Good day and thank you for standing by. Welcome to the Q3 2026 Ally Financial Earnings Conference Call. At this time, all participants are in a listening mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. Thank you, Daniel. Good morning and welcome to Ally Financial's third quarter 2026 earnings call. This morning, our CEO, Michael Rhodes,

and our CFO, Russ Hutchinson, will review Ally's results before taking questions. The presentational reference can be found on the investor relations section of our website, ally.com. Forward-looking statements in risk factor language governing today's call are on page two. GAAP and non-GAAP measures pertaining to our operating performance and capital results are on page 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 Michael.

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

Thank you, Michael. I'll begin by walking through third quarter performance on slide six. Net financing revenue excluding OID of $1.8 billion was up 10% year-over-year. Growth was in our core portfolios and lower funding costs for the continued NII expansion. Adjusted other revenue of $579 million was up 4% year-over-year. We continue to see solid momentum across our diversified revenue streams, insurance, smart options, and passive programs. Provision expense of $529 million was up $114 million year over year, primarily due to peaceful reserve bills associated with continuing strength in asset growth. Our retail auto portfolios were $2.4 billion in the quarter, which led to nearly $90 million of peaceful reserve bill in the period. Over time, this growth contributes to future earnings, but presented a 3Q headwind of roughly 20 cents to ETS and 200 basis points to ROTCE. We saw 9% operating leverage as adjusted non-interest expense of $1.2 billion was relatively flat year over year reflecting ongoing discipline and weather losses which were slightly favorable to our baseline expectation. Let's move to slide seven to discuss margin in detail. Net interest margin excluding OID of 3.66% increased three basis points quarter over quarter as the full benefit of second quarter deposit pricing actions is largely offset by losses on lease termination. Retail auto portfolio yields, excluding the impact from hedges of 9.2%, was down sequentially, but given current originated yields, we anticipate the portfolio yield to migrate higher over time. Consistent with commentary at an industry conference last month, lease yields in the quarter included a $16 million loss on lease termination, reflecting continued pressure on Stellantis auction prices and residual values stemming from broader brand and recall-related overhang. Given the current mix of our lease portfolio coming to termination, we expect the resulting pressure to persist into 4Q. Looking beyond that, we would expect the headwind to abate as we move through 2027 and the portfolio continues to shift towards a more diversified OEM mix. Importantly, and since announcing our partnership with Appure's Battery Electric OEM in March 2024, approximately half of our lease origination volume includes residual value guarantees, reducing the proportion of the portfolio subject to volatility and residual value. We continue to deliver strong earning asset growth, supporting the ongoing remixing of our balance sheet into higher return assets. Average earning assets were up 7% year-over-year, with growth continuing to be concentrated in retail auto and corporate finance. Ending retail auto assets were up 8%, while corporate finance loans were up 40%. Growth in these asset classes continues to replace the runoff of lower yielding mortgages, providing a structural tailwind to net interest margin over time. On the liability side, Cost of funds decreased three basis points quarter over quarter, driven by the full impact of deposit pricing actions taken during the second quarter. The deposit customers grew for a 70th consecutive quarter and are up 70% year over year, reflective of the strength of our brand and unique value proposition that Michael highlighted earlier. Given the expectations for a series of Fed hikes, I want to provide color on how we expect our margin trajectory to unfold, given the composition of our balance sheet. Movement in benchmark rates impacts the pace and magnitude of remaining NIM expansion to our upper threes target, but we remain confident across a range of FedPACs. In the near term, our balance sheet is slightly asset sensitive as our roughly $60 billion in floating rate exposures reprice higher. That benefit moderates as our retail deposit portfolio reprices higher, ultimately inflecting toward liability sensitive over the medium term. Over time, the retail auto portfolio reprises higher