Good day, ladies and gentlemen, and welcome to the Ally Financial Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, today's conference is being recorded. I'd now like to introduce your host for today's conference, Mr. Michael Brown, Executive Director, Investor Relations. Sir, please go ahead.

Thanks, operator, and thank you, everyone, for joining us as we review Ally Financial's third quarter 2016 results. You can find the presentation we'll reference during the call on the Investor Relations section of our website, ally.com. I'd like to direct your attention to the second slide of today's presentation regarding forward-looking statements and risk factors. The contents of our conference call will be governed by this language. I'd also like to note the third slide of today's presentation where we have disclosed some of our key GAAP and non-GAAP or core measures. These and other core measures are used by management and we believe they're useful to investors in assessing the company's operating performance and capital measures, but they are supplemental to, and not a substitute for, U.S. GAAP measures. Please refer to the supplemental slides at the end for full definitions and reconciliations. This morning, our CEO, Jeff Brown, and our CFO, Chris Halmy, will cover the third quarter results. We'll have some time set aside for Q&A at the end. Tim Russi, President of Auto Finance, and Dave Shevsky, Chief Risk Officer, are also here to assist with your questions. Now, I'd like to turn the call over to Jeff Brown.

Thanks, Michael. Good morning, and thank you for joining our call. Operating performance in the third quarter was again solid across the board. We continue to make consistent and steady gains over prior periods. And almost every key operating metric, including core net income available to common, adjusted EPS, core ROTCE, and tangible book value per share increased on a year-over-year and linked-quarter basis. Adjusted EPS of $0.56 is up 11% year-over-year and our strongest since becoming publicly traded in 2014. We'd rather just be direct and acknowledge this is a miss from analysts' expectations, and we'll certainly talk about the drivers during this call, but I also want to be clear that nothing we observed in the quarter meaningfully impacts our long-term plans for guidance we previously provided. We're also in the midst of our annual and longer term planning processes inside the company and feel even more bullish about the upside potential that exists given our relentless focus on the customer and new product development. There will always be ebbs and flows in the quarter-to-quarter progression, but we are still fully committed to a longer term, which I define as the next three- to four- years target of 12% core ROTCE and delivering in the range of a 15% adjusted EPS CAGR. That will take steady and deliberate execution to deliver, but that's what our shareholders expect from us and that's entirely reasonable. Strong deposit growth and retention continues to be a key part of our plan to improve profitability. And in the third quarter, retail deposits were up 19% year-over-year and put Ally on pace to surpass $12 billion of total deposit growth this year. Deposit growth enables us to drive more efficiency in our funding profile such as bringing down the unsecured debt load as well…

Thanks, JB. On Slide 5, net financing revenue crossed over $1 billion for the quarter. Year over year, net interest margin expansion continues, despite the painfully flat yield curve. While we could see a dip in the fourth quarter due to seasonality, we continue to see significant runway to grow net financing revenue over time; and, frankly, migrating from around $4 billion annually today up to a run rate of around $5 billion is in our sights over the next few years. Provision was up quarter over quarter due to seasonality and up year over year due to our deliberate mix shift and increase in our coverage ratio, as we built our allowance in the retail loan book. As we've said, we've been taking on more credit risk, but we are getting paid for it and believe we still have substantial coverage for higher losses. Also, keep in mind, lease residual exposure is running off about $1 billion per quarter at a time when used values are softening. And we'll cover more detail on these dynamics in a minute. Non-interest expense was up year-over-year, due primarily to the acquisition of TradeKing as well as increased FDIC deposit fees and some modest investments related to product expansion. While expenses are up, as we get into the second half of 2017 we expect increases in revenue to outpace expense growth, providing positive operating leverage and driving our adjusted efficiency ratio steadily down to the low 40%s over the next few years. In Discontinued Operations, we accrued $52 million for a potential settlement in connection with our discontinued mortgage business. And after adjusting for Disc Ops and OID, we had adjusted EPS of $0.56 this quarter, with core ROTCE of 9.8%. We view this as another solid quarter, and nothing we saw alters…

