Good day and thank you for standing by. Welcome to the Ally Financial Third Quarter 2022 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. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speakers today, Sean Leary, Head of Investor Relations. Please go ahead.

Thank you, Carmen. Good morning and welcome to Ally Financial’s third quarter 2022 earnings call. This morning, our CEO, Jeff Brown; and our Interim CFO, Brad Brown will review Ally’s results before taking questions. Jenn LaClair has also joined for the beginning of today's call. The presentation 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 slide 2. GAAP and non-GAAP measures pertaining to our operating performance and capital results are on slide 3. As a reminder, non-GAAP or core metrics are supplemental to and not a substitute for US GAAP measures. Definitions and reconciliations can be found in the appendix. And with that, I will turn the call over to JB.

Thank you, Sean. Good morning, everyone. Before diving into the results, I'd like to express my sincere thanks and appreciation to Jenn LaClair, who we announced yesterday, will be leaving the company over the coming months. Jenn has been instrumental in our company's evolution over the past five years. She's been a great partner to me, but more importantly, a great leader to Ally and a great person. She's been a champion of Ally's do-it-right culture from day one. And while we're sad to see her go, we're grateful for her contributions to the company and wish her the best in this next chapter. Obviously, CFO transitions are never easy, but we have a strong bench in place that will work closely with me while we launch a search. I am thankful for both Brad and Sean stepping up in the days to come. I know Jenn is excited to pursue her next chapter of opportunities and honestly that’s hard to do while serving as a CFO. So we mutually determined now is the best time for a change and in advance of an even more fluid macro environment. Jenn, thank you for everything, and I'd like to turn it over to you for a few remarks.

Great. Thank you so much for the kind words JB. I very much appreciated my time here at Ally, including all your support, friendship, and partnership. These last five years have been some of the most rewarding in my career. I'm proud of all we have accomplished as a team and having reached both the personal and professional milestones I set out for myself. I'm proud to be leaving Ally in a stronger, better position than when I arrived. We've accomplished a number of milestones financially and operationally while continuing to expand our businesses, strengthen our balance sheet and improve our risk management, all while fostering a deep talent bench and a robust culture. After these past five years and through a global pandemic, I can confidently and unequivocally say we have terrific teammates, including those sitting around the table this morning, JB, Sean, and Brad. Our purpose to be a relentless Ally that does it right for our customers, employees, communities, and shareholders is woven into all we do, and I'm glad I've had a part in making that come to life. Quite simply, I'm proud of what we have built together, and I'm as convicted as ever about the strength of our company and the trajectory ahead. I'm also confident leaving, knowing Ally's finance leadership bench is both seasoned and extensive. We will facilitate a seamless transition, continuing to deliver for all our stakeholders as we always do, and J.B. and the team will continue to have me close by as an adviser to Ally. In closing, there are no words to express the pride I have in both this company, in my teammates, and the time I've spent here and the relationships I have built. My interactions with the analyst and investor community have always been favorable, and I've deeply appreciated your support as well. And now I will hand it back over to you, J.B. to discuss the results for the quarter.