with benchmark rates supporting NIM expansion. In addition, the tailwind from asset remixing will continue to drive margin expansion toward our upper threes target. I'll cover guidance in more detail later, but despite the evolving rate environment and near-term lease dynamics, we remain confident in the full-year guide and a path to exit the year around the high end of the range we provided in January. Turning to page eight. CET1 of 10.2% is up approximately 10 basis points versus the prior year. Under the current proposal for RSA, our CET1 would be 8.8% when fully phasing in AOCI, with ERDA providing roughly 30 basis points of additional benefit. During the quarter, we executed our second credit risk transfer of 2026, generating more than 25 basis points of CET1 at issuance. We continue to execute on the story of Ann. We're supporting accretive, disciplined growth across our core franchises, maintaining healthy capital levels, and returning capital to shareholders. We've grown the retail auto and corporate finance portfolios 12% year over year, and have repurchased nearly $500 million in shares over that period, further demonstrating our ability to deliver on our capital priorities. Earlier this week, We announced our quarterly dividend of $0.35 for the fourth quarter. This was the first increase to our quarterly dividend since 2022, reflecting our improved earnings power, strengthened capital position, confidence in the path ahead, and commitment to returning capital to shareholders. Additionally, at the end of the quarter, adjusted tangible book value per share was $41, up 5% over the past year. underscoring our continued focus on delivering long-term shareholder value. Our capital levels were influenced by rate movement during the quarter. However, the magnitude of that impact was mitigated by deliberate actions we have taken to lower our exposure to rate volatility. Over the past several years, we proactively repositioned a portion of the securities portfolio, reinvested into shorter-duration instruments, and continue to strategically hedge the balance sheet. Our strategic actions are working, resulting in a more resilient balance sheet and a more durable capital base. On slide nine, we'll review asset quality trends. Consolidated net charge-offs of 117 basis points were up six basis points sequentially due to seasonality and were roughly flat year over year. Within retail auto, net charge-offs of 189 basis points were up 32 basis points quarter over quarter and roughly flat two a year ago. On the top right of the page, 30-plus all-in delinquencies of 4.96% were up six basis points from the prior year. Reserved detail is included at the bottom of the page. The consolidated coverage rate of 2.49% was flat quarter over quarter, while retail auto coverage of 3.74% was down one basis point. Our coverage levels continue to balance stable credit trends across our portfolios against broader macroeconomic uncertainty. Consumers have continued to demonstrate resilience that we monitor several factors including persistent inflation, affordability pressures, elevated oil prices, and lower personal savings rates. It is important to note that our underwriting approach is not static. We continuously leverage emerging data and insights to refine our buy box for the operating environment. We continuously curtail, reprice, and make changes to automated decisioning for segments we may like less and vice versa. While the portfolio is performing largely in line with our expectations, our late 2025 and early 2026 vintages are showing higher early life delinquency, which are being closely monitored. We noted a richer origination mix in 1Q in terms of yield and credit, which comes with higher delinquency. The 2Q and 3Q vintages are comparatively tighter in yield and Credit, which we expect to exhibit lower levels of delinquency. Vintage performance can fluctuate quarterly as we calibrate alongside evolving conditions in the market and with seasonal patterns. That is why we think it's important to look at full-year vintages, which better reflect our disciplines through the cycle approach. We remain confident in the full-year guide and, importantly, the portfolio overall. Moving to slide 10 to review auto segment highlights. Free tax income of $337 million was lower year-over-year primarily due to diesel reserve bills associated with continued strong retail assets. On the bottom left, we've highlighted the trajectory of retail auto portfolio yields. Excluding the impact from hedges, yields were slightly down quarter-over-quarter. Third quarter originated yield of 9.44% was up approximately 35 basis points quarter-over-quarter. reflecting continued pricing actions on like-for-like