Q1 2024 Ally Financial Inc Earnings Call

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Operator: Good day, and thank you for standing by. Welcome to the Ally Financial first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sean Leary, Head of Investor Relations. Please go ahead.

Speaker Change: Good day and thank you for standing by welcome to the ally financial first quarter 2024 earnings Conference call.

Speaker Change: At this time all participants are in a listen only mode.

Speaker Change: After the speaker's presentation, there will be a question and answer session.

Speaker Change: To ask a question during this session you'll need to press star one one on your telephone.

Speaker Change: You will then hear an automated message advising your hand just raised.

Speaker Change: Your question. Please press star one again.

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

Speaker Change: I would now like to hand, the conference over to your Speaker today, Sean Lee head of Investor Relations. Please go ahead.

Sean Leary: Thank you, Elizabeth. Good morning, and welcome to Ally Financial's first quarter 2024 earnings call. This morning, our interim CEO, Doug Timmerman, and our CFO, Russ Hutchinson, will review Ally's results before taking questions. The presentation we will 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. Gap and non-gap measures pertaining to our operating performance and capital results are on slide three. As a reminder, non-GAAP or core metrics are supplemental to and not a substitute for U.S. GAAP measures. Definitions and reconciliations can be found in the appendix. And with that, I'll turn the call over to Douglas.

Sean Leary: Thank you Linda good morning, and welcome to ally Financial's first quarter 2024 earnings call.

Sean Leary: This morning are Eric Dunn Center.

Eric Dunn: CFO will review our results before taking your questions.

Eric Dunn: The presentation, we'll reference can be found in the Investor Relations section of our website at <unk> Dot com.

Eric Dunn: Forward looking statements and risk factor language dominate today's call on slide two.

Eric Dunn: GAAP and non-GAAP measures pertaining to our operating performance and capital results reflect three.

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

Eric Dunn: The reconciliations can be found in the appendix and with that I'll turn the call over to Doug.

Douglas R. Timmerman: Thank you, Sean. Good morning, everyone, and thank you for joining the call. I'll start on page 4.

Doug: Thank you John Good morning, everyone and thank you for joining the call I'll start on page four.

Douglas R. Timmerman: Before we get into the quarter, I want to comment on our CEO transition. As we announced last month, Michael Rose will be taking over as CEO on April 29. I've been fortunate to spend time with Michael throughout the process, and I'm certain he's the right person to lead Ally. We respect what we've built, and it's a deep banking experience based on a natural fit to continue advancing Ally's business. On behalf of myself and the entire leadership team, we are thrilled to welcome Michael to Ally in a few weeks.

Doug: Before we get into the quarter I want to comment on our CEO transition as we announced last month, Michael Rod will be taking over as CEO on April 29.

Doug: I've been fortunate to spend time with Michael throughout the process and uncertainty is the right person to lead out.

Doug: With respect to what we've built and as big banking experience makes him a natural fit to continue advancing allied businesses.

Doug: Half of myself and the entire leadership team, we are thrilled to welcome Michael to ally.

Douglas R. Timmerman: I'd also like to say it's been an absolute privilege for me to serve as the interim CEO these past few months. I've been with Ally for over 30 years, and the things that have always energized me the most are people and culture.

Doug: I'd also like to say, it's been an absolute privilege for me to serve as the interim CEO. These past few months.

Doug: And then with ally for over 30 years, and the things that I've always energized about our people and culture.

Douglas R. Timmerman: At Ally, the culture runs deep, and it revolves around our employees, customers, and community. It starts and stops with our 11,000 associates. And, very importantly, to my teammates, thank you for your support, hard work, and dedication, and, of course, caring for our customers. I firmly believe that when you take care of your people, they will take care of everything else, including our customers and community. In the first quarter, we were once again named to Fortune 100's best companies to work for list. For us, it's never about awards, but it's an achievement we can be proud of.

Doug: It outlines a closer runs deep in our revolves around our.

Doug: Mers mirrors at.

It starts and stops with our 11000 shares and very importantly to my feedback. Thank you for your support hard work and dedication and of course caring for our customers.

Doug: Currently believe when you take care of your people and take care of everything else, including our customers' activities.

Doug: In the first quarter, we were once again named Unfortunately 100 best companies to work for less for US It's never about it works, but it's been achieving Jim that we can be proud of.

Douglas R. Timmerman: What I'm most proud of are the employee survey results. 89% of employees said Ally is a great place to work. 93% of employees felt good about the way Ally contributes to the community. And the stat that most resonated with me was that more than 90% of employees were proud to tell others they were part of Ally. Creating an engaged workforce that embraces our do it right approach is essential to our business and our growing customer base. And as we continue to navigate a fluid environment, we'll continue leaning on our culture and leading core values to guide our action. With that, let's turn to page number five and get into the results.

Doug: What I'm most proud of are the employee survey results.

Doug: 89% of employees that ally as a great place to work.

Doug: 93% of employees felt good about the way ally contribute.

Doug: And the stat that most resonate with me was that more than 90% of employees, we're proud to tell others Theyre part of our.

Doug: Craig engaged workforce that embraces our do it right approach is central to our business and our growing customer base.

Doug: As we continue to navigate a fluid environment will continue to weigh in our culture and core values to guide our actions.

Speaker Change: With that let's turn to page five and get into the results.

Douglas R. Timmerman: First quarter adjusted EPS of 45 cents. Revenue of $2 billion reflects solid operational execution as our teammates remain focused on priorities that are big enough to matter and drive solid returns. Net interest margin of 3.16% was again pressured by rising rates. However, we've now reached an inflection point and expect NIM expansion beginning in the second quarter.

Speaker Change: Okay Fair.

Speaker Change: First quarter adjusted EPS of <unk> 45.

Speaker Change: Our revenue of $2 billion reflect solid operational execution as our teammates remain focused on priorities that are big enough to matter and drive solid returns.

Speaker Change: Net interest margin of three 1% with again pressured by rising rates.

Speaker Change: However, we have now reached an inflection point and expect NIM expansion beginning in the second quarter.

Douglas R. Timmerman: Before discussing operational results, I want to hit a few notable items in the first quarter. In March, we successfully closed on the sale of Ally Lending, which generated capital and allowed us to better serve our dealer and consumer customers. We also tapped the securitization market to deconsolidate retail auto loans from the balance sheet, which created incremental capital and generated a nice earnings benefit within the period. Strong investor interest and the earnings benefit created by this transaction are another validation that the loans we originate have attractive returns. And finally, we recognize an incremental $10 million of expense from a revised FDI special assessment, which is not included in core results.

Speaker Change: Before discussing operational results I wanted to hit a few notable items in the first quarter.

Speaker Change: March we successfully closed on the sale of ally lending, which generate capital allows us to better serve our dealer and consumer customers.

Speaker Change: We also tap the securitization market to de consolidate retail auto loans from our balance sheet, which credit is incremental capital and generated a nice earnings benefit within the period.

Strong investor interest in the earnings benefit created by this transaction or another validation the loans, we originate at attractive returns.

Speaker Change: Finally, we recognized an incremental $10 million of expense.

Speaker Change: Five FDIC special assessment.

Speaker Change: Which was not included in core results.

Douglas R. Timmerman: Moving to operational results and dealer financial services. Within audit, we decisioned a record $3.8 million application, and both nearly $10 billion of origination. Retail auto originations had an average yield of 10.92%, while 40% of originations came from our highest quality credit tier. First quarter net charge-offs for retail auto were 227 basis points, in line with the guidance we gave about a month ago.

Speaker Change: Moving to operational results that beat our financial services within auto we decision a record $3 8 million applications.

Speaker Change: Nearly $10 billion of originations.

Speaker Change: Retail auto originations had an average yield of 10, 92%, while 40% of our originations.

Speaker Change: From our highest quality credits here.

Speaker Change: First quarter net charge offs of retail auto where 227 basis points in line with the guidance, we gave about a month ago.

Douglas R. Timmerman: Insurance premiums of $349 million were also a record, and we'll see continued momentum as we grow OEM partnerships and continue leveraging our expansive auto finance dealer network. Turning to Ally Bank, deposits continue to be a source of strength for Ally. We grew deposits by $2.9 billion in the quarter while adding more than 100,000 customers.

Speaker Change: Insurance premiums of $349 million were also a record ever see continued momentum as we grow OEM partnerships and continue leveraging our expansive auto finance dealer network.

Speaker Change: Turning to ally bank deposits continue to be a source of strength for ally.

Speaker Change: We grew deposits $2 9 billion in the quarter, while adding more than 100000 customers.

Douglas R. Timmerman: Our Deposit Franchise was established 15 years ago and now serves more than 3 million customers, provides stable and efficient funding, and makes Ally a structurally more profitable company. Ally Credit Card is performing in line with expectations. However, as we've mentioned, losses will be elevated near-term.

Speaker Change: Our deposit franchise is established 15 years ago, and now serves more than 3 million customers provide stable and efficient funding and alloy is structurally more profitable company.

Speaker Change: Our credit card is performing in line with expectations as we invest in losses will be elevated near term. However, we remain encouraged by long term compelling return profile.

Douglas R. Timmerman: However, we remain encouraged by its long-term compelling return profile. Corporate finance continues to drive strong financial results, and next month we'll celebrate its 20th anniversary. The business generated a 31% ROE in the first quarter, and our $10 billion portfolio remains historically strong from a credit standpoint.

Speaker Change: Corporate finance continues to drive strong financial results and next month, we will celebrate its 20 <unk> anniversary.

Speaker Change: The business generated a 31% ROA in the first quarter and our $10 billion portfolio remains historically strong from a credit standpoint.

Douglas R. Timmerman: Let's turn to page six to talk about Ally's market-leading franchise. Last week marked 10 years of being a publicly traded company, and the transformation since that time has been remarkable. What began as an auto finance captive is now made up of two market-leading franchises, a dealer-centric and diversified auto finance provider, and the largest all-digital direct U.S. bank with more than 3 billion customers and 145 billion retail deposits. Our dealer financial services platform revolves around the dealer, deepening those relationships and providing a comprehensive value proposition to help grow their business.

Speaker Change: Let's turn to page number six the talked about allied market leading franchises.

Last week marked 10 years of being a publicly traded company and the transformation set that time has been remarkable while.

Speaker Change: While began its an auto finance captive is now made up of two market, leading franchises, a dealer centric and diversified auto finance provider and the largest all digital direct U S bank with more than 3 million customers and 145 billion of retail deposits.

Speaker Change: Our dealer financial services platform revolves around the data.

Deepening those relationships and providing a comprehensive value proposition to help grow their businesses. We are continuing to evolve the business to find new ways to help our dealer customers. While also optimizing risk adjusted returns for ally.

Douglas R. Timmerman: We have continued to evolve the business to find new ways to help our dealer customers while also optimizing risk-adjusted returns for allies. During the past 10 years, Ally Bank has built on its reputation as the leading innovative digital bank. We pride ourselves on providing best-in-class customer experiences and a strong value proposition that extends beyond rates. And our deposits franchise has been the key driver for customer acquisition and engagement. We've expanded our products and features to deepen customer relationships, including Ally Home and Ally Bus, and Credit Card and Corporate Finance are businesses that diversify revenue and improve or consolidate profitability.

Speaker Change: Over the past five years I think has built on its reputation as the leading innovative digital back.

Speaker Change: Pride ourselves on providing best in class customer experiences and a strong value proposition that extend beyond <unk> and.

Speaker Change: And our cost of deposit franchise has been the key driver for customer acquisition and engagement.

