Q4 2023 Ally Financial Inc Earnings Call

January 19, 2024

Good day and thank you for standing by. Welcome to Allies Financial fourth quarter and full year 2023 earnings call. At this time, all participants are in listen-only mode. After the presentation, there will be a question and answer session. To ask the question, you will need to press star 1-1 on your telephone. Then you will hear a message advising your hand is raised. To withdraw the question, please press star 1-1 again. Be advised that today's conference is being recorded. I would now like to turn the call over to Sean Leary, Head of Investor Relations. Please go ahead.

Unnamed Host or Operator: Good day, and thank you for standing by. Welcome to Allies Financial's fourth quarter and full year 2023 earnings call. At this time, all participants are in listen-only mode. After the presentation, there will be a question and answer session. To ask the question, you will need to press star 1-1 on your telephone. Then you will hear a message advising that your hand is raised. To withdraw the question, please press star 1-1 again. Please be advised that today's conference is being recorded.

Good day, and thank you for standing by and welcome to ally Financial's fourth quarter and full year 2023 earnings call.

This time all participants are in a listen only mode. After the presentation. There will be a question and answer session to ask a question you will need to press star one one on your telephone Daniel here and message advising your hand is raised to withdraw your question. Please press star one again be advised that today's conference is being.

Sean Leary: I would now like to turn the call over to Sean Leary, Head of Investor Relations. Please go ahead.

Recorded I would now like to turn the call over to Sean Leary head of Investor Relations. Please go ahead.

Sean Leary: Thank you, Carmen. Good morning and welcome to Ally Financial's fourth quarter and full year 2023 earnings call. This morning, our CEO, Jeff Brown, and our CFO, Russ Hutchinson, will review Ally's results before taking questions.

Sean Leary: Thank you, Carmen. Good morning, and welcome to Ally Financial's fourth quarter and full year 2023 earnings call. This morning, our CEO, Jeff Brown, and our CFO, Russ Hutchinson, will review Ally's results before taking questions. Arum CEO Doug Timmerman has also joined today's call. The presentation we'll reference can be found in the investor relations section of our website, ally.com. Forward-looking statements and risk factor language governing today's call are on slide two. GAAP and non-GAAP measures pertaining to our operating performance and capital results are on Slides 3 and 4. As a reminder, non-GAAP or core metrics are supplemental to and not a substitute for U.S. GAAP measures. Definitions and reconciliations can be found in the appendix. Now, with that, I'll turn the call over to J.B.

Sean Leary: Thank you Carmen.

Sean Leary: Morning, and welcome to ally Financial's fourth quarter and full year 2023 earnings call.

Sean Leary: This morning, our CEO, Jeff Brown, and our CFO Russ Hutchinson will review <unk> results before taking questions.

Sean Leary: Arum CEO Doug Timmerman has also joined today's call.

Sean Leary: Interim CEO, Doug Timmerman has also joined today's call.

Sean Leary: The presentation we'll reference can be found on the investor relations section of our website, ally.com.

Sean Leary: The presentation, we'll reference can be found on the Investor Relations section of our website <unk> Dot com.

Sean Leary: Forward-looking statements and risk factor language governing today's call are on slide two.

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

Sean Leary: GAAP and non-GAAP measures pertaining to our operating performance and capital results are on Slides 3 and 4. As a reminder, non-GAAP or core metrics are supplemental to and not a substitute for U.S. GAAP measures. Definitions and reconciliations can be found in the appendix.

Sean Leary: GAAP and non-GAAP measures pertaining to our operating performance and capital results are on slides three and four.

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

Sean Leary: Missions and reconciliations can be found in the appendix and with that I'll turn the call over to J D.

Sean Leary: And with that, I'll turn the call over to J.B.

J.B: Thank you, Sean. Good morning, everyone. Before we get into the results, I want to introduce and welcome Doug Timmerman, who will take over as interim CEO on February 1st. Doug has spent more than 30 years in our auto finance and insurance businesses and is incredibly well positioned to lead allies.

Jeffrey Jonathan Brown: Thank you, Sean. Good morning, everyone. Before we get into the results, I want to introduce and welcome Doug Timmerman, who will take over as interim CEO on February 1st. Doug has spent more than 30 years in our auto finance and insurance businesses and is incredibly well positioned to lead Allianz. His experience in the industry is unrivaled. He's well-respected across all areas of the company, and he has the full support and confidence of our board, our leadership team, our employee base, and also our auto finance customer base. We're very fortunate to have a great leader in Doug and a deep bench across the company to ensure a seamless transition now and when we name our permanent CEO. Doug, congratulations, and maybe you'd like to share a couple of comments.

J D: Thank you Sean good morning, everyone before we get into the results I want to introduce and welcome Doug Timmerman, who will take over as interim CEO on February one.

Doug Timmerman: I spent more than 30 years, and our auto finance and insurance businesses. It is incredibly well positioned to lead alloy.

J.B: His experience in the industry is unrivaled. He's well-respected across all areas of the company, and he has the full support and confidence of our board, our leadership team, our employee base, and also our auto finance customer base. We're very fortunate to have a great leader in Doug and a deep bench across the company to ensure a seamless transition now and when we name our permanent CEO. Doug, congratulations, and maybe you'd like to share a couple of comments.

Doug Timmerman: His experience in the industry is unrivaled.

Doug Timmerman: Is well respected across all areas of the company and he has the full support and confidence of our board our leadership team and our employee base and also our auto finance customer base.

Doug Timmerman: Very fortunate to have a great leader and Doug and a deep bench across the company to ensure a seamless transition now and when we name our permanent CEO, Doug Congratulations and maybe you'd like to share a couple of comments.

Doug Timmerman: Thank you, JB. It's a pleasure to be here this morning. I'm really excited for the opportunity to lead Ally and encouraged by the momentum we have across the business.

Doug Timmerman: Thank you, JB. It's a pleasure to be here this morning. I'm really excited about the opportunity to lead Ally and encouraged by the momentum we have across the business. I'm more optimistic than ever about the outlook for the company based on the strength of the auto and bank franchises. I've got a tremendous amount of confidence that our team will continue to execute and support our customers during this transition. Back to you, JB.

Doug Timmerman: Thank you Jamie it's a pleasure to be here this morning.

Doug Timmerman: I'm really excited for the opportunity to lead alloy and encouraged by the momentum we have across the business.

Doug Timmerman: I'm more optimistic than ever about the outlook for the company based on the strength of the auto and bank franchises.

Doug Timmerman: I've got a tremendous amount of confidence our team will continue to execute and support our customers during this transition.

Doug Timmerman: Got a tremendous amount of confidence our team will continue to execute and support our customers. During this transition.

Doug Timmerman: Back to you, JB.

Speaker Change: Back to you Jamie.

JB: Thank you, Doug. Okay, let's get rolling on page number five. I've made this point many times over the past nine years, but the culture we have developed at Ally is among my proudest achievements as CEO. To be clear, though, it's not my culture or the CEO's culture. It's a culture that is empowered and nurtured by every one of our 11,000-plus teammates.

Jeffrey Jonathan Brown: Thank you, Doug. Okay, let's get rolling on page number five. I've made this point many times over the past nine years, but the culture we have developed at Ally is among my proudest achievements as CEO. To be clear, though, it's not my culture or the CEO's culture. It's a culture that is empowered and nurtured by every one of our 11,000-plus teammates. I firmly believe a strong culture is essential to delivering for our customers, communities, and shareholders, and it all starts with our employees.

Jamie: Thank you Josh Okay.

Jamie: We're all in on page number five.

Jamie: This point many times over the past nine years, but the culture. We have developed at ally is among my proudest achievements as CEO to be clear, though it is not my culture or the CEO as culture, It's a culture of leaders empowered and nurtured by every one of our 11000 plus teammates.

JB: I firmly believe a strong culture is essential to delivering for our customers, communities, and shareholders, and it all starts with our employees.

Jamie: Firmly believe a strong culture is essential to delivering for our customers.

Jamie: Ladies and shareholders and it all starts with our employees.

JB: To my teammates for the past 15 years, thank you for your hard work and dedication. Your commitment is the driving force behind our success.

Jeffrey Jonathan Brown: To my teammates for the past 15 years, thank you for your hard work and dedication. Your commitment is the driving force behind our success. I'm grateful for your leadership, integrity, and consistent execution against our long-term strategic objectives. The real benefit of an engaged workforce that embraces our leading core values is the customer obsession it creates. We've consistently rallied around initiatives that help us better serve our 11 million customers and drive industry change. An 88% customer satisfaction score across more than 380 million digital interactions is proof that when you do it right, customers notice and appreciate it. Culture can't be taken for granted and needs to be nurtured daily.

Jamie: To my teammates for the past 15 years. Thank you for your hard work and dedication.

Jamie: Commitment is the driving force behind our success I am.

JB: I'm grateful for your leadership, integrity, and consistent execution against our long-term strategic objectives.

Grateful for your leadership integrity, and consistent execution against our long term strategic objectives.

JB: The real benefit of an engaged workforce that embraces our lead core values is the customer obsession it creates.

Jamie: Real benefit of an engaged workforce that embraces our lead core values is the customer obsession that creates.

JB: We've consistently rallied around initiatives that help us better serve our 11 million customers and drive industry change.

Jamie: Consistently rallied around initiatives that help us better serve our 11 million customers and drive industry change.

JB: An 88% customer satisfaction score across more than 380 million digital interactions is proof that when you do it right, customers notice and appreciate it.

Jamie: And 88% customer satisfaction score across more than 380 million digital interactions is proof that when you do it right customers notice and appreciate it.

JB: Culture can't be taken for granted and needs to be nurtured daily. To that end, we've consistently prioritized building our culture and creating a sense of belonging.

Jamie: Culture can be taken for granted and needs to be nurtured daily.

Jamie: Dan what we've consistently prioritize building, our culture and creating a sense of belonging.

JB: We are not focused on winning awards, but we do take pride when others recognize what we do for our employees, including being identified as a top employer across multiple dimensions.

Jamie: We are not focused on winning awards, but we do take pride when others recognize what we do for our employees, including being identified as a top employer across multiple dimensions.

JB: Our teammates continue to invest in the communities in which we live and work. In 2023, Ally teammates donated over 60,000 hours of their time to support our communities.

Jamie: Our teammates continue to invest in the communities in which we live and work.

Jamie: In 2023 ally teammates donated over 60000 hours of their time to support our communities.

JB: Our 50-50 media pledge has shed light on women's sports and we're encouraged to see this has really moved the needle in terms of visibility and investments by other brands.

Jeffrey Jonathan Brown: Our 50-50 media pledge has shed light on women's sports, and we're encouraged to see this has really moved the needle in terms of visibility and investments by other brands.

Jamie: Our 50 50 media flex as shed light on women's sports and we're encouraged to see this as really move the needle in terms of visibility and investments by other brands.

JB: Our Moguls in the Making program has opened new doors and brought incredibly talented associates to Ally over the past five years. The energy of the event each year is infectious and gives me tremendous pride in what we can accomplish together.

Jeffrey Jonathan Brown: Our Moguls in the Making program has opened new doors and brought incredibly talented associates to Ally over the past five years. The energy of the event each year is infectious and gives me tremendous pride in what we can accomplish together. I truly believe culture is a differentiator and will remain a key driver of ally success moving forward.

Jamie: Our mobile center, making program has opened new doors and bra incredibly talented associates to ally over the past five years the energy of the event. Each year is in fact, Suez and gives me tremendous pride in what we can accomplish together.

JB: I truly believe culture is a differentiator and will remain a key driver of ally success moving forward.

Jamie: I truly believe culture is a differentiator.

Jamie: A key driver of ally success moving forward.

JB: And with that, let's turn to page number six and get into the results.

Jeffrey Jonathan Brown: And with that, let's turn to page six and get into the results. Full-year adjusted EPS of $3.05, core ROTC of 11.5%, and revenues of $8.2 billion reflected our ability to deliver solid financial results while continuing to position for earnings growth over the years ahead. NIM of 3.35% was impacted by the rapid tightening we've seen over the past two years. With the tightening cycle likely behind us, we are well positioned for meaningful NIM expansion going forward.

Jamie: With that let's turn to page number six and get into the results.

JB: Full-year adjusted EPS of $3.05, core ROTC of 11.5%, and revenues of $8.2 billion reflected our ability to deliver solid financial results while continuing to position for earnings growth over the years ahead.

Jamie: Full year adjusted EPS of $3 five.

Jamie: Core our TCE of 11, 5% and revenues of $8 2 billion reflected our ability to deliver solid financial results, while continuing to position for earnings growth over the years ahead.

JB: NIM of 3.35% was impacted by the rapid tightening we've seen over the past two years. With the tightening cycle likely behind us, we are well positioned for meaningful NIM expansion going forward.

Jamie: NIM of 335% was impacted by the rapid tightening we've seen over the past two years with the tightening cycle likely behind US we are well positioned for meaningful NIM expansion going forward.

JB: There are a few notable items in the quarter I wanted to touch on before diving into operational results.

Jeffrey Jonathan Brown: There are a few notable items in the quarter I wanted to touch on before diving into operational results.

Jamie: There are a few notable items in the quarter I wanted to touch on before diving into operational results.

JB: This morning, we announced that we've reached an agreement to sell Ally Lending.

Jeffrey Jonathan Brown: This morning, we announced that we've reached an agreement to sell Ally Lending. This transaction allows us to allocate capital to our highest-returning businesses and focus on strengthening relationships with our consumer and dealer customers. The operations were moved to held for sale, and we recorded a goodwill impairment within the quarter.

Jamie: This morning, we announced that we've reached an agreement to sell ally lending.

JB: This transaction allows us to allocate capital to our highest returning businesses and focus on strengthening relationships with our consumer and dealer customers. The operations were moved to held for sale, and we recorded a goodwill impairment within the quarter.

Jamie: This transaction allows us to allocate capital to our highest returning businesses and focus on strengthening relationships with our consumer and dealer customers. The operations were moved to held for sale and we recorded a goodwill impairment within the quarter, the fourth quarter impacts, which Ross will cover in more detail our exclusive.

JB: The fourth quarter impacts, which Russ will cover in more detail, are excluded from adjusted

Jeffrey Jonathan Brown: The fourth quarter impacts, which Russ will cover in more detail, are excluded from adjusted EBIT.

Jamie: <unk> from adjusted EPS.

JB: We expect the sale to close in the first quarter and generate 15 basis points of CET1 at closing and modestly increase tangible book value. The sale is also accretive to earnings going forward.

Jeffrey Jonathan Brown: We expect the sale to close in the first quarter and generate 15 basis points of CET1 at closing and modestly increase tangible book value. The sale is also accretive to earnings going forward. Additionally, within the quarter, we deconsolidated $1.7 billion of retail auto loans from the pound sheet through securitization transactions, adding nine basis points of CET1.

Jamie: We expect the sale to close in the first quarter and generate 15 basis points of CET, one at closing and modestly increased tangible book value.

Jamie: <unk> also accretive to earnings going forward.

JB: Additionally, within the quarter, we deconsolidated $1.7 billion of retail auto loans from the pound sheet through securitization transactions, adding nine basis points of CET1.

Jamie: Additionally, within the quarter, we deconsolidation at $1 7 billion of retail auto allowance from the balance sheet through securitization transactions, adding nine basis points of CET one.

Jeffrey Jonathan Brown: From a cost perspective, the benefit of the headcount actions we announced in the third quarter and completed in the fourth quarter are fully embedded in our expense run rate going forward. The fourth quarter results also include a $38 million FDIC special assessment being incurred across the industry. Our charge was among the lowest in the industry, reflecting the composition of our deposit base. The impact of the assessment is also excluded from adjusted EPS.

JB: From a cost perspective, the benefit of the headcount actions we announced in the third quarter and completed in the fourth quarter are fully embedded in our expense run rate going forward.

Jamie: On a cost perspective, the benefit of the head count actions, we announced in the third quarter and completed in the fourth quarter are fully embedded in our expense run rate going forward.

JB: Fourth quarter results also include a $38 million FDIC special assessment being incurred across the industry. Our charge was among the lowest in the industry, reflecting the composition of our deposit base. The impact of the assessment is also excluded from adjusted EPS.

Jamie: Fourth quarter results also include a $38 million FDIC special assessment being incurred across the industry. Our charge was among the lowest in the industry, reflecting the composition of our deposit base. The impact of the assessment is also excluded from adjusted EPS.

JB: Moving to full year operational highlights.

Jeffrey Jonathan Brown: Moving to full year operational highlights, within Autofinance, consumer originations of $40 billion were sourced from a record 13.8 million applications, a testament to the scale of our business and mutually beneficial dealer relationships. The average originated yield of 10.7% increased nearly 250 basis points on a full-year basis, driven by robust application flow, disciplined pricing, and underwriting. Importantly, nearly 40% of our full-year volume was in our highest quality credit tier, which will be a tailwind to the loss profile as those loans season. Full-year net charge-offs in retail auto were 177 basis points, in line with the guidance we gave a year ago. We continue to see encouraging performance trends across vintages and flow-to-loss rates, which we'll cover when we get to credit shortly.

Jamie: Moving to full year operational highlights within.

JB: Within Autofinance, consumer originations of $40 billion were sourced from a record 13.8 million applications, a testament to the scale of our business and mutually beneficial dealer relationships.

Jamie: Within auto finance consumer originations of 40 billion were sourced from a record $13 8 million applications, a testament to the scale of our business and mutually beneficial dealer relationships.

JB: The average originated yield of 10.7%, increased nearly 250 basis points on a full-year basis, driven by robust application flow, disciplined pricing, and underwriting.

Jamie: That's originated yield of 10, 7% increased nearly 250 basis points on a full year basis, driven by robust application flow disciplined pricing and underwriting.

JB: Importantly, nearly 40% of our full year volume was in our highest quality credit tier, which will be a tailwind to the loss profile as those loans season.

Jamie: Importantly, nearly 40% of our full year volume within our highest quality credits here, which will be a tailwind to the loss profile as those loans season.

JB: Full-year net charge-offs in retail auto were 177 basis points, in line with the guidance we gave a year ago. We continue to see encouraging performance trends across vintages and flow-to-loss rates, which we'll cover when we get to credit shortly.

Jamie: Full year net charge offs in retail auto were 177 basis points in line with the guidance. We gave a year ago, we continue to see encouraging performance trends across vintages and flow to loss rates, which will cover when we get to credit shortly.

JB: Insurance earned premiums of $1.3 billion, we're the highest since our IPO.

Jeffrey Jonathan Brown: Insurance earned premiums of $1.3 billion; we're the highest since our IPO.

Jamie: Insurance earned premiums of $1 3 billion were the highest since our IPO.

JB: Now turning to Ally Bank, 2023 was an outstanding year in terms of deposits performance.

Jeffrey Jonathan Brown: Now turning to Ally Bank, 2023 was an outstanding year in terms of deposits performance. Despite the disruption stemming from the March banking events and a decline in deposit balances across much of the industry, we delivered solid deposit growth every quarter in 2023. We also saw record growth in customers and now serve more than 3 million customers with $142 billion in deposit balances. Ally Credit Card now serves more than 1.2 million active cardholders with $2 billion in balances.

Jamie: Now turning to Allied bank two.

Jamie: <unk> 2023 was an outstanding year in terms of deposits performance. Despite the disruption stemming from the March banking events and the decline in deposit balances across much of the industry. We delivered solid deposit growth every quarter in 2023.

JB: Despite the disruption stemming from the March banking events and decline in deposit balances across much of the industry, we delivered solid deposit growth every quarter in 2023.

JB: We also saw record growth in customers and now serve more than 3 million customers with $142 billion of deposit balances.

Jamie: We also saw record growth in customers and now serve more than 3 million customers with 142 billion of deposit balances.

JB: Ally Credit Card now serves more than 1.2 million active cardholders with $2 billion of balances.

Jamie: Ally credit card now serves more than $1 2 million active cardholders with $2 billion of balances despite elevated.

JB: Despite elevated net charge-off activity in the near term, returns in the car business are compelling, which we'll cover in more detail shortly.

Jamie: Elevated net charge off activity in the near term returns in the card business are compelling, which we'll cover in more detail shortly.

JB: And finally, corporate finance continues to generate steady loan growth and accretive returns.

Jamie: And finally, corporate finance continues to generate steady loan growth and accretive returns.

JB: The business delivered record earnings and a 25% ROE in 2023, and the quality of the book remains strong.

Jamie: Business delivered record earnings and a 25% ROE in 2023, and the quality of the book remains strong.

JB: Let's turn to slide number seven to talk about Ally's market-leading franchises.

Jeffrey Jonathan Brown: Let's turn to slide number seven to talk about Ally's market-leading franchises. Within dealer financial services, 22,000 dealer relationships resulted in nearly 14 million consumer auto applications in 2023, a record for Ally. In terms of originations, that's more than $400 billion in consumer auto volume decisions, which allows us to be selective and optimize returns. Again, $1.3 billion of insurance earned premiums is the highest since our IPO, and we see a long runway ahead as we leverage synergies with our auto finance team.

Jamie: Let's turn to slide number seven to talk about <unk> market leading franchises.

JB: Within dealer financial services, 22,000 dealer relationships resulted in nearly 14 million consumer auto applications in 2023, a record for Ally. In terms of originations, that's more than $400 billion in consumer auto volume decisions, which allows us to be selective and optimize returns. Again, $1.3 billion of insurance earned premiums is the highest since our IPO, and we see a long runway ahead as we leverage synergies with our auto finance team.

Jamie: Dealer financial services 22000 dealer relationships resulted in nearly $14 million consumer audio applications in 2023, a record for ally in terms of origination so thats more than 400 billion and consumer auto volume decision, which allows us to be so.

Jamie: <unk> and optimize returns again $1 $3 billion of insurance earned premiums is a highest since our IPO and we see a long runway ahead, as we leverage synergies with our auto finance team.

JB: I mentioned the impressive scale and growth we've seen in the consumer bank on the previous slide, but we're equally pleased with the quality of our customer base.

Jeffrey Jonathan Brown: I mentioned the impressive scale and growth we've seen in the consumer bank on the previous slide, but we're equally pleased with the quality of our customer base. Ally Bank depositors are highly engaged, with more than 1 million consumers leveraging core product features across deposits and investments. That engagement continues to drive customer retention that has stayed above 95% since we launched the bank in 2009. Both Dealer Financial Services and Ally Bank have a robust scale but remain nimble and able to pivot in response to evolving market dynamics. That has served us well in this environment and gives me confidence in our ability to deliver earnings growth going forward.

Jamie: I mentioned, the impressive scale and growth we've seen in the consumer bank on the previous slide.

Jamie: Equally pleased with the quality of our customer base ally Bank depositors are highly engaged with more than 1 million consumers leveraging core product features across deposits and invest.

JB: Ally Bank depositors are highly engaged with more than 1 million consumers leveraging core product features across deposits and invest.

JB: That engagement continues to drive customer retention that has stayed above 95% since we launched the bank in 2009.

Jamie: That engagement continues to drive customer retention later stayed above 95% since we launched the bank in 2009.

JB: Both Dealer Financial Services and Ally Bank have a robust scale but remain nimble and able to pivot in response to evolving market dynamics.

Jamie: Dealer financial services, an ally bank have robust scale, but remain nimble and able to pivot in response to evolving market dynamics.

JB: That has served us well in this environment and gives me confidence in our ability to deliver earnings growth going forward.

Jamie: That has served us well in this environment and gives me confidence in our ability to deliver earnings growth going forward.

JB: Turning to slide number eight, total revenue of $8.2 billion represents a 76% increase since 2014. Net financing revenue of $6.2 billion is up 80% through the strategic positioning of the auto finance business and the consistent growth in high-quality deposits. And other revenue is up more than 50% as we've grown fee-generating businesses like insurance, smart auction, and our auto pass-through programs.

Jeffrey Jonathan Brown: Turning to slide number eight, total revenue of $8.2 billion represents a 76% increase since 2014. Net financing revenue of $6.2 billion is up 80% due to the strategic positioning of the auto finance business and the consistent growth in high-quality deposits. And other revenue is up more than 50% as we've grown fee-generating businesses like insurance, smart auction, and our auto pass-through programs.

Jamie: Turning to slide number eight total revenue of $8 2 billion represents a 76% increase since 2014 net financing revenue of $6 2 billion is up 80% through the strategic positioning of the auto finance business and the consistent growth in high quality deposits.

Jamie: And other revenue is up more than 50% as we found fee generating businesses like insurance smart auction and our auto pass through programs.

JB: At the bottom of the page we highlight our revenue growth across insurance, corporate finance, and credit card. Revenue from these businesses have nearly doubled over the last nine years and we see opportunities for further growth going forward.

Jamie: At the bottom of the page, we highlight our revenue growth across insurance corporate finance and credit card revenue from these businesses have nearly doubled over the last nine years and we see opportunities for further growth going forward.

JB: On slide number nine, you can clearly see we've driven substantially higher margin through transformation on both sides of the balance sheet.

Jeffrey Jonathan Brown: On slide number 9, you can clearly see we've driven substantially higher margin through transformation on both sides of the balance sheet. Despite facing pressure from the historic rise in short-term rates, NIM is up 80 basis points since 2014 and is more than 50 basis points higher than where we were just a few years ago. Looking ahead, we see our retail auto yield continuing to expand as we originate new loans at higher yields than our current portfolio. Disciplined growth and higher yielding corporate finance and credit card loans, coupled with a continued decline in lower yielding mortgage and securities, are also a tailwind to earnings on asset yields. Our asset yield momentum is unique in the industry and, combined with our strong deposit franchise, supports our confidence in our attractive NIM trajectory.

Jamie: On slide number nine you can clearly see we driven substantially higher margin three transformation on both sides of the balance sheet.

JB: Despite facing pressure from the historic rise in short-term rates, NIM is up 80 basis points since 2014 and is more than 50 basis points higher than where we were just a few years ago. Looking ahead, we see our retail auto yield continuing to expand as we originate new loans at higher yields than our current portfolio.

Jamie: Despite facing pressure from the historic rise in short term rates NIM is up 80 basis points since 2014 and is more than 50 basis points higher than where we were just a few years ago. Looking ahead, we see our retail auto yield continuing to expand as we originate new loans at higher yields than our current portfolio.

No.

JB: Disciplined growth and higher yielding corporate finance and credit card loans, coupled with a continued decline in lower yielding mortgage and securities, are also a tailwind to earning asset yields.

Jamie: Disciplined growth in higher yielding corporate finance and credit card loans, coupled with a continued decline in lower yielding mortgage and securities are also a tailwind to earning asset yields.

JB: Our asset yield momentum is unique in the industry and combined with our strong deposit franchise supports our confidence in our attractive NIM trajectory.

Jamie: Our asset yield momentum is unique in the industry and combined with our strong deposit franchise supports our confidence in our attractive NIM trajectory.

JB: On slide number 10, we've again provided a snapshot of our funding stack and liquidity position. We're core funded with deposits making up 88% of our profile and have multiple efficient funding sources, including unsecured, secured, and short-term vehicles like the FHLB.

