Ally Financial Reports Fourth Quarter and Full-Year 2021 Financial Results - Form 8-K

Full-Year 2021 Results

PRE-TAX INCOME

$3.9 billion

TOTAL NET REVENUE

$8.2 billion

ROE

20.2%

CORE ROTCE¹

24.3%

Fourth Quarter 2021 Results

PRE-TAX INCOME

$899 million

ROE

16.8%

COMMON SHAREHOLDER EQUITY

$43.58/share

CORE PRE-TAX INCOME¹

$994 million

CORE ROTCE¹

22.1%

ADJUSTED TANGIBLE BOOK VALUE¹

$38.73/share

•  Earnings per share (EPS) of $1.79, down 1% year over year (YoY); Adjusted EPS¹ of $2.02, up 26%YoY

•  Total Net Revenue of $2.2 billion, up 11% YoY; Adjusted Total Net Revenue¹ of $2.2 billion, up 17% YoY

•  Pre-Provision Net Revenue of $1.1 billion, up 16% YoY; Core Pre-Provision Net Revenue¹ of $1.1 billion, up 29% YoY

•  Common Shareholder's Equity per Share of $43.58, up 11% YoY; Adjusted Tangible Book Value per Share¹ of $38.73, up 7% YoY

•  Retail deposit growth of $3.1 billion quarter over quarter (QoQ) with average retail portfolio interest rate declining 4 basis points (bps) QoQ to 0.61%

•  Consumer auto originations of $10.9 billion, up 20% YoY

•  Closed acquisition of Fair Square Financial (FSF) in December 2021; $953 million of loan balances at year-end, up 66% YoY²

•  EPS of $8.22, up 186% YoY; Adjusted EPS¹ of $8.61, up 185% YoY

•  Total Net Revenue of $8.2 billion, up 23% YoY; Adjusted Total Net Revenue¹ of $8.4 billion, up 25% YoY

•  Pre-Provision Net Revenue of $4.1 billion, up 44% YoY; Core Pre-Provision Net Revenue¹ of $4.3 billion, up 47% YoY

•  Established leader in dealer financial services offering comprehensive suite of auto finance and insurance products

-   Estimated retail auto originated yield of 7.10% fourth consecutive year greater than 7%

-   Consumer auto originations of $46.3 billion, up 32% YoY sourced from a record 13 million applications

-   Retail auto net charge-off rate of 0.31%, down from 0.96% in 2020

-   Insurance segment generated written premiums of $1.2 billion across F&I and P&C offerings

•  Leading, digital-first Ally Bank platform generated strong growth across consumer and commercial product suite

-   Retail deposits of $134.7 billion, up $10.3 billion YoY; Retail deposit customers increased by 226 thousand YoY to 2.48 million

-   Ally Home® direct-to-consumer originations of $10.4 billion, up 123% YoY

-   Ally Invest net customer assets of $17.4 billion, up 24% YoY; Self-directed and Robo accounts up 11% YoY to 506 thousand

-   Ally Lending origination volume of $1.2 billion, up 147% YoY; 3.0 thousand merchants, up 37% YoY

-   Corporate Finance held-for-investment loan portfolio of $7.8 billion, up 29% YoY; Record full-year commitments originated of $7.3 billion

•  Board of Directors authorized up to $2.0 billion in common share repurchases for 2022, and increased quarterly common dividend 20% to $0.30 per share

Chief Executive Officer Comments

"In 2021 Ally strengthened its position as a leading, disruptive growth company, delivering record-setting results across our dealer financial service and digital-bank platforms," said Ally Chief Executive Officer Jeffrey J. Brown. "We generated the highest total revenue, PPNR and net income levels, added new product capabilities, and surpassed 10 million total customers across the wide array of Ally products. I'm incredibly proud of the 10,400 teammates who operate under a 'Do It Right' approach delivering differentiated products and services every day. The success we achieved in 2021 reflects years of focused execution resulting in growing momentum across our businesses and positions us well for continued dynamic operating environments.

"I'm equally proud of the actions we've taken in support of our customers, employees and communities during 2021. For our customers, we were the first in the industry to eliminate overdraft fees, while we increased minimum wage by 18% and expanded benefits for our employees. We also made considerable impacts within our communities through Ally Charitable Foundation donations and support. These actions, taken alongside our accretive capital allocation strategy, exemplify who we are as a company and the culture we've built as a team.

"We remain focused on executing against our long-term strategic priorities as we continue driving long-term value for all our stakeholders, evident in the growth of our businesses and the enhanced financial profile we expect to generate in the years ahead."