Speaker Change: We've expanded our products and features to deepen customer relationships, including ally home and ally invest.

Speaker Change: By credit card and corporate finance, our businesses diversify revenue.

Speaker Change: Improve our consolidated profitability.

Douglas R. Timmerman: Both Dewey Financial Services and Ally Bank have scaled, led in their respective markets, and position Ally for profitable growth in the years ahead. And with that, I'd like to turn it over to Russ to cover details of the financial results.

Speaker Change: Both dealer financial services, and ally Bank App scale leader in their respective markets and position <unk> for profitable growth in the years ahead.

Speaker Change: And with that I would like to turn it over to Ross to cover detailed financial results.

Russell E . Hutchinson: Thank you, Doug. Good morning, everyone.

Russell E . Hutchinson: I'll begin on slide 7. In the first quarter, net financing revenue excluding OID of $1.5 billion is down versus prior periods driven by higher funding costs, partially offset by strong originated yields. Increasing funding costs have been a persistent headwind since the tightening cycle began, but we've reached an inflection point as rates have stabilized. Continued strength and originated yields in the auto business have positioned the balance sheet for NIM expansion beginning in the second quarter.

Ross: Thank you Doug good morning, everyone I'll begin on slide seven.

Ross: During the first quarter net financing revenue, excluding OID of $1 $5 billion is down versus prior periods driven by higher funding costs, partially offset by strong originated yields increasing funding costs had been a persistent headwind the tightening cycle began but we've reached an inflection point as rates have stabilized.

Ross: <unk> strengthened originated yields in the auto business has positioned the balance sheet for NIM expansion beginning in the second quarter will discuss asset and liability dynamics that are driving our NIM expansion in a few slides.

Russell E . Hutchinson: We'll discuss asset and liability dynamics that are driving our NIM expansion in a few slides. Adjusted other revenue of $519 million is up from prior periods, driven by continued momentum and diversified fee revenue, including insurance, as higher vehicle inventory balances drove higher earned premiums. We continue to see expanding other revenues driven by strength in insurance and fee revenue streams in auto, including our smart auction and pass-through program. Insurance, Smart Auction, and our pass-through programs are highly valued by our dealers, and they drive capital-efficient revenue for Ally. Provision expense of $507 million increased from the prior year and was down on a linked quarter basis.

Ross: Adjusted other revenue of $519 million is up from prior periods driven by continued momentum in diversified fee revenue, including insurance at higher vehicle inventory balances drove higher earned premiums we continue to see expanding other revenue driven by strength in insurance and fee revenue streams and auto including our smart <unk>.

Ross: <unk> and pass through programs.

Ross: Insurance smart auction and our pass through programs are highly valued by our dealers and they drive capital efficient revenue for ally provision.

Ross: Provision expense of $507 million increase from prior year and was down on a linked quarter basis credit performance in the quarter was in line with our expectation.

Russell E . Hutchinson: Credit performance in the quarter was in line with expectation, and retail Auto NCOs came in around the middle of our guide that we provided at the conference last month. Losses within the quarter were impacted by softer use values throughout much of the quarter, but we did see stability in March and are exiting the first quarter flat versus December. I'll cover retail auto credit in more detail shortly. As Doug mentioned, we executed another loan sale via the securitization market, which drove a $15 million earnings benefit in the quarter that was realized through the provision expense line.

Ross: Retail auto Npls came in around the middle of our guide that we provided at our conference last month losses within the quarter were impacted by softer used values throughout much of the quarter, but we did see stability in March and are exiting the first quarter flat versus December I'll cover retail auto credit in more detail shortly.

As Doug mentioned, we executed another loan sale via the securitization market, which drove a $15 million earnings benefit in the quarter that was realized through the provision expense line.

Russell E . Hutchinson: We deconsolidated $1.1 billion of retail auto loans originated predominantly in 2023 with yields below our average originated yields for the year. However, investors' strong interest in our loans and the $15 million earnings benefit we realized demonstrate the attractive return profile in a dynamic environment. Adjusted non-interest expense of $1.3 billion was up year-over-year, primarily driven by continued growth in the insurance business. However, controllable expenses, which exclude insurance losses, commissions, and FDIC fees, were down 1% year over year.

Ross: <unk> consolidated $1 $1 billion of retail auto loans originated predominantly in 2023 with yields below our average originated yields for the year.

Ross: <unk> strong interest in our loans and the $15 million earnings benefit we realized demonstrate the attractive return profile and a dynamic environment.

Ross: Our adjusted noninterest expense of $1 3 billion was up year over year, primarily.

Ross: Driven by continued growth in the insurance business controllable expenses, which exclude insurance losses commissions and FDIC fees were down 1% year over year tax expense of $14 million resulted in an effective tax rate of 8%, which is lower than our guide as we continue to benefit from <unk>.

Russell E . Hutchinson: Tax expense of $14 million resulted in an effective tax rate of 8%, which is lower than our guide as we continue to benefit from strong EV lease origination. Gap and adjusted EPS for the quarter were $0.42 and $0.45, respectively. Moving to slide eight, the net interest margin excluding OID of 3.16% decreased four basis points quarter over quarter and was slightly above the high end of the guidance we provided at an investor conference last month.

Ross: Strong EV lease originations GAAP and adjusted EPS for the quarter were 42, and <unk> 45, respectively.

Ross: Moving to slide eight net interest margin, excluding OID of three 6% decreased four basis points quarter over quarter and was slightly above the high end of guidance, we provided at Investor Conference last month.

Russell E . Hutchinson: Earning asset yields expanded modestly quarter over quarter while funding costs increased by nine basis points. As I mentioned earlier, margin has been pressured by increasing funding costs throughout the tightening cycle, but we've positioned the balance sheet for NIM expansion from here. Strengthened fixed-rate asset pricing, particularly retail auto loans with originated yields at 10.9%, will continue to drive earning asset yields higher as that portfolio naturally turns over. We expect earning assets to be flat over the medium term, but favorable mixed dynamics will continue to drive asset yields higher as lower-yielding mortgages and securities are replaced by higher-yielding auto, corporate finance, and credit card loans. Turning to liabilities, the cost of funds moved up within the quarter, driven primarily by higher deposit costs.

Ross: Earning asset yields expanded modestly quarter over quarter, while funding cost increased by 90 basis points.

Ross: As I mentioned earlier margin has been pressured by increasing funding cost throughout the timing cycle, but we've positioned the balance sheet for NIM expansion from here strength in fixed fixed rate asset pricing, particularly retail auto loans with the originated yield of 10, 9% will continue to drive earning asset yield higher in that portfolio.

Ross: Naturally turns over we expect earning assets to be flat over the medium term, but favorable mix dynamics will continue to drive yields higher at lower yielding mortgages and securities are replaced by higher yielding auto corporate finance and credit card loans, turning to liabilities cost of funds moved up within the quarter driven primarily.

Russell E . Hutchinson: We moved our OSA rate in mid-December, so our 1Q results reflect a full quarter at the peak rate. And we continue to see CD portfolio yields move slightly higher as expected. Within the quarter, we took meaningful actions to reduce deposit pricing across CDs and our $100 billion liquid savings portfolio. We've been delighted with the trends we've seen in deposits, which enabled us to move meaningfully well in advance of said rate cuts, strengthened retail auto yields, and favorable asset mix. Now having moved past the peak in retail deposit costs, we are confident in NIM expansion starting in the second quarter. Let's turn to page 9 and talk about the auto franchise. Our model is simple.

Ross: By higher deposit costs, we moved our OSA rate in mid December so our <unk> results reflect a full quarter at the peak rate and we've continued to see EV portfolio yields move move slightly higher as expected.

Ross: Within the quarter, we took meaningful actions to reduce deposit pricing across CBS and our $100 billion liquid savings portfolio. We've been delighted with the trends we've seen in deposit which enabled us to move meaningfully well in advance of fed rate cuts strengthen retail auto auto yields favorable asset mix.

Ross: And now having moved past the peak in retail deposit costs, we are confident in NIM expansion starting in the second quarter.

Let's turn to page nine and talk about the auto franchise. Our model is simple we have we help our dealers sell as many cars and trucks is comparable and 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.

Russell E . Hutchinson: We help our dealers sell as many cards and trucks as possible and 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. 22,000 dealer partners delivered 13.8 million applications last year, and that momentum has continued in 2024. This quarter, we saw 3.8 million applications, our best quarter ever, and resulted in $9.8 billion of consumer volume within the quarter. Strength in application flow has enabled us to be dynamic in what we originate.

Ross: 22000 dealer partners delivered $13 8 million applications last year and that momentum has continued in 2024. This quarter, we saw $3 8 million applications, our best quarter ever and resulted in 93 $8 billion of consumer volume within the quarter strength in applications through our <unk>.

Ross: Enables us to be dynamic and what we originate we shifted our credit mix in April of 2023, and since that time more than 40% of our originations have been in our highest credit tier.

Russell E . Hutchinson: We shifted our credit mix in April of 2023, and since that time, more than 40% of our originations have been in our highest credit tier. We've now originated over 10% yields for five consecutive quarters. That creates momentum, which I'll cover on the next page.

Ross: We have now originated over 10% yields for five consecutive quarters that great momentum, which I'll cover on the next page.

Russell E . Hutchinson: Let's turn to slide 10 to discuss retail auto portfolio yields in more detail. The current yield on the total retail auto portfolio is just over 9%. While we continue to originate loans at close to 11% each quarter, as older vintages mature and are replaced with new originations, the portfolio yield will continue to migrate higher. Given the natural liability-sensitive nature of our balance sheet, we've consistently utilized paycheck hedges tied to retail auto loans to reduce exposure to rising rates.

Ross: Let's turn to slide 10 to discuss retail auto portfolio yields in more detail.

Ross: The current yield on our total retail auto portfolio is just over 9%.

Ross: While we continue to originate loans at close to 11% each quarter as older vintages mature and are replaced with new origination the portfolio yield will continue to migrate higher gear.

Ross: Given the natural liability sensitive nature of our balance sheet, we've consistently utilized pay fixed hedges tied to retail auto loans to reduce exposure to rising rates.

Russell E . Hutchinson: These hedges are serving as an effective bridge while our retail auto loan portfolio is repricing higher over time. We manage the hedge position dynamically, but it is currently expected to amortize down over time, which means its contribution to NAMP will continue to decline. The natural repricing momentum created by strong originated yields will continue to outpace a declining hedge contribution, resulting in a total portfolio yield that we expect to increase to 9.5% by year-end and continue to migrate towards originated yields over time. This momentum, coupled with deposit costs that have peaked, positions Ally for NIM expansion without the benefit of Fed rate cuts. The other dynamic affecting portfolio yield is the origination mix.

Ross: These hedges are serving as an effective bridge, while our retail auto loan portfolio as repricing higher overtime, we manage the hedge position dynamically, but currently expect it to amortize down overtime, which means its contribution to NIM will continue to decline.

Ross: The natural repricing momentum created by strong originated yields will continue to outpace a declining hedge contribution resulting in a total portfolio yield that we expect to increase to nine 5% by year end and continue to migrate towards originated yield over time.

Ross: This momentum coupled with deposit cost better peak position ally for NIM expansion without the benefit of a fed rate cuts.

Ross: Other dynamic influencing portfolio yield as origination mix.

Russell E . Hutchinson: As we covered on the prior slide, we are consistently originating more than 40% of our consumer volume in our highest credit tier. Historically, that tier has accounted for just under 30% of total origination. Over time, we do expect to migrate closer to our historical origination mix.

