Ally Financial Inc. (ALLY) Q3 2026 Earnings Call Transcript

Operator: Good day, and thank you for standing by. Welcome to the Q3 26 Ally Financial Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Daniel Soto, Executive Director, Corporate FP&A and investor relations. Please go ahead.

Daniel Soto: Thank you, Daniel. Good morning, and welcome to Ally Financial's Third Quarter 26 Earnings Call. This morning, our CEO, Michael G. Rhodes and our CFO, Russell Hutchinson will review Ally's results before taking questions. The presentation we will reference can be found on the Investor Relations section of our website ally.com. Forward looking statements and risk factor language governing today's call are on Page 2. GAAP and non GAAP measures pertaining to our operating performance and capital results are on Page 3. As a reminder, non GAAP or core metrics are supplemental to and not a substitute for U. S. GAAP measures. Definitions and reconciliations can be found in the appendix And with that, I will turn the call over to Michael.

Michael G. Rhodes: Thank you, Daniel, and good morning, everyone. I appreciate you joining us today for our third quarter earnings call. While I will discuss the quarter in more detail in a moment, I would like to take a step back and start with the bigger picture. We delivered another quarter of meaningful progress against the priorities we have laid out. And those results reflect a broader story unfolding across Ally. Ally is a stronger company today than it was just a few years ago. We have made deliberate choices about where to invest and grow, and our results reinforce that we are on the right path. Over the past 2 years, retail auto and corporate finance assets have grown nearly 15%. Core ROTC has increased from 5% to 13%. Retail NCOs have declined by more than 30 basis points. And we have returned meaningful capital to shareholders while also building our capital base. Taken together, we have built an Ally that is positioned to deliver stronger returns greater resilience, and sustainable growth. Now let me be clear. This is not the finish line. But I am proud of what we have achieved. Simply put, our strategy backed by disciplined execution is working. Moving to financial results. Third quarter adjusted EPS of $1.34 was up 16% year over year Adjusted net revenue of $2.3 billion increased 9% year over year And with noninterest expenses flat, we delivered another quarter of meaningful operating leverage. CET1 of 10.2% was up 10 basis points year over year, and we remain pleased with our ability to execute a story of 'and'. Not or. That is, we are growing our core businesses maintaining strong capital levels, and returning capital to shareholders. Our focus forge strategy remains simple yet powerful. Importantly, none of this happens without our people, and our differentiated brand and culture continue to amplify that strategy. Our teammates bring our promise to do it right to life every day with an unwavering commitment to show up for our customers, communities, and each other. Our Lifetoday campaign continues to highlight Ally's unique ability to meet customers where life and money intersect. In today's world, building on our history of disruption and innovation, last month, we announced loyALLy, our first ever loyalty experience. Moving beyond complexity to deliver meaningful value through discounts and seamless experiences with the simple, free model our customers know and love. More importantly, initiatives like loyALLy demonstrate the investments we are making to strengthen customer relationships and position Ally for the future. Ultimately, our focus is not on delivering compelling results in any single quarter. it is about ensuring the progress we are delivering today translates into a company that is stronger, more resilient, and capable of generating higher returns for years to come. While I am pleased with this quarter's results, my conviction is grounded in the momentum we see across our franchise and the opportunities ahead of us. We know the path will not always be linear but the direction is clear. And with that, let's turn to slide 5. Our market leading franchises continue to be a source of strength, underpinned by deep customer relationships differentiated capabilities, relevant scale, and disciplined execution that continue to position us well in the markets we compete. We continue to build on the momentum across each business, with execution translates into accretive growth and improved returns. In dealer financial services, our dealer centric through the cycle approach is paying dividends. In auto, we decisioned 4.8 million applications up 20% year over year as our refined go to market strategy continues to expand the top of the funnel and further our reach in our industry. That application flow translates to $12.9 billion of originations. Up 10% year over year. As we leverage the scale and infrastructure we have built, the focus remains on maximizing risk adjusted returns. That means pairing attractive growth with a disciplined credit posture. Our data driven approach to portfolio management and dynamic underwriting continues to translate into more durable credit performance. Importantly, consumers have continued to demonstrate resilience as they navigate an evolving macro backdrop and we remain encouraged by the performance we are seeing across the portfolio. Within insurance, written premiums of $388 million increased $3 million year over year and a 75% increase year over year in conquest activity reflects continued momentum across the business. Insurance continues to generate diversified capital efficient, accretive earnings evidenced by a year-to-date ROE of approximately 30%. More broadly, our differentiated go to market strategy and dealer financial services allows us to support dealers across the entire ecosystem, strengthen relationships, expanding our opportunity set, and enhancing the value of the franchise. Corporate finance delivered another impressive quarter generating a 22% return on equity. Our portfolio now stands at $15.8 billion up 40% year over year. Non accrual loans and criticized assets remain at historic lows, underscoring the credit first mindset that is long defined our business. Our established partnerships underwriting expertise, and speed and certainty of execution remain core strengths of the franchise and support attractive consistent returns. At the digital bank, our differentiated value proposition and ability to provide exceptional products and experiences continues to drive customer growth that consistently outpaces industry averages. We now serve 3.6 million customers up 7% year over year and marking our 70th consecutive quarter of growth. We continue to attract highly engaged customers who skew towards Millennial and Gen Z. Our national brand, digital first operating model, and unmatched experience position us exceptionally well as consumer preferences continue to evolve. In aggregate, these results reflect the strength of our franchises, and the benefits and investments we have made to expand products build capabilities, and create long term value. We have been clear about what we have set out to accomplish, and our results today represent another step on our path. To mid teens returns. While that path may not always be linear, our conviction continues to grow. My confidence is based not only in this quarter's results but the momentum we see across our businesses and the opportunities ahead of us. And with that, I will turn it over to Russell to walk through the financials in more detail.

