Ladies and gentlemen, thank you for standing by. Welcome to Ally Financial’s first quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during this session, you will need to press star, one on your telephone. Please be advised that today’s conference is being recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your speaker today, Mr. Daniel Eller, Head of Investor Relations. Thank you, please go ahead.

Thank you Operator. We appreciate everyone joining us to review Ally Financial’s first quarter 2020 results this morning. You can find the presentation that we’ll reference throughout the call on the Investor Relations section of our website, ally.com. I’ll direct your attention to Slide 2 of the presentation, where we have our forward-looking statements and risk factors. The contents of today’s call will be governed by this language. On Slide 3, we’ve included our GAAP and non-GAAP or core measures. These measures, along with other core metrics are used by management, and we believe they are useful to investors in assessing the company’s operating performance and capital results. Keep in mind they are supplemental to and not a substitute for U.S. GAAP measures. Supplemental slides at the end include full definitions and reconciliations. This morning we have our CEO, Jeff Brown; and our CFO, Jen LaClair on the call to review our results and take your questions following prepared remarks. With that, I’ll turn the call over to JB.

Thank you Daniel. Good morning everyone. We appreciate you joining the call during this critical time for our nation. The past several weeks have presented significant challenges for many around the world due to COVID-19. I’d like to take this opportunity to thank countless individuals who are battling on the front lines, including first responders, healthcare workers, grocers, delivery and supply chain providers, and many others. You represent the best of who we are. Thank you. We also hope all of you and your families and teammates remain safe and in good health. In response to the virus, over 90% of the U.S. economy has been impacted. Individuals in 41 states are currently under stay-at-home orders, resulting in a near shutdown of economic activity across many sectors. At the peak, 23 states had either closed or restricted dealer sales. Essentially all states have deemed fixed service operations or service as essential business, but sales have been obviously meaningfully impacted. These 23 states represented about 50% of our origination volume last year. This morning, we will review Ally’s response to ongoing developments and provide you with perspectives on: number one, what we’re seeing across our businesses; number two, how we are positioned to successfully navigate the rapidly evolving environment; and third, affirm that our focus remains unchanged on delivering for our customers and driving long-term value. Over the past several years, the strong foundation we’ve built has allowed our company to thrive during economic expansion and positions us now to be a source of strength for all of our key constituents during this difficult time and when we begin to recover. Remaining disciplined in our customer focus and true to our values will allow us to emerge from this period stronger than before resuming the trajectory of both financial and operational…

Thank you JB, and good morning everyone. I’d like to start by echoing the deep gratitude for those working on the front lines to serve and protect us during this critical time. I’d also like to recognize our employees, who have shown strong dedication and resolve over the past six weeks, rising to the occasion both personally and professionally on behalf of our company, customers and communities. I’m proud of our people and proud to be part of the team. With that, let’s dive in on Slide 7. As you are aware, there are many unknowns in our current environment, including the length of the shutdown, unemployment levels, GDP deterioration, and consumer and business confidence. Ally, along with many others, is challenged to accurately project impacts on many key aspects of our business. Despite this, and in the spirit of providing transparency, we’ve laid out a variety of insights into what we’re currently experiencing and expecting as we move forward this year. These insights are based on what we know today and we recognize and expect many variables will continue to evolve. As JB alluded to, January and February results were strong and continued to demonstrate growing momentum. Beginning mid-March, the economic shutdown was immediately felt across our business lines, resulting in declines across several areas but also increases in our digital channels, including Ally Home and Ally Invest. In auto, reduced activity at dealerships lowered app volume and originations by over 50% by late March, which we would expect to continue in line with the shelter in place orders. Over time as the economy improves, we will be positioned to act swiftly on opportunities, including a potential increase in demand for use, prudently stepping in where others may have exited, providing adaptable solutions as we did with the expanded…