Well, thank you, Jenn. I appreciate you and everything. You've been a big part in our company's evolution. So thank you. And with that, let's go ahead and jump into the quarter. I'll start on Page number 4. Third quarter adjusted EPS of $1.12, core ROTCE of 17.2% and revenues of $2.1 billion reflected another quarter of solid financial results. ROTCE was approximately 12%, excluding the impact of OCI. We had several notable items impacting results this quarter and wanted to be very transparent about all the moving pieces. Similar to last quarter, and consistent with what we have been guiding, we saw strong loan growth across the company and in particular, within auto finance. We certainly recognize the tightening environment, but consumer credit underwriting is a core capability of our company, and we believe we are generating some of the most attractive, risk-adjusted loans in the history of Ally. Specifically, total loans grew by $4 billion in the period, driving a $133 million provision build, which I don't think was fully contemplated in Street estimates. We also recorded a $136 million impairment on our investment in Better Mortgage Company reflecting the conditions affecting the broader mortgage industry. Following the impairment, our investment has a remaining carrying value of $19 million, so this has been effectively derisked. Within operating expenses, we recorded a $20 million charge associated with the termination of our legacy pension plan. We expect an additional impact of around $55 million within operating expenses and additional tax expense as we complete the termination in the fourth quarter. The annuity was purchased earlier in October, so this expense is certain at this point. Going forward, Ally has no remaining exposure to qualified pension plans. Given the unique nature of the pension item, the impacts are reflected in GAAP results but removed from adjusted metrics. And we recorded a valuation allowance related to foreign tax credits, which resulted in a $21 million increase in tax expense for the quarter. We expect these items will be non-recurring in nature with the exception of the loan growth provision build. It was a bit of a noisy quarter, so we thought it would be helpful to address these notable items at once before getting into the details on the quarter. Let's turn to Page number 5 and discuss operational performance. Within auto, consumer originations of $12.3 billion were flat to the third quarter in the prior year and about $1 billion lower than the second quarter. Originated yields expanded 93 basis points quarter-over-quarter to 8.7%. Industry vehicle sales remain pressured, but our ability to generate strong consumer originations shows the scale of our auto finance business and depth of application flow. One other observation I would make. You've heard other CEOs make comments about pulling back from segments of the auto finance market. I think you need to look closely at what has really happened. Prime lending continues to be a very solid space. Super prime lending has seen very aggressive pricing from the credit unions. It makes sense that some banks don't want to chase that. The subprime market has shrunk from about 25% of the origination universe to 18%. This is a function of a lack of available lower-priced units, which has indirectly impacted some banks' ability to originate there. Again, prime continues to perform quite well, but obviously, this is where deep experience, people, and relationships matter. And further, contrary to what you also may have read about happening in the prime space, we actually observed some of our competitors lowering prices in the quarter to try to capture volume. On commercial loans, we saw modest increases in new inventory levels across the marketplace, but balances remain low, and we continue to expect prolonged normalization. We recently surpassed seven million total vehicles sold on our SmartAuction platform. We have not typically highlighted SmartAuction very often externally, but it's a great example of how we've continued to evolve our product offerings to create value for Ally and our dealer customers. Within insurance, written premiums of $291 million were impacted by lower inventory levels and industry sales. Investment portfolio performance remained solid, but constrained by overall market performance. Turning to Ally Bank. Retail deposit customers exceeded 2.6 million, expanding 6% year-over-year and representing our 54th consecutive quarter of customer growth. As we conveyed on last quarter's call, retail balance growth resumed with balances increasing by $2.7 billion in the quarter. Deposits currently represent 86% of funding, and we are seeing a very competitive market and larger flows to brokerage to start the fourth quarter. Our consumer engagement and product adoption trends remain compelling. Ally Home originations of $521 million in the quarter reflect broader market conditions. Equity market trends resulted in a decline in Ally Invest assets while accounts increased by 4% versus the prior year. Ally Lending generated origination volume of nearly $600 million with expansion from our healthcare and home improvement verticals. Ally Credit Card reached $1.4 billion of loan balances, and we surpassed one million active cardholders. And Corporate Finance continues to generate solid loan growth with a held-for-investment portfolio reaching $9.4 billion. Let's turn to slide number 6 to discuss the consumer. Like all lenders, and especially given the uncertainty in the market, we are extremely focused on consumer health and continue to look for any early indicators of potential consumer stress. While persistent inflation remains a clear headwind, we continue to see strong balance sheets across our consumers. On the bottom left, savings account balances at Ally Bank remain elevated relative to pre-pandemic levels. We've included a view based on income level, but we look at this data across multiple dimensions, and the trends look consistent across occupation, vintage, and balanced cohorts. The right side of the page shows average consumer data spend. We've seen slight moderation from earlier this year, and spend remains up versus pre-pandemic levels. Broader financial obligations for consumers remain near or at record lows, enabling these spend levels while still maintaining elevated savings balances. At this stage, indicators remain solid and we will remain nimble and react accordingly as the market evolves. I'd also add that within all of our lending portfolios, we've been making tactical adjustments and tweaks to our underwriting trends. This is often overshadowed by the headline numbers, but there is a tremendous amount of granular focus when we deploy credit and capital. Finally, employment remains very tight and should buoy stronger-than-expected credit performance relative to historical norms. So net-net, we still see a strong and well-positioned consumer, and the portfolio seasoning largely in line with expectations at this point. And with that, Brad, over to you for more of the details.