Russell Hutchinson: Thank you, Michael. I will begin by walking through third quarter performance on slide 6. Net financing revenue, excluding OID, of $1.8 billion was up 10% year over year. Growth was driven by our core portfolios and lower funding costs drove the continued NII expansion. Adjusted other revenue of $579 million was up 4% year over year. We continue to see solid momentum across our diversified revenue streams. Insurance, SmartAuction, and our pass-through program. Provision expense of $529 million was up $114 million year over year primarily due to CECL reserve builds associated with continuing strength in asset growth. Our retail auto portfolio grew $2.4 billion in the quarter, which led to nearly $90 million of CECL reserve build in the period. Over time, this growth contributes to future earnings but presented a 3Q headwind of roughly $0.20 to EPS and 200 basis points to ROTCE. We saw 9% operating leverage as adjusted noninterest expense of $1.2 billion was relatively flat year over year, reflecting ongoing discipline and weather losses, which were slightly favorable to our baseline expectation. Let's move to slide 7 to discuss margin in detail. Net interest margin, excluding OID, of 3.66% increased 3 basis points quarter over quarter as the full benefit of second quarter deposit pricing actions was largely offset by losses on lease termination. Retail auto portfolio yields excluding the impact from hedges, of 9.2% was down sequentially, but given current originated yields we anticipate the portfolio yield to migrate higher over time. Consistent with commentary at an industry conference last month, lease yields in the quarter included a $16 million loss on lease termination, reflecting continued pressure on the Stellantis' auction prices and residual values stemming from broader brand and recall related overhang. Given the current mix of our lease portfolio coming to termination, we expect the resulting pressure to persist into 4Q. Looking beyond that, we would expect the headwind to abate as we move through 2027. And the portfolio continues to shift towards a more diversified OEM mix. Importantly, since announcing our partnership with a pure battery electric OEM in March 2024, approximately half of our lease origination volume includes residual value guarantees. Reducing the proportion of the portfolio subject to volatility and residual value. We continue to deliver strong earning asset growth, supporting the ongoing remixing of our balance sheet into higher return assets. Average earning assets were up 7% year over year with growth continuing to be concentrated in retail auto and corporate finance. Ending retail auto assets were up 8%, while corporate finance loans were up 40%. Growth in these asset classes continues to replace the runoff of lower yielding mortgages, providing a structural tailwind to net interest margin over time. On the liability side, cost of funds decreased 3 basis points quarter over quarter driven by the full impact of deposit pricing actions taken during the second quarter. Deposit customers grew for a 70th consecutive quarter and are up 7% year over year. Reflective of the strength of our brand and unique value proposition that Michael highlighted earlier. Given the expectations for a series of Fed hikes, I want to provide color on how we expect our margin trajectory to unfold given the composition of our balance sheet. Movement in benchmark rates impacts the pace and magnitude of remaining NIM expansion to our upper 3s target. But we remain confident across a range of scenarios In the near term, our balance sheet is slightly asset sensitive as our roughly $60 billion in floating rate exposures reprice higher. That benefit moderates as our retail deposit portfolio reprices higher ultimately inflecting towards liability sensitive over the medium term. Over time, the retail auto portfolio reprices higher with the benchmark rates supporting NIM expansion. In addition, the tailwind from asset remixing will continue to drive margin expansion toward our upper 3s target. I will cover guidance in more detail later, but despite the evolving rate environment and near term lease dynamics, we remain confident in the full year guide and a path to exit the year around the high end of the range we provided in January. Turning to Page 8. CET 1 of 10.2% is up approximately 10 basis points versus the prior year. Under the current proposal for the RSA, our CET1 would be 8.8% when fully phased in AOCI. with IRBA providing roughly 30 basis points of additional benefit. During the quarter, we executed our second credit risk transfer of 2026, generating more than 25 basis points of CET1 at issuance. We continue to execute on the story of 'and'. We are supporting accretive, disciplined growth across our core franchises. Maintaining healthy capital levels, and returning capital to shareholders. We have grown the retail auto and corporate finance portfolios 12% year over year and have repurchased nearly $500 million in shares over that period. Further demonstrating our ability to deliver on our capital priority. Earlier this week, we announced our quarterly dividend of $0.35 for the fourth quarter. This was the first increase to our quarterly dividend since 2022. Reflecting our improved earnings power, strengthened capital position, confidence in the path ahead, and commitment to returning capital to shareholders. Additionally, at the end of the quarter, adjusted tangible book value per share was $41 up 5% over the past year. Underscoring our continued focus on delivering long term shareholder value. Our capital levels were influenced by rate movement during the quarter, However, the magnitude of that impact was mitigated by deliberate actions we have taken to lower our exposure to rate volatility. Over the past several years, we proactively repositioned the portion of the securities portfolio reinvested into shorter duration instruments, and continue to strategically hedge the balance sheet. Our strategic actions are working, resulting in a more resilient balance sheet and a more durable capital base. On slide 9, we will review asset quality trends. Consolidated net charge offs of 117 basis points were up 6 basis points sequentially due to seasonality and were roughly flat year over year. Within retail auto, net charge offs 189 basis points were up 32 basis points quarter over quarter and roughly flat to a year ago. On the top right of the page, 30 plus 30-plus day delinquencies of 4.96% were up 6 basis points from the prior year. Reserve detail is included at the bottom of the page. The consolidated coverage rate of 2.49% was flat quarter over quarter