Great. Thanks, Chris. So to sum it up, we continue to make progress on our strategic plan. We're generating strong EPS growth, with hopefully you have seen, a long runway to go. Deposit growth and consumer efforts remain an important part of the plan, and we're very pleased by performance in these areas. Efficient capital deployment remains a priority, as does continuing to drive shareholder value, and that is evidenced by our position to prioritize returns versus growth in the Auto space. Looking ahead, we are encouraged by our position in digital financial services and the trends that support this area for the future. We're focused on growing deposits and pursuing revenue diversification, including through fee income. And on the operating side, appropriately managing risk, expenses and capital allocation all remain important factors in value creation. So thanks for your time today, and let me turn it back to Michael Brown for Q&A.

Great. Thanks, JB. As we move into Q&A, we request that you please limit yourself to one question plus a single follow-up. If you have additional questions after the Q&A session, the IR team will be available. Operator, if you could please start the Q&A.

Our first question comes from the line of Eric Beardsley with Goldman Sachs. Your line is now open. Eric Beardsley - Goldman Sachs & Co.: Hi, thank you. Just on the charge-offs, you'd been talking about having your NAALR going up from somewhere around 10 basis points year-over-year. I guess now we're up mid-30s in terms of the year-over-year charge-off rate. You mentioned that could slow. First, could you just help us reconcile the delta that you have seen – first, your NAALR; and then, secondly, where you see that year-over-year change in charge-offs migrating to as we get into 2017?

Yes, obviously the NAALR is up about 10 basis points, and that's still holding true. But when you look at the actual charge-off rate, one of the things you have to really take into consideration is the timing of charge-offs. When you look at a NAALR, NAALR is the expected rate over the life of those loans. If you look at a charge-off rate, it's just the amount of loans that we charge off in any specific quarter. So when you think about the timing of that, there's obviously seasonality when certain vintages get into their peak loss periods. So there are times obviously when your loss rate could be higher than your NAALR, but over the life of that loan it will get back into line. The other point that I think is important, and we talked a bit about this on the last earnings call, is that we did get pretty aggressive selling assets this year. And when you sell assets, it obviously changes the charge-off rate as compared to the origination NAALR. And I think I estimated that last quarter in the range of around 7 basis points or something of the loss rate. So we're putting on a pretty consistent NAALR and a pretty consistent risk mix. Having said that, charge-offs are continuing to migrate up. I don't think that's any surprise. I think we were telling you that, so I don't think there's a lot of mystery in that. Eric Beardsley - Goldman Sachs & Co.: Got it. And sorry, just in terms of that pace, you mentioned that that pace of change could slow in 2017. So I guess if we're running up 35 basis points, 36 basis points year-over-year now, how do you see that progressing?

Yes, that's a good question. As I look in the fourth quarter, it's probably in that ballpark. But as you look into the 2017, it actually starts to moderate a bit. So the increase in 2017 in the charge-off rate should not be equal to the increase from 2015 to 2016. The reason for that is you just have more seasoning of the 2015, 2016 vintages. So while I expect charge-offs to still go up in 2017, I don't expect them to go up at the same rate as they did from 2015 to 2016. And actually, as you look out to 2018 and even 2019 as we're doing our business plan, it really starts to flatten out. Eric Beardsley - Goldman Sachs & Co.: Great. Thank you.

Our next question comes from the line of Eric Wasserstrom with Guggenheim Securities. Your line is now open.

Thanks. Maybe if I can just follow-up on that question, I just want to make sure, Chris, that I understand that with respect to the 120 basis point NAALR, that's still what you expect the recent vintages to converge on as they move through their peak loss period. Is that correct?

That's correct.

Okay. And then maybe just stepping back a bit, I just want to make sure I understood or I'm interpreting correctly all of your comments about 2017 with respect to the balance sheet transitions and the origination transitions, et cetera. But it sounds like what you're indicating is that while operating leverage will be more evident, PPNR growth could more or less match provision growth, but that the two diverge in the out years. Is that correct?