Thank you Jen. On Slide No. 22, I’ve included perspectives on the environment we’re operating in today and how Ally will steer through the uncertainty. The sudden and severe nature of this shutdown has affected the world and our nation in a manner that has arguably never been replicated on a scale of this magnitude. It is within this context that I think it’s important to acknowledge that significant action across public and private sectors is necessary and should continue on a size and scale that has not been seen in modern history to directly address the outbreak that is already having negative impacts on workers, consumers, and citizens across America. While some positive trends are emerging in regard to the spread of the virus, we still do not know how long it will take to return to a state of normalcy. At Ally, you’ve heard throughout our remarks this morning and as long as I’ve been in the chair, we are relentlessly focused on our customers. We’ve built a strong and vibrant culture around this mantra, and today we’re even more emboldened to act in accordance with these principles. This provides clarity for our customers and purpose for our teammates in a time of great uncertainty, and we are confident it will ultimately drive long-term shareholder value. We enter the current environment with a strong, well positioned balance sheet with funding, capital and liquidity positioned to serve as sources of strength. We’ve grown our auto and deposit offerings into dominant, adaptable franchises ready to continue delivering for our customers, while actively seeking new opportunities to expand. The headwinds we will experience in the near term, while admittedly challenging, will not impact our ability to deliver on our long-term strategies and vision. I’ll wrap up on Slide No. 23. We take great pride in being a comprehensive, adaptive, and digitally focused consumer and commercial finance provider. We are focused on leveraging expertise and our history to build a stronger company for the future, including disciplined risk management and purposeful capital management. Thank you to our associates. I am proud of your ability to rise to the occasion, doing it right in every interaction with our customers within our communities and on behalf of our shareholders. With that, Daniel, back to you, and I think we’re going to take some brief Q&A.

Yes, great. Thanks JB. We would ask participants as we head into Q&A to limit yourself to one question and one follow-up. Operator, please begin the Q&A session.

[Operator instructions] Our first question comes from Moshe Orenbuch with Credit Suisse. Your line is now open.

Great, thanks. I’m hoping that you could kind of expand a little bit on the process. I know you talked about the assumed loss rate - you know, you said that you’ve got a very significant percentage of your customers that are in deferral, but you also said that you weren’t relying on the stimulus. So, could you talk to us about how those customers actually go through the process and what we should be looking to see that would help validate the assumptions that you made?

Sure. Good morning Moshe. Let me just jump in on our reserve process and how it relates to our deferral population. So, as we went through the reserving this quarter, we essentially modeled it per our macroeconomic forecast and looked at historic correlations and willingness and ability to pay for our overall customer base. We have not at this time included any of what we think will be a net positive benefit from the forbearance programs that we’ve rolled out to our populations, or even the stimulus impact that our customers are likely to benefit from. So, we kept the processes separate. We think in that way that our reserves are fairly balanced, and we’ll continue to very closely monitor that population that’s in the forbearance program. We’re going to do that through quantitative means as well as through qualitative measures as we’re increasing both human and digital outreach to those customers.

Okay, and maybe as a follow-up, could you talk a little bit about the outlook for deposit pricing? Obviously, your growth in deposits has been strong and you’re likely to see, now that the wave of drawdowns on corporate finance lines has crested, that probably you’re going to see asset levels falling, so could you talk a little bit about deposit pricing as we go into Q2 and back half of the year?

Yes, sure Moshe. The bottom line here is we do see opportunity to continue to look at deposit pricing and bring it down over time, especially when you look at where rates are today. Now, we’re taking a very balanced approach. We want to make sure that we emerge from this crisis in a position of strength and we’re positioned to grow our balance sheet appropriately with funding available. Once you turn the machine off, it can be harder to turn it back on, but if you just look at the trends that we’re seeing on our balance sheet, we are expecting asset levels to come down a bit. Our loan-to-deposit ratios are approaching 100%, and we continue to see just based on our funding needs as well as where rates are that there will be opportunity to take down pricing, and as we always do, we’ll be thoughtful around managing customer value, competitive rates, and our funding needs on the balance sheet.

Okay, thank you.

Thank you so much, Moshe.

Thank you. Our next question comes from Betsy Graseck with Morgan Stanley. Your line is now open.

Hi, good morning. Thanks for the call this morning. Two questions. I’ll start with one just on the forbearance. You gave a lot of numbers around the forbearance impact on the DQs. Could you just remind us the forbearance percentages of outstanding balances that you’ve been getting requests for on both the consumer side as well as on the corporate side, the dealer side?

