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

Good morning and welcome to Ally Financial Inc.'s 2021 Annual Meeting of Stockholders. I would now like to introduce the first presenter, Fritz Hobbs.

Good morning, ladies and gentlemen. My name is Fritz Hobbs. I am Chairman of the Board of Ally Financial Inc. and will be chairing today's meeting. On behalf of the Board of Directors and management, I'm pleased to welcome you to Ally's 2021 Annual Meeting of Stockholders. Mr. Stengel, our General Counsel, is appointed as Secretary for the meeting and will now review the formalities.

Thank you, Mr. Chairman. You will find the agenda, the rules of conduct and other disclosures for this meeting posted on the web portal. We welcome questions from our stockholders. Please note in the agenda, the time has been set aside for those after the formal business of the meeting is concluded. Representatives of our independent auditor, Deloitte & Touche, are present and will be available to answer questions then as well. They've confirmed for us that at this time, they have no separate statement to make. The Corporate Secretary has delivered the affidavit of distribution signed by Broadridge Financial Solutions, establishing the notice of this meeting was duly given, and a certified list of Ally's stockholders of record at the close of business on March 8, 2021, a record date for this meeting. The certified list shows that record holders of 373,271,428 shares of common stock are entitled to vote at this meeting. Of this number, at least 324,909,102 shares or approximately 87% of the shares entitled to vote are present in person or represented by proxy. Therefore, Mr. Chairman, we have a quorum and may proceed.

On this basis, the meeting is now called to order. I appoint Jeffrey A. Belisle from Ally and Charles Zade, a representative of Broadridge Financial Solutions, as inspectors to collect the votes and certify the results. I ask Mr. Stengel to review the proposals that are being presented to our shareholders.

All of the proposals for this meeting were set forth in our proxy statement. The first proposal is the election of directors. Ally's Board has nominated the following candidates as named in the proxy statement for election as directors: Kenneth J. Bacon; Katryn Shineman Blake; Maureen A. Breakiron-Evans; Jeffrey J. Brown; William H. Cary; Mayree C. Clark; Kim S. Fennebresque; Franklin W. Hobbs; Marjorie Magner; Brian H. Sharples; John J. Stack; Michael F. Steib. The second proposal is an advisory resolution approving the compensation paid to Ally's named executive officers. The third proposal is an advisory resolution approving the frequency of 1 year for the stockholder advisory vote on executive compensation. The fourth proposal is the approval of the Ally Financial Inc. incentive compensation plan, amended and restated, effective as of May 4, 2021. The fifth proposal is the approval of the Ally Financial Inc. non-employee directors equity compensation plan, amended and restated, effective as of May 4, 2021. The sixth proposal is the approval of the Ally Financial Inc. employee stock purchase plan, amended and restated, effective as of May 4, 2021. And the seventh proposal is the ratification of the Audit Committee's engagement of Deloitte & Touche as Ally's independent registered public accounting firm for 2021. The polls are now open. Stockholders who voted in advance of the meeting need not take any further action at this time. Stockholders who are eligible to vote at the meeting and have a voting button available to them on the web portal. If any eligible stockholder wishes to vote now, you may do so by clicking that voting button and following the instructions there. Once again, if you voted in advance of the meeting, no further action is required at this time for that vote to be counted. [Voting]

Mr. Chairman, we see no votes coming in. So you may proceed.

Thank you. The polls are now closed. Mr. Stengel, do you have the results from the inspectors?

I do. Each Director Nominee has received a majority of the votes cast for that nominee and is elected to the Board for a term ending at the 2022 Annual Meeting of Stockholders. Each of the other 6 proposals has received votes in the affirmative from a majority of the outstanding shares present in person or represented by proxy and entitled to vote on the proposal and therefore is approved.

We have now completed all the formal business to be conducted at the meeting today. Accordingly, I am declaring the meeting adjourned. I would now ask Jeffrey Brown, Ally's Chief Executive Officer, to share some remarks.

