Q3 2023 Ally Financial Inc Earnings Call

Okay.

Good day, and thank you for standing by welcome to the ally Financial's third quarter 2023 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a.

<unk> and answer session to ask a question during the session you will need to press star one more in on your telephone you will do.

In here, an automated message advising your hand this race to withdraw your question simply press Star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to Shawn Leary head of Investor Relations. Please go ahead.

Thank you Carmen good morning, and welcome to ally Financial's third quarter 2023 earnings call.

Our CEO , Jeff Brown, and our CFO Russ Huffington will review allies results before taking questions.

We will reference can be found on the Investor Relations section of our website ally Dot com.

Forward looking statements and risk factor language governing today's call on slide two.

GAAP and non-GAAP measures pertaining to our operating performance and capital results are on slide three.

As a reminder, non-GAAP or core metrics are supplemental to and not a substitute for U S. GAAP measures.

Finishing and reconciliations can be found in the appendix and with that I'll turn the call over to J J. Thank.

Thank you Sean Good morning, we appreciate you joining us to review our third quarter results.

I'll begin on slide number four.

Before we get into the quarter I'd like to spend a couple of minutes talking about last week's announcement that I'll be leaving alloy in the next few months let.

Let me start by Restating my confidence in the strategic operational and financial positioning of the company as well as my Deep Trust and the leadership team to flawlessly execute.

And after this transition period.

Ally has delivered a remarkable transformation build an incredibly strong foundation and is positioned to thrive.

I'm honored to have led our company and my teammates for some of the incredible things we've accomplished during these nearly nine years as CEO .

I came to legacy GMAC to help with the financial restructuring, but I thought it would take three to four years.

Nearly 15 years later, we transformed our captive finance company funded any capital markets into a leading automotive franchise the largest all digital bank in the country and a very special brand.

We successfully navigated the great financial crisis returned 20 billion to the U S Treasury coming out of TARP and became an investment grade publicly traded company.

Starting from basically zero, we've grown to a 140 billion of deposits serving 3 million customers.

Our auto and insurance teams serve more than 22000 dealers across the country.

Offering them, a comprehensive set of products and services that help them grow their businesses.

And we've consistently given back to the communities in which we work and live including the launch of the Allied charitable Foundation in 2020.

But as I've said many times on these calls what I'm. Most proud of is the culture, we built along the way.

This team and this culture will drive ally to continue to disrupt.

And deliver value for all of our stakeholders going forward.

As we'll cover on today's call the company is stronger than ever and positioned for substantial earnings growth over the next several years.

You May now is a difficult thing to do but I am excited to see the next chapter of evolution and innovation. This time from the perspective of a customer.

I think it's very important to state there was no disagreement with our board or regulatory financial or operational concern. This was really the only call that could have pulled me away for leading ally.

My relationship with Rick Hendrick his family and the Hendrick Automotive group Excites me is that transition for my final chapter over the next 20 plus years.

Allied and my entire time in the banking industry has blessed me in ways I never dreamed. It has truly been an honor for me.

I won't say goodbye quite yet as I suspect I'll be with you again in January but thank you for the support all of these years and with that let's turn to slide number five to get into the quarter.

Adjusted EPS of <unk> 83.

Core RF TCE of 13% and revenues of 2 billion reflect another solid quarter of execution and a dynamic environment.

I do want to highlight a few notable items impacting the quarter.

We recorded a $30 million restructuring charge associated with a workforce reduction.

We expect the actions we've taken will drive $80 million in annualized savings heading into next year as we manage towards meeting our expense target.

Additionally, we continue to evaluate ways to monetize certain tax credits and we're able to realize some of those benefits this quarter with the release evaluation allowance.

We also realized benefits from certain state law changes.

While we don't expect these items to occur every quarter. The tax team has done an excellent job over the years identifying ways to drive book value and capital accretion.

In aggregate nonrecurring tax items provided a $94 million benefit were <unk> 31 per share.

These items are included in GAAP results, but we have excluded them from adjusted EPS and core Rte.

Moving to operational performance, we continue to see solid results across the company.

Within auto finance, we generated record application volume of $3 7 million, which resulted in $10 6 billion of originations at attractive risk adjusted returns.

Originated yields for the quarter were 10, 7%, while 40% of our volume came from within our highest credit quality tier as we continue to capitalize on strong returns within this segment.

In total we've now achieved cumulative pricing data of 95% and retail auto which reflects our consistent approach to dealer engagement and positions us well for yield expansion from here.

Net charge offs in the quarter were 185 basis points, which was in line with guidance and up quarter over quarter given typical seasonality.

Ross will go into more details on credit shortly but we feel good about what we're seeing in terms of delinquencies flow to loss rates and vintage performance.

Within insurance, we continue to successfully grow and deepen dealer relationships at $324 million of earned premiums was our highest figure since 2009.

Turning to ally Bank total deposits of 153 billion are up seven 1 billion year over year.

We added 95000 customers in the quarter, which results in 307000 on a year to date basis and ally record.

We're now serving 3 million retail deposit customers, providing another proof point that our brand is resonating with consumers.

One 2 million active credit card holders continue to represent long term opportunities for the business and the launch of a <unk> experience will be completed in the coming months.

Corporate finance continues to deliver accretive disciplined growth is nearly 100% of the $10 $6 billion portfolio is in a first lien position.

On slide number six we wanted to directly address some of the critical items that we're navigating and what's top of mind for investors.

From an interest rate perspective, we've talked for multiple quarters about the near term challenges of a rapidly rising rate environment.

Operationally throughout the cycle the businesses have been disciplined in managing pricing on both sides of the balance sheet.

We've also leveraged our strong alco processes, including an active hedging program to soften the financial impact from higher for longer rate scenarios.

Beyond the near term pressure the momentum we have on the asset side of the balance sheet positions us well for margin expansion when rates stabilize.

Actively managing credit risk remains a top priority.

We've refined our buybacks to eliminate underperforming segments and added significant price, particularly in riskier segments to compensate for potential volatility.

Based on where we see things today, we'd expect retail auto Ncos of one 8% for the full year, which is in line with the range we provided in January .

This is a unique environment, where unemployment remains historically low however, persistent inflation is a challenge for many consumers.

Delinquencies remain a watch item, but we saw another quarter of shallow in terms of year over year change and flow to loss rates remained strong.

And consistent with prior guidance, we assume a meaningful step down in used vehicle values for the remainder of the year.

Investments in data science and technology, we've made within our collections and servicing teams will drive solid performance even in a challenging environment. We have a much deeper understanding of consumer payment patterns and more options to get consumers' current and staying in their cars.

Given the near term revenue pressure, we further heightened our focus on expenses.

Looking to 2024, we'll continue making prudent investments, but see a path for less than 1% controllable expense growth and roughly 2% on a total expense basis I'll share more details in a few pages.

On the regulatory front, we continue to evaluate the proposals released in recent months and are preparing for increased capital and liquidity across the industry. However, we believe that regulators should fully study the implications of these proposals and we are working closely with BPI and other advocacy.

Partners.

We will continue to be disciplined in allocating capital across our various businesses to optimize risk adjusted returns.

Slide number seven shows the success, we've had creating scale across ally bank and deepening relationships with engaged customers as mentioned year to date customer growth of 307000.

As an ally record and we now have $3 million of retail deposit customers, who hold 140 billion in balances the portfolio is granular diversified and 92% of balances our FDIC insured customer retention has held steady at 96% reflect.

<unk>, our industry, leading ability to maintain relationships once customers experienced ally.

The bottom half of the page highlights how our offerings have led to an engaged customer base and the key benefits of that engagement.

<unk> steadily grown our checking or what we call our spending product to more than 1 million customers across that population, 77% also have a liquid savings account.

Than $1 million deposit customers, either leverage our smart savings tools utilized direct deposit and or have an ally invest relationship.

We're approaching 300000 multi product customers across the consumer bank as we've seen consistent adoption from deposit customers across invest home and card.

Benefits of engagement is meaningful as an example deposit customers who also have an investor relationship.

<unk> two times of those who don't.

Our brand digital offerings and customer experience continues to hit the Mark and we remain optimistic about the growth potential within the consumer bank moving forward.

Moving to slide number eight we provided a snapshot of our current funding stack and available liquidity.

Our core funded with deposits as they account for 87% of our funding, but importantly, we have multiple sources of liquidity beyond deposits.

On the right side, we show total available liquidity of $64 2 billion, representing five six times uninsured deposit balances.

We meaningfully increased our capacity at the discount window within the quarter to further strengthen the quality of our contingent liquidity.

We pledged auto finance E contracts at the discount window for the first time and are appreciative for the engagement with the federal reserve as we work together through that process events on March emphasize again, the importance of contingency planning and ensuring multiple avenues of liquidity being available at all times.

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The foundation of our funding profile is a mature consumer deposit franchise, and we maintain access to multiple other sources of liquidity, including a solid and stable relationship with the home loan bank.

Slide number nine provides a summary of how we're thinking about recently proposed changes to the regulatory environment for <unk>.

The most meaningful impact of the Basel III end game proposal is the phase in of OCI.

As a reminder, we have not reinvested in the <unk> portfolio and over a year and expect natural OCI accretion of around $500 million after tax annually, assuming the forward curve plays out.

In terms of the proposed changes to <unk>, our net impact is not material as the addition of operational risk <unk> is effectively offset by a lower risk weight on retail exposures, including our retail auto portfolio.

I am confident we can naturally build capital to meet increased requirements in advance of the proposed implementation periods.

Proposed requirements for long term debt will result in incremental issuance for ally given all our long term debt sits at the parent company.

The amount of issuance will depend on several factors as we optimize parent and bank level liquidity positions.

On all of these issues, we are actively engaged in our industry response, including coordination with peer banks and the Bank policy Institute.

We will continue to evaluate the regulatory landscape and adapt as needed but feel comfortable in our ability to navigate the changes given our strong liquidity and capital position.

Let's turn to slide number 10 to talk about our expense outlook as.

As we previewed on our second quarter earnings call. We are committed to 1% growth for the expenses, we can control when factoring things like FDIC fees and insurance commissions and losses, we expect total operating expense growth of around 2%, we have taken specific actions over the past year to.

<unk> expense growth, including a hiring freeze in mid 2022, and a reduction in workforce in recent weeks.

It's also important to keep in mind that expense. This year was impacted by the normalization of weather losses in consumer credit losses and.

In total we still anticipate 2023 expenses, a little over $4 9 billion and given the actions. We've taken to date, we expect 2024 to be right around $5 billion, so around $100 million of growth with 80% of that coming in the form of non controllable items.

Operator: Good day and thank you for standing by.

Operator: Welcome to the Ally Financial's third quarter 2023 earnings call. At this time, all participants are in Alison Onimode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star one more on your telephone. You will then hear an automated message advising your hand is raised. Do we throw the question? Simply press star one more again.

We will continue to make the right investments to fuel the company for the long term, but the specific actions. We've taken and continued focus on efficiency are driving us to very modest growth in total.

With that I'll turn it over to Ross to go through the detailed financial results. Thank you. Good morning, everyone. I'll begin on slide 11, net financing revenue of $1 5 billion was down year over year driven by the continued pressure on funding costs given increased short term rates as the majority of our consumer deposit port.