Thank you, J.B. Good morning, everyone. I'll begin with detailed results for the quarter on Slide 7. Net financing revenue, excluding OID, of $1.7 billion grew nearly $126 million or 8% year-over-year. Performance was driven by continued strength in origination volumes and auto pricing, higher funding costs given the rapid increase in short-term rates, partially offset through our hedging position, growth in unsecured consumer products, and gradual normalization of excess liquidity over the past year. Adjusted other revenue of $359 million reflected solid performance across our insurance, SmartAuction, and consumer banking businesses. Revenues declined versus the prior year and prior quarter, driven by impairment of our investment in Better Mortgage that J.B. covered. Excluding the impact of that impairment, other revenue was consistent with our mid-400s expectations. Provision expense of $438 million reflected origination volume and the continued normalization of credit performance. Loan growth across retail auto, unsecured consumer lending, and corporate finance drove a $133 million reserve build. While CECL provisioning is a headwind for the current period, strong originations will drive attractive long-term returns. Net charge-offs in the period of $276 million remain below pre-pandemic levels, while up versus the prior year, the increase remains in line with expectations. Non-interest expense of $1.1 billion reflects continued investment in technology and higher personnel expense. As a reminder, the prior period did not include any expenses related to Ally Credit Card. As J.B. mentioned, the quarter also included $20 million of costs associated with the termination of our legacy pension plan. Within tax expense, results reflect the non-recurring valuation adjustment J.B. covered. These adjustments increased the tax rate in the quarter by approximately 5 percentage points. GAAP and adjusted EPS for the quarter were $0.88 and $1.12, respectively. Moving to Slide 8. Net interest margin, excluding OID, of 3.83% increased 15 basis points year-over-year and declined 23 basis points quarter-over-quarter. Given duration dynamics on both sides of the balance sheet, we expect to see some near-term pressure, but we remain confident in an upper 3s NIM over time. We've built a structurally enhanced balance sheet over several years that faced some temporary pressure from the unprecedented pace and magnitude of the increases in short-term interest rates. Total loans and leases are up nearly $18 billion versus the prior year, while the normalization of excess liquidity results in total operating earning asset growth of $7 billion. Earning asset yield of 5.59% grew 48 basis points quarter-over-quarter and 91 basis points year-over-year, reflecting the benefits of strong originated yields within retail auto, growth in higher-yielding assets, and more than $40 billion of floating rate exposure across the loan and hedging portfolios. Retail auto portfolio yield expanded 19 basis points from the prior quarter to the 7% figure we've alluded to previously. We expect continued yield expansion due to the gradual decline in prepayment headwinds, which we started to see in recent months, continued expansion in originated yield above 9%, and our hedging position, which added 25 basis points to the retail portfolio yield this quarter. As mentioned previously, yields expanded across our commercial and credit card portfolios as their floating nature benefits from higher rates. Looking forward, we expect continued earning asset yield expansion, fueled by strong pricing in auto finance, continued disciplined growth across our newer consumer portfolios, and the benefit of higher interest rates. Turning to liabilities. Cost of funds increased 77 basis points quarter-over-quarter and 78 basis points year-over-year. The increase in deposit costs reflect higher benchmark rates and a competitive direct bank market for deposits. Broadly speaking, funding costs will continue to move higher as the Fed continues with the tightening cycle, but we remain confident in our ability to manage interest expense due to our customer value proposition that goes beyond rate, core funded status, and flexibility across diverse funding sources. For the next couple of quarters, the rapid increase in benchmark rates will pressure margins as deposits initially reprice faster than earning assets. I'll cover these dynamics in detail on the next slide. Slide 9 provides detail on the drivers of near-term pressure on net interest margin and our expectations over the coming quarters. With fixed rate retail auto as the largest asset on our balance sheet, and liquid savings making up 70% of the deposit portfolio, we manage a naturally liability-sensitive balance sheet. In retail auto, we put 225 basis points of price into the market through September and 245 basis points total through last weekend. On the deposit side, our OSA pricing moved 160 basis points as of September, and 175 basis points as of today. So pricing on the retail auto is 65 to 70 basis points in excess of what we've done on OSA so far. While beta on both sides has been in line with or favorable to our original expectations because of the timing dynamics we discussed previously, increases in the retail auto portfolio yield lag increases in deposits. That will continue to be the case for the next couple of quarters as the Fed is expected to move rates higher. But over time, the retail auto portfolio will continue to migrate towards the originated yield, which we expect to move well into 9%. On the deposit side, the OSA rate will move higher but should level off once we get to a peak level of Fed funds. We provided a lot of detail on retail auto and deposits given their size, but keep in mind that most of our commercial book is floating rate. And we've talked about $3 billion to $4 billion of growth in unsecured lending in the medium term. Given their high margins, that growth should add 20 basis points to consolidated NIM over time. So putting all that together, we expect NIM to bottom around 350 basis points before we level off and eventually move higher. While we recognize there is focus on the trajectory, having NIM in the mid-3s when rates are expected to go up almost 500 basis points in nine months reflects the leading franchises and strong balance sheet we've built over the past several years. Lastly, on NIM, we've added additional detail on the retail auto pay fixed hedge position in the appendix. Turning to Slide 10. Our CET1 ratio declined to 9.3% as earnings supported $3 billion in RWA growth and $415 million in share repurchases. Last week, we announced a dividend of $0.30 per share and have completed approximately $1.6 billion in repurchases on a year-to-date basis through September. While we maintain very robust capital levels with $3.6 billion of excess above SCB requirements, given heightened macroeconomic uncertainty, we do not expect material share repurchases in the fourth quarter. Our priorities remain focused on maintaining prudent capital levels amid continued uncertainty while simultaneously investing in the growth of our businesses. Let's turn to Slide 11 to review asset quality trends. Consolidated net charge-offs of 85 basis points continued to normalize in line with expectations. Comparisons to the prior year and pre-pandemic periods are influenced by the addition of unsecured lending and a corporate finance charge-off that added 10 basis points to consolidated rate and was reserved for in 2020. Unsecured lending adds an incremental 7 basis points. Retail auto performance continues to reflect a gradual normalization. Strong used values continue to benefit loss given default rates, and the normalization of peak values is consistent with our expectations. In the bottom right, 30-day delinquencies increased due to typical seasonality and a gradual normalization of consumer trends but remained below 2019. 