Earnings Call: Q1 2021

Apr 16, 2021

Good day and thank you for standing by. Welcome to Ally Financial's First Quarter 2021 Earnings Conference Call. At this time, all participants are in listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference may be recorded. I'd now like to hand the conference over to your speaker today, Daniel Eller, Head of Investor Relations. Please go ahead. Thank you, operator. We appreciate everyone joining us to review Ally Financial's Q1 2021 results. This morning, we have our CEO, Jeff Brown and our CFO, Jen LeClaire, on the call to review our results and then take questions. Before beginning, I'll note the presentation we'll reference can be found on the Ally Investor Relations website. And on Slide 2, you can Find forward looking statements and risk factor language that will govern today's call. And on Slide 3, we've included several GAAP and non GAAP or core measures pertaining to Ally's operating performance and capital results. These metrics are supplemental to and not a substitute for U. S. GAAP measures. With that, I'll turn the call over to JB. Great. Thank you, Daniel. Good morning, everyone. We appreciate you joining us this morning. We recognize it's a busy morning with a few of us out with results. So we appreciate you being here. I'm going to begin comments on Slide number 4. As we convened this call a year ago, we were obviously in the early days of the COVID-nineteen health crisis It has taken the lives of many loved ones, altered everyday norms and shed an unfortunate but necessary light on growing economic disparities. Today, through the diligent work and coordination across health and public sectors, Vaccine rollouts are accelerating, providing increased reason for optimism in our ability to contain the spread of this deadly virus. Likewise, early signs of a broad based economic reopening in the U. S. Continue to emerge, Evidenced in the outlook for strong GDP growth, ongoing gains in employment levels and expanding consumer confidence and spending. We've also seen increased focus and action across the private sector in addressing income disparity And underlying systemic racism, even though more work remains to be done in the years ahead. Over the past many months, I've expressed the view on several occasions that Ally would successfully navigate the complex environment and emerge stronger than before By relying on a consistent set of values and executing, Ally's 1st quarter operating and financial results Put meaning to these words, demonstrating the value we are building for all of our stakeholders as we deliver on our mission to do it right For our customers, employees and communities, Ally's success has always been defined By our relentless customer focus and the vibrancy of our culture. Over many decades, we have built dominant, Adaptable businesses within the auto and digital banking ecosystems firmly centered around our customers. Efforts to build the largest auto and digital bank platforms have underpinned significant and sustained financial improvement and enabling us to capitalize on market opportunities in real time, which Jen will talk about in detail this morning. Our purpose to help customers achieve their financial goals through seamless, innovative financial products and services is evident in everything we do and was paramount throughout the pandemic shown in the rollout of our comprehensive relief programs And access to credit, we provided to all of our consumer and commercial clients. Maintaining our culture has always been a top priority, centered around an environment of inclusivity and protecting the well-being of our employees. Over the past year, this approach has taken on a variety of new forms, including expansion of health, family and financial benefits for our people, Dynamically adjusting to virtual and hybrid work environments and relying on our employee resource groups to facilitate crucial conversations And connect with each other as we confront the disturbing realities of systemic racism and disparate treatment among black, Brown and most recently, Asian communities. I'm immensely proud of how our Allied teammates have responded to each of these challenges, Remaining dedicated during times of great uncertainty and instability, while consistently going above and beyond to deliver for our customers. For the 2nd year in a row, we granted all employees with 100 shares of Ally stock, referred to internally as the Own It Grant. Through this action, we are acknowledging the significant contribution Each of our employees continues to make while embedding an owner's mentality across the entire organization. On social and community causes, we've expanded our ability to drive impact across our leadership team and through the Ally Foundation and Office of diversity and inclusion. During the quarter, we marked our 15th year of partnership with the Thurgood Marshall Foundation By increasing scholarships and grant monies focused on improving access to public policy and financial service industries. Each of these critical components contributes to our ongoing success and generates long term value For all of our stakeholders, there is excitement at Ally in the success we've generated and the path in front of us As we continue to further leverage our scale and expertise in meeting the needs of our now 9,000,000 and growing Ally customers. Turning to Slide number 5. 