Operator: Please be advised that today's conference is being recorded.

Sean Leary: I would now like to hand the conference over to Sean Leary, Head of Investor Relations. Please go ahead. Thank you, Carmen.

Folio is comprised of liquid products, while the strong pricing momentum we demonstrate on the asset side of the balance sheet, partially mitigate the near term compression and sets us up for strong NIM expansion will come back to NIM expansion in a few slides.

Sean Leary: Good morning and welcome to Ally Financial's third quarter 2023 earnings call. This morning, our CEO Jeff Brown and our CFO Russ Hutchinson will review Ally's results before taking questions. The presentation 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 slide two. Gap and non-gap measures pertaining to our operating performance and capital results are on slide three. As a reminder, non-gap or core metrics are supplemental to and not a substitute for U.S. Gap measures. Definitions and reconciliations can be found in the appendix.

Adjusted other revenue of $491 million increased year over year and quarter over quarter, reflecting momentum within our insurance business as well as our smart oxygen and pass through initiatives in auto finance, which we highlighted last quarter. Despite modest investment gains we're effectively at the $500 million quarterly run rate.

We previously alluded to and continue to see opportunities for expansion ahead provision expense of $508 million was up quarter over quarter, reflecting seasonal trends and a modest reserve build to support asset growth retail Ncos were in line with prior guidance I'll provide a more granular update on retail auto credit shortly.

Jeffrey Brown: And with that, I'll turn the call over to JV. Thank you, Sean.

Jeffrey Brown: Good morning. We appreciate you joining us to review our third quarter results. I'll begin on slide number four.

Jeffrey Brown: Before we get into the quarter, I'd like to spend a couple of minutes talking about last week's announcement that I will be leaving Ally in the next few months. Let me start by restating my confidence in the strategic operational and financial position of the company, as well as my deep trust in the leadership team to flawlessly execute during and after this transition period. Ally has delivered a remarkable transformation, built an incredibly strong foundation in his position to thrive.

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Noninterest expense of $1 2 billion reflects higher cost, we've been auto finance relating to application volume and higher repo cost seen across the industry.

Record application volume drove higher variable costs within auto finance, but has enabled us to achieve a nearly 95% pricing data throughout the tightening cycle the incremental revenue driven by the strength of our pricing significantly exceeds the marginal expense of increased application flow we.

We are also seeing higher pricing from third party vendors when vehicles go to repossession, we remain focused on minimizing net credit losses in bottom line impacts to ally. Despite these headwinds the year over year broken expenses slowed again this quarter as our efficiency initiatives begin to take hold as JV covered our recent actions to reduce cost.

Jeffrey Brown: I'm honored to have led our company in my teammates through some of the incredible things we've accomplished during these nearly nine years as CEO. I came to legacy GMAC to help with the financial restructuring, but I thought would take three to four years. Nearly 15 years later, we transformed the capital finance company, funded in capital markets, into a leading automotive franchise, the largest all digital bank in the country, and a very special brand.

Positioning us for $80 million in annualized savings next year and the anticipated year over year growth reflects our ability to navigate the near term revenue headwinds brought on by the higher interest rate environment, we've called out the $30 million of restructuring costs, which have been excluded from core pre tax results.

Jeffrey Brown: We successfully navigated the great financial crisis, returned 20 billion to the US Treasury coming out of tarp, and became an investment grade publicly traded company. Starting from basically zero, we've grown to 140 billion of deposits serving 3 million customers. Our auto and insurance teams serve more than 22,000 dealers across the country, offering them a comprehensive set of products and services that help them grow their businesses. And we've consistently given back to the communities in which we were able to live, including the launch of the Ally Charitable Foundation in 2020.

GAAP and adjusted EPS for the quarter were <unk> 88, and 83, respectively. We've excluded the benefit of certain tax planning strategies from adjusted EPS to better reflect underlying recurring results, but these tax benefits are a nice boost to capital generation.

Moving to slide 12, net interest margin of 326% was down 15 basis points quarter over quarter momentum within earning asset yield continued in the quarter, but was offset by deposit cost as the OSA rate moved up within the quarter.

Average loans and leases of $149 billion were up $8 billion year over year, driven by growth within commercial and retail auto balances quarter over quarter growth of one 5 billion reflects our disciplined capital deployment as we focus on accretive risk adjusted returns when originating.

Jeffrey Brown: But as I've said many times on these calls, what I'm most proud of is the culture we build along the way. It's this team and this culture that will drive Ally to continue to disrupt, innovate and deliver value for all of our stakeholders going forward. As we'll cover on today's call, the company is stronger than ever in position for substantial earnings growth over the next several years. Leaving Ally is a difficult thing to do, but I'm excited to see the next chapter of evolution and innovation this time from the perspective of a customer.

Earning asset yields of 714% increased 15 basis points quarter over quarter and more than 150 basis points year over year, given the cumulative impact of trends, we've discussed previously, including retail auto portfolio yield expansion, the increasing contribution from higher yielding opex and over 50 billion.

Jeffrey Brown: I think it's very important to state there was no disagreement with our board or regulatory, financial or operational concern. This was really the only call that could have pulled me away from leading Ally. My relationship with Rick Hendrick, his family and the Hendrick Automotive Group excites me as I transition from my final chapter over the next 20 plus years. Ally in my entire time in the banking industry has blessed me in ways I've never dreamed. It has truly been an honor for me.

The floating rate exposure across our commercial loan and hedging portfolios.

Retail portfolio yield continued to expand this quarter as recent vintages comprised a larger portion of the portfolio.

I'll talk more about retail auto portfolio yield dynamics later commercial portfolio yields expanded alongside benchmark rates given their floating rate nature, turning to liabilities cost of funds continued to increase but the rate of change on both a quarter over quarter and year over year basis slowed relative to <unk> as we approach the end of the <unk>.

Jeffrey Brown: I won't say goodbye quite yet as I suspect I'll be with you again in January, but thank you for the support all these years.

<unk> cycle competition for deposits remains intense and market pricing increased within the quarter, but we have remained disciplined on pricing.

Jeffrey Brown: And with that, let's turn to slide number five to get into the quarter. Adjust the DPS of 83 cents core ROTC of 13% in revenues of 2 billion reflect another solid quarter of execution in a dynamic environment.

Teams of our NIM trajectory are largely unchanged, we expect NIM to trough a couple of quarters after rate stabilized followed by gradual expansion each quarter, even without the benefit of grape costs.

Moving to slide 13, our CET, one ratio increased quarter over quarter to nine 3% given our disciplined approach to capital allocation. Our TCE ratio of four 9% includes unrealized losses within our securities portfolio, which increased this quarter given the shift in long term rates.

Jeffrey Brown: I do want to highlight a few notable items impacting the quarter.

Jeffrey Brown: We recorded a $30 million restructuring charge associated with a workforce reduction. We expect the actions we've taken will drive 80 million in annualized savings heading into next year as we manage towards meeting our expense target. Additionally, we continue to evaluate ways to monetize certain tax credits and we're able to realize some of those benefits this quarter with the release evaluation allowance. We also realize benefits from certain state law changes. While we don't expect these items to occur every quarter, the tax team has done an excellent job over the years identifying ways to drive book value and capital accretion. In aggregate, non-recurring tax items provided a $94 million benefit worth 31 cents per share. These items are included in gap results, but we've excluded them from adjusted EPS and core ROTC 8.

Based on the current forward curve, we expect around $500 million per year of after tax OCI accretion as we allow the portfolio to roll off.

We announced another quarterly common dividend of <unk> 30 for the fourth quarter and as mentioned earlier the outlook for loan growth is modest and will be primarily comprised of auto assets at attractive risk adjusted levels.

Current levels, we exceed our 7% regulatory minimum for CET, one by $3 7 billion.

Let's turn to slide 14 to review asset quality trends consolidated net charge offs of 131 basis points increased quarter over quarter, given typical seasonal trends retail auto net charge offs of 185 basis points were in line with prior guidance of one eight to one nine.

Percent, we continue to see modestly offsetting impact that slightly elevated delinquencies and favorable flow to loss trends severity levels were elevated early in the quarter, reflecting softer used values had strengthened in September and.

Jeffrey Brown: Moving to operational performance, we continue to see solid results across the company. Within auto-finance, we generated record application volume of $3.7 million, which resulted in $10.6 billion of originations and attractive risk adjusted returns. Originated yields for the quarter were 10.7 percent, while 40 percent of our volume came from within our highest credit quality care as we continue to capitalize on strong returns within this segment. In total, we've now achieved accumulative pricing data of 95 percent in retail auto, which reflects our consistent approach to dealer engagement and positions us well for yield expansion from here.

In the bottom right 30 day delinquencies increased seasonally but the year over year change continues to decline.

Delinquencies will increase seasonally in the fourth quarter and we continue to assess the impacts of inflation, but remain comfortable with our full year NCO guidance I'll cover retail auto credit in more detail shortly.

Slide 15 shows the consolidated coverage increased one basis point to 273%. The total reserve balance of $3 8 billion was relatively flat quarter over quarter and is $1 2 billion higher than FIFA day one.

Jeffrey Brown: Netcharge Office on the Quarter were 185 basis points, which was in line with guidance an up quarter of a quarter given typical seasonality. Russ will go into more details on credit shortly, but we feel good about what we're seeing in terms of delinquencies, flow-to-loss rates, and vintage performance.

Our macro assumptions assume worsening employment conditions with unemployment, reaching four 3% next year before increasing beyond 6% under our reversion to historical mean methodology.

Retail auto coverage was flat at 362% and remains well above the 334% on.

Jeffrey Brown: Within insurance, we continue to successfully grow and deepen dealer relationships at 324 million of Oren premiums was our highest figure since 2009. Turning to Ally Bank, total deposits of 153 billion are up 7.1 billion year over year. We added 95,000 customers in the quarter, which results in 307,000 on a year-to-day basis in Ally record. We're now serving 3 million retail deposit customers, providing another proof point that our brand is resonating with consumers.

Peaceful day one.

The remaining weighted average life of our retail auto portfolio remained under two years, reflecting the coverage we have for expected lifetime losses of this portfolio.

Turning to slide 16, we remain focused on leveraging our differentiated go to market approach coupling high Tech and high touch which has generated significant scale and a competitive advantage record application flow enables us to be dynamic and selective in what we originate and continues to drive strong risk adjusted returns.

Ending assets in the top rate were up slightly quarter over quarter as commercial balances Gratulate increased alongside modest growth in retail auto <unk>.

Jeffrey Brown: 1.2 million active credit card holders continue to represent long-term opportunities for the business and the launch of a one-i-i experience will be completed in the coming months. Corporate finance continues to deliver a discipline growth is nearly 100% of the $10.6 billion portfolio is in a first-leam position.

Originations of $10 $6 billion on the bottom of the page demonstrates the scale of our franchise and the compelling volume, we're able to generate given application volume despite tighter underwriting criteria.

Given year to date volumes slightly above $30 billion, we remain on track to originate around $40 billion. This year in total consumer originations. Additionally.

