Ally Financial achieves 166% year-over-year EPS growth, demonstrating strong operational momentum and improved credit performance amid strategic refinements.

OPERATOR - (00:01:25)

Good day and thank you for standing by. Welcome to the third quarter 2025 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 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, Chief Financial Planning and Investor Relations Officer. Please go ahead. Thank you.

Sean Leary - Chief Financial Planning and Investor Relations Officer - (00:02:12)

Daniel. Good morning and welcome to Ally Financial's third quarter 2025 earnings call. This morning our CEO Michael Rhodes and our CFO Russ Hutchinson will review Ally's results before taking questions. The presentation we'll 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 - (00:02:55)

Thank you Sean and good morning everyone. I appreciate you joining us for our third quarter earnings call. Third quarter earnings call. Before we dive into results, I want to reflect on the refresh strategy we rolled out in January which has reshaped Ally into a more focused organization. These changes are not cosmetic, they are foundational and the third quarter provides clear evidence that our strategy is working. If I had to choose one word. To define this quarter, it would be momentum. Not isolated wins, but sustained improvement driven by our 10,000 colleagues who are executing with discipline, urgency and purpose. We are seeing in the traction each of our three core business franchises have with our customers. We're seeing it in our financial performance and we're seeing the way our teams are showing up every day to serve our customers in a compelling way. With that, let's turn to our third quarter financial results. We achieved significant year over year earnings growth with adjusted EPS up 166% to $1.15 per share. Core Return on Tangible Common Equity (ROTCE) was 15% on a headline basis and about 12% excluding the impact of AOCI. These increases are driven by embedded structural tailwinds in the balance sheet, continued credit normalization and disciplined expense and Capital Management. Third quarter adjusted net revenue of $2.2 billion is up 3% year over year. Despite the sale of the card business earlier this year excluding the sale of credit card year over year, net revenue growth was 9%. Net interest margin excluding core OID expanded to 3.55% up 10 basis points quarter over quarter driven by continued optimization on both sides of the balance sheet and we remain confident in our ability to deliver on our medium term target. Meanwhile, Common Equity Tier 1 (CET1) of 10.1% equates to $4.5 billion of excess capital above our regulatory minimum. Importantly, these results reflect momentum across our franchise margin is expanding with a clear path to the upper 3% range. Operating leverage is improving supported by top line revenue growth and disciplined expense management. Credit trends are supportive as delinquency rates continue to normalize and the net charge off rates improved due to underwriting actions and servicing enhancements implemented over the past two years and our capital ratios are growing steadily. Expense discipline remains paramount and this quarter we rolled out our proprietary AI platform Ally AI to 10,000 teammates to help them streamline tasks, automate routine work and make more informed decisions. Looking beyond the financial results, Our unmatched brand and leading culture continue to provide distinct advantages in the markets we serve. Our brand continues resonating in the market as consumers once again choose Ally for a reputation at a higher rate than the industry average. Our employees show up for our customers and communities every day and that impact is felt in everything we do. While recognition is never the goal, Ally was recently honored by the American Banker. With an award for the most powerful women in banking. Women in Banking Top Team. That's a first for a digital only bank. We also climbed the rankings on Fortune's Best Workplaces within our industry. Recognitions like these are a testament to our culture, our people, our people, and what it means to be uniquely Ally. With that context, let's turn to page five and discuss the core franchise that are fueling our momentum and position us for sustained growth moving forward. Dealer financial services continues to be the cornerstone of our performance within the auto finance business. Consumer originations of 11.7 billion were driven by 4 million applications. That's our highest application volume ever. The strength of our dealer relationships and the scale of our franchise enable us to be selective in loans we book, optimizing for both pricing and credit. Simply put, dealers want to do business with Ally and we're seeing it in our results. Our differentiated model provides dealers a comprehensive suite of solutions spanning consumer and commercial financing, smart auction and pass through programs and a broad range of insurance products. This positions Ally as a unique strategic partner to our customers. Originated yield came in at 9.7% with 42% of originations from our highest credit quality tier, a direct reflection of our disciplined strategy to balance attractive pricing with prudent risk management. Turning to insurance, we continue to leverage synergies with auto finance to enhance the overall value proposition we offer to our dealer partners. Our insurance team remains focused on expanding relationships and deepening engagement with the 7,000 dealers they currently support. In corporate finance, we delivered another strong quarter, generating a 30% ROE along with 10% growth in the loan portfolio. We're maintaining disciplined risk management while actively exploring new verticals, structures, products and solutions to generate incremental accretive business. This is a business built on trust, speed and performance and we're committed to scaling it responsibly. Turning to our digital bank which remains a key differentiator in the marketplace, Our customer first approach continues to set us apart. We ended the quarter with $142 billion in balances, reinforcing our position as the largest all digital bank in the US serving 3.4 million customers. Deposits remain the foundation of our funding profile, representing nearly 90% of total funding. 92% are FDIC insured, demonstrating the strength and stability of our deposit base. Our mobile app continues to earn top tier accolades for customer satisfaction and our suite of digital products is driving deeper engagement, fueling loyalty and reducing rate sensitivity. Before I turn it over to Russ, I want to leave you with this. We are pleased with our progress and. Even more confident in where we're heading. But let me be clear, we still have work to do. We are doubling down on our core franchises. They are driving improved results and setting us up for focused growth moving forward. We're creating long term value for shareholders, customers, employees and the communities we serve. We've built a differentiated foundation, resilient, scalable and aligned with our long term goals. And we see room for organic growth across each of our businesses over the years to come. The momentum is real and we are confident in our ability to sustain it. And with that Russ, I'll turn it over to you to walk through the financials in more detail.