Yes, sure. Good morning Betsy. If you look at our forbearance population, starting first within retail, it’s 1.1 million customers. It’s about 25% of our accounts, a little bit higher than that in terms of the balances. Keep in mind with this population, we were very proactive, and you see across the industry a number of reactive offers. We were proactive - we actually went out and emailed our customers and offered them the opportunity to have some more payment flexibility, so we do think that this positions us from a brand and loyalty perspective and doing it right approach positions us incredibly strongly. On the commercial side, we have about 73% or so of our dealerships that are taking advantage of payment deferral. That’s one of the programs we have provided. We are also offering them the PPP program through the SBA. If you think about a couple weeks ago, we weren’t even an SBA lender. We were able to process 1,000 applications and upward of about $850 million in funded loans for our dealers in that regard as well. The whole intention here, I think as JB pointed out a couple times in his prepared remarks, is really to focus on the controllables, focus on keeping our markets strong, our customers strong, and we believe that’s going to position us very well on the back end of this crisis.

Okay, thanks. Then just a follow-up here on the auction pricing that you were discussing, highlighting that today’s price for used cars is impacted by a very low level of participants in the auction. So, how do I think about how that feeds into your quarter’s assessment of used car prices and how you think about the remarketing gains, etc. this quarter? What is the trigger for a better price? Is it a function of number of participants in your opinion, or help us understand how that should traject over the next few quarters.

Yes, sure. It’s a really important area that we’re focused on as you think about our leasing yields and our remarketing gains. What we’re seeing right now is essentially the market is illiquid, and that’s the physical auctions as well as the digital auctions, and so it’s just really hard right now to determine what fair pricing is. We were guiding towards a negative 5% to 7% in used vehicle prices. It could potentially go down from there, it’s just very difficult to know at this point. And so, we’re a bit in wait-and-see mode, and we think we’ll have a much clearer sense of used car prices once shelter-in-place orders are lifted and auction activity can resume at more normal levels. Keep in mind, we are providing lease extensions to our customers, and that helps to manage the supply dynamics relative to demand, and we think that overall positions the market to be stronger as well. But it’s a really important focus area for us, and I think this is one of those areas to be determined as we go through the next couple of quarters.

How did that play into 1Q numbers?

First quarter, we didn’t really see any dynamics. I mean, we were kind of neutral in terms of linked quarter remarketing gains, and so it hasn’t yet materialized, Betsy.

Got it, thanks.

I think, Betsy, there’s other potential offsets and positive catalysts out there. Obviously we’re all waiting to see what happens to public transportation and does Uber usage, Lyft usage, subway, taxi, does that get negatively impacted and people have to now own transportation once again. That sector is likely to do it in the form of used, so all these are things that we’ve got to balance. I think as Jen’s pointing out, the short term dynamics are really just so choppy because there’s no liquidity in the market, and we’re just trying to be very thoughtful on what this implies go forward.

Got it. Fair point on wanting to own your own car, so thanks. Appreciate the color.

Yes, thanks Betsy.

Thanks Betsy.

Thank you. Our next question comes from Bill Carcache with Nomura. Your line is now open.

Thanks, good morning JB and Jen. It’s notable that ex-CECL, you guys were able to actually grow tangible book value per share sequentially, despite the big reserve build this quarter. But with your stock trading at less than 50% of tangible book value per share, I think some investors are struggling with their assessment of the downside risk to tangible book value. Can you offer some perspective on the historical ’08 - ’09 credit performance of Ally’s predecessor - you know, how high did losses get in retail auto, maybe discuss what changes are important to think about from a credit perspective to the business for back then versus what the business is like today? Then maybe just more broadly, any color that you could give us to maybe frame your confidence level and your ability to defend tangible book value under your current reasonable and supportable assumptions?