Jeffrey Brown: On slide number six, we wanted to directly address some of the critical items that we're navigating and what's top of mind for investors. From an interest rate perspective, we've talked for multiple quarters about the near-term challenges of a rapidly rising rate environment. Operating throughout the cycle, the businesses have been disciplined in managing pricing on both sides of the balance sheet. We've also leveraged our strong alko processes, including an active hedging program to soften the financial impact from higher for longer rate scenarios.

Additionally, used comprised 66% of originations, which was up modestly quarter over quarter and highlights our ability to navigate industry disruptions in new vehicle production non.

Non prime again represents less than 10% of retail originations in the quarter.

Let's move to slide 17 to talk about the scale of our auto franchise.

Put simply our goal is to help our dealers sell as many cars and trucks. It's possible, we encourage them to send us all of their application volume.

Increased application volume means increased incremental work in cost and our side, but enables us to be selective on what we choose to originate in terms of credit criteria and pricing. This.

Jeffrey Brown: Beyond the near-term pressure, the momentum we have on the asset side of the balance sheet positions us well from margin expansion when rates stabilize. Actively managing credit risk remains a top priority. We refined our buybox to eliminate under-performing segments and added significant price, particularly in riskier segments, to compensate for potential volatility. Based on where we see things today, we'd expect retail auto NCOs of 1.8 percent for the full year, which is in line with the range we've provided in January.

This year, we will decision $13 5 million applications or $400 billion in potential loan and loan volume.

By optimizing within that application volume, we are on track to book around $40 billion in consumer volume 37 billion in retail auto loans at an estimated 10, 7% yield with approximately 37% of the volume in our highest credit tier.

Assessing $13 5 million applications as a result of unique scale and strong mutually beneficial relationships with our dealer customers.

Jeffrey Brown: This is a unique environment where unemployment remains historically low, however, persistent inflation is a challenge for many consumers. The link with these remain a watch item, but we saw another quarter of shallowing in terms of year-over-year change and flow-to-loss rates remain strong. In consistent with prior guys, we assume a meaningful step down and use vehicle values for the remainder of the year. The investments in data science and technology we've made within our collections and servicing teams will drive solid performance even in a challenging environment. We have a much deeper understanding of consumer payment patterns and more options to get consumers current and staying in their cars.

Scale allows us to adapt quickly to changing market conditions like we did with returns and Super Prime volume became more attractive earlier this year.

Our ability to pivot up and down the credit mix should also give you more confidence in our ability to continue booking very strong yield going forward, we'll continue to leverage our platform to optimize our capital allocation within the auto business.

Let's move to slide 18, which highlights the tailwind is embedded in our retail auto portfolio.

Throughout this tightening cycle, we've demonstrated strong pricing on both sides of our balance sheet with retail auto data around 95% and a deposit beta around 70%.

Jeffrey Brown: News. Given the near term revenue pressure, we further heightened our focus on expenses. Looking to 2024, we'll continue making prudent investments that see a path for less than 1% controllable expense growth, and roughly 2% on a total expense basis. I'll share more details in a few pages. On the regulatory front, we continue to evaluate the proposals released in recent months in our preparing for increased capital and liquidity across the industry. However, we believe that regulators should fully study the implications of these proposals, and we're working closely with BPI and other advocacy partners. We will continue to be disciplined in allocating capital across our various businesses to optimize risk-adjustive returns.

While origination pricing has been strong the majority of the portfolio of yield yielding 8% or less only 38% of the portfolio was originated this year as.

As we continue to originate loans at today's pricing the run off of lower yielding vintages being replaced by current originations drive natural yield expansion on our largest asset class assuming stable originated yields turnover is projected to drive the portfolio to nine 5% in 2024.

And at 10% in 2025.

On an $85 billion portfolio that yield expansion drive meaningful revenue growth over the medium term RV.

Obviously, the path of interest rates and the credit mix of our originations will impact the eventual yield migration, but we remain confident retail portfolio yield will meaningfully increase over the next couple of years.

Jeffrey Brown: Slide number seven shows the success we've had creating scale across Ally banks and deepening relationships with engaged customers. As mentioned, a year-to-date customer growth of 307,000 is an Ally record, and we now have 3 million retail deposit customers who hold 140 billion in balances. The portfolio is granular, diversified, and 92% of balances are FDIC-insured. Customer retention has held steady at 96% reflecting our industry-leading ability to maintain relationships once customers experience Ally.

On slide 19, we provide context around retail auto credit trends to date as well as our outlook for the fourth quarter. As noted previously we ended the quarter with npls of 185% inline with expectations.

Additionally, the full year outlook remains on track for losses of one 8%. The drivers of performance are consistent with what we've shared on recent earnings calls we continue to monitor delinquency levels, which have been elevated this year, but importantly flow to loss rates remained well below pre pandemic levels and have been consistent throughout the year.

And vintage performance trends have been encouraging loans originated last year show improving trends as they season, and our strategic shift into higher credit quality loans will ultimately reduce portfolio loss content.

Jeffrey Brown: The bottom half of the page highlights how our offerings have led to an engaged customer base in the key benefits of that engagement. We've steadily grown our checking, or what we call our spending product, to more than 1 million customers. Across that population, 77% also have a liquid savings account. More than 1 million deposit customers, either leverage our smart savings tools, utilize direct deposit, and or have an Ally Invest relationship. We're approaching 300,000 multi-product customers across the consumer bank as we've seen consistent adoption from deposit customers across Invest, Home, and Card.

On the bottom left we've again provided quarterly loss expectations will result in a full year loss of around one 8%.

We've lowered the bottom end of our fourth quarter loss rate expectation given the support in used values. We expect from the UAW strike, which I'll cover on the next page on the bottom right. We show the year over year change in 30 day delinquency rates, which had climbed again for the third quarter in a row.

Slide 20 provides our latest view of used vehicle values given performance year to date, which has resulted in values flat relative to year end 2022, following a 4% decline in the third quarter.

Jeffrey Brown: The benefit of engagement is meaningful. As an example, deposit customers who also have an Invest relationship have a balance two times those who don't. Our brand digital offerings and customer experience continues to hit the mark, and we remain optimistic about the growth potential within the consumer bank moving forward.

We continue to embed a conservative outlook for used values and maintain our longer term outlook for further declines, but the UAW strike is expected to provide support near terms.

We are currently forecasting a 4% decline in the fourth quarter and thereby on a full year basis, as well and elongated strike could create a near term support for used vehicle values, but wed also pressure for client balances and our insurance business. So the net P&L impact is immaterial overall.

Jeffrey Brown: Moving to slide number eight, we provided a snapshot of our current funding stack and available liquidity. We're core funded with deposits as they account for 87% of our funding, but importantly, we have multiple sources of liquidity beyond deposits. On the right side, we showed total available liquidity of 64.2 billion, representing 5.6 times uninsured deposit balances. We meaningfully increased our capacity as the discount window within the quarter to further strengthen the quality of our contingent liquidity. We pledge auto-finance key contracts at the discount window for the first time in our appreciative for the engagement with the Federal Reserve as we work together through that process.

Let's move to slide 21 to cover auto segment results.

Pre tax income of $377 million reflected pricing momentum alongside higher provision in noninterest expense.

Provision reflected typical seasonality while expenses were the result of elevated repo cost across the industry and requisite spend to support the strength and scale, we just highlighted.

On the bottom left we've highlighted the consistent progression and portfolio yield up more than 160 basis points year over year. Despite the progression to date the portfolio is still well below recent originated yields once again, highlighting the perspective <unk> to earning assets.

Jeffrey Brown: The events of March emphasized, again, the importance of contingency planning and ensuring multiple avenues of liquidity being available at all times. The foundation of our funding profile is a mature consumer deposits franchise and we maintain access to multiple other sources of liquidity, including a solid and stable relationship with the home loan bank.

The bottom right chart summarizes leased portfolio trends gains declined quarter over quarter, but were favorable year over year, given the decline in dealer unless the buyouts and.

And we continue to assess the near term net impact from the UAW strike I've used values are supported by tighter supply could lead to elevated dealer unless the buyouts.

Jeffrey Brown: Slide number nine provides a summary of how we're thinking about recently proposed changes to the regulatory environment. For our life, the most meaningful impact of the Basel 3N game proposal is the phase-in of OCI. As a reminder, we have not reinvested in the AFS portfolio in over a year and expect natural OCI accretion of around 500 million aftertax annually, assuming the forward curve plays out. In terms of the proposed changes to RWA, our net impact is not material as the addition of operational risk RWA is effectively offset by a lower risk weight on retail exposures, including our retail auto portfolio.

Turning to insurance on slide 22 core pretax income of $30 million was the result of the highest earned premium revenue since 2009, partially offset by elevated loss activity given the highest severe weather activity since 2014.

The reinsurance we have in place are capped our exposure, but weather was still a headwind given favorability as seen in the prior year.

Our proactive engagement with dealers to mitigate losses was on display again in the third quarter.

Initial estimates for property losses from Hurricane diarrhea, exceed $2 5 billion, but given our actions, we didnt incur any losses from the storm.

Jeffrey Brown: I'm confident we can naturally build capital to make increased requirements in advance of the proposed implementation periods. The proposed requirements for long-term debt would result in incremental issuance for our ally, given all our long-term debt sits at the parent company. The amount of issuance will depend on several factors as we optimize parent and bank level liquidity positions. On all these issues, we are actively engaged in our industry response, including coordination with peer banks and the bank policy institute.

Aimed storm often give dealers the time to move inventory, but this still takes a lot of coordination. The challenges. We faced are the violent hail and wind storms with little warning.

And that was more what was encountered in the previous quarter.

Written premiums of $335 million increased 15% year over year as we remain focused on increasing dealer relationships and benefit from normalizing inventory levels. Our focus remains on leveraging the scale, we've established within auto finance and highlighting our full spectrum product suite to dealers driving further integration of insurance.

Jeffrey Brown: We will continue to evaluate the regulatory landscape and adapt as needed but feel comfortable in our ability to navigate the changes given our strong liquidity in capital position.

<unk> auto dealer base.

Turning to slide 23 retail deposits of $140 billion increased $1 1 billion quarter over quarter, and $6 2 billion year over year, demonstrating the strength and resilience of our leading franchise total deposits of $153 billion were up $7 billion year over year.

Jeffrey Brown: Let's turn to slide number 10 to talk about our expense outlook. As we previewed on the second quarter of earnings call, we are committed to 1% growth for the expenses we can control. When factoring things like FDIC fees and insurance commissions and losses, we expect total operating expense growth of around 2%.

95000, net new customers was our 58th consecutive quarter of growth and year to date customer growth of 307000 is the highest in ally bank of history.

Jeffrey Brown: We have taken specific actions over the past year to reduce expense growth, including a hiring freeze in mid-2022 in a reduction in workforce in recent weeks. It's also important to keep in mind that expense growth this year was impacted by the normalization of weather losses and consumer credit losses.

2023 is on track with our highest annual customer growth and ally bank history as customers become increasingly aware of the opportunity to earn more on their savings and the value Allied provides beyond rate and we continue to see strong growth in multi product customers, which has grown by 30% annually over the past.