segments, higher benchmark rates, and a modest decline in SDR. We took pricing actions throughout 3Q, exiting the quarter with originated yields in the upper 9% range. On the bottom right of the page, $12.9 billion of consumer originations were up 10% year-over-year as we continue to benefit from our strategic efforts to align dealer incentives to drive record application flow. sustained strength in application volume remains a key competitive advantage and we continue to believe there is runway ahead. Our expansion of the top of the funnel is providing increased opportunities to assess credit, enabling us to be selective in underwriting to optimize risk-adjusted returns. The application flow has enabled further growth in our pass-through program where we generated a second consecutive quarter with more than $1 billion of off-balance sheet origination volume. Given this momentum, We've grown our service portfolio, which contributes accretive fee income, evidenced by the 20% year-over-year increase in auto other revenue. Turning to insurance from slide 11. Court pre-tax income was $75 million, up $23 million year-over-year. Total written premiums of $388 million were up $3 million year-over-year. Insurance losses of $135 million were down $6 million year-over-year. Insurance continues to provide durable, capital-efficient revenue and remains a key driver of our long-term growth strategy. We continue to leverage synergies with auto finances to sustain momentum within the business and deepen our all-in dealer value proposition, supporting our dealer partners in all aspects of their business. Turning to corporate finance on slide 12, the business delivered another strong quarter with pre-tax income of $98 million and a 22% ROE. The team continues to demonstrate their ability to scale responsibly, with the portfolio ending the quarter at $15.8 billion, up 40% over the past year. Most of the growth during the quarter was driven by existing lending relationships, and we served as lead agent on nearly 90% of the commitments originated in the quarter. The team exercises a conservative risk management approach, supported by a relationship-based model grounded in a deep understanding of our clients' businesses. We're pleased with the momentum as we leverage a consistent strategy that focuses on disciplined credit risk management and has delivered annual losses of less than 30 basis points since our IPO. The portfolio is comprised of 100% first lien, senior secured floating rate loans. The power of our model is evident in the consistent credit performance of the portfolio, which remains strong, and in the compelling returns delivered by the business. On page 13, I'll conclude with a brief update on our financial outlook. With only one quarter remaining, we are updating our outlook to provide a more defined range while continuing to reflect our confidence in achieving or exceeding all aspects of the full year guide we laid out in January. Despite an evolving rate environment, with Fed funds expected to end the year roughly 100 basis points above our January guidance assumptions, as well as acute lease residual pressures throughout the year, We continue to expect NIM to remain within our initial guide and are now expecting full-year NIM to fall between 3.6% and 3.65%. As we look to the fourth quarter, we see NIM around 3.7%. Turning to other revenue, we are tightening our outlook to be up 2% to 4% compared to our prior guide of flat to up 5%. Our outlook for retail NCOs remains consistent as we track toward the midpoint of our guidance range. At the consolidated level, this translates to an NCO rate at the low end of our guidance range and reflects the strong performance of our commercial portfolios. Given our disciplined approach to expense management, adjusted non-interest expense is now expected to be flat to up 1%, slightly lower than the prior guide. Looking at growth, we've seen strong momentum in our retail auto and corporate finance origination. We are once again increasing the outlook for average earning asset growth. We now anticipate 5-6% growth year-over-year, up from 3-5% previously and 2-4% at the start of the year. As a reminder, this growth carries CECL Reserve bills up front. Our tax rate guidance remains unchanged and we continue to expect our full-year rate to land in the 20-22% range. In total, our focused strategy and disciplined execution continue to drive improving operational and financial performance. While we have made significant progress, our focus remains on sustaining our momentum and executing on the meaningful opportunities ahead to deliver compelling long-term value for our shareholders. And with that, I will turn it over to Dan for Q&A. Thank you, Russ.