1st quarter adjusted EPS of $2.09 Core ROTCE of 24.1 percent and revenues of $1,900,000,000 Each represented record setting levels for Ally, reflecting organic and diversified revenue expansion. Within auto finance, consumer originations of $10,200,000,000 represented our highest level in over 5 years At a healthy 7.2 percent yield, while the credit performance remains solid. These are powerful examples of our market leading capabilities and ability to execute on our strategic priorities. Overall demand for new And used vehicles was robust during the quarter, while competition remained balanced but intense. Industry inventory levels Reached multi decade lows as sales trends were strong and we began to see the early impact of constrained OEM production Due to chip related shortages, these dynamics provided structural support for used car values, which remained at or near record highs. Within insurance, written premiums of $333,000,000 moved higher year over year And investment portfolio revenue trends remain robust. Turning to Ally Bank, the trend of organic And accelerating growth continued in the quarter. Retail deposits ended at $128,000,000,000 Including customer expansion of 14%, extending the trend of double digit year over year growth every quarter Since launching Ally Bank in 2009, Ally Home originations of $1,800,000,000 grew nearly 2.5 times Compared to the prior year period, 45% of originated volume was sourced from existing deposit customers, highlighting our organic opportunity to build increased scale in this core consumer bank product. Ally Invest self directed customer assets of $14,500,000,000 expanded 93% year over year, Reflecting customer inflows and market activity. The team showed resiliency and dedication in a choppy environment, Generating steady customer growth and supporting historically elevated daily trading activities. Ally Lending performance was strong during the quarter as we generated $211,000,000 of volume, nearly a 3 fold increase year over year. We expect to officially launch our retail offering here in the Q2, enhancing our ability to sustain our momentum In this rapidly growing market, Corporate Finance financial results were solid, generating strong syndication income And $1,800,000,000 in loan commitments, our highest first quarter ever. The outlook for each of these businesses reflects years Steady execution and ongoing discipline, which positions us to achieve our near and long term financial and strategic objectives. On Slide number 6, trends on the top of the page highlight our ability to generate strong earnings and revenues and indicate the rapid resumption of the improving financial trajectory we were on entering 2020. As we've highlighted in the past, we are not overly focused on quarter to quarter trends, which we expect will not always move in a linear manner As our focus is centered on long term value enhancement. On the bottom right, tangible book value per share of $36.16 Increased quarter over quarter and year over year to our highest level on record. Values, Culture and disciplined execution will continue to underpin our approach as we build upon our momentum in the years ahead. Thank you. And with that, I'm going to hand it over to Jen to go through the detailed results. Thank you, JB, and good morning, everyone. I'll begin with a few broad perspectives on our leading differentiated capabilities that have positioned us for the future and allowed us to generate a strong first quarter, including our highest PPNR and operating income. Starting first within our Auto segment on Slide 7, We've built an agile and resilient business delivering comprehensive products and services. Our market leadership has grown consistently over the Past decade, including an over 50% increase in dealer relationships to 19,000 and application volume at the highest levels In Ally's history, our broad based distribution across emerging and traditional dealers provides us real time insight The powerful combination of our highly skilled field teams and evolving technology platforms, including auto decision capabilities, ensure we deliver a streamlined experience to a broad range of dealers and Over the past year, we have deployed several digital consumer portals and converted to a modernized retail auto servicing system, Evidence of the end to end enhancements and data driven approach. Turning to the industry, Personal vehicle ownership offers critical utility to consumers reflected in the large, resilient and growing auto market. Ally has a lengthy track record of adapting to shifting market dynamics, including a seamless transition to increased used vehicle demand, a trend we expect to continue. And while recent credit trends have been positively impacted by stimulus, Auto consistently ranks near the top of the consumer payment waterfall, a trend that has persisted across several cycles, reflecting the strong value of this secured asset class. Turning to Slide 8, Several years of steady broad based consumer adoption of digital banking accelerated in 2020 as demand increased for personalized experiences Delivered seamlessly and instantly. As the largest all digital bank in the U. S, Ally is uniquely positioned to benefit from this Ongoing evolution. We've consistently grown retail balances and customers at LA Bank for 48 consecutive quarters and are increasingly leveraging this success as the gateway to our rapidly expanding mortgage, invest and point of sale offerings. The strong growth trends across each of these relevant and core consumer bank products demonstrate the meaningful expansion opportunity ahead. Let's turn to Slide 9 to review detailed results for the quarter. Net financing revenue excluding OID of 1 point $382,000,000,000 represents our highest quarterly level, increasing 5% linked quarter and 20% year over year. Performance was driven by sustained auto pricing trends and strong used car values, ongoing funding cost declines and benefits associated with redeployment of excess liquidity. Adjusted other revenue of $548,000,000 reflected another solid quarter Provision expense reflects the combined benefit of a modest reserve reduction given ongoing economic improvement and strong consumer payment activity. Retail auto charge offs reached the lowest level since 2012. Non interest expense $943,000,000 reflected a continued focus on essentialism across the enterprise as well as investments in business growth and new capabilities. We generated $1,000,000,000 of core pretax earnings this quarter, driving GAAP and adjusted EPS of $2.11 and $2.09 respectively, a resounding testament to several years of diligent focus and execution. Moving to Slide 10, net interest margin excluding LID was 3.18%, an increase of 26 basis points linked quarter and 50 basis points year over year. These results highlight Ally's unique and embedded tailwinds that will drive Ongoing NIM expansion over the next several