Jeffrey Brown: In total, we still anticipate 2023 expenses a little over $4.9 billion in giving the actions we take into date, we expect 2024 to be right around $5 billion. So around $100 million of growth with 80% of that coming in the form of non-controllable items. We will continue to make the right investments to fuel the company for the long term, but the specific actions we've taken in continued focus on efficiency are driving us to very modest growth in total.

Every years.

The continued evolution and consumer preferences driving the migration towards digital offerings provides a tailwind for continued growth across the entirety of our customer base and product suite.

Moving to slide 24, our digital banking platforms provide diversification and deepen customer relationships.

Ally invest complement the deposit franchise as well as we once again saw 85% of new account openings from existing customers as they leverage the ease of money movement between accounts within ally ally credit card added 53000, new cardholders in the quarter now $1 2 million strong as we prudently grow the portfolio.

Russell Hutchinson: With that, I'll turn it over to Russ to go through the detailed financial results. Thank you, J.B. Good morning, everyone.

Russell Hutchinson: I'll begin on slide 11. Net financing revenue of 1.5 billion was down your over a year driven by the continued pressure on funding costs given increased short term rates as the majority of our consumer deposit portfolio is comprised of liquid products. While the strong pricing momentum we've demonstrated on the asset set of the balance sheet partially mitigates the near-term compression and sets us up for strong near-expansion. We'll come back to near-expansion in a few slides.

The continued integration and launch of one ally in the fourth quarter, we will accelerate our ability to deepen relationships across our product suite.

Our lending balances were relatively flat given our disciplined approach to underwriting and capital allocation.

Corporate finance results are on slide 25 core pretax income of $84 million was up $13 million quarter over quarter benefiting from higher interest rates given the entire portfolio is floating rate the year over year comparison was down slightly as an investment gain in the prior year period did not repeat.

Russell Hutchinson: Adjusted other revenue of 491 million increased year-over-year and quarter-over-quarter reflecting momentum within our insurance business as well as our smart auction and pass through initiatives in auto finance, which we highlighted last quarter. Despite modest investment gains were effectively at the $500 million quarterly run rate we've previously alluded to and continue to see opportunities for expansion ahead. Provision expense of $508 million was up quarter-over-quarter reflecting seasonal trends and a modest reserve bill to support asset growth.

But was largely offset by accretive disciplined asset growth the portfolio remains high quality with 61% asset based and 100% of loans are in a first lien position, our <unk> portfolio balance of $10 6 billion shows modest growth, reflecting the team's discipline and focus on maximizing risk adjusted return.

<unk>.

Slide 20 fixed includes details for mortgage finance mortgage generated pretax income of $26 million and $267 million of direct to consumer origination.

Russell Hutchinson: Retail NCOs were in line with prior guidance. I'll provide a more granular update on retail auto credit shortly. Non-interest expense of $1.2 billion reflects higher costs within auto finance relating to application volume and higher repo cost seen across the industry. Record application volume drove higher variable cost within auto finance but has enabled us to achieve a nearly 95% pricing beta throughout the tightening cycle. The incremental revenue driven by the strength of our pricing significantly exceeds the marginal expense of increased application flow.

Expenses were down $10 million year over year, highlighting the benefits of a variable cost part of our model.

More than half of our origination volume came from existing deposit customers highlighting the benefits of our one hour experience and deepen customer relationships. We remain focused on a great experience for customers rather than a specific origination target.

Slide 27 contains our current financial outlook for 2023, the operating environment remains dynamic and interest rate volatility that increasing the difficulty in providing granular guidance, but we're committed to maintaining a transparent approach to guidance based on what we know currently youll notice the pages.

Russell Hutchinson: We've also seen higher pricing from third-party vendors when vehicles go to repossession. We remain focused on minimizing net credit losses and bottom line impacts to ally. Despite these headwinds, the year-over-year growth in expenses slow to gain this quarter as our efficiency initiatives begin to take hold. As JB covered, our recent actions to reduce costs position us for $80 million in annualized savings next year and the anticipated year-over-year growth reflects our ability to navigate the near-term revenue headwinds brought on by the higher interest rate environment.

Largely unchanged versus the outlook we provided in July .

Assuming the forward curve from quarter end peak fed funds is unchanged versus <unk> guidance at five 5%, but cuts have been pushed out considerably continued competition for deposits has put incremental pressure on portfolio yields which could tick up to four 2% in the fourth quarter and we see full.

Russell Hutchinson: We've called out the $30 million of restructuring costs which has been excluded from core pre-tax results. GAP and adjusted EPS for the quarter were 88 and 83 cents respectively. We've excluded the benefit of certain tax planning strategies from adjusted EPS to better reflect underlying recurring results but these tax benefits are a nice boost to capital generation. Moving to slide 12, net interest margin of 3.26% was down 15 basis points quarter-over-quarter. Momentum within earning asset yields continued in the quarter but was offset by deposit costs as the LSA rate moved up within the quarter.

Year, NIM above three 3% likely in the 335% area.

Our expectation for full year 2023, other revenue remains $1 $9 billion, and importantly were achieving the $500 million quarterly run rate, we guided to you in January .

And as we as we covered previously retail auto portfolio yield is still projected around 9% in the fourth quarter with continued expansion thereafter retail Ncos are expected to be at one 8% for the full year unchanged from prior guidance and no change to operating expense guidance as we limit spend.

Russell Hutchinson: Total average loans and leases of $149 billion were up $8 billion year-over-year driven by growth within commercial and retail auto balances. Quarter-over-quarter growth of 1.5 billion reflects our discipline capital deployment as we focus on a creative risk-adjusted returns when originating. Turning asset yield of 7.14% increased 15 basis points quarter-over-quarter and more than 150 basis points year-over-year given the cumulative impact that trends we discussed previously including retail auto portfolio yield expansion, the increasing contribution from higher yielding assets, and over $50 billion of floating rate exposure across our commercial loan and hedging portfolio.

Non discretionary costs and essential investments.

We see the tax rate closer to 9% for the year given some of the tax planning items that hit in <unk>, We expect our near term effective tax rate to return to approximately 18% absent tax planning items as we've had solid momentum in generating EBIT tax credits and expect that trend to continue.

While elevated and increasing interest rates are a headwind.

We expect most of the tightening cycle is behind us and have positioned the balance sheet for margin and earnings growth over the medium term and we remain confident in our ability to continue to execute and drive long term profitability.

Russell Hutchinson: CEOs. Retail portfolio yield continued to expand this quarter as recent ventages comprise a larger portion of the portfolio. I'll talk more about retail auto portfolio yield dynamics later. Commercial portfolio yields expanded alongside benchmark rates, given their floating rate nature. Turning the liabilities, cost of funds continued to increase but the rate of change on both a quarter of a quarter and a year-over-year basis slowed relative to 2Q as we approach the end of the tightening cycle.

From my perspective, David News last week with a bit of a surprise.

But when you unpack it and also realize his love for cars and the Hendrick Group. This was simply the right next step for him.

We're going to Miss JV yearly and at the same time, we're excited for him Jb's news in no way changes, how I feel about the opportunity or ally I'm excited for all that we have to accomplish my fantastic teammate and allies attractive financial outlook. The scale businesses are in an enviable position.

Russell Hutchinson: Competition for deposits remains intense and market pricing increased within the quarter, but we have remained disciplined on pricing. The themes of our NIM trajectory are largely unchanged. We expect NIM to trough a couple quarters after rates stabilized, followed by gradual expansion, each quarter, even without the benefit of rate costs. Moving to slide 13, our CET-1 ratio increased quarter-over-quarter to 9.3% given our disciplined approach to capital allocation. Our TCE ratio of 4.9% includes unrealized losses within our AFS securities portfolio, which increased this quarter given the shift in long-term rates.

I remember talking to J D and the team about the moat positions.

And it's clear that those had been established today and with that I'll turn it back to J D.

Thank you Ross I will certainly Miss you and this entire team as well.

The strategic priorities, which guide everything we do our unwavering and essential for our long term success first.

First and foremost is ensuring we maintain strong alignment between our culture and our stakeholders.

We're focused on highlighting the differentiated offerings across our businesses for both consumer and commercial customers.

Russell Hutchinson: Based on the current forward curve, we expect around $500 million per year of after-tax OCI accretion as we allow the portfolio to roll off. We announced another quarterly common dividend of $0.30 for the fourth quarter, and as mentioned earlier, the outlook for loan growth is modest and will be primarily comprised of auto assets and attractive risk-adjusted levels. At current levels, we exceed our 7% regulatory minimum for CET-1 by $3.7 billion.

We will continue finding ways to disrupt the industry and remove friction for customers by delivering.

Leading digital experiences and even more important in this dynamic environment.

Disciplined approach to risk management and capital allocation.

I am confident these priorities and this management team will help us deliver value for all stakeholders.

And with that Sean back to you we can head into Q&A. Thank you Jamie as we head into Q&A, we do ask that participants limit yourself to one question and one follow up Carmen. Please begin the Q&A.

Russell Hutchinson: Let's turn to slide 14 to review asset quality trends. Consolidated net charge-offs of 131 basis points increased quarter-over-quarter given typical seasonal trends. Retail auto net charge-offs of 185 basis points were in line with prior guidance of 1.8 to 1.9%. We continue to see modestly offsetting impacts of slightly elevated delinquencies and favorable flow to loss trends. The variety levels were elevated early in the quarter, reflecting softer used values that strengthened in September. In the bottom right, 30-day delinquencies increased seasonally, but the year-over-year change continues to decline.

Thanks, Sean and as a reminder to get into queue simply press star, one one and to remove yourself.

The process started 111 moment, while we compile the Q&A roster.

Alright, one moment for our first question comes from the line of Ryan Nash with Goldman Sachs. Please proceed.

Hey, good morning, guys.

J B, obviously, you gave a lot of color on the decision to exit the company, maybe just to dig a tiny bit deeper did did your view of the returns that the company is capable of generating over an intermediate timeframe.

Russell Hutchinson: Delinquencies will increase seasonally in the fourth quarter, and we continue to assess the impacts of inflation, but remain comfortable with our full-year NCO guidance. I'll cover retail auto credit in more detail shortly. Slide 15 shows that consolidated coverage increased 1 basis point to 2.73%. The total reserve balance of $3.8 billion was relatively flat quarter-over-quarter and is 1.2 billion higher than CET-1. Our macro assumptions to see emorcerning employment conditions with unemployment reaching 4.3% next year, before increasing beyond 6% under our reversion to historical mean methodology.

Impacted decision at all and if not do you still believe mid teens and a $6 of EPS over time are still the right levels for this company over time.

Yes, Ryan Thanks.

Thanks for the question.

Now financial outlook did not change or drive.

Decision in any way shape or form.

<unk>, even more confident in the financial.

<unk> the company going forward I think obviously rates as Russ and I, both alluded to a benefit factor in kind of driving some of the margins Greenslet, we face, but as you start to roll the balance sheet forward and I think we tried to include three or four new slides. This time that really hit by this point.

Russell Hutchinson: Retail auto coverage was flat at 3.62% and remains well above the 3.34% on CET-1. The remaining weighted average life of our retail auto portfolio remains under 2 years, reflecting the coverage we have for expected life-pen loss is a best portfolio.

