Release Date: October 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ally Financial Inc (ALLY, Financial) reported strong growth in its insurance business, achieving a quarterly record of $384 million in written premiums.
- Retail deposits at Ally Bank reached $141 billion, with 92% being FDIC insured, highlighting a strong and stable deposit base.
- Corporate finance is on track for its highest annual earnings ever, demonstrating strong returns and solid credit performance.
- The company has been successful in reducing controllable expenses, contributing to improved capital management.
- Ally Financial Inc (ALLY) has taken significant actions to improve credit quality, with 40% of auto loan originations in the highest credit tier.
Negative Points
- Ally Financial Inc (ALLY) faces challenges with elevated net charge-offs, particularly in the retail auto segment, which increased by 43 basis points quarter-over-quarter.
- The company anticipates continued volatility in interest rates, which may impact net interest margin (NIM) in the near term.
- Provision expenses increased due to higher net charge-offs and potential losses from Hurricane Helene, impacting financial performance.
- The company is experiencing pressure from elevated delinquencies, which are higher than expected and contribute to uncertainty in credit performance.
- Ally Financial Inc (ALLY) has revised its full-year NIM outlook to approximately 3.2%, reflecting temporary margin pressure and competitive deposit dynamics.
Q & A Highlights
Q: Can you provide clarity on the expected trajectory of retail auto losses, particularly in the near term and into 2025?
A: (Russell Hutchinson, CFO) We anticipate that the majority of the fourth-quarter increase in losses will be due to seasonality and recent storms. While we have made significant underwriting changes, we are still managing elevated delinquency levels, which makes us sensitive to macroeconomic changes. We expect normalization in net charge-off levels over time, but we will provide more specific guidance in January.
Q: When do you expect the net interest margin (NIM) to inflect, and what is the expected pace of improvement?
A: (Russell Hutchinson, CFO) We are confident in achieving a 4% NIM over the medium term, driven by factors such as portfolio yield expansion and deposit pricing adjustments. However, near-term pressures depend on the pace and size of potential rate cuts and competitive dynamics. We are not providing quarterly guidance but remain confident in our medium-term target.
Q: What gives you confidence in the revised retail auto charge-off guidance, and how does the 2023 vintage compare to 2022?
A: (Russell Hutchinson, CFO) The revision to a 2.25% to 2.30% charge-off rate reflects the unique circumstances post-pandemic, including elevated loss content in the 2022 vintage. The 2023 vintage is showing better performance, and early signs from 2024 are also encouraging. We expect improvement as we move away from peak collateral values.
Q: How are the underwriting changes made in 2023 impacting credit performance, and are they meeting expectations?
A: (Russell Hutchinson, CFO) The underwriting changes have been effective, as evidenced by improved performance in the 2023 and early 2024 vintages. While delinquency rates have underperformed expectations, the progressive improvement in vintage performance reassures us that losses will decline over time.
Q: How does the accounting treatment of EV lease tax credits impact your ability to achieve a 4% NIM?
A: (Russell Hutchinson, CFO) Currently, EV lease tax credits are recognized upfront, impacting the tax line rather than NIM. A potential switch to deferral accounting would align EV leases with ICE leases, adding about 6 basis points to NIM. However, this change does not alter our confidence in achieving a 4% NIM over the medium term.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