quarters. Earning asset yield of 4.44 percent improved 10 basis points quarter over quarter, reflecting resilient retail auto pricing trends and origination volume, strong lease portfolio yields from elevated used car values As vehicle inventories declined from solid demand and slower production trends and the associated benefits of redeploying excess liquidity Based on strong demand trends, We now expect retail origination yields in the 7% range throughout the remainder of the year. And given ongoing production uncertainties, We see used car values increasing in the mid single digits for full year 2021. Average earning assets of $176,000,000,000 moved slightly lower quarter over quarter as dealer floor plan levels declined and mortgage prepayments remained elevated. Notably, we generated growth across all of our remaining loan and lease portfolios during the quarter. Cost of funds improved 17 basis points, the 7th consecutive quarter over quarter decline, reflecting improved deposit costs Let's turn to Slide 11. Total deposits ended at 140,000,000,000 Retail growth of $4,000,000,000 was fueled by existing customer balance growth and inflows from 83,000 new customers. Customer trends were strong across all measures. Retention remained industry leading at 96%. Customer growth from younger generations early in their financial journey with a higher propensity for digitally based products Represented nearly 70% of new customers and multi relationship customers shown in the bottom right grew to 8%, representing the 16th consecutive quarter of growth. Turning to capital on Slide 12. CET1 ended the quarter at 11.1%, reflecting strong earnings and slightly lower risk weighted assets. Earlier this week, we announced the Q2 common dividend of $0.19 per share, and we resumed our share buyback program in Q1, Executing $219,000,000 of repurchases, we remain on track to achieve our 1,600,000,000 Board authorized plan during 2021. With the SEB framework set to go into effect beginning July 1, Ally's strong capital levels and earnings trends position us well moving forward. Our approach to capital deployment remains consistent, centered around investing in growth opportunities across our businesses, delivering innovative and differentiated products and driving long term shareholder value. On Slide 13, asset quality remains very strong. Trends across our consumer and commercial portfolios were resilient As consolidated NCOs of 41 basis points represented less than half the prior year level, Retail auto portfolio trends improved considerably quarter over quarter and year over year as charge offs of $97,000,000 or 53 basis points Reflected solid consumer payment trends and improved loss given default rates. Aiding these results were the benefits In the bottom right, early and late stage delinquencies ended meaningfully below prior year levels, a positive leading indicator for near term loss trends. Turning to Slide 14. Consolidated coverage remained relatively flat at 2.79% As retail auto and Ally Lending balances grew and floor plan balances, which carry significantly lower coverage levels, declined, Retail auto reserves of $2,800,000,000 moved modestly lower, reflecting favorable credit trends and improved macroeconomic indicators. Our model forecast assumes gradually improving unemployment through the end of this year, ending at just above 5%. And while we are encouraged by underlying trends across our portfolios and early signs of economic improvement are beginning to emerge, We remain well positioned for ongoing uncertainty. We believe we are carrying sufficient reserves should NCOs exceed normalized levels due to the pandemic related activity. Let's turn to Slide 15 to review Auto segment highlights. Net financing revenue expanded quarter over quarter and year over year from ongoing strength in our retail and lease portfolios. Retail trends shown in the bottom left demonstrate the consistently strong origination and portfolio yield trends where risk adjusted margins continue to expand. And in the bottom right, per unit gains maintained strong overall levels, leading to $64,000,000 in overall lease gains. Our focused and differentiated approach to meeting the needs of our dealers and customers drove $803,000,000 from pretax income for the segment and improved risk adjusted returns. Origination and auto asset trends are on Slide 16. We have continually provided broad access to credit for consumers, utilizing our disciplined and dynamic underwriting approach, while maintaining consistent FICO and non prime trends. Auto originations of $10,200,000,000 in the quarter increased $1,100,000,000 year over year and represented our highest Q1 in a decade. In the bottom left, ending consumer assets expanded to $83,800,000,000 With growth across retail and lease portfolios. On the bottom right, average commercial assets ended at $21,300,000,000 as inventory levels reached a 10 year low. We expect floorplan balances to remain low for the next several quarters, reflecting strong demand for vehicles and persistent chip and component shortages that are likely to weigh on factory output. Turning to insurance results on Slide 17. Core pretax income of $130,000,000 Increased sequentially and year over year. In the bottom left, consistent investment portfolio growth creates a diversified revenue stream and enhances Written premiums of $333,000,000 reflected strong F and I trends, and we generated the highest Monthly level of vehicle service contract sales since 2013. While we've seen a steady rise in extreme weather events over the past several years, We have mitigated our exposure through reinsurance and renegotiated our policy for 2021 at favorable economic terms. Turning to corporate finance details on Slide 18. Core income of $48,000,000 reflected quarter over quarter asset expansion, Strong syndication and investment income and stable credit trends. HFI ending balances of $6,300,000,000 increased linked quarter, while the year over year decline reflected elevated draw activity observed early in the pandemic. Loan commitment volume of $1,800,000,000 Represented the highest Q1 on record and our 3rd highest quarter ever. While