So as you start to have all of the balance sheet forward, I mean, youre going to be 4% plus type of NAND and easily into the mid teens. So.

Russell Hutchinson: Leal.

This was not driven at all about any change in confidence in the strategic outlook our financial outlook.

Russell Hutchinson: Turning to slide 16, we remain focused on leveraging our differentiated go-to-market approach, coupling high-tech and high-touch, which has generated significant scale and a competitive advantage. Record application flow enables us to be dynamic and selective in what we originate and continues to drive strong risk-adjusted returns. Ending assets in the top right were up slightly quarter to quarter as commercial balances gradually increased alongside modest growth and retail auto. Originations of 10.6 billion on the bottom of the page demonstrates the scale of our franchise and the compelling volume were able to generate given application volume, despite tighter underwriting criteria.

As you've heard me say this is.

Yes, it's been honored leading ally for nine years.

I had no real intentions to go but this was one call that I had talked to my board about for really the past two years, but at this call ever came that would be the one call I'd, probably take and at least listened to and obviously life, sometimes throws U curve balls and.

And that's what happened in this scenario, but.

Mr Hendrix, and the Hendrick automotive group they are unbelievable people and partners. Obviously, we touch so many thousands of dealers day in and day out and this is really.

Russell Hutchinson: Given year-to-date volumes slightly above $30 billion, we remain on track to originate around 40 billion this year in total consumer originations. Additionally, used comprised 66% of originations, which was up modestly quarter over quarter and highlights our ability to navigate industry disruptions and new vehicle production. Non-prime again represents less than 10% of retail originations in the quarter.

The Premier franchise, what's out there.

We will evolve our dealer partners, but this was really a dream opportunity for me to go work with EMEA and our family of company led I have got to know for a number of years, but I deeply love and admire EMEA, it's a big business.

North of $12 billion in annual revenues, they sell 200000 cars big parts player.

Russell Hutchinson: Let's move to slide 17 to talk about the scale of our auto franchise. Put simply, our goal is to help our dealers sell as many cars and trucks as possible. We encourage them to send us all of their application volume. Increased application volume means increased incremental work and cost on our side, but enables us to be selective on what we choose to originate in terms of credit criteria and pricing. This year, we will decision 13.5 million applications or $400 billion in potential loans and loan volume.

Work in the defense industry as well so it just.

It fit in so many reasons for me to make this personal decision. It is hard to leave ally a lot of great teammates and certainly that weighed on me as I as I made this decision but.

Nothing about the financial outlook, the strategic outlook and frankly I think the next CEO that comes is going to have a financial profile, it's pretty damn.

<unk> going forward and so sorry for the long winded response, Ryan, but that's really what drove that no change in in my view are my degree of confidence in it is going to be fun being an awfully big ally customer assets.

Russell Hutchinson: By optimizing within that application volume, we are on track to book around $40 billion in consumer volume, $37 billion in retail auto loans at an estimated 10.7% yield with approximately 37% of the volume in our highest credit tier. Accessing 13.5 million applications is a result of unique scale and strong mutually beneficial relationships with our dealer customers. And that scale allows us to adapt quickly to changing market conditions, like we did when returns and superprime volume became more attractive earlier this year. Our ability to pivot up and down the credit mix should also give you more confidence in our ability to continue booking very strong yields.

Got it no I appreciate all the color on that JV. So.

Russ I hope all is well and maybe you can dig in on the net interest margin I know you noted that NIM.

NIM will trough a couple of quarters after rates stabilize and I think you said around $3 35 for the fourth for the full year, which I think implies a couple of basis points decline in the fourth quarter. So can you maybe just maybe just flush out a little bit of the near term margin dynamics do you think <unk> is the trough and then can you maybe just unpack some of the numbers.

In the trajectory of the NIM under either higher for longer or the forward curve, which obviously seems to be implying two to three cuts for next year.

Russell Hutchinson: Going forward, we'll continue to leverage our platform to optimize our capital allocation within the auto business.

Sure. Thanks, Brian .

Russell Hutchinson: Let's move to slide 18, which highlights the tailwinds embedded in our retail auto portfolio. Throughout this tightening cycle, we've demonstrated strong pricing on both sides of our balance sheet. With retail auto beta around 95% and a deposit beta around 70%. While origination pricing has been strong, the majority of the portfolio is yielding 8% or less. Only 38% of the portfolio was originated this year. As we continue to originate loans at today's pricing, the runoff of lower yielding ventages being replaced by current originations drives natural yield expansion on our largest asset class.

Okay.

Youre spot on in terms of thinking about 2023.

And I think youre spot on with the commentary in terms of rates trough being within a couple of quarters. I think the key question, there is whether where where do rates go from here and I think we are under the view that we are towards the end of the tightening cycle.

So to the extent that we're already there I think we could see rates start to expand through the first half of next year. So you could see NIM start to expand in the first half of next year.

To the extent that we're not quite there but close.

Russell Hutchinson: Assuming stable originated yields turnovers projected to drive the portfolio to 9.5% in 2024 and at 10% in 2025, on an $85 billion portfolio that yield expansion drives meaningful revenue growth over the medium term. Obviously, the path of interest rates and the credit next of our originations will impact the eventual yield migration, but we remain confident retail portfolio yields will meaningfully increase over the next couple years.

But that that expansion could be could be delayed.

All that being said I think as JV pointed out as I pointed out earlier, the dynamics of our of our portfolio and that replacement effect that we pointed out in some of the pages earlier is strong and it's real and in our view. It is a question of timing in terms of rate expansion as opposed to a.

A question of apps and I would say and we like to think about things here in terms of a stable rate environment. So a higher for longer scenario and in that context, we would expect 5% to 10 basis points per quarter of NIM expansion.

Russell Hutchinson: On slide 19, we provide context around retail auto credit trends to date, as well as our outlook for the fourth quarter. As noted previous recently, we ended the quarter with NCOs of 1.85 percent in line with expectations. Additionally, the full year outlook remains on track for losses of 1.8 percent. The drivers of performance are consistent with what we've shared on recent earnings calls. We continue to monitor delinquency levels, which has been elevated this year, but importantly, low to loss rates remain well below pre-vendemic levels and have been consistent throughout the year.

And obviously as you say to the extent that we see.

We see cuts on the short end, we could see that that that expansion expedited.

Got it I appreciate all the color.

Yes.

Thanks, Ron.

Thank you one moment for our next question. Please.

Russell Hutchinson: And vintage performance trends have been encouraging. Loans originated last year, shown proving trends as a season and our strategic shift into higher credit quality loans will ultimately reduce portfolio loss content. On the bottom last, we've again provided quarterly loss expectations result in a full year loss of around 1.8 percent. We lowered the bottom end of our fourth quarter loss rate expectation given the support and use values we expect from the U.A.W, strike, which I'll cover on the next page. On the bottom right, we show the year-over-year change in 30-day delinquency rates, which has declined again for the third quarter in a row.

And he comes from the line of Sanjay <unk> with <unk>. Please proceed.

Thanks, Good morning, JB Congrats Marissa.

Thank you yes.

It's been quite a ride.

Maybe you guys can talk about where we are with the CEO search and what the criteria might be is it internal external any any meaning in terms of that.

Yes, Sanjay thanks.

Still say.

A bit of the early stages I head.

Obviously talk to my chair of the board what I would.

Russell Hutchinson: Slide 20 provides our latest view of used vehicle values given performance year-to-date, which has resulted in values relative to year end 2022 following a 4 percent decline in the third quarter.

Considering this.

The board.

And our search committee had a bit of time to sort of start structuring around thoughts about what a candidate profile would look like all those things. So that is underway obviously now.

Russell Hutchinson: We continue to embed a conservative outlook for used values and maintain our longer term outlook for further decline, but the U.A.W, strike is expected to provide support in year terms. We are currently forecasting a 4 percent decline in the fourth quarter and thereby on a full year basis as well. A long-aided strike could create a near-term support for used vehicle values, but would also pressure four-point-blast balances and our insurance business. The net P&L impact is immaterial overall.

And the timing of this was really related we had our board meeting last week and at that meeting that was what I officially submitted.

You might notice to lead the firm at that point in time, and so obviously, we went public last Wednesday with this but I would say the board is too.

Doing a great job I am excited to be able to say I'll be involved in that process and.

And that's very important to me in finding the right type of leader in partnership with our board to really carry ally forward for the next 510 15 years.

Russell Hutchinson: Let's move to slide 21 to cover auto-segment results. Pretax income of $377 million reflected pricing momentum alongside higher provision and non-interested expense. Prevision reflected typical seasonality while expenses were the result of elevated repo cost across the industry and requisite spend to support the strength and scale we just highlighted.

So it's obviously easier lift things are out in the public domain that you can conduct an external search for working with a leading global search firm and so that's underway.

And I think our board is very focused on trying to get.

Russell Hutchinson: On the bottom left, we've highlighted the consistent progression in portfolio yield, up more than 160 basis points year-over-year. Despite the progression to date, the portfolio is still well below recent originated yields, and once again highlighting the prospective tailwinds to earning assets.

Somebody that can really carry the culture of the company forward.

And also can continue to transform the businesses.

I'm very proud of what's been accomplished over nine years, but as I've said to every one of my leaders.

All of our employees and our board it's never about one person. This has always been this transformation has been led by an incredible team and I am fully confident in their ability to continue executing in this next chapter. So I think our new leader will come in recognizing they have an exceptionally strong management team they have.

Russell Hutchinson: The bottom right chart summarizes least portfolio trends, gains declined quarter-over-quarter, but were favorable year-over-year, given the decline in dealer and less the buyouts. And we continue to assess the near-term net impact from the UAW strike, as used values are supported, but tighter supply could lead to elevated dealer and less the buyouts.

Hungry employee base and all of US believe allies never really fully got the credit for the transformation led has been executed and I think that's going to be a neat opportunity for our next leader to to go and crack and so.

Russell Hutchinson: Turning to insurance on slide 22, core pretext income of 30 million was the result of the highest earned premium revenue since 2009, partially offset by elevated loss activity given the highest severe weather activity since 2014. The reinsurance we have in place kept our exposure, but weather was still a headwind given favorability seen in the prior year.

It's underway Sanjay I'd, obviously set.

I would I would be here through the end of January if needed.

I suspect that timing is going to be right around the mark of one will bring in a new leader, but obviously going to be a very close customer of ally and it's in my interest to ensure we get a great leader a transformational leader culture carrier a servant leader all those things, but I think I've tried to be.

Russell Hutchinson: Our proactive engagement with dealers to mitigate losses with undisplayed gain in third quarter.

Russell Hutchinson: Initial estimates for property losses from Hurricane Italia exceed 2.5 billion but given our actions we didn't incur any losses from the storm. Named storm often gives dealers the time to move inventory but this still takes a lot of coordination. The challenges when faced are the violent hail and wind storms with little warning and that was more what was encountered in the previous quarter. Written premiums of 335 million increased 15% year over year as we remain focused on increasing dealer relationships and benefit from normalizing inventory levels. Our focus remains on leveraging the scale we've established with an auto finance and highlighting our full spectrum product suite to dealers driving further integration of insurance across our auto dealer base.