while retail auto coverage of 3.74% was down 1 basis point. Our coverage levels continue to balance stable credit trends across our portfolios against broader macroeconomic concerns. Consumers have continued to demonstrate resilience that we monitor several factors, including persistent inflation, affordability pressure, elevated oil prices, and lower personal savings rates. It is important to note that our underwriting approach is not static. We continuously leverage emerging data and insights to refine our buy box, for the operating environment. We continuously curtail reprice, and make changes to automated decisioning for segments we may like less and vice versa. While the portfolio is performing largely in line with our expectations, our late 25 and early 2 thousand 26 vintages are showing higher early life delinquency which are being closely monitored. We noted a richer origination mix in 1Q in terms of yield and credit, which comes with higher delinquency. The 2Q and 3Q vintages are comparatively tighter in yield, and credit which we expect to exhibit lower levels of delinquency. Vintage performance can fluctuate quarterly as we calibrate alongside evolving conditions in the market, and with seasonal patterns. That is why we think it is important to look at full year vintages, which better reflect our through the cycle approach. We remain confident in the full year guide, and, importantly, the portfolio overall. Moving to slide 10 to review auto segment highlights. Pretax income of $337 million was lower year over year, primarily due to CECL reserve build associated with continued strong retail assets. On the bottom left, we have highlighted the trajectory of retail auto portfolio yields Excluding the impact from hedges, yields were slightly down quarter over quarter. Third quarter originated yield of 9.44% was up approximately 35 basis points quarter over quarter. Reflecting continued pricing actions on like-for-like segments. Higher benchmark rates, and a modest decline in F-tier. We took pricing actions throughout 3Q, exiting the quarter with originated yields in the upper 9% range. On the bottom right of the page, $12.9 billion of consumer originations were up 10% year over year, as we continue to benefit from our strategic efforts to align dealer incentives to drive record application flow. Sustained strength in application volume remains a key competitive advantage and we continue to believe there is runway ahead. Our expansion of the top of the funnel is providing increased opportunities to assess credit, enabling us to be selective in underwriting to optimize risk adjusted return. The application flow has enabled further growth in our pass through program where we generated a second consecutive quarter with more than $1 billion off-balance sheet origination volume. Given this momentum, we have grown our service portfolio, which contributes accretive fee income. Evidenced by the 20% year over year increase in auto other revenue. Turning to insurance on slide 11. Core pretax income was $75 million up $23 million year over year. Total written premiums of $388 million were up $3 million year over year. Insurance losses of $135 million were down $6 million year over year. Insurance continues to provide durable, capital efficient revenue and remains a key driver of our long term growth strategy. We continue to leverage synergies with auto finance to sustain momentum within the business and deepen our all in dealer value proposition. Supporting our dealer partners in all aspects of their business. Turning to corporate finance on slide 12. The business delivered another strong quarter with pretax income of $98 million and a 22% ROE. The team continues to demonstrate their ability to scale responsibly. With the portfolio ending the quarter at $15.8 billion up 40% over the past year. Most of the growth during the quarter was driven by existing lending relationships. And we served as lead agent on nearly 90% of the commitments originated in the quarter. The team exercises a conservative risk management approach supported by a relationship based model grounded in deep understanding of our clients' businesses. We are pleased with the momentum as we leverage a consistent strategy that focuses on disciplined credit risk management and has delivered annual losses of less than 30 basis points since our IPO. The portfolio is comprised of 100% first lien senior secured floating-rate loans. The power of our model is evident in the consistent credit performance of the portfolio which remains strong and in the compelling returns delivered by the business. On Page 13, I will conclude with a brief update on financial outlook. With only 1 quarter remaining, we are updating our outlook to provide a more defined range while continuing to reflect our confidence in achieving or exceeding all aspects of full year guide we laid out in January. Despite an evolving rate environment, with Fed funds expected to end the year roughly 100 basis points above our January guidance assumption, as well as acute lease residual pressures throughout the year we continue to expect NIM to remain within our initial guide and are now expecting full year NIM to fall between 3.6% and 3.65%. As we look to the fourth quarter, we see NIM around 3.7%, Turning to other revenue, we are tightening our outlook to be up 2% to 4% compared to our prior guide of flat to up 5%. Our outlook for retail NCOs remains consistent as we track toward the midpoint of our guidance range. At the consolidated level, this translates to an NCO rate at the low end of our guidance range and reflects the strong performance of our commercial portfolio. Given our disciplined approach to expense management, adjusted noninterest expense is now expected to be flat to up 1% slightly lower than the prior guide. Looking at growth, we have seen strong momentum in our retail auto and corporate finance origination, We are once again increasing the outlook for average earning asset growth. We now anticipate 5% to 6% growth year over year up from 3% to 5% previously and 2% to 4% at the start of the year. As a reminder, this growth carries CECL reserve build upfront. Our tax rate guidance remains unchanged, and we continue to expect our full year rate to land in the 20% to 22% range. In total, our focused strategy and disciplined execution continue to drive improving operational and financial performance. While we have made significant progress our focus remains on sustaining our momentum and executing on the meaningful opportunities ahead to deliver appealing, long-term value for our shareholders. And with that, I will turn it over to Daniel for Q and A.