60-day delinquencies are equal to 2019, but we continue to see favorable flow to loss rates helping to keep charge-offs below 2019 levels. We expect continued increases in delinquencies as consumer trends normalize post-pandemic, and we are closely monitoring additional inflationary pressures. On Slide 12, we wanted to provide some additional perspective on the risk profile of the retail auto portfolio that should be helpful as you think about normalization of losses and delinquencies. Relative to 2019, our portfolio today has slightly more risk content based on our strategic shift to the intersection of prime and used. Several years ago, we began focusing more heavily on the used market and reducing our concentration in super prime, which generally has lower returns. Since making that strategic shift, we've maintained a disciplined underwriting approach. Our portfolio has gradually seasoned over that time and now reflects loss content consistent with our normalized loss expectations. As pandemic tailwinds normalize, we expect delinquencies and net charge-offs to migrate above 2019 levels. We expect normalized delinquencies of 3.4% to 3.8% versus 3.1% in 2019, and we expect losses to migrate towards 1.6%, which is 30 basis points higher than 2019. To compensate for that incremental loss content, we've added 125 basis points of price since 2019. Normalizing for benchmark rate moves, we've added 100 basis points of price to compensate for the 30 basis points of higher expected losses. And as you've heard from us in the past, the investments we've made in talent and digital tools have enhanced our servicing and collections capabilities and give us confidence in our ability to effectively manage credit in a variety of environments. On slide 13, consolidated coverage increased 3 basis points to 2.71%, reflecting growth in our retail auto, unsecured consumer lending, and corporate finance portfolios. The total reserve increased to $3.6 billion or $1 billion higher than CECL day 1 levels. Retail auto coverage of 3.56% increased 5 basis points and is 22 basis points higher than CECL day 1. This includes an overlay of $19 million or roughly 2 basis points for potential losses tied to Hurricane Ian. We've demonstrated an ability to navigate these weather events focused on supporting our customers and minimizing financial impacts. Under our CECL methodology, we expect unemployment to rise slightly above 4% over the next year before gradually transitioning back to a historical average of about 6.5%. Moving to Ally Bank, retail deposits totaled $134 billion, increasing by $2.7 billion compared to the previous quarter as growth resumed after elevated tax outflows. Inflows from traditional banks constitute the majority of this growth and support our key assumption that direct banks will become more appealing as the disparity between traditional and direct banks expands. Industry-wide, online savings rates were at 2% in September, marking our highest monthly growth since March 2021. Total deposit balances rose by $6 billion quarter-over-quarter, fueled by additional growth from broker deposits. We anticipate modest retail deposit growth for the entire year. We experienced strong customer growth, adding 51,000 new customers in Q3, marking our 54th consecutive quarter of growth. Since launching Ally Bank, balanced growth and retention have been key elements of our retail deposit strategy, along with customer acquisition. The data illustrates a consistent trend of growth from both new and existing customers, and we maintain a leading industry retention rate of 96%. Our deposits business operates with less than 30 basis points of non-interest expense, providing a significant advantage when considering total deposit costs and overall efficiency. Turning to our digital bank platforms, we continue to expand scale and diversification. Deposits act as the primary entry point to our other banking products, enhancing brand loyalty, driving engagement, and deepening customer relationships. Leveraging our brand strength allows us to build on current momentum in newer consumer lending products. Ally Invest is strengthening customer relationships with Ally Bank, where customers who have both deposits and investment accounts hold nearly twice the balances and are less likely to leave compared to those with only deposit accounts. Our card balances reach $1.4 billion with 1 million active customers, reflecting our disciplined strategy of low and grow credit lines. Meanwhile, Ally Lending balances of $1.8 billion have more than doubled from the previous year due to momentum in the healthcare and home improvement sectors. We will continue to be intentional in seeking substantial opportunities for accretive growth in these newer businesses and are enthusiastic about the capabilities we’re developing for the future. Let's turn to Slide 16 to review auto segment's highlights. Pre-tax income of $488 million was driven by growth in retail auto balances as well as yield and solid credit performance. The increase in provision expense versus prior periods resulted from normalizing credit performance and CECL reserve build to support $12.3 billion in consumer originations with attractive risk-adjusted returns. Looking at the bottom left, originated yield of 8.75% was up 92 basis points from the prior quarter, reflecting significant pricing actions. We put more than 245 basis points of price into the market through last week. And despite seasonality headwinds, we expect to originate above 9% in the fourth quarter. As elevated retail trade-in activity normalizes and reduces pressure on portfolio yields, we continue to expect the portfolio will migrate well into the 7s, given current originated yields. Pricing beta should be viewed through the tightening cycle, but we've been pleased with the momentum-to-date and remain confident in our ability to generate higher yields from here. Turning to Slide 17. Our leading agile platform is built to adapt to dealer and customer needs in a comprehensive manner, reflected in our performance and the multi-year growth of our dealers. We are now approaching 23,000 active dealer relationships, up 25% over the past three years. Our strategy remains centered on deepening these relationships and increasing application flow. In the upper right, lending consumer assets expanded to $95 billion or nearly 7% on a year-over-year basis. Retail auto assets increased by $2 billion in the quarter. Based on current market conditions, we expect more than $48 billion of consumer originations in 2022. Commercial balances ended at $16.2 billion as new vehicle supply remains pressured. Turning to origination trends in the bottom half of the page, auto volume of $12.3 billion displays our ability to generate strong flow while adding significant price in the market. Use accounted for 64% of originations, continuing to display our flexibility to adapt to market conditions, while non-prime comprised 10% of volume, consistent with our trend over the past few years. We've remained disciplined in leveraging a deliberate approach to underwriting and entrenched dealer relationships to drive strong flows. We are cognizant of the uncertainty on the horizon and remain focused on optimizing the buy box and pricing to ensure appropriate risk-adjusted returns. Turning to insurance results on Slide 19. Core pre-tax income of $32 million decreased year-over-year from the impact of lower investment gains given the market backdrop. Total written premiums of $291 million reflect a continued focus on increasing dealer engagement while still facing a headwind from lower unit sales and inventory levels across the industry. On the bottom left, we wanted to provide a real-time example of how we navigate potential loss events in ways that benefit our dealer customers and mitigate risk for Ally. Hurricane Ian was a significant storm with industry insurance industry estimates calling for losses in excess of $60 billion. From an Ally perspective, we had over $1 billion of floor plan exposure in the storm's path and were able to limit expected losses to less than $4 million through proactive outreach. We continue to look for ways to differentiate our product offerings and remain a partner for our dealers as these weather events occur and disrupt our operations. Going forward, we remain focused on leveraging our significant dealer network and holistic offerings to drive further integration of insurance across auto finance. Turning to Corporate Finance on slide 20, core income of $91 million reflected disciplined growth in the loan portfolio, a year-over-year increase in other revenue from a gain related to a previously restructured loan exposure and stable credit trends. Net financing revenue was impacted by higher asset balances as well as higher benchmarks as the entire portfolio is floating rate. The loan portfolio remains diversified across industries with asset-based loans comprising 56% of the portfolio. Our $9.4 billion held-for-investment portfolio is up 42% year-over-year, reflecting our expertise and disciplined growth within a highly competitive market. Mortgage details are on slide 21. Mortgage generated pre-tax income of $19 million and $500 million of DTC originations, reflecting tighter margins and conforming production and effectively zero demand for refinancing activity. Mortgage remains a key product for our customers who value a modern and seamless digital platform. Rather than focusing on volume, we remain committed to delivering a great experience for our bank customers and compelling risk-adjusted returns, which may lead to fluctuations in origination levels over the coming quarters. Lastly on mortgage, we provided some detail on our investment in Better referenced by JB. The investment has a remaining carrying value of $19 million and generated gains in excess of the original investment. So despite the impairment this quarter, the investment has been accretive to capital. I'll close by emphasizing my confidence in Ally and our ability to successfully navigate a variety of economic environments. I'm excited to lead this transition and would like to thank Jenn for her leadership over the past five years and wish her the very best.