utilization levels remained low in the quarter, We're well positioned for loan growth moving forward. We are confident in the strength of our portfolio, evidenced by sustained credit performance and the continued increase in asset based loans, which now comprise 52% of our portfolio, up from 25% in 2014. Mortgage details are on Slide 19. Pre tax income for the segment of $23,000,000 grew quarter over quarter year over year as gain on sale economics remain strong, More than offsetting the ongoing impact of elevated prepayment activity, direct to consumer originations of $1,800,000,000 was our highest Quarterly volume is launching in 2016. Existing deposit customers represented 45% of volume in the quarter, demonstrating the high quality nature of our engaged customer base. We see a steady path to $10,000,000,000 in originations over the next Couple of years as we build scale for existing and new customers. Our all digital offering allows customers to complete an application in 5 minutes and lock their rate in 10 minutes. On Slide 20, we've included a refreshed view of our financial outlook Given the strong results we've delivered in Q1, we now expect ROTC expansion into the mid teens to accelerate into 2021, Excluding the impact of reserve release, our long term returns will be driven by ongoing momentum across our businesses, Embedded balance sheet tailwinds and organic growth across our product offerings, revenue growth and disciplined expense increases We'll lead to improved PPNR and operating leverage in the 10% range for 2021. NIM expansion to the low to mid-three percent range will drive net financing revenue growth in the 20% range year over year. We continue to embed a consistent expectation for steady other revenue growth sourced from our broader set of consumer offerings and ongoing insurance activities. And as we've noted in the past, we have been modest investment gains in our forecast, though we remain opportunistic and disciplined in our approach. We're proud of the value and growth generated across all our businesses, driving near and long term benefits for our stakeholders. I'll close by reiterating the gratitude and pride I have in our Allied teammates who drove our results and positioned us for success over many years By doing it right for our customers, communities and shareholders, with that, I'll turn it back to JB. Thank you Very much, Jen. I'm going to wrap up with a few comments on Slide number 21. I want to express my gratitude And the deep sense of pride I have in leading this great company. Our results this quarter are impressive, but our broader purpose and cause to serve our customers And communities is what defines the long term success that remains in front of us. I'm entirely confident in our ability to navigate and win Through a variety of environments and market backdrops, and I think if you look at the past several quarters, we're really hitting on this point. And we're going to continue to execute with a focus on the same values and priorities that have served us really incredibly well over the past several years. So Really strong quarter. We're proud of the results. Jen and I and Daniel are super proud of the team. It was really across the board outperformance, but importantly is The outlook that lies in front of us just got a lot to go here, and we're really proud of that. So Daniel, with that, I'm going to hand it back to you and we can dive into Q and A. Good. Thanks, J. B. Operator, you may begin the Q and A session. Please stand by while we compile the Q and A roster. Our first question comes from Bill Karkesh with Wolfe Research. Thank you. Good morning, JB and Jen. The NIM outlook Good morning. Good morning. The outlook seems to keep getting better. Can you parse out for us how much of the improvement is coming from various drivers, including the scaling of And maybe if you could speak to the sustainability? Yes, sure. I'll jump in, Bill, and good morning. Yes. Our NIM outlook continues to be very strong evidence in this quarter and ongoing through 2021 and beyond. I'm on here on some of the key drivers. On the asset side of the balance sheet, we have continued To outperform pricing expectations and retail auto origination flows, if you look at just this quarter, the 10 point $2,000,000,000 in retail auto originations coming in above 7% yield. And we're now expecting 2021 to have our 4th Consecutive quarter of new origination yields at that 7% or above. So that's a big driver of sustaining the asset yield over time And then potentially even growing that a bit. And I would offer just some of the other drivers there. Our Ally Lending Our portfolio continues to grow. That's coming in at a nice yield, and we continue to see opportunities to put cash to work in loan growth across other categories So great trajectory on the asset side. And then on the life liability side, really, 2 drivers there. One is the continued optimization of pricing within our deposit portfolio. So you see the roll forward on the OSA, But we still have CDs rolling down. We'll have another kind of $9,000,000,000 this year rolling off at over 150 Basis points down to under 1%. So really nice continued trajectory within the kind of the deposit business. And then you have the mix shift as we roll down other funding sites, whether that's FHLB continuing to roll down or broker deposits rolling down. We'd expect another several quarters of reduced cost of funds. So that kind of wraps it up. I think we're well on our way. And I think I started on Pages 7 and 8 just talking about how this is really 10 years in the making and what we're really experiencing in 2021 and beyond is just a roll Forward of the strength we have in all of our dominant businesses and then to your point in some of the newer segments as well with L. A. Lending and L. A. Home. That's helpful. Thanks. And Jen, I wanted to follow-up on your comments around capital. How important do you think the new SCB framework is to getting To your target level of capital relatively quickly, maybe you can just frame for us what kind of trajectory we should expect it for it to take For you guys to get back down to that sort