Fourth Quarter and Full-Year 2021 Financial Results

Net Financing Revenue (ex. Core OID)¹

Core OID

(a) Net Financing Revenue

Adjusted Other Revenue²

Change in Fair Value of Equity Securities²

Repositioning

(b) Other Revenue

Adjusted Provision for Credit Losses³

Repositioning

(c) Provision for Credit Losses

(d) Noninterest Expense

Pre-Tax Income (a+b-c-d)

Income Tax Expense

Net (loss) from Discontinued Operations

Net Income

Preferred Dividends

Net Income Attributable to Common Shareholders

3Q 21

4Q 20

GAAP EPS (diluted)

$(0.10)

Core OID, Net of Tax

Change in Fair Value of Equity Securities, Net of Tax

Repositioning Discontinued Ops., and Other, Net of Tax⁴

Significant Discrete Tax Items⁵

Adjusted EPS⁶

$(0.14)

Represents a non-GAAP financial measure. Adjusted for Core OID. Refer to the Definitions of Non-GAAP Financial Measures and Other Key Terms and Reconciliation to GAAP later in this press release.

Represents a non-GAAP financial measure. Adjusted for change in the fair value of equity securities due to the implementation of ASU 2016-01, which requires change in the fair value of equity securities to be recognized in current period net income as compared to periods prior to 1/1/2018 in which such adjustments were recognized through other comprehensive income, a component of equity.

Represents a non-GAAP financial measure. Adjusted for Day 1 activity from the Fair Square Financial acquisition.

Repositioning, net of tax in 2021 includes $131 million in charges related to loss on extinguishment of debt associated with the redemption of TRUPs as well as $97 million of provision expense related to Day 1 activity from the Fair Square Financial acquisition. 2020 is primarily related to a $50 million goodwill impairment within the Ally Invest business.

2021 effective tax rate was impacted primarily by a $78 million release of valuation allowance on foreign tax credit carryforwards during the second quarter of 2021.

Represents a non-GAAP financial measure. Refer to the Definitions of Non-GAAP Financial Measures and Other Key Terms and Reconciliation to GAAP later in this press release.

Fourth Quarter

Net income attributable to common shareholders decreased $63 million versus the prior year quarter to $624 million, as lower other revenue, higher provision for credit losses due to the acquisition of FSF and higher noninterest expenses more than offset higher net financing revenue.

Net financing revenue increased $351 million versus the prior year quarter, due to lower funding costs, the deployment of excess liquidity into higher earning assets and reduced premium amortization.

Other revenue decreased $133 million versus the prior-year quarter, including a $21 million increase in the fair value of equity securities in the quarter, compared to a $111 million increase in the fair value of equity securities in the prior-year quarter. Other revenue, excluding the change in fair value of equity securities^A, decreased $33 million YoY, primarily driven by realized gains on the sale of legacy mortgage loans in the prior-year period and normalized gain-on-sale margins within Ally Home.

Fourth quarter NIM of 3.80%, including Core OID^B of 2 bps, increased 90 bps YoY. Excluding Core OID^B, NIM was 3.82%, up 90 bps YoY, due to lower deposit costs, deployment of excess liquidity and lower premium amortization.

Provision for credit losses increased $108 million to $210 million compared to the prior-year quarter, as Day 1 impacts from the acquisition of FSF and reserve build to support organic asset growth more than offset lower net charge-offs. Adjusted provision expense^B, excluding Day 1 impacts from FSF, increased $11 million to $113 million compared to the prior year quarter, as asset growth was partially offset by lower net charge offs and a reduction in the retail auto coverage rate.

Noninterest expense increased $67 million YoY, as continued spend supporting Ally's brand, technology and business initiatives along with deal-related costs from the FSF acquisition were partially offset due to legal reserve build in the prior-year period that did not repeat.

Full-Year 2021

Net income attributable to common shareholders was $3.0 billion in 2021, compared to $1.1 billion in 2020, as higher net financing revenue and lower provision for credit losses were partially offset by higher noninterest expense.

Net financing revenue improved to $6.2 billion, up $1.5 billion from the prior year, driven by lower deposit costs, strategic liability management, higher gains on off-lease vehicles and higher retail auto revenue.

Full year NIM was 3.54%, including Core OID^B of 2 bps, up 89 bps YoY. Excluding Core OID^B, NIM was 3.56%, up 89 bps YoY.

Provision for credit losses decreased $1,198 million over the prior year, due to the impact of COVID-19 pandemic-related reserve build in 2020 as well as lower retail auto net charge-off activity.