Thank you, Brad. Slide number 21 provides a view of the macro environment we are navigating, how we are delivering operationally and how we are positioning for further uncertainties. As we covered throughout today's call, operational performance remains solid, and I'm proud of our teams for focusing on controlling what we can control. Obviously, the macro backdrop is constantly evolving. As a natural liability-sensitive balance sheet, the short-term faces more pressures, but fundamentals remain very sound. Based on current forwards, the Fed funds rate is expected to increase 475 basis points this year, the most since 1980. Vehicle sales remain pressured with supply chain and production challenges yet to be fully resolved. Despite these factors, we have continued to generate attractive loan growth, and deposit growth is down across the industry given the onset of quantitative tapering and elevated tax payments in the first half of the year. Our teams have shown their ability to remain nimble, pivot as needed, and continue to deliver operationally. Full-year auto originations are expected to be around $48 billion. On the deposit side, our digital, direct bank model continues to resonate in the market. We've seen steady growth in customers throughout the year. And despite new competitive forces, we still expect to generate modest full-year growth. Credit is performing in line with our expectations. Consolidated charge-offs remain under 100 basis points, given the strength of our largely secured balance sheet. In addition to solid execution, we've positioned the company for a variety of economic environments. Reserve levels remain approximately $1 billion higher than CECL day one and have nearly tripled since 2019. Capital levels are $3.6 billion above our SCB requirement. And again, yields on our more newly originated auto book are now well north of 8% and continuing to increase, which provides significant loss absorption capacity even in periods of elevated losses. We're disciplined on underwriting and are constantly refining the buy box to ensure we appropriately size and price for risk. And we've made meaningful investments in people and digital capabilities across our customer servicing and collections teams. So while the macro path from here remains uncertain, we have great businesses with seasoned operators and an incredible culture. Over the last decade, we have transformed all aspects of our company, and we're better positioned than ever to navigate a challenging environment. We'll stay focused on executing our strategic priorities for long-term value creation. Given the environment, we did want to share a snapshot of the fourth quarter. The outlook, particularly in the near-term, remains fluid. But as we sit here today, we see NIM around 3.5%. That reflects the near-term pressure we've highlighted today. Retail yields and hedge income will be up meaningfully quarter-over-quarter, but is not expected to fully offset elevated funding costs in the short term. And depending on the shape of the curve and the path of the Fed funds rate, we could be here for several quarters. We see $2 billion to $3 billion of loan growth expected in the fourth quarter across our consumer and corporate finance portfolios, so reserves will increase as we grow the balance sheet. Continued normalization of credit, including seasonal patterns, will result in consolidated credit losses around 100 basis points. And putting it all together, adjusted EPS is expected to be around $1 per share in the fourth quarter. I'll provide an update at the Goldman Sachs conference later this quarter and consistent with prior years, we'll give you our insights into 2023. The ROE guide we've had out there is again a through-the-cycle view and we believe largely remains intact. But obviously, the dramatic acceleration in interest rates put some pressure on the near-term outlook. Finally, I'll close with a few comments on Slide number 22. I remain incredibly proud to lead our company. Ally's purpose-driven culture is genuine and fuels our financial and operational performance. As you've heard us say, we're focused on delivering performance for all of our stakeholders, whether it's teammates, customers, communities, or stockholders. As we enter a period of uncertainty, I continue to challenge our teammates to see around corners, focus on essentialism, and adopt an owner's mindset. Ally's results and market-leading businesses demonstrate we are equipped to successfully navigate in challenging environments. We remain focused, nimble operators and disciplined on capital deployment, which I'm confident will drive long-term value. I know this quarter didn't hit expectations, but fundamentals remain really solid, and I hope the added transparency today gives you more of a detailed view on the various dynamics we are navigating. And with that, Sean, let's head into Q&A.

