What Ally Financial (ALLY) Said on Its Q3 Earnings Call

Key Points

• Ally delivered strong Q3 results: Adjusted EPS rose 16% year over year to $1.34, while adjusted net revenue increased 9% to $2.3 billion, driven by growth in retail auto and corporate finance.
• Auto expansion boosted growth but increased costs: Consumer loan originations rose 10% to $12.9 billion, but higher portfolio growth led to a $90 million CECL reserve build and contributed to a $529 million provision expense. Retail auto net charge-offs reached 1.89% sequentially, though Ally maintained its full-year guidance.
• Ally raised its growth outlook while facing lease pressure: The company now expects average earning assets to grow 5%–6% this year, but reported a $16 million loss from Stellantis lease terminations and expects related pressure to continue into Q4. Capital returned to shareholders included nearly $500 million in buybacks and a dividend increase to $0.35 per share.

Ally Financial NYSE: ALLY reported third-quarter adjusted earnings per share of $1.34, up 16% from a year earlier, as growth in its retail auto and corporate finance businesses helped lift revenue while adjusted expenses remained flat.

Adjusted net revenue rose 9% year over year to $2.3 billion. Net financing revenue, excluding original issue discount, increased 10% to $1.8 billion, supported by portfolio growth and lower funding costs. Adjusted other revenue increased 4% to $579 million, driven by insurance, SmartAuction and pass-through programs.

CEO Michael Rhodes said the company’s strategy has strengthened its operating performance over the past two years, citing nearly 15% growth in retail auto and corporate finance assets, an increase in core return on tangible common equity from 5% to 13%, and a decline of more than 30 basis points in retail net charge-offs.

Auto growth drives reserve build

Retail auto remained a central source of growth. Ally processed 4.8 million auto finance applications during the quarter, up 20% year over year, and originated $12.9 billion of consumer loans, a 10% increase. Ending retail auto assets rose 8% year over year.

However, the growth required additional loan-loss reserves. Provision expense totaled $529 million, up $114 million from the prior year, primarily because of CECL reserve builds tied to asset expansion. CFO Russ Hutchinson said retail auto portfolio growth led to nearly $90 million of CECL reserve building during the quarter, creating an approximately $0.20 headwind to earnings per share and a 200-basis-point impact on ROTCE.

Retail auto originated yields reached 9.44% in the third quarter, up about 35 basis points sequentially. Hutchinson said Ally exited the period with originated yields in the upper 9% range following pricing actions, higher benchmark rates and a modest decline in the federal tax rate. He said the overall retail auto portfolio yield, which was 9.2% excluding hedges, should move higher over time, though as a gradual shift rather than a step change.

Ally reported retail auto net charge-offs of 1.89%, up 32 basis points sequentially and roughly flat from a year earlier. Thirty-plus-day all-in delinquencies were 4.96%, up 6 basis points from a year earlier. Hutchinson said late-2025 and early-2026 vintages have experienced higher early-life delinquency, reflecting their credit mix and yield characteristics, while second- and third-quarter 2026 vintages were tighter in both yield and credit.

The company continues to expect retail auto net charge-offs for the full year to fall near the midpoint of its 1.8% to 2% guidance range. Looking into 2027, Hutchinson said Ally currently expects net charge-offs to look “a lot like 2026,” while noting that formal guidance will be issued early next year.

Margin outlook includes lease pressure

Net interest margin, excluding original issue discount, increased 3 basis points sequentially to 3.66%. The benefit from second-quarter deposit pricing actions was largely offset by losses on lease terminations.

Lease results included a $16 million loss tied to Stellantis vehicle lease terminations, as auction prices and residual values remained pressured by brand- and recall-related issues. Hutchinson said the pressure is expected to continue in the fourth quarter because of the current mix of leases maturing, before abating through 2027 as the portfolio becomes more diversified across manufacturers.

Ally expects full-year net interest margin of 3.6% to 3.65% and forecasts a fourth-quarter margin around 3.7%. The company said it remains confident in a longer-term path toward a net interest margin in the upper 3% range, supported by the runoff of lower-yielding mortgages and legacy mortgage securities, growth in higher-returning retail auto and corporate finance assets, and disciplined deposit pricing.

Average earning assets increased 7% year over year. Corporate finance loans rose 40% to $15.8 billion, generating a 22% return on equity and $98 million in pre-tax income. The portfolio consists entirely of first-lien senior secured floating-rate loans, and Hutchinson said annual losses have remained below 30 basis points since Ally’s initial public offering.

Insurance, deposits and capital

Insurance produced $75 million of core pre-tax income, up $23 million from a year earlier. Written premiums were $388 million, up $3 million, while insurance losses declined $6 million to $135 million. Rhodes said the segment generated an approximately 30% year-to-date return on equity.

Ally’s digital bank served 3.6 million customers, up 7% year over year and marking its 70th consecutive quarter of customer growth. The company said deposit customers have increased 70% year over year, though the transcript did not specify the corresponding customer count.

Common equity tier 1 capital was 10.2%, up roughly 10 basis points from a year earlier. During the quarter, Ally completed its second credit risk transfer transaction of 2026, generating more than 25 basis points of CET1 capital at issuance. The company repurchased nearly $500 million of shares over the past year and raised its quarterly dividend to $0.35, its first dividend increase since 2022.

For the full year, Ally raised its outlook for average earning-asset growth to 5% to 6% from 3% to 5%. It narrowed its other-revenue forecast to growth of 2% to 4%, expects adjusted non-interest expense to be flat to up 1%, and maintained its expected tax rate of 20% to 22%.

About Ally Financial (NYSE:ALLY)

Ally Financial Inc is a digital financial services company headquartered in Detroit, Michigan, and traded on the New York Stock Exchange under the symbol ALLY. The company primarily serves consumers, automotive dealers and businesses in the United States through online and branchless banking and financing platforms.

Ally's automotive finance business provides retail installment loans and leases to consumers and floorplan financing and other services to automotive dealers. Its consumer banking operations, conducted through Ally Bank, offer deposit products such as savings accounts, money market accounts and certificates of deposit, along with consumer lending products.

The company also provides credit cards and commercial financing, and offers investment and brokerage services through Ally Invest.

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