Russ Hutchinson - Chief Financial Officer - (00:10:27)

Thank you Michael. I'll walk through third quarter performance starting on page six. As mentioned last quarter, our financial results reflect the closing of the sale of our credit card business at the beginning of second quarter. Prior year comparisons may be impacted by the sale. I'll highlight those areas as we move through the Results. Excluding Core OID, net financing revenue totaled $1.6 billion, up approximately 4% on a linked quarter and year over year basis. We continue to benefit from the momentum in our core franchises given ongoing optimization of deposit pricing and strategic remixing of the balance sheet toward higher yielding asset classes provide more detail on margin shortly adjusted Other revenue totaled $557 million, up 5% quarter over quarter and approximately flat year over year. Growth in insurance, smart auction and our pass through programs offset the headwind from the sale of credit card and ceasing mortgage origination. Taken together, total revenue of $2.2 billion is up 3% year over year but up 9% when you adjust for the sale of credit card Provision. Expense of $415 million was down approximately 36% year over year given continued normalization in retail NCOs and Reserve Build in the prior year period in retail auto, The NCO rate declined 36 basis points year over year to 1.88%. We continue to be encouraged by the trends within the portfolio as vintage dynamics and enhanced servicing strategies drive favorable loss trends. I'll cover credit performance in more detail shortly. Noninterest expense was $1.2 billion down $22 million sequentially and up $15 million versus the prior year. As mentioned previously, controllable expenses were up year over year driven by non recurring benefits recorded in the third quarter of 2024. We continue to anticipate flat expenses this year and are committed to maintaining disciplined expense management going forward. In total, adjusted earnings per share of $1.15 was up 166% year over year, another encouraging step as we progress towards our medium term targets. Turning to page 7, net interest margin excluding OID was 3.55%, an increase of 10 basis points from the prior quarter on a quarter over quarter basis. NIM expansion was driven by repricing of the liquid deposit and CD portfolios and continued remixing of the balance sheet as growth across retail auto and corporate finance replaced lower yielding mortgages and securities. Retail auto portfolio yield excluding hedges was up 2 basis points quarter over quarter to 9.21%. Looking ahead, we expect modest expansion in portfolio yield. Lower benchmark rates will influence originated yield and impact the portfolio's ultimate trajectory, but retail auto loan growth is expected to support accretive remixing of the balance sheet. Industry wide liquidation activity has increased partly due to demand pull forward. Traditional trade ins continue to represent most. of the activity, and liquidations have been minimal. Concentrated in lower yielding loans resulting in minimal impact to net interest margin. On the liability side, three key results reflected the full benefit of the 10 basis point reduction in liquid savings rates we made in June and a modest benefit from our most recent liquid savings rate reduction in September. We also continue to benefit from the natural tailwind in CD repricing as $8 billion of CDs carrying a 4.3% yield matured during the third quarter. The value of our brand extends well beyond rate and fosters our consistently strong retention and renewal rates. The stability of the portfolio and our pricing power demonstrate the strength of our digital bank with balances tracking in line with our expectation of relatively flat balances for the year. Just like last year, we expect deposit beta will start slow and gradually migrate to our cumulative beta target. We have included an additional schedule in the Appendix providing a detailed view of how deposit beta played out starting this time last year as the Fed reduced benchmark rates by 100 basis points from 5.5 to 4.5%. This historical example is not guidance, but we feel it's a valuable comparison to frame how beta evolves through a series of Fed fund rate reductions. As we've previously noted, ALLY is liability sensitive over the medium term, but asset sensitive in the very near term, driven by floating rate commercial loans and pay fixed hedge exposure. Therefore, reductions in short term rates, particularly material reduction pressure margin expansion early on. I'll discuss our outlook for margin in more detail shortly. Turning to page 8 our CET1 ratio of 10.1% represents approximately $4.5 billion of excess capital above our SDV minimum on a fully phased in basis for AOCI. CET1 for the period is 8%, an increase of 90 basis points year to date. In August we executed a $5 billion retail auto credit risk transfer transaction which generated approximately 20 basis points of CET1 at issuance. With significant investor demand, the transaction was the tightest spread we have seen to date. We will continue to use these structures opportunistically as a mechanism to efficiently supplement organic capital generation. To date, we've completed three transactions and while they provide a low cost of capital, we remain balanced in our use given the relatively short duration of the capital they generate. Our capital management priorities remain unchanged. We are focused on deploying capital to drive accretive growth in our core franchises while continuing to move our fully phased in CET1 level higher. Last week we announced a quarterly common dividend of $0.30 per share for the fourth quarter of 2025. Consistent with the prior quarter share repurchases remain a key capital management priority. The continuing strength of our CDT1 position and increasing organic capital generation through earnings will provide greater flexibility and inform the appropriate timing to resume repurchases. Turning to book value at the bottom of the page adjusted tangible book value per share of $39 increased over 11% from the prior year. We remain focused on growing tangible book value per share and driving shareholder value through disciplined capital management in the years ahead. Turning to page nine, credit trends across our portfolios remain encouraging. The consolidated net charge off rate was 118 basis points, a decline of 32 basis points to the prior year. This quarter's consolidated net charge off rate reflects the impact of the card sale which contributed to the year over year improvement in retail auto. The net charge off rate was 188 basis points, up 13 basis points sequentially given seasonal trends, but down 36 basis points year over year. A third consecutive quarter of year over year improvement reflects strong performance from recent vintages and the benefits of continuing servicing enhancements. Moving to the top right of the page, 30 plus all in delinquencies of 4.9% is down 30 basis points from the prior year and marks the second consecutive quarter of improvement year over year. This continued improvement further reinforces