That's definitely directionally correct. So, what's happening in 2017 is as the lease portfolio continues to come down, we're not going to experience the level of lease revenue that we experienced this year or even last year. So that continues to come down. But as the retail loan portfolio – retail auto loan portfolio continues to grow, that should offset a lot of that. But as you get to 2018, the lease portfolio hits a steady-state, so what you're going to have is growth in the retail loan portfolio both from a yield perspective and even from a balance perspective. But what you also have is you have provision that basically flattens. So you start to see a real trajectory of an increase in profitability out in 2018 and 2019 because of that. The other dynamic that I would say is that – is what you're also going to see in 2017 is you're going to see some significant unsecured debt maturities – really 2017, 2018 and 2019. Most of that will not get refinanced. And because of that, you're going to start to see an increasing net interest income, or NIM.

Thanks so much for clarifying.

Thank you.

Our next question comes from the line of Moshe Orenbuch with Credit Suisse. Your line is now open. Moshe Ari Orenbuch - Credit Suisse Securities (USA) LLC (Broker): Great, thanks. Chris, maybe you could just follow-up on that because you had made some comments during the call about the need to upstream cash. Could you talk about the pace actually in 2017 of those debt maturities, what that depends on?

Yes, the only – we have about $4.5 billion dollars of debt maturities in 2017. A vast majority of that, honestly, is in like the first half of that, even the first quarter. What – the caveat I was giving you basically is we still have a requirement to hold 15% leverage ratio at our Bank. Because of that requirement, obviously the Bank has, what I would consider trapped capital and, therefore, trapped cash that can't flow up to the parent company. We think of that as a temporary restriction that will get lifted at some point. So, as the significant maturities come off, we may need to look at some temporary ways to raise some cash until that restriction is lifted. But having said that, when I think about the overall path of unsecured debt maturities – you can think about that whole $4.5 billion eventually being not refinanced at all and basically rolling off the books. Moshe Ari Orenbuch - Credit Suisse Securities (USA) LLC (Broker): Maybe if you could just kind of – what would the cost be if you're replacing it on that interim basis, say, in 2017? And what is the probability that you could kind of get that authority to take the capital levels down below the 15%?

Yes, we think that's a 2017-event. So I'm not – unfortunately, I don't want to predict the timing because it's been a little tough to predict, but we definitely think it's a 2017 event. Now, if we replace it with deposits, right, it's a difference between the 4.5% and basically 1.10%. But if we have to replace it on interim basis, my guess is we can replace it in somewhere around a 2% cost of funds. So there will still be a significant decrease in interest expense associated with that, which is why I made the comment really on NIM. I really expect NIM to come down in the fourth quarter, but that should really bounce back in the first half of the year as those debt maturities come off. Moshe Ari Orenbuch - Credit Suisse Securities (USA) LLC (Broker): Got it. Thanks very much.

Our next question comes from the line of Chris Donat with Sandler O'Neill. Your line is now open.

Hey, Chris. Christopher Roy Donat - Sandler O'Neill & Partners LP: Good morning and thanks for taking my question. Wanted to ask for JB on the deposit growth, there is – it looks like there's clearly a lot that has been going right. But as you think about the next three years or four years, can you talk a little bit about what might go wrong either in the interest rate environment or competitively or whatever? Because I get the math on the $40 billion or so, but just want to understand what sort of the risks around that might be.

Yes, I mean I think – let me take – that's a great question, Chris. So I mean we have had great progress both in attracting new customers and demand into the brand, as well as we heard from Chris just continued growth in our existing customer base. I think important to that, we've got to continue investing in technology, and we are doing that within the Bank. A number of new technologies rolled out throughout the past 24 months, and we've got to stay kind of on the leading edge. And, in fact, we have updated some of our deposit agreements in the past couple days on more seamless money transfer and things like that. So when you are a digital bank and no brick-and-mortar, technology and service, customer service have to be key points of emphasis at all times. So, look, the other thing I think with respect to competitors, you know, Goldman's out with their offering, Synchrony is being pretty aggressive; Cap One is making good progress there. So you have the emergence of new players and other digital players. But we're very proud of our overall brand positioning, the competitive offering that we have relative to the names I just mentioned there. So we feel good about trajectory and just think – obviously got to keep our heads down and stay focused there. On the rate environment, I think the big question is ultimately what do we see – if and when The Fed ever gets moving. I think, as Chris pointed out, we're not going to holding our breath that we're going to see another 25 basis points this year. May or may not happen. I think next year if The Fed goes, we're probably talking in the neighborhood of 25 basis points to 50…

No, there's nothing going on unusual to share repurchases. And keep in mind that we can't buy shares during a blackout period, so most of it was after our blackout period – released last quarter or so. So nothing unusual, though. Christopher Roy Donat - Sandler O'Neill & Partners LP: Got it. Okay. Thanks.