of 9% CET1 range. Yes. So a couple of things I'd say. Just in the near term, we're not really limited by Couple of things I'd say. Just in the near term, we're not really limited by the extension of the repurchase, the 4 quarter earnings set Or even kind of the dividend cap just because earnings are so strong. We'll have about $500,000,000 in capacity in terms of repurchases. So Continuing to like our trajectory towards that $1,600,000,000 program that's or up to $1,600,000,000 that our Board has authorized. And then, Bill, we like the SCB framework just because it gives us more flexibility around distribution. Right. Honestly, we would be revisiting capital distribution even without the FCD framework. But Again, anytime you have more flexibility in how you distribute capital, that's a net plus for us. And then as we look at Our total capital levels were over 11%. We do expect that to come down. Quite honestly, it's going to take some time. We'll execute our current program and revisit opportunities starting first with customers and growing our businesses, and we'll look at Access capital through repurchases and potentially increases in dividend as well. So it's but honestly, Bill, it's going to take some time for that 11% to roll down to 9%. Understood. Very helpful. Thank you for taking my questions. Thank you so much, Bill. Our next question comes from Ryan Nash with Goldman Sachs. Hey, good morning guys and congrats on a really outstanding quarter. Brian. Good morning. So J. P, you talked in December about the need for OEMs to pick up production. Now we're obviously going through this Global chip shortage and Jen mentioned you expect floorplan balances to remain low for the next few quarters. Can you maybe just talk about what you're seeing there? And Do you think we've actually bottomed on balances? And maybe can you just talk about growth outside of dealer? Can we see mortgage start to level off as we start to see prepayment Speed slow and just how are you thinking about growth for the other asset categories on the balance sheet? Sure. Jen, you want me to start? Sure. Yes. So why don't on the OEM point, yes, we've been fairly Zocal on this for a while. I mean, first, you had the impacts and implications of COVID and factory shutdowns. And so already, we're running Pretty light inventories. And then there's been a variety of factors that have kind of exacerbated problems here, chip shortages, Trucking shortages, Texas weather events and it's pretty amazing how some of these kinks in the supply chain can really further disrupt. And so Production is slowly starting to improve. But similar to Jen's last comments on capital, I think it's going to take a while Before this really gets normalized. So I suspect we're at or around the bottom on floor plan, But I don't see balances really meaningfully rising until probably the back half of this year So that's probably one of the weak points overall right now. It's a bit out of our control. But obviously, as We're pointing out this leads to really strong used car markets. And obviously, we've been Originating north of 50% and used for quite some time here. And so I think our positioning in the business is holding really well. But it's going to take some time before inventory gets back up. And I do also think a bright spot is consumers want to spend. I mean production led us hitting dealer lots. And in fact, I was on the phone yesterday with Rick Hendrix and talking through Kind of what they're experiencing and new cars would hit any of their dealers. And Brick's got about 100 stores. I mean, they're selling within a day or 2. And so You've got this slow production, but pretty vicious and aggressive demand out of consumer. So it's just going to take a while But as you point out, some of the growth businesses are being a nice offset to that. And I think As we do look at, it's been a pretty aggressive refi environment and mortgage environment. But as Jen highlighted, we Feel like we've got a path to really ramp up originations there. So there are certainly offsets in the balance sheet that can enable us to Continue to grow. Jen, what else would you want to highlight? Yes. I mean, the only other thing I think you can great job. J. P, the only other thing I'd highlight, Ryan, is The auto inventory phenomenon is really demand driven. It's not that like in credit cards and other consumer asset class where You're seeing slowdown in demand. So I think that's a net loss as we think about the consumer. And then really for Ally, it's a win either way. If we continue to see inventory levels lower than expected, we see the offset in used vehicle pricing as well as In terms of benefits to LGD and our loss estimates. And then if we do see inventory pickup, We can put cash to work and grow NII and NIM from that. So net net is kind of a win win either way. Great. And if I could ask one follow-up. When I think about all the pieces that you move through, Jen, on the net interest margin. It feels like you have a lot of levers with upside to auto yields, securities yields expand their cash deployment as also funding levers. So it feels like getting to that mid-3s should be more than achievable. Can you maybe just talk through if we do start to get higher rates as the market seems to be pricing in, can you just talk about The sustainability to those margin trends and if we are to get a margin in the mid-3s, could we maybe even have some a little bit of Yes, sure. And I think you hit on it, Ryan. I mean, number 1, this is Pretty much baked, and it's reflective of Pages 7 and 8, right? We've been at this for 10 years, and it's largely Roll forward at this point in time. And as we think about rates potentially rising kind of back half of 'twenty two and into 'twenty three, we do see that, that's Sustainable. I mean, we think deposit betas will move pretty slowly. We do see continued opportunities to Optimize yield and flows in the retail auto space as well as our new businesses coming online as well as, as you point out, the ability to redeploy cash into investment securities at higher rates. So number 1, absolutely, this is kind of roll forward. Number 2, even in a