As we head into Q&A, we do ask that participants limit yourself to one question and one follow-up. Daniel, please begin the Q&A.

As a reminder, To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Ryan Nash with Goldman Sachs. Your line is open.

Hey, good morning, guys.

Good morning, Ryan. Thanks for joining us.

Good morning, Russ. So clearly you guys had a strong PPNR performance this quarter. However, we did see delinquencies flip from down year over year to up, and charge-offs seem to be tracking with the middle of your guidance. Russ, I know we'll get formal guidance at some point next year, but maybe just talk about the pluses and minuses on credit into 2027, whether it's around the vintages. I know you highlighted pieces of late 25 and early 26, or it's other factors. And Do you expect to make progress towards your long-term target of 1.6 to 1.8, or do you think we could go sideways or even increase given the recent portfolio trends? Thank you.

Great. Thanks, Ryan. Thanks for your question. Very good question, as usual. And maybe as I start out, I'd just like to say, I guess, first of all, we're pleased to see the portfolio performing this year according to our expectations. You know, we started the year, we talked about a guide of 1.8 to 2%. We're very much performing towards the middle of the guide, which is exactly where we pointed people. You know, if you think about flow to loss and used vehicle prices, you know, we talked earlier in the year about the support that we were getting from favorable flow to loss and strong used car prices in the market. And, you know, we also talked at the time about the fact that we expected those factors to continue to be supportive, but less supportive as we work through the year. And that's played out pretty much as we expected. And so we talked about earlier in the year the fact that we expected the year-over-year comparisons to look much like they did in the third quarter, with NCOs flattening out and with the possibility of delinquencies being off the touch. And so as far as we're concerned, as we see the portfolio playing out, It's playing out very much as we expected it to play out. You mentioned vintages, and I know vintage will get a lot of attention when we release the queue in a little bit. And as we've said before, we look at the portfolio overall performing according to expectations. When we look at the 25 and 26 vintages, from a delinquency perspective, they're moving ahead of the 2024s and as we've said before that that 2024 vintage performed better than expectation and so we expected to see some normalization in terms of the performance of the 25 and 26 vintages um and and we underwrote for for that um you know as you look at and as we said in the prepared remarks a couple minutes ago you know if you look at the the 25 and 26 vintages a little bit more closely We are seeing elevated delinquency in kind of the late 2025 and early 2026 vintages. And I just remind you, you know, we try to focus people on the annual vintages. You know, quarter to quarter, there's a lot that goes on. And so, for example, as I look at the first quarter 2026 vintage, you know, even at the time we originated it, we talked pretty transparently about the fact that it was rich, both in terms of credit content as well as in terms of yield. When we reported back in April, we talked about a measured posture given a lot of what was going on as well as seasonal dynamics that would drive our origination mix cleaner as we move through the year. And that's certainly what played out as we moved through second quarter and third quarter. And so as we look at the vintages, we understand people will spend a lot of time looking at those curves. but from our perspective, they're playing out very much as expected just given the credit content that we have in those various vintages. And I remind you, if you think about full year 2026, we very much pointed people towards the expectation that we're gonna originate an S tier mix that's probably in the low to mid 40s and that's still very much our expectation. And so as we look forward, we're again pleased to see credit evolving through 2026 in line with our expectations and again in line with the midpoint of the range that we provided back in January. Now, as you pointed out, it's early to give 2027 guidance. We learn a lot as we move through the course of the fourth quarter. And as you know from prior years, we typically provide guidance early in 2027, so in January. We provide guidance for 2027, having the benefit of all the stuff that we learned going through the closeout of the year. So we expect to learn a lot. We're certainly not going to give 2027 guidance right now at this point. But I would say just kind of sitting here today, our expectation is for 2027 to look a lot like 2026 from an NCO perspective. Now, you mentioned in your question, you know, our you know our origination appetite are kind of one six to one eight percent range and the trajectory and the timeline that moves towards that and I just want to make sure I remind you that you know our approach to underwriting is pretty dynamic as you'd expect and you know as we mentioned earlier in the prepared remarks you know we're constantly looking at our origination mix looking at our portfolio on a pretty granular segmented basis and you know we're looking for pretty granular segments where we either curtail or we reprice or in some cases we just make changes to automated decisioning in order to readjust the composition of our book. And as we think about our risk appetite in that 1.6 to 1.8% range, I would say if you look over the course of certainly the later part of 2025, you look at where we're originating today, we're very much originating towards the higher end of that appetite. And so when I think about the trajectory to get from kind of where we're operating today in 2026 to kind of getting under or getting into that range, we don't expect a step function change just given the proximity there. We expect it to be more of a drift. And Michael pointed this out in his remarks earlier. When we talk about a drift, it's not necessarily a straight line. We could be impacted positively or negatively in any given quarter just based on the seasoning of various vintages as well as what's playing out in the macro.