Ross: We recovered on the prior slide we are consistently originating within 40% of our consumer volume and our highest credit tier historically back here has accounted for just under 30% of total originations overtime, we do expect to migrate closer to our historical origination mix.

Russell E . Hutchinson: For context, a shift to our historical mix would add up to 100 basis points of originated yield today. With 10.9% yields on origination that skew heavily towards our S-tier, we are pleased with the risk-adjusted yields we're getting today and are not assuming any significant shift over the next few quarters. But over time, we would anticipate a gradual migration closer to historical averages, which provides yet another yield tailwind going forward that will help offset an eventual decline in benchmark rates.

Ross: For context, our shift to our historical mix would add up to 100 basis points of original originated yield today.

Ross: With 10, 9% yield on origination that skew heavily towards our asset here. We are pleased with the risk adjusted yields we're getting today and are not assuming any significant shift over the next few quarters, but over time, we would anticipate a gradual migration closer to historical mix, which provide yet another yield tailwind going forward.

Ross: That will help offset an eventual decline in benchmark rates.

Russell E . Hutchinson: Let's move to slide 11 to talk about the Strengths of the Deposits Franchise. Ally Bank was launched 15 years ago and has evolved into the largest all-digital direct bank in the U.S., serving more than 3 million customers.

Ross: Let's move to slide 11 to talk about the strength of the deposit franchise.

Ross: Ally Bank was launched 15 years ago and has evolved into the largest all digital direct bank in the U S serving more than 3 million customers. We have been intentional about creating a comprehensive value proposition that goes beyond consistently competitive rates, we offer best in class customer service and digital.

Russell E . Hutchinson: We have been intentional about creating a comprehensive value proposition that goes beyond consistently competitive rates. We offer best-in-class customer service and digital experiences and have, over time, added features and products that are important for our customers, including Ally Invest, Home, and Credit Card. And we continue to serve as relentless allies to our customers with high levels of service through online, mobile, text, and telephone, as well as a consumer-friendly approach to fees, including leading the way on overdraft delimitation.

Ross: <unk> and overtime added features and products that are important for our customers, including ally invest Coleman credit card and we continue to serve as relentless allies to our customers with high levels of service through online and mobile tactics and telephone as well as the consumer friendly approach to fees, including.

Ross: Reading the way on overdraft elimination. This approach has led to a 95% plus customer retention rates, 90% to our satisfaction scores favorable NPS and strong balance trends across every vintage since the inception of the bank.

Russell E . Hutchinson: This approach has led to 95% plus customer retention rates, 90% plus satisfaction scores, favorable NPS, and strong balance trends across every vintage inception of a bank. And while we do not focus on accolades, we do think the countless awards received over the last 15 years validate the strength of the brand and the bank.

Ross: And while we do not focus on <unk>, we do think the countless awards received over the last 15 years validates the strength of the brand and the bank. The 15 year journey led to exceptionally strong performance over the tightening cycle and put our lineup position of strength moving forward.

Russell E . Hutchinson: The 15-year journey led to exceptionally strong performance over the tightening cycle and puts Ally in a position of strength moving forward. We have consistently grown deposits and seen record customer acquisition without being a top payer since the Fed began tightening. As we sit today, we're core funded with 90% of our liability stack in the form of deposits, and we expect earning assets to be relatively flat over the next few years, which results in less need for significant deposit growth going forward.

Ross: We have consistently grown deposits and seen record customer acquisition without being a top payers since the fed began tightening as we sit today, we're core funded with 90% of our liability stack in the form of the projects and we expect earning assets to be relatively flat over the next few years, which results in less need for significant deposit growth.

Russell E . Hutchinson: The combination of a great brand and comprehensive value proposition enabled us to lay competition from a pricing perspective on the way up and positioned us to lead on the way down. We took significant pricing actions in the quarter while maintaining our commitment to offering our customers attractive deposit rates and a compelling overall experience. We reduced rates 75 basis points on our most popular CD term, 15 basis points on our money market account, and 10 basis points on our $84 billion savings product.

Ross: Going forward the combination of a great brand and comprehensive value proposition enables us to lag competition from a pricing perspective on the way up and positioned us to read on the way down.

Ross: We took significant pricing actions in the quarter, while maintaining our commitment to offering our customers attractive deposit rates and a compelling overall experience.

Ross: We reduced rates 75 basis points on our most popular CD term 15 basis points on our money market account and 10 basis points on our 84 billion savings product.

Russell E . Hutchinson: In terms of deposit flows, we saw nearly $3 billion of growth within the quarter while adding more than 100,000 customers. Growth within the quarter was favorable to our expectations and positioned us well for a seasonal tax outflow in the second quarter. We expect deposit balances to decline in QQ as we typically see outflows from existing customers related to tax payments.

Ross: In terms of deposit flows we saw nearly $3 billion of growth within the quarter, while adding more than 100000 customers.

Ross: Growth within the quarter was favorable to our expectations and positions us well for seasonal tax outflow in the second quarter.

Ross: We expect deposit balances to decline in Q Q as we typically see outflows from existing customers related to tax payments.

Russell E . Hutchinson: Given our performance in 1Q and our fully funded flat balance sheet, we're not expecting to drive growth to offset seasonal taxes like we have in prior years. We do expect growth on a full-year basis, but less than what we delivered in 2023. Turning to page 12, CEP1 of 9.4% increased quarter over quarter. At current levels, we exceed our 7% regulatory CET1 operating minimum by $3.8 billion.

Ross: Given outperformance in <unk> and are fully funded flat balance sheet, we're not expecting to drive growth to offset seasonal taxes like we have in prior years, we do expect growth on a full year basis, but less than what we delivered in 2023.

Ross: Turning to page 12, CET, one of nine 4% increase quarter over quarter.

Ross: At current levels, we exceed our 7% regulatory CET, one operating minimum by $3 8 billion.

Russell E . Hutchinson: We recently submitted our capital plan as we are scoped into CCAR for 2024, and we'll get an updated view of our SCB later this year. In the quarter, we closed on the sale of Ally Lending, generating a 15 basis point CET1 benefit, and executed another retail auto loan sale, generating six basis points of CET1. The loan sale reflected strong investor interest in our loans and drove a $15 million pre-tax earnings benefit while creating capital and generating servicing income going forward.

Ross: We recently submitted our capital plan as we have scoped into CCAR for 2024, and we'll get an updated view of our SCB later this year.

Ross: Within the quarter, we closed on the sale of ally lending generating a 15 basis point CET, one benefit and executed another retail auto loan sale generating fixed basis points of CET one.

Ross: The loan sale reflected strong investor interest in our loans and drove a $15 million pre tax earnings benefit, while creating capital and generating servicing income going forward, we phased in another quarter of the capital impact from the transition to seasonal which was worth 18 basis points in the quarter, which was more than offset by the sale of our rent.

Russell E . Hutchinson: We phased in another quarter of the capital impact from the transition to CECL, which was worth 18 basis points in the quarter, which was more than offset by the sale of Ally Lending and the retail auto loan sale. One more phase-in remains, with the total impact fully phased in by 1Q2025.

And the retail auto loan sale.

One more phase and remain with total impact fully phased in by <unk> 2025.

Russell E . Hutchinson: We recently announced our quarterly dividend of $0.30, which remains flat to the prior quarter. We remain committed to acting on attractive opportunities to create excess capital, to invest in our highest-returning businesses, and driving tangible book value per share growth over time. Let's turn to slide 13 to review asset quality. The consolidated net charge-off rate of 155 basis points reflects performance in line with expectation. Net charge-offs were down quarter-over-quarter as discrete losses in corporate finance and commercial auto in the prior period did not repeat.

Ross: We recently announced our quarterly dividend of <unk>, 35, which remained flat to prior quarter.

Ross: We remain committed to acting on attractive opportunities to create excess capital to invest in our highest returning businesses and driving tangible book value per share growth over time.

Ross: Let's turn to slide 13 to review asset quality trends.

Ross: The consolidated net charge off rate of 155 basis points reflects performance in line with expectations.

Ross: Net charge offs were down quarter over quarter as discrete losses in corporate finance and commercial auto in the prior period did not repeat.

Russell E . Hutchinson: Retail AutoNet charge-offs of 227 basis points were in line with expectations. In the bottom right, 30- and 60-day retail auto loan delinquencies reflect seasonal trends. The year-over-year increase in 30-day delinquencies is moderated for the fifth consecutive quarter and gives us confidence that delinquencies are at or near peak on a seasonally adjusted basis. Moving to slide 14, consolidated coverage remains steady at 2.57%. Retail auto coverage of 3.65% was unchanged from the prior quarter, while allowance was down $32 million, driven by a lower balance.

Ross: Retail auto net charge offs of 227 basis points were in line with expectations.

Ross: In the bottom right 30, and 60 day retail auto loan delinquencies reflect seasonal trends the year over year increase in 30 day delinquencies with moderated for the fifth consecutive quarter and give us confident that delinquencies are at or near peak on a seasonally adjusted basis.

Moving to slide 14 consolidated coverage remained steady at 297%.

Ross: Retail auto coverage of 365% was unchanged from the prior quarter, while our allowance was down $32 million driven by lower balances, we maintained robust retail auto coverage levels at 10% above seasonal day, one partly driven by portfolio mix as we've shifted into more profitable volume.

Russell E . Hutchinson: We maintain robust retail auto coverage levels at 10% above Cecil Day 1, partly driven by portfolio mix as we've shifted into more profitable volume over time. Assuming macro variables remain consistent, we're not anticipating much change in the retail auto coverage rate over the medium term.

Ross: Over time.

Ross: Assuming macro variables remained consistent we're not anticipating much change in the retail auto coverage rate over the medium term while.

Russell E . Hutchinson: While the retail auto coverage rate is well above Cecil Day 1 levels, our mid-teens ROE guidance does not assume any reductions in coverage from here. As a reminder, our CECL reserving process has a 12-month reasonable and supportable forecast, which assumes unemployment increasing to 4.1% later this year, and we assume gradual reversion to 6% unemployment from months 12 through 37. Let's turn to slide 15 to discuss retail out of credit in more detail. First quarter NCOs were consistent with the preview we gave at a recent investor conference.

Ross: While the retail auto coverage rate is well above seasonal day, one levels, our mid teens ROE guidance does not assume any reductions in coverage from here.

Ross: As a reminder, our FIFA reserving process as a 12 month reasonable and supportable forecast, which assumes unemployment increasing to four 1% later this year and we assumed gradual reversion to 6% unemployment for months 12 through 36.

Ross: Let's turn to slide 15 to discuss retail out of credit in more detail.

Ross: First quarter Ncos were consistent with the preview we gave at our recent Investor Conference.

Russell E . Hutchinson: And we saw another quarter of declining year-over-year increase in total portfolio delinquency, as shown in the bottom left chart. Losses for the first half of this year will be elevated as the 2022 vintage, which is producing losses above price expectations, works through its peak loss period. That vintage is at its peak loss period today and accounted for more than 40% of losses reported in the first quarter. As we move throughout the year, portfolio losses will be increasingly driven by more recent vintages, which continue to show favorable loss and delinquency trends to the 2022 vintage.

Ross: And we saw another quarter of declining year over year increase in total portfolio delinquency as shown in the bottom left chart.

Ross: Losses for the first half of this year will be elevated as the 2022 vintage which is producing losses above price expectations works through its peak loss period that vintage is at its peak loss period today and accounted for more than 40% of losses reported in the first quarter.

