Ally Financial Reports Q3 Adjusted EPS of $1.34, Up 16%

Ally Financial (NYSE: ALLY ) reported third-quarter financial results on Tuesday. The transcript from the company's third-quarter earnings call has been provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

Access the full call at Summary Ally Financial reported Q3 2026 adjusted EPS of $1.34, a 16% increase year over year, with adjusted net revenue of $2.3 billion, up 9% from the previous year. Retail auto and corporate finance assets grew nearly 15% over two years, while core ROTCE increased from 5% to 13%. CET1 stands at 10.2%, up 10 basis points year over year. The company launched Loyally, a loyalty program to enhance customer value, and reported strong performances in its Dealer Financial Services and Corporate Finance segments.

Retail auto originations were $12.9 billion, up 10% year over year, while the Insurance segment's written premiums increased slightly to $388 million. The company remains confident in its financial outlook, expecting net interest margin to reach between 3.6% and 3.65% for the full year, with continued asset growth and disciplined expense management. Management highlighted a disciplined approach to underwriting and capital allocation, with ongoing investments in technology and marketing to support business growth and resilience. Full Transcript OPERATOR 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 listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session you will need to press star 11 on your telephone.

You will then hear an automated message advising 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, Dan Ignacio, Executive Director, Corporate FP&A and Investor Relations.

Please go ahead. Dan Ignacio (Executive Director, Head of Investor Relations and Corporate FP&A) Thank you, Daniel. Good morning and welcome to Ally Financial's third quarter 2026 earnings call. This morning our CEO Michael Rhodes and our CFO Russ Hutchinson will review Ally's results before taking questions.

The presentation of reference can be found on the Investor Relations section of our website, ally.com. Forward-looking statements and risk factor language governing today's call are on page 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. Michael Rhodes (Chief Executive Officer) 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 ROTCE 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 disciplined execution, is working. Moving to financial results, third quarter adjusted EPS of $1.34 was up 16% year over year. Adjusted net revenue of $2.3 billion increased 9% year over year, and with noninterest expenses flat, we delivered another quarter of meaningful operating leverage. CET1 of 10.2% was up 10 basis points year over year, and we remain pleased with our ability to execute a story of "and," not "or"—that is, we are growing our core businesses, maintaining strong capital levels, and returning capital to shareholders.

Our Focus Forward strategy remains simple yet powerful. Importantly, none of this happens without our people, and our differentiated brand and culture continue to amplify that strategy. Our teammates bring our promise to do it right to life every day with an unwavering commitment to show up for our customers, communities, and each other. Our Life Today campaign continues to highlight Ally's unique ability to meet customers where life and money intersect in today's world.

Building on our history of disruption and innovation, last month we announced Loyally, our first ever loyalty experience, moving beyond complexity to deliver meaningful value through discounts and seamless experiences with the simple fee-free model our customers know and love. More importantly, initiatives like Loyally demonstrate the investments we're making to strengthen customer relationships and position Ally for the future. Ultimately, our focus is not on delivering compelling results in any single quarter.

It's about ensuring the progress we are delivering today translates into a company that is stronger, more resilient, and capable of generating higher returns for years to come. While I'm pleased with this quarter'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 5. Our market-leading franchises continue to be a source of strength, underpinned by deep customer relationships, differentiated capabilities, relevant scale, and disciplined execution that continue to position us well in the markets we compete.

We continue to build on the momentum across each business with execution translating to accretive growth and improved returns. In Dealer Financial Services, our dealer-centric, through-the-cycle approach is paying dividends. In auto, we decisioned 4.8 million applications, up 20% year over year, as our refined go-to-market strategy continues to expand the top of the funnel and further our reach. In our industry, that application flow translates to $12.9 billion of originations, up 10% year over year.

As we leverage the scale and infrastructure we've built, the focus remains on maximizing risk-adjusted returns. That means pairing attractive growth with a disciplined credit posture. Our data-driven approach to portfolio management and dynamic underwriting continues to translate into more durable credit performance. Importantly, consumers have continued to demonstrate resilience as they navigate an evolving macro backdrop, and we remain encouraged by the performance we're seeing across the portfolio.

Within Insurance, written premiums of $388 million increased $3 million year over year, and a 75% increase year over year in conquest activity reflects continued momentum across the business. Insurance continues to generate diversified, capital-efficient, accretive earnings, evidenced by a year-to-date ROE of approximately 30%. More broadly, our differentiated go-to-market strategy in Dealer Financial Services allows us to support dealers across the entire ecosystem, strengthening 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. Nonaccrual loans and criticized assets remain at historic lows, underscoring the credit-first mindset that's long defined our business. Our established partnerships, underwriting expertise, and speed and certainty of execution remain core strengths of the franchise and support attractive, consistent returns. At the digital bank, our differentiated value proposition and ability to provide exceptional products and experiences continues to drive customer growth that consistently outpaces industry averages.

We now serve 3.6 million customers, up 7% year over year and marking our 70th consecutive quarter of growth. We continue to track highly engaged customers who skew towards Millennial and Gen Z. Our national brand, digital-first operating model, and unmatched experience position us exceptionally well as consumer preferences continue to evolve. In aggregate, these results reflect the strength of our franchises and the benefits of 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 in 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.