Jeffrey Jonathan Brown: On slide 10, we've again provided a snapshot of our funding stack and liquidity position. We're core funded with deposits making up 88% of our profile and have multiple efficient funding sources, including unsecured, secured, and short-term vehicles like the FHLB. Total available liquidity is $63.5 billion, which is 5.5 times our uninsured deposit balance. Our conservative liquidity profile remains a key priority and source of strength for Ally.

Jamie: On slide number 10, we've again provided a snapshot of our funding stack and liquidity position.

Jamie: Our core funded with deposits, making up 88% of our profile and have multiple efficient funding sources, including unsecured secured and short term vehicles like the FHFA.

JB: Total available liquidity is $63.5 billion, is 5.5 times our uninsured deposit balance.

Jamie: Total available liquidity of 63 5 billion is five five times, our uninsured deposit balances our conservative liquidity profile remains a key priority and source of strength for ally.

JB: Our conservative liquidity profile remains a key priority and source of strength for Ally.

JB: Deposits remain at the core of our funding position, and the performance we saw in 2023 against a very challenging market backdrop highlighted the unique strength of our consumer bank.

Jeffrey Jonathan Brown: Deposits remain at the core of our funding position, and the performance we saw in 2023 against a very challenging market backdrop highlighted the unique strength of our consumer bank. Let's turn to slide 11. As we said many times before, we are committed to optimization across our businesses to generate capital, drive risk-adjusted returns, and invest in our scale franchises. We took several meaningful actions in the quarter that demonstrate our commitment. The pending sale of Ally Lending allows us to further prioritize our highest returning and scaled businesses that directly serve our auto and deposit customers. At closing, we expect the sale of Ally Lending to add 15 basis points to our CET1 ratio and modestly increase tangible book value. The transaction is also accretive to earnings going forward.

Jamie: Deposits remain at the core of our funding position and the performance. We saw in 2023 against the very challenging market backdrop highlighted the unique strength of our consumer bank.

JB: Let's turn to slide number 11. As we said many times before, we are committed to optimization across our businesses to generate capital, drive risk-adjusted returns, and invest in our scale franchises.

Jamie: Let's turn to slide number 11, as we said many times before we are committed to optimization across our businesses to generate capital drive risk adjusted returns and invest in our scale franchises. We took several meaningful actions in the quarter, but demonstrate our commitment.

JB: We took several meaningful actions in the quarter that demonstrate our commitment.

JB: The pending sale of Ally Lending allows us to further prioritize our highest returning and scaled businesses that directly serve our auto and deposit customers. At closing, we expect the sale of Ally Lending to add 15 basis points to our CET1 ratio and modestly increase tangible book value. The transaction is also accretive to earnings going forward.

Jamie: Pending sale of ally lending allows us to further prioritize our highest returning and scaled businesses that directly serve our auto and deposit customers at closing, we expect the sale of ally lending to add 15 basis points to our CET, one ratio and modestly increased tangible book value. The transaction is also.

Jeffrey Jonathan Brown: During the quarter, we sold $1.7 billion of retail auto loans via the securitization market to free up capital that can be redeployed to further support our dealers and consumers. We sold season loans that were originated in a lower yield environment at break-even economics, demonstrating market appetite for our loans. We will continue to look opportunistically at ways to sell loans to create capital and better serve our dealers and consumers.

Jamie: Accretive to earnings going forward.

JB: During the quarter, we sold $1.7 billion of retail auto loans via the securitization market to free up capital that can be redeployed to further support our dealers and consumers.

Jamie: During the quarter, we sold $1 7 billion of retail auto loans via the securitization market to free up capital that can be redeployed to further support our dealers and consumers.

JB: We sold season loans that were originated in a lower yield environment at break-even economics, demonstrating market appetite for our loans.

Jamie: We sold season loans that were originated in a lower yield environment at breakeven economics, demonstrating market appetite for our loans.

JB: We will continue to look opportunistically at ways to sell loans to create capital and better serve our dealers and consumers.

Jamie: We will continue to look opportunistically at ways to sell loans to create capital and better serve our dealers and consumers.

JB: In addition, we will continue to progress initiatives that we started over the past 12 plus months to generate capital and optimize returns. We meaningfully curtailed our origination appetite with a focus on eliminating underperforming segments, particularly within auto and card.

Jeffrey Jonathan Brown: In addition, we will continue to progress initiatives that we started over the past 12 plus months to generate capital and optimize returns. We meaningfully curtailed our origination appetite with a focus on eliminating underperforming segments, particularly within auto and card. The headcount actions we took in 3Q and completed during the fourth quarter have reduced the cost base of the company. We'll see the full $80 million benefit in 2024. Tax actions in 2023 also added $100 million of capital. We've not reinvested in the securities portfolio and have put minimal mortgage volume on the balance sheet since 2022.

Jamie: In addition, we will continue to progress initiatives that we started over the past 12, plus months to generate capital and optimize returns we meaningfully curtailed our origination appetite with a focus on eliminating underperforming segments, particularly within auto and card.

JB: The headcount actions we took in 3Q and completed during the fourth quarter have reduced the cost base of the company. We'll see the full $80 million benefit in 2024.

The head count actions, we took in <unk> and completed during the fourth quarter have reduced the cost base of the company will see the full $80 million benefit in 2024.

JB: Tax actions in 2023 also added $100 million of capital.

Tax actions in 2023 also added $100 million of capital.

JB: We've not reinvested in the securities portfolio and has put minimal mortgage volume on the balance sheet since 2022.

Jamie: We've not reinvested in the securities portfolio and has put minimal mortgage volume on the balance sheet since 2022.

Jeffrey Jonathan Brown: In this quarter, we move $4 billion of non-agency MBS from AFS to HDM, reducing OCI volatility. The securities are a subset of our investment portfolio but do not qualify as contingent liquidity. With changes to the regulatory framework on the horizon and the compelling origination opportunities we have within auto finance, you should expect capital optimization efforts will remain a top priority for us moving forward. And with that, I'll turn it over to Russ to cover the detailed financial results.

JB: In this quarter, we move $4 billion of non-agency MBS from AFS to HDM, reducing OCI volatility. The securities are a subset of our investment portfolio, but do not qualify as contingent liquidity.

Jamie: In this quarter, we moved 4 billion of non agency MBS from <unk> to HTM, reducing OCI volatility the securities are subset of our investment portfolio, but do not qualify as contingent liquidity.

JB: With changes to the regulatory framework on the horizon and the compelling origination opportunities we have within auto finance, you should expect capital optimization efforts will remain a top priority for us moving forward. And with that, I'll turn it over to Russ to cover detailed financial results.

With changes to the regulatory framework on the horizon and a compelling origination opportunities we have within auto finance you should expect capital optimization efforts will remain a top priority for us moving forward.

Jamie: And with that I'll turn it over to Ross to cover our detailed financial results.

Russ Hutchinson: Thank you, JB. Good morning, everyone. I'll begin on slide 12. Net financing revenue excluding OID of $1.5 billion was down year over year, driven by higher funding costs given elevated short-term rates. Strength in fixed asset pricing was a partial offset during the quarter and positions us for NIM expansion through 2024 and beyond.

Ross: Thank you Jamie good morning, everyone I'll begin on slide 12, net financing revenue, excluding OID of $1 5 billion was down year over year, driven by higher funding costs, given elevated short term rates strengthened fixed asset pricing was a partial offset during the quarter and positions us for NIM expansion through 2020.

Russ Hutchinson: Strength in fixed asset pricing was a partial offset during the quarter and positions us for NIM expansion through 2024 and beyond.

Russ Hutchinson: Adjusted revenue of $500 million was up year-over-year and quarter-over-quarter, reflecting continued momentum across our diversified product offerings and solid investment gain.

Russ Hutchinson: Adjusted revenue of $500 million was up year-over-year and quarter-over-quarter, reflecting continued momentum across our diversified product offerings and solid investment gains. We're now at the quarterly run rate we've previously guided to and expect continued expansion over time. Several years of strong conquest volume and normalization of dealer inventories create a nice tailwind for insurance revenue, and we continue to see growth in both smart auction and the consumer auto pass-through programs, which enable us to better monetize application flow.

Speaker Change: And beyond adjust.

Speaker Change: Adjusted revenue of $500 million was up year over year and quarter over quarter, reflecting continued momentum across our diversified product offerings and solid investment gains.

Russ Hutchinson: We're now at the quarterly run rate we've previously guided to and expect continued expansion over time. Several years of strong conquest volume and normalization of dealer inventories create a nice tailwind for insurance revenue.

Speaker Change: We're now at the quarterly run rate, we previously guided to and expect continued expansion over time Devry.

Several years of strong conquest volume and normalization of dealer inventories create a nice tailwind for insurance revenue.

Russ Hutchinson: and we continue to see growth in both smart auction and the consumer auto pass-through programs, which enable us to better monetize application flow.

Speaker Change: And we continue to see growth in both smart auction and the consumer auto pass through programs, which enable us to better monetize application flow.

Russ Hutchinson: Provision expense of $587 million reflected solid credit performance in retail auto, with losses on the low end of our guidance and elevated losses in card, as we highlighted at an investor conference last quarter. Provision expense also included a $16 million benefit as we moved the Ally Lending Assets to Health for Sale designation in anticipation of a 1Q sale. This benefit has been excluded from adjusted metrics, including earnings per share. Non-interest expense of $1.4 billion includes two significant one-time items. First, a $149 million write-down of goodwill associated with the Ally Lending sale that brings the Ally Lending-related one-time items to $133 million in total, netting out the provision benefit. And second, we incurred a $38 million charge from the SDI Special Assessment associated with the 2023 banking crisis.

Speaker Change: Provision expense of $587 million reflected solid credit performance in retail auto with losses on the low end of our guidance and elevated losses in card as we highlighted at Investor Conference last quarter.

Russ Hutchinson: Provision expense also included a $16 million benefit as we moved the Ally Lending Assets to Health for Sale designation in anticipation of a 1Q sale.

Speaker Change: Provision expense also included a $16 million benefit as we move the ally lending assets to held for sale designation in anticipation of a <unk> sale.

Russ Hutchinson: This benefit has been excluded from adjusted metrics, including earnings per share.

Speaker Change: This benefit has been excluded from adjusted metrics, including earnings per share.

Russ Hutchinson: Non-interest expense of $1.4 billion includes two significant one-time items.

Noninterest expense of $1 4 billion includes two significant onetime items first a $149 million write down of goodwill associated with the ally lending sale that break the ally lending related onetime items to $133 million in total netting out the provision benefit and.

Russ Hutchinson: First, a $149 million write-down of goodwill associated with the Ally Lending sale that brings the Ally Lending-related one-time items to $133 million in total, netting out the provision benefit. And second, we incurred a $38 million charge from the SDI Special Assessment associated with the 2023 banking crisis.

Speaker Change: Second we incurred a $38 million charged from the FDIC special assessment associated with the 2023 banking crisis, both items have been excluded from adjusted metrics, including adjusted earnings per share. Excluding these one time items expenses were up around one 5% on a year over year basis right in the <unk>.

Russ Hutchinson: Both items have been excluded from adjusted metrics, including adjusted earnings per share. Excluding these one-time items, expenses were up around 1.5% on a year-over-year basis, right in the middle of the range we provided in December. Our effective tax rate during the quarter was negative 20% on a GAAP basis. Excluding the impact of lending, the tax rate was around 10%, which was better than expected as we saw strong EV volume during the quarter. Gap and adjusted EPS for the quarter were $0.16 and $0.45, respectively.

Speaker Change: All of the range we provided in December.

Russ Hutchinson: Our effective tax rate during the quarter was negative 20% on a GAAP basis.

Speaker Change: Our effective tax rate during the quarter was negative 20% on a GAAP basis.

Russ Hutchinson: Excluding the impact of lending, the tax rate was around 10%, which was better than expected as we saw strong EV volume during the quarter.

Speaker Change: Excluding the impact of lending the tax rate was around 10%, which was better than expected as we saw strong EV volume during the quarter.

Russ Hutchinson: Gap and adjusted EPS for the quarter were $0.16 and $0.45 respectively.

Speaker Change: GAAP and adjusted EPS for the quarter were <unk> 45, respectively.

Russ Hutchinson: Moving to slide 13, net interest margin excluding OID of 3.2% decreased six basis points quarter over quarter in line with the expectations and resulted in a full year NIM of 3.35%. Earning assets were down on a linked quarter basis, driven mainly by the sale of $1.7 billion of retail auto loans within the quarter. Margin has been pressured as we've progressed through the tightening cycle given the liability-sensitive nature of our balance sheet, but we have performed well in terms of pricing on both sides of the balance sheet. Retail auto pricing achieved a 95% pricing data and has exceeded expectations. Strong pricing has moved retail portfolio yields up 100 basis points in the past year. As we've talked about before, we see that yield expanding as origination yields are well above 10%.

Russ Hutchinson: Moving to slide 13, net interest margin excluding OID of 3.2% decreased six basis points quarter over quarter in line with the expectations and resulting in a full year NIM of 3.35%. Earning assets were down on a linked quarter basis, driven mainly by the sale of $1.7 billion of retail auto loans within the quarter. Margin has been pressured as we've progressed through the tightening cycle given the liability-sensitive nature of our balance sheet. But we have performed well in terms of pricing on both sides of the balance sheet. Retail auto pricing has achieved a 95% pricing data and has exceeded expectations.

Moving to slide 13, net interest margin, excluding OID of three 2% decreased six basis points quarter over quarter in line with the expectations and resulting in a full year NIM of 335%.

Speaker Change: Turning assets were down on a linked quarter basis, driven mainly by the sale of $1 7 billion of retail auto loans within the quarter margin has been pressured as we've progressed through the tightening cycle given the liability sensitive nature of our balance sheet, but we have performed well in terms of pricing on both sides of the balance sheet retail auto pricing has achieved a 95.

Speaker Change: Pricing data and has exceeded expectations strong pricing has moved retail portfolio yields up 100 basis points in the past year as we've talked about before we see that yield expanding as origination yields are well above 10%.

Russ Hutchinson: Looking forward, we expect earning assets to be generally flat, but with favorable mixed dynamics as lower-yielding mortgage insecurities are running off and being replaced by higher-returning retail auto, corporate finance, and credit card assets. So on the asset side, both mixed and natural portfolio turnover within retail auto will be tailwinds in 2024 and beyond.

Speaker Change: Looking forward, we expect earning assets to be generally flat, but with favorable mixed dynamics as lower yielding mortgage and securities are running off and being replaced by higher returning retail auto corporate finance and credit card assets. So on the asset side, both mix and natural portfolio turnover within retail order will.

Tailwind in 2024 and beyond.

Russ Hutchinson: Turning to liabilities, cost of funds moved up within the quarter in line with expectations.

Russ Hutchinson: Turning to liabilities, the cost of funds moved up within the quarter in line with expectations. Since tightening began, we've seen cumulative deposit data of around 70%, which compares well to peers, particularly in the context of $4.6 billion of Ally retail deposit growth and record customer growth in the year, when industry balances contracted.

Host: Good day, and thank you for standing by. Welcome to Allies Financial's fourth quarter and full year 2023 earnings call. At this time, all participants are in listen-only mode.

Speaker Change: Turning to liabilities cost of funds moved up within the quarter in line with expectations. Since tightening began we've seen a cumulative deposit beta of around 70%, which compels compares well to peers, particularly in the context of $4 $6 billion of ally retail deposit growth and record customer growth in the year.

Russ Hutchinson: Since tightening began, we've seen a cumulative deposit data of around 70%, which compares well to peers, particularly in the context of $4.6 billion of Ally retail deposit growth and record customer growth in the year, where industry balances contracted.

Host: After the presentation, there will be a question and answer session. To ask a question, you will need to press star 1-1 on your telephone. Then you will hear a message advising that your hand is raised.

Speaker Change: <unk>, where industry balances contracted we remain confident in our path to 4% NIM.

Russ Hutchinson: We remain confident in our path to 4% NAMM.

Russ Hutchinson: We remain confident in our path to 4% NAMM. We have assumed the Fed is done tightening, but we are not dependent on Fed cuts. Rate cuts will impact the pace of NIM expansion but not the destination. The pace of rate cuts implied by the current forward curve would accelerate our path to 4% NIM by the middle of next year. Turning to page 14, CET1 of 9.4% increased quarter over quarter. As we mentioned before, the sale of lending will add another 15 basis points upon closing in March. Given we have another Cecil Faison, we expect a relatively flat CET1 ratio in the first quarter, as the Ally Lending Sale benefit will be offset by Cecil Faison. Our TCE to TA ratio increased by more than 50 basis points during the quarter, driven by an increase in OCI as benchmark rates declined.

Host: To withdraw the question, please press star 1-1 again. Be advised that today's conference is being recorded. I would now like to turn the call over to Sean Leary, Head of Investor Relations. Please go ahead.

Russ Hutchinson: We have assumed the Fed is done tightening, but we are not dependent on Fed cuts. Rate cuts will impact the pace of NIM expansion, but not the destination. The pace of rate cuts implied by the current forward curve would accelerate our path to 4% NIM towards the middle of next year.

Speaker Change: We have assumed the fed is done tightening, but we are not dependent on fed cuts rate cuts will impact the pace of NIM expansion, but not the destination the pace of rate cuts implied by the current forward curve would accelerate our path to 4% NIM towards the middle of next year.

Russ Hutchinson: Turning to page 14, CET1 of 9.4% increased quarter over quarter. As we mentioned before, the sale of lending will add another 15 basis points upon closing in March.

Speaker Change: Turning to page 14, CET, one of nine 4% increased quarter over quarter as we mentioned before the sale of lending will add another 15 basis points. Upon closing in March given we have another seasonal phase and we expect a relatively flat CET one ratio in the first quarter as the ally lending sale benefit will be offset.

Russ Hutchinson: Given we have another Cecil Faison, we expect a relatively flat CET1 ratio in the first quarter, as the Ally Lending Sale benefit will be offset by Cecil Faison.

Sean Leary: The presentation we'll reference can be found in the investor relations section of our website, ally.com. Forward-looking statements and risk factor language governing today's call are on slide two. GAAP and non-GAAP measures pertaining to our operating performance and capital results are on Slides 3 and 4. As a reminder, non-GAAP or core metrics are supplemental to and not a substitute for U.S. GAAP measures. Definitions and reconciliations can be found in the appendix. Now, with that, I'll turn the call over to J.B. Thank you, Sean. Good morning, everyone.

Speaker Change: By seasonal phasing.

Russ Hutchinson: Our TCE to TA ratio increased by more than 50 basis points within the quarter, driven by an increase in OCI as benchmark rates declined. We recently announced our quarterly dividend of $0.30, which remains flat to prior quarter. As JB laid out, capital actions we undertook during the quarter and actions that we continue to execute upon reflect our commitment to generating capital, strategically investing in our highest-returning businesses and driving long-term value for shareholders.

Speaker Change: Our TCE to Ta ratio increased by more than 50 basis points within the quarter driven by an increase in OCI as benchmark rates declined.

Speaker Change: We recently announced our quarterly dividend of <unk> 30.

Speaker Change: Which remained flat to prior quarter as JV laid out capital actions, we undertook during the quarter an accident that we continue to execute upon reflect our commitment to generating capital strategically investing in our highest returning businesses and driving long term value for shareholders tangible book value per share up 100% since our.

Jeffrey Jonathan Brown: Before we get into the results, I want to introduce and welcome Doug Timmerman, who will take over as interim CEO on February 1st. Doug has spent more than 30 years in our auto finance and insurance businesses and is incredibly well positioned to lead allies. His experience in the industry is unrivaled.

Russ Hutchinson: Tangible book value per share up 100% since our IPO, excluding the impacts of AOCI, which we expect to accrete to par over time.

Speaker Change: Excluding the impacts of the OCI, which we expect to accrete to par over time.

Russ Hutchinson: Let's turn to slide 15 to review asset quality trends.

Russ Hutchinson: Let's turn to slide 15 to review asset quality trends. Consolidated net charge-offs of 177 basis points reflected seasonal trends and elevated activity within corporate finance and credit cards. Retail auto net charge-offs of 221 basis points in the fourth quarter were at the low end of the guidance we provided on our third quarter earnings call. In commercial auto, we recognized charge-offs of $19 million, which were previously reserved for, resulting in minimal P&L impact within the quarter. In the bottom right, 30- and 60-day retail auto delinquencies reflect seasonal increases. However, importantly, the year-over-year increase in 30-day delinquency rates declined for the fourth consecutive quarter.

Speaker Change: Let's turn to slide 15 to review asset quality trends.

Russ Hutchinson: Consolidated net charge-offs of 177 basis points reflected seasonal trends and elevated activity within corporate finance and credit cards.

Jeffrey Jonathan Brown: He's well-respected across all areas of the company, and he has the full support and confidence of our board, our leadership team, our employee base, and also our auto finance customer base. We're very fortunate to have a great leader in Doug and a deep bench across the company to ensure a seamless transition now and when we name our permanent CEO. Doug, congratulations, and maybe you'd like to share a couple of comments. Thank you, JB. It's a pleasure to be here this morning.

Speaker Change: Consolidated net charge offs of 177 basis points reflected seasonal trends and elevated activity within corporate financing credit card.

Russ Hutchinson: Retail auto net charge-offs of 221 basis points in the fourth quarter were at the low end of the guidance we provided on our third quarter earnings call. In commercial auto, we recognized charge-offs of $19 million, which were previously reserved for, resulting in minimal P&L impact within the quarter. In the bottom right, 30- and 60-day retail auto delinquencies reflect seasonal increases. Importantly, the year-over-year increase in 30-day delinquency rates declined for the fourth consecutive quarter.

Speaker Change: Retail auto net charge offs of 221 basis points in the fourth quarter were at the low end of the guidance. We provided on our third quarter earnings call in commercial auto we recognized charge offs of $19 million, which were previously reserved for resulting in minimal P&L impact within the quarter in the bottom right 30, and 60 day retail auto dish.

Speaker Change: <unk> reflect seasonal increases importantly, the year over year increase in 30 day delinquency rates declined for the fourth consecutive quarter.

Doug Timmerman: I'm really excited for the opportunity to lead Ally and encouraged by the momentum we have across the business. I'm more optimistic than ever about the outlook for the company based on the strength of the auto and bank franchises. I've got a tremendous amount of confidence that our team will continue to execute and support our customers during this transition. Back to you, JB. Thank you, Doug.

Russ Hutchinson: Moving to slide 16, consolidated coverage decreased 16 basis points to 2.57%. The decrease within the quarter was mainly driven by mixed dynamics, including the pending sale of ally lending, which carried a coverage rate of 9%, and growth within commercial auto, which has a lower coverage rate given its low loss content. The decline in the coverage rate was also impacted by the recognition of losses on credits within corporate finance and commercial auto, for which we previously had specific reserves that do not need to be replenished. The total loan loss reserve of $3.6 billion declined to approximately $250 million, driven mainly by the movement of Ally lending assets to help for sale and retail auto loan sales. Retail auto coverage of 3.65% increased three basis points, entirely driven by loan sales executed within the quarter, which were comprised of seasoned loans with lower loss content.

Speaker Change: Moving to slide 16, consolidated coverage decreased 16 basis points to 257% the decrease within the quarter was mainly driven by mixed dynamics, including the pending sale of ally lending, which carried a coverage rate of 9% and growth within commercial auto which has a lower coverage rate given its low loss content with.

Jeffrey Jonathan Brown: Okay, let's get rolling on page 5. I've made this point many times over the past nine years, but the culture we have developed at Ally is among my proudest achievements as CEO. To be clear, though, it's not my culture or the CEO's culture.

Russ Hutchinson: The decline in coverage rate was also impacted by the recognition of losses on credits within corporate finance and commercial auto, for which we previously had specific reserves that do not need to be replenished.

Speaker Change: Declining coverage rate was also impacted by the recognition of losses on credits within corporate finance and commercial auto for which we previously had specific reserves that do not need to be refinanced.

Russ Hutchinson: The total loan loss reserve of $3.6 billion declined to approximately $250 million, driven mainly by the movement of Ally lending assets to help for sale and the retail auto loan sales. Retail auto coverage of 3.65% increased three basis points entirely driven by loan sales executed within the quarter, which was comprised of seasoned loans with lower loss content.

Speaker Change: The total loan loss reserve of $3 6 billion declined approximately $250 million driven mainly by the movement of ally lending assets to held for sale and the retail auto loan sales retail auto coverage of 365% increased three basis points entirely driven by loan sales executed within the quarter, which was comprised of.

Jeffrey Jonathan Brown: It's a culture that is empowered and nurtured by every one of our 11,000-plus teammates. I firmly believe a strong culture is essential to delivering for our customers, communities, and shareholders, and it all starts with our employees. To my teammates for the past 15 years, thank you for your hard work and dedication. Your commitment is the driving force behind our success. I'm grateful for your leadership, integrity, and consistent execution against our long-term strategic objectives. The real benefit of an engaged workforce that embraces our leading core values is the customer obsession it creates.

Speaker Change: Seasoned loans with lower loss content.

Russ Hutchinson: As a reminder, for our CECL reserving process, we leverage a 12-month macroeconomic forecast which has unemployment increasing to 4.4% this year. Longer term, we assume unemployment increases to approximately 6% under our reversion to mean methodology.

Russ Hutchinson: As a reminder, for our CECL reserving process, we leverage a 12-month macroeconomic forecast that has unemployment increasing to 4.4% this year. In the longer term, we assume unemployment increases to approximately 6% under our reversion to mean methodology.

Speaker Change: As a reminder, for our diesel reserving process, we leverage at 12 month macroeconomic forecast, which has unemployment increasing to four 4%. This year longer term, we assume unemployment increases to approximately 6% under our reversion to mean methodology.

Russ Hutchinson: Let's turn to slide 17 to discuss Retail Auto Credit in more detail.

Speaker Change: Let's turn to slide 17 to discuss retail auto credit in more detail.

Russ Hutchinson: On a full-year basis, charge-offs of 1.77% were in line with the guide we provided a year ago, and within the fourth quarter, net charge-offs of 2.21% were on the low end of our most recent guide. During the quarter, improving front book performance coupled with stable flow-to-loss rates was more than enough to offset softness in used values, which ended the quarter around 5% lower than we assumed when providing 4 Looking at delinquency trends, the year-over-year rate of change declined again for the fourth consecutive quarter, with 30-plus up 86 basis points year-over-year, 82 basis points excluding the impact of loan sales.

Jeffrey Jonathan Brown: We've consistently rallied around initiatives that help us better serve our 11 million customers and drive industry change. An 88% customer satisfaction score across more than 380 million digital interactions is proof that when you do it right, customers notice and appreciate it. Culture can't be taken for granted and needs to be nurtured daily.

Speaker Change: On a full year basis charge offs of 177% were in line with the guide we provided a year ago and within the fourth quarter net charge offs of $2. Two 1% were on the low end of our most recent guide within the quarter.

Speaker Change: Improving front book performance, coupled with stable flow to loss rates was more than enough to offset softness in used values, which ended the quarter around 5% lower than we assumed when providing <unk> guidance.