our constructive view on the near term loss trajectory within our portfolio, but we continue to assess the dynamic macro environment. Vintage level delinquency trends are included in the supplemental section of the earnings presentation and are also disclosed in our 10Q and 10K. The benefit of vintage rollover continues to be evident in actual results. Turning to the bottom of the page on reserve, Consolidated coverage increased 1 basis point this quarter to 2.57% while the retail auto coverage rate remained flat at 3.75%. Our retail auto coverage levels continue to balance the favorable credit trends within our portfolio against an uncertain macroeconomic outlook and softening employment. Our modeled reserve contemplates the consensus outlook with peak unemployment of 4.6% before reverting to a historical mean near 6%. As we have consistently messaged, we do not forecast reserve releases and they are not incorporated into our mid teens return guidance. Moving to our auto finance Segment on page 10, pre tax income of $421 million was up $66 million year over year, primarily driven by lower provision expense. Our lease remarketing performance was breakeven for the second consecutive quarter. As noted, we expect remarketing performance to be less of a factor moving forward given the reduced volume of terminating units not covered by residual value guarantees. As illustrated on the bottom left, retail auto portfolio yield, excluding the impact from hedges increased 2 basis points quarter over quarter. Originated yield of 9.72% was down 10 basis points quarter over quarter with 42% of retail volume generated from our highest credit tier. We actively calibrate our buy box to adapt to the evolving market with a sharp focus on risk adjusted returns. These capabilities give us conviction in our ability to sustain attractive originated yields through the cycle while also improving the overall credit quality of our portfolio. PrimeCredit remained the majority of our originations in the quarter with average FICO of 708. FICO scores below 620 represented roughly 10% of volume while sub 540 volume was only 2%, both consistent with historical trends. On the bottom right of the page you'll see consumer originations of $11.7 billion up 25% year over year fueled by a record 4 million applications. Importantly, strong application volume increases our ability to be highly selective in underwriting, targeting attractive risk adjusted returns while maintaining discipline and prudence. For context, our 22,000 dealer network enabled us to look at roughly $125 billion worth of volume during the quarter, providing the opportunity to drive accretive growth and monetize declined applications through our pass through programs. Turning to our insurance business on page 11 we recorded core pre tax income of $52 million which was up $6 million versus the prior year. Total written premiums of $385 million were up $1 million year over year and up $36 million on a sequential basis. We continue to leverage synergies with auto finance to drive momentum within the business. The year over year increase in losses was primarily driven by loss reserves as we grew the portfolio. We didn't observe any large weather events in 3Q, but our reinsurance program continues to reduce exposure within the book. Insurance remains a key component of our capital efficient other revenue expansion as we continue to focus on growing earned premiums over time. Corporate finance results are on page 12. Corporate tax income of $95 million reflected another strong quarter with a 30% return on equity. Net revenues of $136 million was up $9 million quarter over quarter and down $10 million year on year with higher syndication and fee income in the prior year driving the annual decline end of period. HFI loans ended at $11.3 billion, an increase of approximately $1 billion year over year. Reflecting our focus on prudently growing the business. We delivered another quarter with no new non performing loans and no charge offs. Criticized assets and non accrual loan exposures were 9% and 1% of the total portfolio remaining near historically low levels. We continue to leverage long standing relationships with financial sponsors along with the strategic expansion of our product suite. Together they drive accretive responsible loan growth even in a competitive market on page 13. I'll conclude with a brief update on our financial outlook. We remain encouraged by the momentum across our core franchises and the strong execution from our team. On margin, we narrowed the range to 3.45 to 3.5% consistent with what we indicated in July, we said we expected full year NIM to land in the upper half of our 3.4 to 3.5% full year guide. We expect fourth quarter NIM to be roughly flat to third quarter as the Fed embarks on a series of Fed fund rate reductions. As a reminder, given our near term asset sensitivity, the magnitude and timing of rate cuts will influence margin over the next couple quarters. We expect NIM to migrate to the upper 3s over time, but it won't be a straight line. The strong NIM expansion we saw in the second and third quarters of this year following Fed actions at the end of last year support our confidence in our medium term NIM trajectory on credit. We said full year NCOs could fall towards the low end of our 2% to 2.25% guide. If the constructive trends we were seeing declining delinquencies, strong total loss rates and supportive used car prices continued through the year, we now expect full year NCOs of approximately 2% at the low end of our full year guide. Based on the continuation of those trends, we could print full year NCOs a few basis points higher or lower than 2% based on year end float or loss rates or changes in used car prices. As a reminder, the constructive trends we're seeing started in the fourth quarter last year which will impact the year over year comparison fourth quarter relative to what we printed in 3Q as a result of the update on retail auto NCOs, our outlook for consolidated NCOs is now approximately 1.3%. We continue to approach credit with discipline ensure we remain well positioned in the current macroeconomic environment. The outlook for average earning assets is consistent, but it's important to note the underlying growth trends. Our guide continues to be impacted by commercial floor plan Dealers are maintaining leaner inventory levels due to the impact of tariffs and the effects of demand pull forward. These leaner inventory levels are supportive to overall dealer health. However, even with this impact to average balances, we expect ending earning asset balances to be flat year over year growth in the portfolios we want to grow Retail auto and corporate finance loans are offsetting lower inventory levels as well as the nearly $4 billion headwind from the sale of card and runoff of mortgage assets this trade off supports our margin expansion and earnings growth. Finally, we expect our full year effective tax rate to be approximately 22%. The remainder of our guidance is unchanged, reflecting consistent execution across our businesses. With that, I'll turn it over to.