Ross: As we move throughout the year portfolio losses will increasingly will be increasingly driven by more recent vintages, which continue to show favorable loss and delinquency trends relative to the 2022 vintage similar to last quarter. We've shown a comparison of delinquency trends for the 2022 and 2023 vintages.

Russell E . Hutchinson: Similar to last quarter, we've shown a comparison of delinquency trends for the 2022 and 2023 vintages on the bottom of the page. After 15 months on book, the 23 vintage delinquency rate is now 28 basis points below where the 22 vintage was at the same point in time. Excluding the impact of recent loan sales, which skews towards high credit quality loans, the gap is 34 basis points. That gap has widened since our last earnings call, which showed the 23 vintage at 22 basis points favorable at 12 months on book.

Ross: On the bottom of the page after 15 months on book the 23 vintage delinquency rate is now 28 basis points below where the 22 vintage walk at the same point in time.

Ross: Excluding the impact of recent loan sales, which skew towards higher credit quality loans. The gap is 34 basis points that.

Ross: That gap has widened since our last earnings call, which showed the 'twenty three vintage 22 basis points favorable to tour at 12 months on book.

Russell E . Hutchinson: I also want to point out that this particular comparison after 15 months on book is impacted by where the last day of the month fell. The final calendar day of 1Q2023 was a Friday, which is typically our strongest day of cash collection as it lines up with the pay periods for many consumers. In 2024, the final calendar day fell not only on a Sunday but also on a holiday.

Ross: Also want to point out. This particular comparison after 15 months onshore is impacted by where the last day of the month. The final calendar day of <unk> 2023 was a Friday, which is typically are typically our strongest Dave cash collection as it winds up with the pay periods for many consumers and <unk>.

Ross: 2024, the final calendar day trial, not only on a Sunday, but also our holiday as a result, the spot delinquency rate for the 2023 vintage after 15 months with elevated <unk>.

Russell E . Hutchinson: As a result, the spot delinquency rate for the 2023 vintage after 15 months was elevated. Furthermore, as we move into the first few days of April, the gap between 22 and 23 vintages widened further. So we remain confident that 2023 and 2024 vintages will perform favorably to the 2022 vintage that is driving higher losses today. In addition to delinquency and loss frequency trends, we continue to closely monitor the impact of youth values on loss severity.

Ross: As we move into the first few days of April the gap between 22, and 23 vintages widen further.

Ross: So we remain confident 2023, and 2024 vintages will perform favorably to the 2022 vintage that is driving higher losses today.

Ross: In addition to delinquency and loss frequency trends, we continue to closely monitor the impact of used values on loss severity.

Russell E . Hutchinson: Values were weaker for much of the quarter, which drove 1Q losses slightly higher than expectations, but we saw a nice rebound in March, which has persisted through the first half of April. Youth vehicle values have since rebounded and are now flat to year-end as we begin the second quarter. Used vehicle values have been choppy.

Ross: <unk> were weaker for much of the quarter, which drove <unk> slightly higher than expectations, but we saw a nice rebound in March which has persisted through the first half of April used vehicle values has since rebounded and are now flat to year end as we begin the second quarter.

Russell E . Hutchinson: However, we continue to expect the Ally Use Index to settle out around 120 by the end of the year, which would imply a 5 to 6% decline from where we are today. Based on 1Q actuals and elevated loss content from the 2022 vintage, our estimate of losses is up marginally versus January to approximately 2% for the year. Importantly, we remain pleased with the impact of curtailment over the past 12 months and performance trends on recent vintages. Let's turn to slide 16 to review the auto segment highlights. Pre-tax income of $322 million was lower year-over-year, driven by higher provision expense and non-interest expense.

Ross: Used vehicle values have been choppy. However, we continue to expect the ally used index to settle out around 120 by the end of the year, which would imply a 5% to 6% decline from where we are today.

Ross: Based on <unk> actuals and elevated loss content from the 2022 vintage our estimate of losses is up marginally versus January two approximately 2% for the year importantly.

Ross: Importantly, we remain pleased with the impact of curtailment over the past 12 months and performance trends on recent vintages.

Ross: Let's turn to slide 16 to review auto segment highlights.

Ross: Pretax income of $322 million was lower year over year, driven by higher provision expense and noninterest expense provision reflected elevated net charge offs performance compared to the prior year period.

Russell E . Hutchinson: Provision reflected elevated net charge-off performance compared to the prior year period, and non-interest expenses were up year over year as we navigate a period of elevated loss content driving higher servicing costs. Other revenue of $97 million is up $20 million year over year as we continue to focus on diversifying revenue with fee income. Our smart auction and pass-through platforms are great examples of how we help serve our dealers while also generating capital-efficient revenue. Smart Auction enables dealer-to-dealer transactions, generating fee revenue while providing real-time data on market pricing and trends.

Ross: Noninterest expense is up year over year, as we navigate a period of elevated loss content driving higher servicing costs.

Ross: Other revenue of $97 million is up $20 million year over year as we continue to focus on diversifying revenue with fee income.

Ross: Our smart auction and pass through platforms are great. Examples of how we help serve our dealers while also generating capital efficient revenue.

Ross: <unk> auction enables dealer to dealer transactions generating fee revenue, while providing real time data on the market pricing and trends despite pressure on industry volume smart auction grew revenue by 60% between 2019 and 2023 through white label relationships, we see more opportunity to grow this business.

Russell E . Hutchinson: Despite pressure on industry volume, Smart Auction grew revenue by 60% between 2019 and 2023. Through white-label relationships, we see more opportunity to grow this business and deliver incremental fee revenue while strengthening our dealer value proposition. With a focus on increasing application volume, our pass-through program is yet another way for us to deliver enhanced value to our dealers. For certain loans that do not meet our underwriting criteria, we pass those applications through to our partner.

Ross: And deliver incremental fee revenue, while strengthening our dealer value proposition.

Ross: With a focus on increasing application volume are pass through program is yet another way for us to deliver enhanced value to our dealers for certain loans that did not meet our underwriting criteria. We pass through those applications to our partners for loans that are ultimately funded by our partners ally received an origination fee and generate servicing.

Russell E . Hutchinson: For loans that are ultimately funded by our partners, Ally receives an origination fee and generates servicing revenue without using any capital. Smart Auctions and Pass-Through Revenues are expected to grow to $190 million in 2024, up 120% since 2019. Both products demonstrate the strength and scale we have in the marketplace and are a win-win for Ally and the dealer. Lease portfolio trends are on the bottom right. Dealer and lessee buyouts declined to 57% but remain elevated compared to historical levels.

Ross: Revenue without using any capital.

Ross: Smart auction and pass through revenues are expected to grow to a $190 million in 2024 up 120% since 2019, both products demonstrate the strength and scale, we have in the marketplace and are a win win for ally and the dealer.

Ross: Lease portfolio trends are on the bottom right dealer and luxury buyer declined to 55, 7%, but remained elevated compared to historical levels.

Russell E . Hutchinson: Turning to insurance results on slide 17, Court's pre-tax income of $53 million included the highest quarterly premium earned since our IPO. Insurance losses of $112 million are up $24 million year over year, driven primarily by growth, including higher insured values and higher weather losses. We saw solid operating leverage within the quarter as premiums earned increased by $40 million while acquisition and underwriting expenses were up modestly. The total written premium of $354 million increased 15% year-over-year as we see continued success in expanding our all-in dealer value proposition.

Ross: Turning to insurance results on slide 17 core pre tax income of $53 million included the highest quarterly premium earned since our IPO.

Ross: Insurance losses of $112 million or up $24 million year over year, driven primarily by growth, including higher insured values and higher weather losses, we saw solid operating leverage within the quarter as premiums earned increased by $40 million, while acquisition and underwriting expenses were up modestly.

Ross: Total written premium of $354 million increased 15% year over year as we see continued success in expanding expanding our all and dealer value proposition, we have seen nice momentum related to conquest activity as we've recently launched relationships with two major Oems.

Russell E . Hutchinson: We have seen nice momentum related to conquest activity as we recently launched relationships with two major OEMs, which will provide an immediate boost to written and earned premiums. Growth in insurance will naturally increase our non-controllable expenses, specifically commissions and losses, but those are more than offset by fee revenue. And importantly, we have a reinsurance program in place that reduces volatility from weather losses across our PNC inventory exposure.

Ross: Which will provide an immediate boost to written and earned premiums growth in insurance will naturally increase our non controllable expenses, specifically commissions and losses, but those are more than offset with fee revenue and importantly, we have a reinsurance program in place that reduces volatility from weather losses across our P&C.

Russell E . Hutchinson: As we look ahead, insurance remains integral to our dealer value proposition and is the main driver of continued fee revenue growth. Turning to corporate finance on slide 18, pre-tax income of $90 million reflects solid financial performance. Net financing revenue was up, driven by higher average balances and higher benchmarks as the entire portfolio was floating rate. Our $10.1 billion HSI portfolio was well diversified in virtually all first lanes.

Ross: Our exposure as we look ahead insurance remains integral to our dealer value proposition and is the main driver of continued fee revenue growth.

Ross: Turning to corporate finance on slide 18 pretax income of $90 million reflect solid financial performance net financing revenue was up driven by higher average balances in higher benchmarks and for the entire portfolio is floating rate or $10 $1 billion HSI portfolio is well diversified and virtually all first lien.

Russell E . Hutchinson: Balances are up marginally year over year, but downlinked quarter. Favorable capital markets conditions, including a strong CLO market, led to elevated payoffs, particularly within our lender finance vertical. From a credit standpoint, the portfolio is in fantastic shape, with criticized assets and non-accrual loans at historically low levels. Commercial real estate exposure makes up a little more than $1 billion and is entirely related to the healthcare industry.

Ross: <unk> balances are up marginally year over year, but down linked quarter favorable capital markets conditions, including a strong CLO market led to elevated payoffs, particularly within our lender finance vertical.

Ross: From a credit standpoint, the portfolio is in fantastic shape with criticized assets and non accrual loans at historically low levels commercial real estate exposure makes up a little more than $1 billion and it is entirely related to the health care industry with a track record of delivering strong return, including 25% in 2020.

Russell E . Hutchinson: With a track record of delivering strong returns, including 25% in 2023 and 31% this quarter, we continue to be excited about the long-term trajectory of this business as we celebrate its 25th anniversary. Mortgage results are on slide 19. Mortgage-generated pre-tax income of $25 million and $233 million of direct-to-consumer originations, reflective of the current environment and our predominantly variable cost structure. Our health per investment assets continues to decrease quarter over quarter as loans mature and we operate the business on a primarily originate-to-sell basis.

Ross: Three and 31% this quarter, we continue to be excited about the long term trajectory of this business as we celebrated its 20 <unk> anniversary.

Ross: Mortgage results are on slide 19.

Ross: Mortgage generated pretax income of $25 million and $233 million of direct to consumer originations reflective of the current environment and are predominantly variable cost structure.

Ross: Our health for investment assets continued to decrease quarter over quarter as loans mature and we operate the business on a primarily originate to sell basis or.

Russell E . Hutchinson: Our mortgage agent-buy assets will continue to decrease as we remain disciplined in allocating capital to our highest returning businesses and managing the duration of our balance sheet. Mortgage remains a complementary product for our deposit customers who accounted for the majority of our originations in the quarter.

Ross: Our mortgage HSI assets will continue to decrease as we remain disciplined in allocating capital to our highest returning businesses and managing the duration of our balance sheet.

