Ally Financial Inc (ALLY) 2026 Q3 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Q3 2026 Ally Financial earnings conference call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dan Ignacio, Executive Director, Corporate FP&A and Investor Relations. Please go ahead.

Thank you, Daniel. Good morning and welcome to Ally Financial's third-quarter 2026 earnings call. This morning, our CEO, Michael Rhodes; and our CFO, Russ Hutchinson, will review Ally's results before taking questions. The presentation 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 US GAAP measures. Definitions and reconciliation can be found in the appendix.

And with that, I'll turn the call over to Michael.

Thank you, Dan, and good morning, everyone. I appreciate you joining us today for our third-quarter earnings call. While I'll discuss the quarter in more detail in a moment, I'd like to take a step back and start with the bigger picture. We delivered another quarter of meaningful progress against the priorities we've 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've made deliberate choices about where to invest and grow, and our results reinforce that we are on the right path. Over the past two years, retail, auto, and corporate finance assets have grown nearly 15%. Core ROTCE has increased from 5% to 13%. Retail NCOs have declined by more than 30 basis points. And we've returned meaningful capital to shareholders while also building our capital base.

Taken together, we've built an Ally that is positioned to deliver stronger returns, greater resilience, and sustainable growth. Now let me be clear, this isn't the finish line, but I'm proud of what we've 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 non-interest 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 Forward 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 Life Today 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 fee-free model our customers know and love. More importantly, initiatives like Loyally demonstrate the investments we're 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's 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'm pleased with this quarter 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 translating to 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've 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're 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 in 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's 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 track 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 of the investments we've made to expand products, build capabilities, and create long-term value.

We've been clear about what we've 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 on this quarter's results, the momentum we see across our businesses, and the opportunities ahead of us.

And with that, I'll turn it over to Russ to walk through the financials in more detail.

Thank you, Michael. I'll 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 in our core portfolios and lower funding costs supported 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 pass-through programs.

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 to $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 non-interest expense of $1.2 billion was relatively flat year over year, reflecting ongoing discipline and weather losses which were slightly favorable to our baseline expectations. 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 terminations, reflecting continued pressure on 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 70% 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 Fed paths.

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 influencing towards liability sensitive over the medium term. Over time, the retail auto portfolio reprices higher with benchmark rates supporting NIM expansion.

In addition, the tailwind from asset remixing will continue to drive margin expansion toward our upper 3s target. I'll 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, CET1 of 10.2% is up approximately 10 basis points versus the prior year. Under the current proposal for RSA, our CET1 would be 8.8% when fully phasing in AOCI, with ERBA 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're supporting accretive, disciplined growth across our core franchises, maintaining healthy capital levels, and returning capital to shareholders. we've 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 priorities. 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 movements during the quarter.

However, the magnitude of that impact was mitigated by deliberate actions we've taken to lower our exposure to rate volatility. Over the past several years, we've proactively repositioned a 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'll 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 of 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 all-in 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 one basis point. Our coverage levels continue to balance stable credit trends across our portfolios against broader macroeconomic uncertainty. Consumer debt continued to demonstrate resilience that we monitor several factors, including persistent inflation, affordability pressures, 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 2025 and early 2026 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's important to look at full year vintages which better reflect our discipline 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. Pre-tax income of $337 million was lower year over year, primarily due to CECL reserve builds associated with continued strong retail assets. On the bottom left, we've 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 FTR. 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 at the top of the funnel is providing increased opportunities to assess credit, enabling us to be selective in underwriting to optimize risk-adjusted returns.

The application flow has enabled further growth in our pass-through program, where we generated a second consecutive quarter with more than $1 billion of off-balance-sheet origination volume. Given this momentum, we've 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 pre-tax 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 Ally 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 pre-tax 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 a 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'll conclude with a brief update on our financial outlook. With only one 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 the 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 portfolios.

Given our disciplined approach to expense management, adjusted non-interest expense is now expected to be flat to up 1%, slightly lower than the prior guide. Looking at growth, we've seen strong momentum in our retail auto and corporate finance originations. 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've made significant progress, our focus remains on sustaining our momentum and executing on the meaningful opportunities ahead to deliver compelling long-term value for our shareholders.