Sean Leary - Chief Financial Planning and Investor Relations Officer - (00:25:59)

Sean for Q and A. Thank you, Russ. As we head into Q and A, we do ask that participants limit themselves to one question and one follow up. Daniel, please begin the Q and A.

OPERATOR - (00:26:10)

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 and A roster. Our first question comes from Sanjay Sakrani with kbw. Your line is open.

Sanjay Sakrani - Equity Analyst - (00:26:35)

Thank you. Good morning. Obviously, lots of jitters around some of the cracks that we've seen in subprime auto and just broader consumer credit. Michael, it seems like your metrics don't necessarily suggest a lot of that. And I know you guys have gotten ahead by containing some of the growth and tightening your underwriting standards. But I'm just curious if you can comment on that and sort of how you see the path forward and if.

Michael Rhodes - Chief Executive Officer - (00:27:03)

You'Ve seen any contagion, so to speak, maybe I'll start. Sanjay, thanks. And Russ, if you see anything to add, we're observing consumer behaviors that are honestly better than our expectations and appreciate there's a lot of macro, macro uncertainty in the environment. But we're not seeing that impact our credit performance. And so we feel good about what we're seeing right now.

Russ Hutchinson - Chief Financial Officer - (00:27:26)

Yeah, we're certainly benefiting from a lot of the decisions we made around underwriting dating back to 2023 when we really started tightening. And that's giving us a benefit in terms of vintage rollover that quite frankly still has some legs to it. We've also, as we've talked about before. Made a number of enhancements to our servicing strategies. And so we've got some benefits kind of baked into the trends we're seeing in our portfolio that we're seeing in the outcomes. I'd say as we kind of look through our portfolio, I know subprime has. Been a particular focus for folks. We look at some of our lower credit tiers and quite frankly, those tiers are performing better than our expectations at the time when we priced them. So we continue to feel pretty good about what we're seeing in our book. All that being said, we have to acknowledge that there's an uncertain macro. And as you'd expect, we're watching that very closely.

Sanjay Sakrani - Equity Analyst - (00:28:26)

Thank you. And just to follow up on the nim, obviously, Russ, you gave us some sort of expectations on a go forward basis with the push and pull of rates going lower, but just that target of getting into the upper 3s, I mean, over what timeline, if you assume the forward curve, do you anticipate getting there? And then just on that specific point, if we think about the yield component, we've heard about banks kind of reengaging with the market, I'm just curious if you guys are seeing any impact related to that.