Ross: <unk> remains a complementary product for our deposit customers, who accounted for the majority of our originations in the quarter. We are committed to providing a best in class customer experience and operational efficiency.

Russell E . Hutchinson: We are committed to providing a best-in-class customer experience and operational efficiency. I'll touch on the 2024 outlook before we move into Q&A. We're pleased that the execution of our business and our outlook for this year and beyond remains consistent. In terms of net interest margin, the first quarter represents a trough in NIM, and we expect meaningful expansion from here, with or without a decrease in the Fed funds rate. As we've said before, we look at our outlook under a variety of rate scenarios and are not relying on rate cuts to get to an exit rate of 3.4 to 3.5 percent this year. And we are confident we will reach a 4 percent NIM run rate in late 2025.

Speaker Change: I'll touch on the 2024 outlook before we move into Q&A.

We've been we've been pleased with the execution of our business and our outlook for this year and beyond remains consistent in terms of net interest margin first quarter represents a trough in NIM and we expect meaningful expansion from here with or without a decrease in fed in the fed funds rate as we've said before we.

Speaker Change: Look at our outlook under a variety of rate scenarios and are not relying on rate cuts to get to an exit rate of three 4% to three 5%. This year and we are confident we will reach 4% NIM run rate in late 2025.

Russell E . Hutchinson: In terms of quarterly cadence, it won't be a straight line, as things like lease terminations and gains do not have some seasonality, but we expect 5 to 15 basis points of NIM expansion per quarter for the rest of the year. We are increasing our fee revenue guidance from up 5-10% to up 9-12%. We continue to see momentum and growth in insurance and smart auctions and the auto pass-through offerings, which drive durable revenues with minimal capital requirements.

Speaker Change: In terms of quarterly cadence it won't be a straight line as things like lease terminations and gain do not do have some seasonality, but we expect five to 15 basis points of NIM expansion per quarter for the rest of the year.

We are increasing our fee revenue guidance from up 10% to up 9% to 12%, we continue to see momentum and growth in insurance and smart auction and the auto pass through offerings, which drive durable revenues with minimal capital requirements and insurance, specifically, we've seen PMT exposure.

Russell E . Hutchinson: In insurance specifically, we've seen PNC exposure increase through higher dealer inventory levels and our new business conquest, which immediately increases revenue. Continued expansion insurance is driving the only change to our operating expense guide. Controllable expenses are still expected to be down 1%, but as we've talked about in the past, growth in PNC does add commission and loss expenses. So total expenses are expected to be up less than 2% year over year, which is up slightly from the original guide. Importantly, net changes in insurance are immediately accreted to pre-tax earnings as the revenue lifts more than offsets expenses.

Speaker Change: Increased through higher dealer inventory levels, and our new business contract, which immediately increases revenues continued expansion in insurance is driving the only change to our operating expense guide controllable expenses are still expected to be down 1%.

Speaker Change: As we've talked about in the past growth in P&C does add commission and loss expenses. So total other expenses are expected to be up less than 2% year over year, which is up slightly from the original guide.

Speaker Change: Importantly, net changes in insurance are immediately accretive to pretax earnings as the revenue with more than offsets. The expenses. This is a trade we will take all day and that's the guidance. We continue to give our insurance teammates no change to the expected consolidated loss rate of one four to one 5% and as I mentioned, we see.

Russell E . Hutchinson: This is a trade we will take all day, and that's the guidance we continue to give our insurance teammates. No change to the expected consolidated loss rate of 1.4 to 1.5 percent, and as I mentioned, we see retail NCOs around 2 percent, up marginally from approximately 1.9 percent in January. The continued runoff of the 2022 vintage and the favorable performance of the 2023 vintage is expected to drive seasonally adjusted loss rates down later in the year.

Speaker Change: Retail Ncos around 2% up marginally from approximately one 9% in January.

Speaker Change: The continued run off of the 2022 vintage and the favorable performance of the 2023 vintage is expected to drive seasonally adjusted loss rate down later in the year and wall structural supply and demand dynamics continue to give us confidence in the path of used vehicles over the medium term volatility in the short term.

Russell E . Hutchinson: And while structural supply and demand dynamics continue to give us confidence in the path of vehicles over the medium term, volatility in the short term will certainly impact our loss performance. However, we continue to expect the balance sheet, in total, to be pretty flat for the foreseeable future, with favorable mixed dynamics contributing to NIM expansion. On the tax rate, we've adjusted our full-year guide to 15%, reflecting one quarter of actuals and a rate of around 18% for the rest of the year. EV lease originations are the largest driver of the tax favorability we saw this quarter.

Speaker Change: We will certainly impact our loss performance.

Speaker Change: Continue to expect the balance sheet in total to be pretty flat for the foreseeable future with favorable mix dynamics contributing to NIM expansion.

Speaker Change: On the tax rate, we've adjusted our full year guidance of 15%, reflecting one quarter of actual and a rate of around 18% for the rest of the year.

Speaker Change: Lease originations are the largest driver of the tax favorability. We saw this quarter to the extent we continue to see strong momentum here, we may outperform that 15% guide for the year.

Russell E . Hutchinson: To the extent we continue to see strong momentum here, we may outperform that 15% guide for the year. We remain confident that we are on a path to a run rate with 4% NIMS, $6 of EPS, and mid-teens return. As we have said before, the timing of FedRateCuts will impact the timing of our expansion in 2025, but not the destination.

Speaker Change: We remain confident that we're on a path to a run rate with 4% NIM six hours of Etfs and mid teens returns as we have said before the timing of fed rate cuts will impact the timing of our expansion in 2025, but not the destination.

Sean Leary: We will remain focused on executing on our scale franchises, taking care of our associates and customers, and being disciplined in allocating our resources, including capital. I'll close by echoing Doug's comments that we're excited to welcome Michael Rhodes to Ally, and we're confident in Ally's ability to deliver for our shareholders for many years to come. And with that, Sean, I'll turn it over to you for Q&A. Thank you, Russ. As we head into Q&A, we do ask that participants limit themselves to one question and one follow-up. Elizabeth, please begin the Q&A.

Speaker Change: We will remain focused on executing on our scale franchises, taking care of our associates and customers and being disciplined in allocating our resources, including capital.

Speaker Change: Close by echoing Doug's comments that we're excited to welcome Michael Rhoades to ally and we are confident in our ability to deliver for our shareholders for many years to come.

Doug: And with that Sean I'll turn it over to you for Q&A.

Sean: Thank you Rob as we head into Q&A, we do ask that participants limit yourself to one question and one follow up I'll, let Vince please begin the Q&A.

Sean: Yes.

Operator: As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question will come from the line of Mosh Orenboek with T.D. Cowan.

Sean: As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.

Vince: Charlie Your question. Please press star one again.

Vince: Please standby, while we compile the Q&A roster.

Vince: Our first question will come from the line of Moshe Orenbuch with TD Cowen.

Moshe Orenbuch: Great, thanks.

Moshe Orenbuch: Okay, great. Thanks.

Moshe Orenbuch: I guess the, you know, the question that seems to be the...

Speaker Change: I guess.

Moshe Orenbuch: That the, you know. There's such a strong origination yield, and yet it feels like you're letting, you know, there's an opportunity to do more. And so the question is, I guess, you know, is that in fact the case? And you did talk about the ability that, you know, stuff that you're doing in your highest tiers versus the rest of the, you know, the rest of the credit spectrum. Is there an opportunity to do more and perhaps, you know, sell those loans, you know, to keep your balance sheet flat, as your plan? Is that something that you're considering doing during 24 or 25?

Moshe Orenbuch: A question that seems to be.

Moshe Orenbuch: Yeah.

Speaker Change: Just such a strong origination yields.

Speaker Change: And yes deals like Youre letting.

Speaker Change: There is opportunity to do more and so the question is I guess.

Speaker Change: Yes.

Speaker Change: Is that in fact, the case and you did talk about the ability.

Speaker Change: Stuff that you're doing in your highest tiers versus the rest of the.

Speaker Change: The rest of the credit spectrum.

Speaker Change: Is there an opportunity to do more and perhaps sell those loans to keep your your balance sheet flat as your plan is that something that you are considering doing during 'twenty four or 'twenty five.

Russell E . Hutchinson: Thanks for the question, Moshe. I agree with you. The competitive environment remains favorable to us. You know, both the mix that we're getting with, you know, continuing to get 40% in the S tier, as well as the strong originated yield that we're seeing are both testaments to that. And so we agree with your sentiment on the competitive environment and the opportunity set remaining rich for us. You know, as you know, as you're well aware, we're dealing in a capital constrained environment with the expectation of regulations coming down the pipeline, all very manageable.

Speaker Change: Thanks for the question Ross.

Speaker Change: I agree with you that competitive environment remains favorable to us.

Speaker Change: Both the the mix that we're getting with continuing to get 40% in the tier as well as the strong originated yield that we're seeing are both testament of that.

Speaker Change: And we agree with your sentiment on the competitive environment and the opportunity set remaining rich for us.

Speaker Change: As you know as you're well aware.

Speaker Change: Where we're dealing in a capital constrained environment.

Speaker Change: With the expectation of regulations coming down the pipeline all very manageable.

Russell E . Hutchinson: And as you also pointed out, we've been, you know, we've also been opportunistic in terms of looking for opportunities to really leverage our dealer relationships and our balance sheet. So you saw us deconsolidate over the course of the fourth quarter and this past quarter, $2.7 billion of auto loans through sales in the securitization market. You know, those transactions were well received. We're seeing a strong appetite. You saw us take a $15 million earnings benefit this quarter on the sale of $1.1 billion of loans to the securitization market.

Speaker Change: And as you also pointed out we have been.

Speaker Change: We've also been opportunistic.

Speaker Change: In terms of looking for opportunities to really leverage our dealer relationships and our balance sheet. So you saw us deconsolidation over the course of fourth quarter and in this past quarter, two $7 billion of auto loans through sales in the securitization market.

Speaker Change: Yes, those transactions were well received.

Speaker Change: Seeing strong appetite.

Speaker Change: You saw us take a $15 million earnings benefit this quarter on the sale of $1 $1 billion of loans to the securitization market again Testament to the attractiveness of our loans in the capital markets.

Russell E . Hutchinson: Again, testament to the attractiveness of our loans in the capital markets. We will continue to look at opportunities like that. We will continue to look at, you know, whether it's deconsolidation through securitization. We'll also look at credit risk transfer transactions as ways of freeing up RWA in order to redeploy it in the business. So I think we are in agreement with you, and we continue to pursue opportunities opportun

Speaker Change: We will continue to look at opportunities like that and we will continue to look at.

Speaker Change: Whether its deconsolidation through securitization.

Speaker Change: We will also look at credit risk transfer transactions as as ways of freeing up <unk> in order to redeploy in the business. So I think we are we are in agreement with you and we continue to pursue opportunities opportunistically.

Douglas R. Timmerman: I would just add, you know, what's unique, and obviously, I've been doing this for a long time, 30 plus years. So, obviously, competition, you know, oftentimes softens during, call it, tougher credit environments, but today it's different. It's also softening due to the fact that there is a changing regulatory environment coming at us, so everyone's seeing that impact on capital and liquidity. So from my view, the opportunity for us is actually going to last longer than you normally would say. So we feel really good about the competitive environment, really good about our ability to continue to originate at a high level and, very importantly, to originate at high yields.

Speaker Change: I would just add <unk> Nathan August I've been doing this for a long time 30 plus years. So yes.