And with that, I will turn it over to Dan for Q&A.

Thank you, Russ. (Event Instructions) Daniel, please begin the Q&A.

(Operator Instructions) Ryan Nash, Goldman Sachs.

Hey, good morning, guys.

Good morning, Ryan. Thanks for joining us.

Good morning, Russ. So clearly you guys had a strong PPNR performance this quarter. However, we did see delinquencies slip from down year over year to up, and charge-offs seem to be tracking with the middle of year guidance. Russ, I know we'll get formal guidance at some point next year, but maybe just talk about the pluses and minuses on credit into 2027, whether it's around the vintages.

I know you highlighted pieces of late 2025 and early 2026 or it's other factors. 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.

Great. Thanks, Ryan. Thanks for your question. Very good question as usual. And maybe as I start out, I'd just like to say, first of all, we're pleased to see the portfolio performing this year according to our expectations. We started the year, we talked about a guide of 1.8% to 2%. We're 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, 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 also talked at the time about the fact that we expected those factors to continue to be supportive, but less supportive as we worked through the year. And that's played out pretty much as we expected.

We talked about earlier in the year the fact that we expected the year-over-year comparisons to look much like they did in the third quarter, with NCOs flattening out and with the possibility of delinquencies being off a touch. So as far as we're concerned, as we see the portfolio playing out, it's playing out very much as we expected it to play out.

You mentioned vintages, and I know vintages will get a lot of attention when we release the Q in a little bit. As we've said before, we look at the portfolio overall performing according to expectations. When we look at the '25 and '26 vintages, from a delinquency perspective, they're moving ahead of the 2024s.

And as we said before, that said 2024 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. As you look at, and as we said in the prepared remarks a couple of minutes ago, 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'd just remind you, we try to focus people on the annual vintages. Quarter to quarter, there's a lot that goes on. And so for example, as I look at the first-quarter 2026 vintage, 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.

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 would drive our origination mix cleaner as we moved through the year. And that's certainly what played out as we moved through second quarter and third quarter.

And so as we look at the vintages, we understand people will spend a lot of time looking at those curves, but from our perspective, they're playing out very much as expected, just given the credit content that we've in those various vintages.

And just to remind you, as you think about full-year 2026, we very much pointed people towards the expectation that we're going to originate an S-tier mix that's probably in the low to mid-40s, and that's still very much our expectation.

And so as we look forward, we're 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 back in January. Now, as you pointed out, it's early to give 2027 guidance. We learn a lot as we move through the course of the fourth quarter, and as you know from prior years, we typically provide guidance early in 2027.

So in January, we provide guidance for 2027, having the benefit of all the stuff that we learn going through the closeout of the year. So we expect to learn a lot. We're certainly not going to give 2027 guidance right now at this point. But I would say, just kind of sitting here today, our expectation is for '27 to look a lot like 2026 from an NCO perspective.

Now, you mentioned in your question our origination appetite, our kind of 1.6% to 1.8% range, and the trajectory and the timeline that moves towards that. I just want to make sure I remind you that our approach to underwriting is pretty dynamic as you'd expect. As we mentioned earlier in the prepared remarks, we're constantly looking at our origination mix and looking at our portfolio on a pretty granular segmented basis.

And we're 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 certainly the later part of 2025, you look at where we're originating today, we're very much originating towards the higher end of that appetite.

And so when I think about the trajectory to get -- So from where we're operating today in 2026, to getting under or getting into that range, we don't expect a step function change just given the proximity there. We expect it to be more of a drift. And Michael pointed this out in his remarks earlier, when we talk about a drift, it's 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's playing out in the macro.

Got it. That was a great color, Russ. And 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 three more hikes in the curve. I guess based on what you know today, do you think the negatives over the next four or five quarters outweigh the positives? Do you expect the NIM to take a step back before taking a step forward, and then eventually making meaningful progress? Or can you hold the line?

Maybe just discuss the key drivers and what you think it'll mean for the margin over the next few quarters. Thank you again.

It's another great question, Ryan, and I do appreciate your questions seem to follow the path of your note earlier this morning that you published.

Trying to keep it civil, Russ.