Thank you, Mr. Chairman. Good morning, everyone. I'm Jeffrey Brown, Chief Executive Officer of Ally Financial. This marks our eighth Annual Shareholder Meeting as a publicly traded company. The 2020 operating environment was complex and challenging in ways never experienced before, but I found a deep sense of pride and energy from how Ally responded. Our employees demonstrated resolve and fully embodied our do-it-right values, delivering for our customers and carrying Ally's vibrant culture into our communities while our adaptable and leading businesses continue to perform and deliver record results. At our annual meeting 1 year ago, we were in the grips of COVID-19. Public health systems were strain, the economy was rapidly contracting, and unemployment spiked to levels not seen since the 1930s. These unprecedented challenges were met with coordinated ingenuity across the health sector and swift, meaningful action from policymakers. These necessary actions demonstrated compassion and were cause for optimism. 1 year later, we can see the results of these efforts in stabilizing virus trends and increasing vaccination rate, coupled with the broader reopening of businesses and consumer confidence and financial health, among the strongest levels observed in modern history. I believe the same level of focus and attention can and should be applied across public and private sectors to address the economic and social equities that have become far too pervasive. There is much work to be done, and Ally is committed to doing its part to promote equality and inclusivity, helping to drive the necessary progress that will deliver broad-based societal and economic benefits. As I enter my seventh year leading this company, my primary focus on culture is as strong as it's ever been. I am confident that our diverse and inclusive, do-it-right culture has underpinned the financial success, growing momentum across our products and long-term value accretion that we continue to see on the horizon. It drives our desire to deliver for our customers and creates meaningful value for all of our stakeholders. I'm excited to spend some time this morning talking about a few important topics. First, I want to recognize the tremendous efforts our associates have made over the past year and their commitment to supporting our customers and communities. Second, I plan to review our accomplishments in a uniquely challenging environment. And lastly, I will discuss why we're so well positioned to build on the tremendous momentum that we carried into 2021. Starting with our people, culture and response to COVID. We work hard to create a safe and supportive environment for our people, one where they feel empowered and equipped to serve our customers with excellence, and that's exactly what we saw in 2020. Despite personal challenges, our associates remain focused on serving our customer base that is 9 million strong and growing. Our relentless obsession with our customers has always been at the core of who we are and last year provided an opportunity for us to live our values. We've led the industry with comprehensive COVID relief across our consumer and commercial products, and we did so proactively and expeditiously. Our efforts included loan and lease deferrals for up to 120 days for our retail auto customers, tailored solutions for our dealer customers, such as waiving floor plant curtailments and deferrals on interest and insurance charges, various fee waivers within our deposits and Ally invest businesses and up to 120-day loan deferrals for mortgage and Ally lending customers. We had conviction in establishing a deferral program that was beyond any other offering in the market with no questions asked because it was the right thing to do. In retrospect, it's a meaningful point of pride that we provided 30% of our auto customers with the loan deferral, something unmatched by any of our competitors and a clear example of Ally living our values. Our ability to be there for our customers is a testament to the quality of our people. I couldn't be prouder of the resolve, compassion and dedication that I've seen firsthand from our 9,700 associates during truly unprecedented times. I believe it is imperative that we support and invest in our most valuable asset. At the onset of the pandemic, we quickly mobilized our employees with work-from-home capabilities, provided a $1,200 financial assistance payment to all of our employees earning less than $100,000, and materially expanded health and family care benefits. Last August, we pulled forward and paid out 50% of the expected year-end bonuses for nearly 3 out of every 4 associates. For the second in a row, we did every employee 100 shares of Ally stock, recognizing their significant accomplishments while reiterating a founder's mentality, we are all owners of Ally, and that collective pride and sense of responsibility is foundational to our success. As a leadership team, we prioritize through words and actions the well-being of our teammates. We rolled out expanded and transparent employee communications, emphasizing appreciation and empathy while challenging ourselves to think more broadly about employee flexibility. This philosophy will continue to guide our approach in the years ahead. And in the near term, as we begin to methodically welcome our employees back to the office, prioritizing safety while recognizing the benefits collaboration, mentorship and innovation, all of which thrive when colleagues are among one another. In addition to serving our customers and investing in our people, a critical component of our culture is service to our communities. Employee donations were up an impressive 71% last year, and we saw inspiring examples of volunteers creatively and passionately serving their communities from the associate in Jacksonville, Patrick Rhodes, who provided over 500 free lunches to health care workers to the associate in Texas, Abner Rodriguez, to help create a program to support Hispanic college students who have interim tests rescinded due to the pandemic. There were countless stories of humanity that inspire both hope and pride. Beyond the support directly from associates, we established the Ally Charitable Foundation. This was a milestone for our company and will strengthen our ability to make lasting and meaningful change well into the future. Before moving on, I'd like to address the very serious social issues that have existed for far so long in our country. As the world grappled with the realities of racial and social inequality, our employees rallied around each other, showing support and empathy to colleagues while loudly voicing their collective desire to promote positive change. Fostering inclusion, building understanding and embracing differences are fundamental to our culture. Within our company, we're having the tough and often painful conversations where we listen, learn and benefit from one another. This is our ability to value diversity. Nearly 40% of our company is involved in employee resource group, and we are deeply committed to continuing to foster an environment of openness in the years ahead. These efforts are neither new, nor temporary and will continually evolve over time. Long after the headlines fade, we must continue working to promote fairness, compassion and equality within the walls of Ally and in our communities. This is how we live up to our promise to do it right. Turning to 2020 accomplishments. Throughout the past year, I challenged my Ally teammates to focus on the good. Despite the unprecedented economic and operating conditions of 2020 and the personal challenges endured by so many of our associates, there was a lot of the good. We supported each other, helping our communities and continue to innovate while remaining intently focused on our customers. This focus, along with disciplined execution, resulted in several impressive financial and operational accomplishments, which were highlighted by total net revenues of $6.7 billion, up 5% versus 2019; adjusted tangible book value of $36 per share, increasing year-over-year despite a day 1 CECL charge of approximately $2.70 per share; consumer auto originations of $35 billion, down just 3% despite a 15% decline in industry light vehicle sales; retail auto net charge-offs of 96 basis points, down from 129 basis points in 2019, far exceeding expectations; retail deposit growth of nearly $21 billion, resulting in 85% of our balance sheet funded by deposits; 2.25 million deposit customers, a 14% increase year-over-year and fueling our ability to drive organic growth within our Ally Home and Ally Invest offerings. And in its first full year under the Ally umbrella, Ally Lending generated $0.5 billion of originations, growing 75% year-over-year, all while our corporate finance business ended 2020 with $6 billion of loans, up 6%, while expertly managing the portfolio through disciplined risk management informed by decades of experience from its leadership team. Our balance sheet is as strong as it's ever been, with capital and liquidity at or near record levels. After suspending our share repurchase program for most of 2020, our Board authorized a $1.6 billion common share repurchase program for 2021, which we remain on track to complete. Our net interest margin is expanding as we leverage the market-leading positions of our auto finance and deposit franchises to optimize betas on both sides of the balance sheet. These results affirm the leadership position of our auto and insurance operations and highlight the long-term growth opportunities we built in our [Audio Gap] This powerful combination has led to substantial financial improvement over the years and will generate solid and sustainable returns moving forward. The position we find ourselves in today is not unexpected, nor accidental. It's a direct reflection of years of thoughtful and deliberate strategic planning and solid execution across all parts of the company. Over the past many months, I've expressed the view on several occasions that Ally would successfully navigate the complexities of the pandemic and emerge stronger than before by relying on a consistent set of values and executing. Throughout the challenges and obstacles of the past year, we have remained steadfast in our strategy. We have taken care of our people, supported our customers and invested in our communities. This is fundamental to who we are as a company. We carry tremendous momentum into 2021. Our leading businesses, competitive products, along with our unique brand and do-it-right culture, position us to continue our financial trajectory and drive strong long-term returns for our shareholders. Before wrapping up, I'd like to acknowledge my incredible management team and every one of our associates who has worked tirelessly and with tremendous poise in the face of a very challenging environment. We all know we are owners of the company, and we embrace that mindset in every action we take. I'd also like to thank the Board of Directors for their continued guidance. I am grateful for their counsel and the passion we share for our company. I have shared with them on numerous occasions that we have built a powerful and leading digital financial institution, but one that is only starting to be able to demonstrate the power, passion and financial upside that exists inside Ally. Lastly, I'd like to thank our valued stockholders for their support of Ally. It's a privilege to be the CEO of this great company. We have built something truly special, and I couldn't be more excited about our future. Years like 2020 can serve as defining moments. There was no playbook to navigate many of these challenges, but we remain guided by our values and philosophy to always care for our customers. In closing, thank you for joining our Annual Shareholder Meeting today and for your interest in Ally. Thank you.