Jeffrey Jonathan Brown: To that end, we've consistently prioritized building our culture and creating a sense of belonging. We are not focused on winning awards, but we do take pride when others recognize what we do for our employees, including being identified as a top employer across multiple dimensions. Our teammates continue to invest in the communities in which we live and work. In 2023, Ally teammates donated over 60,000 hours of their time to support our communities. Our 50-50 media pledge has shed light on women's sports, and we're encouraged to see this has really moved the needle in terms of visibility and investments by other brands. Our Moguls in the Making program has opened new doors and brought incredibly talented associates to Ally over the past five years. The energy of the event each year is infectious and gives me tremendous pride in what we can accomplish together.

Russ Hutchinson: Looking at delinquency trends, the year-over-year rate of change declined again for the fourth consecutive quarter, with 30-plus up 86 basis points year-over-year, 82 basis points excluding the impact of loan sale.

Speaker Change: Looking at delinquency trends the year over year rate of change declined again for the fourth consecutive quarter with 30, plus up 86 basis points year over year 82 basis points, excluding the impact of loan sales.

Russ Hutchinson: We've been active in optimizing the buybacks to remove underperforming segments and maximize through-the-cycle adjusted returns. Our curtailment actions began in mid-2022, and the cumulative impact of those actions has been significant in terms of volume, but even more so in terms of lost content removed from our origination profile. We continue to be encouraged by granular performance monitoring, with all origination vintages showing improved performance as they cease. In terms of specific cohorts, the most seasoned parts of the portfolio from 2021 and earlier continue to outperform price loss expectations and have passed their peak loss period. The 2022 vintage, more specifically the second half of 2022, is showing elevated loss content versus expectations. But again, the 2022 vintage has consistently shown improving performance over time.

We've been active in optimizing the buybacks to remove underperforming segments and maximize do the cycle adjusted returns our curtailment actions began in mid 2022, and the cumulative impact of those actions has been significant in terms of volume, but even more so in terms of lost content removed from our origination profile.

Speaker Change: We continue to be encouraged by granular performance monitoring with all origination vintages, showing improved performance as they season in <unk>.

Russ Hutchinson: In terms of specific cohorts, the most seasoned parts of the portfolio from 2021 and earlier continue to outperform price loss expectations and have passed their peak loss period. The 2022 vintage, more specifically the second half of 2022, is showing elevated loss content versus expectations.

Speaker Change: Terms of the specific cohorts the most seasoned parts of the portfolio from 2021 in earlier continue to outperform price loss expectations and have passed their peak loss period for 2022 vintage more specifically the second half of 2022 is showing elevated loss content versus expectations, but again the vintage has.

Russ Hutchinson: It's early to evaluate the 2023 vintage, but we are encouraged by initial performance indicators, and our shift up the credit spectrum in April of 2023 meaningfully reduced the absolute loss content on our most recent vintage. The 2023 vintage has started to outperform 2022 in terms of delinquency after 12 months on book. And we expect that outperformance to expand as we move forward, given the underwriting changes we've made over time and the shift into super prime in April. But it's important to remember the first six months of any vintage is noisy, and we really start to get a good look closer to 12 months on the page we've shown more detail comparing months 7 to 12 of the 2022 and 2023.

Jeffrey Jonathan Brown: I truly believe culture is a differentiator and will remain a key driver of ally success moving forward. And with that, let's turn to page six and get into the results. Full-year adjusted EPS of $3.05, core ROTC of 11.5%, and revenues of $8.2 billion reflected our ability to deliver solid financial results while continuing to position for earnings growth over the years ahead. NIM of 3.35% was impacted by the rapid tightening we've seen over the past two years. With the tightening cycle likely behind us, we are well positioned for meaningful NIM expansion going forward. There are a few notable items in the quarter I wanted to touch on before diving into operational results. This morning, we announced that we've reached an agreement to sell Ally Lending. This transaction allows us to allocate capital to our highest-returning businesses and focus on strengthening relationships with our consumer and dealer customers. The operations were moved to held for sale, and we recorded a goodwill impairment within the quarter.

Russ Hutchinson: But again, the vintage has consistently shown improving performance over time.

Speaker Change: Consistently shown improving performance over time.

Speaker Change: It's early to evaluate the 2023 vintage, but we are encouraged by initial performance indicators and our shift up the credit spectrum in April of 2023 meaningfully reduce the absolute loss content on our most recent vintages. The 2023 vintages starting to outperform 2022 in terms of delinquency after 12 months on book.

Russ Hutchinson: The 2023 vintage has started to outperform 2022 in terms of delinquency after 12 months on book.

Russ Hutchinson: And we expect that outperformance to expand as we move forward, given the underwriting changes we've made over time and the shift into super prime in April. It's important to remember the first six months of any vintage is noisy.

Speaker Change: And we expect that outperformance to expand as we move forward given the underwriting changes we've made over time and the shifting to Super Prime in April It is important to remember the first six months of any vintages noisy.

Russ Hutchinson: and we really start to get a good look closer to 12 months on the page we've shown more detail comparing months 7 to 12 of the 2022 and 2023

And we really start to get a good look closer to 12 months on the page we've shown more detail comparing month, 7% to 12 of the 2022 and 2023 vintages and as you can see the 2023 vintage curve has started to bend favorably and we expect that to continue over time.

Russ Hutchinson: And as you can see, the 2023 vintage curve has started to bend favorably, and we expect that to continue over time.

Russ Hutchinson: And as you can see, the 2023 vintage curve has started to bend favorably, and we expect that to continue over time. We know delinquency trends by vintage are a focal area, but we also look at the same trends on an actual loss basis, and on that basis, the 2023 vintage looks even better relative to 2022.

Russ Hutchinson: We know delinquency trends by vintage are a focal area, but we also look at the same trends on an actual loss basis, and on that basis, the 2023 vintage looks even better relative to 2022.

Speaker Change: We know delinquency trends by vintage or a focal area, but we also look at the same trends on an actual loss basis and on that basis. The 2023 vintage looks even better relative to 2022.

Russ Hutchinson: As you all know, we've actively refined our approach to collections over time, including extension of refo timing.

Russ Hutchinson: As you all know, we've actively refined our approach to collections over time, including extension of refo timing. In total, that's resulted in more churn in the delinquency buckets, but a meaningful improvement in eventual losses. So delinquency trends are encouraging, and loss performance is even more encouraging. As we sit here today, we feel that our underperforming originations are ring-fenced to the second half of 2022. With yields over 9% for that cohort, these are still financially attractive loans. With Advantage entering its peak loss period now, it will be the primary driver of NCO performance in the first half of 2024, which will also see increasing unemployment based on consensus economic estimates.

Jeffrey Jonathan Brown: The fourth quarter impacts, which Russ will cover in more detail, are excluded from adjusted EBIT. We expect the sale to close in the first quarter and generate 15 basis points of CET1 at closing and modestly increase tangible book value. The sale is also accretive to earnings going forward. Additionally, within the quarter, we deconsolidated $1.7 billion of retail auto loans from the balance sheet through securitization transactions, adding nine basis points of CET1. From a cost perspective, the benefit of the headcount actions we announced in the third quarter and completed in the fourth quarter is fully embedded in our expense run rate going forward. Fourth quarter results also include a $38 million FDIC special assessment being incurred across the industry. Our charge was among the lowest in the industry, reflecting the composition of our deposit base. The impact of the assessment is also excluded from adjusted EPS.

Speaker Change: As you all know we've actively refined our approach to collections overtime, including extension of repo timing in total thats resulted in more churn in the delinquency buckets, but a meaningful improvement in an eventual losses. So delinquency trends are encouraging and loss performance is even more encouraging as we sit here today, we feel.

Russ Hutchinson: In total, that's resulted in more churn in the delinquency buckets, but a meaningful improvement in eventual losses. So delinquency trends are encouraging, and loss performance is even more encouraging. As we sit here today, we feel our underperforming originations are ring-fenced to the second half of 2022. With yields over 9% for that cohort, these are still financially attractive loans.

Speaker Change: Our underperforming originations are ring fenced to the second half of 2022 with yields over 9% for that cohort. These are still financially attractive loans.

Speaker Change: That vintage entering its peak loss period now it will be the primary driver of NCO performance in the first half of 2024, which will also see increasing unemployment based on consensus economic estimates later in the year. We expect the 2023 vintage will start to drive losses down on a seasonally adjusted basis, we'll talk more.

Russ Hutchinson: Later in the year, we expect the 2023 vintage will start to drive losses down on a seasonally adjusted basis. We'll talk more about the overall guide later, but putting the retail credit performance together, we expect losses to increase in 2024 but are confident our annual NCO rate will remain below 2%. On a seasonally adjusted basis, we'd expect higher losses in the first half of the year and then improving performance as new originations reach peak losses.

Russ Hutchinson: Later in the year, we expect the 2023 vintage will start to drive losses down on a seasonally adjusted basis.

Russ Hutchinson: We'll talk more about the overall guide later, but putting the retail credit performance together, we expect losses to increase in 2024, but are confident our annual NCO rate will remain below 2%.

Speaker Change: The overall guide later, but putting the retail credit performance together, we expect losses to increase in 2024, but are confident in our annual NCO rate will remain below 2%.

Russ Hutchinson: On a seasonally adjusted basis, we'd expect higher losses in the first half of the year and then improving performance as new originations reach peak losses.

Speaker Change: On a seasonally adjusted basis, we'd expect higher losses in the first half of the year and then improving performance as new originations reached peak losses.

Russ Hutchinson: On slide 18, we provide an outlook for used vehicle values, which declined 9% in 2023 and have declined 26% from their 2021.

Russ Hutchinson: On slide 18, we provide an outlook for used vehicle values, which declined 9% in 2023 and have declined 26% from their 2021 levels. We are assuming another 5% decline in 2024, with much of that decline occurring in the first half of the year. That would result in a total decline from peak levels of just over 30%. However, we continue to expect used values will stabilize and ultimately settle around 20% higher than pre-pandemic levels. With new vehicle production below pre-pandemic levels for nearly four years, used supply will remain 15% below historical norms over the next several years and provide structural support for use values.

Speaker Change: On slide 18, we provide an outlook for used vehicle values, which declined 9% in 2023 and have declined 26% from their 2021 peak.

Russ Hutchinson: We are assuming another 5% decline in 2024, with much of that decline occurring in the first half of the year. That would result in a total decline from peak levels of just over 30%. We continue to expect used values will stabilize and ultimately settle around 20% higher than pre-pandemic levels.

Speaker Change: We are assuming another 5% decline in 2024 with much of that decline occurring in the first half of the year that would result in a total decline from peak levels of just over 30%. We continue to expect used values will stabilize and ultimately settle around 20% higher than pre pandemic levels with new vehicle production.

Russ Hutchinson: With new vehicle production below pre-pandemic levels for nearly four years,

Speaker Change: Below pre pandemic levels for nearly four years used supply will remain 15% below historical norms over the next several years and provide structural support for used values.

Russ Hutchinson: Use supply will remain 15% below historical norms over the next several years and provide structural support for use value.

Jeffrey Jonathan Brown: We continue to see encouraging performance trends across vintages and flow-to-loss rates, which we'll cover when we get to credit shortly. Insurance earned premiums of $1.3 billion, which was the highest since our IPO. Now turning to Ally Bank, 2023 was an outstanding year in terms of deposits performance. Despite the disruption stemming from the March banking events and a decline in deposit balances across much of the industry, we delivered solid deposit growth every quarter in 2023. We also saw record growth in customers and now serve more than 3 million customers with $142 billion in deposit balances. Ally Credit Card now serves more than 1.2 million active cardholders with $2 billion in balances.

Russ Hutchinson: Turning to slide 19.

Speaker Change: Turning to slide 19.

Russ Hutchinson: We help our dealers sell as many cars and trucks as possible. As we have said before, we encourage our dealers to send us all of their application volume. We leverage our differentiated go-to-market approach, coupling high-tech and high-touch to earn their partnership. We anticipate decisioning over $400 billion of potential loan volume in 2023. Record application flow has enabled us to be dynamic in what we originate. Our ability to pivot up or down the credit spectrum gives us confidence in our ability to continue to book strong risk-adjusted yields. Our pass-through programs allow us to better serve our dealers while providing a mechanism to monetize a greater share of our application volume.

Speaker Change: We help our dealers sell as many cars and trucks as possible as we have said before we encourage our dealers to send us all of their application volume, we leverage our differentiated go to market approach coupling high Tech and high touch to earn their partnership we decision to over $400 billion with potential loan volume in 2023 record application.

Patient flow enabled us to be dynamic and what we originate our ability to pivot up or down the credit spectrum give us confidence in our ability to continue to book strong risk adjusted yields are pass through programs allow us to better serve our dealers, while providing a mechanism to monetize a greater share of our application volume.

Russ Hutchinson: Our pass-through programs allow us to better serve our dealers while providing a mechanism to monetize a greater share of our application volume.

Russ Hutchinson: Turning to origination trends, on the bottom half of the page, fourth-quarter volume of $9.6 billion resulted in $40 billion of consumer originations for the year across a diverse set of dealer partners. Used comprised 65% of originations, while the percentage of non-prime originations remained at 9%. The unique scale of our auto franchise and the depth of our relationships with our dealers give us a durable, competitive advantage that enables us to be selective and dynamic in what we originate.

Russ Hutchinson: Turning to origination trends, on the bottom half of the page, fourth quarter volume of $9.6 billion resulted in $40 billion of consumer originations for the year across a diverse set of dealer partners.

Speaker Change: Turning to origination trends on the bottom half of the page fourth quarter volume of $9 6 billion resulted in $40 billion of consumer originations for the year across a diverse set of dealer partners used comprised 65% of originations while the percentage of non prime originations remained at 9% the unique scale of our <unk>.

Jeffrey Jonathan Brown: Despite elevated net charge-off activity in the near term, returns in the car business are compelling, which we'll cover in more detail shortly. And finally, corporate finance continues to generate steady loan growth and accretive returns. The business delivered record earnings and a 25% ROE in 2023, and the quality of the book remains strong. Now, let's turn to slide number seven to talk about Ally's market-leading franchises. Within dealer financial services, 22,000 dealer relationships resulted in nearly 14 million consumer auto applications in 2023, a record for Ally.

Russ Hutchinson: Used comprised 65% of originations, while the percentage of non-prime originations remained at 9%. The unique scale of our auto franchise and the depth of our relationships with our dealers give us a durable, competitive advantage that enables us to be selective and dynamic in what we originate.

Franchise, and the depth of our relationships with our dealers give us a durable competitive advantage that enables us to be selective and dynamic and what we originate.

Russ Hutchinson: Let's turn to slide 20 to review auto segment highlights. Free tax income of $294 million was lower year over year driven by higher provision and non-interest expense.

Russ Hutchinson: Let's turn to slide 20 to review the auto segment highlights. Free tax income of $294 million was lower year over year driven by higher provision and non-interest expense. Provision reflected typical seasonality, while expenses were the result of elevated repo costs across the industry and requisite spend to support the strength and scale we just highlighted. Looking at the bottom left, originated yield of 10.8% was up 124 basis points from the prior year, reflecting significant pricing power throughout 2023. Importantly, 43% of our retail volume was in our S tier, which represents the highest concentration within that tier in more than a decade. The total portfolio yield increased eight basis points during the quarter, including a lower contribution from the hedge portfolio. Excluding hedges, the natural portfolio yield increased 27 basis points this quarter, reflecting the repricing momentum that will continue going forward.

Speaker Change: Let's turn to slide 20 to review auto segment highlights pretax income of $294 million was lower year over year, driven by 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 stretch.

Jeffrey Jonathan Brown: In terms of originations, that's more than $400 billion in consumer auto volume decisions, which allows us to be selective and optimize returns. Again, $1.3 billion of insurance earned premiums is the highest since our IPO, and we see a long runway ahead as we leverage synergies with our auto finance team. I mentioned the impressive scale and growth we've seen in the consumer bank on the previous slide, but we're equally pleased with the quality of our customer base. Ally Bank depositors are highly engaged, with more than 1 million consumers leveraging core product features across deposits and investments. That engagement continues to drive customer retention that has stayed above 95% since we launched the bank in 2009.

Speaker Change: And scale, we just highlighted looking at the bottom left originated yield of 10, 8% was up 124 basis points from the prior year, reflecting significant pricing power throughout 2023 importantly, 43% of our retail volume within our STR, which represents the highest concentration.

Russ Hutchinson: Looking at the bottom left, originated yield of 10.8% was up 124 basis points from the prior year, reflecting significant pricing power throughout 2023.

Russ Hutchinson: Importantly, 43% of our retail volume was in our S tier, which represents the highest concentration within that tier in more than a decade. The total portfolio yield increased eight basis points within the quarter, including a lower contribution from the hedge portfolio. Excluding hedge, the natural portfolio yield increased 27 basis points this quarter, reflecting the repricing momentum that will continue going forward.

Speaker Change: Within that tier in more than a decade, the total portfolio yield increased eight basis points within the quarter, including a lower contribution from the hedge portfolio, excluding hedge the natural portfolio yield increased 27 basis points this quarter, reflecting the repricing momentum that will continue going forward the bottom.

Russ Hutchinson: The bottom right shows lease portfolio trends. Gains declined quarter over quarter, driven by a decline in used values and lower termination volumes, partially offset by a reduction in dealer and lessee buyouts.

Speaker Change: Right shows lease portfolio trends gains declined quarter over quarter, driven by decline in used values and lower termination volumes, partially offset by a reduction in dealer unless the buyouts.

Jeffrey Jonathan Brown: Both Dealer Financial Services and Ally Bank have a robust scale but remain nimble and able to pivot in response to evolving market dynamics. That has served us well in this environment and gives me confidence in our ability to deliver earnings growth going forward. Turning to slide number eight, total revenue of $8.2 billion represents a 76% increase since 2014. Net financing revenue of $6.2 billion is up 80% due to the strategic positioning of the auto finance business and the consistent growth in high-quality deposits. And other revenue is up more than 50% as we've grown fee-generating businesses like insurance, smart auction, and our auto pass-through programs.

Russ Hutchinson: Turning to insurance results in slide 21.

Russ Hutchinson: Turning to insurance results, slide 21, core pre-tax income of $62 million included the highest premium earned since our IPO and a solid investment gain. Total written premiums of $333 million increased 17% as we remain focused on increasing dealer relationships and benefit from normalizing inventory levels. Insurance losses of $93 million were up $30 million year-over-year driven by portfolio growth, increased gap losses, and the cumulative impact of inflation. We have provided additional detail on loss performance given the normalization of our gap losses over the past year and the increase in our non-weather PMC losses. Non-weather PNC includes losses from our garage insurance product and inventory theft, which have increased over the past year. We've been very active in terms of loss prevention and pricing for increasing loss activity and are confident in the growth opportunities ahead for insurance.

Speaker Change: Turning to insurance results on slide 21.

Russ Hutchinson: Core pre-tax income of $62 million included the highest premium earned since our IPO and solid investment gain.

Speaker Change: Core pretax income of $62 million included the highest premium earned since our IPO and solid investment gains total written premiums of $333 million increased 17% as we remain focused on increasing dealer relationships and benefit from normalizing inventory levels.

Russ Hutchinson: Total written premiums of $333 million increased 17% as we remain focused on increasing dealer relationships and benefit from normalizing inventory levels.

Russ Hutchinson: Insurance losses of $93 million were up $30 million year-over-year driven by portfolio growth, increased gap losses, and the cumulative impact of inflation.

Speaker Change: <unk> losses of $93 million were up $30 million year over year driven by portfolio growth.

Speaker Change: Increased GAAP losses, and the cumulative impact of inflation.

Russ Hutchinson: We have provided additional detail on loss performance given the normalization of our gap losses over the past year and the increase in our non-weather PMC loss.

Speaker Change: We have provided additional detail on loss performance given the normalization of our GAAP losses over the past year and the increase in our non weather P&C loss.

Jeffrey Jonathan Brown: At the bottom of the page, we highlight our revenue growth across insurance, corporate finance, and credit cards. Revenue from these businesses has nearly doubled over the last nine years, and we see opportunities for further growth going forward. On slide number 9, you can clearly see we've driven substantially higher margin through transformation on both sides of the balance sheet. Despite facing pressure from the historic rise in short-term rates, NIM is up 80 basis points since 2014 and is more than 50 basis points higher than where we were just a few years ago. Looking ahead, we see our retail auto yield continuing to expand as we originate new loans at higher yields than our current portfolio. Disciplined growth and higher yielding corporate finance and credit card loans, coupled with a continued decline in lower yielding mortgage and securities, are also a tailwind to earnings on asset yields.

Russ Hutchinson: Non-weather PNC includes losses from our garage insurance product and inventory theft, which have increased over the past year.

Speaker Change: Non weather P&C includes losses from our garage insurance product and inventory fast which have increased over the past year we.

Russ Hutchinson: We've been very active in terms of loss prevention and pricing for increasing loss activity and are confident in the growth opportunities ahead for insurance.

Speaker Change: <unk> been very active in terms of loss prevention and pricing for increasing loss activity and are confident in the growth opportunities ahead for insurance.

Russ Hutchinson: Moving to Allied Bank on slide 22, retail deposits of $142 billion increased $4.6 billion year over year and $2.2 billion quarter over quarter, demonstrating the scale and resiliency of our franchise. We grew our customer base for the 15th consecutive year, and net customer growth of 359,000 for 2023 is the highest in Ally Bank's history. We now serve as a relentless ally for more than 3 million customers. We also continue to see growth in multi-product customers and maintain our industry-leading customer retention rate of over 95%.

Speaker Change: Moving to ally Bank on Slide 22 retail deposits of 142 billion increased $4 6 billion year over year, and $2 2 billion quarter over quarter, demonstrating the scale and resiliency of our franchise.

Russ Hutchinson: We grew our customer base for the 15th consecutive year, and net customer growth of 359,000 for 2023 is the highest in Ally Bank's history.

Speaker Change: We grew our customer base for the 15th consecutive year of net customer growth of 359000.

Speaker Change: For 2023 is the highest in ally Bank history, we now serve as a relentless ally for more than 3 million customers. We also continue to see growth in multi product customers and maintain our industry, leading customer retention rate of over 95%.

Russ Hutchinson: We now serve as a relentless ally for more than 3 million customers.

Russ Hutchinson: We also continue to see growth in multi-product customers and maintain our industry-leading customer retention rate of over 95%.

Russ Hutchinson: Turning to slide 23, Ally Credit Card provides a direct-to-consumer digital product offering with a compelling return profile. From an ALM perspective, it provides a floating rate asset with an attractive margin and further diversification to our liability-sensitive balance.

Russ Hutchinson: Turning to slide 23, Ally Credit Card provides a direct-to-consumer digital product offering with a compelling return profile. From an ALM perspective, card provides a floating rate asset with an attractive margin and further diversification to our liability-sensitive balance.

Speaker Change: Turning to slide 23, Allied credit card provides a direct to consumer digital product offering with a compelling return profile from an <unk> perspective card provides a floating rate asset with an attractive margin and further diversification to our liability sensitive balance sheet from a customer perspective, the existing nearby.

Jeffrey Jonathan Brown: Our asset yield momentum is unique in the industry and, combined with our strong deposit franchise, supports our confidence in our attractive NIM trajectory. On slide 10, we've again provided a snapshot of our funding stack and liquidity position. We're core funded with deposits making up 88% of our profile and have multiple efficient funding sources, including unsecured, secured, and short-term vehicles like the FHLB. Total available liquidity is $63.5 billion, which is 5.5 times our uninsured deposit balance.

Russ Hutchinson: From a customer perspective, the existing Neoprime product fits well with a meaningful portion of our auto insurance customers.

Russ Hutchinson: From a customer perspective, the existing Neoprime product fits well with a meaningful portion of our auto insurance customers, and we're actively developing a product set that would meet the needs of our deposit customers. In addition to delivering a great customer experience, we remain focused on credit management and measured, prudent growth within the card business.

Speaker Change: <unk> product fits well with a meaningful portion of our auto insurance customers and we're actively developing a product set that would meet the needs of our deposit customers.

Russ Hutchinson: and we're actively developing a product set that would meet the needs of our deposit customers.

Russ Hutchinson: In addition to delivering a great customer experience, we remain focused on credit management and measured, prudent growth within the card business.

Speaker Change: In addition to delivering a great customer experience, we remain focused on credit management and measured prudent growth within the card business.

Russ Hutchinson: Losses in the portfolio have increased in recent quarters and are expected to peak in mid 2024.

Russ Hutchinson: Losses in the portfolio have increased in recent quarters and are expected to peak in mid 2024. The dynamics in our portfolio mirror what has been observed across the industry. Specifically, weaker performance in the 2021 and 2022 near prime cohorts, which have been the most impacted by inflation. For Ally, those cohorts represent a majority of the total portfolio, resulting in a more pronounced increase in portfolio-level loss rates.

Speaker Change: Losses in the portfolio have increased in recent quarters and are expected to peak in mid 2024.

Jeffrey Jonathan Brown: Our conservative liquidity profile remains a key priority and source of strength for Ally. Deposits remain at the core of our funding position, and the performance we saw in 2023 against a very challenging market backdrop highlighted the unique strength of our consumer bank. Let's turn to slide number 11.

Russ Hutchinson: The dynamics in our portfolio mirror what has been observed across the industry.

Speaker Change: The dynamics in our portfolio mirror, what has been observed across the industry, specifically weaker performance in the 2021 and 2022 near Prime cohorts, which had been the most impacted by inflation.

Russ Hutchinson: Specifically, weaker performance in the 2021 and 2022 near prime cohorts, which have been the most impacted by inflation.

Russ Hutchinson: For Ally, those cohorts represent a majority of the total portfolio, resulting in a more pronounced increase in portfolio-level loss rate.

Speaker Change: For ally those cohorts represent a majority of the total portfolio, resulting in a more pronounced increase in portfolio level loss rates.

Jeffrey Jonathan Brown: As we said many times before, we are committed to optimization across our businesses to generate capital, drive risk-adjusted returns, and invest in our scaled franchises. We took several meaningful actions in the quarter that demonstrate our commitment. The pending sale of Ally Lending allows us to further prioritize our highest-returning and scaled businesses that directly serve our auto and deposit customers.

Russ Hutchinson: Beginning in 2022, we took significant credit tightening actions on both new and existing accounts.

Beginning in 2020, we took significant credit tightening actions on both new and existing accounts, we reduced exposure in higher risk segments by over $300 million in 2023, because of our tightening actions, including a 20% reduction in new accounts, coupled with reductions in credit lines.

Russ Hutchinson: We reduced exposure in higher risk segments by over 300 million in 2023 because of our tightening act.

Russ Hutchinson: including a 20% reduction in new accounts coupled with reductions in credit lines.

Russ Hutchinson: Heading into 2024, we expect these tightening actions on new and existing accounts to curtail more than $500 million of exposure.

Jeffrey Jonathan Brown: At closing, we expect the sale of Ally Lending to add 15 basis points to our CET1 ratio and modestly increase tangible book value. The transaction is also accretive to earnings going forward. During the quarter, we sold $1.7 billion of retail auto loans via the securitization market to free up capital that can be redeployed to further support our dealers and consumers.