Other revenue was up $56 million YoY, including a $7 million decrease in the fair value of equity securities in the year, compared to a $29 million increase in the fair value of equity securities in 2020. Other revenue, excluding the impact of the change in fair value of equity securities^A, was up $223 million at $2.2 billion, reflecting strong realized gain activity and momentum across Ally's diversified product offerings.

Noninterest expense increased $277 million over the prior year, largely due to increased investments within Ally's growing businesses, brand and technology.

Pre-Tax Income by Segment

($ millions)

3Q 21

Automotive Finance

Insurance

Dealer Financial Services

Corporate Finance

Mortgage Finance

Corporate and Other

Pre-Tax Income from Continuing Operations

Core OID¹

Change in Fair Value of Equity Securities²

Repositioning³

Core Pre-Tax Income⁴

Core OID for all periods shown is applied to the pre-tax income of the Corporate and Other segment. Refer to the Definitions of Non-GAAP Financial Measures and Other Key Terms and Reconciliation to GAAP later in this press release.

Change in fair value of equity securities impacts the Insurance and Corporate Finance segments. Reflects equity fair value adjustments related to ASU 2016-01 which requires change in the fair value of equity securities to be recognized in current period net income as compared to periods prior to 1/1/2018 in which such adjustments were recognized through other comprehensive income, a component of equity.

Repositioning in 2021 includes $131 million in charges related to loss on extinguishment of debt associated with the redemption of TRUPs as well as $97 million of provision expense related to Day 1 activity from the Fair Square Financial acquisition. 2020 reflects a $50 million goodwill impairment within the Ally Invest business.

Core pre-tax income is a non-GAAP financial measure that adjusts pre-tax income from continuing operations for Core OID, equity fair value adjustments related to ASU 2016-01, and repositioning and other which are primarily related to the extinguishment of high cost legacy debt, strategic activities and significant other one-time items, as applicable for respective periods. Management believes core pre-tax income can help the reader better understand the operating performance of the core businesses and their ability to generate earnings. Refer to the Definitions of Non-GAAP Financial Measures and Other Key Terms later in this release.

Auto Finance

Pre-tax income in the fourth quarter of $839 million was up $276 million versus the prior-year quarter, due to higher net financing revenue, lower provision for credit losses and lower noninterest expense.

Net financing revenue of $1.3 billion was $188 million higher YoY as higher retail auto revenue was partially offset by lower commercial auto portfolio balances. Ally's retail auto portfolio yield, excluding the impact of hedges, decreased 2 bps YoY to 6.81% in the fourth quarter due to the impact of elevated prepayment activity.

Provision for credit losses totaled $45 million, down $41 million YoY, due to lower retail auto net charge-offs as well as a reduction in reserve levels, reflecting strong consumer and commercial performance and improved economic trends. The fourth quarter retail auto net charge-off rate of 0.48% decreased 53 bps YoY.

Consumer auto originations in the fourth quarter increased to $10.9 billion from $9.1 billion in the prior-year period, which included $7.0 billion of used retail volume, or 64% of total originations, $3.0 billion of new retail volume, and $0.9 billion of leases. Estimated retail auto originated yield^C in the quarter was 6.97%.

Full-year 2021 pre-tax income of $3.4 billion was up $2.1 billion due to lower provision for credit losses and higher net financing revenue.

Consumer originations increased $11.1 billion in 2021 to $46.3 billion, with used volume of $27.7 billion, or 60% of total 2021 originations, $13.1 billion of new retail volume and $5.4 billion of leases. Estimated retail auto originated yield^C was 7.10% in 2021 compared to 7.01% in 2020 and exceeded 7% for the fourth consecutive year.

End-of-period auto earning assets decreased $1.0 billion YoY from $106.2 billion to $105.2 billion, as an increase in consumer auto earning assets was more than offset by a decline in commercial earning assets. End-of-period consumer auto earning assets were up $6.1 billion YoY, driven by growth in both retail loans and operating lease assets. End-of-period commercial earning assets of $16.1 billion were down $7.1 billion YoY, driven by industry-wide vehicle inventory declines.

Insurance

Pre-tax income in the fourth quarter of $91 million declined $92 million versus the prior-year period, primarily due to a $24 million increase in the fair value of equity securities^D during the fourth quarter compared to a $111 million increase in the fair value of equity securities^D in the prior-year period. Core pre-tax income^E was $67 million in the quarter, down $5 million from the prior-year period, as lower underwriting income was mostly offset by higher investment income.

Quarterly written premiums were $268 million, down $44 million YoY, driven by lower dealer inventory levels and light vehicle sales. Total investment income was $47 million, up $19 million YoY, excluding an $24 million increase in the fair value of equity securities during the quarter^D, driven by higher realized investment gains.