Russ Hutchinson - Chief Financial Officer - (00:29:01)

Thank you. Great. Maybe I'll start with your question on the NIM trajectory first. You know, we put in our presentation on page 19 in the Supplemental portion, you know, a bit of a historical case study. We basically looked at our beta evolution following the Fed's rate reduction last year. This time, as you'll recall, between September and December of last year, they took 100 basis points out of Fed funds. And just as we're guiding this year, it translated into a slower early beta. And then what you really saw with us is that NIM expansion that we saw in Q2 of last year and this past quarter Q3 was really driven by the catch up of that data. And so that's a dynamic that we expect to repeat as the Fed has once again embarked on on a series of rate cuts to fed funds. And so I think that provides useful help in terms of understanding how our NIM and how our beta evolves during these rate cutting cycles. And I think that should give you and others confidence in terms of our overall trajectory and how we see the path to high threes. On your second question around just kind of competition in the market, maybe I'd. Start by saying the level of competition in the market isn't unexpected to us. It's not unexpected to us to see other smart, sophisticated financial institutions recognize the attractiveness of the market that we play in. And we've talked extensively about just kind of how attractive we think our 2025. Vintage has been in terms of the. Risk adjusted returns on that vintage as well as quite frankly the back half of 23. So it's not surprising to us to see other institutions attracted to the sector and they've been here all year. I mean, we've seen that increased competition from a number of players all year. All that being said, we've been really thoughtful about where we play and how we play, and that's translated into a tremendous amount of momentum with our dealers. We are a consistent player in the market. We're a consistent partner to the dealers and the OEMs. That we work with. And we've been, quite frankly, rewarded in terms of the amount of application volume we've seen. We've had three straight quarters of record application volume. It's translated into really great originations both in terms of volume as well as in terms of credit and yield. This is a large and fragmented market, and I think we've been thoughtful about where we play. We've been thoughtful about providing a really attractive value proposition to our dealer and OEM partners, and we're seeing the benefit of that. I think we've also seen the benefit. Of some degree of demand pull forward. Just given some of what's going on with tariffs as well as the EV lease tax credit program that terminated at the end of last month. And so we're seeing some benefits in terms of volume there that have certainly helped in terms of creating a great opportunity set. But I'd say we feel really good about our ability to compete in this market and our ability to continue to get really great originations in terms of credit in terms of risk adjusted yield that ultimately support our overall NIM trajectory.

Sanjay Sakrani - Equity Analyst - (00:32:37)

Thank you, guys.

OPERATOR - (00:32:41)

Thank you. Our next question comes from Robert Wildhat with Autonomous Research. Your line is open.

Robert Wildhat - Equity Analyst - (00:32:51)

Hey, guys, in the past few quarters you have Called out favorable flow to loss trends. I was wondering if you could just. Give us a quick update on what you're seeing there. Most recently, are they still as favorable as they were earlier in the year?

Russ Hutchinson - Chief Financial Officer - (00:33:05)

Yeah, they've continued to be favorable, as you've seen. We've now seen delinquency levels overall start to come down. And I'd say we're encouraged by the fact that our flow to loss rates continue to be solid even as delinquencies have come down.

Robert Wildhat - Equity Analyst - (00:33:27)

Okay, great. And then if I look back in. The first quarter of 2020, you bought. Back stock with an 8.5% CET1 ratio that was kind of fully marked for CECL, obviously higher than that on a reported basis. I appreciate that's not a perfectly comparable period to the present and obviously depends on the final rule going forward, but. Is there any reason you could think. Of why that wouldn't be like, at least a reasonable benchmark for the potential. For capital return going forward here.

Russ Hutchinson - Chief Financial Officer - (00:33:59)

Maybe I'll pull back a little bit. And I'll just maybe at the risk. Of reiterating some of the stuff we said in our prepared remarks, we feel great about the progress we've made in capital over the course of this year. I mean, we've both increased our CET1 ratio on a stated basis and a fully phased in basis while supporting the growth of our core businesses. And that obviously comes from a lot of hard decisions we made about the businesses that we've chosen to exit. It also comes from some of the flexibility we get from transactions like the CRT transactions that we've been doing that we talked about earlier. But we feel great about our progress there. We also feel good about the organic capital generation of business and our outlook and our expectation that we'll continue to increase that level of organic capital generation. So we feel really good about the progress. And I say, as we said in the prepared remarks, share repurchases remain a key priority for us in terms of capital management. And I kind of go back to the remarks and I think you're kind of pointing out some of the right factors to consider. But as we continue to see improvement in our fully phased in sales CET1. Ratio. And as we continue to see improvement in our organic capital generation, those are the things that we're going to look towards in terms of determining the appropriate timing of returning to our share repurchase program. Those are kind of the right important benchmarks that we think about.

Robert Wildhat - Equity Analyst - (00:35:36)

Okay, thanks.