Speaker Change: Heading into 2024, we expect these tightening actions on new and existing accounts to curtail more than $500 million of exposure.

Russ Hutchinson: In terms of overall portfolio performance, the return profile on CART is compelling, even in this period of elevated loss.

Russ Hutchinson: In terms of overall portfolio performance, the return profile on CART is compelling, even in this period of elevated losses. Gross revenue yield, including fees of 27%, provides significant return resilience to absorb loss volatility. Assuming losses increase to 13%, we still see risk-adjusted margins of 10% and a pre-tax ROA of approximately 2%. Assuming normalized losses of 9%, we expect a mid-teens risk-adjusted margin in line with expectations when we enter the business in 2021, driving a pre-tax ROA of 5% and enhancing the overall return profile of our largely secured balance. Those economics reflect the allies' consolidated cost of funds and include all operating costs, excluding expenses from the 2021 acquisition of Fair Square and allocation of corporate overhead.

Speaker Change: In terms of overall portfolio performance. The return profile in card is compelling even in this period of elevated losses.

Russ Hutchinson: Gross revenue yield, including fees of 27%, provides significant return resilience to absorb loss volatility.

Gross revenue yield including fees of 27% provides significant return resilience to absorb loss volatility.

Russ Hutchinson: Assuming losses increase to 13%, we still see risk-adjusted margins of 10% and a pre-tax ROA of approximately 2%.

Jeffrey Jonathan Brown: We sold season loans that were originated in a lower yield environment at break-even economics, demonstrating market appetite for our loans. We will continue to look opportunistically at ways to sell loans to create capital and better serve our dealers and consumers. In addition, we will continue to progress initiatives that we started over the past 12 plus months to generate capital and optimize returns. We meaningfully curtailed our origination appetite with a focus on eliminating underperforming segments, particularly within auto and card.

Speaker Change: Assuming losses increased to 13%, we still see risk adjusted margins of 10% and a pre tax ROA of approximately 2%.

Russ Hutchinson: Assuming normalized losses of 9%, we expect a mid-teens risk-adjusted margin in line with expectations when we entered the business in 2021, driving a pre-tax ROA of 5% and enhancing the overall return profile of our largely secured balance.

Speaker Change: Assuming normalized losses of 9%, we expect a mid teens risk adjusted margin in line with expectations. When we entered the business in 2021, driving a pretax ROA of 5% and enhancing the overall return profile of our largely secured balance sheet.

Russ Hutchinson: Those economics reflect allies consolidated cost of funds and include all operating costs, excluding expenses from the 2021 acquisition of fair square and allocation of corporate overhead.

Speaker Change: The economics reflect allies consolidated cost of funds and include all operating costs, excluding expenses from the 2021 acquisition, a fair square an allocation of corporate overhead.

Russ Hutchinson: While we have moderated our growth ambitions for the near term, we continue to view CARD as a key part of our long-term strategy and financial profile.

Jeffrey Jonathan Brown: The headcount actions we took in 3Q and completed during the fourth quarter have reduced the cost base of the company. We'll see the full $80 million benefit in 2024. Tax actions in 2023 also added $100 million of capital. We've not reinvested in the securities portfolio and have put minimal mortgage volume on the balance sheet since 2022. In this quarter, we move $4 billion of non-agency MBS from AFS to HDM, reducing OCI volatility. The securities are a subset of our investment portfolio but do not qualify as contingent liquidity.

Russ Hutchinson: While we have moderated our growth ambitions in the near term, we continue to view CARD as a key part of our long-term strategy and financial profile.

While we have moderated our growth ambitions in the near term. We continue to view card is a key part of our long term strategy and financial profile.

Russ Hutchinson: Let's move to slide 24 and talk about two other products offered within the consumer bank, Ally Home and Ally Invest.

Russ Hutchinson: Let's move to slide 24 and talk about two other products offered within the consumer bank, Ally Home and Ally Invest. A mortgage is the largest purchase consumers make, and Ally Home is a leading digital experience we offer to further deepen the relationship with our customers.

Let's move to slide 24, and talk about two other products offered within the consumer bank ally home and ally invest.

Russ Hutchinson: Mortgage is the largest purchase consumers make, and Ally Home is a leading digital experience we offer to further deepen the relationship with our customers.

Speaker Change: Mortgage is the largest purchase consumers make an ally home as a leading digital experience we offer to further deepen the relationship with our customer.

Russ Hutchinson: Our operating model centers on a variable cost structure, enabling us to limit earnings volatility in periods where origination volumes are depressed.

Russ Hutchinson: Our operating model centers on a variable cost structure, enabling us to limit earnings volatility in periods where origination volumes are depressed. Most of the volume in Ally Home comes from deposit customers, and less than 20% of loans originated or retained on balance.

Our operating model centers on a variable cost structure, enabling us to limit earnings volatility in periods, where origination volumes are depressed.

Russ Hutchinson: Most of the volume in Ally Home comes from deposit customers.

Speaker Change: Most of the volume and ally home comes from deposit customers and less than 20% of loans originated are retained on balance sheet.

Russ Hutchinson: and less than 20% of loans originated or retained on balance.

Jeffrey Jonathan Brown: With changes to the regulatory framework on the horizon and the compelling origination opportunities we have within auto finance, you should expect capital optimization efforts will remain a top priority for us moving forward. And with that, I'll turn it over to Russ to cover the detailed financial results. Thank you, JB. Good morning, everyone.

Russ Hutchinson: How I invest is a key aspect of the overall deposit value proposition.

Russ Hutchinson: How I invest is a key aspect of the overall deposit value proposition, providing customers with seamless money movement between brokerage and savings. In total, Ally Invest customers maintain $13 billion in traditional deposits with Ally and maintain an average balance that is double that of non-Invest deposit customers. Ally Invest is profitable on a standalone basis and offers another compelling experience to drive engagement and retention.

Speaker Change: Our invest is a key aspect of the overall deposit value proposition, providing customers seamless money movement between brokerage and savings.

Russ Hutchinson: Providing customers seamless money movement between brokerage and savings.

Russ Hutchinson: In total, Ally Invest customers maintain $13 billion in traditional deposits with Ally and maintain an average balance that is double that of non-Invest deposit customers.

Speaker Change: In total our invest customers maintain $13 billion in traditional deposits with ally and maintain an average balance that is double that of non invest deposit customers.

Russ Hutchinson: I'll begin on slide 12. Net financing revenue excluding OID of $1.5 billion was down year over year, driven by higher funding costs given elevated short-term rates. Strength in fixed asset pricing was a partial offset during the quarter and positions us for NIM expansion through 2024 and beyond. Adjusted revenue of $500 million was up year-over-year and quarter-over-quarter, reflecting continued momentum across our diversified product offerings and solid investment gains. We're now at the quarterly run rate we've previously guided to and expect continued expansion over time. Several years of strong conquest volume and normalization of dealer inventories create a nice tailwind for insurance revenue, and we continue to see growth in both smart auction and the consumer auto pass-through programs, which enable us to better monetize application flow.

Russ Hutchinson: Allie Invest is profitable on a standalone basis and offers another compelling experience to drive engagement and retention.

Speaker Change: Allied invest is profitable on a standalone basis and offers another compelling experience to drive engagement and retention.

Russ Hutchinson: Mortgage results are on slide 25.

Russ Hutchinson: Mortgage results are on slide 25. Mortgage generated pre-tax income of $24 million and $224 million of direct to consumer origination, reflective of the operating environment. Operating expenses declined nearly 20% on a year-over-year basis, reflecting the benefits of our partner model. We remain focused on a great customer experience for customers rather than a specific origination target. Turning to corporate finance on slide 26, full year 2023 pre-tax income of $307 million is the highest since our IPO. Our team is made up of industry experts with a long history in the business. Over the past five years, ROEs have been 24% on average, including 25% in 2023. Our $11 billion HFI portfolio is up 7% year-over-year, reflecting disciplined growth.

Speaker Change: Mortgage results are on slide 25.

Russ Hutchinson: Mortgage generated pre-tax income of $24 million and $224 million of direct to consumer origination.

Speaker Change: Mortgage generated pretax income of $24 million and $224 million of direct to consumer originations reflective of the operating environment.

Russ Hutchinson: reflective of the operating environment.

Russ Hutchinson: Operating expenses decline nearly 20% on a year-over-year basis, reflecting the benefits of our partner model. We remain focused on a great customer experience for customers rather than a specific origination target.

Speaker Change: Operating expenses declined nearly 20% on a year over year basis, reflecting the benefits of our partner model. We remain focused on a great customer experience for customers rather than a specific origination target.

Russ Hutchinson: Turning to corporate finance on slide 26, full year 2023 pre-tax income of $307 million is the highest since our IPO.

Speaker Change: Turning to corporate finance on slide 26, full year 2020 through pre tax income of $307 million is the highest since our IPO.

Russ Hutchinson: Our team is made up of industry experts with a long history in the business. Over the past five years, ROEs have been 24% on average, including 25% in 2023. Our $11 billion HFI portfolio is up 7% year-over-year, reflecting disciplined growth.

Speaker Change: Our team is made up of industry experts with a long history in the business over the past five years, our ROE has been 24% on average, including 25% in 2023, our $11 billion HSI portfolio was up 7% year over year, reflecting disciplined growth.

Russ Hutchinson: On the bottom left, we highlight Net Charge Office.

Russ Hutchinson: On the bottom left, we highlight the Net Charge Office.

Speaker Change: On the bottom left we highlight net charge off history.

Russ Hutchinson: Charge-offs in this business are driven by specific exposures and therefore inherently chocolate.

Russ Hutchinson: Charge-offs in this business are driven by specific exposures and therefore inherently chocolate. Across the total portfolio, our average annual NCO rate was 30 basis points from 2014. Excluding healthcare cash flow loans, the NCO rate was 7 basis points. When performance began to deteriorate in 2020, we promptly ceased healthcare cash flow originations. This portfolio is in run-off and accounts for less than 1.5% of the loan balance. We feel good about our corporate finance portfolio entering 2024. Criticized assets make up 10% of the portfolio, which is less than half of the historical run rate. Non-accrual loans are at an all-time low of 1%, and our reserve is nearly 1.6 times our non-accrual loan balance. We provided a little more context than usual given the macro concerns around CNI and some of the recent net charge-up activity within healthcare cash. Corporate finance is a great business for Ally with a long track record of delivering through many economic cycles.

Speaker Change: Charge offs in this business are driven by specific exposures and therefore inherently choppy across the total portfolio. Our average annual NCO rate was 30 basis points since 2014 exclude.

Russ Hutchinson: Across the total portfolio, our average annual NCO rate was 30 basis points since 2014.

Russ Hutchinson: The non-interest expense of $1.4 billion includes two significant one-time items. First, a $149 million write-down of goodwill associated with the Ally Lending sale that brings the Ally Lending-related one-time items to $133 million in total, netting out the provision benefit. And second, we incurred a $38 million charge from the SDI Special Assessment associated with the 2023 banking crisis. Both items have been excluded from adjusted metrics, including adjusted earnings per share.

Russ Hutchinson: Excluding healthcare cash flow loans, the NCO rate was 7 basis.

Speaker Change: Excluding healthcare cash flow loans, the NCO rate was seven basis points.

Russ Hutchinson: When performance began to deteriorate in 2020, we promptly ceased healthcare cash flow originations. This portfolio is in runoff and accounts for less than 1.5% of loan balance.

Speaker Change: When performance began to deteriorate in 2020, we promptly ceased healthcare cash flow originations. This portfolio is in runoff and accounts for less than one 5% of loan balances we.

Russ Hutchinson: We feel good about our corporate finance portfolio entering 2024. Criticized assets make up 10% of the portfolio, which is less than half of the historical run rate. Non-accrual loans are at an all-time low of 1%, and our reserve is nearly 1.6 times our non-accrual loan balance.

Speaker Change: We feel good about our corporate finance portfolio entering 2020 for criticized assets make up 10% of the portfolio, which is less than half of the historical run rate non accrual loans are an all time low of 1% and our reserve is nearly one six times, our non accrual loan balances, we provided a little more context than usual given the <unk>.

Russ Hutchinson: Excluding these one-time items, expenses were up around 1.5% on a year-over-year basis, right in the middle of the range we provided in December. Our effective tax rate during the quarter was negative 20% on a GAAP basis. Excluding the impact of lending, the tax rate was around 10%, which was better than expected as we saw strong EV volume during the quarter. Gap and adjusted EPS for the quarter were $0.16 and $0.45, respectively. Moving to slide 13, net interest margin excluding OID of 3.2% decreased six basis points quarter over quarter in line with the expectations and resulted in a full year NIM of 3.35%. Earning assets were down on a linked quarter basis, driven mainly by the sale of $1.7 billion of retail auto loans within the quarter.

Russ Hutchinson: We provided a little more context than usual given the macro concerns around CNI and some of the recent net charge-up activity within healthcare cash.

Speaker Change: Macro concerns around C&I and some of the recent net charge off activity within health care cash flow corporate finance is a great business for ally with a long track record of delivering through many economic cycles.

Russ Hutchinson: Corporate finance is a great business for Ally with a long track record of delivering through many economic cycles.

Russ Hutchinson: Before closing, I'll share a few thoughts regarding the coming year.

Speaker Change: Before closing I will share a few thoughts regarding the coming year.

Russ Hutchinson: Slide 27 contains our financial outlook for 2024.

Speaker Change: Slide 27 contains our financial outlook for 2024.

Russ Hutchinson: As you know, the operating environment remains dynamic.

Russ Hutchinson: As you know, the operating environment remains dynamic. We've talked regularly about the tailwinds that will drive our net interest margin, and our outlook remains consistent. We expect expansion in 2024 and see an exit rate of around 3.4% to 3.5%, which puts the full-year average just under 3.3%. In terms of updates to our outlook from previous calls, our recent capital actions are good for profitability and capital generation, but they also impact our starting point for NIM expansion. The sale of Ally Lending has impacted our near-term NIM outlook by around three to four basis points. When combined with curtailments in the card business, our NIM outlook for 2024 now incorporates five basis points of near-term impact, given the gross margin on those products. The impact of these actions on NIEM is more than offset by lower credit costs and lower expenses.

Speaker Change: As you know the operating environment remains dynamic.

Speaker Change: We've talked regularly about the tailwind that will drive our net interest margin and our outlook remains consistent we expect expansion in 2024 and see an exit rate around three 4% to three 5%, which puts the full year average just under three 3%.

Russ Hutchinson: In terms of updates to our outlook from previous calls, our recent capital actions are good for profitability and capital generation, but also impact our starting point for NIM expansion.

Russ Hutchinson: Margin has been pressured as we've progressed through the tightening cycle given the liability-sensitive nature of our balance sheet, but we have performed well in terms of pricing on both sides of the balance sheet. Retail auto pricing achieved a 95% mark and has exceeded expectations.

In terms of updates to our outlook from previous calls our recent capital actions are good for profitability and capital generation, but also impact our starting point for NIM expansion. The sale of ally lending has impacted our near term NIM outlook by around three to four basis points when combined with curtailments in the card business, our NIM outlook for <unk>.

Russ Hutchinson: The sale of Ally Lending has impacted our near-term NIM outlook by around three to four basis points.

Russ Hutchinson: Strong pricing has moved retail portfolio yields up 100 basis points in the past year. As we've talked about before, we see that yield expanding as origination yields are well above 10%. Looking forward, we expect earning assets to be generally flat, but with favorable mixed dynamics as lower-yielding mortgage insecurities are running off and being replaced by higher-returning retail auto, corporate finance, and credit card assets. So on the asset side, both mixed and natural portfolio turnover within retail auto will be tailwinds in 2024 and beyond. Turning to liabilities, the cost of funds moved up within the quarter in line with expectations.

Russ Hutchinson: When combined with curtailments in the card business, our NIM outlook for 2024 now incorporates five basis points of near-term impacts, given the gross margin on those products.

Speaker Change: 2024, now incorporates five basis points and near term impacts given the gross margin on those products the.

Russ Hutchinson: The impact of these actions on NIEM are more than offset by lower credit costs and lower expenses.

Russ Hutchinson: In addition to lending and card impacts, we also have higher security balances in the near term based on the OCI rally, which could be a modest headwind to NAMM if it sticks. We continue to be confident in our NIM expansion for 2024 and see an exit rate between 3.4% and 3.5%. However, these factors cause our starting point for NIM expansion to kick down.

Speaker Change: The impact of these actions on NIM are more than offset by lower credit costs and lower expenses.

Russ Hutchinson: In addition to lending and card impacts, we also have higher security balances in the near term based on the OCI rally, which could be a modest headwind to NAMM if it sticks.

Speaker Change: In addition, the lending and card impacts. These impacts we also have higher securities balance and the balances in the near term based on the OCI rally, which could be a modest headwind to NIM. If it sticks, we continue to be confident in our NIM expansion for 2024, and see an exit rate between three 4% and three 5%. However, these fat.

Russ Hutchinson: We continue to be confident in our NIM expansion for 2024 and see an exit rate between 3.4% and 3.5%. However, these factors cause our starting point for NIM expansion to kick down.

Speaker Change: <unk> cause our starting point for NIM expansion to tick down we have assumed that that is done tightening, but we are not dependent on fed cuts given the <unk> rally in rates, we took the opportunity to add to our pay fixed hedge exposure, which protects margins should cuts not materialize in March as the forward curve is suggesting we do not expect a meaningful <unk>.

Russ Hutchinson: Since tightening began, we've seen cumulative deposit data of around 70%, which compares well to peers, particularly in the context of $4.6 billion of Ally retail deposit growth and record customer growth in the year, when industry balances contracted. We remain confident in our path to 4% NAMM. We have assumed the Fed is done tightening, but we are not dependent on Fed cuts.

Russ Hutchinson: We have assumed the Fed is done tightening, but we are not dependent on Fed cuts. Given the 4Q rally in rates, we took the opportunity to add to our pay-fixed hedge exposure, which protects margins should cuts not materialize in March as the forward curve is suggesting. We do not expect a meaningful impact on our 2024 NIM whether or not the Fed commences cuts in March. However, the pace of Fed cuts implied by the current forward curve would, however, accelerate our path to 4% NIM towards the middle of next year versus the very end of next year in a more flat rate scenario.

Russ Hutchinson: We do not expect a meaningful impact on our 2024 NIM whether or not the Fed commences cuts in March.

Speaker Change: Packed on our 2020 for NIM, whether or not the fed commences cuts in March.

Russ Hutchinson: The pace of Fed cuts implied by the current forward curve would, however, accelerate our path to 4% NIM towards the middle of next year versus the very end of next year in a more flat rate scenario.

Speaker Change: The pace of fed cuts implied by the current forward curve would however, accelerate our path to 4% NIM towards the middle of next year versus the very end of next year in a more flat rate scenario.

Russ Hutchinson: Rate cuts will impact the pace of NIM expansion but not the destination. The pace of rate cuts implied by the current forward curve would accelerate our path to 4% NIM by the middle of next year. Turning to page 14, CET1 of 9.4% increased quarter over quarter. As we mentioned before, the sale of lending will add another 15 basis points upon closing in March. Given we have another Cecil Faison, we expect a relatively flat CET1 ratio in the first quarter, as the Ally Lending Sale benefit will be offset by Cecil Faison. Our TCE to TA ratio increased by more than 50 basis points during the quarter, driven by an increase in OCI as benchmark rates declined.

Russ Hutchinson: We have continued to position the balance sheet in such a way that near-term NIM expansion does not require a lower rate.

Speaker Change: We have continued to position the balance sheet in such a way that near term NIM expansion does not require lower rates.

Russ Hutchinson: Turning to other revenue, we expect 5% to 10% of growth in 2024 driven by continued momentum in insurance, smart auction, and the auto pass-through program.

Russ Hutchinson: Turning to other revenue, we expect 5% to 10% of growth in 2024 driven by continued momentum in insurance, smart auction, and the auto pass-through program. Asset levels are expected to remain relatively flat year over year, but with a favorable mixed benefit of higher yielding loans replacing securities and mortgages. In terms of credit, we see retail auto net charge-offs increasing versus 2023 as our underperforming vintages make their way through peak losses in the first half of the year. But, as I said, we're confident retail auto losses will remain below 2% for the year. Total charge-offs for the company of 1.4% to 1.5% reflect the increase in retail auto and credit card receivables, partially offset by the sale of ally lending.

Turning to other revenue, we expect a 5% to 10% of growth in 2024, driven by continued momentum in insurance smart auction in the auto pass through program.

Russ Hutchinson: Asset levels are expected to remain relatively flat year over year, but with a favorable mixed benefit of higher yielding loans replacing securities and mortgages.

Speaker Change: Asset levels are expected to remain relatively flat year over year, but with a favorable mix benefit of higher yielding loans, replacing securities and mortgage in.

Russ Hutchinson: In terms of credit, we see retail auto net charge-offs increasing versus 2023 as our underperforming vintages make their way through peak loss in the first half of the year. But as I said, we're confident retail auto losses remain below 2% for the year.

Speaker Change: In terms of credit, we see retail auto net charge offs, increasing versus 2023, as our underperforming vintages make their way through peak loss in the first half of the year.

Russ Hutchinson: We recently announced our quarterly dividend of $0.30, which remains flat to the prior quarter. As JB laid out, capital actions we undertook during the quarter and actions that we continue to execute upon reflect our commitment to generating capital, strategically investing in our highest-returning businesses, and driving long-term value for shareholders. Tangible book value per share is up 100% since our IPO, excluding the impacts of AOCI, which we expect to accrete to par over time. Let's turn to slide 15 to review asset quality trends. Consolidated net charge-offs of 177 basis points reflected seasonal trends and elevated activity within corporate finance and credit cards. Retail auto net charge-offs of 221 basis points in the fourth quarter were at the low end of the guidance we provided on our third quarter earnings call. In commercial auto, we recognized charge-offs of $19 million, which were previously reserved for, resulting in minimal P&L impact within the quarter. In the bottom right, 30- and 60-day retail auto delinquencies reflect seasonal increases. Importantly, the year-over-year increase in 30-day delinquency rates declined for the fourth consecutive quarter.

Speaker Change: But as I said, we're confident retail auto losses remained below 2% for the year.

Russ Hutchinson: Total charge-offs for the company of 1.4% to 1.5% reflect the increase in retail auto and credit card, partially offset by the sale of ally lending.

Total charge offs for the company of one 4% one 5% reflects the increase in retail auto and credit card, partially offset by the sale of our lending we remain committed to cost discipline and have updated our prior expense guidance to reflect the sale of ally lending in total we see expense growth of less than 1% and.

Russ Hutchinson: We remain committed to cost discipline and have updated our prior expense guide to reflect the sale of Ally Lending. In total, we see expense growth of less than 1%, and we now expect controllable expenses to decline by more than 1%. We've taken another meaningful cut of expenses to reflect the sale of Ally Lending. We are currently estimating a full-year tax rate of 18%. However, we continue to realize benefits from EV tax credits and broader tax planning strategies that will likely result in quarterly fluctuations like in 2023.

We now expect controllable expenses to decline by more than 1%.

Russ Hutchinson: We've taken another meaningful cut of expenses to reflect the sale of Ally Lending.

Speaker Change: We've taken another meaningful cut of expenses to reflect the sale of ally lending.

Russ Hutchinson: We are currently estimating full-year tax rate of 18%.

Speaker Change: We are currently estimating full year tax rate of 18%. However.

Russ Hutchinson: However, we continue to realize benefits from EV tax credits and broader tax planning strategies that will likely result in quarterly fluctuation like 2023.

Speaker Change: However, we continue to realize benefits from <unk> tax credits and broader tax planning strategies that will likely result in quarterly fluctuation like 2023, So a lot of moving pieces within the P&L, particularly around the sale of our lending, but not a real change in our outlook with the tightening cycle potentially behind US we are confident that <unk>.

Russ Hutchinson: So a lot of moving pieces within the P&L, particularly around the sale of ally lending, but not a real change in our outlook. With the tightening cycle potentially behind us, we are confident the company is set up for meaningful earnings expansion over the next several years. We see a clear path to 4% net interest margin and a mid-teens ROE over the medium term. The exact timing will be driven by several factors, including rates and consumer health. We acknowledge continued uncertainties heading into 2024, however, we remain confident in our ability to continue to execute against the controllables and drive long-term shareholder value. And with that, I'll turn it back to JB.

Russ Hutchinson: So a lot of moving pieces within the P&L, particularly around the sale of Ally Lending, but not a real change in our outlook. With the tightening cycle potentially behind us, we are confident the company is set up for meaningful earnings expansion over the next several years. We see a clear path to 4% net interest margin and a mid-teens ROE over the medium term, although the exact timing will be driven by several factors, including rates and consumer health. We acknowledge continued uncertainties heading into 2024. However, we remain confident in our ability to continue to execute against the controllables and drive long-term shareholder value. And with that, I'll turn it back to JB.

Speaker Change: <unk> is set up for meaningful earnings expansion over the next several years, we see a clear path to 4% net interest margin and a mid teens ROE over the medium term the exact timing will be driven by several factors, including rates and consumer health.

Speaker Change: We acknowledge continued uncertainties heading into 2024, however, we remain confident in our ability to continue to execute against the controllable and drive long term shareholder value and with that I'll turn it back to J P.

JB: Thank you, Russ. The strategic priorities we've established guide everything we do and are unwavering and will remain essential for allies' long-term success for years to come.

Jeffrey Jonathan Brown: Thank you, Russ. The strategic priorities we've established guide everything we do and are unwavering and will remain essential for the allies' long-term success for years to come.

J P: Thank you Ross the strategic priorities, we have established guide everything we do and our unwavering and we will remain essential for allies long term success for years to come.

JB: First and foremost, we've worked to ensure strong alignment between our culture and all our stakeholders.

Jeffrey Jonathan Brown: First and foremost, we've worked to ensure strong alignment between our culture and all our stakeholders. We've built differentiated offerings across our businesses for both consumer and commercial customers and seek to find ways to highlight our unique position in the market. We will continue to find ways to disrupt the industry and remove friction for customers by delivering leading digital experiences. This morning's call highlighted some of our recent actions, which make it apparent that our disciplined approach to risk management and capital allocation is only heightened in this dynamic operating environment.

J P: First and foremost we've worked to ensure a strong alignment between our culture and all our stakeholders.

JB: We've built differentiated offerings across our businesses for both consumer and commercial customers and seek to find ways to highlight our unique position in the market.

Russ Hutchinson: Retail auto coverage of 3.65% increased three basis points entirely driven by loan sales executed within the quarter, which were comprised of seasoned loans with lower loss content. As a reminder, for our CECL reserving process, we leverage a 12-month macroeconomic forecast that has unemployment increasing to 4.4% this year. Longer term, we assume unemployment increases to approximately 6% under our reversion to mean methodology. Now, let's turn to slide 17 to discuss Retail Auto Credit in more detail. On a full-year basis, charge-offs of 1.77% were in line with the guide we provided a year ago, and within the fourth quarter, net charge-offs of 2.21% were on the low end of our most recent guide. During the quarter, improving front book performance coupled with stable flow-to-loss rates was more than enough to offset softness in used values, which ended the quarter around 5% lower than we assumed when providing 4 Looking at delinquency trends, the year-over-year rate of change declined again for the fourth consecutive quarter, with 30-plus up 86 basis points year-over-year, 82 basis points excluding the impact of loan sales.