Full-year 2021 pre-tax income was $343 million, up $59 million versus the prior year, as lower weather losses were partially offset by changes in the fair value of equity securities in 2021 relative to changes in 2020. Core pre-tax income^E for 2021 was $353 million, up from $253 million in 2020, as lower weather losses, higher realized gains from the investment securities portfolio and higher earned premiums from F&I products, were partially offset by higher operating expenses and lower earned premiums from vehicle inventory insurance.

^CEstimated Retail Auto Originated Yield is a forward-looking non-GAAP financial measure determined by calculating the estimated average annualized yield for loans originated during the period. Refer to the Definitions of Non-GAAP Financial Measures and Other Key Terms and Reconciliation to GAAP later in this press release.

^DASU 2016-01 requires change in the fair value of equity securities to be recognized in current period net income as compared to periods prior to 1/1/2018 in which such adjustments were recognized through other comprehensive income, a component of equity.

^ERepresents a non-GAAP financial measure. Excludes equity fair value adjustments related to ASU 2016-01 which requires change in the fair value of equity securities to be recognized in current period net income as compared to periods prior to 1/1/2018 in which such adjustments were recognized through other comprehensive income, a component of equity. Refer to the definitions of Non-GAAP Financial Measures and Other Key Terms and Reconciliation to GAAP later in this press release.

Discussion of Segment Results - Continued

Corporate Finance

Pre-taxincome was $73 million in the quarter, up $9 million YoY, as revenue from co-investments, fee income and syndication activities was partially offset by higher provision for credit losses due to the establishment of specific reserves and asset expansion.

Net financing revenue increased $4 million YoY to $83 million, primarily due to higher loan balances. Other revenue, excluding the change in fair value of equity securities^F, increased $38 million YoY, to $55 million. The HFI loan portfolio increased 29% YoY from $6.0 billion to $7.8 billion.

Provision for credit losses totaled $33 million, up $24 million from the prior-year period, due to the establishment of specific reserves and asset expansion.

Full-year 2021 pre-tax income was $282 million, compared to pre-tax income of $88 million in 2020, due to COVID-related provision build in the prior year along with higher total revenue due to portfolio growth and investment income.

Mortgage Finance

Pre-tax income was $3 million in the quarter, down $4 million YoY, as lower other revenue from normalizing gain on sale margins were largely offset by higher net financing revenue due to lower premium amortization and balance growth.

Net financing revenue in the quarter was up $22 million YoY to $42 million, reflecting moderating prepayment activity and lower premium amortization. Other revenue decreased $24 million YoY to $13 million, primarily driven by normalizing gain-on-sale activity. Fourth quarter noninterest expense was $4 million higher YoY, driven primarily by higher fulfillment and marketing costs.

Full-year 2021 pre-tax income was $32 million, down $21 million from 2020, as higher noninterest expense driven by the continued expansion of the mortgage business was partially offset by lower provision for credit losses.

DTC originations totaled $10.4 billion in 2021, up $5.7 billion YoY, demonstrating continued momentum in the Ally Home® business.

Capital, Liquidity & Funding, and Deposits

Capital

Ally completed its full-year 2021 $2.0 billion share repurchase program, repurchasing approximately 40 million shares during the year, including shares withheld to cover income taxes owed by participants related to share-based incentive plans. Ally's number of outstanding shares has declined 30% since initiating share repurchases in 3Q 2016. Ally's Board of Directors approved another share repurchase program for full-year 2022 up to $2.0 billion.

During 2021, Ally paid four quarterly common dividends totaling $0.88 per share. Ally's Board of Directors approved a $0.30 per share common dividend for the first quarter of 2022, a 20% increase compared to the prior quarterly dividend and the 7th increase over the past seven years.

In the fourth quarter, Ally completed the previously announced redemption of $191 million of trust preferred securities.

Preliminary Common Equity Tier 1 capital ratio decreased from 11.2% to 10.3% QoQ, primarily due to the acquisition of FSF, organic growth including higher commercial floorplan balances, and continued share repurchase activity.

Liquidity & Funding

Consolidated liquid cash and cash equivalents^G totaled $4.4 billion at quarter-end, down $5.7 billion compared to the end of the third quarter, as excess liquidity was used to fund organic loan growth and the acquisition of FSF. Total liquidity^H was $31.2 billion at quarter-end.

Deposits represented 89% of Ally's funding portfolio at year-end, increasing from 85% a year ago.

Deposits

Retail deposits increased to $134.7 billion at quarter-end, up $10.3 billion YoY and up $3.1 billion for the quarter. Total deposits increased to $141.6 billion at year-end, up $4.5 billion YoY and Ally maintained industry-leading customer retention at 96%.