Daniel Soto: Thank you, Russell. As we head into Q and A, we do ask that participants limit themselves to 1 question and 1 follow-up.

Operator: Daniel, please begin the Q and A. Press *1 on your telephone. and wait for your name to be announced. To withdraw your question, please press *1. Our first question comes from Ryan Nash with Goldman Sachs. Your line is open.

Ryan Nash: Hey, good morning, guys. Thanks for joining us. Good morning, Russell. Clearly, you had a strong PPNR performance this quarter. Yeah. However, we did see delinquencies slip from down year over year to up and charge-offs seem to be tracking with the middle of your guidance. Russell, I know we will get formal guidance at some point next year, but maybe just talk about the pluses and minuses on credit into 2027. Whether it is around the vintages. I know you highlighted pieces of late 25 and early 26 or other factors. And, you know, do you expect to make progress towards your long-term target of 1.6% to 1.8%? Or do you think we could go sideways or even increase given the recent portfolio trends? Thank you.

Russell Hutchinson: Great. Thanks, Ryan. Thanks for your question. Very good question, as usual. And maybe as I start out, you know, I just like to say, you know, I guess, first of all, we are pleased to see the portfolio performing this year according to our expectations. You know, we started the year. We talked about a guide of 1.8% to 2%. We are very much performing towards the middle of the guide, which is exactly where we pointed people. If you think about flow-to-loss and used vehicle prices, you know, we talked earlier in the year about the support that we were getting from favorable flow to loss and strong used car prices. In the market and we probably also talked at the time about the fact that we expected those factors to continue to be supportive. But less supportive as we work through the year. And that is played out pretty much as we expected. So, you know, we talked about earlier in the year the fact that we expected the year over year comparison to look much like they did in the third quarter. You know, with NCOs flattening out and with the possibility of delinquencies being off a touch. And so you know, as far as what we are seeing, the portfolio playing out, it is playing out very much as we expected it to play out. You know, you mentioned vintages, and I know vintage will get a lot of attention when we release the queue. In a in a little bit. You know, as we have said before, you know, we look at the portfolio overall. Performing according to expectations. When we look at the 25 and 26 vintages, You know, from a delinquency perspective, they are moving ahead of the 2 thousand 20 fours. And as we have said before, that 2,024 vintage performed better than expectation, and so we expected to see some normalization in terms of the performance of the 25 and 26 vintages. And we underwrote for that. You know, as you look at, and as we said in the prepared remarks, the minutes ago, you know, if you look at the 25 and 26 vintages a little bit more closely, we are seeing elevated delinquency in the late 2025 and early 2026 vintages. And I would just remind you, we try to focus people on the annual vintages. You know, quarter to quarter, there is a lot that goes on. And so, for example, as I look at the first-quarter 2026 vintage, you know, even at the time we originated it, we talked pretty transparently about the fact that it was rich both in terms of credit content as well as in terms of yield. You know, when we reported back in April, we talked about a measured posture given a lot of what was going on. As well as seasonal dynamics that we drive our origination mix. Cleaner. As we move through the year. And that is certainly what played out as we move through second quarter and third quarter. And so as we look at the vintages, you know, we understand people will spend a lot of time looking at those curves. But from our perspective, they are playing out very much as expected. Just given the credit content that we have in those various vintages. And I would remind you, if you think about full year 2026, we very much pointed people towards the expectation that you know, we are going to originate an S-tier mix that is probably in the low to mid forties, and that is still very much our expectation. And so as we look forward, you know, we are again pleased to see credit evolving through 2026 in line with our expectations and, again, in line with the midpoint of the range that we provided that we provided back in January. Now as you pointed out, it is early to give 2027 guidance. We have learned a lot as we move through the course of the fourth quarter, and as you as you know from prior years, we provide. We typically provide guidance early in 2027, so in January, We provide guidance for 2027 having the benefit of all the stuff that we learned going through the closeout of the year. And so we expect to learn a lot We are certainly not gonna give 2027 guidance right now at this point. But I but I would say just kinda sitting here today, our expectation is for 2027 to look a lot like 2026 from an NCO perspective. Now you mentioned in your question you know, our you know, our origination appetite, our kind of 1.6% to 1.8% range and the trajectory and the timeline that moves towards that And I just wanna make sure I remind you that, you know, our approach to underwriting is pretty dynamic as you would expect. And you know, as we mentioned earlier in the prepared remarks, you know, we are constantly looking at our origination mix, looking at our portfolio on a pretty granular segmented basis. And, you know, we are looking for pretty granular segments where we either curtail or we reprice or in some cases, we just make changes to automated decisioning. In order to readjust the composition of our book. And as we think about our risk appetite in that 1.6% to 1.8% range, I would say if you look over the course of you know, certainly the later part of 2025, you look at where we are originating today, we are very much originating towards the higher end of that appetite. And so, you know, when I think about the trajectory to get to. From kinda where we are operating today in 2026 to getting under or getting into that range we do not expect a step function change. Just given the given the proximity there. We expect it to be more of a drift. And, you know, Michael pointed this out in his remarks earlier, When we talk about a drift, it is not necessarily a straight line. We could be impacted positively or negatively in any given quarter, just based on the seasoning of various vintages as well as what is playing out in the macro.

Ryan Nash: Got it. That was a great color, Russell. And you know, just speaking of color, I think you gave a lot of color earlier on how to think about the impact of hikes. Obviously, expectations of rates have moved a lot with 3 more hikes in the curve. But I guess based on what you know today, you think the negatives over, you know, the next 4 or 5 quarters outweigh the positives? Do you expect the NIM to take a step back before taking a step forward? You know, and then eventually making meaningful progress? Or can you hold the line? Maybe just discuss the key drivers what you think it will mean for the margin over the next few quarters. Thank you again.