J P: We built differentiated offerings across our businesses for both consumer and commercial customers and seek to find ways to highlight our unique position in the market.

JB: will continue finding ways to disrupt the industry and remove friction for customers by delivering leading digital experiences.

J P: We will continue finding ways to disrupt the industry and remove friction for customers by delivering leading digital experiences.

JB: This morning's call highlighted some of our recent actions which make it apparent that our disciplined approach to risk management and capital allocation is only heightened in this dynamic operating environment.

J P: This morning's call highlighted some of our recent actions, which make it apparent that our disciplined approach to risk management and capital allocation is only heightened in this dynamic operating environment.

Jeffrey Jonathan Brown: We've executed a remarkable transformation, and I'm confident in the team's ability to leverage these priorities going forward, allowing Ally to thrive for many years to come.

JB: We've executed a remarkable transformation, and I'm confident in the team's ability to leverage these priorities going forward, allowing Ally to thrive for many years to come.

J P: We've executed a remarkable transformation and I'm confident in the team's ability to leverage these priorities going forward, allowing ally to thrive for many years to come.

Speaker Change: As this is my final time with you, I want to thank you all for all the support. I'm very proud of the long-term progress, and sometimes that gets lost in the quarter-to-quarter progressions, but wrapping up the year and looking back to when I went into this role, it is really amazing how far Ally has come.

Jeffrey Jonathan Brown: As this is my final time with you, I want to thank you all for all the support. I'm very proud of the long-term progress, and sometimes that gets lost in the quarter-to-quarter progressions, but wrapping up the year and looking back to when I went into this role, it is really amazing how far Ally has come. It was just 15 years ago that this company was on the brink of extinction, and today it is a thriving and well-respected company and brand that is uniquely positioned to financially benefit as rates begin to normalize. It has been a true honor to serve as CEO.

J P: As this is my final time with you I want to thank you all for all the support I'm very proud of the long term progress and sometimes that gets lost in the quarter to quarter progressions, but wrapping up the year and looking back to when I went into this role it is really amazing how far allies com it.

Speaker Change: It was just 15 years ago this company was on the brink of extinction to today, a thriving and well-respected company and brand that is uniquely positioned to financially benefit as rates begin to normalize. It has been a true honor to serve as CEO.

J P: It was just 15 years ago. This company was on the brink of extension to today, a thriving and well respected company and brand that is uniquely positioned to financially benefit as rates begin to normalize it has been a true honor to serve as CEO.

Speaker Change: And now as I transition to a substantial customer with Hendrick Automotive, I will continue to be vested in the long-term success of Ally.

Jeffrey Jonathan Brown: And now, as I transition to a substantial customer with Hendrick Automotive, I will continue to be invested in the long-term success of Ally.

J P: And now as I transition to a substantial customer with Hendrick automotive I will continue to be invested in the long term success of ally. Thank.

Speaker Change: Thank you all so much. And with that, Sean, back over to you for Q&A.

Sean Leary: Thank you all so much. And with that, Sean, back over to you for Q&A.

Speaker Change: Thank you all so much and with that Sean back over to you for Q&A.

Sean Leary: Thank you, Jamie. As we head into Q&A, we do ask the participants limit yourself to one question and one follow-up. Carmen, please begin the Q&A. Thank you. One moment for our first question, please.

Sean Leary: Thank you, Jamie. As we head into Q&A, we do ask the participants to limit themselves to one question and one follow-up. Carmen, please begin the Q&A. Thank you. One moment for our first question, please.

Sean Leary: Thank you JV as we head into Q&A, we do ask the participants limit yourself to one question and one follow up comment please begin the Q&A.

Speaker Change: Thank you one moment for our first question. Please.

Carmen: And it comes from the line of Ryan Nash with Goldman Sachs. Please proceed.

Ryan Nash: And it comes from the line of Ryan Nash with Goldman Sachs. Please proceed.

Speaker Change: And it comes from the line of Ryan Nash with Goldman Sachs. Please proceed.

Ryan Nash: Hey, good morning, everyone. JB, just want to say that it's been a pleasure working with you and best of luck at Hendrix.

Jeffrey Jonathan Brown: Hey, good morning, everyone. JB, just want to say that it's been a pleasure working with you and best of luck at Hendrix.

Hey, good morning, everyone JB just wanted to say that it's been a pleasure working with you and best of luck at Hendrick.

Ryan Nash: Thanks so much, Ryan. Appreciate that. Maybe one strategic question, I guess, for each of you. JB or Russ, maybe just talk about the decision to sell Ally Lending. Was this part of a broader review, and are there any further changes? And then, Doug, congrats on being named interim CEO. Any changes we should expect to you, whether on the auto strategy or the broader company strategy? And I have a follow-up.

Jeffrey Jonathan Brown: Thanks so much, Ryan. I appreciate that. Maybe one strategic question, I guess, for each of you. JB or Russ, maybe just talk about the decision to sell Ally Lending. Was this part of a broader review, and are there any further changes? And then, Doug, congrats on being named interim CEO. Any changes we should expect from you, whether on the auto strategy or the broader company strategy? And I have a follow-up.

Russ Hutchinson: It's early to evaluate the 2023 vintage, but we are encouraged by initial performance indicators, and our shift up the credit spectrum in April of 2023 meaningfully reduced the absolute loss content of our most recent vintage. The 2023 vintage has started to outperform 2022 in terms of delinquency after 12 months on book. And we expect that outperformance to expand as we move forward, given the underwriting changes we've made over time and the shift into super prime in April. It's important to remember the first six months of any vintage is noisy, and we really start to get a good look closer to 12 months on the page. We've shown more detail comparing months 7 to 12 of 2022 and 2023, And as you can see, the 2023 vintage curve has started to bend favorably.

Thanks, So much Ryan I appreciate that maybe one strategic question for I guess for each of you <unk>, maybe just talk about the decision to sell ally lending was this part of a broader review and are there any further changes and then Doug Congrats on being named interim CEO any changes we should expect to you whether on the auto strategy or the broader.

Speaker Change: Company strategy and I have a follow up.

Speaker Change: Great, Brian I guess I'll start on.

Brian: On the ally lending decision.

Brian: <unk>.

Brian: You rewind the clock to.

Brian: Kind of all the March banking events, there and I think what that forced everyone to do is just take a really honest and hard look at all of our businesses are positioned figure out where we have scale, where we didn't have scale.

Brian: Synchrony has got a great CEO and Brian doubles, and Brian and I kind of compare notes a couple of times over the second quarter and.

Russ Hutchinson: And we expect that to continue over time. We know delinquency trends by vintage are a focal area, but we also look at the same trends on an actual loss basis, and on that basis, the 2023 vintage looks even better relative to 2022. As you all know, we've actively refined our approach to collections over time, including extension of refo timing.

Brian: We just started talking about a potential path for them to do something here and I think this is really.

Win win for both companies I think this is going to be a highly accretive business for synchrony.

Brian: Brian and Brian as CFO are are really excited about it.

Russ Hutchinson: In total, that's resulted in more churn in the delinquency buckets but a meaningful improvement in eventual losses. So delinquency trends are encouraging, and loss performance is even more encouraging. As we sit here today, we feel our underperforming originations are ring-fenced to the second half of 2022. And with yields over 9% for that cohort, these are still financially attractive loans.

Brian: They're doing the right thing with respect to a lot of the ally teammates going along with the acquisition and so for them I think it fits right into their platform. It is going to be accretive for them and then for us as we mentioned.

It really enables us to focus more on the scale businesses, we have at ally.

Brian: And obviously.

Russ Hutchinson: With Advantage entering its peak loss period now, it will be the primary driver of NCO performance in the first half of 2024, which will also see increasing unemployment based on consensus economic estimates. Later in the year, we expect the 2023 vintage will start to drive losses down on a seasonally adjusted basis. We'll talk more about the overall guide later, but putting the retail credit performance together, we expect losses to increase in 2024 but are confident our annual NCO rate will remain below 2%. On a seasonally adjusted basis, we'd expect higher losses in the first half of the year and then improving performance as new originations reach peak losses. On slide 18, we provide an outlook for used vehicle values, which declined 9% in 2023 and have declined 26% from their 2021 levels. We are assuming another 5% decline in 2024, with much of that decline occurring in the first half of the year. That would result in a total decline from peak levels of just over 30%.

Brian: Put deploy capital in that regard and so yes, I think it came to fruition towards the end of the year. Obviously as we mentioned we will expect to close that transaction in the first quarter, but I think when we look at the business footprint today, we feel really comfortable where things are at this was just a unique position and unique situations.

Brian: This business fitting right in for synchrony in for Brian.

Brian: The rest of the company, we feel is largely intact.

Brian: We like everything going on in credit card today side and in commercial finance corporate finance. So I don't want anyone to imply anything beyond that I think this was just a unique situation we feel really good about it. So that's kind of the backdrop and the story there and then Doug maybe you want to talk just kind of your thoughts going into this sure sure Yeah, I think the simple answer to it.

Your question Ryan is no no change relative to our priorities our focus our business plans.

Brian: Confident that we've got the right priorities, where we've got a very well thought out plan and a plan by myself and the rest of the leadership team as a lot of confidence in relative to our ability to.

Russ Hutchinson: We continue to expect used values to stabilize and ultimately settle around 20% higher than pre-pandemic levels. With new vehicle production below pre-pandemic levels for nearly four years, used supply will remain 15% below historical norms over the next several years and provide structural support for use values. Turning to slide 19.

Brian: To meet or exceed expectations. So.

Brian: Think we're very well situated there relative to your reference in the auto business.

We pointed this out in the prepared remarks, but the competitive environment is certainly certainly favorable.

Brian: The success that we've had in driving application flow no doubt is a differentiator for us.

Brian: Hopefully youll see that the success that we've had in building our yields and improving the returns of the doses.

Brian: Our ability to be nimble and selective.

Brian: Relative to where we play.

Brian: As well as our ability to originate at higher volume levels that dependent on capital related capacity. There. So a lot of reasons to feel good about the future as well as the the plans that we've got in place today, So hopefully that answers your questions.

Speaker Change: No, it does. And maybe just one follow-up. Russ, you gave a lot of color on credit. Maybe can you just expand on the comments regarding how you see credit improving throughout the year? And when we do get to the end of the year, where do you expect to be on a seasonally adjusted basis? And should we expect that to become more the medium-term run rate for the company, just given all the tightening that you've done and the move up into the S-tier? Thank you.

Russ Hutchinson: No, it does. And maybe just one follow-up. Russ, you gave a lot of color on credit. Maybe you could just expand on the comments regarding how you see credit improving throughout the year? And when we do get to the end of the year, where do you expect to be on a seasonally adjusted basis? And should we expect that to become more of a medium-term run rate for the company, just given all the tightening that you've done and the move up into the S-tier? Thank you.

Speaker Change: No. It does and maybe just one follow up you gave a lot of color on credit maybe can you just expand on the comments regarding how you see credit improving throughout the year and when we do get to the end of the year, where do you expect to be on a seasonally adjusted basis.

Speaker Change: Should we expect that to become more of the medium term run rate for the company just given all the tightening that you've done in the move up in the into the STR. Thank you.

Speaker Change: Great. No, thanks, Ryan. You know, it's a great question. Happy to provide additional clarification here. You know, as you saw, the NCO rate on retail auto for 2023 came in right in line with the guidance we gave about a year ago at 1.77%. You know, as we pointed to in the call, you know, we're seeing elevated losses on our 2023 kind of second half vintages.

Russ Hutchinson: Great. No, thanks, Ryan. You know, it's a great question. I'm happy to provide additional clarification here. You know, as you saw, the NCO rate on retail auto for 2023 came in right in line with the guidance we gave about a year ago at 1.77%. But, as we pointed out in the call, we're seeing elevated losses on our 2023 kind of second half vintages. Those vintages are really ending and entering their prime in terms of loss development through the first half of 2024, and so we expect that to drive our loss rate overall for 2024 up a tick from the 177 we printed in 2023.

Speaker Change: Great. Thanks, Ryan.

Russ Hutchinson: The unique scale of our auto franchise and the depth of our relationships with our dealers give us a durable, competitive advantage that enables us to be selective and dynamic in what we originate. Let's turn to slide 20 to review auto segment highlights. Free tax income of $294 million was lower year over year driven by higher provision and non-interest expense.

Speaker Change: A great question happy to provide additional clarification here.

Speaker Change: As you saw the.

Speaker Change: The NCO rate on retail auto for 2023 came in right in line with the guidance, we gave about a year ago at 177% as we pointed to in the call.

Speaker Change: We're seeing elevated losses on our 2023 kind of second half vintages.

Russ Hutchinson: Provision reflected typical seasonality, while expenses were the result of elevated repo costs across the industry and requisite spend to support the strength and scale we just highlighted. Looking at the bottom left, originated yield of 10.8% was up 124 basis points from the prior year, reflecting significant pricing power throughout 2023. Importantly, 43% of our retail volume was in our S tier, which represents the highest concentration within that tier in more than a decade. The total portfolio yield increased eight basis points during the quarter, including a lower contribution from the hedge portfolio.

Speaker Change: Those vintages are really ending and entering their prime in terms of loss development through the first half of 2024. And so we expect that to drive our loss rate overall for 2024 up a tick from the 177 we printed in 2023. That being said, we're confident as we look over the course of the full year that we'll keep our NCO rate below 2% across the full year. But again, on a seasonally adjusted basis, we'll enter 2024 elevated based on that 2022 second half vintage. But as we pointed out during the call, as we enter the back half of the year, we're really going to see a lot of the benefit from the curtailment actions that we started putting in place. And we'll see those 2023 vintages really start to drive our loss experience in the second half of the year, and we'll see that improve.

Speaker Change: Those vintages are really ending and entering their prime in terms of loss development through the first half of 2024, and so we expect that to drive our loss rate overall for 2024 up a tick from the 177, we printed in 2023 that being said, we're confident as we look at it over.

Russ Hutchinson: That being said, we're confident as we look over the course of the full year that we'll keep our NCO rate below 2% across the full year. But again, on a seasonally adjusted basis, we'll enter 2024 elevated based on that 2022 second half vintage. But as we pointed out during the call, as we enter the back half of the year, we're really going to see a lot of the benefit from the curtailment actions that we started putting in place. And we'll see those 2023 vintages really start to drive our loss experience in the second half of the year, and we'll see that improve.

Speaker Change: Of course of the full year that will keep our NCO rate below 2% across the full year, but again on a seasonally adjusted basis will enter that will enter we will enter 2020 for elevated based on that 2020 to second half vintage.

Speaker Change: But as we pointed out during the call as we enter the back half of the year, we're really going to see a lot of the benefit from the curtailment actions that we started putting in place.

Russ Hutchinson: Excluding hedges, the natural portfolio yield increased 27 basis points this quarter, reflecting the repricing momentum that will continue going forward. The bottom right shows lease portfolio trends. Gains declined quarter over quarter, driven by a decline in used values and lower termination volumes, partially offset by a reduction in dealer and lessee buyouts.

Speaker Change: We will see those 2023 vintages.

Speaker Change: Really start to drive our loss experienced in the second half of the year and we will see that improvement.

Speaker Change: Thank you.

Russ Hutchinson: Thank you.

Speaker Change: Thank you. And our next question, one moment please.

Sean Leary: Thank you. And for our next question, one moment please.

Speaker Change: Yeah.

Speaker Change: Thank you and our next question one moment please.

Speaker Change: comes from Sanjay Sakhrani with KBW. Please proceed.

Sanjay Sakhrani: comes from Sanjay Sakhrani with KBW. Please proceed.

Speaker Change: Come from Sanjay as Ronnie with <unk>. Please proceed.

Sanjay Sakhrani: Thank you, good morning, and JB, good job as CEO of Alla, and good luck. Thank you, Sanjay, I appreciate that very much.

Jeffrey Jonathan Brown: Thank you, good morning, and JB, good job as CEO of Alla, and good luck. Thank you, Sanjay; I appreciate that very much.

Russ Hutchinson: Turning to insurance results on slide 21, core pre-tax income of $62 million included the highest premium earned since our IPO and a solid investment gain. Total written premiums of $333 million increased 17% as we remain focused on increasing dealer relationships and benefit from normalizing inventory levels. Insurance losses of $93 million were up $30 million year-over-year driven by portfolio growth, increased gap losses, and the cumulative impact of inflation.

Sanjay: Thank you good morning, and JV, good job as CEO of ally and good luck.

Thank you Sunday I appreciate that very much.

Sanjay Sakhrani: Um,

Speaker Change: Maybe we could just, Russ, talk about the progression of the NIM. I know it sounds like you guys haven't baked in what the forward curve is assuming, but let's just assume it's correct. Maybe you could just talk about the natural tailwind to the NIM as we're sort of moving, we're remixing, and then sort of what the liability sensitivity would imply over the course of the next year or so.

Russ Hutchinson: Maybe we could just, Russ, talk about the progression of the NIM. I know it sounds like you guys haven't baked in what the forward curve is assuming, but let's just assume it's correct. Maybe you could just talk about the natural tailwind to the NIM as we're sort of moving, we're remixing, and then sort of what the liability sensitivity would imply over the course of the next year or so.

Sanjay: Maybe we could just Russ talk about the progression of the NIM I know it sounds like you guys haven't baked in what the forward curves is assuming but let's just assume.

Russ Hutchinson: It is correct.

Russ Hutchinson: Maybe you can just talk about the natural tailwind to the NIM as we're sort of moving we're remixing and then sort of what the liability sensitive activity would imply over the course of the next year or so.

Russ Hutchinson: We have provided additional detail on loss performance given the normalization of our gap losses over the past year and the increase in our non-weather PMC losses. Non-weather PNC includes losses from our garage insurance product and inventory theft, which have increased over the past year. We've been very active in terms of loss prevention and pricing for increasing loss activity and are confident in the growth opportunities ahead for insurance. Moving to Allied Bank on slide 22, retail deposits of $142 billion increased $4.6 billion year over year and $2.2 billion quarter over quarter, demonstrating the scale and resiliency of our franchise. We grew our customer base for the 15th consecutive year, and net customer growth of 359,000 in 2023 is the highest in Ally Bank's history.

Russ Hutchinson: Yeah, that's great, happy to do that Sanjay.

Russ Hutchinson: Yeah, that's great; I'm happy to do that, Sanjay. You know, look, I think as we sit on the call, if you take the current forward curve as it is, you know, six cuts in 2023, two more cuts in 2025, you know, obviously a rate outlook that's favorable relative to where we were a quarter ago. Based on that outlook, we think we will get to our 4% NIM, you know, kind of right in the smack dab middle of 2025. You know, that being said, we think about our business in terms of a variety of interest rate environments, you know, and certainly, you know, to the extent that the forward curve didn't materialize as it's currently constructed and we're in a more flattish environment, that would extend the path to 4% NIM towards probably the very end of 2025.

Yes, that's great happy to.

Happy to do that Sanjay.

Russ Hutchinson: You know, look, I think as we sit on the call, if you take the current forward curve as it is, you know, six cuts in 2023, two more cuts in 2025, you know, obviously a rate outlook that's favorable relative to where we were a quarter ago. Based on that outlook, we think we get to our 4% NIM, you know, kind of right in the smack dab middle of 2025. You know, that being said, you know, we think about our business in terms of a variety of interest rate environments, you know, and certainly, you know, to the extent that the forward curve didn't materialize as it's currently constructed and we're in a more flattish environment, you know, that would extend the path to 4% NIM towards probably the very end of 2025. And so, again, you know, we don't like to run our business in a way where we're dependent on Fed cuts, you know. But the way that, you know, based on, you know, look, based on, we look at it based on a number of different scenarios and a range of different outcomes.

Sanjay: Yes look I think as we said on the call. If you take the current forward curve as it is six cuts in 2023, two more cuts in 2025.

Sanjay: Obviously.

Sanjay: Our rate outlook, that's favorable relative to where we were a quarter ago based on that outlook, where you think we get to our 4% NIM kind of right in the smack Dab middle of 2025.

That being said, we think about our business in terms of a variety of interest rate environments.

Sanjay: And certainly to the extent that the forward curve Didnt materialize as it's currently constructed and we are in a more flattish environment that would extend the path to 4% NIM towards probably the very end of 2025 and so again.

Russ Hutchinson: And so, again, you know, we don't like to run our business in a way where we're dependent on Fed cuts, you know. But the way that, you know, based on, you know, look, we look at it based on a number of different scenarios and a range of different outcomes. A more flattish scenario takes us to the very end of 25. And I would say, look, we took the opportunity last quarter during the rally to further put on pay-fixed hedges, and that gives us some insulation through the course of 24, such that, you know, we think in a variety of potential rate outcomes, our outlook for 24 is pretty much the same. So we're going to have to wait and see what happens.

Russ Hutchinson: We now serve as a relentless ally for more than 3 million customers. We also continue to see growth in multi-product customers and maintain our industry-leading customer retention rate of over 95%. Turning to slide 23, Ally Credit Card provides a direct-to-consumer digital product offering with a compelling return profile.

Sanjay: We don't like to run our business in a way where we're dependent on fed cuts.

But the way that.

Sanjay: Based on.

Sanjay: Based on basically we look at it based on a number of different scenarios in a range of different outcomes.

Russ Hutchinson: And I think that's kind of where we are. Current rate curve, middle of 2025. More flattish scenario takes us to the very end of 25. And I would say, look, we took the opportunity last quarter during the rally to further put on pay-fixed hedges, and that gives us some insulation through the course of 24 such that, you know, we think in a variety of potential rate outcomes, you know, our outlook for 24 is pretty much the same. So we're going to have to wait and see what happens.

Sanjay: And I think thats kind of where we are current rate curve middle of 2025.

More flattish scenario takes us to the very end of 'twenty five.

Russ Hutchinson: From an ALM perspective, the card provides a floating rate asset with an attractive margin and further diversification to our liability-sensitive balance. From a customer perspective, the existing Neoprime product fits well with a meaningful portion of our auto insurance customers, and we're actively developing a product set that would meet the needs of our deposit customers. In addition to delivering a great customer experience, we remain focused on credit management and measured, prudent growth within the card business. Losses in the portfolio have increased in recent quarters and are expected to peak in mid-2024.

Sanjay: I would say look we took the opportunity last quarter during the rally.

Sanjay: To further put on pay fixed hedges and that gives us some insulation through the course of 'twenty four such that we think we think in a variety of potential rate outcomes our outlook for 'twenty four is pretty much unchanged.

Russ Hutchinson: We'll kind of stand by our 3.4% to 3.5% exit rate, even in a world where we don't see that first Fed cut in March.

Sanjay: Kind of standby are three four to three 5% exit rate even in a world, where we don't see that first fed cut in March.

Speaker Change: Okay, great. That's very helpful. And I guess my follow-up question, I guess this is for you, J.B. It might be a question for the board to

Russ Hutchinson: Okay, great. That's very helpful. And my follow-up question, I guess this is for you, J.B. It might be a question for the board to

Okay, Great that's very helpful.

And I guess my follow up question.

Russ Hutchinson: The dynamics in our portfolio mirror what has been observed across the industry. Specifically, weaker performance in the 2021 and 2022 near prime cohorts, which have been the most impacted by inflation. For Ally, those cohorts represent a majority of the total portfolio, resulting in a more pronounced increase in portfolio-level loss rates.

Sanjay: This is for you JV it might be a question for the board.

J.B: Where are we with timing of a final CEO? I think it's obviously taken a little bit longer than we thought. Doug obviously sounds very qualified, so I'm just trying to get a sense of how we should think this plays out over the course of the next months or so.

Jeffrey Jonathan Brown: Where are we with the timing of a final CEO? I think it's obviously taken a little bit longer than we thought. Doug obviously sounds very qualified, so I'm just trying to get a sense of how we should think this will play out over the course of the next months or so.

Speaker Change: Where are we with timing.

Final CEO: Final CEO I think it's obviously, taking a little bit longer than we thought Doug obviously, you sound very qualified so I'm just trying to get a sense of sort of how we should think this plays out over over the course of the next months or so.

Speaker Change: Yeah, I mean, Sanjay, I think, appreciate the question. And what I would say is the board has been very hard at work. These things not always go in a perfectly straight line. But there's been an extraordinarily amount of effort in interviewing. And I think, you know, what I've appreciated about our board, and I've been involved in it, is not willing to sacrifice. I mean, we want to get a great operational leader, a great cultural leader, somebody that understands the nuances of banking. And so, you know, we've been very disciplined in that regard. I would expect over the coming quarter, you know, we will be in a position to announce somebody permanent. But again, it's still a very fluid process. I think very fortunate to have Doug here ready to go, have a really strong leadership team behind Doug. Doug's got the full support of them. He's got the full support of the board, the customer base. And, you know, he's been around the block. So our employees know him, and he's going to slide right in. So I'm not worried at all about continuity in this interim period. But I think, you know, over the next few months, that should be your baseline expectation to when we'll have a permanent candidate. But again, no sacrifices here. We're going to make sure we get the right next leader to build on the foundation we have in place today and carry the company forward.

Jeffrey Jonathan Brown: Yeah, I mean, Sanjay, I think I appreciate the question. And what I would say is the board has been very hard at work. These things do not always go in a perfectly straight line, but there's been an extraordinarily amount of effort in interviewing. And I think, you know, what I've appreciated about our board, and I've been involved in it, is that they are not willing to sacrifice. I mean, we want to get a great operational leader, a great cultural leader, somebody that understands the nuances of banking. And so, you know, we've been very disciplined in that regard. I would expect that, over the coming quarter, we will be in a position to announce somebody permanent. But again, it's still a very fluid process.

Final CEO: Yes.

Andrea I think.

Russ Hutchinson: Beginning in 2022, we took significant credit tightening actions on both new and existing accounts. We reduced exposure in higher risk segments by over 300 million in 2023 because of our tightening measures, including a 20% reduction in new accounts coupled with reductions in credit lines. Heading into 2024, we expect these tightening actions on new and existing accounts to curtail more than $500 million of exposure. In terms of overall portfolio performance, the return profile on CART is compelling, even in this period of elevated losses. Gross revenue yield, including fees of 27%, provides significant return resilience to absorb loss volatility. Assuming losses increase to 13%, we still see risk-adjusted margins of 10% and a pre-tax ROA of approximately 2%. Assuming normalized losses of 9%, we expect a mid-teens risk-adjusted margin in line with expectations when we entered the business in 2021, driving a pre-tax ROA of 5% and enhancing the overall return profile of our largely secured balance. Those economics reflect allies' consolidated cost of funds and include all operating costs, excluding expenses from the 2021 acquisition of fair square and allocation of corporate overhead.

Doug Timmerman: Appreciate the question and what I would say is the board has been very hard at work these things.

Doug Timmerman: Not always go in a perfectly straight line.