OPERATOR - (00:35:40)

Thank you. Our next question comes from John Pankari with Evercore. Your line is open.

John Pankari - Equity Analyst - (00:35:48)

Good morning.

Russ Hutchinson - Chief Financial Officer - (00:35:51)

Good morning, John.

John Pankari - Equity Analyst - (00:35:52)

I just want to see if. I just want to see if I could get a little bit of color around your earning asset expectation. I know you had reiterated the down 2% this year and I believe previously you had indicated on a more normalized basis, which we believe would be more like 20, 26, that you could see the average earning assets up low single digits. So implying that inflection into next year. Can you just give us that updated view there in terms of the components, do you feel confident in that in a low single digit pace that we could see next year and that inflection. And then maybe if you could also talk about liquidations that you might be seeing. I know you had indicated that refinancing pressure has picked up a little bit, although off of a low base, but just driven by some of the larger competitors in the space. Wanted to see if that's continuing, if that poses any risk. Thanks.

Russ Hutchinson - Chief Financial Officer - (00:36:50)

Yeah, I'll start with the. Thanks, John. I'll start with the earning asset trajectory. And I think the dynamics that you generally pointed out sound correct to me and maybe I'll just kind of go through it a little bit. And what we've seen this year is. We'Ve obviously seen the impact of exiting the card business as well as mortgage. And then we've also seen the impact of leaner dealer inventories. And so at this, when we kind of look at our points of end to end earning asset levels, start of the year to our ending earning assets. At the end of the year to. Point to flat, the way we get there is through growth in the portfolios we really want to grow. Our highest margin, highest returning portfolios in retail, auto and corporate finance. And so underlying that flat year to year comp on earning assets is really growth in the businesses we want to. Grow. And the impact of winding down some of the stuff we've exited as well as softness on the dealer inventory. Side as we look forward. Obviously we've exited what we've exited. And so as we go forward really the dynamic comes to the ongoing runoff of our mortgage loan portfolio which we continue to wind down versus the growth in our core businesses. And as you know from a business perspective, floor plan is an important business for us, but it's important to us really as it supports a dealer relationship that gets us more business. That's higher margin that we really like in terms of retail auto loans as well as insurance and smart auction and pass through through. But as we look forward, our expectation is call it low single digit percentage growth in earning assets overall, but obviously faster growth in the places that we really want to grow in retail, auto. Loans and corporate finance. Of course the opportunity set that we see will impact our overall growth rates. In any particular period. But I think as you look at us over the medium term, you should generally expect that kind of single, low single digit growth overall, but faster growth in retail auto loans and corporate finance.

Michael Rhodes - Chief Executive Officer - (00:39:08)

And Russ, just to underscore that we really feel good about the places we're growing, we're growing where we want to be growing and I think that will set us up very well.

Russ Hutchinson - Chief Financial Officer - (00:39:19)

Your question on liquidation rates. And I'd say look, liquidation rates are certainly normalizing from a period post pandemic where, where they were a little lower. But I would say when you think about liquidation rates, it's still predominantly a trade in story. That is it's more people trading in. Their vehicles. As opposed to refinancing continues to be a pretty small part of the population overall. The auto product is not really a. Refinance product per se. All that being said, we're seeing trends that are consistent with the industry. We are seeing refinancings come up but again it's coming off of a really small base. It's still a really small part of the overall picture. When we look at liquidations more broadly, it's still kind of more driven by trade ins and it tends to be lower yielding loans. And so it really hasn't had a significant impact on us from a NIM perspective.

John Pankari - Equity Analyst - (00:40:28)

Great.

Michael Rhodes - Chief Executive Officer - (00:40:29)

Okay, thanks for that, Russ. Appreciate it. And then just one follow up just around the business base. Mike, I was just wondering if you can give a little color here. You know, I know you've made some real good progress in streamlining the business base. You talked about mortgage, talked about card exits and really focusing on your core strength in auto and commercial and corporate finance. Over time, do you see any additional modifications to the business base? Either expansion into areas that you feel better about from a risk adjusted return basis where you may not have critical mass now, I mean, just as you've had time now to work with this business mix, how do you view that evolving longer term? A great question. Thanks. Overall, when I look at our businesses, I feel really good about the businesses that we're in and the characteristics of the businesses that we're in. And where we're investing and growing is they're generally fragmented businesses where we have what I call relevant scale. As we feel great about our position is today, we feel no desire, we're not doing any work to try to figure out what's the next kind of product line to go into. We think there's lots of organic Runway in front of us. Are there going to be adjacencies within dealer financial services or adjacencies within the corporate finance business which are, you know, kind of close cousins to what we're doing? Yeah, there may be and we'll look at those. But those are big situations. We're actually leveraging some strength we already have as opposed to try to do something totally new and different. And so, you know, think about, you know, what we've done in dealer financial service round insurance or the pass through programs or smart auction. Comes examples where we've got a great set of relationships and distribution capability with our customers. And there's something else that fits that nicely. Yeah, we'll be looking at those. But kind of going, you know, far afield and other types of products that that's not on the radar screen.