Yeah. I'm going to 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 towards a high threes NIM. But going back to my remarks more specifically and about fourth quarter, we pointed you towards an exit rate for 2026 that's 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 of the year in terms of the rate trajectory. We've talked about headwinds we've related to Stellantis vehicles coming back from lease as well. That certainly costs us more than a few basis points over the course of this quarter. But again, I want to make sure you understand.

When we talk about the stuff, when I point you towards the high end of the range, it's not pointing you towards 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 one quarter. So I don't want you to put a too high degree of precision on where we are.

What I do want you to understand is the direction, right? And so as Michael pointed out earlier, this is one of those areas where it's not going to 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 on a sustainable basis, it's really what's going on in our business on both the asset and the liability side.

The way we've remixed our liability mix towards deposits, the way that we're exercising discipline in the pricing on the deposit side of our book, and then it's on the asset side as we're moving our balance sheet more towards our higher-earning assets. And so you've seen that strong growth in retail auto and corporate finance continue to run off of the mortgage book, as well as lower yielding legacy mortgage securities.

We continue to move our balance sheet towards a place that's going to support higher net interest margin on a go-forward basis. I don't want the quarter-to-quarter volatility or the quarter-to-quarter moves off a few basis points here or there to change your perception of what's going on a longer-term basis. If I look at 3Q '26 versus 3Q '27, 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, we're up 67 basis points on a risk-adjusted spread basis over the course of the last two years. I think that's important to point out as you think about Michael's comment earlier about the fact it's not a straight line, but the direction's pretty clear. I think we continue to feel pretty good about our medium-term objective of getting to a high 3's NIM.

Thanks, Russ.

Rob Wildhack, Autonomous Research.

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

Great. Thanks, Rob. Great question. From a competitive perspective, we haven't noticed any measurable changes in the competitive dynamic. Our business continues to have a ton of traction. We've got longstanding relationships with our dealers. They have rewarded us through application flow. And you can see over the course of the last several quarters, we've continued to bring really strong application flow.

It's allowed us to be strategic in terms of how we think about risk-adjusted return, and it 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've certainly noticed as we look at other players have been entering and exiting as we look over the course of the last couple of years. Obviously, over the course of the last quarter or two, we've seen some folks who are pulling back somewhat.

I think as we look at the competitive environment, we feel pretty good. I'd say maybe another proof point as we look at our originated yield 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 third quarter.

If I look at where we exited third quarter, it was at an originated yield in the high 9s, above what we printed for the quarter overall. So again, for all those reasons, I continue to 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.

Russ, I might even double click on this is, I mean, look at our application flow, the strength of our application flow on a year-over-year basis. Yes, it's 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 seeing us more and more volume. And this gets to kind of a fundamental of why we like this business so much is, one, we're so relevant to our partners, which is important.

But second, with that flow, it gives us the constant ability to reprice and tweak and understand which segments we like and which segments we like a little less and how we price. And it's just constant opportunity to optimize the business, recognizing that the macro environment keeps on shifting as well, and so we've to optimize our underwriting to reflect that.

But just, it underscored the attractiveness of the business that you get to reprice on a basic continual basis with the combination of the really strong flows that we're seeing. And also, if you talk about competition, I can't help but give a shout-out to our corporate finance folks and the volumes that they're seeing.

There again, I think there's competition in the marketplace, but we're growing with our partners. we've the benefit there that we've a number of financial sponsors that are doing extremely well. And when those sponsors do well, we're growing with them, both in terms of the velocity of transactions and the size of the transactions, and we're pleased to be with them on their journey. And again, that's a competitive marketplace, but we find the places that we're very relevant and we do very well there.

Okay, thanks. And then on capital return, you've stepped up the buyback in the third quarter versus the first half, also increased the dividend, also increased the earning asset growth outlook. You've 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 and sustaining the buyback at this pace or even increasing it.

Yeah, no, it's a good question, Rob. And I'd say maybe first of all, from our perspective, nothing's changed in our approach to capital. We very much are executing on our story of and. As you can imagine when we restarted our share repurchases, I guess, in December of last year, we thought very much about just the volatility that AOCI brings to the new Basel III capital requirements. We thought about all that before we embarked on it.