Doug Timmerman: But theres been an extraordinarily amount of effort.

Doug Timmerman: And interviewing and I think what I've appreciated about our board and not been involved in it is.

Doug Timmerman: Is not willing to sacrifice I mean, we want to get a great operational leader a great cultural leader somebody that understands the nuances of banking and so.

Doug Timmerman: We've been very disciplined in that regard I would expect.

Doug Timmerman: Over the coming quarter.

Jeffrey Jonathan Brown: I think we are very fortunate to have Doug here ready to go, and have a really strong leadership team behind him. He's got their full support. He's got the full support of the board and the customer base. And, you know, he's been around the block. So our employees know him, and he's going to slide right in. So I'm not worried at all about continuity during this interim period. But I think, you know, over the next few months, that should be your baseline expectation for when we'll have a permanent candidate. But again, no sacrifices here. We're going to make sure we get the right next leader to build on the foundation we have in place today and carry the company forward.

Doug Timmerman: We will be in a position to announce somebody permanent but again, it's still a very fluid process I think very fortunate to have Doug here ready to go and had a really strong leadership team behind Doug Doug has got the full support of them. He's got the full support of the board of the customer base.

Doug Timmerman: He has been around the block so our employees know him and he's going to slide right and so I'm not worried at all about continuity in this interim period, but I think over the next few months that should be your baseline expectation to when we will have a permanent candidate, but again no sacrifices here, we're going to make sure we get the right next leader.

Doug Timmerman: To build on the foundation, we have in place today and carry the company forward.

Speaker Change: Thank you. One moment for our next question, please.

Sean Leary: Thank you. One moment for our next question, please.

Speaker Change: Thank you one moment for our next question. Please.

Speaker Change: And he comes from the line of Jeff Adelson with Morgan Stanley. Please proceed.

Jeffrey Jonathan Brown: And he comes from the line of Jeff Adelson with Morgan Stanley. Please proceed.

Speaker Change: And it comes from the line of Jeff Adelson with Morgan Stanley. Please proceed.

Jeffrey Jonathan Brown: Yes. Hi. Thanks for taking my questions. I guess I just wanted to circle back on the net interest margin commentary. As you kind of think about the potential benefit from the forward curve here, getting you to a 4% mark by mid-2025, just trying to understand, you know, what kind of assumptions you have in there for your deposit beta. And as we think through the first couple of quarters of 2024, do you think that you kind of reached...

Russ Hutchinson: Yes. Hi. Thanks for taking my questions. I guess I just wanted to circle back on the net interest margin commentary. As you kind of think about the potential benefit from the forward curve here, getting you to a 4% mark by mid-2025, just trying to understand, you know, what kind of assumptions you have in there for your deposit beta. And as we think through the first couple of quarters of 2024, do you think that you kind of reached... You know, as close to the peak as you can get on your deposit rate, given that you kind of held that that OSA rate steady and, you know, let's say the forward curve continues to price in more rate cuts, would you be looking to maybe add a little bit more in the way of hedges as, you know, you see opportunities and maybe that would defer the eventual benefit to getting to 4% if you do that?

Yes, hi, thanks for taking my questions.

Russ Hutchinson: While we have moderated our growth ambitions in the near term, we continue to view CARD as a key part of our long-term strategy and financial profile. Now, let's move to slide 24 and talk about two other products offered within the consumer bank, Ally Home and Ally Invest. Mortgage is the largest purchase consumers make, and Ally Home is a leading digital experience we offer to further deepen the relationship with our customers. Our operating model centers on a variable cost structure, enabling us to limit earnings volatility in periods where origination volumes are depressed. Most of the volume in Ally Home comes from deposit customers, and less than 20% of loans originated or retained on balance.

Jeffrey Jonathan Brown: I guess I just wanted to circle back on the on net interest margin commentary.

Jeffrey Jonathan Brown: As you kind of think about the potential benefit from the forward curve here getting you to a.

Jeffrey Jonathan Brown: 4% marked by mid 2025, just trying to understand what kind of assumptions you have in there for your deposit beta.

And as we think through the first couple of quarters of 2024, do you think that you've kind of reached.

Jeffrey Jonathan Brown: You know, as close to the peak as you can get on your deposit rate, given that you kind of held that that OSA rate steady and, you know, let's say the forward curve continues to price in more rate cuts, would you be looking to maybe add a little bit more in the way of hedges as, you know, you see opportunities and maybe that would defer the eventual benefit to getting to 4% if you do that?

Jeffrey Jonathan Brown: As close to the peak as you can get on your deposit rate given that you've kind of how that that OSA rates steady and.

Jeffrey Jonathan Brown: Let's say the forward curve continues to price in more rate cuts would you be looking to maybe add a little bit more in the way of hedges as you see opportunities and maybe that would differ.

Russ Hutchinson: How I invest is a key aspect of the overall deposit value proposition, providing customers seamless money movement between brokerage and savings. In total, Ally Invest customers maintain $13 billion in traditional deposits with Ally and maintain an average balance that is double that of non-Invest deposit customers.

Jeffrey Jonathan Brown: The eventual benefits you're getting to 4% if you do that.

Speaker Change: Great. Thanks, Jeff. Thanks for your question. Look, I think as we think, and maybe I'll start on deposit pricing and kind of maybe you've seen, we put in another set of rate reductions on the CD side this morning, our second so far in 2024. And so we're definitely seeing some benefits already from the interest rate environment. All that being said, as we think about our deposit pricing and rates,

Russ Hutchinson: Great. Thanks, Jeff. Thanks for your question. Look, I think as we think, and maybe I'll start on deposit pricing and kind of maybe you've seen, we put in another set of rate reductions on the CD side this morning, our second so far in 2024. And so we're definitely seeing some benefits already from the interest rate environment. All that being said, as we think about our deposit pricing and rates, Our expectation is that we don't see our deposit pricing adjusting immediately, but it does adjust to the extent that there are further rate cuts in

Speaker Change: Great. Thanks, Jeff. Thanks for your question look I think it is.

Speaker Change: As we think it maybe I'll start on on deposit pricing and kind of maybe you have seen we put in.

Speaker Change: Another set of rate reductions on the CD side. This morning, our second.

Speaker Change: So far in 2024, and so we're definitely seeing some benefits already from from the from the interest rate environment.

Russ Hutchinson: Allie Invest is profitable on a standalone basis and offers another compelling experience to drive engagement and retention. Mortgage results are on slide 25. Mortgage generated pre-tax income of $24 million and $224 million of direct to consumer origination, reflective of the operating environment.

Speaker Change: All that being said.

Speaker Change: As we think about.

Speaker Change: As we think about our deposit pricing and rates.

Speaker Change: Our expectation is that we don't see our deposit pricing adjusting immediately, but it does adjust to the extent that there are further rate cuts in

Speaker Change: Sure.

Speaker Change: We look at where we are.

Speaker Change: Patient is that we don't see our deposit pricing adjusting immediately but it does adjust.

Russ Hutchinson: Operating expenses declined nearly 20% on a year-over-year basis, reflecting the benefits of our partner model. We remain focused on a great customer experience for customers rather than a specific origination target. Turning to corporate finance on slide 26, full year 2023 pre-tax income of $307 million is the highest since our IPO. Our team is made up of industry experts with a long history in the business. Over the past five years, ROEs have been 24% on average, including 25% in 2023. Our $11 billion HFI portfolio is up 7% year-over-year, reflecting disciplined growth. On the bottom left, we highlight the Net Charge Office. Charge-offs in this business are driven by specific exposures and therefore inherently chocolate. Across the total portfolio, our average annual NCO rate was 30 basis points since 2014. Excluding healthcare cash flow loans, the NCO rate was 7 basis points. When performance began to deteriorate in 2020, we promptly ceased healthcare cash flow originations. This portfolio is in runoff, and accounts for less than 1.5% of the loan balance.

Speaker Change: Yes.

To the extent that there are.

Speaker Change: Further rate cuts.

Speaker Change: Thank you very much.

Russ Hutchinson: Thank you very much, and just on the hedging, you know, the opportunity to do more there.

Speaker Change: In 2024.

Speaker Change: We will see that in our deposit pricing, but we will see it in a delayed way in terms of our deposit beta we have been running around 70% that's still our expectation.

Speaker Change: Going forward in terms of deposit beta.

Speaker Change: And so I think I hopefully I answered most of your questions there, but let me know if I missed them.

Speaker Change: and just on the hedging, you know, the opportunity to do more there.

And just on the hedging the opportunity to do more there.

Speaker Change: Yeah, look, I think our sense is the Fed is done on tightening.

Russ Hutchinson: Yeah, look, I think our sense is the Fed is done with tightening.

Speaker Change: Yes look I think our sense is the fed has done on tightening.

Speaker Change: You know, we obviously are, you know, somewhat opportunistic in the market in terms of just kind of looking at what the outlook is. You know, we took advantage of an opportunity in the fourth quarter where there was a real rate rally to take some of the variability off the table for us over the course of 24. You know, hard for me to project kind of how the markets will behave kind of going forward. But, look, certainly if there are opportunities that make sense for us, we'll pursue those. But, again, I'm not going to speculate on a rate.

Russ Hutchinson: You know, we obviously are somewhat opportunistic in the market in terms of just kind of looking at what the outlook is. You know, we took advantage of an opportunity in the fourth quarter where there was a real rate rally to take some of the variability off the table for us over the course of 24. You know, hard for me to project kind of how the markets will behave kind of going forward. But, look, certainly, if there are opportunities that make sense for us, we'll pursue those. But, again, I'm not going to speculate on a rate.

Speaker Change: We obviously are somewhat opportunistic in the market in terms of just kind of looking at what the outlook is.

Speaker Change: We took advantage of an opportunity in the fourth quarter, where there was a real rate rally to take some of the variability off the table for us over the course of 'twenty four.

Speaker Change: Hard for me to <unk>.

Speaker Change: Kind of how the markets will behave going forward, but look certainly if there are opportunities that makes sense for us we'll pursue those but again I'm not going to speculate on the rates.

Speaker Change: Thank you. And one moment for our next question, please.

Russ Hutchinson: Thank you. And one moment for our next question, please. And it comes from the line of Rick Shane with J.P. Morgan. Please proceed.

Speaker Change: Thank you one moment for our next question. Please.

Speaker Change: And it comes from the line of Rick Shane with J.P. Morgan. Please proceed.

Speaker Change: And it comes from the line of Rick Shane with Jpmorgan. Please proceed.

Rick Shane: Good morning, everybody. And thanks for taking my question. Jeff, I'm really glad I got on the line. It's been a pleasure covering your company. And I've really admired what I see as your commitment to the culture and ethos of Ally. And it really is a great legacy. So congratulations and thank you so much.

Rick Shane: Good morning, everybody. And thanks for taking my question. Jeff, I'm really glad I got on the line. It's been a pleasure covering your company. And I've really admired what I see as your commitment to the culture and ethos of Ally. It really is a great legacy. So congratulations and thank you so much.

Rick Shane: Good morning, everybody and thanks for taking my question.

Rick Shane: Jeff Im really glad I got on the line, it's been a pleasure covering your company.

Rick Shane: And I really admired what I see is your commitment to the culture and ethos of ally.

Russ Hutchinson: We provided a little more context than usual given the macro concerns around CNI and some of the recent net charge-up activity within healthcare cash. Corporate finance is a great business for Ally with a long track record of delivering through many economic cycles. Before closing, I'll share a few thoughts regarding the coming year. Slide 27 contains our financial outlook for 2024. As you know, the operating environment remains dynamic.

Rick Shane: It really is a great legacy so congratulations and thank you so much.

Jeff: Thank you, Rick. That means a lot to me. And one of the CEOs I greatly admire is at the top of your firm, but always prioritizes people and does things the right way. So it's been an absolute honor leading Ally and appreciate your consistent support as well, Rick. So thanks.

Jeffrey Jonathan Brown: Thank you, Rick. That means a lot to me. And one of the CEOs I greatly admire is at the top of your firm, but he always prioritizes people and does things the right way. So it's been an absolute honor leading Ally and I appreciate your consistent support as well, Rick. So, thanks.

Speaker Change: Thank you Randy that means a lot to me.

Speaker Change: And one of the Ceos I greatly admire is at the top of your firm.

Speaker Change: But always prioritizes people and does things the right way. So it's been an absolute honor leading ally and appreciate year consistent support as well Rick So thank you.

Speaker Change: Thank you. I wanted to talk a little bit about two trends in terms of auto. What we keep hearing is tightening of credit and raising of rates.

Rick Shane: Thank you. I wanted to talk a little bit about two trends in terms of cars. What we keep hearing is tightening of credit and raising rates. Borrower quality is going up, but essentially, affordability is going down. Russ, you showed us slide 17 where you basically start to balance that out in terms of the impact on credit. But I am curious, when you think about loss frequency, given the decline in affordability, is this really ultimately going to be a net positive? One thing I would mention is that when I look at that slide, it doesn't contemplate the impact of the huge decline in gas prices during the sort of comparable windows. The 22 vintage sort of peak was seasoning as gas prices were going up sharply. The 23 is seasoning as gas prices are going down. So I think when you sort of neutralize for that, I'm curious if you actually think frequency. I will improve.

Russ Hutchinson: We've talked regularly about the tailwinds that will drive our net interest margin, and our outlook remains consistent. We expect expansion in 2024 and see an exit rate of around 3.4% to 3.5%, which puts the full-year average just under 3.3%. In terms of updates to our outlook from previous calls, our recent capital actions are good for profitability and capital generation but also impact our starting point for NIM expansion. For example, the sale of Ally Lending has impacted our near-term NIM outlook by around three to four basis points. When combined with curtailments in the card business, our NIM outlook for 2024 now incorporates five basis points of near-term impacts, given the gross margin on those products. However, the impact of these actions on NIEM is more than offset by lower credit costs and lower expenses.

Speaker Change: Thank you.

I wanted to talk a little bit about two trends in terms of auto.

Speaker Change: What we keep hearing is tightening of credit and raising of rates.

Speaker Change: The borrower quality is going up, but essentially affordability is going down. Russ, you showed us slide 17 where you basically start to balance that out in terms of the impact on credit. But I am curious, when you think about loss frequency, given the decline in affordability, is this really ultimately going to be a net positive? One thing I would mention is that when I look at that slide, it doesn't contemplate the impact of the huge decline in gas prices during the sort of comparable windows. The 22 vintage sort of peak was seasoning as gas prices were going up sharply. The 23 is seasoning as gas prices are going down. So I think when you sort of neutralize for that, I'm curious if you actually think frequency. Will improve.

Speaker Change: The borrower quality is going up but essentially affordability is going down.

Russ you showed a slide 17, where you basically start to balance that out in terms of the impact on credit.

Speaker: All the liabilities, and the cost of funds moved up within the quarter in line with expectations. Since tightening began, we've seen cumulative deposit data of around 70%, which compares well to peers, particularly in the context of $4.6 billion of Ally retail deposit growth and record customer growth in the year, when industry balances contracted. We remain confident in our path to 4% NEM. We have assumed the Fed is done tightening, but we are not dependent on Fed cuts.

Speaker Change: I am curious when you think about loss frequency given the decline in affordability is this really ultimately going to be a net positive.

Speaker Change: One thing I would mention is that when I look at that slide it doesn't contemplate the impact of the huge decline in gas prices during this sort of comparable windows.

Speaker Change: V 22 vintage sort of peaked.

Speaker Change: With seasoning as gas prices were going up sharply the 'twenty threes seasoning as gas prices are going down. So I think when you sort of neutralize for that I am curious if you actually think frequency will improve.

Speaker: Rate cuts will impact the pace of NIM expansion but not the destination. The pace of rate cuts implied by the current forward curve would accelerate our path to 4% NIM by the middle of next year. Turning to page 14, CET1 of 9.4% increased quarter over quarter. As we mentioned before, the sale of lending will add another 15 basis points upon closing in March. Given we have another Cecil Faison, we expect a relatively flat CET1 ratio in the first quarter, as the ally lending sale benefit will be offset by Cecil Faison. Our TCE to TA ratio increased by more than 50 basis points during the quarter, driven by an increase in OCI as benchmark rates declined.

Speaker Change: Yeah, no, it's a fair question, as you can imagine.

Russ Hutchinson: Yeah, no, it's a fair question, as you can imagine. We pay a lot of attention to credit. We're constantly looking at vintages on a monthly basis and even sub-segmenting within that to understand the performance of our book. I would characterize, obviously, the losses on the 2022 book as being elevated. It's interesting that that elevation in loss content is coming at a time when employment is so strong. And so we characterize that as something that is very much driven by inflation and a number of our borrowers are struggling with this inflationary environment. So that impact is not lost on us.

Speaker Change: Yes, no. It's a fair question as you can imagine.

Speaker Change: We pay a lot of attention to credit. We're constantly looking at vintages on a monthly basis and even sub-segmenting within that to understand the performance of our book. I would characterize, obviously, the losses on the 2022 book as being elevated. It's interesting that that elevation in loss content is coming at a time when employment is so strong. And so we characterize that as something that is very much driven by inflation and a number of our borrowers struggling with this inflationary environment. So that impact is not lost on us. That being said, as you can imagine, we monitor our credit quite closely. We also pay a lot of attention to servicing, and we've made a number of adjustments to how we service in particular timing of repossession. We have found we get better outcomes. Delaying repossession, it feels giving our collectors additional time to work their credits and giving our borrowers a little additional time tends to work out in our favor. And we're getting better outcomes by doing that. And so we can see that in terms of the way that we look at our delinquency roles as well as our flow-to-loss. Our flow-to-loss rates have continued to be favorable going through this cycle. You can imagine we're looking at our vintages at a much more granular level. And so when we look at page 17, that chart in the bottom middle, and you can see that 2023 vintages starting to bend away from the 2022 vintages in a favorable way. What gives us confidence there in that trend continuing and expanding is our more granular look as we look month to month. And as we pointed out on the call, the first six months of any vintage is a little bit choppy as a trend. But as you can imagine, as we're looking at this on a month-to-month basis, looking at improvement through March, April, May, and even getting an early read on June, July, August, gives us a lot of confidence in that curve continuing to bend. And we look at it again, looking at delinquency, looking at flow-to-loss, and actually looking at loss development as we look across these vintages. So we totally hear you on the phone. Inflation is definitely a factor. But again, our kind of more granular analysis gives us a lot of comfort that, one, we boxed the issue to the second half of 2022, and that the 2023 vintages show great improvement, and great improvement as you look month to month, and also gives us confidence in terms of our overall outlook around retail auto NCOs.

Speaker Change: We pay a lot attention to credit we're constantly looking at vintages on a monthly basis, and even sub sub segmenting within that to understand the performance of our book.

Speaker Change: I would characterize the obviously the losses on the 22 2022 book is being elevated.

Russ Hutchinson: Given the 4Q rally in rates, we took the opportunity to add to our pay-fixed hedge exposure, which protects margins should cuts not materialize in March as the forward curve is suggesting. We do not expect a meaningful impact on our 2024 NIM whether or not the Fed commences cuts in March. The pace of Fed cuts implied by the current forward curve would, however, accelerate our path to 4% NIM towards the middle of next year versus the very end of next year in a more flat rate scenario. We have continued to position the balance sheet in such a way that near-term NIM expansion does not require a lower rate. Turning to other revenue, we expect 5% to 10% of growth in 2024 driven by continued momentum in insurance, smart auction, and the auto pass-through program. Asset levels are expected to remain relatively flat year over year, but with a favorable mixed benefit of higher yielding loans replacing securities and mortgages.

Speaker Change: Interesting that that elevation in loss content is coming at a time when employment is so strong and so we characterize that as something that is very much driven by inflation and a number of our borrowers struggling with this inflationary environment. So.

Speaker: We recently announced our quarterly dividend of $0.30, which remains flat compared to the prior quarter. As JB laid out, the capital actions we undertook during the quarter and actions that we continue to execute upon reflect our commitment to generating capital, strategically investing in our highest-returning businesses, and driving long-term value for shareholders. Tangible book value per share is up 100% since our IPO, excluding the impacts of AOCI, which we expect to accrete to par over time. Let's turn to slide 15 to review asset quality trends. Consolidated net charge-offs of 177 basis points reflected seasonal trends and elevated activity within corporate finance and credit cards. Retail auto net charge-offs of 221 basis points in the fourth quarter were at the low end of the guidance we provided on our third quarter earnings call. In commercial auto, we recognized charge-offs of $19 million, which were previously reserved for, resulting in minimal P&L impact within the quarter. In the bottom right, 30- and 60-day retail auto delinquencies reflect seasonal increases. Importantly, the year-over-year increase in 30-day delinquency rates declined for the fourth consecutive quarter.

Russ Hutchinson: That being said, as you can imagine, we monitor our credit quite closely. We also pay a lot of attention to servicing, and we've made a number of adjustments to how we service, in particular the timing of repossession. We have found we get better outcomes. Delaying repossession, it feels giving our collectors additional time to work their credits and giving our borrowers a little additional time tends to work out in our favor. And we're getting better outcomes by doing that. And so we can see that in terms of the way that we look at our delinquency roles as well as our flow-to-loss. Our flow-to-loss rates have continued to be favorable going through this cycle. As you can imagine, we're looking at our vintages at a much more granular level.

Speaker Change: That impact is not lost on us.

Speaker Change: That being said as you can imagine we monitor our credit quite closely we also pay a lot of attention.

Speaker Change: To servicing and we've made a number of adjustments to how we service in particular timing of repossession.

Speaker Change: Have found we get better outcomes delaying repossession.

Speaker Change: It feels giving our giving our collectors additional time to work the credits and giving our borrowers a little additional time tends to work out in our favor and were getting better outcomes.

Speaker Change: By doing that and so we can see that in terms of the way that we look at our delinquency roles as well as our flow to loss or flow to loss rates have continued to be favorable going through this cycle.

Russ Hutchinson: In terms of credit, we see retail auto net charge-offs increasing versus 2023 as our underperforming vintages make their way through peak losses in the first half of the year. But, as I said, we're confident retail auto losses will remain below 2% for the year. Total charge-offs for the company of 1.4% to 1.5% reflect the increase in retail auto and credit card, partially offset by the sale of Ally Lending. We remain committed to cost discipline and have updated our prior expense guide to reflect the sale of Ally Lending. In total, we see expense growth of less than 1%, and we now expect controllable expenses to decline by more than 1%. We've made another meaningful cut in expenses to reflect the sale of Ally Lending. We are currently estimating a full-year tax rate of 18%.

Speaker Change: You can imagine we're looking at our vintages that are much more granular level than what's available publicly.

Russ Hutchinson: And so when we look at page 17, that chart in the bottom middle, you can see that 2023 vintages are starting to bend away from the 2022 vintages in a favorable way. What gives us confidence in that trend continuing and expanding is our more granular look as we look month to month. And as we pointed out on the call, the first six months of any vintage is a little bit choppy as a trend. But as you can imagine, as we're looking at this on a month-to-month basis, looking at improvement through March, April, May, and even getting an early read on June, July, August gives us a lot of confidence in that curve continuing to bend.

Speaker Change: And so when we look at page 17 that chart in the bottom middle.

Speaker Change: And you can see that 2023 vintages, starting to bend away from the 2022 vintages in a favorable way.

Speaker: Moving to slide 16, consolidated coverage decreased 16 basis points to 2.57%. The decrease within the quarter was mainly driven by mixed dynamics, including the pending sale of ally lending, which carried a coverage rate of 9%, and growth within commercial auto, which has a lower coverage rate given its low loss content. The decline in the coverage rate was also impacted by the recognition of losses on credits within corporate finance and commercial auto, for which we previously had specific reserves that do not need to be refinanced. The total loan loss reserve of $3.6 billion declined to approximately $250 million, driven mainly by the movement of ally lending assets to help for sale and retail auto loan sales.

Speaker Change: What gives us confidence there and that trend continuing and expanding as our more granular look as we look month to month and as we pointed out on the call that the first six months of any vintages vintage is a little bit choppy.

Speaker Change: As a.

Speaker Change: As they season.

Speaker Change: But as you can imagine as we're looking at this on a month to month basis looking at improvement.

Speaker Change: Through March April May.

Speaker Change: And even getting an early read on June July August.

Russ Hutchinson: However, we continue to realize benefits from EV tax credits and broader tax planning strategies that will likely result in quarterly fluctuations like 2023. So there are a lot of moving pieces within the P&L, particularly around the sale of ally lending, but not a real change in our outlook. With the tightening cycle potentially behind us, we are confident the company is set up for meaningful earnings expansion over the next several years. We see a clear path to 4% net interest margin and a mid-teens ROE over the medium term. The exact timing will be driven by several factors, including rates and consumer health.

Speaker Change: It gives us a lot of confidence in that curve continuing to bend.

Russ Hutchinson: And we look at it again, looking at delinquency, looking at flow-to-loss, and actually looking at loss development as we look across these vintages. So we totally hear you on the phone. Inflation is definitely a factor. But again, our kind of more granular analysis gives us a lot of comfort that, one, we boxed the issue to the second half of 2022, and that the 2023 vintages show great improvement and great improvement as you look month to month, and also gives us confidence in terms of our overall outlook around retail auto NCOs.

Speaker Change: And we look at it again looking at delinquency looking at flow to loss and actually looking at loss development.

Speaker: Retail auto coverage of 3.65% increased three basis points entirely driven by loan sales executed within the quarter, which were comprised of seasoned loans with lower loss content. As a reminder, for our CECL reserving process, we leverage a 12-month macroeconomic forecast that has unemployment increasing to 4.4% this year. Longer term, we assume unemployment increases to approximately 6% under our reversion to mean methodology. Now, let's turn to slide 17 to discuss retail auto credit in more detail. On a full-year basis, charge-offs of 1.77% were in line with the guide we provided a year ago. And within the fourth quarter, net charge-offs of 2.21% were on the low end of our most recent guidance.

Speaker Change: As we look across these vintages. So we totally hear you on the point inflation is definitely a factor.

Speaker Change: But again, our kind of more granular analysis gives us a lot of comfort that that one we've boxed the issue to the to the second half of 2022.

Speaker Change: 2023, vintages show, Great improvement and great improvement as you look month to month.

Speaker Change: And also gives us confidence in terms of our overall outlook.

Speaker Change: Around retail auto Ncos.

Speaker Change: Terrific. That's a very helpful answer. Thank you, guys.

Russ Hutchinson: Terrific. That's a very helpful answer. Thank you, guys.

Jeffrey Jonathan Brown: We acknowledge continued uncertainties heading into 2024; however, we remain confident in our ability to continue to execute against the controllables and drive long-term shareholder value. And with that, I'll turn it back to JB. Thank you, Russ. The strategic priorities we've established guide everything we do and are unwavering and will remain essential for Allies' long-term success for years to come.

Speaker Change: Terrific Thats very helpful answer Thank you guys.

Speaker Change: Thank you. One moment for our next question please.

Sean Leary: Thank you. One moment for our next question, please.

Speaker Change: Thanks, Rick.

Thank you.

Speaker Change: One moment for our next question please.

