handy as we began navigating the pandemic. It just cleared the decks to say, we're not going to focus on things that are not so central to taking care of our people or serving our customers. So it's been a pleasant surprise. I guess that would be the biggest surprise, in a good way. And then I think we've all been pleasantly surprised at the general strength of the consumer. And we know that there are some consumers out there who are struggling, and we stand ready to serve and help them. But overall, I think our financial results are speaking for that strength and resilience.

Fantastic. And, hard to look backwards, but what would you have done differently if you knew on -- well, you did, March 12th to 13th, the pandemic was here and the downturn was going to be big. Would you have done anything different? Are you happy with what Ally has created and done?

We're very happy with what we've done. We really are. And again, as I was just mentioning, we were going through some of our executive teams' highlights of just what's the one thing this year that we're most proud of. And I'd say, universally, it is how we've navigated this pandemic. And we get so many notes and texts and calls from our people thanking our CEO and the executive leaders on how we've put them first and given them what they need to keep themselves and their families safe and healthy, but also the ability to continue to do their jobs and do them well. So I am not a big look backwards. I do -- we always look back to reflect what we can learn and apply moving forward. In this instance, I think we made some really good calls. We made them early, and they paid off. And we were supported by this incredibly strong culture that guides everything we do.

Fantastic. Okay. So since you're looking forward, what are you focused on to drive growth over the next couple of quarters?

So we have a number of consumer businesses that are all in various stages of maturation. Our deposits business, which is our probably longest held direct-to-consumer product category, has been around since we launched Ally Bank back in 2009. We've grown that business from virtually nothing to over $121 billion and 2.2 million consumers, and really, with a very strong brand that, again, 11 years ago, didn't exist. And what the Ally brand stands for in the market, it just continues to really resonate with consumers. As we think about where we're going, we've added Ally Home, which is our direct-to-consumer and home loans business. We launched a partnership with Better.com about, gosh, 15 months ago, and we're incredibly pleased with that area of our company. We've seen over 50% to 60% of new home loan customers coming out of the deposit space. And we really see great headroom in that area as we move forward. We know buying a home is one of the biggest purchases a consumer will make. It's a scary process sometimes for new homeowners. And what we've seen is our digital end-to-end model really has broken through in a way that has provided great value. We're incredibly excited about Ally Invest. And Ally Invest is, for those of you -- you probably know, but we purchased the company several years ago, formerly known as TradeKing. And that business has changed radically in the last year, right. In October of 2019, essentially, the brokerage business went to 0 commissions. And we've been pivoting in a really fun and exciting way. We've seen tremendous uptake in the synergistic effect between saving and investing, right? So our deposit customers, again, 60% of our new invest customers are coming from our deposit base. We see synergy and have created simple, easy ways for consumers to move money between their deposit accounts and their invest account. And really, that sort of 1 plus 1 equals 10 effect. And so, again, we're continuing to innovate. We're continuing to build out that area. And I think there's a lot more headroom. We've already eclipsed $11 billion in AUM and have added over 400,000 customers. So we have a tremendous amount of momentum there. Obviously, volatile markets this year has helped that. But we see, again, and we spent a lot of time really helping educate and provide a point of view on the markets for our customers. And that's really resonated and stood out. And then the last area that I'd really like to highlight in terms of growth potential. About a year ago, we purchased a point-of-sale lending company. We've -- it was formerly known as Health Care Credit Services (sic) [ Health Credit Services ]. It is now Ally Lending, and that's our point-of-sale financing business. It started in the health care medical arena. We're excited that this year, we were able to launch into the home improvement space and have recently signed partnerships with 2 companies, Sezzle and Vyze, that are sort of online retail platforms for consumers who want to buy now and pay later. Things like a Nordic track, for example. So we are excited about the growth potential in that business. It's a high-margin business, and we were opportunistic and fortunate that we got a seasoned team and have a lot of momentum there as well. So when I step back and answer your question, I see a lot of room for growth for Ally. We have been in growth mode, and we'll continue to do so. So it's an exciting time to be here.

Fantastic. All right. Kind of the same question, what differentiates Ally from peers? And could you mention 1 or 2 of those peers, so the audience has a sense of who they are?

So I start with what drives Ally. And we are grounded, as I said, in being customer-obsessed, doing it right for our consumers and innovating tirelessly. And so those are our pillars. And so when I look at the competition, and it's everywhere, and I always say I remain healthily paranoid of every competitor that we have out there, big or small, new or old. There's some amazing people across this industry and new entrants to our industry, all pretty much focused on how to serve customers in a unique and different way. I think from my chair, I say we've been, again, around for 12-plus years in this digitally-born, digitally-raised landscape. We only think digital. Everything we do is grounded in that customer obsession. And so I say this often, people can copy products, people can copy what a website looks like. You can't copy DNA and a company's culture. And I think that speaks volumes to what makes us different. And when I interview candidates or we have consultants or even our regulators who come and spend time with us, I often hear, it just feels different here. What are you guys doing? What are you serving in the break room? And we often say, you see our colors are plum, that we prick our thumbs, and we bleed plum. And it's not for everybody. But it is a special company, and we have this shared purpose around doing right for consumers. And that is core to our mission. And it is so important. And when we talk about employees, communities, customers and our shareholders, it all is tied together with this mantra of doing it right. So again, I could name names. You're following all the names. And so I have great respect for many other companies, but I have great respect for who we are. And that's what drives us and keeps us focused.

Thanks for that, Di. Let's try this. Loan forbearance has been used by the banking industry to help borrowers, whether COVID-19 and economic misfortune that may befall them. Have you noticed any trends in loans coming off forbearance?

I'd say the trends have been favorable. And so what we saw that both in our auto business and our home loans business, even our Ally Lending point-of-sale business, a number of consumers signed up for forbearance or deferral just not knowing what the future was going to hold, and then realize they really didn't need that and remain current or took a shorter period. There are some consumers who are struggling, and we're working with them. But I'd say, on the whole, the performance has been very much within our expectations, and in some ways, better than. And so again, I think it was a great tool to be able to utilize entering a global pandemic when really none of us had any idea what was around the corner, and neither did our consumers. And so taking a lot of that pressure out of the system, in the minds of the consumer, I think -- well, I know, has resulted in even higher levels of consumer loyalty to Ally.

Fantastic. And then, okay, let's try -- Ally, how do you see Ally using excess capital over the next couple of years? Divis, share repurch or M&A?