That was very much why we started with our low and slow approach. So we didn't feel like from the get-go we were taking our capital levels to one that we thought we were kind of managing around what we thought were that kind of long-term kind of volatility that we'd 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. So where we sit today, as Michael pointed out, it's very much about the story of and. It's about maintaining healthy capital levels. It's about supporting the growth of our businesses, and it's about returning capital to shareholders.

Maybe if I double-click on those a little bit and start on the maintaining healthy capital levels, 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 B3 or an enhanced risk-based approach, ERBA, and we expect that to be finalized with a transition period.

But we would expect, given where we are starting from, we will be able to manage very nicely towards getting those capital ratios to where we want them to be. We can effectively allow our capital to drift up. We sit where we think we are maintaining healthy capital levels. In terms of supporting the growth of our businesses, I think you have seen that over the course of this year as we've grown our retail auto and corporate finance books in particular.

We are not growing for the sake of growing. We are growing where we are getting accretive returns that support our profitability aspirations long term. And so again, I think we feel pretty good about our ability to support the growth of those businesses. Then there is the capital return, the third piece of that.

And again, I think as you mentioned, 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 is going to be, whether it's current standardized approach or it is RSA or enhanced risk-based capital.

Thanks a lot.

Sanjay Sakhrani, KBW.

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, done extremely well, and that's been reflected in your credit quality.

But is there anything you are seeing that gives you any pause? I know these later vintages have seen slightly elevated delinquencies. Was there anything specific in the underwriting of that part of the vintage that kind of is creating that and maybe priced for it? But maybe if you could just give us a little bit more on big picture consumer and then those specific vintages.

Yeah. Maybe I'll kick off and then, Michael, you can chime in here. I guess first of all, I'd say, credit, again, performing as expected, and so we're pleased to see that. Sanjay, as you pointed out, consumer is resilient, and I think that's supported by what you see in terms of relatively low unemployment levels. But we're still watching.

There are a number of things we are monitoring, right? And we're looking in particular at gas prices, at general affordability and inflation, at personal savings and real wage growth. And so we're looking at all those factors in terms of what we see. As you pointed out, we are seeing elevated delinquency in some of those kind of late '25, early 2026 vintages. A lot of that, in our view, is just reflective of the credit content that is in those books.

Nothing we're seeing gives us a ton of concern right now. But as you would expect, we're watching a number of factors and we are adjusting our underwriting on a very real-time basis. So you can rest assured that we are constantly looking through our book and picking through segments that are over-performing or under-performing relative to credit and making the adjustments that we need to make on a real-time basis.

So hopefully that gives you a sense of kind of how we are thinking about it, but those are all factors that we are looking at right now.

Yeah. And then Russ, I might add, the higher end consumers seem to have plenty of discretionary expenses, and I think they're fueling part of the consumer economy. There's a segment of customers that are probably involved in what I call kind of cash sorting. They're kind of prioritizing and triaging on a monthly basis, where they're putting their dollars.

Against that backdrop, unemployment is quite constructive, and so we feel good about that. As I said, the consumer has been resilient, and I think I might have said it was probably close to a year ago. It's like the consumers do not read the headlines. So there is kind of wall of worry, and yet the consumer keeps on being resilient through this process. So that's kind of what we're seeing.

Well, that's great. And maybe just one other clarification question. Obviously, the rate outlook's changed, and you guys talked a lot about it. 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 kind of keeping the same standard of underwriting that you guys have had before.

Then maybe just alongside that, a lot of discussion around agentic commerce and Muse, et cetera. I'm 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's positioned? Thank you.

Sure. I didn't quite catch your originated yield question, Sanjay. I think what you're looking at is just how we think about originated yield as we see an evolving rate environment. I think as we've said in prior discussions, when we think about pricing on the origination side, we look a lot at kind of where Fed funds is. We also look at swaps at the two and three-year mark as we think about just how we and various competitors think about profitability of the overall portfolio.

And so I'd say look, the changing rate environment has been constructive in terms of moving portfolio yield up. But we are very much focused on the spread that we're getting, whether it's the Fed funds or the swaps. And there, I'd say we feel encouraged in terms of our ability 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've with dealers, the strength of our franchise are all supportive of us on the pricing side.