John Pankari - Equity Analyst - (00:42:26)

Okay, great. Thanks for taking my question.

OPERATOR - (00:42:28)

Yes, thank you. Our next question comes from Jeff Adelson with Morgan Stanley. Your line is open.

Jeff Adelson - Equity Analyst - (00:42:39)

Hey, good morning guys. Thanks for taking my questions. Just to sort of follow back up. On the origination strength, you know, this was the fastest growth you've seen here, I think in almost four years. You obviously highlighted the record application volumes, but it does maybe seem like you're improving a little bit more than the application growth, which I think was 11% growth year over year. So could you just talk about maybe what's driving the strength of application here, Maybe what's giving you some confidence to lean in a little bit more here and how you're getting that with even keeping your s tier at 42% or above where it's been historically. And I think just also as a part of that lease also look like it has some strength growing a lot faster than the rest of the loan origination book. So maybe comment on that. Thanks.

Russ Hutchinson - Chief Financial Officer - (00:43:28)

Yeah, maybe I'll start off by saying our approval rates and our capture rates were entirely consistent with historical. So the volumes that we saw were completely a function of the opportunity set, the application volume that we were able to drive. And we can go through the puts. And takes with you as we kind. Of think about the call afterwards just. On the strength we saw in lease volume. In particular, a big component of that was EV leases. As you know, Jeff, the EV lease tax credit program expired on September 30th and we certainly saw some pull forward as consumers and dealers rush to get deals done ahead of that deadline and take advantage of that tax credit program. And quite frankly, there's probably some pull forward we saw in the second and. Third quarter as a result of just. Some of the noise around tariffs as well. So definitely some demand pull forward in the quarter. But I'd say we feel great about the traction that we have with our dealer and OEM customers. I think our go to market, helping them sell as many vehicles as possible and making their businesses better is clearly something that resonates. Our consistency in the market. And just. The overall value proposition we provide being for them, being there for them in terms of dealer floor plan insurance, retail auto loans across a wide spectrum, as well as the additional value we provide through our pass through programs and our smart auction. It's clearly resonating, seeing a lot of benefit and traction that's helping us deal with some of the increased competition in the sector.

Jeff Adelson - Equity Analyst - (00:45:14)

Okay, great. Thanks, Russ. And maybe just to follow up on Sanjay's question around credit performance, at least one of your peers did see some accelerating DQs this past quarter and I think there's been some similar commentary around pulling back on, you know, standards and tightening standards over the past few years, which you've talked about obviously, I guess. Is there anything else you think you're doing different or what others are seeing that you're not at the low end of the spectrum. And just to maybe follow up on the servicing strategies, could you. Could you talk about how that's performing, maybe modification rate and what the success rate has been of those coming off modification? Thanks.

Russ Hutchinson - Chief Financial Officer - (00:46:01)

Yeah, so maybe I'll start just kind of what we're seeing within our own book in terms of kind of the lower end of the spectrum, we said. In our prepared remarks. But the stuff that we do that's below, call it a 620FICO is pretty small, but as we look at some of our lower credit tiers, they're actually performing better than the expectations we set at pricing. But as you pointed out, again, it's. A small portion of our book. And as you pointed out, we've been tightening now for a couple of years. And so what we're seeing to a large degree is the benefit of some of the underwriting decisions that we made through the course of 2023, and that gave us these really strong books, the back half of 23, and in particular the. The 24 vintage. And so we're seeing the benefit of that. And then as you pointed out, we're also seeing the benefit of enhancements that we've made to our servicing strategies. We've talked about these extensively in the past. There's nothing new or different this quarter. It's stuff that we've been doing and. Refining over the course of the last few years. But it comes down to one of the simple things is just how we. Communicate with our customers. And we're a lot more digital in. Our communications, so we like to talk. To our customers in the way that. They'Re most responsive to, whether that's email. Or digital or chat or telephone. We're just much better at tailoring our communications to what resonates best with them. We've also been doing some interesting things. Over the last couple of years, things like sending customers more notifications and transparency around where they are in the process. And so, for example, we'll issue a customer notification when the repo ticket is issued. And we found that those notifications help. Sometimes they spur a customer who really wants to stay in the car to give us a call and to work with us. And then on the other side of it, we've made changes in terms of kind of reducing some of the frictions and just making it easier and more seamless to run things like extensions and modifications. And then, as you would imagine, we have been really careful to make sure that we're tracking those loans to make sure we're getting the stick rates that we're looking for and that we truly are getting better outcomes and not kicking. A can down the road. We've talked about this a little bit. In the past, but we have policies in place in terms of really making the customers pony up in terms of putting cash on the table in order. To earn entry into those programs. And then finally on repo timing, these policy changes date back now a few years, but we've been adjusting our approach to the timing of repossession not across the board, but in a thoughtful way, looking at specific conditions, consumer behavior and tiers, and using our behavioral modeling to figure out where it makes sense to delay the repossession. And we found giving our agents a. Little bit more time to work with a customer in a lot of cases. Gives us a better outcome. Again, paying attention to kind of how those loans behave over time. We really do believe we're getting better outcomes here. So we've had a few years here. In terms of making enhancements to our servicing, and. And we've had the benefit of being able to track how those changes have performed over time. And so we feel pretty comfortable that we're getting better outcomes here now. Can't talk about credit without talking about the macro. There's a macro uncertainty out there, potentially. Weakening in the employment picture. And that's all stuff that we're watching very closely and tracking. But I would say we definitely feel we're getting tangible benefits from both the vintage rollover and the servicing enhancements that we've put in place over the last few years.