Here, we get somebody, let's even going to take that to the next level. So it's underway and I would hope.

By the end of January you'll be talking to our next CEO .

Okay, Perfect and then my follow up question.

Appreciate slide nine that sort of go through all the implications of the proposed regulation, but maybe if we take a step backwards could you just maybe over the next two years, how should we practically think it flows through the P&L and the balance sheet like what specific lines does it impact I mean, maybe there's debt issuance obviously capital return maybe you can just talk about.

How we should think about that over the next couple of years. Thanks.

Yes sure. Thanks Sanjay.

Russell Hutchinson: Turning this slide 23 retail deposits of 140 billion dollars increased 1.1 billion quarter over quarter and 6.2 billion year over year demonstrating the strength and resilience of our leading franchise. Total deposits of 153 billion dollars were up 7 billion year over year. 95,000 net new customers was our 58th consecutive quarter of growth. Year-to-date customer growth of 307,000 is the highest in ally bank history. 2023 is on track with the highest annual customer growth in ally banks history as customers become increasingly aware of the opportunity to earn more on their saving and the value ally provides beyond rates.

It's a great question. It's obviously one that's complicated by the fact that these are proposals and as J P mentioned earlier, we're working with BPI and other industry constituents to make sure our feedback is reflected.

As <unk>.

You've heard the industry has had a reaction to the proposals as they're currently stated.

All that being said and maybe I'll start with Basel III and gain the biggest impact for US is in terms of OCI.

And I will just make it clear we can manage.

We can manage within that transition time period that has been proposed so far without doing anything unnatural that as we can manage it organically.

As you can imagine, it's obviously curtailed our share repurchases.

Russell Hutchinson: And we continue to see strong growth in multi-product customers which is grown by 30% annually over the past several years. The continued evolution in consumer preferences driving the migration towards digital offerings provides a tailwind for continued growth across the entirety of our customer base and products suite.

And quite frankly, if you look at our auto business just looking at the attractiveness of the assets that we're seeing from our dealer partners.

We have certainly had to be restrained in terms of in terms of our origination volume and its also forced us to really make hard decisions around the growth trajectory of some of our growth businesses.

Russell Hutchinson: Moving to slide 24, our digital bank platforms provide diversification and deep and customer relationships. Ally invests complement to the positive franchise well as we once again thought 85% of new account openings from existing customers as they leverage the ease of money movement between accounts with an ally. Ally credit card added 53,000 new card holders in the quarter now 1.2 million strong as we prudently grow the portfolio.

All that being said, we can manage within the timeframe that's been provided and the only only significant real impact for us.

On the capital line is that <unk> inclusion.

When you look at long term debt in its very early in his JV laid out on a slide the binding requirement for US is the 6% of <unk> at the bank level, because as you can imagine our unsecured debt issued at our holding company level, we actually don't have unsecured debt at the bank level today.

Russell Hutchinson: The continued integration launch of one ally in the fourth quarter will accelerate our ability to deepen relationships across allies product suite. Ally lending balances were relatively flat given our discipline approach to underwriting and capital allocation.

And so that's going to require us to.

Proposal is currently stated it's going to require us to really look through the liquidity, we have at the holdco versus the bank level and look at our issuance and that could drive incremental issuance from where we sit today, which would obviously, we have which would which would obviously come with.

Russell Hutchinson: Corporate finance results are on slide 25. Court pretext income of 84 million with up 13 million quarter of a quarter benefiting from higher interest rates given the entire portfolio is floating right. The year over year comparison was down slightly as an investment gain in the prior year period did not repeat but was largely offset by a creative disciplined asset growth.

With additional interest expense.

Okay, and then just in terms of like you could take that liquidity and invest that too so it wouldn't be the full impact right.

Russell Hutchinson: The portfolio remains high quality with 61% asset based and 100% of loans are in a first lane position. Our HFI portfolio balance of 10.6 billion shows modest growth reflecting the team's discipline and focus on maximizing risk adjustment, for the United States of America and the United States of America.

Yes, that's absolutely correct and just to be clear when you think about Basel III and game from an <unk> perspective, there are puts and takes but we don't see any significant change for <unk> that is the increase in operational <unk> completely offset by some of the benefits we see in our retail loan portfolio.

Okay, great. Thank you very much.

Thank you for a moment for our next question. Please.

Today's call May come from the line of Jon <unk> with RBC capital markets. Please proceed.

Russell Hutchinson: We remain focused on a great experience for customers rather than a specific origination target.

Russell Hutchinson: Fly 27 contains our current financial outlook for 2023. The operating environment remains dynamic and interest rate volatility persists, increasing the difficulty in providing granular guidance. But we're committed to maintaining a transparent approach to guidance based on what we know currently. You'll notice the pages largely unchanged versus the outlook we've provided in July. Assuming a forward curve from quarter end, peak Fed funds has unchanged versus QQ guidance at 5.5%, but cuts have been pushed out considerably.

John Please state your mute button.

Can you hear me all right.

Yes, Sir.

Alright, Thank you I appreciate that.

Quick question for you on slide 19.

Just curious what the big picture messages on auto credit performance.

It sounds simple, but on one hand, the charge offs are going up on the other hand.

Delinquencies are going down.

Whats the message you're trying to send and as we look past the fourth quarter into 2024 with the delinquency numbers. It feels like credits would actually be doing better is that too simple.

Russell Hutchinson: Continued competition for deposits has put incremental pressure on portfolio yields which could pick up to 4.2% in the fourth quarter. And we see full year NAM above 3.3% likely in the 3.35% area. Our expectation for full year 2023 other revenue remains $1.9 billion. And importantly, we're achieving the $500 million quarterly run rate we guided to in January. And as we covered previously, retail auto portfolio yield was still projected around 9% in the fourth quarter with continued expansion thereafter.

Yes, I mean, maybe I'll start just to try and be as clear as possible about it.

Very much see ourselves on track towards the one 8% NCO rate that we advertised last quarter.

That being said there is seasonality in terms of our delinquency trends and so what you see in the.

Bottom left on page 19.

See that seasonality expressed through the through the NCO trajectory as we go from second quarter to third quarter to fourth quarter and so fourth quarter is typically when we see our highest level of NCO activity and so we show the two two to $2 for that too.

Russell Hutchinson: Retail NCOs are expected to be at 1.8% for the full year unchanged from prior gradients. And no change to operating expense guidance as we limit spent to nondiscretionary costs and essential investments. We see the tax rate closer to 9% for the year given some of the tax planning items that hit in 3Q. We expect our near term effective tax rate to return to approximately 18% absent tax planning items as we've had solid momentum in generating EV tax credits and expect that trend to continue.

Two to two 4% for the fourth quarter is consistent with a full year, one 8% NCO rate. So thats an expression of the seasonality in our portfolio on.

On the bottom right. What we're doing is we're showing year over year change.

You get through some of that seasonality issue.

The comparisons that you are seeing as you look at each of those quarters is <unk> 23 versus <unk> 20 to <unk> 23 versus <unk> 22, and so when you look at it on a year on year basis, you can see that that those those elevated delinquency elevated delinquency levels that we're currently seeing.

Russell Hutchinson: While elevated and increasing interest rates are aheadwind, we expect most of the tightening cycle is behind us and have positioned the balance sheet for margin and earnings growth over the medium term and remain confident in our ability to continue to execute and drive long term profitability.

You can see they are actually coming down that year over year changes coming down each quarter sequentially. It has been for the last three quarters straight.

Jeffrey Brown: From my perspective, babies news last week was a bit of a surprise, but when you unpack it and also realize it's love for cars on the Hendrick Group, this was simply the right next step for him. We are going to miss JB dearly and at the same time, we're excited for him. JB's news in no way changes how I feel about the opportunity or ally. I am excited for all that we have to accomplish, my fantastic teammates and allies attract the financial outlook. The scale businesses are in an enviable position. I remember talking to JB about and the team about the most positions and it's clear that those have been established today.

And we think that is.

It's a reflection of a couple of things.

One we implemented through curtailments in pricing a lot of changes to our to our portfolio recently.

We are seeing that in terms of the performance of our recent vintages. It's early to tell we're very early in those vintages, but where we're seeing real impact to our curtailment and pricing actions.

On the other side of that when you look at our 2000 or 2022 vintages, we're seeing improvement in those.

Jeffrey Brown: And with that, I'll turn it back to JB. Thank you Ross. I will certainly miss you and this entire team as well.

Those vintages with respect to our original expectations as well and so again early days, but we continue to see positive signs that keep us on track to that one 8% NCO rate.

Jeffrey Brown: The strategic priorities which guide everything we do are unwavering and essential for our long-term success. First and foremost is ensuring we maintain strong alignment between our culture and our stakeholders. We're focused on highlighting the differentiated offerings across our businesses for both consumer and commercial customers. We'll continue finding ways to disrupt the industry and remove friction for customers by delivering leading digital experiences. And even more important in this dynamic environment is our discipline approach to risk management and capital allocation. I'm confident these priorities in this management team will help us deliver value for all stakeholders.

Okay. That's helpful. I appreciate that and then just one follow up on slide 12.

For all four deposit rate that you had for the quarter. The average you talked about intense pricing competition on deposits, but if the fed is done is it as simple as that for forward just marches to your 425 savings rate or is there something else happening on deposit costs.

Yes.

It's also a it's also a great question and so.

We raised.

During early early in the quarter and so you'll see the full impact of our latest ofa raise over the course of fourth quarter.

Sean Leary: And with that, Sean, back to you.

Sean Leary: We can head into Q&A. Thank you, Jamie. As we head into Q&A, we do ask that participants limit yourself to one question and one follow-up.

And look it's our expectation that because of the competition and we've always expected. This you can see we continue to see deposit competition, even after the last race and so where we are now.

Operator: Carmen, please begin the Q&A. Thanks, Sean. And as a reminder, to get into Q, simply press star 1-1 and to remove yourself. Repeat the process star 1-1. One moment while we compile the Q&A roster. All right, one moment for our first question.

And you've probably noticed in the presentation, we talked about our outlook we've changed our guidance.

We were at a four 1% overall deposit yield for fourth quarter, we've moved that up now to say, it's four 1% to four 2%. So we're not ruling out the profitability has continued.

Ryan Nash: It comes from the line of Ryan Nash with Goldman Sachs. Please proceed. Hey, good morning, guys. J.B., obviously give a lot of color on the decision to exit the company. Maybe just to dig a tiny bit deeper. Did your view of the returns that the company has capable of generating over an intermediate time frame impact the decision at all? And if not, do you still believe mid-teens and $6 rep? Yes, over time, are still the right levels for this company over time?

Pressure on deposits and the possibility of increased pricing going forward.

Sure.

Okay alright, thank you.

Okay.

Thank you one moment for our next question. Please.

Alright, and our next question comes from the line of Bill Kirk <unk> with Wolfe Research Securities. Please proceed.

Good morning, and good luck GB wish you the best.