Thank you, J.B. As we head into Q&A, we do ask that participants limit yourself to one question and one follow-up. Carmen, please begin the Q&A.

Thank you. First question comes from the line of Ryan Nash with Goldman Sachs. Please go ahead.

Hey good morning guys.

Hey, good morning Ryan.

To start off, I’m not sure if Jenn is on the call, but I want to say it’s been a pleasure working with you, and best of luck in your new role. J.B., to begin with credit, the fourth quarter suggests a slight increase in charge-offs. You've provided insight into both the delinquencies and your expectations for charge-offs. Could you discuss when you think these will start to stabilize? I asked a similar question last quarter. The guidance indicates approximately $11 billion in originations for the fourth quarter. Given market concerns, why not slow down originations further and take a more conservative approach, especially considering some of the newer businesses and what you're observing in the auto sector?

Thanks for the question, Ryan. Regarding charge-offs, it's a fluid environment, making it difficult to predict when we might see stabilization. We anticipate that by mid-2023, or possibly late 2022, we should start to see some signs of stability. However, this depends on the Federal Reserve's actions and whether inflation can be managed on a broader scale. We continue to stand by our expected loss range of 1.4 to 1.6, but we have adjusted our outlook, dropping the lower end to 1.4 as we expect losses to trend closer to 1.6 over time. In response to your second point about why we are not pulling back, the markets remain attractive. For example, if we adjust funding costs to around 4% and project lifetime losses on the auto portfolio over 2%, we still expect a return on equity of about 21% for new business and a return on assets just under 2%. Therefore, we feel confident about the new loans we are originating. It can be easy to overlook the scale of our operations, with $13 billion in originations last quarter and $12 billion this quarter, leading to an annual number of approximately $48 billion. We continuously refine our approach based on risk, conducting regular credit discussions and making buyback adjustments. While we may trim about $300 million to $500 million in a quarter based on our risk assessment, we still find attractive opportunities within the prime space. We are committed to serving our dealer customers and believe that the loans we are putting on our books today will ultimately be very profitable.