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

It's another great question, Ryan, and I do appreciate it. Your questions seem to follow the path of your note earlier this morning that you published. Try to keep it simple. I'm going to go back to something I said in the prepared remarks. And maybe before I start there, maybe just to start, nothing's changed from our perspective as we think about our trajectory for the high-throughs NIM. But going back to my remarks more specifically in about fourth quarter, you know, we pointed you towards an exit rate for 2026. That's around the high end of the range that we gave at the beginning of the year, the 3.6 to 3.7%. Obviously, as you pointed out, a lot's changed over the course of the year in terms of the rate trajectory. We've talked about headwinds we have related to Stellantis vehicles coming back from lease as well. That's certainly cost us more than a few basis points over the course of this quarter. But again, I want to make sure you understand, when we talk about that stuff, when I point you towards the height of the range, it's not pointing you towards basis point precision. in terms of where we expect to end up. Because you know as well as I do, on $1.8 million of net financing revenue in a given quarter, $4 million can move us a basis point in one quarter. So I don't want you to put a too high degree of precision on kind of where we are. But what I do want you to understand is the direction, right? And so as Michael pointed out earlier, this is one of those areas where It's not going to be a straight line, but the direction is pretty clear. And so when I think about the direction, the things that are driving our NIM upwards on a sustainable basis, it's really what's going on in our business on both the asset and the liability side. The way we've remixed our liability mix towards deposits, the way that we're exercising discipline in the pricing on the deposit side of our book, and then it's on the asset side as we're moving our balance sheet more towards our higher earning assets. And so you've seen that strong growth in retail, auto and corporate finance, continued runoff of the mortgage book as well as lower yielding legacy mortgage securities. We continue to move our balance sheet towards a place that's gonna support higher net interest margin on a go forward basis. And I don't want the quarter to quarter volatility or the quarter to quarter moves of a few basis points here or there to change your perception of what's going on on a longer term basis. I mean, if I look at 3226 versus 3227 and I look at net interest margin up 34 basis points, obviously a lot's changed in the way we run our business and how we manage our rate risk. If I look at it in terms of risk adjusted margin, net interest margin minus consolidated NCOs, we're up Thank you. Thanks, Russ.

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

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

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

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

Okay, thanks.

And then on capital return, you've stepped up the buyback in the third quarter versus the first half, also increased the dividend, also increased the earning asset. growth outlook.

You've got higher rates, so just a lot of moving parts with respect to capital.

And I, you know, the message had been low and slow, but this is kind of a less low and less slow trajectory right now. So just wanted to get your updated thoughts there and sustaining the buyback at this pace or even increasing it.

Yeah, no, it's a good question, Rob. And I'd say maybe first of all, from our perspective, nothing's changed in our approach to capital. and we very much are executing on our story of and. As you can imagine, when we restarted our share repurchases, I guess, in December of last year, we thought very much about just the volatility that AOCI brings to the new volatile crude capital requirements and we thought about all that before we embarked on it and that was very much you know why we started with our low and slow approach so we we didn't feel like from the get-go um you know we were taking our capital levels to limit we we we thought we were kind of managing around you know what we thought were kind of that kind of long-term kind of volatility that we'd expect in our book with AFCI and and also just mindful of kind of where the business is in terms of profitability and capital generation um and maintaining healthy capital levels and so where we sit today As Michael pointed out, it's very much about the story of and. It's about maintaining healthy capital levels. It's about supporting the growth of our businesses. And it's about returning capital to shareholders. And maybe if I double click on those a little bit and start on the maintaining healthy capital levels, where we sit today, we feel the heavy lifting around our capital bill that is behind us. Our CET1 under the current standardized approach is north of 10%. when you look at our capital from a revised standardized approach under B3 or an enhanced risk-based approach, IRBA, and we expect that to be finalized with the transition period, but we'd expect given where we're starting from, we'll be able to manage very nicely towards getting those capital ratios to where we want them to be. We can effectively allow our capital to drift up. And so we sit where we think we are maintaining healthy capital levels. In terms of supporting the growth of our businesses, I think you've seen that over the course of this year as we've grown our retail auto and corporate finance books in particular. We are not growing for the sake of growing. We're growing where we're getting accretive returns that support our profitability aspirations long term. And so again, I think we feel pretty good about our ability to support the growth of those businesses. And then you mentioned capital, you know, and then there's the capital return, the third piece of that. And again, I think as you mentioned, you know, through our share repurchase program and our dividend, you know, we're aiming to get our capital return where we think it should be based on the profitability of the enterprise, our ability to generate capital, and mindful of our need to maintain healthy capital ratios under kind of whatever the prevailing regime is going to be, whether it's current standardized approach or it's RSA or enhanced risk-based capital.