Russell Hutchinson: it is another great question, Ryan. And I do appreciate your questions seem to follow the path of your note earlier this morning. That you published. I am trying to keep it simple here. I am going to go, you know, go back to something I said in the prepared remarks. And maybe before I start there, maybe just to start, nothing's changed from our perspective as we think about our trajectory. For the high-threes NIM. But going back to my remarks more specifically in about fourth quarter, we pointed you towards an exit rate for 2026. that is around the high end of the range that we gave at the beginning of the year, the 3.6 to 3.7%. Obviously, as you pointed out, a lot's changed over the course the year in terms of the rate trajectory. We have talked about headwinds we have you know, related to Stellantis vehicles coming back from lease as well. That certainly cost us a few basis points over the course of this quarter. But, again, you know, I wanna make sure you understand. When we talk about that stuff, when I point you towards the end of the range, it is not pointing you toward you know, kind of basis-point precision. In terms of where we expect to end up because, you know, as well as I do on $1.8 million of net financing revenue in a given quarter. $4 million can move us a basis point. In 1 quarter. So I do not want you to put a high. You know, a too high degree of precision on where we are. But what I do want you to understand is the direction. Right? And so as Michael pointed out earlier, this is 1 of those areas where you know, you know, it is not gonna be a straight line, but the direction is pretty clear. And so when I think about the direction, the things that are driving our NIM upwards you know, on a sustainable basis, it is really what is going on in our business on both the asset and the liability side. The way we have remixed our liability mix towards deposits, the way that we are exercising discipline in the pricing on the deposit side of our book, And then it is on the asset side as we are moving our balance sheet more towards our higher earning assets. And so you have seen that strong growth in retail auto and corporate finance continued runoff of the mortgage book as well as lower yielding legacy mortgage securities. We continue to move our balance sheet towards a place that is gonna support higher net interest margin on a go forward basis. And, you know, I do not want the quarter to quarter volatility or the you know, quarter to quarter moves of a few basis points here or there, to change your perception of what is going on a longer term basis. I mean, if I look at 3Q26 versus 3Q25, and I look at net interest margin up 34 basis points. Obviously, a lot's changed in the way we run our business and how we manage our rate risk. If I look at it in terms of risk adjusted margin, net interest margin minus consolidated NCOs were up 67 basis points on a risk adjusted spread basis. Over the course of the last 2 years. And I think that is important to point out as you think about Michael's comment earlier about the fact it is not a straight line, but the direction's pretty clear. And I think we continue to feel pretty good about our medium term objective of getting to a high-threes NIM. Thanks, Russell.

Operator: Thank you. Our next question comes from Robert Wildhack with Autonomous Research. Your line is open.

Robert Wildhack: To start on competition in retail auto, I just wonder what you are seeing there. I know some peers have called out heightened competition pressuring returns. Others have said something different. So just wanted to get your latest thoughts on how you are seeing that. And if there is any difference across income or credit cohorts? And is the competitive environment in any way a driver in the early delinquency formation you are seeing in the late 25 and early 26 originations?

Russell Hutchinson: Great. Thanks, Robert. Great question. From a competitive perspective, we have not noticed any measurable changes in the competitive dynamic. Our business continues to have a ton of traction. You know, we have got long standing relationships with our dealers. They have yeah, they have rewarded us through application flow. And you can see over the course of the last several quarters, we have continued to bring really strong application flow. it is allowed us to be strategic in terms of how we think about risk adjusted return, and it is supported vintages in terms of size, that, again, has been really strong. So we feel that the competitive dynamic continues to be favorable for us. We have certainly noticed as we look at you know, other players have been entering and exiting as we look over the course of the last couple of years. Yeah. Obviously, over the course of the last quarter or 2, we have seen some folks who are pulling back somewhat. But, again, I think as we look at that competitive environment, we feel pretty good And I would say maybe another proof point as we look at as we as we look at our originated yield you know, over the course of the last couple of quarters, And over the course of third quarter, originated yield's been pretty strong. We had a pretty nice increase in originated yield going from second quarter to third quarter, But importantly, we were able to continue putting price into the market throughout the third quarter. And so if I look at where we exited the third quarter, it was at an originated yield in the high nines. You know? Above what we printed for the quarter overall. So, again, for all those reasons, I feel good about the competitive dynamic. And I feel great about our franchise and all the work that our colleagues are doing to maintain and to build strong relationships with our dealer partners.

Michael G. Rhodes: Russell, I might even double click on I mean, look at our application flow. The strength of application flow on a year over year basis. Yes, it is a competitive marketplace and folks are coming in and out. But we find that our dealers are doing basically more and more business with us and hence more and more volume. And this gets to kind of a fundamental of why we like this business so much. It is. it is 1 we are so relevant to our partners, which is important. But second, with that flow, it gives us the constant ability to reprice tweak and understand which segments we like and which segments like a little less and how we price And it is just constant opportunity to optimize the business recognizing that the macro environment keeps shifting, and we have optimize our underwriting to reflect that. But just, you know, it underscored the attractiveness of a business that you get to reprice on a basic continual basis. With the combination of the really strong flows that we are seeing. And also. If we talk about competition, I cannot help but give a shout out to our corporate finance folks. and the volumes that they are seeing And, you know, and there again, I think there is competition in the marketplace, but we are growing with our partners. And we have the benefit there that we have a number of financial sponsors that are doing extremely well. And when those sponsors do well, we are growing with them both in terms of velocity of transactions, the size of transactions. And we are pleased to be with them on their journey. And, again, that is a competitive marketplace, but we find the places that we are very relevant, and we do very well there.

Robert Wildhack: Okay. Thanks. And then on capital return, you have stepped up the buyback in the third quarter versus the first half. Also increased the dividend, also increased the earning asset growth outlook. You have got higher rates. So just a lot of moving parts with respect to capital. and the message had been low and slow, but this is kind of a less low and less slow trajectory right now. So just wanted to get your updated thoughts there in sustaining the buyback at this pace or even increasing it.