Ryan Nash: Yeah, Ryan. Thanks for the question. No, financial outlook did not change or drive my decision in any way, shape, or form. I feel even more confident in the financial profile of the company going forward. I think, obviously, rates is, you know, roughs and I both alluded to a benefit factor and kind of driving some of the margins piece that we faced. But as you start to roll the balance sheet forward, and I think, you know, we tried to include three or four new slides this time that really hit those points.

I appreciate that.

I wanted to.

Follow up on the commentary.

And all the color you've already given on the NIM guidance and in particular your outlook for OSA rates, there's been a debate around the possibility that youre OSA rates may continue to face upward pressure and ultimately you have to converge with the fed funds rate historically.

<unk> environment.

Rates above fed funds.

There's this concern that that upward pressure on deposit beta could persist as long as.

Fed funds continues to exceed the rates that you're offering.

Ryan Nash: As you start to roll the balance sheet forward, I mean, you're going to be four percent plus type of an end and easily into the mid team. So, you know, this was not driven at all about any change in confidence and the strategic outlook, the financial outlook. I think as, you know, as you heard me say, this is, you know, it's been honor leading our eye for nine years. I had no real intentions to go, but this was one call that I had talked to my board about for really the past two years.

Just I guess your thoughts around that and the potential for further offset from betas on asset yields would be great.

Great.

We think we're at the end of the tightening cycle, assuming that's true. We do think there is a possibility that our our OSA rates tick up slightly from here, but I'd say its a possibility.

Say that the trends that we're seeing in our deposit book has actually been quite favorable.

As JV pointed out and as I mentioned during the presentation.

Ryan Nash: But if this call ever came, that would be the one call I probably take. And at least listen to and obviously like sometimes throws you curve balls and and that's what happened in this scenario. But, you know, Mr. Hendrick in the Hendrick Automotive Group, they're unbelievable people and partners. Obviously, we touched so many thousands of dealers day in and day out. And this is really the premiere franchise without there. I mean, I'm respectful of all of our dealer partners, but this was really a dream opportunity for me to go work with a man, a family, a company that I have got to know for a number of years that I deeply love and admire.

We've had we've had a really great quarter in terms of attracting new customers. We're about to have a record year in fact in terms of attracting new customers to our platform.

We are not the highest payer right now when you look at our liquid deposit rates, but again, we continue to have incredible momentum with our customer base. We're seeing it in terms of strong retention, we're seeing it in terms of customers taking advantage of things like our savings tool kit and we're seeing it in terms of new customer growth.

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And so while yes, we do think that Theres, a possibility that we could tick up on OSA pricing. We think we think it is just that it would be marginal a marginal uptick in again at this point I would characterize it as a possibility.

Ryan Nash: I mean, it's a big business, you know, north of $12 billion in annual revenues. They sell 200,000 cars, big parts player, big work in the defense industry as well. So it just was, you know, it fit in so many reasons for me to make this personal decision. It is hard to leave ally a lot of great teammates and certainly that weighed on me as I as I made this decision. But nothing of a financial out with the strategic outlook.

Not not a certain outcome.

Understood. Thank you that's helpful and if I could just follow up on your commentary on capital and the impact of Basel four in game.

Since the inclusion of OCI OCI.

Changes introduces volatility into regulatory capital there has been some debate around whether this could lead to banks to have to run with a bigger buffer than they have historically, maybe if you could just speak to any changes to your long term capital targets or.

Ryan Nash: And frankly, I think the next CEO that comes is going to have a financial profile that's pretty damn attractive going forward. And so sorry for the long-winded response Ryan, but that's really what drove this note, no change in my view or my degree of confidence. And it's going to be fun being an awfully big ally customer now too. I appreciate all the color on that J.B. So, Russ Hopewell and maybe you can dig in on the net interest margin.

Should we continue to expect sort of that 9% range for CET one.

Yes look I think there are a number of kind of puts and takes into the proposal. There is obviously a lot of gold plating around certain asset classes and I would say look when I look at our 9% management target now that's a full two percentage points north north of our regulatory requirement. So right now we're sitting at.

Ryan Nash: I know you noted that nimble trough a couple of quarters after rates stabilized. I think you said around 335 for the full year, which I think implies a couple of basis points to decline in the fourth quarter. So can you maybe just flush out a little bit of the near term margin dynamics? Do you think 4Q is the trough? And then can you maybe just unpack some of the numbers in the trajectory of the nim under either higher for longer or the forward curve, which obviously seems to be implying 2-3 cuts for next year?

Nine 3% at the.

Approximately $3 $7 billion of excess capital relative to the to the to the regulatory minimum.

I feel pretty good about where our capital is and I don't anticipate any significant changes.

To how we manage capital going forward.

That's very helpful. Thank you for taking my questions.

Okay.

Thank you one moment please for our next question.

Ryan Nash: Sure, thanks, Ryan. Look, I think you're spot on in terms of thinking about 2023. And I think you're spot on with the commentary in terms of rates troughing within a couple of quarters. I think the key question there is where do rates go from here? And I think we are under the view that we are towards the end of the tightening cycle. And so, you know, to the extent that we're already there, I think we could see rates start to expand through the first half of next year.

Our last question comes from the line of Kevin Barker with Piper Sandler. Please proceed.

Great. Thanks for taking my questions JB best of luck.

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Pleasure working with you.

Thank you.

Ryan Nash: So you could see nim start to expand in the first half of next year. You know, to the extent that we're not quite there, but close, you know, that that that expansion could be, could be delayed. You know, all that being said, I think is as JB pointed out, as I pointed out earlier, the dynamics of our of our portfolio and that replacement of fact that we pointed out in some of the pages earlier is strong and it's real.

Yeah, I just wanted to follow up on the NIM conversation in particular.

Jackson for over 4% NIM at some point it seems like in 2025.

Now in your view given the current rate environment and the additional rules around.

Debt issuance or potentially different Basel III changes.

Do you expect to achieve that 4% some time and in a run rate with late 'twenty four or do you feel like you could achieve at some time in early or late 'twenty five just given the current rate environment as you see it today.

Ryan Nash: And in our view, it is a question of timing in terms of rate expansion, as opposed to a question of S. And I would say, and you know, we like to think about things here in terms of a stable rate environment, so a higher for longer scenario. And in that context, we'd expect five to ten basis points per quarter of nim expansion. And obviously, as you say, to the extent that we see cuts on the short end, we could see that that expansion expedited. Got to appreciate all the color. Thanks Ryan.

Yes.

And I'll address your question in a stable rate environment.

Operator: Thank you one moment for our next question, please.

Other than speculate around the timing of rates, but I would say in a stable rate environment. Our expectation is still crystal clear to get to 4% NIM.

I think we're kind of looking at the portfolio.

Replacement impact I think you could see us theyre entering 2025.

Alright, and then does that mean.

With.

With with the view that I don't want to I don't want to be in the business and speculating in terms of where short term rates go.

Got it makes sense and then just a follow up on.

Your estimated origination yields do you feel like you can maintain that 10, 7%.

Sanjay Sakhrani: Any comes from the line of Sanjay Sakrani with KBW, please proceed. Thanks.

Auto origination yields through the next.

Sanjay Sakhrani: Good morning, JB. Congrats. Thank you. It's been quite a ride.

Foreseeable future just given the competitive environment for auto lending.

Seen quite a few banks pull back from from this sector.

Sanjay Sakhrani: Maybe you guys can talk about where we are with the CEO search and, you know, what the criteria might be, is it internal external any any leaning in terms of that? Yeah, Sanjay. Thanks. I'd still say a bit of the early stages, you know, I had obviously talked to my chair of the board when I was considering this sort of board. In our search committee had a bit of time to sort of start structuring their own thoughts about what a candidate profile would look like all those things.

In the last year.

But it seem to be re engage and do you feel like that.

$10 seven as a adequate number.

Alicia stable competitive environment.

Yes, I do actually.

The pullback in competition this time around.

Yes.

I actually think is more durability to it than what we've seen in past cycles.

For a number of folks this isn't a core business for them and I think.

The regulatory capital pressures that other folks are on it really has forced people to make hard decisions and to really focus on the businesses that they are best at we've certainly had to think through our capital allocation across various businesses at ally, but as you know the auto finance business is absolutely core for us.

Sanjay Sakhrani: So that is underway. Obviously now, you know, in the timing of this was really related. We had our board meeting last week. And at that meeting, that was when I officially submitted my notice to lead the firm at that point in time. And so obviously, you know, we went public last Wednesday with this, but I'd say the board is doing a great job. I'm excited to be able to say I'll be involved in that process.

Sanjay Sakhrani: And, you know, that's very important to me in finding the right type of leader in partnership with our board to really carry our eye for for the next, you know, five, 10, 15 years. So, you know, it's obviously easier that things are out the public domain that you can conduct an external search. We're working with a leading global search firm. And so that's underway. And, you know, I think our board is very focused on trying to get somebody that can really carry the culture of the company forward and also can continue to transform the businesses.

So I think the pullback in competition when you look at players. They haven't just dialed back their origination many have exited the market altogether and I think that creates the durability to this competitive environment that we're currently seeing so.

So yes, I do think we can maintain our rates.

I would just stages when you kind of when you when you unpack our yields remember we've increased pricing at the same time that we've been tightening credit and so we've lifted the credit.

The credit profile of our originations at the same time that we've increased pricing. If you were to look at it on a same credit basis, our pricing is actually increased significantly more than what we show in terms of its 10, 7% yield in the 95% beta that we've that we've printed.

Sanjay Sakhrani: You know, it's I'm very proud of what's been accomplished over nine years. But as I said to everyone of my leaders and all our employees and our board, it's never about one person. This has always been this transformation has been led by an incredible team. And I am fully confident in their ability to continue executing in this next chapter. So, I think a new leader will come in recognizing they have an exceptionally strong management team.

So yes, I think I think there we have a number of levers in place.

I do think the competitive environment that we're seeing now is terrible and so it will give us the ability to maintain that 10, 7% yield for a while.

I don't want to speculate on rates coming down, but obviously rates coming down create a tailwind for us.

Just in terms of that portfolio replacement effect that is currently causing a headwind.

Sanjay Sakhrani: They have a hungry employee base. And all of us believe, you know, we our eyes never really fully got the credit for the transformation that's been executed. And I think that's going to be a neat opportunity for our next leader to go and crack. And so, you know, it's underway. Someday, I've obviously said I would I would be here through the end of January, if needed. You know, I suspect that timing is going to be right around the mark that one will bring in a new leader.

Thank you Ross.

Great.

Thank you all that's all the time, we have for today as always if you have additional questions. Please feel free to reach out to Investor relations. Thank you for joining US. This morning that concludes today's call.

Thank you for your participation you may now disconnect.

Okay.

Sanjay Sakhrani: But obviously, I'm going to be a very close customer of ally. And it's in my interest, ensure we get a great leader of transformational leader, a culture carrier, a servant leader, all those things. But I think I've tried to be here. We get somebody let's even going to take that to the next level. So, you know, it's underway.

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Okay.

Good.

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Okay.

Sure.

Okay.

Sanjay Sakhrani: And I would hope, you know, by the end of January, you'll be talking to our next. Okay, perfect.

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Yes.