rising rate environment, we see NIM expansion. And then number 3, we kind of debated the size of the plus in our 2021 guide On Page 20 here, to your point that, yes, there is opportunity to outperform and it's kind of across the entire income statement. It's revenue growth as well as outperformance on credit as well. Got it. Thanks for all the color. Yes. Thank you, Ryan. Thanks, Ryan. Our next question comes from Betsy Graseck with Morgan Stanley. Hi. Two questions. First, more technical on funding. We were just going through that. But could you ever imagine getting to 100% deposit funding? Would that be something that you would want to do? Or will you always keep a little bond out there just to keep that channel open? Yes. I mean, I think Betsy, we want to be diversified in terms of our funding mix. And We really like the trajectory we're on in terms of continuing to increase that percent of deposits, but we'd always want to have some access to market funding just from And we do still have the opportunity kind of within the 4 walls of deposits to bring down that brokered Deposit percent year over year is down about $5,000,000,000 or so. Okay. And then Bigger picture, when I talk to my colleagues on the auto side and the auto team here, we're always talking about what's going on with EVs And how that industry is under such pressure from investors to get more green and climate friendly and blah, blah, blah. So I'm just wondering, I'm sure this is something that's in your discussion and your boardroom conversations. How are you thinking about the EV push? How are you thinking about how you're positioned for it right now today? Anything you need to do For or with your dealers to migrate, and anything you can help us understand as to what you're doing on this front? Yes. So Betsy, appreciate the question. And absolutely, this is a really important discussion across the industry Our boardroom and our management team. And as we think about EV, we think we're really well positioned, right? We are underwriting both Loans, leases and insurance for vehicles no matter what kind of vehicle they are. And so as EV becomes a bigger percent Of the market, we are absolutely positioned to take advantage of that, and we kind of hit our highest level of EV originations this quarter. So we will continue to grow with the market. We think we're really well positioned. And I think in terms of capabilities, I think we're pretty much there. Probably, we'll Learn a bit more as we continue to underwrite these types of vehicles, understanding LGD, understanding on the insurance side, Kind of what do claims look like, but I think we're really, really well positioned. And JB, Yes. Again, I think you hit the high points. I mean, Betsy, obviously, you're aware of a lot of the OEMs are pointing to kind of 2,035 is a pretty big inflection point. And obviously, we still think vehicles are going to get largely distributed through the Traditional dealer network today. So I think as Jim points out, we're really well positioned. We want to help lead in that regard. Obviously, it's an interesting space. Yes, we've gotten a couple of questions on how does this longer term impact used car prices With the underlying assumption that EV autos have longer shelf lives, so to speak, than Combustion vehicles, is that some I mean, I know that's like a second or third order effect relative to where we are today Incredibly hot demand for auto is just writ large, but is that something that you guys have talked about? And do you think that that's a fair statement that Evie's shelf life is longer? Yes. Betsy, I think it's still to be determined. I think the technology is Still evolving right now, and I think we'll learn more. And that was kind of my point around understanding LGD, Just trying to understand kind of what does this look like over time. And I think we're still in the early innings. It's about 1% of vehicle purchases right now. So we'll learn over time. And in the meantime, the demand for cars is still extremely hot, obviously. And so from that last question there, do your Dealers have any line of sight for when they think demand today is going to be fulfilled? I mean, how many Months, quarters, years, is it to get that demand fulfilled in the current space? Do you have a sense of that? Betsy, yes, interesting question. I mean, we saw strong demand for vehicles prior to COVID. And I think if anything, COVID, as we've been talking about the last Several quarters has really accelerated personal vehicle ownership. And I think this is going to continue to be a strong area For the consumer, and it was before COVID and will continue. So we don't see this stopping anytime soon. And one of the data points we shared Kind of early in the deck is just how big this market is. So even if you were to see overall consumer demand wane a bit, it's still a large market and it's fairly fragmented. So In spite of kind of changes in consumer trends, we think we have a lot of ability to continue to originate in that $35,000,000,000 to $40,000,000,000 range at And dealers are feeling really, really good right now. Obviously, pretty big margins they're making on cars just From the lack of available inventory, so really good time for them. Okay. Thank you. Thanks, Betsy. Thank you. Our next question comes from John Pancari with Evercore ISI. Good morning. Hi, John. Good morning. Hi, Jen, I think you just referenced in your tail end of your response there that Origination range of 35% to 40%. Is that kind of how you're thinking about the full year originations at this point in auto? I mean, how Close to the 40 could we be and could we even be above that just given the demand and given the inventory dynamic that you So Alf, on the new side, could we be looking at originations potentially above that 40? Yes, John. We don't have any caps, it will be opportunistic, I'd say, out of the gate here in 2021, really strong flows, strong pricing. And Here headed into Q2, same trends continuing. So we could be closer to that $40,000,000,000 than the $35,000,000,000 And If we get above that, it will just be market dependent. But you saw here in the Q1, we had our