Russell Hutchinson: Yes. No, it is a good question, Robert. And I would say maybe first of all, from our perspective, nothing's changed in our approach to capital. You know, we and, you know, we very much are executing on our story of and. You know, as you can imagine, you know, when we restarted we restarted our share repurchases, I guess, December of last year, we thought very much about just the volatility that AOCI brings to you know, to the new model for capital requirements and we thought about all that before we embarked on it, and that was very much you know, why we started with our low and slow approach. So we did feel like from the get go, you know, we were taking our capital level to 1 that we thought we were managing around you know, what we thought were kind of that long-term volatility that we would expect in our book with AOCI and also just mindful of kind of where the business is in terms of profitability and capital generation. And maintaining healthy capital levels. And so where we sit today as Michael pointed out, it is very much about the story of and. it is about maintaining a healthy capital level. it is about supporting the growth of our businesses. And it is about returning capital to shareholders. And, you know, maybe if I double click on those a little bit, and start on the maintaining healthy capital levels, you know, where we sit today we feel the heavy lifting around our capital build is behind us. Our CET1 under the current standardized approach is north of 10%. When you look at our capital from a revised standardized approach under Basel III or an enhanced risk-based approach, IRBA, And we expect that to be finalized with the transition period. But we would expect given where we are starting from, be able to manage very nicely towards getting those capital ratios to where we would want them to be. We can effectively allow our capital to drift up. And so we sit where we think we are maintaining healthy capital levels. You know, in terms of supporting the growth of our businesses, I think you have seen that. Over the course of this year as we have grown our retail auto and corporate finance book in particular. And we are not growing for the sake of growing; We are growing where we are getting accretive returns that support our long-term profitability aspirations long term. And so, again, I think we feel pretty good about our ability to support the growth of those businesses. And then you mentioned capital, you know, and then there is the capital return of the third piece of that. And, again, I think as you mentioned, you know, through our share repurchase program and our dividend, we are aiming to get our capital return where we think it should be. Based on the profitability of the enterprise, our ability to generate capital, and mindful of our need to maintain healthy capital ratios under whatever the prevailing regime's gonna be, whether it is current standardized approach or it is RSA or enhanced risk based capital. Thanks a lot.

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

Sanjay Sakhrani: Thank you. Good morning. Maybe just to go back to the credit quality questions. I guess, Michael, you have talked about this healthy paranoia about the health of the consumer. And obviously, the consumer has been quite resilient and, against all odds, has done extremely well, and that is been reflected in your credit quality. But is there anything you are seeing that gives you any pause? I mean, I know these later vintages, have seen slightly elevated delinquencies. Was there anything specific in the underwriting of that vintage You know, that part of the vintage that kind of is creating that? and maybe you can just give us a little bit more on the big picture of the consumer and then the specific vintages. price for it. But maybe you can just give us a little bit more on big picture, consumer and then the specific vintages.

Russell Hutchinson: Yeah. Maybe I will kick off, and then, Michael, you can chime in here. I guess first of all, I would say, you know, credit, again, performing as expected. And so we are we are pleased to see that. And Sanjay, as you pointed out, consumer is resilient, and I think that is supported by, you know, what you see in terms of relatively low unemployment levels. But we are still watching. There are a number of things we are monitoring. Right? And you know, we are looking in particular at gas prices, you know, at general affordability and inflation. You know, at personal savings and real wage growth, And so we are looking at all those factors in terms of what we see. You know, as you pointed out, you know, we are seeing elevated delinquency and some of those kinda late 2025, early 26 vintages. A lot of that, in our view, is just reflective of the credit content. that is in those books. And so you know, nothing we are seeing, you know, gives us a ton of concern right now. But as you would expect, we are we are watching a number of factors. And, you know, we are adjusting our underwriting on a very real time basis. So yeah, you can rest assured that we are constantly looking through our book and picking through segments that are overperforming or underperforming relative credit. And making the adjustments that we need to make on a on a on a on a real time basis. So, hopefully, that gives you a sense of kinda how we are thinking about it, but those are all factors that we are looking at right now.

Michael G. Rhodes: And then, Russell, I might add, you know, the higher end consumers seem to have you know, plenty of discretionary you know, expenses, and I think they are fueling part of the consumer economy. Look. there is a segment of consumers that are probably, you know, involved in what I would call cash sorting. They are prioritizing and triaging on a monthly basis, you know, where they are putting their dollars. Against that backdrop, unemployment's quite destructive. And so we feel good about that. Then I will say that, you know, consumers been resilient and I think I might have said it was probably close to a year ago. You know, it is like consumers do not read the headlines. And that is. there is kind of wall of worry and yet the consumer keeps being resilient Through this process. And so that is what we are seeing.

Sanjay Sakhrani: Well, that is great. And maybe just 1 other clarification question. Obviously, the rate outlook changed, and you guys talked a lot about it. But as we think about the originated yield, that obviously saw some increase. And you guys continue to believe that, that can move higher as rates move higher. Even sort of keeping the same standard of underwriting that you guys have had before. And then maybe just alongside that, you know, a lot of discussion around Agentic Commerce, Muse, etcetera. I am just curious, as we think about consumers having more access to information and financial alternatives, is there something we need to think about in terms of that and how Ally is positioned? Thank you.

Russell Hutchinson: Sure. You know, I did not quite catch your originated yield question. Sanjay, you know, I think what you are you are looking at is just how we think about originated yield you know, as we see an evolving rate environment. And I think as we have said in prior discussions, when we think about pricing on the origination side, you know, we obviously. We look a lot at kind of where Fed funds is. We also look at swaps. At the 2 and 3 year mark as we think about just how we in various competitors think about profitability of the overall portfolio. And so I. I would say, look, The. You know, changing rate environment has been constructive. In terms of moving portfolio yield up. But we are very much focused on the spread that we are getting, whether it is the Fed funds or the swaps. And there, I would say we feel encouraged in terms of our ability to drive to you know, to a to a. To maintain and to drive to potentially a stronger originated yield spread as we move forward. So, again, we feel like the competitive environment, the traction that we have with dealers, the strength of our franchise are all supportive. Of us on the on the pricing side.