Thanks a lot.

Thank you. Our next question comes from Sanjay Sakrani with KBW. Your line is open.

Thank you. Good morning. Maybe just to go back to the credit quality questions, I guess, Michael, you've talked about, you know, this healthy paranoia about the health of the consumer, and obviously the consumer's have been quite resilient and against all odds done extremely well. And that's been reflected in your credit quality. But, you know, is there anything you're seeing that gives you any pause? I mean, I know these later vintages have seen slightly elevated delinquencies. Was there anything specific in the underwriting of those vintage, you know, that part of the vintage that kind of is creating that and maybe priced for it? But maybe you can just give us a little bit more on big picture consumer and then those specific vintages. Yeah, maybe I'll kick off, and then, Michael, you can chime in here. I guess, first of all, I'd say credit, again, performing as expected. And so we're pleased to see that. And Sanjay, as you pointed out, consumer is resilient. And I think that's supported by what you see in terms of relatively low unemployment levels. But we're still watching. There are a number of things we're monitoring, right? And we're looking in particular at gas prices, at general affordability and inflation, at personal savings and real wage growth. And so we're looking at all those factors in terms of what we see. As you pointed out, we are seeing elevated delinquency in some of those kind of late 25, early 26 vintages. A lot of that in our view is just reflective of the credit content that's in those books. And so nothing we're seeing gives us a ton of concern right now, but As you'd expect, we're watching a number of factors and we're adjusting our underwriting on a very real-time basis. So you can rest assured that we're constantly looking through our book and picking through segments that are overperforming or underperforming relative to credit and making the adjustments that we need to make on a real-time basis. So hopefully that gives you a sense of kind of how we're thinking about it, but those are all factors that we're looking at right now.

And then Russell might add, you know, the higher end consumers seem to have plenty of discretionary, you know, expenses and I think they're fueling part of the consumer economy. There's a segment of customers that are probably, you know, involved what I call kind of cash sorting. They're kind of prioritizing and triaging on a monthly basis, you know, where they're putting their dollars. Against that backdrop, unemployment is quite destructive. and so we feel good about that. And as I said, the consumer's been resilient and I think I might have said, it was probably close to a year ago, it's like the consumers don't read the headlines and that's how there's kind of a wall of worry and yet the consumer keeps on being resilient through this process and so that's kind of what we're seeing.

Well, that's great. and maybe just one other clarification question. You know, obviously the rate outlook's changed and you guys talked a lot about it, but as we think about the originated yield, that obviously saw some increase and you guys continue to believe that that can move higher as the rates move higher even sort of keeping the same standard of underwriting that you guys have had before and then maybe just alongside that you know a lot of discussion around agentic commerce and news etc. I'm just curious as we think about You know, consumers having more access to information and financial alternatives. Is there something we need to think about in terms of that and how allies positioned? Thank you. Sure. You know, I didn't quite catch your originated yield question, Sanjay. And, you know, I think what you're looking at is just kind of how we think about originated yield, you know, as we see an evolving rate environment. and I think as we've said in prior discussions when we think about pricing on the origination side you know we obviously we look a lot at kind of where fed funds is we also look at swaps at the two and three year mark is as we think about just how how we and various competitors think about profitability of the overall portfolio and so I say look the you know changing rate has been constructive in terms of moving portfolio yield up. But we are very much focused on the spread that we're getting, whether it's the fed funds or the slots. And there I'd say we feel encouraged in terms of our ability to drive to, you know, to maintain and to drive to potentially a stronger originated yield spread as we move forward. So, again, we feel like the competitive environment, the traction that we have with dealers, The strength of our franchise are all supportive of us on the pricing side.

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

Thank you. Thank you.

Our next question comes from Sanjay Sikrani with KBW.

Your line is open.

I think I already asked my question.

Daniel Sanjay. Yeah, Sanjay already asked it.

I think we have somebody else coming up.

Thank you. Our next question comes from Moshe Orenbuck. Your line is now open.