Speaker: Within the quarter, improving front book performance coupled with stable flow-to-loss rates was more than enough to offset softness in used values, which ended the quarter around 5% lower than we assumed when providing 4Q guidance. Looking at delinquency trends, the year-over-year rate of change declined again for the fourth consecutive quarter, with 30-plus up 86 basis points year-over-year, 82 basis points excluding the impact of loan sale. We've been active in optimizing the buybacks to remove underperforming segments and maximize through-the-cycle adjusted returns. Our curtailment actions began in mid-2022, and the cumulative impact of those actions has been significant in terms of volume, but even more so in terms of lost content removed from our origination profile. We continue to be encouraged by granular performance monitoring, with all origination vintages showing improved performance as they cease.

Speaker Change: All right, it comes from the line of Jon Hecht with Jefferies. Please go ahead, Jon.

John Hecht: All right, it comes from the line of Jon Hecht with Jefferies. Please go ahead, Jon.

Speaker Change: Alrighty comes from the line of John Hecht with Jefferies. Please go ahead John.

Jon Hecht: Morning, guys. Thank you for taking my questions, and good luck with everything, JB. I definitely enjoyed working with you. Good job. Thank you.

Jeffrey Jonathan Brown: Morning, guys. Thank you for taking my questions, and good luck with everything, JB. I definitely enjoyed working with you. Good job. Thank you.

John Hecht: Good morning, guys and thank you for taking my questions and good luck with everything JV definitely enjoyed working with you.

JV: Thanks, Jonathan.

Speaker Change: Thank you. Just with respect to NIM this year, how do we think about the yield side? I mean, you guys have obviously been very effective at increasing the new loan yields. How much more is there to go on that front given rate stabilization in the macro and mix shift?

Russ Hutchinson: Thank you. Just with respect to NIM this year, what do we think about the yield side? I mean, you guys have obviously been very effective at increasing new loan yields. How much more is there to go on that front given rate stabilization in the macro and mix shift?

Speaker Change: Thank you.

Speaker Change: Just with respect to NIM. This year, how do we think about the yield side I mean, you guys have obviously.

Speaker Change: <unk> been very effective at increasing new loan yields how much more is there to go on that on that front given rate stabilization in the macro and mix shift.

Speaker Change: Yeah, look, I mean,

Russ Hutchinson: Yeah, look, I mean, fourth quarter, yield expanded again to 10.8%, giving us 10.69% over the course of the year, a great outcome. And remember, that's an outcome where we've ramped up our concentration in that S tier, and so we've moved up credit at the same time that we've moved up pricing. We've shown overall a 95% beta on the way up in terms of rates, and that's really helped and supported us. Now, as we think about the outlook for auto, I would say I think we've got a couple of natural advantages. Number one, we just see a tremendous amount of application volume, and that gives us a lot of information and a lot of flexibility with our dealers in terms of how we have the ability to move up or down and how we have the ability to use pricing as a lever.

Speaker Change: Yes look I mean.

Speaker Change: Fourth quarter, yield expanded again to 10.8%, giving us 10.69% over the course of the year, a great outcome. And remember, that's an outcome where we've ramped up our concentration in that S tier, and so we've moved up credit at the same time that we've moved up pricing. We've shown overall a 95% beta on the way up in terms of rates. That's really helped and supported us. Now, as we think about the outlook for auto, I would say I think we've got a couple of natural advantages. Number one, we just see a tremendous amount of application volume, and that gives us a lot of information and a lot of flexibility with our dealers in terms of how we have the ability to move up or down and how we have the ability to use pricing as a lever. That's a competitive advantage that I think is unique to Ally, just given the scale we have and the depth of our relationships with customers. And it gives us a lot of confidence in our ability to optimize our yield on a risk-adjusted basis in order to preserve our yield going forward. At this point, I don't think we expect our yield to continue to rise, but we do expect that we can basically use credit and pricing to maintain yield as we move through 2024.

Speaker Change: Fourth quarter.

Speaker Change: Yields expanded again to 10, 8%.

Speaker Change: Giving us 10, 69% over the course of the year.

Speaker Change: Outcome and remember that's an outcome, where we've ramped up our our concentration in that effort here and so we've moved up credit at the same time that we've moved up pricing.

Speaker: In terms of specific cohorts, the most seasoned parts of the portfolio from 2021 and earlier continue to outperform price loss expectations and have passed their peak loss period. The 2022 vintage, more specifically the second half of 2022, is showing elevated loss content versus expectations. But again, the 2022 vintage has consistently shown improving performance over time.

Speaker Change: Shown overall, a 95% beta.

Speaker Change: On the way up in terms of rate.

Speaker Change: That's really helped and supported US as we think about the outlook for auto.

Jeffrey Jonathan Brown: I'm very proud of the long-term progress, and sometimes that gets lost in the quarterly progressions, but wrapping up the year and looking back to when I went into this role, it is really amazing how far Ally has come. It was just 15 years ago that this company was on the brink of extinction, and today, it is a thriving and well-respected company and brand that is uniquely positioned to financially benefit as rates begin to normalize It has been a true honor to serve as CEO. And now, as I transition to a substantial customer with Hendrick Automotive, I will continue to be invested in the long-term success of Ally. Thank you all so much.

I would say I think we've got a couple of natural advantages yet number one we just see a tremendous amount of application volume and that gives us a lot of information and a lot of flexibility with our dealers in terms of how we have the ability to move up or down and how we have the ability to use pricing as a lever that's a competitive advantage.

Speaker: It's early to evaluate the 2023 vintage, but we are encouraged by initial performance indicators, and our shift up the credit spectrum in April of 2023 meaningfully reduced the absolute loss content on our most recent vintage. The 2023 vintage has started to outperform 2022 in terms of delinquency after 12 months on book, and we expect that outperformance to expand as we move forward given the underwriting changes we've made over time and the shift into super prime in April. It's important to remember that the first six months of any vintage are noisy.

Russ Hutchinson: That's a competitive advantage that I think is unique to Ally, just given the scale we have and the depth of our relationships with customers. And it gives us a lot of confidence in our ability to optimize our yield on a risk-adjusted basis in order to preserve our yield going forward. At this point, I don't think we expect our yield to continue to rise, but we do expect that we can basically use credit and pricing to maintain yield as we move through 2024.

Vantage I think is unique to ally just given the scale, we have and the depth of our relationships with dealers and it gives us a lot of confidence in our ability.

To optimize our yield and on a risk adjusted basis in order to in order to preserve our yield going forward.

Sean Leary: And with that, Sean, back over to you for Q&A. Thank you, Jamie. As we head into Q&A, we do ask the participants to limit themselves to one question and one follow-up.

At this point I don't think we expect our yield to continue to rise, but we do expect that we can we can we can basically use credit and pricing to maintain yield.

Speaker: And we really start to get a good look closer to 12 months. On this page, we've shown more detail comparing months 7 to 12 of the 2022 and 2023 ventures. And as you can see, the 2023 vintage curve has started to bend favorably, and we expect that to continue over time. We know delinquency trends by vintage are a focal area, but we also look at the same trends on an actual loss basis, and on that basis, the 2023 vintage looks even better relative to 2022. As you all know, we've actively refined our approach to collections over time, including the extension of refo timing.

Host: Carmen, please begin the Q&A. Thank you. One moment for our first question, please. And it comes from the line of Ryan Nash with Goldman Sachs. Please proceed. Hey, good morning, everyone.

As we move through 2024.

Speaker Change: Okay, very helpful. Thanks. Maybe one add-on there is, though obviously new origination.

Russ Hutchinson: Okay, very helpful. Thanks. Maybe one add-on there is, though obviously a new origination.

Okay. That's very helpful. Maybe sorry, maybe you want to add on there is.

Ryan Nash: JB, just want to say that it's been a pleasure working with you and best of luck at Hendrix. Thanks so much, Ryan. Appreciate that. Maybe one strategic question, I guess, for each of you. JB or Russ, maybe just talk about the decision to sell Ally Lending. Was this part of a broader review, and are there any further changes?

Obviously, new originations continue to come on higher than the overall portfolio yield. So you've got this nice natural tailwind that's going to show itself. So you would expect the overall portfolio yield to continue increasing for the next several quarters, yes, yes, that's right when when when I talk about yield I was really focused on the origination.

Speaker Change: Thank you for joining us. Again, ongoing retail auto originations, credit card, corporate finance at the same time that we see securities and mortgage with obviously lower yields rolling off.

Ryan Nash: And then, Doug, congrats on being named interim CEO. Any changes we should expect from you, whether on the auto strategy or the broader company strategy? And I have a follow-up. Great, Brian.

Speaker: In total, that's resulted in more churn in the delinquency buckets but a meaningful improvement in eventual losses. So delinquency trends are encouraging, and loss performance is even more encouraging. As we sit here today, we feel our underperforming originations are ring-fenced to the second half of 2022. And with yields over 9% for that cohort, these are still financially attractive loans.

<unk>.

Maintaining near the level, where it is today, but obviously in the portfolio side that is a natural tailwind.

Okay.

On the portfolio side, we do we do have some benefit from it.

Jeffrey Jonathan Brown: I guess I'll start on the Ally lending decision. I think, you know, you rewind the clock to kind of all the March banking events there. And I think what that forced everyone to do was just take a really honest and hard look at all of our businesses, our position, figure out where we had scale, where we didn't have scale. And, you know, St. Bernie's got a great CEO, and Brian doubles.

Speaker Change: Ongoing retail auto originations credit card corporate finance at the same time that we see securities and mortgage with obviously lower yields rolling off.

Speaker Change: Okay, great, very helpful. And then follow-up question, Russ, you're peaking charge-offs from the 22 vintage first half of this year and then maybe some stabilization or favorable movements and losses as we move from there. How do we think about the ALL over the course? Is it stable or do you move it up a little bit through the peak charge-off cycle and then it starts to recede? How do we think about the trajectory there?

Russ Hutchinson: Okay, great, very helpful. And then follow-up question, Russ, you're peaking charge-offs from the 22 vintage in the first half of this year and then maybe some stabilization or favorable movements and losses as we move from there. How do we think about the ALL over the course? Is it stable, or do you move it up a little bit through the peak charge-off cycle, and then it starts to recede? How do we think about the trajectory there?

Speaker Change: Okay, Great very helpful. And then follow up question Russ.

Speaker: With AdVantage entering its peak loss period now, it will be the primary driver of NCO performance in the first half of 2024, which will also see increasing unemployment based on consensus economic estimates. Later in the year, we expect the 2023 vintage will start to drive losses down on a seasonally adjusted basis. We'll talk more about the overall guide later, but putting the retail credit performance together, we expect losses to increase in 2024 but are confident our annual NCO rate will remain below 2%. On a seasonally adjusted basis, we'd expect higher losses in the first half of the year and then improving performance as new originations reach peak losses. On slide 18, we provide an outlook for used vehicle values, which declined 9% in 2023 and have declined 26% from their 2021 levels. We are assuming another 5% decline in 2024, with much of that decline occurring in the first half of the year. That would result in a total decline from peak levels of just over 30%.

Russ Hutchinson: Peaking charge offs from the 2002 vintage first half of this year, and then maybe some stabilization or favorable movements and losses as we move from there how do we think about the ALLL over the course is it stable or do you move it up a little bit through the peak charge offs cycle in that and then it starts to recede how do we think about the trajectory there.

Jeffrey Jonathan Brown: And Brian and I kind of compared notes a couple of times during the second quarter, and you know, we just started talking about a potential path for them to do something here. And I think this is really a win-win for both companies. I think this is going to be a highly accretive business for Synchrony. I think Brian and Brian, his CFO, are really excited about it, that they're doing the right thing with respect to the acquisition and with respect to a lot of the Ally teammates going along with the acquisition.

Russ Hutchinson: There are a lot of factors that go into the ALL. We have a pretty thorough process, and we're looking at the macro environment, so there are a whole set of macro assumptions that go into that. I think, as I mentioned during the call, some of those build into natural conservatism in terms of our expectations for the progression of unemployment rates in the near term, and then we also factor in a mean reversion factor. So in our models, we have unemployment kind of mean reverting to 6% over the medium term. And so a lot of factors that go into that ALL. Hard to comment on the outlook for that going forward, but I think our general expectation is to assume it's kind of flattest.

Russ Hutchinson: But there are a lot of factors that go into the <unk>, we have a pretty thorough process.

Russ Hutchinson: And we're looking at the macro environment. So there are a whole set of macro assumptions that go into that I think as I mentioned during the call some.

Russ Hutchinson: Some of those built in a natural conservatism in terms of our expectations for the progression of unemployment rates in the near term and then we also factor in a mean reversion factor. So we in our models, we have unemployment kind of mean reverting to 6% over the medium term and so a lot of factors that go into that al.

Jeffrey Jonathan Brown: And so for them, I think it fits right into their platform. It's going to be accretive for them. And then for us, you know, as we mentioned, it really enables us to focus more on the scale businesses we have at Ally. And obviously, you know, deploy deployed capital in that regard. And so, you know, I think it came to fruition towards the end of the year.

Russ Hutchinson: And so a lot of factors that go into that ALL. Hard to comment on the outlook for that going forward, but I think our general expectation is to assume it's kind of flat.

Russ Hutchinson: Hard to.

Russ Hutchinson: Two.

Russ Hutchinson: Hard to.

To comment on the outlook for that going forward, but I think our general expectation is to assume it's kind of flattish.

Jeffrey Jonathan Brown: Obviously, as we mentioned, we'll expect to close that auction in the first quarter. But I think, you know, when we look at the business footprint today, we feel really comfortable where things are at. This was just a unique position and a unique situation with, you know, this business fitting right in for synchrony and for Brian. The rest of the company, we feel, is largely intact. We like everything going on in credit cards today and in commercial finance, and corporate finance. So I don't want anyone to imply anything beyond that. I think this was just a unique situation.

Speaker: We continue to expect used values to stabilize and ultimately settle around 20% higher than pre-pandemic levels, with new vehicle production below pre-pandemic levels for nearly four years. Used supply will remain 15% below historical norms over the next several years and provide structural support for used values. Turning to slide 19.

Speaker Change: Okay, helpful, thanks.

Russ Hutchinson: Okay, it was helpful, thanks.

Okay helpful. Thanks.

Speaker Change: Great. Thanks, Jon. That's all the time we have for today, folks. If you have any additional questions, as always, please feel free to reach out to Investor Relations. Thank you for joining us this morning. That concludes today's call. Thank you, everybody. And you may now disconnect.

Sean Leary: Great. Thanks, Jon. That's all the time we have for today, folks. If you have any additional questions, as always, please feel free to reach out to Investor Relations. Thank you for joining us this morning. That concludes today's call. Thank you, everybody. And you may now disconnect.

Great. Thanks, John that's all the time, we have for today folks. If you have any additional questions as always please feel free to reach out to Investor relations. Thank you for joining US. This morning that concludes today's call.

Thank you everybody and you may now disconnect.

Speaker: We help our dealers sell as many cars and trucks as possible. As we have said before, we encourage our dealers to send us all of their application volume. We leverage our differentiated go-to-market approach, coupling high-tech and high-touch to earn their partnership. We anticipate decisioning over $400 billion of potential loan volume in 2023. Record application flow has enabled us to be dynamic in what we originate. Our ability to pivot up or down the credit spectrum gives us confidence in our ability to continue to book strong risk-adjusted yields. Our pass-through programs allow us to better serve our dealers while providing a mechanism to monetize a greater share of our application volume. Turning to origination trends, on the bottom half of the page, fourth-quarter volume of $9.6 billion resulted in $40 billion of consumer originations for the year across a diverse set of dealer partners. Used comprised 65% of originations, while the percentage of non-prime originations remained at 9%.

Jeffrey Jonathan Brown: We feel really good about it. So that's kind of the backdrop of the story there. And then, Doug, maybe you want to talk about just kind of your thoughts going into this chair. Sure. Yeah. And I think the simple answer to your question, Ryan, is no.

Speaker Change: Thank you for watching!

Unnamed Host or Operator: Thank you for watching!

Okay.

Russ Hutchinson: [music].

Russ Hutchinson: Okay.

Russ Hutchinson: Good.

Russ Hutchinson: Yes.

Doug Timmerman: No change relative to our priorities, our focus, our business plans. You know, I'm very confident that we've got the right priorities, that we've got a very well-thought-out plan. And a plan that myself and the rest of the leadership team have a lot of confidence in relative to our ability to meet or exceed expectations. So I think we're very well situated there relative to your experience in the auto business. We pointed this out in the prepared remarks, but the competitive environment is certainly favorable. The success that we've had in driving application flow is, no doubt, a differentiator for us.

Speaker: The unique scale of our auto franchise and the depth of our relationships with our dealers give us a durable competitive advantage that enables us to be selective and dynamic in what we originate. Let's turn to slide 20 to review the auto segment highlights. Free tax income of $294 million was lower year over year driven by higher provision and non-interest expense.

Doug Timmerman: And hopefully, you see that in the success that we've had in building our yields and improving the returns to the business and our ability to be nimble and selective relative to where we play, as well as our ability to originate at higher volume levels, depending on capital-related capacity there. So there are a lot of reasons to feel good about the future, as well as the plans that we've got in place today. So hopefully, that answers your question. No, it doesn't.

Speaker: Provision reflected typical seasonality, while expenses were the result of elevated repo costs across the industry and requisite spend to support the strength and scale we just highlighted. Looking at the bottom left, originated yield of 10.8% was up 124 basis points from the prior year, reflecting significant pricing power throughout 2023. Importantly, 43% of our retail volume was in our S tier, which represents the highest concentration within that tier in more than a decade. The total portfolio yield increased 8 basis points during the quarter, including a lower contribution from the hedge portfolio.

Ryan Nash: And maybe just one follow-up. Russ, you gave a lot of color on credit. Maybe you could just expand on the comments regarding how you see credit improving throughout the year? And when we do get to the end of the year, where do you expect it to be on a seasonally adjusted basis?

Russ Hutchinson: And should we expect that to become more the medium-term run rate for the company, just given all the tightening that you've done and the move up into the S-tier? Thank you. Great. No, thanks, Ryan. You know, it's a great question.

Speaker: Excluding hedges, the natural portfolio yield increased 27 basis points this quarter, reflecting the repricing momentum that will continue going forward. The bottom right shows leased portfolio trends. Gains declined quarter over quarter, driven by declining used values and lower termination volumes, partially offset by a reduction in dealer and lessee buyouts.

Russ Hutchinson: Happy to provide additional clarification here. You know, as you saw, the NCO rate on retail auto for 2023 came in right in line with the guidance we gave about a year ago at 1.77%. You know, as we pointed out in the call, we're seeing elevated losses on our 2023 kind of second half vintages. Those vintages are really ending and entering their prime in terms of loss development through the first half of 2024.

Speaker: Turning to insurance results, slide 21, Corp. pre-tax income of $62 million included the highest premium earned since our IPO and solid investment gains. Total written premiums of $333 million increased 17% as we remain focused on increasing dealer relationships and benefit from normalizing inventory levels. Insurance losses of $93 million were up $30 million year over year, driven by portfolio growth, increased gap losses, and the cumulative impact of inflation.

Russ Hutchinson: And so we expect that to drive our loss rate overall for 2024 up a tick from the 177 we printed in 2023. That being said, we're confident as we look over the course of the full year that we'll keep our NCO rate below 2% across the full year. But again, on a seasonally adjusted basis, we'll enter 2024 elevated based on that 2022 second half vintage. But as we pointed out during the call, as we enter the back half of the year, we're really going to see a lot of the benefit from the curtailment actions that we started putting in place. And we'll see those 2023 vintages really start to drive our loss experience in the second half of the year, and we'll see that improve.

Speaker: We have provided additional detail on loss performance given the normalization of our gap losses over the past year and the increase in our non-weather PMC losses. Non-weather PMC includes losses from our garage insurance product and inventory theft, which have increased over the past year. We've been very active in terms of loss prevention and pricing for increasing loss activity and are confident in the growth opportunities ahead for insurance. Moving to Allied Bank on slide 22, retail deposits of $142 billion increased $4.6 billion year-over-year and $2.2 billion quarter-over-quarter, demonstrating the scale and resiliency of our franchise. We grew our customer base for the 15th consecutive year. A net customer growth of 359,000 in 2023 is the highest in Ally Bank's history.

Russ Hutchinson: Thank you. Thank you. And our next question, one moment please, comes from Sanjay Sakhrani with KBW. Please proceed. Thank you, good morning, and JB, good job as CEO of Alla, and good luck. Thank you, Sanjay; I appreciate that very much. Um, maybe we could just, Russ, talk about the progression of the NIM. I know it sounds like you guys haven't baked in what the forward curve is assuming, but let's just assume it's correct. Maybe you could just talk about the natural tailwind to the NIM as we're sort of moving, we're remixing, and then sort of what the liability sensitivity would imply over the course of the next year or so. Yeah, that's great. Happy to do that, Sanjay.

Speaker: We now serve as a relentless ally for more than 3 million customers. We also continue to see growth in multi-product customers and maintain our industry-leading customer retention rate of over 95%. Turning to slide 23, Ally Credit Card provides a direct-to-consumer digital product offering with a compelling return profile.

Sanjay Sakhrani: You know, look, I think as we sit on the call, if you take the current forward curve as it is, you know, six cuts in 2023, two more cuts in 2025, you know, obviously a rate outlook that's favorable relative to where we were a quarter ago. Based on that outlook, we think we will get to our 4% NIM, you know, kind of right in the smack dab middle of 2025. You know, that being said, we think about our business in terms of a variety of interest rate environments, you know, and certainly, you know, to the extent that the forward curve didn't materialize as it's currently constructed and we're in a more flattish environment, that would extend the path to 4% NIM towards probably the very end of 2025. And so, again, you know, we don't like to run our business in a way where we're dependent on Fed cuts.

Speaker: From an ALM perspective, the card provides a floating rate asset with an attractive margin and further diversification to our liability-sensitive balance. From a customer perspective, the existing Neoprime product fits well with a meaningful portion of our auto insurance customers, and we're actively developing a product set that would meet the needs of our deposit customers. In addition to delivering a great customer experience, we remain focused on credit management and measured, prudent growth within the card business. Losses in the portfolio have increased in recent quarters and are expected to peak in mid-2024.

Speaker: The dynamics in our portfolio mirror what has been observed across the industry, specifically weaker performance in the 2021 and 2022 near-prime cohorts, which have been the most impacted by inflation. For Ally, those cohorts represent a majority of the total portfolio, resulting in a more pronounced increase in portfolio level loss rates. Beginning in 2022, we took significant credit tightening actions on both new and existing accounts. We reduced exposure in higher risk segments by over 300 million in 2023 because of our tightening measures, including a 20% reduction in new accounts coupled with reductions in credit lines. Heading into 2024, we expect these tightening actions on new and existing accounts to curtail more than $500 million of exposure. In terms of overall portfolio performance, the return profile on CART is compelling, even in this period of elevated losses.

Russ Hutchinson: But the way that, you know, based on, you know, look, based on, we look at it based on a number of different scenarios and a range of different outcomes. And I think that's kind of where we are. Current rate curve, middle of 2025. A more flattish scenario takes us to the very end of 25.

Russ Hutchinson: And I would say, look, we took the opportunity last quarter during the rally to further put on pay-fixed hedges, and that gives us some insulation through the course of 24 such that, you know, we think in a variety of potential rate outcomes, our outlook for 24 is pretty much the same. So we're going to have to wait and see what happens. We'll kind of stand by our 3.4% to 3.5% exit rate, even in a world where we don't see that first Fed cut in March. Okay, great.

Russ Hutchinson: That's very helpful. And my follow-up question, I guess this is for you, J.B. It might be a question for the board to ask, Where are we with the timing of a final CEO? I think it's obviously taken a little bit longer than we thought. Doug obviously sounds very qualified, so I'm just trying to get a sense of how we should think this plays out over the course of the next months or so. Yeah, I mean, Sanjay, I think I appreciate the question. And what I would say is the board has been very hard at work. These things do not always go in a perfectly straight line.

Speaker: Gross revenue yield, including fees of 27%, provides significant return resilience to absorb loss volatility. Assuming losses increase to 13%, we still see risk-adjusted margins of 10% and a pre-tax ROA of approximately 2%. Assuming normalized losses of 9%, we expect a mid-teens risk-adjusted margin in line with expectations when we enter the business in 2021, driving a pre-tax ROA of 5% and enhancing the overall return profile of our largely secured balance. Those economics reflect allies' consolidated cost of funds and include all operating costs, excluding expenses from the 2021 acquisition of Fair Square and allocation of corporate overhead.

Jeffrey Jonathan Brown: But there's been an extraordinarily amount of effort in interviewing. And I think, you know, what I've appreciated about our board, and I've been involved in it, is that they are not willing to sacrifice. I mean, we want to get a great operational leader, a great cultural leader, somebody that understands the nuances of banking.

Speaker: While we have moderated our growth ambitions in the near term, we continue to view CARD as a key part of our long-term strategy and financial profile. Now, let's move to slide 24 and talk about two other products offered within the consumer bank, Ally Home and Ally and Bath. Mortgage is the largest purchase consumers make, and Ally Home is a leading digital experience we offer to further deepen the relationship with our customers. Our operating model centers on a variable cost structure, enabling us to limit earnings volatility in periods where origination volumes are depressed. Most of the volume in Ally Home comes from deposit customers, and less than 20% of loans originated or retained on balance. Ally Invest is a key aspect of the overall deposit value proposition, providing customers with seamless money movement between brokerage and savings. In total, Ally Invest customers maintain $13 billion in traditional deposits with Ally and maintain an average balance that is double that of non-Invest deposit customers.

Jeffrey Jonathan Brown: And so, you know, we've been very disciplined in that regard. I would expect that, over the coming quarter, we will be in a position to announce somebody permanent. But again, it's still a very fluid process. I think we are very fortunate to have Doug here ready to go, and have a really strong leadership team behind Doug. Doug's got their full support. He's got the full support of the board, and the customer base. And, you know, he's been around the block.

Jeffrey Jonathan Brown: So our employees know him, and he's going to slide right in. So I'm not worried at all about continuity in this interim period. But I think, you know, over the next few months, that should be your baseline expectation for when we'll have a permanent candidate. But again, no sacrifices here.

Jeffrey Jonathan Brown: We're going to make sure we get the right next leader to build on the foundation we have in place today and carry the company forward. Thank you. One moment for our next question, please.

Jeffrey Jonathan Brown: Please proceed. Yes. Hi.

Jeffrey Jonathan Brown: Thanks for taking my questions. I guess I just wanted to circle back on the net interest margin commentary. As you kind of think about the potential benefit from the forward curve here, getting you to a 4% mark by mid-2025, just trying to understand, you know, what kind of assumptions you have in there for your deposit beta.

Speaker: Allie Invest is profitable on a standalone basis and offers another compelling experience to drive engagement and retention. Mortgage results are on slide 25. Mortgage generated pre-tax income of $24 million and $224 million of direct-to-consumer origination, reflective of the operating environment.