Our next question comes from the line of Rick Shane with JPMorgan. Your line is now open.

Hey, guys, thanks for taking my question. I'm not big on compliments on earnings calls, but I do want to say I really appreciate the narrative and how you wrap the slides around that. It really helps us think about the story. I do want to talk about Slide 8 a little bit. And on Slide 8 you show the potential of deposit growth and the impact of the $40 billion of potential deposit growth. If we roll back to the previous slide, you experienced roughly $12 billion with the maturities. So that's easy. That absorbs $12 billion of that $40 billion. The other opportunity – there is a $28 billion, essentially gap in terms of assets. And part of your story so far has been discipline in terms of asset growth, which we've really seen over the last year. I'm curious where you see that opportunity to deploy that capital. And related to that, how do you hedge your basis risk on the mortgage portfolio that you're building?

Yes. So let's talk about your first question, which is – when I think about the use of those deposits and asset growth, the places we will most likely deploy that is in an increased mortgage portfolio, okay, is one. And we're obviously building a direct-to-consumer business right now. So we do expect the assets in mortgage to increase. Secondly, we actually have a very small securities portfolio relative to our peers. And there's a couple of reasons for that. One is because some of the capital restrictions that sit at the Bank. Some of it was because of just the rate environment we've seen over the last couple of years. But we think we can obviously grow that securities portfolio to be much larger and much more in line with our peers. Both of those are assets come with very little capital. Both of them attract less capital than they do – than does an auto loan, as an example. The last one is we obviously want to keep growing our Corporate Finance business. Now, I think the Corporate Finance business probably grows less than the other two, but it still probably has another $3 billion to $5 billion of growth in it. And then the other offset outside of asset growth is really going to be reducing some of the secured debt. So we still have things like big secured facilities with the banks, and we're going to look to take a lot of those down over time. So you basically combine all those together and it represents about a 2% contribution margin.

Okay. Now, presumably – particularly with that securities portfolio which I think we would put into the treasury function, you will be taking on some interest rate risk. How will you hedge that?

Yes. We have a pretty – what I would call, we have a pretty sophisticated and active capital markets group. And we have a pretty robust outgo process that's really – that JB and I built when we came in this place. So, we talk a lot about our expected view on the path of interest rates, both on the short end and the long end, and how we should basically use some derivatives like just swaps to basically position the balance sheet for our view on interest rates. So, I would say we'll do it dynamically, and we will look to really decrease any of the risk associated with that. But it's something that I think we feel pretty comfortable with.

Okay. Great. Thank you, guys.

Thanks, Rick.

Our next question comes from the line of David Ho with Deutsche Bank. Your line is now open.

Good morning.

Good morning.

I was wondering if we could talk about the coverage ratios for the loan-loss reserves. As we think about your comments related to slowing velocity of loss rate increases certainly in 2017 and into 2018, and then given the 12-months look, does that mean that the coverage ratios should start to be relatively flat and shouldn't see much of a lift outside some credit normalization?