J.B., thank you for your comments. We have a limited amount of time for questions from stockholders before the Board convenes its meeting, and I have designated Jeffrey Brown to preside during this time.

Thank you, Mr. Chairman. I will ask Daniel Eller, Ally's Executive Director of Investor Relations, to collect any questions.

Thank you, J.B. We will begin this morning with a few questions that were submitted in advance of today's meeting. [Operator Instructions] Our first question comes from an investor in regards to whether Ally or its Board of Directors have valuation criteria in place in order to use company shares to acquire another business. The investor references the use of Ally's shares and the proposed CardWorks acquisition in 2020 that ultimately did not proceed due to COVID-19, indicating established criteria would serve as a reasonable measure when assessing Q2 transactions.

Great. Thank you, Daniel. I'd start by just saying Ally's leadership team and the Board of Directors really assess every dollar of shareholder capital through a very consistent set of long-term strategic priorities. And we had organic capital allocation framework excluded in every decision when we play capital. There's obviously a variety of factors and market conditions. We always start with anything we consider how the client or customer set philosophy? How does it fit in with our long-term strategic priority, cultures, value and our risk tolerance. And then ultimately, we take a long-term approach in assessing the financial implications of the transaction and what we believe would be opportunities in the future. So obviously, valuation can be a point in time metric. And I think our view in guiding the company, and certainly, the view the Board embraces is really long-term philosophy here. And I would expect that to be a consistent framework that we use in the evaluation of capital deployment in the future as well.