Yes, sure. Thank you for the question, Bill. It’s a really good one, and quite frankly, we can’t even get close to the valuation numbers that we’re seeing today. I shared with you in my prepared remarks that we would expect in a severely adverse scenario, where we’ve got persistent broad-based macroeconomic deterioration for some time, so think about an L-shape economy, we would expect then to hit loss levels of 2.5% to 3%. Today, if you look at our internal modeling relative to that severely adverse scenario, we’re reserved at about 70% of that here in Q1, and if you look at the Federal Reserve modeling which is significantly more punitive, especially on the commercial portfolios, we’re about 50%, so we feel like we’re appropriately and smartly reserved for what we’re experiencing today. You asked about ’08 - ’09. It’s a little bit different to get--difficult to get apples to apples just because we had a different portfolio back then, but we did see NCOs in retail auto hit about 3% for a very brief period of time and then reverse back down and normalize very quickly, within about six months or so. But relative to ’08 - ’09, relative to our severely adverse scenarios, we feel like we’re well reserved at this point. Now obviously a lot of unknowns in terms of what the shape of the economy looks like, the severity of it, but relative to past performance we feel that we’re in great shape. On your confidence question on reasonable and supportable, this is the question that is trying to be answered across every macro economist. At the end of March, we had built in what we think of 10/20 - that’s unemployment reaching 10%, GDP declining by 20%. It has deteriorated a little bit since then. In April, we’re at kind of 15/30, but there is a lot of ins and outs on our reserves. Moshe had asked the question on the forbearance program - none of the benefit of that is built into our reserve. We are expecting our balance sheet to come down, and that will give some offset to reserve build as well. I think our overall confidence is about as high as it can be right now, and we’ll continue to manage and monitor it as we go into Q2 and beyond.

The only thing I’d add, Bill, and Jen covered it perfectly, but if you think about the $6.5 billion, $7 billion discount to book - I mean, there’s not really a conceivable scenario that models that out. It’s been a sudden and aggressive move down, and we think through time and through our performance that will recover. That gives us a lot of confidence of upside to come.

That’s super helpful, thank you. If I could just sneak in a quick follow-up on your CardWorks comments, is it possible to discuss whether the seller is considering his option to walk away from the deal and whether Ally would be willing to incur the additional dilution to compel him to close the deal, or maybe just a little bit more to the extent that you can offer, a little bit more color.

Yes, I’d just say not going to really comment right now. I mean, we’re in the process. As I said in the prepared remarks, obviously Don and his team, and certainly Ally and our team didn’t expect the severe drop-off or fall-off in the economy to come, so we’re going through the process now. We’ll make the right decisions on both sides that are thoughtful for our shareholders and our customers for the long term. That’s really all we can say.

Thank you very much. Appreciate you taking the questions.

Thank you. Our next question comes from Rick Shane with JP Morgan. Your line is now open.

Hey guys, thanks for taking my questions this morning. Jen, in response to Betsy’s question, you talked about the historic or the prior assumption of a 5% to 7% decline in used car prices. When you look at your--and I appreciate the fact that you guys have provided an update on NCO guidance. What are you thinking in terms of higher loss frequency and higher loss severity?

Within our reserve and within that implied 1.8% to 2.1% retail auto NCO rate, Rick, we have embedded that we would have more material likely pressure on the severity side, as well as higher delinquency. It’s just pulling in past correlations that we’ve seen, so think about that already embedded into that reserve calculation. Then in terms of what happens with the lease portfolio with respect to yields, I think that’s the question that we’re going to have to answer over the next couple of months and quarters as used vehicle volume and demand starts to come back, as shelter in place orders are lifted over time, but that’s largely embedded in that severity.

So to put a fine point on this, you increased your severity assumption, which makes sense, but you have not explicitly changed your used car price assumptions, you’ve just generally assumed that severities are going to go up?

Yes, that’s a good way to look at it. I mean, if you’re assuming higher credit losses, it’s going to be a combination of frequency and severity, and whether or not that plays out exactly, we will see. At some point, it will merge with overall used car prices, and we’ll continue to update it when we have more actual data coming out of our auctions.

Okay, great. Thank you so much.

Thank you Rick.

Thank you. Our next question comes from Sanjay Sakhrani with KBW. Your line is now open.