Russ Hutchinson (Chief Financial Officer) Thank you, Michael. I'll begin by walking through third quarter performance on slide 6. Net financing revenue excluding OID of $1.8 billion was up 10% year over year. Growth was in our core portfolios and lower funding costs supported continued NII expansion.

Adjusted other revenue of $579 million was up 4% year over year. We continue to see solid momentum across our diversified revenue stream—insurance, Smart Options, and passive programs. Provision expense at $529 million was up $114 million year over year, primarily due to CECL reserve builds associated with continuing strength in asset growth. Our retail auto portfolio grew $2.4 billion in the quarter, which led to nearly $90 million of CECL reserve build in the period.

Over time, this growth contributes to future earnings, but presented a 3Q headwind of roughly $0.20 to EPS and 200 basis points to ROTCE. We saw 9% operating leverage as adjusted noninterest expense of $1.2 billion was relatively flat year over year, reflecting ongoing discipline, and weather losses were slightly favorable to our baseline expectations. Let's move to slide 7 to discuss margin in detail. Net interest margin excluding OID of 3.66% increased 3 basis points quarter over quarter as the full benefit of second quarter deposit pricing actions came through.

Despite this, losses on lease termination largely offset. Retail auto portfolio yield, 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 value stemming from broader brand- and recall-related overhang. Given the current mix of our lease portfolio coming to termination, we expect the resulting pressure to persist into 4Q.

Looking beyond that, we would expect the headwind to abate as we move through 2027 and the portfolio continues to shift towards a more diversified OEM mix. Importantly, since announcing our partnership with a pure battery electric OEM in March 2024, approximately half of our lease origination volume includes residual value guarantees, reducing the proportion of the portfolio subject to volatility in 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 liabilities side, cost of funds decreased 3 basis points quarter over quarter, driven by the full impact of deposit pricing actions taken during the second quarter. Deposit customers grew for a 70th consecutive quarter and are up 7% year over year, reflective of the strength of our brand and unique value proposition that Michael highlighted earlier.

Given the expectations for a series of Fed hikes, I want to provide color on how we expect our margin trajectory to unfold given the composition of our balance sheet. Movement in benchmark rates impacts the pace and magnitude of remaining NIM expansion to our upper-3s target, but we remain confident across a range of Fed paths. In the near term, our balance sheet is slightly asset sensitive as our roughly $60 billion in floating-rate exposures reprice higher. That benefit moderates as our retail deposit portfolio reprices higher, ultimately inflecting towards liability sensitive over the medium term.

Over time, the retail auto portfolio reprices higher with benchmark rates supporting NIM expansion. In addition, the tailwind from asset remixing will continue to drive margin expansion toward our upper three's target. I'll cover guidance in more detail later, but despite the evolving rate environment and near-term lease dynamics, we remain confident in the full-year guide and a path to exit the year around the high end of the range we provided in January. Turning to Page 8, CET1 of 10.2% is up approximately 10 basis points versus the prior year.

Under the current proposal for RSA, our CET1 would be 8.8% when fully phasing in AOCI, with ERBA providing roughly 30 basis points of additional benefit. During the quarter, we executed our second credit risk transfer of 2026, generating more than 25 basis points of CET1 at issuance. We continue to execute on the story of Ally. 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 9, we'll review asset quality trends. Consolidated net charge-offs of 117 basis points were up 6 basis points sequentially due to seasonality and were roughly flat year over year. Within retail auto, net charge-offs of 189 basis points were up 32 basis points quarter over quarter and roughly flat to a year ago.

On the top right of the page, 30-plus, all-in delinquencies of 4.96% were up 6 basis points from the prior year. Reserve detail is included at the bottom of the page. The consolidated coverage rate of 2.49% was flat quarter over quarter while retail auto coverage of 3.74% was down 1 basis point. Our coverage levels continue to balance stable credit trends across our portfolios against broader macroeconomic uncertainty.

Consumers have continued to demonstrate resilience, but we monitor several factors including persistent inflation, affordability pressures, elevated oil prices, and lower personal savings rates. It is important to note that our underwriting approach is not static. We continuously leverage emerging data and insights to refine our buy box for the operating environment. We continuously curtail, reprice, and make changes to automated decisioning for segments we may like less and vice versa.

While the portfolio is performing largely in line with our expectations, our late 2025 and early 2026 vintages are showing higher early-life delinquency which are being closely monitored. We noted a richer origination mix in 1Q in terms of yield and credit which comes with higher delinquency. The 2Q and 3Q vintages are comparatively tighter in yield and credit which we expect to exhibit lower levels of delinquency. Vintage performance can fluctuate quarterly as we calibrate alongside evolving conditions in the market and with seasonal patterns.

That is why we think it's important to look at full-year vintages which better reflect our discipline through-the-cycle approach. We remain confident in the full-year guide and, importantly, the portfolio overall. Moving to Slide 10 to review auto segment highlights, pretax income of $337 million was lower year over year primarily due to seasonal reserve builds associated with continued strong retail assets. On the bottom left, we've highlighted the trajectory of retail auto portfolio yields.

Excluding the impact from hedges, yields were slightly down quarter over quarter.