highest app flow in the history of the company. We The highest number of dealers, and so we really like what we see coming in, and we'll just be opportunistic. Okay, great. Thanks. And then separately, on the ROE side, I heard you in terms of the upside potential, Potentially to the 15%, you specifically mentioned 2021, in terms of sizing up the size of the plus Could there also be upside potential to your thoughts around 20222023? Or is the abating benefit of Credit leverage likely to limit that upside potential for those years? Yes. John, 20 20 2, 2020 And this environment seems pretty far out there, but we do have high confidence in that 15% number, and we Have that confidence because we're not embedding any reserve releases, and we're assuming that retail NCOs hit that kind of normalized 1.4% to 1.6% range. So could there be upside to that? Absolutely. I mean, we're sitting here in the Q1 53 basis points of retail auto NCOs, and so we'll see how the path continues in actuals and Strong leading indicators there as well. So we'll see, but the high confidence is around the fact that we have not embedded really aggressive assumptions On anything, whether that's revenue driven or NCO credit related. Got it. Okay. Thanks, Jen. Thank you, John. Our next question comes from Moshe Orenbuch with Credit Suisse. Great, thanks. Most of my questions actually have already been asked and answered, but maybe we could drill down on a couple of the topics That you've talked a little bit about. I think the ability to achieve these over 7% origination yields has been Really impressive. And maybe you could kind of just talk a little bit more about some of the specific Strategies that you've used and related to the fact of competitive developments that are going on in the industry On your side of the industry right now being in the lending industry. Yes, sure Moshe. Good morning. What I would say is, Look, this is a strong market and we have strong capabilities in the market. And if you look at the market, it's large, it's growing. No competitor has kind of over 10% market share, and so there's still a lot of room for us to find opportunities. And then relative to our capabilities, a number of things I'd point out. One is the relationships we've had literally over decades. You see not only dealer count continuing to grow, but engagement across those dealers is growing. As you think about kind of app Per dealer and we have, we think, significantly more opportunity there, especially on the engagement side. And then 2nd, continuing to evolve our capabilities, and that takes a number of different forms. It's how we deliver our products through digital Means we've continued to help our dealers transition digitally. We've continued to lean into used As I've talked about for several quarters, and so just staying focused on our customers, focused on delivering for them, adding New capabilities to be successful for our end consumers and our dealers and just continuing to find that opportunity. And As you pointed out that 7%, this will be our 4th year in a row of putting yields on the books kind of in that 7% range. All right. A follow-up is about the questions around that you addressed it in the last question and a couple of the others about the Sustainability of returns post this year. And I guess, maybe are there steps that you're taking In a year like this where obviously the level of earnings, whether the ability to reduce the equity base, How important is that in the ability to sustain better than 15% returns and any other steps that you're taking during 2021 that you'd share with us? Thanks. Yes. Sure, Lesha. I mean, it really starts with our businesses. So we are continuing to invest And differentiated capabilities, not across auto, it's across our deposit franchise. Those capabilities reduce price elasticity Across the board and allow us to continue due to our strong pricing position, deliver that NIM expansion, Continuing to invest in our newer businesses, which are really starting to accrete return here in 'twenty one And growing into 2022 and 2023. And so you see volumes up in our direct to consumer mortgage space and Lot of opportunity there. We've talked about that $10,000,000,000 number, but with our leading digital capabilities, I think there's a lot of market share opportunity. Ally Lending continues to grow. We're investing both in human capital as well as digital capabilities there. And then corporate finance as well continues to accelerate. And so absolutely, we're taking measures across Every one of our businesses to remain competitive, remain differentiated. And then as we think about capital deployment, We are in good shape to execute the $1,600,000,000 of share repurchases. We'll continue to find other opportunities Organically or inorganically to deploy capital accretively. And we see equity coming down, but it's not it's going to take some time to get there. Great. Thanks and congratulations. Thank you, Moshe. Our next question comes from Sanjay Sakhrani with KBW. Thanks. Good morning and Great quarter and good job. Question on the ROTCE. Again, I know we get a lot of questions on it, so I figured let me just get in on that. Jen, I know you mentioned it's ex reserve release and you talked about continued strength in the NIM and you're not even being aggressive on revenue expectations. So maybe just taking the other side of that, where are the risks to not achieving those targets in the 2021, 2022 period outside of The economy is sort of changing gears. Yes. So Sanjay, you asked this question last quarter, too. So let me kind of reiterate, not too Much has changed since then. But within kind of the four walls of Allied, there's not too much that can go off the rails. I mean, we talked about kind of the 10 years of continuing to build dominant businesses on both sides of the balance sheet and much of that NIM trajectory is largely based. I mean, about 85% of our retail auto books are already at that 7% yield. So that migration up to the 7 We're kind of there and we're seeing opportunities to sustain that and then some. And then on the deposit side, we've talked a lot about Just the continued