Speaker Change: Obviously competition oftentimes softened during the call it tougher credit environments, but today, it's different it's also softening due to the fact that there's changing regulatory environment coming out. So everyone is seeing that impact capital liquidity. So from my view.

Speaker Change: The opportunity for us.

Speaker Change: Absolutely going to last longer than what you normally would say so we feel really good about the competitive environment really good about our ability to continue to originate at a high level and very importantly originated at high yields.

Moshe Orenbuch: Great, thanks. And maybe as a follow-up, you know, the vintage performance that you discussed... Is there a way to kind of separate out how much of that is a result of kind of that better, you know, more of your originations coming in the higher tier of pricing or just kind of fundamental better performance from borrowers, you know, that you originated in 2023? And can you relate that to your comments about a flat reserve? Yeah, maybe I'll start, and Doug can chip in here.

Speaker Change: Great. Thanks, So maybe as a follow up the vintage performance that you discussed.

Speaker Change: Is there a way to kind of separate out how much of that is a result of.

Speaker Change: Better more of your originations coming into higher tier pricing or just kind of fundamental better performance from borrowers that you originated in 2023.

Speaker Change: And can you relate that to your comments about a flat reserve.

Speaker Change: Yes, maybe I'll start and Doug can.

Russell E . Hutchinson: But I would say, when we look at the performance of our book, I would say delinquencies are elevated across the book, across vintage, and across credit tiers. And we are dealing with a customer that is struggling with inflation. All that being said, when we look at the difference between the 23 vintages versus 22, I think what we're seeing in that improvement is the effect of the curtailment that we've been putting in place over time.

Speaker Change: Can chip in here, but I would say when we look at the performance of our book I would say delinquencies are elevated.

Speaker Change: Across across the book across vintage and across credit tiers, and we are dealing with a customer that is struggling with inflation you all that being said when we look at the difference between the 23 vintages versus 'twenty two I think what we're seeing and that improvement is the effect of curtailments that.

Russell E . Hutchinson: And as you know, we've been kind of ratcheting up the level of curtailment over the course of 2023. So we take a lot of confidence in seeing that differentiation between the vintages. And as you would expect, we look at it at a pretty granular level, looking at vintages on a monthly basis, on a quarterly basis, you know, and really kind of analyzing and understanding the differences in their performance in terms of both delinquencies and also net charge-off levels, which are also important.

Speaker Change: <unk> been putting place over time and as you know we've been kind of ratcheting up the level of curtailment over the course of 2023.

Speaker Change: So we take a lot of confidence seeing that differentiation between the vintages and.

Speaker Change: As you would expect we look at it at a pretty granular level looking at vintages on a monthly basis on a quarterly basis.

Speaker Change: And really kind of analyzing and understanding the differences in their performance in terms of both delinquencies and also net charge off levels, which are which are also important.

Russell E . Hutchinson: So, you know, hopefully that addresses your question. But I think the delinquency issue is one. The delinquency issue and the elevated credit that we're seeing are across all vintages and across all credit tiers. But I think the main driver has just been the level of curtailment that we've put in place over the course of 2023. Yeah, I agree.

Speaker Change: So.

Hopefully hopefully that addresses your question, but I think the delinquency issue is one that delinquency issue and that the elevated credit that we're seeing is across all vintages.

Speaker Change: And across all credit tiers, but I think that the main drivers who spend at the level of curtailment that we have put in place over the course of 'twenty three.

Douglas R. Timmerman: Yeah, I agree. Obviously, it's two-pronged. It's curtailing those segments that are underperforming the most. It's our opportunity to be able to move to a better quality mix, which gets back to the benefit we have relative to our application flow. But I would also say that, very importantly, we view credits as very manageable and are confident that the appropriate adjustments have been made, and those adjustments are accounted for in our 2023 budget.

Speaker Change: Yes, I agree obviously since two prong is curtailing those segments that are underperforming. The most that's our opportunity to be able to move to a better quality of mix switch.

Speaker Change: The benefit we have relative to our application flow, but I would also say that very importantly, we view the credits to be very manageable and confident with appropriate adjustments have been made and those adjustments are accounted for in our 2023 vintage.

Operator: Our next question will come from the line of Ryan Nash with Goldman Sachs.

Speaker Change: Our next.

Speaker Change: <unk> will come from the line of Ryan Nash with Goldman Sachs.

Ryan Matthew Nash: Good morning, Doug. Good morning, Russ. Morning. So, you know, maybe to start off a two-part question. So, you know, you reiterated the margin guidance and noted you still expect 4% by the end of next year, Russ. How does the cadence in 2024 and 25 differ under higher for longer and forwards? And then second, I think you recently decreased the savings and money market rates again for the second time in recent weeks. Are these cuts, you know, there to offset margin weakness in other areas or are they actually additive to the NIM, and does this actually improve the level of the timing when you get to that 4%? And I have a follow-up.

Ryan Matthew Nash: Good morning, Doug Good morning Ross.

Ryan Matthew Nash: Alright.

Ryan Matthew Nash: So maybe I'll start off.

Ryan Matthew Nash: Two part question. So you reiterated the margin guidance I noted you still expect 4% by end of next year, how does the cadence in 2024 and 20.

Ryan Matthew Nash: <unk> 25 differ under higher for longer and forward and then second I think you recently decreased the savings and money market rates again for the second time in recent weeks are these cuts there.

Ryan Matthew Nash: <unk> to offset margin weakness in other areas are they actually additive to the NIM and does this actually improves the level the timing you get to that 4% and I have a follow up.

Russell E . Hutchinson: Great questions. Thanks, Ryan. Maybe I'll just start on the 4% by the end of 2025 in terms of NIM. As we said on the call, and we've said before, our 2024 guidance, 325 to 330, exit rate at 340 to 350, does not depend on rate cuts. So, you know, that guidance is intact even if we are in an environment where it's 550 for the remainder of this year.

Speaker Change: Great question, Scott Thanks, Ryan.

Speaker Change: Maybe I'll just start on the 4% by end of 'twenty five in terms of NIM.

Speaker Change: I think as we said on the call and we said before.

Speaker Change: Our 2024 guidance $3 25 to $3 30 exit rate at $3 40 to 350 does not depend on rate cut so.

Speaker Change: That guidance is intact, even if we are in an environment, where at $5 50 for the remainder of this year.

Russell E . Hutchinson: You know, as you know, we took opportunities at the end of last year, effectively putting on additional hedges in order to take that risk rate off the table for the course of 2024. Really, what we're talking about is the timing within 2025 in terms of getting to the 4% margin. And, you know, as you can imagine, we run a range of rate scenarios, and that certainly impacts that.

Speaker Change: As you know, we we took opportunities at the end of last year.

Speaker Change: Effectively putting on additional hedges in order to take that risk right off the table for the course of 2024.

Speaker Change: Really what we're talking about is the timing within 2025 in terms of getting to the 4% margin and as you can imagine we run at.

Speaker Change: We run a range of rate scenarios and.

Russell E . Hutchinson: I think based on kind of where we sit today, our expectation is that we get to the 4% NIM by the end of 2025. But again, you know, no impact on 2024, even if we're flat through the course of this year.

Speaker Change: And that certainly impacts that I think based on kind of where we sit today.

Speaker Change: Our expectation is we get to that 4% NIM towards the end of 2025.

Speaker Change: But again.

Speaker Change: No impact on 2024, even if we're flat through the course of this year.

Russell E . Hutchinson: On bank deposits and our deposit rates, you are correct. We took another five basis points off our savings product. That's $84 billion in deposits. We took that off this morning.

On the on bank deposits and our deposit rates you are correct.

Speaker Change: Another five basis points off of our savings product that's $84 billion of deposits, we took that off this morning.

Russell E . Hutchinson: You know, that is just in response to the fact that we've seen strong deposit flows, you know, even coming through tax season now. We just feel great about where we are. We feel great about our bank franchise and about the general level of engagement among our customers. I'd say at this point, you know, sitting here in mid-April, it's hard to say if that just reflects kind of lower rates and higher end going forward or if what we've done is we've really just kind of taken advantage of the opportunity and pulled it forward somewhat. But I'd say sitting right here, you know, we feel great about the franchise and about the stickiness of our customers and about just the overall competitive environment for deposits.

Speaker Change: Yes that is just in response to the fact that we've seen strong deposit flows.

Speaker Change: Even coming through through tax season, now we just we feel great about where we are we feel great about our bank franchise and about the just the general level of engagement among our customers.

Speaker Change: I'd say at this point you have sitting here in mid April and it's hard to say if that just reflects kind of lower rates and higher NIM going forward or what we've done is we've really just kind of taken advantage of the opportunity in <unk>.

Speaker Change: Will that forward somewhat.

Speaker Change: Say just sitting right here, we feel great about the franchise and about the stickiness of our customers and it and about just the overall competitive environment for deposits.

Speaker Change: Got it thanks for the color.

Speaker Change: Maybe a question on credit. So I think you noted delinquencies are near or at the peak on a seasonally adjusted basis and you said that as we move through 'twenty four it should be more driven by recent vintages. So can you help us think about losses over the next few quarters. I think you noted that seasonally adjusted losses should be down later in the year can you maybe.

Ryan Matthew Nash: And you said that as we move through 2024, it should be more driven by recent vintages. So, can you help us think about losses over the next few quarters? I think you noted that seasonally adjusted losses should be down later in the year. Can you maybe just put a finer point on that? When do we actually see the shift happen from underperforming on a seasonally adjusted basis to actually outperforming?

Speaker Change: Just put a finer point on that when do we actually see the shift happened from underperforming on a seasonally adjusted basis to actually outperformance. Thank you.

Russell E . Hutchinson: Thank you.

Ryan Matthew Nash: Yeah, it's through the second half of this year. As you know, the auto asset is great in that you get a really good sense of how credit's developing over the first 18 months, right? That's when our loans typically hit peak loss rates. The 22 vintage was large, and as we've said before, it's a vintage that's been particularly impacted by the current environment, and it's where we're seeing losses that exceed our price expectations.

Speaker Change: Yes, its fixed through the second half.

Speaker Change: Of this year.

Speaker Change: The other asset is great and that you've got a really good sense of how credits developing over the first 18 months thats when our loans typically hit peak loss rate. The 22 vintage was large and as we've said before it.

Speaker Change: Vintage has been particularly impacted by the current environment, and it's where we're seeing losses that exceed our pricing expectations.

Ryan Matthew Nash: And so as we get through the first half of this year, as we get through June, we should be through that, and we should see more of our losses actually driven by our 2023 and then increasingly by our 2024 vintages. As you know, we've ramped up the level of curtailment over the course of this year. We're seeing that benefit as we look at charge-offs and NCOs, and so our expectation is that as that 2023 vintage becomes more dominant in terms of driving our losses, we'll start to see that performance improve.

Speaker Change: And so as we get through the first half of this year as we get through June.

Speaker Change: Should be through that and we should see more of our losses actually driven by our 2023 and then increasingly by our 2024 vintages.

Speaker Change: As you know we've ramped up the level of curtailment over the course of 2023, we're seeing that benefit as we look at charge offs and npls and so our expectation.

Speaker Change: As that 2023 vintage becomes more dominant in terms of driving our losses. It will start to see that performance improve.

Operator: Thanks for the call, Russ.

Speaker Change: Thanks Niccolo Ross.

Niccolo Ross: Thank you.

Niccolo Ross: Okay.