Russ Hutchinson: And as we think through the first couple of quarters of 2024, do you think that you kind of reached... You know, as close to the peak as you can get on your deposit rate, given that you kind of held that OSA rate steady and, you know, let's say the forward curve continues to price in more rate cuts, would you be looking to maybe add a little bit more in the way of hedges as, you know, you see opportunities, and Great Thanks, Jeff. Thanks for your question.

Speaker: Operating expenses declined nearly 20% on a year-over-year basis, reflecting the benefits of our partner model. We remain focused on a great customer experience for customers rather than a specific origination target. Turning to corporate finance on slide 26, full year 2023 pre-tax income of $307 million is the highest since our IPO. Our team is made up of industry experts with a long history in the business. Over the past five years, ROEs have been 24% on average, including 25% in 2023. Our $11 billion HFI portfolio is up 7% year-over-year, reflecting disciplined growth. On the bottom left, we highlight the Net Charge Office. Charge-offs in this business are driven by specific exposures and therefore inherently chocolate. Across the total portfolio, our average annual NCO rate was 30 basis points since 2014. Excluding healthcare cash flow loans, the NCO rate was 7 basis points. When performance began to deteriorate in 2020, we promptly ceased health care cash flow originations.

Russ Hutchinson: Look, I think as we think, and maybe I'll start on deposit pricing, and maybe you've seen, we put in another set of rate reductions on the CD side this morning, our second so far in 2024. And so we're definitely seeing some benefits already from the interest rate environment. All that being said, as we think about our deposit pricing and rates, our expectation is that we don't see our deposit pricing adjusting immediately, but it does adjust to the extent that there are further rate cuts in. Thank you very much, and just on the hedging, you know, the opportunity to do more there. Yeah, look, I think our sense is the Fed is done with tightening.

Speaker: This portfolio is in runoff and accounts for less than 1.5% of the loan balance. We feel good about our corporate finance portfolio entering 2024. Criticized assets make up 10% of the portfolio, which is less than half of the historical run rate. Non-accrual loans are at an all-time low of 1%, and our reserve is nearly 1.6 times our non-accrual loan balance.

Speaker: We provided a little more context than usual given the macro concerns around CNI and some of the recent net charge-up activity within healthcare cash flow. Corporate finance is a great business for Ally with a long track record of delivering through many economic cycles. Before closing, I'll share a few thoughts regarding the coming year. Slide 27 contains our financial outlook for 2024. As you know, the operating environment remains dynamic.

Russ Hutchinson: Thank you. And one moment for our next question, please. It comes from the line of Rick Shane with J.P. Morgan. Please proceed. Good morning, everybody.

Speaker: We've talked regularly about the tailwinds that will drive our net interest margin, and our outlook remains consistent. We expect expansion in 2024 and see an exit rate of around 3.4% to 3.5%, which puts the full-year average just under 3.3%. In terms of updates to our outlook from previous calls, our recent capital actions are good for profitability and capital generation but also impact our starting point for NIM expansion. For example, the sale of Ally Lending has impacted our near-term NIM outlook by around three to four basis points. When combined with curtailments in the card business, our NIM Outlook for 2024 now incorporates five basis points in near-term impacts, given the gross margin on those products. However, the impact of these actions on NIEM is more than offset by lower credit costs and lower expenses.

Rick Shane: And thanks for taking my question. Jeff, I'm really glad I got on the line. It's been a pleasure covering your company, and I've really admired what I see as your commitment to the culture and ethos of Ally. And it really is a great legacy.

Rick Shane: So congratulations and thank you so much. Thank you, Rick. That means a lot to me. And one of the CEOs I greatly admire is at the top of your firm but always prioritizes people and does things the right way. So it's been an absolute honor leading Ally and I appreciate your consistent support as well, Rick.

Rick Shane: So, thanks. Thank you. I wanted to talk a little bit about two trends in terms of auto. What we keep hearing is tightening of credit and raising of rates. The borrower quality is going up, but essentially, affordability is going down. Russ, you showed us slide 17 where you basically start to balance that out in terms of the impact on credit. But I am curious, when you think about loss frequency, given the decline in affordability, is this really ultimately going to be a net positive? One thing I would mention is that when I look at that slide, it doesn't contemplate the impact of the huge decline in gas prices during the sort of comparable windows. The 22 vintage sort of peak was seasoning as gas prices were going up sharply.

Speaker: In addition to lending and card impacts, we also have higher securities balances in the near term based on the OCI rally, which could be a modest headwind to NAMM if it sticks. We continue to be confident in our NIM expansion for 2024 and see an exit rate between 3.4% and 3.5%. However, these factors cause our starting point for NIM expansion to kick down. We have assumed the Fed is done tightening, but we are not dependent on Fed cuts.

Speaker: Given the 4Q rally in rates, we took the opportunity to add to our pay-fixed hedge exposure, which protects margins should cuts not materialize in March as the forward curve is suggesting. We do not expect a meaningful impact on our 2024 NIM whether or not the Fed commences cuts in March. The pace of Fed cuts implied by the current forward curve would, however, accelerate our path to 4% NIM towards the middle of next year versus the very end of next year in a more flat rate scenario. We have continued to position the balance sheet in such a way that near-term NIM expansion does not require a lower rate. Turning to other revenue, we expect 5% to 10% of growth in 2024 driven by continued momentum in insurance, smart auction, and the auto pass-through program. Asset levels are expected to remain relatively flat year over year, but with a favorable mixed benefit of higher yielding loans replacing securities and mortgages.

Russ Hutchinson: The 23 is seasoning as gas prices are going down. So I think when you sort of neutralize for that, I'm curious if you actually think frequency will improve. Yeah, no, it's a fair question, as you can imagine.

Russ Hutchinson: We pay a lot of attention to credit. We're constantly looking at vintages on a monthly basis and even sub-segmenting within that to understand the performance of our book. I would characterize, obviously, the losses on the 2022 book as being elevated. It's interesting that that elevation in loss content is coming at a time when employment is so strong. And so we characterize that as something that is very much driven by inflation, and a number of our borrowers are struggling with this inflationary environment.

Russ Hutchinson: So that impact is not lost on us. That being said, as you can imagine, we monitor our credit quite closely. We also pay a lot of attention to servicing, and we've made a number of adjustments to how we service, in particular the timing of repossession. We have found we get better outcomes. Delaying repossession; it seems giving our collectors additional time to work their credits and giving our borrowers a little additional time tends to work out in our favor.

Speaker: In terms of credit, we see retail auto net charge-offs increasing versus 2023 as our underperforming vintages make their way through peak losses in the first half of the year. But, as I said, we're confident retail auto losses will remain below 2% for the year. Total charge-offs for the company of 1.4% to 1.5% reflect the increase in retail auto and credit card, partially offset by the sale of Ally Lending. We remain committed to cost discipline and have updated our prior expense guide to reflect the sale of Ally Lending. In total, we see expense growth of less than 1%, and we now expect controllable expenses to decline by more than 1%. We've made another meaningful cut in expenses to reflect the sale of Ally Lending. We are currently estimating a full-year tax rate of 18%.

Russ Hutchinson: And we're getting better outcomes by doing that. And so we can see that in terms of the way that we look at our delinquency roles as well as our flow-to-loss rates. As you can imagine, we're looking at our vintages at a much more granular level.

Russ Hutchinson: But as you can imagine, as we're looking at this on a month-to-month basis, looking at improvement through March, April, May, and even getting an early read on June, July, August gives us a lot of confidence in that curve continuing to bend. And we look at it again, looking at delinquency, looking at flow-to-loss, and actually looking at loss development as we look across these vintages. So we totally hear you on the phone.

Speaker: However, we continue to realize benefits from EV tax credits and broader tax planning strategies that will likely result in quarterly fluctuations like 2023. So there are a lot of moving pieces within the P&L, particularly around the sale of ally lending, but not a real change in our outlook. With the tightening cycle potentially behind us, we are confident the company is set up for meaningful earnings expansion over the next several years. We see a clear path to 4% net interest margin and a mid-teens ROE over the medium term. The exact timing will be driven by several factors, including rates and consumer health.

Russ Hutchinson: Inflation is definitely a factor. But again, our kind of more granular analysis gives us a lot of comfort that, one, we've boxed the issue to the second half of 2022, and that the 2023 vintages show great improvement and great improvement as you look month to month, and also gives us confidence in terms of our overall outlook around retail auto NCOs. Terrific. That's a very helpful answer.

Speaker: We acknowledge continued uncertainties heading into 2024; however, we remain confident in our ability to continue to execute against the controllables and drive long-term shareholder value. And with that, I'll turn it back to JB. Thank you, Russ. The strategic priorities we've established guide everything we do and are unwavering and will remain essential for Allies' long-term success for years to come.

Rick Shane: Thank you, guys. Thank you. One moment for our next question, please. All right, it comes from the line of Jon Hecht with Jefferies. Please go ahead, Jon.

JB: First and foremost, we've worked to ensure strong alignment between our culture and all our stakeholders. We build differentiated offerings across our businesses for both consumer and commercial customers and seek to find ways to highlight our unique position in the market. We will continue to find ways to disrupt the industry and remove friction for customers by delivering leading digital experiences. This morning's call highlighted some of our recent actions, which make it apparent that our disciplined approach to risk management and capital allocation is only heightened in this dynamic operating environment. We've executed a remarkable transformation, and I'm confident in the team's ability to leverage these priorities going forward, allowing Ally to thrive for many years to come. As this is my final time with you, I want to thank you all for all the support.

Jon Hecht: Morning, guys. Thank you for taking my questions, and good luck with everything, JB. I definitely enjoyed working with you. Good job. Thank you. Thank you.

Russ Hutchinson: Just with respect to NIM this year, how do we think about the yield side? I mean, you guys have obviously been very effective at increasing new loan yields. How much more is there to go on that front given rate stabilization in the macro and mix shift?

Russ Hutchinson: Yeah, look, I mean... In the fourth quarter, yield expanded again to 10.8%, giving us 10.69% over the course of the year, a great outcome. And remember, that's an outcome where we've ramped up our concentration in that S tier, and so we've moved up credit at the same time that we've moved up pricing. We've shown overall a 95% beta on the way up in terms of rates, and that's really helped and supported us. Now, as we think about the outlook for auto, I would say I think we've got a couple of natural advantages. Number one, we just see a tremendous amount of application volume, and that gives us a lot of information and a lot of flexibility with our dealers in terms of how we have the ability to move up or down and how we have the ability to use pricing as a lever.

JB: I'm very proud of the long-term progress, and sometimes that gets lost in the quarterly progressions, but wrapping up the year and looking back to when I went into this role, it is really amazing how far Ally has come. It was just 15 years ago that this company was on the brink of extinction, and today, it is a thriving and well-respected company and brand that is uniquely positioned to financially benefit as rates begin to normalize It has been a true honor to serve as CEO. And now, as I transition to a substantial customer with Hendrick Automotive, I will continue to be invested in the long-term success of Ally. Thank you all so much.

Sean: And with that, Sean, back over to you for Q&A. Thank you, Jamie. As we head into Q&A, we do ask the participants to limit themselves to one question and one follow-up.

Operator: Carmen, please begin the Q&A. Thank you. One moment for our first question, please. And it comes from the line of Ryan Nash with Goldman Sachs. Please proceed. Hey, good morning everyone.

Russ Hutchinson: Okay, very helpful. Thanks. Maybe one add-on there is, though obviously a new origination.

Ryan Nash: JB, just want to say that it's been a pleasure working with you and best of luck at Hendrick. Thanks. Thanks so much, Ryan.

Russ Hutchinson: Thank you for joining us. Again, ongoing retail auto originations, credit cards, and corporate finance at the same time that we see securities and mortgage with obviously lower yields rolling off. Okay, great, very helpful. And then follow-up question, Russ, you're peaking charge-offs from the 22 vintage in the first half of this year and then maybe some stabilization or favorable movements and losses as we move from there. How do we think about the ALL over the course? Is it stable, or do you move it up a little bit through the peak charge-off cycle, and then it starts to recede?

Speaker: Appreciate that. Maybe one strategic question for, I guess, each of you. JB or Russ, maybe just talk about the decision to sell Ally Lending.

Speaker: You know, was this part of a broader review, and are there any further changes? And then, Doug, congrats on being named interim CEO. Any changes we should expect from you, whether on the auto strategy or the broader company strategy? And I have a follow-up. Great, Brian.

Speaker: I guess I'll start on the ally lending decision. I think, you know, you rewind the clock to kind of all the March banking events there. And I think what that forced everyone to do was just take a really honest and hard look at all of our businesses, our position, figure out where we had scale, where we didn't have scale.

Speaker: And, you know, Synchrony's got a great CEO in Brian Doubles, and Brian and I kind of compared notes a couple of times during the second quarter. And, you know, we just started talking about a potential path for them to do something here. And I think this is really a win-win for both companies. I think this is going to be a highly accretive business for Synchrony. I think Brian and Brian, his CFO, are really excited about it. They're doing the right thing with respect to a lot of the ally teammates going along with the acquisition.

Jon Hecht: How do we think about the trajectory there? There are a lot of factors that go into the ALL. We have a pretty thorough process, and we're looking at the macro environment, so there are a whole set of macro assumptions that go into that. I think, as I mentioned during the call, some of those build into natural conservatism in terms of our expectations for the progression of unemployment rates in the near term, and then we also factor in a mean reversion factor. So in our models, we have unemployment kind of mean reverting to 6% over the medium term. And so there are a lot of factors that go into that. Hard to comment on the outlook for that going forward, but I think our general expectation is to assume it's kind of flat.

Speaker: And so for them, I think it fits right into their platform. It's going to be accretive for them. And then for us, you know, as we mentioned, it really enables us to focus more on the scale businesses we have at ally and, obviously, you know, deploy capital in that regard. And so, you know, I think it came to fruition toward the end of the year.

Russ Hutchinson: Okay, helpful. Thanks. Great. Thanks, Jon. That's all the time we have for today, folks. If you have any additional questions, as always, please feel free to reach out to Investor Relations. Thank you for joining us this morning. That concludes today's call. Thank you, everybody. And you may now disconnect.

Speaker: As we mentioned, we'll expect to close that transaction in the first quarter. But I think, you know, when we look at the business footprint today, we feel really comfortable where things are at. This was just a unique position and a unique situation with, you know, this business fitting right in for Synchrony and for Brian. The rest of the company, we feel, is largely intact. We like everything going on in credit cards today and in commercial finance, and corporate finance. So I don't want anyone to imply anything beyond that. I think this was just... This was just a unique situation.

Speaker: We feel really good about it. So that's kind of the background and the story there. And then, Doug, maybe you want to talk about just kind of your thoughts going into this chair. Sure. Yeah. And I think the simple answer to your question, Ryan, is no.

Doug: There's no change relative to our priorities, our focus, our business plans. You know, I'm very confident that we've got the right priorities. We've got a very well thought out plan and a plan that myself and the rest of the leadership team have a lot of confidence in relative to our ability to... meet or exceed expectations. So I think we're very well situated there relative to your experience in the auto business. You know, we pointed this out in the prepared remarks, but the competitive environment is certainly favorable. The success that we've had in driving application flow is, no doubt, a differentiator for us. And hopefully, you see the success that we've had in building our yields and improving the returns to the business and our ability to be nimble and selective relative to where we play, as well as our ability to originate, you know, at higher volume levels, depending on capital and related capacity there. So there are a lot of reasons to feel good about the future, as well as the plans that we've got in place today. So hopefully, that answers your question. No, it doesn't.

Speaker: And maybe just one follow-up question. Russ, you gave a lot of color on credit. Maybe you could just expand on the comments regarding how you see credit improving throughout the year? And when we do get to the end of the year, where do you expect it to be on a seasonally adjusted basis?

Speaker: And should we expect that to become more the medium-term runway for the company, just given all the tightening that you've done and the move up into the S tier? Thanks. Great. No, thanks, Ryan. You know, it's a great question.

Speaker: Happy to provide additional clarification here. You know, as you saw, the NCO rate on retail auto for 2023 came in right in line with the guidance we gave about a year ago at 1.77%. You know, as we pointed out in the call, we're seeing elevated losses on our 2023 kind of second half vintages. Those vintages are really ending and entering their prime in terms of loss development through the first half of 2024.

Speaker: And so we expect that to drive our loss rate overall for 2024 up a tick from the 177 we printed in 2023. That being said, we're confident as we look ahead over the course of the full year that we'll keep our NCO rate below 2% across the full year. But again, on a seasonally adjusted basis, we'll enter 2024 elevated based on that 2022 second half vintage. But as we pointed out during the call, as we enter the back half of the year, we're really going to see a lot of the benefit from the curtailment actions that we started putting in place. And we'll see those 2023 vintages really start to drive our loss experience in the second half of the year, and we'll see that improvement.

Speaker: Thank you. Thank you. And our next question, one moment, please, comes from Sanjay Sakhrani with KBW. Please proceed. Thank you, good morning, and JB, good job as CEO of Alla, and good luck. Thank you, Sanjay; I appreciate that very much. Maybe we could just, Russ, talk about the progression of the NIM. I know it sounds like you guys haven't baked in what the forward curve is assuming, but let's just assume it's correct. Maybe you could just talk about the natural tailwind to the NIM as we're sort of moving, we're remixing, and then sort of what the liability sensitivity would imply over the course of the next years. Yeah, that's great. I'm happy to do that, Sanjay.

Speaker: But the way that, you know, based on, you know, look, based on, we look at it based on a number of different scenarios and a range of different outcomes. And I think that's kind of where we are. The current rate curve, middle of 2025; a more flattish scenario takes us to the very end of 2025. And I would say, look, we took the opportunity last quarter during the rally to further put on pay fixed hedges. And that gives us some insulation.

Speaker: And through the course of 24, such that, you know, we think in a variety of potential rate outcomes, you know, our outlook for 24 is pretty much unchanged. So, you know, we'll kind of stand by our 3.4 to 3.5% exit rate, even in a world where we don't see that first Fed cut in March. Okay, great.

Speaker: That's very helpful. And I guess my follow-up question, I guess this is for you, JB. It might be a question for the board, just, Where are we with the timing of a final CEO?

Speaker: I think it's obviously taken a little bit longer than we thought. Doug obviously sounds very qualified, so I'm just trying to get a sense of how we should think this plays out over the course of the next months or so. Yeah, I mean, Sanjay, I appreciate the question. And what I would say is the board has been very hard at work. These things don't always go in a perfectly straight line.

Speaker: But there's been an extraordinarily amount of effort in interviewing. And I think, you know, what I've appreciated about our board, and I've been involved in it, is that they are not willing to sacrifice. I mean, we want to get a great operational leader, a great cultural leader, somebody that understands the nuances of banking.

Speaker: And so, you know, we've been very disciplined in that regard. I would expect, over the coming quarter, we will be in a position to announce somebody permanent. But again, it's still a very fluid process. I think we are very fortunate to have Doug here ready to go, and we have a really strong leadership team behind him. He's got the full support of them. He's got the full support of the board and the customer base. And, you know, he's been around the block.

Speaker: So our employees know him, and he's going to slide right in. So I'm not worried at all about continuity during this interim period. But I think, you know, over the next few months, that should be your baseline expectation of when we'll have a permanent candidate. But again, no sacrifices here; we're going to make sure we get the right next leader to build on the foundation we have in place today and carry the company. Thank you. One moment for our next question, please. And he comes from the line of Jeff Adelson with Morgan Stanley.

Jeffrey Jonathan Brown: Please proceed. Yes. Hi.

Speaker: Thanks for taking my questions. I guess I just wanted to circle back on the net interest margin commentary. As you kind of think about the potential benefit from the forward curve here, getting you to a 4% mark by mid-2025, just trying to understand, you know, what kind of assumptions you have in there for your deposit beta.

Speaker: And as we think through the first couple of quarters of 2024, do you think that you have kind of reached, you know, as close to the peak as you can get on your deposit rate, given that you kind of held that OSA rate steady? And, you know, let's say the forward curve continues to price in more rate cuts. Would you be looking to maybe add a little bit more in the way of hedges as, you know, you see opportunities, and maybe that would defer the eventual benefit of getting to 4%? Okay. If you do that,

Speaker: Great. Thanks, Jeff. Thanks for your question. Look, I think as we think, and maybe I'll start on deposit pricing, and maybe you've seen, we put in another set of rate reductions on the CD side this morning, our second so far in 2024. And so we're definitely seeing some benefits already from the interest rate environment. All that being said, you know, as we think about our deposit pricing and rates, our expectation is that we don't see our deposit pricing adjusting immediately, but it does adjust to the extent that there are further rate cuts. Thank you very much, and just on the hedging, you know, the opportunity to do more there. Yeah, look, I think our sense is the Fed is done with tightening.

Speaker: You know, we obviously are somewhat opportunistic in the market in terms of just kind of looking at what the outlook is. You know, we took advantage of an opportunity in the fourth quarter where there was a real rate rally to take some of the variability off the table for us over the course of 24. You know, hard for me to project kind of how the markets will behave kind of going forward. But look, certainly, if there are opportunities that make sense for us, we'll pursue those. But again, I'm not going to speculate on a rate.

Speaker: Thank you. One moment for our next question, please. And it comes from the line of Rick Shane with J.P. Morgan. Please proceed. Good morning, everybody.

Speaker: So congratulations and thank you so much. Thank you, Rick. That means a lot to me. And one of the CEOs I greatly admire is at the top of your firm, but he always prioritizes people and does things the right way.

Speaker: So it's been an absolute honor leading Ally, and I appreciate your consistent support as well, Rick. So, thanks. Thank you.

Speaker: I wanted to talk a little bit about two trends in terms of auto. What we keep hearing is tightening of credit and raising of rates. The borrower quality is going up, but essentially, affordability is going down. Russ, you showed us slide 17 where you basically start to balance that out in terms of the impact on credit. But I am curious, when you think about loss frequency, given the decline in affordability, is this really ultimately going to be a net positive? One thing I would mention is that when I look at that slide, it doesn't contemplate the impact of the huge decline in gas prices during the sort of comparable windows. The 22 vintage sort of peak was seasoning as gas prices were going up sharply.

Speaker: The 23 is seasoning as gas prices are going down. So I think when you sort of neutralize for that, I'm curious if you actually think frequency will improve. Yeah, no, it's a fair question.

Speaker: As you can imagine, we pay a lot of attention to credit. We're constantly looking at vintages on a monthly basis and even subsegmenting within that to understand the performance of our book. I would characterize the obviously losses on the 2022 book as being elevated. It's interesting that that elevation and loss content is coming at a time when employment is so strong. And so we characterize that as something that is very much driven by inflation and a number of our borrowers are struggling with this inflationary environment.

Speaker: So, you know, that impact is not lost on us. That being said, as you can imagine, we monitor our credit quite closely. You know, we also pay a lot of attention to servicing, and we've made a number of adjustments to how we service, in particular the timing of repossession. We have found we get better outcomes delaying repossession. It feels giving our collectors additional time to work the credits and giving our borrowers a little additional time tends to work out in our favor, and we're getting better outcomes by doing that. And so we can see that in terms of, you know, the way that we look at our delinquency rolls, as well as our flow to loss rates, our flow to loss rates have continued to be favorable going through this cycle. As you can imagine, we're looking at our vintages at a much more granular level than what's available publicly.

Speaker: And so, you know, when we look at page 17, that chart in the bottom middle, you can see that 2023 vintages are starting to bend away from the 2022 vintages in a favorable way. What gives us confidence in that trend continuing and expanding is our more granular look as we look month to month. And, you know, as we pointed out on the call, that the first six months of any vintage, wine is a little bit choppy as it as they as they season.

Speaker: You know, but as we're looking at this on a month-to-month basis, looking at improvement through March, April, May and even getting an early read on June, July, August gives us a lot of confidence in that curve continuing to bend. And we look at it again, looking at delinquency, looking at flow to loss, and actually looking at loss development. You know, as we look across these vintages, we totally hear you on the point that inflation is definitely a factor.

Speaker: But again, our kind of more granular analysis gives us a lot of comfort that this one we boxed the issue in for the second half of 2022 and that the 2023 vintages show great improvement and great improvement as you look month to month. And also gives us confidence in terms of our overall outlook around retail auto NCOs. Terrific. That's a very helpful answer.

Speaker: Thank you, guys. Thank you. One moment for our next question, please. All right, it comes from the line of Jon Hecht with Jefferies. Please go ahead, Jon.

Jon Hecht: Morning, guys. Thank you for taking my questions, and good luck with everything, JB. I definitely enjoyed working with you. Thank you.

Speaker: Just with respect to NIM this year, how do we think about the yield side? I mean, you guys have obviously been very effective at increasing new loan yields. How much more is there to go on that front given rate stabilization in the macro and mix shift?

Speaker: Yeah, look, I mean, fourth quarter, yield expanded again to 10.8%, giving us 10.69% over the course of the year, a great outcome. And remember, that's an outcome where we've ramped up our concentration in that S tier, and so we've moved up credit at the same time that we've moved up pricing. We've shown overall a 95% beta on the way up in terms of rates, and that's really helped and supported us. Now, as we think about the outlook for auto, I would say I think we've got a couple of natural advantages. Number one, we just see a tremendous amount of application volume, and that gives us a lot of information and a lot of flexibility with our dealers in terms of how we have the ability to move up or down and how we have the ability to use pricing as a lever.

Speaker: That's a competitive advantage that I think is unique to Ally, just given the scale we have and the depth of our relationships with customers. And it gives us a lot of confidence in our ability to optimize our yield on a risk-adjusted basis in order to preserve our yield going forward. At this point, I don't think we expect our yield to continue to rise, but we do expect that we can basically use credit and pricing to maintain yield as we move through 2024.

Speaker: Okay, very helpful. Thanks. Maybe one add-on there is, though obviously a new origination.

Speaker: Thank you for joining us, and we'll be right back. Again, ongoing retail auto originations, credit cards, corporate finance, at the same time that we see securities and mortgage with obviously lower yields rolling off. Okay, great, very helpful. And then a follow-up question, Russ, you're peaking charge offs from the 22 vintage in the first half of this year, and then maybe some stabilization or favorable movements and losses as we move from there. How do we think about the ALL over the course? Is it stable?

Speaker: Or do you move it up a little bit through the peak charge-off cycle, and then it, and then it starts to recede? How do we think about the trajectory there? There are a lot of factors that go into the ALL. We have a pretty thorough process, and we're looking at the macro environment, so there are a whole set of macro assumptions that go into that. I think, as I mentioned during the call, some of those build in a natural conservatism in terms of our expectations for the progression of unemployment rates in the near term, and then we also factor in a mean reversion factor. So in our models, we have unemployment kind of mean reverting to 6% over the medium term. And so there are a lot of factors that go into that ALL. Hard to comment on the outlook for that going forward, but I think our general expectation is to assume it's kind of flat-edged.

Speaker: Okay, helpful. Thanks. Great. Thanks, Jon. That's all the time we have for today, folks. If you have any additional questions, as always, please feel free to reach out to Investor Relations. Thank you for joining us this morning. That concludes today's call. Thank you, everybody. And you may now disconnect. Thank you for watching!

Q4 2023 Ally Financial Inc Earnings Call

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