growth there and as we grow both balances as well as digital capabilities, the beta on that business is going to continue to decline. And so a lot of what we're seeing in the NIM is baked. And then our new businesses are continuing to accelerate. We're operating in a digital world and consumers are not only working from home, they're banking from home and every single one of our new businesses hit record this quarter. And we don't see any of that slowing down in 2021 and beyond into 2022 and 2023. So to your question, The risk, I really think, are exogenous. I think it's continued regulatory changes, potential changes in the economy, whether that's Inflationary driven change that could change consumer spend or have some kind of additional kind of economic shock And then taxes, I mean, to be determined on the tax rate, I think we're well positioned relative to tax changes. But I really think any kind of risk to the trajectory are going to come from outside the Fort Walton Palace. Got it. And follow-up question is on the dealers. You obviously have increased the penetration of that dealer to and the dealer count is Really high at this point. I mean, could you just talk about the runway for growth from here, whether it's penetrating those existing, the newer dealers that you're bringing on As well as just growing that dealer count from here. Yes, Sandhya, I think it's kind of all of the above. We're going to continue to grow Dealers, not both the newer entrants as well as traditional dealers. I think we're not as concerned about dealer counts, but more Quality of dealer relationships. I think we've shared in the past the vast majority of our dealers give us less than kind of 5 contracts per month, and we're looking to continue to increase dealer engagement and contracts by dealer. And then continuing to grow with those who are growing in the industry and some of that's traditional Kind of M and A led and some of that's just the growth of kind of the Carvanos and the new entrants. And so we see a lot of Our next question comes from Kevin Barker with Piper Sandler. Thank you. Just a follow-up Some of your loan origination yields, are you seeing any impact from increasing competition in the most recent quarter Given the reengagement of some banks in the auto sector or expansion of their credit box. And then Also, I want to follow-up to that. Are you seeing any additional competitive forces from more New entrants looking to do direct lending as opposed to establishing dealer relationships and so forth. Yes. So Kevin, I'll jump in and JB may want to add. But in terms of just the competitive environment, we have seen Some of the larger banks and regionals growing originations in this sector, and we would expect that to happen because it's a thriving market. What I would say is it's mostly on the two ends of the barbell. It's predominantly in super prime. And if you look at Pricing betas in the super prime are much higher than they are in the prime space in the belly of the curve. In fact, our price elasticity in that Over time, it's been really resilient. So we haven't really felt it in kind of the sweet spot of 620 to 720 FICO and in used. But I think it's something that we'll be managing over time. And then in the direct space, very small, Very small kind of impacts across the board, and we are well positioned. We have a direct product. Yes. So if the market does move towards more direct sales, we're well prepared for that, but not seeing a lot of movement there. Okay. Are you seeing any impact from more consumers buying cars, not on dealer lots, Just doing it online or directly and arranging your own financing or and I guess maybe that relates directly to your Direct lending comments as well. So if you can give me any thoughts on that. Yes. It's Kevin. I'd say yes on your first Question no on your second question. So the Carvana's of the world are absolutely growing and that digital Product is something that's taking off and even digital shopping and then fulfillment through the dealer is increasing. But on your second No, not seeing a lot of that at all. Financing is largely through the dealer. Thank you very much. Thank you, Kevin. The next question comes from Arren Cyganovich with Citi. Thanks. In the press release, you mentioned Ally Lending is going to have a retail launch in 2Q. Maybe you could just share a little bit about The launch there and expectations and what kind of product, I'm assuming it's point of sale, but Is it soft line, that kind of retail focus? Yes, sure. Good morning, Erin. So Ally Lending has been expanding into new verticals. And so we've originally purchased Ally's Health Credit Services and Has been very successful in the health vertical. We've since expanded into home and about 20% of our originations have grown over the last several quarters through that home launch. And to your question specifically, We're working towards launching the product in the retail space through our partnership with Sezzle, and we see a lot of growth opportunity. In This kind of retail is the largest point of sale market that we want to have a product. We have a great offering and we see growth opportunities and that's And I think we've probably talked about this in the past, but the Does it make sense to grow this organically or given the competitive environment for point of sale lending, does it make sense to maybe buy Something a little bit bigger and have a little bit more of a head start. Yes. Erin, this is kind of B2B2C, so it's fairly scalable organically, and we're demonstrating that, right? And we look at the We have a We can originate across kind of all verticals. And as we add partnerships onto the platform and merchant counts, We can scale this very quickly organically. I mean, that being said, we're always opportunistic Around accretive opportunities, but we really think this is an organic play. Great. Thank you. Great. Well, thank you, everyone, for joining in. That's all the time we have for today's Feel free to reach out to Investor Relations with any follow ups. And operator, I'll turn it back to you. Ladies and gentlemen, this concludes today's conference call. Thank