Then maybe I have to touch on, you mentioned Muse, and these agentic agents that are out there. Needless to say, we're spending a lot of time watching that and monitoring our activity. I'd say so far, the activity level, we've seen activity, but it's actually been quite low. And so I put this in the monitoring and watching phase.

I would underscore that there is effort that we and probably many financial 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. I'll say the tools for price discovery are nothing new. This is a watch right now.

Thank you.

Sanjay Sakhrani, KBW.

I think I already asked my question.

Daniel, Sanjay.

Wasn't that the next?

Yeah, Sanjay already asked it. I think there's somebody else coming up.

Moshe Orenbuch, TD Cowen.

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 treasury yields, much faster than obviously short-term rates. And at the very end of the quarter, kind of an increase in credit spread.

So your capital markets funded competitors, whether they are captives or securitization players, 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 going forward? It seems like it should be constructive.

Yeah, it's certainly constructive and I think even kind of beyond near-term rate moves, I feel like our platform is advantaged based on the strength of our relationships. I would say as you think about pricing in the industry generally, I guess number one, I think the capital markets anticipated certainly some of what we saw in rates in terms of the swap markets having been moving all year long, effectively.

And I think as we think about some of our competitors, they may not be as quick to react as you might think. I think we got a lot of support just from the strength of the franchise. I do think the changing rate environment is also constructive for us from a pricing perspective. But again, it doesn't 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.

Got it.

Russ, if you think how the quarter unfolded, the premise of the question is we were pleased with our ability to put rate into the marketplace during the quarter.

Yeah.

Just unambiguous.

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

That's a great question, Moshe. As you've noticed over the course of the last couple of years, yeah, we've been more opportunistic about the way that we manage the capital intensity of our auto business. You mentioned the CRT. We did the largest North American retail auto CRT that we're aware of in the third quarter. That's been a great way for us to manage the capital intensity of the business.

The capital relief that the CRT provides has traced it effectively an attractive source of capital for us, augmenting the returns of our business. Pass-through is another area you mentioned. We mentioned a few minutes ago we had another quarter of a billion dollars plus of pass-through volume. That's volume that doesn't hit our balance sheet, and so it's completely off balance sheet. And it's a great source of fee income.

We get a fee at origination, and we get servicing fees on a go-forward basis. It's also a great way to support our dealers to augment our own credit box by originating and helping our dealers effectively sell more vehicles. Look, we're opportunistic, and we are always looking for ways to think about capital in an opportunistic way.

I think you probably remember a couple of years ago, we took some of our existing securitizations and we sold through the capital structure to achieve true sale. So we're able to basically book the sale of loans through the ABS market. 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.

Thanks, Russ.

And then just to state the obvious, there is obviously a build from CECL that comes with the strong growth we've had. Look, we like the business we are originating.

Of course.

This will pay dividends down the road.

Yeah.

Jeff Adelson, Morgan Stanley.

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're exiting the quarter at a high 9% originated yield. 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 three years ago, you were originating more in the 10.5% to 11%. Is this more of a backloaded 2027 type migration as you still have to burn off the higher yielding loans from a few years ago? Just help us understand that trajectory a little bit from here and maybe the opportunity to continue migrating higher.

It's a great question, Jeff. I think one of the things that we haven't focused on so far is originated yield to portfolio yield. As you saw in the third quarter, the portfolio yield actually came down a touch. It hedges to 9.2%.

And that portfolio yield at any given point in time, it reflects the seasoning of various vintages that are on the book, what is coming off the book and what's going on the book in terms of what we originate in a given quarter. With the momentum that we've right now on originated yield and what you saw in the third quarter, our expectation is that portfolio yield is going to drift up as we move forward.

Again, don't expect any step function changes in portfolio yield. Think about more of a drift. But just as it's kind of drifted a little down, we do expect that over the next few quarters, it ought to drift upwards as we get the benefit of some of these portfolio vintages with the higher originated yield.

Okay, great. And just in terms of deposit betas, I don't think we've really touched on that yet. Is your expectation still that you'll end up somewhere, I 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 how you're thinking about that impact?