The average retail portfolio deposit rate was 0.61% for the quarter, down 36 bps YoY and down 4 bps QoQ.

Ally's retail deposit customer base grew 10% YoY, totaling 2.48 million customers at year-end, while adding 28 thousand customers during the quarter. Millennials and younger generations continue to comprise the largest segment of new customers, accounting for 68% of new customers in the fourth quarter. At the end of the fourth quarter, 9% of Ally's deposit customers utilized multiple Ally products.

Definitions of Non-GAAP Financial Measures and Other Key Terms

Reconciliation to GAAP

Adjusted Earnings per Share

GAAP Net Income Attributable to Common Shareholders

Discontinued Operations, Net of Tax

Core OID

Repositioning and Other

Change in the Fair Value of Equity Securities

Tax on: Core OID & Change in Fair Value of Equity Securities (21% starting 1Q18)

Significant Discrete Tax Items

Core Net Income Attributable to Common Shareholders

Denominator

Weighted-Average Common Shares Outstanding - (Diluted, thousands)

Adjusted EPS

Core Return on Tangible Common Equity (ROTCE)

GAAP Net Income Attributable to Common Shareholders

Discontinued Operations, Net of Tax

Core OID

Repositioning and Other

Change in Fair Value of Equity Securities

Tax on: Core OID & Change in Fair Value of Equity Securities (21% starting 1Q18)

Significant Discrete Tax Items

Core Net Income Attributable to Common Shareholders

Denominator (Average, $ billions)

GAAP Shareholder's Equity

Preferred Equity

GAAP Common Shareholder's Equity

Goodwill & Identifiable Intangibles, Net of Deferred Tax Liabilities (DTLs)

Tangible Common Equity

Core OID Balance

Net Deferred Tax Asset (DTA)

Normalized Common Equity

Core Return on Tangible Common Equity

Adjusted Tangible Book Value per Share

GAAP Shareholder's Equity

Preferred Equity

GAAP Common Shareholder's Equity

Goodwill and Identifiable Intangible Assets, Net of DTLs

Tangible Common Equity

Tax-effected Core OID Balance (21% starting in 4Q17)

Adjusted Tangible Book Value

Denominator

Issued Shares Outstanding (period-end, thousands)

Metric

GAAP Shareholder's Equity per Share

Preferred Equity per Share

GAAP Common Shareholder's Equity per Share

Goodwill and Identifiable Intangible Assets, Net of DTLs per Share

Tangible Common Equity per Share

Tax-effected Core OID Balance (21% starting in 4Q17) per Share

Adjusted Tangible Book Value per Share

Adjusted Efficiency Ratio

GAAP Noninterest Expense

Insurance Expense

Repositioning

Adjusted Noninterest Expense for Adjusted Efficiency Ratio

Denominator ($ millions)

Total Net Revenue

Core OID

Insurance Revenue

Repositioning

Adjusted Net Revenue for Adjusted Efficiency Ratio

Adjusted Efficiency Ratio

Original Issue Discount Amortization Expense ($ millions)

Core Original Issue Discount (Core OID) Amortization Expense (excl. accelerated OID)

Other OID

GAAP Original Issue Discount Amortization Expense

Outstanding Original Issue Discount Balance ($ millions)

Core Outstanding Original Issue Discount Balance (Core OID Balance)

Other Outstanding OID Balance

GAAP Outstanding Original Issue Discount Balance

GAAP Net Financing Revenue

Core OID

Net Financing Revenue (ex. Core OID)

Adjusted Other Revenue

GAAP Other Revenue

Accelerated OID & repositioning items

Change in Fair Value of Equity Securities

Adjusted Other Revenue

Adjusted Total Net Revenue

Adjusted Total Net Revenue

Adjusted Provision for Credit Losses

GAAP Provision for Credit Losses

Repositioning

Adjusted Provision for Credit Losses

Adjusted NIE (ex. Repositioning)

GAAP Noninterest Expense

Repositioning

Adjusted NIE (ex. Repositioning)

Pre-Tax Income

Core Pre-Tax Income

Core Pre-Provision Net Revenue (Core PPNR)

Pre-Provision Net Revenue

Core Pre-Provision Net Revenue

Premiums, Service Revenue Earned and Other

Losses and Loss Adjustment Expenses

Acquisition and Underwriting Expenses

Investment Income and Other

Pre-Tax Income from Continuing Operations

Premiums, Service Revenue Earned and Other

Losses and Loss Adjustment Expenses

Acquisition and Underwriting Expenses

Investment Income and Other

Pre-Tax Income from Continuing Operations

Additional Financial Information

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