Jeff Adelson - Equity Analyst - (00:50:13)

Really appreciate that. Thanks, Russ.

OPERATOR - (00:50:19)

Thank you. And our final question will come from Moshe Orenbuch with TD Cowan. Your line is open.

Moshe Orenbuch - Equity Analyst - (00:50:27)

Great, thanks. Maybe at the risk of talking again about the competitive environment, you know, you were able to, you know, have very, very strong application volume. Are there things that you will be doing in the future that would actually help, you know, the conversion and closing rates or, you know, I mean, how do you. How do you sort of think about that? Like, is that something that we could look forward to, you know, at tail end of this year and into 2026?

Michael Rhodes - Chief Executive Officer - (00:50:56)

Moshe and Michael, you know, great question. As you know, we have the good fortune certainly on the auto side to look at a large volume of applications on a daily, weekly, quarterly basis. And, you know, one of the benefits that we have, we're in this market, we're in these markets through kind of all cycles. In doing so, you create these very rich data sets. So you can imagine we are always looking to try to Find the segments where we see incremental opportunity and that's a never ending process. Data evolves and we learn more and more and we look at our segments in different ways and really micro segments. So yeah, we're going to continue doing that. We'll do that today, tomorrow and ongoing. And hopefully in doing so we'll find out new veins of profitable business for us to underwrite. And then as Russ said, you do need to overlay a little bit of a macro view. We got to be careful not to overlay the kind of macro because right now things look good but there is some uncertainty on a go forward basis. But we feel that we're just in a really good position to have the volume of applications that we see and be able to really go to school and try to understand really how to maximize business for ourselves and honestly how to maximize the impact we have in the dealer community.

Russ Hutchinson - Chief Financial Officer - (00:52:12)

Yeah, and the only thing I'd add to that is we also have our pass through programs and so we're providing value to our dealers beyond what we're. Underwriting for our balance sheet. And we also have the benefit of being able to service that paper and obviously get some economic benefit from it. But I think as Michael points out, I think we benefit tremendously just from the amount of application volume we see and the amount of of loan activity we see in the sector.

Michael Rhodes - Chief Executive Officer - (00:52:42)

And Moshe, if you're the last question, I may use some of your time just for a bit of a wrap up as I think about the quarter.

Moshe Orenbuch - Equity Analyst - (00:52:50)

Before you do that, Michael, could I just have one quick follow up and obviously let some of that time go. But just from a capital standpoint, you did the CRT transaction. Should we expect more or less of that, Russ, as we go into 2026? I guess recognizing that there's the RWA of the assets that ran off in 25 were higher than the ones probably running 26.

Russ Hutchinson - Chief Financial Officer - (00:53:20)

We'll certainly do more transactions. We've done three transactions so far and it's a tool that we like. It affords us very low cost of capital and it's a tool that we intend to continue using. However, we'll use it thoughtfully and opportunistically and we pay very close attention to effectively the ramp we're creating as that capital runs off relatively quickly with the speed of the underlying loans. But yeah, you can expect us to continue to be active in this market. Thanks very much. Good.

Michael Rhodes - Chief Executive Officer - (00:53:58)

And then so as omoshis the wrap if I can. So I'm about a year and a half into my role or so. And as I kind of reflect about where we are, one of the comments I made in my prepared remarks was really this notion of momentum. And we talk about a strategy refresh we undertook and we've talked about disciplined execution. And it's creating momentum and it's creating momentum in the areas that we signaled really quarters and quarters ago that we were going to do. It's about an improved net interest margin, auto losses and being disciplined in expense and capital. And so we actually see this quarter as a real testament to the fact that we're on the right path and are very pleased with the momentum that we're seeing right now.

Sean Leary - Chief Financial Planning and Investor Relations Officer - (00:54:42)

Thank you, Michael. Seeing no additional questions in the queue, we'll go ahead and conclude today's call. As always, if you have additional questions. Please do feel free to reach out to investor relations. And thank you for joining us this morning.