Michael G. Rhodes: And then maybe I will touch on. You mentioned Muse. And these agentic agents that are out there. Needless to say, we are spending a lot of time watching that and monitoring our activity. I think so far the activity level. We have seen activity, but it is actually been quite low. And so I put this in the kind of monitoring and watching phase. I would underscore that, you know, there is effort that kinda we and then probably many institutions have in educating our consumers about credential sharing and some of the risks that are associated with that. And so you imagine we will spend some time thinking about that. But this is a watch and monitor, and I will say the tools for price discovery are nothing new. And so this is a watch. Right now.

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

Sanjay Sakhrani: I think I already asked my question.

Daniel Soto: Sanjay already asked. I think there is somebody else coming up.

Operator: Thank you. Our next question comes from Moshe Orenbuch with TD Cowen. Your line is now open.

Moshe Orenbuch: Great, thanks. Maybe just following up on the discussion, both of the competitive environment and your pricing actions. What was interesting about the third quarter is that you had for probably the second half of the quarter, a pretty big increase in you know, in treasury yields much faster than, obviously, short term rates. And at the very end of the quarter, you know, kind of an increase in credit spreads. So your capital markets funded competitors, whether they are like, captives or you know, securitization players were probably disadvantaged. So can you talk about how much of an impact that might have had on your ability to take price both in Q3 and, you know, kind of going forward? Seems like it should be constructive.

Russell Hutchinson: it is certainly and, you know, I think even kind of beyond near term rate moves, I feel like our platform is advantaged based on the strength of our relationships. You know? I would say if you if you think about it, you know, I you know, as you think about kind of pricing in general, guess, number 1, I think the capital markets anticipated you know, certainly some of what we saw in rates in terms of the swap markets having been moving all year long. Effectively. I think as we think about some of our competitors, they may not be as quick to react as you might think. And so I think we got a lot of we got a lot of support just from the strength of the franchise. I do think the changing rate environment also constructive for us from a pricing perspective. You know? But, again, it does not take the pressure off of us To aggressively invest in our relationships and to manage our business and to exercise discipline as we go to market every week.

Michael G. Rhodes: And Got it. But we are gonna to be. If you think how the quarter unfolded, I mean, the premise of the question is what we were pleased with our ability to put rate into the marketplace during the quarter. I think so, too. Yes.

Moshe Orenbuch: it is just on the. You know, you mentioned at the beginning of your remarks, Russell, that the, you know, the big charge essentially related to growth and, you know, CECL is there a way to think about some of your off balance sheet activities, you know, kind of in ways to you know, to somewhat mitigate that? And maybe just if you could kinda just give us a little bit of description of what your thoughts are between whether it is CRT transactions and how to think about kind of pass through volume and those factors as we move forward. Thanks.

Russell Hutchinson: that is a great question. Moshe. You know, as you. You have. As you have noticed, you know, over the course of the last couple years, we have been more opportunistic about the way that we manage the capital intensity of our auto business. Business. And so you mentioned the CRT We did the largest North American retail auto CRT that we are aware of in the third quarter. that is been a great way for us to manage the capital of the business. The capital relief that the CRT provides You know? As trades that, you know, effectively an attractive source of capital for you know, augmenting the returns of our business Pass through is another area you mentioned. You know, we mentioned a few minutes ago we had another $250 million-plus of pass through volume. You know, that is volume that does not does not hit our balance sheet, and so it is it is completely off balance sheet. And it is a great source of fee income. We get a fee at origination, and we get servicing fees on a go forward basis. it is also a great way to support our dealers to augment our own credit box. We are helping our dealers effectively sell more vehicles. You know? And look. We are opportunistic, and we are always kinda looking for ways to think about capital in an opportunistic way. I think you probably remember a couple years ago, we were. We took some of our existing securitizations, and we sold through the capital structure to achieve through sale, so we were able to basically book the sale of loans through the ABS market, and so that is. Yeah. So we look at a number of different opportunities from time to time in terms of looking for the most efficient way to manage our capital to lessen the capital intensity of the auto business, and also to improve our returns.

Michael G. Rhodes: Great. Thanks, Russell. And it is just stating the obvious. You know, there is obviously a bill from CECL that comes with the strong growth we have had But we like the business we are originating and Of course. So, you know, this will pay dividends down the road. Yeah. Thank you.

Operator: Our next question comes from Jeff Adelson with Morgan Stanley. Your line is now open.

Jeff Adelson: Hey, good morning, guys. Thanks for taking my questions and fitting me in here. Just maybe wanted to understand I appreciate all the comments around NIM and yields from here and you are exiting the quarter at a high 9% originated yields. I guess, as we think about this migration higher over time, how do we think about the near term trajectory? I mean, I think if I have it correct, about 3 years ago, you were originating more in the 10.5-11. So is there maybe a little bit more. Is this more of a backloaded 2027-type migration as you sort of start to burn off the higher yielding loans from a few years ago? Or just help us understand that trajectory a little bit? From here and maybe the opportunity to continue, migrating higher.

Russell Hutchinson: it is a great question, Jeff. I think 1 of the things that we have not focused on so far is originated yield to portfolio yield and as you saw in the third quarter, the portfolio yield actually came down a touch. ex-hedges to 9.2%. And that portfolio yield at any given point in time, it reflects the seasoning of various vintages that are that are that are on the book, what is kinda coming off, what is what is coming off the book and what is going on the book in terms of what we originate in a given quarter. With the with the momentum that we have right now on originated yield and kind of what you saw in the third quarter, our expectation is that portfolio yield is gonna drift up as we move forward. Now again, you know, the you know, do not expect any step function changes in portfolio yield. Think about more of a drift just as it is kinda drifted a little down, we do expect that you know, over the next few quarters, it ought to drift upwards. As we get the benefit of some of these quarterly vintages the higher changing yields.