Sanjay Harkishin Sakhrani: Our next question will come from the line of Sanjay Sakhrani with KBW.

Speaker Change: Our next question will come from the line of Sanjay Zach Ronnie with K B W.

Douglas R. Timmerman: Thanks, good morning. Doug, you mentioned how different this time the competitive dynamics are. I'm just curious, as we think about, you know, competitors possibly even considering re-engaging with the market, like how easy would it be to come sort of disrupt what you guys have in terms of the situation right now? I'm just trying to think about where they stand in terms of dealer mindshare. Obviously, the dynamics are so strong and put you in a really good position right now.

Speaker Change: Thanks, Good morning, Doug you mentioned.

Speaker Change: How different this time the competitive dynamics are I'm just curious.

Speaker Change: As we think about competitors, possibly even considering re engaging with the market, but how easy was it would it be to come sort of disrupt what you guys have in terms of the situation right now.

Speaker Change: Trying to think about where they stand in terms of dealer mind share. Obviously the dynamics are so strong and put you in a really good position right now.

Douglas R. Timmerman: Yeah, I think the big part of our secret sauce, obviously, is decades of being very consistent and focused on things that the dealer truly values. Application flow is the differentiator for us.

Speaker Change: Yes, I think the big part of our secret sauce, obviously has decades of being very consistent and focused on things that truly values.

Speaker Change: Implications flow is the differentiator for us.

Russell E . Hutchinson: You know, we, as Russ indicated in his comments, we ask the dealer to send us all the applications. We're willing to do the work. We don't want to miss out on an opportunity to help them sell another car and truck. We also don't want to miss out on an opportunity to capture business. That resonates very well with the dealer, but the dealer is not going to give that opportunity to multiple providers. And because of our relationship, we get that advantage. So that's a big differentiator compared to the competition.

Speaker Change: Russ indicated in his comments, we ask the dealer to send US all of the applications. We're willing to do the work, we don't want to Miss an opportunity to help them sell another car and truck, we don't want to Miss an opportunity to capture.

Speaker Change: That resonates very well with the dealer, but the dealer is not going to give that opportunity to have multiple providers and because of our relationship we get that advantage. So that's a big differentiator versus the competition.

Sanjay Harkishin Sakhrani: And Russ, could you just talk about the loan sales? I just want to make sure I understand what happened this quarter versus what you might do in the future in terms of magnitude. Was there any gain on the sale of the loans? And maybe, as we look ahead, should we expect the economic dynamics to sort of shift as we consider more of these types of things? And what kind of magnitude could the loan sales be?

Speaker Change: Okay.

Speaker Change: And Russ could you just talk about the loan sales I just want to make sure I understand what happened this quarter versus what you might do in the future in terms of magnitude.

Russ: This was there any gain on the sale of the loans and maybe as we look ahead should we expect the economic dynamics to sort of shift.

Russ: As you consider more of these types of things and sort of what kind of magnitude.

Russell E . Hutchinson: Yeah, look, I think it's a fair question. You know, we've been pretty opportunistic. And so we haven't, you know, we haven't committed to any volume. And you'll see that we'll do loan sales in the fourth quarter and the first quarter of this year. But we're not going to do them every quarter.

Russ: These loan sales take thanks.

Russ: Yes look I think it's a fair question, we've been pretty opportunistic.

Russ: So we haven't we haven't committed to any volume and Youll see that we will we did loan sales in the fourth quarter and the first quarter of this year.

Russell E . Hutchinson: And we're also looking at different ways of doing it. So, for example, if we do a credit risk transfer transaction, it has a, you know, kind of different impact in terms of the balance sheet and the P&L versus a loan sale. And so, yeah, this is going to be a little bit, a little bit kind of lumpy.

Speaker Change: We're not going to do them every quarter.

Speaker Change: And we're also looking at different ways of doing it. So so for example, if.

Speaker Change: If we do a credit risk transfer transactions.

Speaker Change: Kind of different impact in terms of the balance sheet and the P&L versus alone cell and so yes. This is going to be.

Speaker Change: A little bit a little bit kind of lumpy.

Russell E . Hutchinson: But we think this is an important tool for us to have as we look at managing capital and positioning ourselves to take advantage of the opportunities that are in the market today and also better serve our dealers. If you just kind of turn to the loan sale we did this quarter, we sold $1.1 billion of loans. There was a $15 million earnings benefit, and that earnings benefit is effectively the net benefit, given where we hold the loans, including the reserve and provision impact.

Speaker Change: But we think this is an this is an important tool for us to have as we look at managing capital and positioning ourselves to take advantage of the opportunities that are in the market today and also better serve our dealers.

Speaker Change: Yes, if you just kind of turn to the to the loan sale. We did this quarter, we sold $1 1 billion of loans.

There was a $15 million earnings benefit and that earnings benefit is effectively the net benefit given where we hold the loans, including the reserve and provision impacted so that $15 million benefit was realized through the provision line.

Russell E . Hutchinson: And so that $15 million benefit was realized through the provision line. But that is a positive P&L event for us, and again, reflects strong investor interest in the overall loan portfolio. I would say the loans that we sold were predominantly 2023 vintage, although there was some older stuff in there from 22 and 21, as well.

Speaker Change: But that is a positive P&L event for us and again reflects strong investor interest in the overall loan portfolio.

Speaker Change: I would say the loans that we sold.

Speaker Change: They were predominantly 2023 vintage there was some older stuff in there from 'twenty, two and 'twenty, one as well.

Operator: So the blended yield, as we said on the call, was lower than what we're currently originating in the market today. So again, we feel good about the economics we got given the yield on the loans that we sold. So again, strong investor interest. We'll continue to be opportunistic. We'll look for more opportunities to do this. You know, and it's all good in allowing us to capture opportunities and better serve our

Speaker Change: So the blended yield as we said on the call was was lower than what we're currently originating in the market today and so again, we feel good about the economics, we got given the yield on the loans that we sold.

Speaker Change: So again strong investor interest will continue to be opportunistic, we'll look for more opportunities to do this.

Speaker Change: And it's all good and allowing us to capture opportunity and better serve our dealers.

Speaker Change: Thank you.

Jeffrey David Adelson: Our next question will come from the line of Jeff Adelson with Morgan Stanley.

Speaker Change: Okay.

Speaker Change: Our next question will come from the line of Jeff Adelson with Morgan Stanley.

Jeffrey David Adelson: Hey, good morning. Thanks for taking my question. Russ, I just, you know, I know the forward curve has sort of eased the expectation for cuts recently, and I know you're still looking for the 4% by the end of 2025 without rate cuts, but, you know, if the forward curve does come through, do you still think there's an opportunity for the 4% to come a bit earlier in the year, you know, ignoring the lumpiness that might be happening on a quarter-to-quarter basis?

Jeffrey David Adelson: Hey, good morning, Thanks for taking my questions.

Jeffrey David Adelson: Russ I, just I know that forward curve is sort of ease the expectation for cuts recently.

Jeffrey David Adelson: We're still looking for the 4% by the end of 'twenty five without rate cuts, but if the forward curve does come through do you still think there is an opportunity for the 4% to come a bit earlier in the year.

Russ: Ignoring the lumpiness that might be happening on a quarter to quarter basis.

Russell E . Hutchinson: So I think right now we're on track for 4% by the end of 25. And so we, you know, we feel pretty good about that. We do run a variety of reasonable rate scenarios here, and we feel pretty good about the end of 25 under a range of scenarios, you know, including scenarios where we're flat for the duration of 2024. You know, and again, we think we've kind of taken that risk off the table for this year in terms of its impact on our yield.

Russ: Yes.

Russ: Right now we're on track for 4% by the end of 'twenty five.

Russ: And so we feel pretty good about that we do run.

Russ: A variety of.

Russ: A reasonable rate scenarios here and we feel pretty good about end of 'twenty five under under a range of scenarios.

Russ: Including <unk>, we were flat for the duration of 2024.

Russ: And again, we think we've kind of taken that risk off the table for this year in terms of.

Russ: In terms of its impact on our yield.

Jeffrey David Adelson: On the remarketing side, I mean, it seems like you guys have seen some real strength in the lease termination volumes lately. I think that's coming off the back of the origination you did a couple of years ago.

Russ: And on.

Russ: On the remarketing side I mean, it seems like you guys are seeing some real strength in the lease termination volumes lately I think thats coming off the back of the originations you did couple of years ago, and I think the lessee dealer buyout figure dropped. The most has dropped since you started disclosing that can you just talk a little bit more about the outlook there is that something.

Russell E . Hutchinson: And I think, you know, the lessee dealer bio figure dropped the most; it's dropped since you started disclosing that. Can you just talk a little bit more about the outlook there? Is that something that could actually maybe help your NIM going forward, even as used car prices continue to kind of moderate? Is there maybe a kind of Goldilocks-type zone there where used car prices moderate are actually something that helps you as more consumers are bringing their cars back to you? I think Lee's been terminated.

Russ: That could actually maybe help your NIM going forward, even as used car prices continue to kind of moderate is.

Russ: Is there maybe like.

Russ: Kind of a goldy lock tight zone, there where used car prices moderating is actually something that helps you as more consumers are bringing their cars back to you.

Jeffrey David Adelson: I think lease terminations, you know, can be a little bit lumpy, and that's one of the factors that contributes to the lumpiness in terms of our NIM progression, and that's why we give you that 5 to 15 basis points. Yeah, I'd say if I looked over the course of the first quarter, lease terminations were actually weak towards the beginning of the quarter and kind of came back towards the end, and so we saw that lumpiness, you know, quite frankly, even within the quarter.

Russ: I think lease terminations can be a little bit lumpy and that some of that's one of the factors that contributes to the lumpiness in terms of our NIM progression and Thats why we give you that five to 15 basis points, Yes, I'd say, if I look over the course of the first quarter lease termination where actually weak.

Russ: Towards the beginning of the quarter and kind of came back towards the end and so we saw that lumpiness.

Jeffrey David Adelson: You know, I think on contractual buyouts. I think we expect the level of contractual buyouts to continue to normalize, particularly as used car prices reach that 120 level that we've been talking about. You know, that's obviously, you know, that's all stuff that will ebb and flow over the course of a quarter and over the course of the remainder of the year, but I think we've priced in kind of reasonable expectations in terms of how we set the guide around just the kind of the overall level of lease terminations and the level of contractual buyouts, again, normalizing and used car prices normalizing around that 120 level. Thank you.

Russ: Quite frankly, even within the quarter.

Russ: I think on the contractual buyouts I think we expect the level of contractual buyouts to continue to normalize, particularly as used car prices reached at 120 level.

Russ: That we have jobs that we've been talking about.

Speaker Change: Yes, that's all obviously, that's all stuff that will ebb and flow over the over the course of a quarter and over the course of the remainder of the year.

Speaker Change: We've priced in kind of reasonable expectations in terms of how we set the guide around just the kind of the overall level of lease terminations and the the level of contractual buyouts again normalizing.

Speaker Change: And used car prices normalizing around that 120 level.

Operator: Our next question will come from the line of Rob Wildhack with Autonomous Research.

Speaker Change: Okay, great. Thank you.

Speaker Change: Our next question will come from the line of <unk> <unk> with autonomous research.

Robert Wildhack: One more question around loan sales. Russell, what's the rate-limiting factor today that's preventing you from doing more loan sales and taking advantage of this competitive opportunity that you guys are highlighting? Is it demand from loan buyers or investors? Is it pricing? Is it something else?

Autonomous Research: Good morning, guys.