Got it. Thanks for the color. And maybe as a follow-up, if I think about the 4Q guide, it implies a return that's less than 10% ex-OCI. Obviously, there's a lot of uncertainty, but we're not in a recession yet. And I think you mentioned that the medium-term target largely remains intact, but there's going to be pressure in the near term. So, I guess, do you expect to operate around this level of profitability for the next few quarters? And I guess, given the stock's trading less than 60% of tangible ex-OCI, where do you see the returns of this company going in 2023? And what do you think it will take for us to get back to those medium-term return levels? Thank you.

Yes, it's disappointing to see the stock's performance. However, I believe most of the negative sentiment is already reflected in the price. The market seems to be pricing in quite severe scenarios regarding future credit performance. We expect our return on equity to be around 10% in the fourth quarter, which we consider to be the low point, and we anticipate a gradual increase from there. Our long-term target of 16% to 18% remains unchanged, and we are structurally a more profitable company. In the short term, given our liability-sensitive balance sheet and the significant increases in interest rates over the past months, it’s challenging to offset those impacts. Eventually, we will see the cost of deposits, a major factor, start to stabilize. We have estimated a 75% beta, which could lead to an average rate around $350. Whether we achieve this depends on competitive dynamics. As our new loans mature, our portfolio yield should significantly improve. We project the exit rate for 2023 to be higher and expect it to move toward the long-term target of 16% to 18%, while next year might be in the 12% to 13% range. Additionally, the introduction of new products, particularly in consumer lending and corporate finance, should enhance profitability and contribute to margin expansion. Thus, although we expect net interest margin to dip to 350 and our charge-offs to approach 100 basis points, which we hope to surpass, we view the fourth quarter as a baseline. The speed of recovery remains uncertain. I hope you understand the various factors influencing our situation.

Thank you. One moment for our next question, please. Our next question comes from the line of Moshe Orenbuch of Credit Suisse. Please go ahead.

Thank you. Regarding the margin trends, I think they were somewhat anticipated, possibly slightly worse due to the faster pace of Fed tightening. Can we discuss credit normalization? What circumstances would require you to increase the reserve beyond your current level, considering your one-year forecast indicates the unemployment rate will be in the 4s before rising again? What would lead to that number being worse than your current expectations?

Yes, Moshe, thank you for the question. Overall, we are very pleased with the level of coverage we have in place today. We are currently at 3.56%, with a small increase attributed to Hurricane Ian. We are holding significantly more reserves compared to the initial CECL implementation and even relative to 2019. What could lead to a change? With CECL, there are various factors that influence how the calculations work. For example, if a Moody's scenario suggested that unemployment rates would rise substantially, which we don't anticipate happening, it could necessitate building up the reserves further. However, we feel confident about the current embedded normalization to a 6.5% unemployment rate. While there is uncertainty regarding how consumers will manage prolonged inflation, we believe that the current indicators for consumers seem strong. We will continue our standard reserving process each quarter. Is there a possibility for coverage to increase slightly due to normal business fluctuations? Yes, absolutely. However, in general, we feel secure about the reserves we have and believe we are well protected.

Thank you. Just to follow up on Ryan's question about moderating originations, how do you view the size of the balance sheet in terms of capital and funding? I would have thought that as rates rise, since traditional retail banks haven't increased their rates significantly yet, the betas could be smaller rather than higher. However, loan growth seems to push companies to maintain higher rates for funding. So considering this combination, do you think we might see those betas improve before rates stabilize, and how are you currently thinking about that?

Yes, that's a great question. We certainly hope so. However, as you know, there has been a rapid increase in short-term rates, with even more projected increases ahead. There’s another 175 basis points priced in, so we believe that a 75% beta would be on the high side for us moving forward. We're observing many competitors and significant competitive pressures. It’s been interesting to see behaviors in the fourth quarter, particularly among direct banks where some are now offering rates over 3%. This has surprised us regarding how aggressively some rate payers are behaving. We’re working to address that and currently have a cash balance promotion to attract high-quality deposits. The environment is indeed dynamic. Additionally, we received updates this morning indicating recent outflows to brokerage, suggesting that consumers might believe equities are nearing a bottom, which has led to increased flows into brokerage. This situation is putting some pressure on our growth and necessitates a balance in how aggressively we pay on rates. We hope that over time, the beta will moderate, and we view the 75% we shared as more of a worst-case scenario.

Great. Thanks very much.

Thank you, Moshe.

Thank you. One moment for our next question please. Our next question comes from the line of Betsy Graseck with Morgan Stanley. Please go ahead.

Hi, good morning.

Hey. Good morning, Betsy.

A couple of questions. Just first on the outlook for NIM. I know you mentioned the 3.5% for 4Q. And I guess I just wanted to get a sense of the push/pulls in there that would drive it either higher or lower as we go through the next couple of quarters. Just in terms of if the forward curve is moving up faster, like a cash carry kind of rates might go higher for longer scenario. And then also just wanted to understand how you're thinking about the remarketing gains that are embedded in NIM. How does that trajectory throughout the rest of this year and into next? Thanks.