Yes, let me first address it, and then – we have Dave Shevsky in the room, our Chief Credit Officer, so I wouldn't mind if he jumped in as well. But, let me just address the coverage ratio. We did increase the coverage ratio this quarter and we did it probably at a faster rate than we would have expected a couple of quarters of ago. So I think that's very fair. We did see used car values come down this quarter, really for the first time. They've really exceeded our expectations up until this point, but I think we're starting to hit that inflection point where we are seeing the used car values come down. When you do your modeling for your allowance, you obviously take into consideration your current used car values and a little bit of where things are going. So we felt it was very prudent to increase that coverage ratio. So while the ratio is up, I think eventually we always felt we were going to get here. It just probably came up quicker than we thought. Now, where the coverage ratio is going is obviously going to be dependent on where future used-car prices go as well as where the losses on the portfolios go as well. The coverage ratio will always be higher because we don't only use the model losses, we also have some directional reserves associated with that. So it's a bit higher than we would've expected, which is a big contributor to the provision expense this quarter and where people probably weren't expecting. But we do feel pretty comfortable with it. And as I look out over the next year, the expectation is losses will continue to tick up a bit. I think the coverage rate will follow that. Dave?

Yes, I will just say we feel really good about where it's going for a couple of reasons. As JB indicated, we really look at early indicators. Unemployment rate is still very favorable. First payments defaults are trending very favorable. Our roll rates in delinquencies are also very favorable, and our skips are favorable. We've made some targeted changes, and we've said on our credit risk call we really are playing more in the belly of the curve, and we define that as 620 to 740, which is where most of our originations are, which we can optimize the price. We have taken down our non-prime. We were at 14%. We are today right around 11%, slightly below 11%. So all those factors, I think, contribute to. We feel pretty good about where that coverage range is going.

Okay. And then in terms of where you think used price – used car prices will go, what are the major swing factors as we look into 2017? And maybe talk about potentially higher gas prices and that impact on the book and what you are maybe modeling there.

Yes, I think that's a perfect question for Tim Russi, who runs out auto business. Go ahead, Tim.

Sure. The forecast for supply of the vehicles is increasing. It's going to increase over the next couple of years. That's why we're being conservative on the used car prices. So we're watching a level of supply in the industry go above historical levels, and that's high levels of leasing. As those – started three years ago and they are going to start to hit the market and have hit the market starting in the second half of this year. So you've got that dynamic. Obviously, where gas prices were, you had a very favorable environment for larger vehicles and unfavorable for the smaller vehicles which, in fact, is a little bit of what we saw in the quarter.

You're good, Dave? All right, operator, if we could take the next question.

Our next question comes from the line of John Hecht with Jefferies. Your line is now open.

Hey hi. Good morning thanks, guys. Quick one on the deposits. I know Rick Shane touched on this a few questions back. But just in terms of maybe intermediate-term ways of thinking about modeling the business, the deposits have crept up as a percentage of liabilities. And where would you think that – should we just keep that at the same trajectory through next year? How do we think about that in the intermediate-term?

No. I think deposits as a percentage of the overall funding are going to continue to increase. So as I think about the balance sheet growth over the next couple of years, deposits will outstrip the balance sheet growth, so the percentage of deposits will continue to go up. I think if you're modeling it, I expect that deposits will probably be up another $10 billion to $12 billion a year over the next few years. So – and that is actually retail deposits. So maybe $12 billion-plus when you put in the benefit of the broker deposits and/or the deposits we get from the wealth management platform. So, all in all, you're looking at $12 billion-plus of deposits each year, and you probably have a balance sheet that grows closer to $7 billion or $8 billion.

Okay, that's very hopeful. And then looking at the origination mix this quarter, you had been increasing the used composition over time. There was a little bit of a reversion that there was maybe a little bit more new in terms of composition this quarter. Is that just sort of the way the quarter fell in terms of maybe approvals or seasonality, number one? And number two is how should we think about that mix maybe through next year?

Yes you have to really take into consideration the seasonality factor, which is why in my prepared comments I made a comment that it's up on a year-over-year basis. Because used cars tend to have their biggest sales months starting in the spring time into early summer. So you have to look at it on a year-over-year basis. I think we've hit a little bit of a steady state. So we probably expect those deposits to range anywhere – I'm sorry, those used vehicle originations to range anywhere between 40% to 45% next year.

Perfect. Thanks very much.

That concludes today's question-and-answer session. I would like to turn the call back to Mr. Brown for closing remarks.

Okay, great. Thanks, operator. If you do have additional questions, feel free to reach out to Investor Relations after the call. Thanks for joining us this morning. Thanks, operator.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone, have a great day.