Sanjay Sakhrani: And then my follow-up question appreciates slide nine that sort of goes through all the implications of the proposed regulation. But maybe if we take a step back, could you just maybe over the next two years, how should we practically think it slows through the PNL and the balance? Like what specific lines does it impact? I mean, maybe there's that issuance, obviously, capital return. Maybe you could just talk about how we should think about that over the next couple of years.

Yes.

Sure.

Yes.

Thank you.

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Okay.

Okay.

Sanjay Sakhrani: Thanks. Yeah, sure. Thanks, Sanjay. It's a great question. It's obviously one that's complicated by the fact that these are proposals. And as J.B, mentioned earlier, we're working with BPI and other industry constituents to make sure our feedback is reflected. And as you've heard, the industry has had a reaction to the proposals as they're currently stated. All that being said, and maybe I'll start with Basel 3N gain. The biggest impact for us is in terms of AOCI.

Sanjay Sakhrani: And I'll just make it clear, we can manage within the transition time period that has been proposed so far without doing anything unnatural. That is, we can manage it organically. As you can imagine, it's obviously curtailed our share references. And quite frankly, if you look at our auto business, you're just looking at the attractiveness of the assets that we're seeing from our dealer partners. We have certainly had to be restrained in terms of our origination volume.

Sanjay Sakhrani: And it's also forced us to really make hard decisions around the growth trajectory of some of our growth businesses. All that being said, we can manage within the timeframe that's been provided. And the only significant real impact for us on the capital line is that AOCI inclusion. When you look at long-term debt, and it's very early, and as J.B, laid out on his slide, the binding requirement for us is the 6% of IDI at the bank level.

Sanjay Sakhrani: Because as you can imagine, our unsecured debt is issued at our holding company level. We actually don't have unsecured debt at the bank level today. And so that's going to require us to, you know, as the proposal is currently stated, it's going to require us to really look through the liquidity we have at the hold co versus the bank level and look at our issuance. And that could drive incremental issuance from where we sit today, which would obviously come with additional interest expense.

Sanjay Sakhrani: Okay. And then, I mean, just in terms of, like, you could take that liquidity and invest it to, so it wouldn't be the full impact, right? Yeah, that's absolutely correct. And just to be clear, when you think about Paul's O3N game from an RWA perspective, there are puts and takes, but we don't see any significant change for our RWA. That is the increase in operational RWA is simply off that by some of the benefits we see in our retail loan portfolio.

Sanjay Sakhrani: Okay. Great.

Operator: Thank you very much. Thank you.

John Arfstrom: One moment for our next question, please. A moment is coming from the line of John Arstrum with RBC capital markets. Please proceed.

John Arfstrom: Jon, please verify your mute button. Can you hear me all right? Yes, sir. All right, thank you, appreciate that.

Russell Hutchinson: Question for you on slide 19. Just curious what the big picture messages on auto credit performance on what it's so simple, but on one hand the chargeoffs are going up. On the other hand, the delinquencies are going down. What's the message that you're trying to send? And as we look past the fourth quarter into 2024, with the delinquency numbers, it feels like credit should actually be getting better. Is that too simple?

Russell Hutchinson: Yeah, I mean, maybe I'll start, you know, just to try and be as clear as possible about it. We very much see ourselves on track towards the 1.8% NCO rate that we advertised last quarter. That being said, there's seasonality in terms of our delinquency trends. And so what you see in the bottom left on page 19, is you see that seasonality expressed through the NCO trajectory as we go from second quarter to third quarter to fourth quarter.

Russell Hutchinson: So fourth quarter is typically when we see our highest level of NCO activity. And so we show the 2.2 to 2.4. That's 2.2 to 2.4% for the fourth quarter is consistent with a full year 1.8% NCO rate. So that's an expression of the seasonality on our portfolio.

Russell Hutchinson: On the bottom right, what we're doing is we're showing year over year change. To get through some of that seasonality issue. So the comparison that you're seeing as you look at each of those quarters is 3Q23 versus 3Q22, 2Q23 versus 2Q22. And so when you look at it on a year on your basis, you can see that those elevated delinquency levels that we're currently seeing, you can see they're actually coming down. That year over year change is coming down each quarter sequentially. It has been for the last 3Q strain.

Russell Hutchinson: And we think that's a reflection of a couple of things. One, we implemented through curtailments and pricing a lot of changes to our portfolio recently. And we are seeing that in terms of the performance of our recent ventages. It's early to tell. We're very early in those ventages, but we're seeing real impact to our curtailment and pricing actions. On the other side of that, when you look at our 22Q ventages, we are seeing improvement in those ventages with respect to our original expectations as well. And so, again, early days, but we continue to see positive signs that keep us on track to that 1.8% NCO rate.

Russell Hutchinson: Okay, that felt for us. I appreciate that.

Russell Hutchinson: And then just one follow-up on slide 12, the 4.04 deposit rate that you had for the court of the average, you talked about intense pricing competition on deposits. But if the Fed is done, is it as simple as that 4.04 just marches to your 425 savings rate or is there something else happening on deposits? and the cost. Thanks.

Russell Hutchinson: No, it's also a great question. So we raised, during early in the quarter, and so you'll see the full impact of our latest OSA raise over the course of fourth quarter. And look, it's our expectation that because of the competition, and we've always expected this, we continue to see deposit competition even after the last raise. And so where we are now, and you've probably noticed in the presentation we talked about our outlook, we've changed our guidance.

Russell Hutchinson: We were at 4.1% overall deposit yield for fourth quarter. We've moved that up now to say it's 4.1% to 4.2%. So we're not ruling out the possibility as continued pressure on deposits and the possibility of increased pricing going forward.

Russell Hutchinson: Okay. All right. Thank you.

Operator: One moment for our next question, please.

Bill Carcache: All right. And our next question comes from the line of Bill Carcache with Wolf Research Securities, please proceed. Thank you. Good morning and good luck to be with you the best. Thank you very much, Bill. I appreciate that. Yeah, absolutely. I wanted to follow up on the commentary and all the color you've already given on the name guidance. And in particular, your outlook for OSA rates, there's been a debate around the possibility that your OSA rates may continue to face upward pressure, and ultimately you have to converge with the Fed funds rate historically in a zirpen environment.

Bill Carcache: You know, I offered rates above Fed funds, and you know, I guess there's just concern that that upward pressure on deposit beta could persist as long as Fed funds continues to exceed the rates that you're offering. You know, just I guess your thoughts around that and the potential for further offset from beta's asset yields would be great. Great. Look, we think we're at the end of the tightening cycle, assuming that's true.

Bill Carcache: We do think there's a possibility that our OSA rates kick up slightly from here, but I do say it's a possibility. I'd say that the trends that we're seeing in our deposit book have actually been quite favorable. You know, as JB pointed out, and as I mentioned during the presentation, we've had a really great quarter in terms of attracting new customers. We're about to have a record year, in fact, in terms of attracting new customers to our platform.

Bill Carcache: We are not the highest payer right now when you look at our liquid deposit rates, but again, we continue to have incredible momentum with our customer base. We're seeing it in terms of strong retention. We're seeing it in terms of customers taking advantage of things like our savings toolkit, and we're seeing it in terms of new customer growth. And so, well, yeah, we do think that there's a possibility that we could kick up on OSA pricing.

Bill Carcache: We think it's just that it would be marginal uptick. And again, at this point, I would characterize it as a possibility, not a certain outcome. Com. Understood. Thank you. That's helpful. And if I could just follow up on your commentary on capital and the impact of Basel Foreign Game. Since the inclusion of OCI, AOCI, changes introduces volatility into regulatory capital. There's been some debate around whether this could lead the banks to have to run with a bigger buffer than they have historically.

Russell Hutchinson: Maybe if you could just speak to any changes to your long-term capital targets, or should we continue to expect that 9% range for CET1? I think there are a number of puts and takes into the proposal. There's obviously a lot of gold plating around certain asset classes. When I look at our 9% management target now, that's a full 2% point north of our regulatory requirement. Right now, we're sitting at 9.3% at approximately $3.7 billion of asset capital relative to the regulatory minimum. I feel pretty good about where our capital is, and I don't anticipate any significant changes to how we manage capital going forward. That's very helpful. Thank you for taking my questions. Thank you. One moment, please.

Kevin Barker: For our next question, our last question comes from the line of Kevin Barker with Piper Sandler. Please proceed. Great. Thanks for taking my questions. JB, best of luck. Hendrix is a pleasure working with you.

Jeffrey Brown: I just want to follow up on the NIM conversation. In particular, the projection for over 4% NIM at some point, it seems like in 2025. Now, in your view, given the current rate environment and the additional rules around debt issuance or potentially different basil 3 changes, do you expect to achieve that 4% sometime in a run rate with late 24, or do you feel like you could achieve it sometime in early or late 25, just given the current rate environment as you see it today?

Jeffrey Brown: Yeah, I'd say, and I'll address your question in a stable rate environment rather than speculate around the timing of rates. But I'd say in a stable rate environment, our expectation is still crystal clear to get to 4% NIM. I think we're looking at the portfolio replacement impact. I think you could see us there entering 2025. Great. I'll be back with the view that I don't want to be in the business in speculating in terms of where short-term rates go.

Jeffrey Brown: That makes sense. And then, just to follow up on your estimated origination yields, you feel like you can maintain that 10.7% auto origination yields through the next foreseeable future, just given the competitive environment for auto lending. We've seen quite a few banks pull back from the sector in the last year.

Jeffrey Brown: But it seemed to be re-engaging. Do you feel like that 10.7% is an adequate number, or at least a stable competitive environment? Yeah, I do actually, you know, the pullback and competition this time around, you know, I actually think is has more durability to it than what we've seen in past cycles. You know, for a number of folks, this isn't a core business for them, you know, and I think the regulatory capital pressures that other folks are on, it really has forced people to make hard decisions and to really focus on the businesses that they're best at.

Jeffrey Brown: We've certainly had to think through our capital allocation across various businesses and Ally, but as you know, the auto finance business is absolutely core for us. And so I think the pullback and competition when you look at players, they haven't just dialed back their originations, many have exited the market altogether. And I think that creates a durability to this competitive environment that we're currently seeing. So yeah, I do think we can maintain our rates.

Jeffrey Brown: And I would just say just when you unpack our yields, remember, we've increased pricing at the same time that we've been tightening credit. And so we've listed the credit, the credit profile of our originations at the same time that we've increased pricing. If you were to look at it on a staying credit basis, our pricing is actually increased significantly more than what we show in terms of this 10.7% yield and the 95% beta that we've printed.

Jeffrey Brown: So yeah, I think I think there we have a number of levers in place. And I do think the competitive environment that we're seeing now is durable and so we'll give us the ability to maintain that 10.7% yield for a while. And I don't want to speculate on rates coming down, but obviously rates coming down create a tailwind for us. Just in terms of that portfolio replacement effect that's currently causing a headwind.

Russell Hutchinson: Thank you, Russ. Great. Thank you all.

Operator: That's all the time we have for today. As always, if you have additional questions, please feel free to reach out to investor relations. Thank you for joining us this morning.

Operator: That concludes today's talk. Thank you for your participation. You may now disconnect.

Operator: Thank you.