Thanks, good morning. Appreciate all the commentary on reserves. A couple of clarifications. One, inside your CECL window, are you assuming any type of economic recovery? Then some of the banks that have reported up until now have talked about how the macro forecasts have gotten weaker since quarter end relative to that 10% unemployment rate, so how should we think about future provision builds and that assumption? I don’t know what your views are in terms of that.

Yes, sure. Good morning Sanjay. As we modeled reserves kind of end March time period, and the forecast that we had is more of a V-shape than an L-shape or a U-shape at this point in time, so we do have a bit of a recovery starting in Q3 and accelerating into Q4. Now, that being said, we have not modeled in any of the potential benefits from stimulus or from our forbearance programs, which are providing a lot more cash flow and flexibility around payments to our customers, so we believe that overall will be a net positive not included in our number. Also keep in mind that the size of our balance sheet is likely to go down which, in a CECL world, provides outside benefits as you move through the quarter. We’ve got to take a balanced view. The macroeconomic impact will materialize potentially as we go through Q2, but there are some natural offsets there as well, so overall we feel like we’re in a good position with our current reserve number.

Okay. Then when I think about CardWorks, I know you can’t really speak to whether or not that deal will be consummated. You guys are assuming it will. When we talked about the deal and the profitability of that business during the financial crisis, it was breakeven, I think, at its worst--at the worst point. In this backdrop with the accounting being what it is with CECL, should we expect worse than that? Could you just help us think through the implications on profitability for CardWorks, assuming the unemployment rates you are?

Yes Sanjay, look - I think CardWorks is similar to every other financial services industry right now. They’re focusing on controllables, what can they do to help their customers. They’re monitoring things very closely. As of first quarter, nothing has materialized relative to COVID-19, so it’s just really hard to say exactly how this is going to play out. I think JB said it perfectly - we’re in constant dialog with that team. We have a lot of confidence in their ability to navigate cycles based on it over the past 30 years, and we’ll continue to monitor and partner with them, but at this time, it’s just a little bit too early to be decisive on what exactly their profitability is going to look like. It’s difficult for us to do that for Ally as well, keep in mind.

All right, great. Thank you.

Thank you Sanjay.

Thank you. Our next question comes from Kevin Barker at Piper Sandler. Your line is now open.

Thanks. Just a follow-up on some of the CardWorks commentary. Is there any specific net worth covenants within--

Kevin, did you conclude your question there?

It appears Kevin’s line has dropped mid-question. One moment, please.

Operator, we can go to the next in the queue if Kevin’s line has dropped. We can come back to him or follow-up.

Understood. Our next question comes from Rob Wildhack with Autonomous Research. Your line is now open.

Good morning guys. I just wanted to go back to the deferrals and the forbearance. How has the velocity of those requests and approvals evolved since you launched the offering in March and into April?

Good morning Rob. I mentioned we were proactive when we rolled the program out, so what we saw is heavy, heavy velocity in the first two weeks of the launch, and in particular in the first week. Since then it’s plateaued substantially, so we’re seeing very modest tick-up over the last couple days, and even over the last couple weeks.

We do have a follow-up from Kevin Barker. Would you like to take the question?

Sure, go ahead.

Kevin, your line is now open.

Kevin, we lost you midstream there.

Yes, sorry about that. In relation to the CardWorks commentary, do you have any specific covenants around net worth of CardWorks at deal close, or if there is some other covenants around elevated impairments going into when the deal is closing, possibly here in the third quarter?

Yes Kevin, I would just direct you to the merger agreement, which is publicly available.

Okay, and then a follow-up on some of the economic scenario commentary. You have roughly-you were saying, what, 25% forbearance rates. Given your expectations out there for losses, what percentage of those to you expect to eventually go delinquent when it happens? And I--

Kevin’s line has dropped from the call once again.

Okay, we’ll follow up with Kevin offline.

Operator, it looks like we’re at the end of the call here - no more questions, so I’ll remind participants and anyone else to feel free to reach out to Investor Relations. We appreciate you joining our call this morning, and that concludes today’s call.

Thank you. Ladies and gentlemen, thank you for your participation on today’s conference. This does conclude your program and you may now disconnect.