And I know you've also talked a bit about the tail benefit of CDs repricing into your liquid deposits and the OSA rate. Is that happening anymore? Is there still a little bit of a tailwind from that dynamic, or is that largely gone just given where you're putting new CDs out there in the current market? Thanks.

Yeah. Thanks, Jeff. Another good question. On the deposit betas, I think previously, certainly as we were moving through the rate reduction cycle, we talked about betas in the 60% to 70% range. And obviously, as you look over the course of the recent rate reduction cycle, we achieved a beta that was right about the 70% mark. And that's a reflection of just a tremendous amount of discipline on our part in terms of how we approach pricing.

And so as rates came down, you saw a number of circumstances where 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 we understand rate is important. We certainly expect and 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 has allowed us and supported our discipline on the pricing side, certainly as rates came down. And so we're able to operate towards the favorable end of that 60% to 70% range as rates were coming down. As we look forward and we see an environment now where rates are moving the other direction, yeah, I think it's our expectation that it's in that 60% to 70% range, and that discipline that we've established applies in the other direction as well.

So we're not anticipating kind of any changes to our approach there. Michael made some comments earlier on agentic in terms of customers and kind of price shopping. That's not new to us. That's 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 and attractive customer value proposition.

That's how we run our business. Right now, when I look at how we show up through AI search, we actually show up in a pretty favorable way relative to others in terms of how we show up on AI search. We don't lead the market right now on pricing. We're competitive, but we don't lead the market.

We continue to feel really good about our customer growth and our ability to attract and onboard attractive customers, particularly the Millennial and Generation Z cohort. Again, we feel pretty good, and we don't think there's any kind of step function change happening in terms of how we price or how we run that part of the business.

Don Fandetti, Wells Fargo.

Yes. Can you talk a little bit about expenses in the context of tech and AI? I mean, really been kept a check on expenses over the last few years. But banks are spending a lot. I was just curious how you're thinking about that as you look into next year and beyond.

Maybe, Russ, I might jump on this one. Look, we've been really pleased with our discipline and our expense management, and you've seen that over the last several years. We're getting here through I think just really strong operational management. We're being very disciplined about how we actually run our operations, about how we staff things. There's a lot of salary dollars, obviously, but also third-party vendors, and then the way we actually use them.

And again, the word I'd use there is just good operational discipline. That being the case, don't mistake this operational discipline for a lack of investing in the things that are required. And so as I think about this year, even underneath the expense investments that you've seen, we've actually increased our spending in marketing. We've increased our spending in technology. As we look forward, we continue to see that.

We're 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 an and versus or narrative related to capital. I'd actually use that the way we think about expenses as well. We're being both efficient with how we spend our dollars, but we're also investing in the things that we're in the areas we need to invest in.

And if you just actually look at our volume growth, it's 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.

If you look over time, that number is actually accelerating. It was 12% -- Sorry, it was 12% over two years and 7% over last year. So you see an acceleration. The way you get that acceleration is through incremental investment. And so we're very pleased with operating leverage that we're generating. So again, I take this kind of and versus or narrative on capital and think about the way we're actually investing in the platform.

And I might actually, if you don't mind, take this as just a moment to reflect on some of the comments I made at the beginning of the call because I reflected over the past two years what's going on with the business. And auto and corporate finance loans are up 15% over that period of time. I talked about the consumer growth.

Revenue's up 12% with expenses almost flat during that period of time. And earnings have more than doubled. ROTCE is up more than 100 basis points to 13.1%. And we've done all that against the backdrop of a continually changing operating environment. And so what's important isn't really just the progress we've made, but it's really what's underneath and the how.

It's really about stronger franchise, improved economics, and discipline as it relates to risk and capital and expenses. And so next quarter, NIM can do this or that or losses can go in different places. But expect that disciplined approach to capital and expense management to continue and risk management. And look, we expect that to translate into a better performing business on a go-forward basis.

Awesome. Well, thank you, Michael. I see we're a little past the top of the hour. That's all the time we've for today. If you do have any additional questions, please reach out to investor relations. Thanks for joining us this morning. That concludes today's call.

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