Great. Our next question pertains to the ease of submitting customer feedback regarding Ally Bank features and platforms. The investor asks if Ally consults with customers regarding features that are added, removed or maintained across our digital properties.

Yes. So thank you for that question. I'd say, obviously, customer experience, satisfaction and differentiated products really sit at the epicenter of our value proposition. And I know we welcome -- we actively seek out all customer feedback, which can always be submitted directly to us through to Give Feedback link on all pages of our website, and that's both public and authenticated pages as well as in our mobile app and through our ongoing surveys via e-mail and automated in our web, mobile, phone and chat experiences. . And it's interesting. I think on average, we intake and review about 74,000 surveys monthly, asking for feedback and thoughts; and 30,000 through our digital website and mobile channels; 25,000 through our phone channels; and about 19,000 through chat. So we are very active, I would say, in soliciting customer feedback. We want the experience to be a great one. And we think today, we've really built the leading digital bank platform there. We typically see about 13,000 comments within these surveys that we review and share with our applicable teams and leverage this information to really help drive our road map with our business leaders in Diane Morais, in particular, and Satish, our Head of Technology. So really, a very robust effort around collecting customer feedback and using that to really guide us going forward. Also, we've deployed or developed under Diane's leadership, our TM Studios, which is really a constant research and concept testing lab, was pulled together in 2018, which is really all focused on how do we drive the customer experience going forward. So I think these are all ways -- we try to capture the feedback, really build from it and ensure we've got the leading and most robust platform that exists out there.

Great. One more from the pre-submitted questions, and it's around whether or not the company publishes its contributions to political parties and/or candidates.

Yes. While corporations like Ally apart are from providing direct political contributions to candidates for public office, the Ally pack was established in 2015 to help advance issues important to our company. Ally's pack complies with all the disclosure requirements to disclose all political contributions. Candidates are also required to disclose all donations that they receive, and this information can be found on the FEC, which is the Federal Election Commission website, at fec.gov.

Great. Thank you, J.B. So that concludes the pre-submitted questions. We do have one question that came in live. So I'll read it here for the audience and those in the room. The question is around company executive compensation plans with the investor indicating that today, many of these publicly traded compensation plans are designed to drive successful execution of the Board's long-term strategic business plan with those plans being peer-related plans with simplistic annual say-on-pay voting. And what the question is around is whether the Chair of the Compensation Committee -- the Board would better be served by an exact compensation plan that is tailored specifically to Ally circumstances and its unique long-term strategic business plan. So J.B. will start with you, and then we can shift over to Fritz as well.

Sure. So I'd start by saying, I believe we have a very robust and solid compensation framework. Certainly, our Board and our Compensation, Nomination and Governance Committee review this more than annually. The plans are all designed to deliver long-term value accretion for our shareholders. So like our philosophy of really guiding the company over the long run, I think our incentive compensation programs are designed just to do that. I think in particular, for CEO compensation and for our NEO compensation, the vast majority, in my case, over 60% of total compensation is paid in the form of equity. So we think we have very deep and direct alignment with stockholders and, again, aligned to create value over time. And certainly, that's the case maybe to a slightly smaller degree with the rest of our NEOs. But I think our compensation framework, we obviously benchmark against a broad base of peers that are out there. We review those peers annually to ensure we are comparing ourselves against like competitors. And so I think our overall philosophy is certainly designed to, again, promote long-term value for everyone. And so I'd leave it there and ask Fritz if there's anything you'd like to add or offer as well.

No. I think you said it very well, J.B. We spent a great amount of time on this as a Board, and it's on the Comp Committee. We have some outside -- we have a couple of outside advisers who we rely on to make sure, as J.B. said, that we're within a framework that's consistent with our peer group. But at the end of the day, it's all about long-term performance. And J.B. is right, we have a bias towards more equity for our top employees and to reflect -- we're in this for the long run. So I thought J.B. said it very well otherwise. .

And Fritz, maybe one additional detail I should point out, even 50% of the equity that is awarded to me and to the NEOs is also done in the form of performance shares. So there are certain established metrics and targets that must be achieved for those shares to actually be paid out. So again, I think that's another example of direct alignment with our stockholders as well.

Okay. That -- looking at the queue for the Q&A, there are no further questions, no further have been submitted through the portal. And with that, I'll turn it back over to the operator to conclude today's call.

Thank you. Ally Financial Inc.'s 2021 Annual Meeting of Stockholders has now come to an end. Thank you for attending. You may now disconnect.