Ally(ALLY) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted EPS for Q3 2024 was $0.95, influenced by significant tax credits related to EV lease volumes, while core pre-tax income was$108 million, indicating room for improvement [5][15] - Net financing revenue excluding OID was $1.5 billion, lower year-over-year due to reduced average earning assets and higher cost of funds [13] - Net interest margin (NIM) excluding OID decreased to 3.25$175 million, down from the prior year due to higher funding costs and provision expenses [31] - Insurance written premiums reached a record $384 million, driven by new OEM relationships and higher inventory exposure [36] - Corporate finance core pre-tax income was$94 million, with end-of-period HFI loans increasing to $10.3 billion, up$600 million quarter-over-quarter [38] Market Data and Key Metrics Changes - Retail deposits at Ally Bank totaled $141 billion, with a decline of$600 million in the quarter, aligning with expectations as loan balances also decreased [10] - The credit card portfolio showed improved performance, with net charge-offs down to 9.9% from 12.6% in the prior quarter [23] Company Strategy and Development Direction - The company is focused on margin expansion and revenue growth, with a strong emphasis on capital and expense discipline [8][42] - Ally aims to achieve a medium-term NIM target of 4%, supported by a liability-sensitive balance sheet and a favorable asset mix shift [16][40] - The company is diversifying revenue streams, particularly in insurance and auto finance, with expectations of generating $1.5 billion in written premiums this year [44] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in the near term due to volatility in interest rates and consumer strain from inflation, but expressed confidence in the company's ability to deliver compelling returns over time [4][46] - The outlook for credit costs remains elevated, but management is optimistic about the normalization of losses as underwriting changes take effect [45][61] Other Important Information - CET1 ratio increased to 9.8$4 billion of excess capital above the required minimum [21] - The company is evaluating a potential change in accounting treatment for EV lease tax credits, which could impact CET1 by approximately 20 basis points [35] Q&A Session Summary Question: Expectations for retail auto loss rates - Management anticipates that the increase in loss rates for Q4 will primarily be seasonal, with confidence in eventual normalization due to underwriting changes [49][50] Question: Timing for NIM inflection - Management reiterated that while there are near-term pressures, the medium-term outlook remains unchanged, targeting a 4% NIM [53][54] Question: Confidence in revised charge-off guidance - Management explained that the revision to charge-off guidance reflects broader industry trends and acknowledged the need for caution in timing expectations [56][61] Question: Performance of new underwriting cohorts - Management confirmed that the cohorts are performing better than expected, but acknowledged some underperformance in delinquency rates [66][68] Question: Long-term targets and their feasibility - Management believes that achieving mid-teens returns is feasible, contingent on credit normalization, margin expansion, and effective expense management [72][76]