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

Yeah, it's certainly constructive and, you know, I think even kind of beyond near-term rate moves, I feel like our platform is advantaged based on the strength of our relationships. You know, I would say as you think about it, you know, as you think about kind of pricing in the industry generally, I guess number one, I think the capital markets anticipate it You know, certainly some of what we saw in rates in terms of the swap markets having been moving all year long effectively. And I think as we think about some of our competitors, they're not, you know, they may not be as quick to react as you might think. And so I think we got a lot of support just from the strength of the franchise. I do think the changing rate environment is also constructive for us from a pricing perspective. but again, it doesn't take the pressure off of us to aggressively invest in our relationships and to manage our business and to exercise discipline as we go to market every week.

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

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

That's a great question, Moshe. You know, as you've noticed, you know, over the course of the last couple of years, you know, we've been more opportunistic about the way that we manage the capital intensity of our auto business. And so you mentioned the CRT. We did the largest North American retail auto CRT that we're aware of in the third quarter. Yeah, that's been a great way for us to manage the capital intensity of the business. The capital relief that the CRT provides, you know, has, you know, effectively an attractive source of capital for us, you know, augmenting the returns of our business. Pass-through is another area you mentioned. We mentioned a few minutes ago we had another quarter of a billion dollars plus of pass-through volume. That's volume that doesn't hit our balance sheet, and so it's completely off balance sheet. And it's a great source of fee income. We get a fee at origination, and we get servicing fees on a go-forward basis. It's also a great way to support our dealers to augment our own credit box by helping our dealers effectively sell more vehicles. And look, we're opportunistic and we're always kind of looking for ways to think about capital in an opportunistic way. I think you probably remember a couple of years ago, we took some of our existing securities to basically book the sale of loans through the ADS markets. So we look at a number of different opportunities from time to time in terms of looking for the most efficient way to manage our capital, to lessen the capital intensity of the auto business, and also to improve our returns.

Great. Thanks, Russ. And then just to stay in the obvious, there's obviously a bill from CECL that comes with the strong growth we've had Thank you. Our next question comes from Jeff Adelson with Morgan Stanley. Your line is now open.

Hey, good morning, guys. Thanks for taking my questions and putting me in here. Just maybe wanted to understand, you know, I appreciate all the comments around NIM and yields from here and you're exiting the quarter at a high 9% originated yield. I guess As we think about this migration higher over time, how do we think about the near-term trajectory? I mean, I think if I have it correct, about three years ago, you were originating in more in the 10.5 to 11. So is there maybe a little bit more, is this more of a back-loaded 27-type migration as you sort of still have to burn off the higher-yielding loans from a few years ago? Or just help us understand that trajectory a little bit from here and maybe the opportunity to continue migrating higher. Yeah.

It's a great question, Jeff. I think one of the things that we haven't focused on so far is originated yield to portfolio yield. And as you saw in the third quarter, the portfolio yield actually came down a touch. It X hedges to 9.2%. And that portfolio yield at any given point in time, it reflects the seasoning of various vintages that are on the book, what's kind of coming off and what's What's coming off the book and what's going on in the book in terms of what we originated in a given quarter. With the momentum that we have right now on originated yield and kind of what you saw in the third quarter, our expectation is that portfolio yield is going to drift off as we move forward. Now, again, don't expect any step function changes in portfolio yield. Think about more of a drift. But just as it's kind of drifted a little down, we do expect that, you know, over the next few quarters, it ought to drift upwards as we get the benefit of some of these quarterly vintages for higher opportunity yields.

Okay.

Okay, great. Just in terms of deposit betas, I don't think we've really touched on that yet. Is your expectation still that you'll end up somewhere, I think you talked about a cumulative beta around 70% in prior cycles. Is there anything that would be different about this cycle, whether it be agentic, deposit competition, just how you're thinking about that impact. And I know you've also talked a bit about the tail benefit of CDs repricing into your liquid deposits in the OSA rate. Is that happening anymore? Is there still a little bit of a tailwind from that dynamic? Or is that largely gone just given where you're putting new CDs out there in the current market? Thanks.

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

Thank you.

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

Jeff, can you talk a little bit about expenses in the context of tech and AI?

I mean, really, I kept a check on expenses over the last few years, but banks are spending a lot.

I'm just curious how you're thinking about that as you look into next year and beyond.

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

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

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