Autonomous Research: Good morning, Rob.

Autonomous Research: One more question around loan sales.

Autonomous Research: What's the rate limiting factor today, that's preventing you are keeping you from doing more loan sales and taking advantage of this competitive opportunity that you guys are highlighting demand from loan buyers are investors is it pricing is it something else.

Russell E . Hutchinson: Yeah, we've seen really great demand from investors. Yeah, I think, you know, we've been able to get done what we've tried to get done in each of the two transactions or each of the three transactions that we've completed so far. You know, we feel pretty good about what we've done. You know, again, we don't set targets on how much we want to do in a given quarter or given year.

Speaker Change: No we've seen we've seen really great demand from investors.

Speaker Change: Yes, I think we've been we've been able to get done what we've what we've tried to get done.

Speaker Change: And each year and each of the two transaction or each of the three transactions.

Speaker Change: We've completed so far.

Speaker Change: I think we're we feel pretty good about what we've done.

Speaker Change: Again, we don't set targets on how much we want to do in a given quarter or given year, but again, we continue to feel pretty good about what we've done and we feel pretty good about it on the other side of it what we're originating and how it allows us to support our business.

Russell E . Hutchinson: But again, we continue to feel pretty good about what we've done. And we feel pretty good about, on the other side of it, what we're originating and how it allows us to support our business.

Robert Wildhack: Okay, thanks. And then, how much more room do you think you have with respect to deposit repricing, especially as fewer rate cuts are now being priced in? And then, maybe to follow on from that, what degree of deposit repricing is included in your outlook for the NIM expansion and the exit rate in the fourth quarter?

Speaker Change: Okay. Thanks, and then how much more room do you think you have with respect to deposit re pricing, especially in skewer rate cuts are now being priced in and then maybe to follow on from that what degree of deposit repricing is included in your outlook for the NIM expansion in the exit rate in the fourth quarter.

Russell E . Hutchinson: All right, look, we've been

Speaker Change: Yes.

Russell E . Hutchinson: Look, we've been really pleased with the amount of pricing flexibility we've gotten so far. You know, as we pointed out on the call, we took, you know, we started with CDs. We took 75 basis points off our 12-month, our most popular CD product. You know, we took, you know, we took off liquids.

Speaker Change: Alright look we've been really pleased with the amount of pricing flexibility, we've gotten so far.

Speaker Change: Played out on the call. We took we started with Tds, We took 75 basis points off of our 12 month, our most popular CD product.

Speaker Change: We took.

Russell E . Hutchinson: We took another five basis points off our savings product this morning. We continue to feel great about the deposit flows we're getting. You know, and so, you know, we've seen the competitive environment for deposits has clearly eased. You know, our own demand for deposit growth has obviously changed as well, being 90% funded by deposits with a flat balance sheet expectation going forward. And so, you know, we feel pretty good about where we are.

Speaker Change: We have taken off liquids, we took another five basis points.

Speaker Change: How far off our savings product this morning.

Speaker Change: We continue to feel great about the deposit flows we're getting.

Speaker Change: And so we've seen the competitive environment for deposits is clearly east Aro.

Speaker Change: Ireland demand for deposit growth.

Speaker Change: He has obviously changed as well being 90% funded by deposits with a flat balance sheet expectation going forward.

Speaker Change: And so we feel pretty good about where we are.

Russell E . Hutchinson: You know, as I said to Ryan earlier, it's hard for us to say at this point whether what we've done is we've just pulled forward cuts to pricing that we would have made later or if we're, you know, if we're on track to a lower place. You know, I'd say our overall forecast in terms of exit rates is conservative. We consider a range of different rate scenarios, including the possibility of Fed funds being flat for the remainder of the year.

Speaker Change: Yes, I think I have said to Ryan earlier.

Speaker Change: Hard for us to say at this point, whether what we've done is we've just pulled forward.

Speaker Change: Cuts to pricing that we would've made later or if we're if we're on track to a lower place.

Speaker Change: I would say our overall forecast in terms of exit rate is conservative we consider a range of different rate scenarios, including the possibility of fed funds being flat for the remainder of the year.

Russell E . Hutchinson: And as you'd expect, our pricing assumptions actually change depending on, you know, the actual path of Fed funds and the overall competitive environment. So it's hard to give you kind of one because we look at a lot of different paths. But again, through a range of paths, given the quality, given the strength of the repricing we're seeing on the auto loan side, given the hedging portfolio that we have in place, we feel pretty good about our exit rate and our overall NIM guidance for the year.

Speaker Change: You would expect our pricing assumptions actually change depending on the actual path of fed fund five funds in the.

Speaker Change: And the overall competitive environment. So it's hard to give you a kind of one because we look at a lot of different paths.

Speaker Change: But again through a range of path given the quality of that given the strength of the repricing were seeing on the on the auto loan side.

Speaker Change: Given the hedging portfolio that we have in place we feel pretty good about our exit rate.

Speaker Change: And our and our overall NIM guidance for the year.

Operator: Our next question will come from the line of Bill Carcache with Wolf Research Securities.

Speaker Change: Okay. Thank you.

Speaker Change: Our next question will come from the line of car cash with Wolfe Research Securities.

Bill Carcache: Thank you. Good morning, Doug and Russ.

Carl Cash: Thank you good morning, Doug and Russ flat reserve rate versus following DQ formation suggest growing conservatism, what's the trigger that would give you comfort, allowing that reserve rate to drift back down to a day one levels. Let me flip. The question are you seeing anything that.

Bill Carcache: A flat reserve rate versus falling DQ rate formation suggests growing conservatism. What's the trigger that would give you comfort allowing that reserve rate to drift back down to day one levels? And let me flip the question. Are you seeing anything that... could lead you to have to take reserves?

Bill Carcache: It could lead you to have to take reserve coverage higher from here.

Russell E . Hutchinson: I think as we sit on the call, our expectation is, you know, we'll keep that reserve coverage flat. I don't think it reflects any, you know, any particular conservatism on our side. You know, it's just, it's, you know, quite frankly, it's kind of how we're running the business today. And it reflects in some ways the fact that, you know, as we look at the assets we're originating today versus what we would have originated in, say, 2019, we are focusing on a product with a richer yield and that carries more credit with it. And, you know, we think we're getting more than compensated for the additional credit that we're taking, but it's a different mix and a different place on the credit spectrum than we would have been in 2019.

Bill Carcache: Yes.

Bill Carcache: I think as we said on the call. Our expectation is we will keep that reserve coverage flat.

Bill Carcache: I don't think it reflects any any particular conservatism on our side.

Bill Carcache: Yes.

Bill Carcache: It's <unk>.

Bill Carcache: Quite frankly, it's kind of our how we're running the business today and it and it reflects in some ways.

Bill Carcache: The fact that.

Bill Carcache: As we look at the assets, we're originating today versus what we would have originated in 2019, we are focusing on a product with a richer yield.

Bill Carcache: And that carries more credit with it and we think we're getting more than compensated for the additional credit that we're taking.

Bill Carcache: But it's a different mix.

Bill Carcache: In a different place in the credit spectrum than we would've been in 2019.

Bill Carcache: Okay.

Bill Carcache: On interest rate risk, you guys put on the hedge in part as protection for a higher-for-longer rate environment, and it seems to have performed as intended. How are you thinking about any potential future incremental hedging activity as the rate environment evolves?

Bill Carcache: Understood.

On interest rate risk you guys put on the hedge in part as protection.

Bill Carcache: Higher for longer rate environment, and it seems to have performed as intended are you thinking about any potential future incremental hedging activity as the rate environment evolves.

Russell E . Hutchinson: You were pretty happy with the performance of the hedges. I think they're performing as intended. They are a bridge for us right there. They bridge that kind of natural portfolio turnover to the more recent higher yielding originations. At this point, our expectation is that we will allow those hedges to amortize, and that we're kind of in the right place in terms of bridging that portfolio turnover. But obviously, we manage dynamically, and you know, and we'll continue to kind of assess the situation as we see market dynamics play out.

Bill Carcache: You were pretty happy with the performance of the hedges I think theyre performing as intended.

Bill Carcache: A bridge for US right there at the bridge to that kind of natural portfolio turnover to the more recent higher yielding originations.

Bill Carcache: At this point our expectation is that we will allow those hedges to amortize.

Bill Carcache: And that we're kind of in the right place in terms of in terms of bridging that portfolio turnover.

Bill Carcache: But obviously, we managed dynamically.

Bill Carcache: Yes.

Bill Carcache: We'll continue to kind of assess the situation as we see market dynamics play out.

Bill Carcache: Thank you for taking my questions.

Speaker Change: Thank you for taking my questions.

Operator: Our next question comes from the line of John Pancari with Evercore ISI.

Speaker Change: Thanks Bill.

Speaker Change: Our next question comes from the line of John <unk> with Evercore ISI.

John Hecht: Hey, how's it going? This is Chase Haynes on for John Pinkerry.

Speaker Change: Okay.

Speaker Change: Hey, How's it going this is Jason on for John Kerry I want to try to get a sense for.

Chase Haynes: I want to try to get a sense for consumer auto loan demand. Just given what you're saying about elevated insurance premiums due to those higher inventory levels, is that due to a decrease in demand that you're seeing in big ticket items? Or is that just a normalization effect? And do you expect consumer auto demand in the coming quarters to kind of remain where it's been at or decrease or increase a bit?

Auto consumer auto loan demand just given what you are saying about elevated insurance premiums due to those higher inventory levels.

Jason: Due to a decrease in demand that youre seeing in big ticket items or is that just the normalization of stack. Then do you expect consumer auto demand in the go forward quarters to kind of remain where they've been at or decrease or increase a bit.

Douglas R. Timmerman: Well, I think it's a little bit unique to us because, if you look at our application flow and what we've been, you know, hitting records quarter after quarter after quarter, so we're getting a greater market share of application flow, which obviously gives us a significant, you know, kind of an advantage, if you will, relative to what we can originate. And then, of course, you put that on top of, you know, a competitive environment that is very constructive for growth.

Speaker Change: Well I think it's a little bit unique to two loss because if you look at our application flow and what we've been hitting records quarter after quarter after quarter. So we're getting a greater market share of application flow, which obviously gives us.

Speaker Change: <unk>.

Speaker Change: Kind of up if you will relative to what we can originate and then of course, we have put that on top of a competitive environment that is very constructive FERC growth. Those are the relative drivers, but yes, I think the general market is such that.

Douglas R. Timmerman: Those are the real two drivers. But, yeah, I think the general market is such that, you know, I think volumes would be pretty consistent or flat, but I think our ability to do more is heavily driven just from the fact that we're driving that increased application flow.

Speaker Change: I think volumes would be pretty consistent or flat by the ASIC our ability to do more is heavily driven just by the fact that we're driving that increased application flow.

Chase Haynes: Got it. Thank you, guys.

Sean Leary: That, of course, also allows us to be selective as to where we want to play on top of it. Thank you, Doug. We're showing right at the top of the hour here. So that's all the time that we have for today. As always, if you have any additional questions...

Speaker Change: Got it thank you guys.

Speaker Change: Yes.

Speaker Change: That of course also allows us to be selective as to where we want to play on top of that.

Speaker Change: Okay.

Speaker Change: Thank you Doug Schoen right at the top of the hour here. So that's all the time that we have for today as always if you have any additional questions. Please feel free to reach out to Investor relations. Thank you for joining US. This morning that concludes today's call.

Operator: Thank you for joining us this morning. That concludes today's call.

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

Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.