I believe that regarding net interest margin, it will mainly depend on your expectations about deposit costs, similar to what Moshe asked. The competitive landscape remains quite fierce, and we hope that the beta will start to ease at some point. This is a significant factor. On the auto side, our team has excelled in continuing to increase prices in the market, and we have seen very strong flows. We consider some of the loans we have originated to be among the most profitable ever. You heard me mention the 21% statistic. We are pushing prices as hard as we can in the auto sector. However, it takes time for the portfolio to mature to notice an increase in yield. The immediate outlook primarily hinges on deposits. We anticipate gains around $40 million this quarter and expect to remain in that range for the next few quarters, which shouldn’t drive significant changes. Used car prices are beginning to decline slightly, as indicated by Manheim earlier this year. All of this is factored into our guidance and assumptions. This could somewhat influence where lessees are going to capture their gains. While it may be slightly beneficial for us, it is unlikely to be a major driver. We experienced a decline of about 5% to 10% in use during the third quarter, yet still had reasonable gains in the lease portfolio. So, it's not going to be a substantial driver, which is my main point.

I'm trying to understand how the declines in used car prices will affect the losses in the auto book over the next year. Additionally, could you provide an update on some of the partners you have exposure to, such as Carvana? Thank you.

Yes, of course. I believe the declines in used car pricing are mostly factored into our 1.6% guidance. When we underwrite loans nowadays, we maintain a loss assumption of 1.4% to 1.6%, which remains steady. In our current guidance, we acknowledge that, considering the macro factors, we are likely to be closer to the upper end of the 1.6% range.

Yes, sir. Just wanted to understand how your exposure is trending towards some of the partners you have like Carvana?

Thank you. We are closely monitoring Carvana and regularly discussing their situation with their leadership. While we have some retail commitments, we can influence pricing decisions to manage our exposure. We're not lending against their real estate, but our retail exposure is performing well. On a comparable basis, their credit performance is similar to, if not slightly better than, our core auto dealer originated loans. We believe they are strong partners despite facing industry challenges like inflation and inventory alignment. Ernie has been effective in streamlining operations and managing costs. We have no issues with them as a retail flow partner, and consumers continue to favor their model.

Thanks.

Thanks, Betsy.

Thank you. And our final question, one moment please. Our final question comes from the line of Sanjay Sakhrani with KBW. Please proceed.

Thanks. Good morning.

Good morning, Sanjay.

Good morning. I have a question about new origination pricing. J.B., at the beginning, you discussed the various competitive dynamics. Brad mentioned that the yield is expected to exceed 9%. I'm curious if you see any changes in demand elasticity related to that. You also mentioned that banks are pricing lower. Do you believe there is any risk to that yield as we move forward?

At this point, we have been pleasantly surprised by our team's ability to implement pricing in the market. Additionally, card prices are starting to decrease, which is a significant factor concerning the monthly payment relative to the actual rate that consumers pay. These elements are working together, and we haven't encountered much pressure. However, in discussions with our auto business leader and the team, it seems we may be nearing a saturation point where we could see demand diminish a bit, as consumers may not want to deal with rates above 10%. We are not concerned about this. We are not establishing a defined origination target for our auto business this year; we anticipate it will be $48 billion. Next year, we expect it to be several billion dollars lower. We are comfortable with a decrease in volume if the return on equity is not where it needs to be, and this is the type of dynamic management we are engaging in.

Okay. And sorry if I missed this. But as far as the share repurchase, how should we think about next year and then what you guys intend to do in terms of capital return or capital management?

This year, our Board approved a $2 billion buyback plan, and by the end of the third quarter, we had executed $1.6 billion of it. We have a corporate buyback program in place, so we anticipate purchasing around $50 million in the fourth quarter, bringing our total to approximately $1.7 billion by year-end. However, we do not plan to continue at this pace next year, and our expectations for buybacks are likely to decrease. While we will still be active, factors such as SCB will play a role in that. We are holding excess capital relative to our targets, so we will manage buybacks prudently. It’s unlikely we will reach the same levels as this year, and it might not even be half of that amount. One thing I'm proud of is our consistent buying of shares since our IPO; we've reduced our outstanding shares from 484 million to 300 million, demonstrating disciplined use of capital. However, this also means it takes less money to affect our EPS, which limits our ability to shift EPS projections significantly. We will continue to be disciplined in deploying our capital, but do not expect buyback amounts to match the previous years.

Yes. Appreciate it.

You got it. Thanks, Sanjay.

Thank you, Sanjay. Thank you, J.B. Showing a little past the hour here. That's all the time we have for today. If you have any additional questions, as always, please feel free to reach out to Investor Relations. Thank you for joining us.

Ladies and gentlemen, and with that, you can disconnect from the call. Have a great day.