Jeff Adelson: Okay. Okay. Great. And just in terms of deposit betas, I do not think we have really touched on that yet. Your expectation still that you will end up somewhere think you talked about a cumulative beta around 70% in prior cycles. Is there anything that would be different about this cycle, whether it be agentic deposit competition? Just you are thinking about that impact, and I know you have also talked a bit about the detail benefit of CDs repricing into your liquid deposit in the online savings account rate. Is that happening anymore? Is there still a little bit of tailwind from that dynamic? Or is that largely gone just given where you are you are putting new CDs out there in the current market? Thanks.

Russell Hutchinson: Yeah. Thanks, Jeff. Another good question. Beyond the deposit beta, I think previously, certainly as we were moving through the rate reduction cycle, we talked about betas in the 60-70% range. You know? And, obviously, if you look over the course of the recent rate reduction cycle, we achieved a beta that was right about the 70% mark And that is a reflection of just a tremendous amount of on our part in terms of how we approach pricing. And so yes, rates came down. You saw a number of circumstances where you know, we were the leaders in the market in terms of bringing our rates down. And that speaks to the strength of our franchise. Right? And, you know, we understand rate is important. We certainly expect that we will have competitive rates, but we also have a great product offering, a great digital experience, a fantastic brand that our customers engage with. And so that strength of our overall franchise allowed us supported Our discipline on the pricing side certainly as rates as rates came down. And so we are able to operate towards the favorable end of that 60-70% range as rates were coming down. You know, as we look forward and we see an environment now where rates are moving the other direction, yeah, I think it is our expectation that it is in that 60-70% range. And that discipline that we have established, you know, applies on In the other direction as well. So we are not anticipating kinda any changes to our approach there. You know, Michael made some comments earlier on agentic agents in terms of you know, customers and kinda you know, price shopping that is not new to us. You know, that is that is that is the world we live in, and we run our business with the expectation that we need to maintain. Competitive rates as well as an overall attractive client account customer value proposition. And, you know, that is how we run our business. You know, right now, when I look at how we show up, through AI search, we actually show up in a pretty favorable way relative to all of us in terms of how we show up on AI search and you know, we do not lead the market right now on pricing. We are competitive, but we do not lead the market. We still. We continue to feel really good about our customer growth you know, and our ability to attract and onboard attractive customers particularly the millennial and Gen Z cohorts. So, again, we feel pretty good, and we do not we do not think there is any kind of step function change happening in terms of how we price or how we run that part of the business.

Operator: Thank you. And our final question comes from Don Fandetti with Wells Fargo. Your line is open.

Analyst: Yes. Can you talk a little bit about you know, expenses in the context of tech and AI? I mean, really been a check on expenses over the last few years. Banks are spending a lot. I am just curious how you are thinking about that? As you look into next year and beyond?

Michael G. Rhodes: Maybe. Russell, I might jump on this 1. Look. We have been really pleased with our discipline and our expense management, and you have seen that over the last several years. And, you know, we are getting here through, you know, I think this really strong operational management We are being very disciplined about how we actually run our operations about how we, you know, staff things, you know, the. While there is salary dollars, obviously, but also third party vendors and then the way we actually use them. And again, the word I would use there is just good operational discipline. That being the case, do not mistake this operational discipline for lack of investment in the things that are required. And so as I think about this year, you know, even underneath the expense investments that you have seen, we have actually increased our spending and marketing. We have increased our spending in technology. As we look forward, we will continue to see that And we are funding the things that we think we need to fund in this environment to protect the business, and to enable it in an AI first world that we tend to be going into. And so we talk a lot about, you know, you know, an and-versus-or narrative on capital. I would actually use that the way we think about expenses as well or we are both efficient with how we spend our dollars But we are also investing in the things that we are in the areas we need to invest in. And if you just. Actually, just look at our volume growth as kind of evidence of that. And so expenses are roughly flat year over year, and our corporate finance loans are up 40%. Our auto originations were up 10%. In the consumer bank, our net customer growth was 7% year over year, and if you look over time, that number is actually accelerating. It was, call it, 12%. Sorry. It was 12% for 2 years. And 7% over last year. You see an acceleration, and you get that acceleration from incremental investment. And so very pleased with operating leverage that we are generating. And so, again, I take this and-versus-or narrative on capital and then think about the way we are actually investing in the platform. And I might actually. If you do not mind, I will take this moment to reflect on some of the comments I made at the beginning of the call that I reflect on over the past 2 years, you know, what is what is going on with the business. And, you know, auto and corporate finance loans are up 15% over that period of time. I talked about the consumer growth Revenue is up 12% with expenses almost flat during that period of time. And earnings have more than doubled. ROTC is up more than 800 basis points To 13.1% And we have done all that against the backdrop of a continually changing operating environment. And so what is important is not really just the progress we have made but it is really what is underneath and the how. And it is really about stronger franchises, improved economics, and discipline as it relates to risk and capital and expenses. And so, you know, next quarter, you know, NIM can do this or that or losses can go in different places. But expect that disciplined approach to capital expense management to continue and risk management And look, we expect that to translate into a better performing business on a go forward basis.

Daniel Soto: Awesome. Well, thank you, Michael. I see we are a little past the top of the hour, that is all the time we have for today. If you do have any additional questions, please reach out to investor relations. Thanks for joining us this morning.

Operator: That concludes today's call. Goodbye. This concludes today's conference call. Thank you for participating. You may now disconnect.