Ally Financial Inc

Previous wording

Our Automotive Finance operations include purchasing retail installment sales contracts and operating leases from dealers and automotive retailers, extending automotive loans directly to consumers, offering term loans to dealers, financing dealer floorplans and providing other lines of credit to dealers, supplying warehouse lines to automotive retailers, offering automotive-fleet financing, providing financing to companies and municipalities for the purchase or lease of vehicles, and supplying vehicle-remarketing services. Our success as an automotive-finance provider is driven by the consistent and broad range of products and services we offer to dealers and automotive retailers. The automotive marketplace is dynamic and evolving, including substantial investments in electrification by automobile manufacturers and suppliers. We continue to identify and cultivate relationships with automotive retailers, including those with leading e-commerce platforms. We also operate an online direct-lending platform for consumers seeking direct financing. We believe these actions will enable us to respond to the growing trends for a more streamlined and digital automotive financing process to serve both dealers and consumers. Additionally, we provide comprehensive automotive remarketing services, including the use of SmartAuction, our online auction platform, which efficiently supports dealer-to-dealer and other commercial wholesale vehicle transactions. SmartAuction provides diversified fee-based revenue and serves as a means of deepening relationships with our dealership customers. Beyond offering a full suite of solutions for our dealership customers, we also offer application pass-through programs for credit applications that do not meet our underwriting criteria, allowing dealers to provide expanded access to credit for consumers and improve sales at their dealership. Through our pass-through programs, we are able to monetize our declined applications by generating a combination of acquisition fee and servicing revenue for loans that are originated, sold to, and serviced on behalf of a third-party lender, or one-time acquisition fees for loans funded and serviced by a third party. Furthermore, our strong and expansive dealer relationships, comprehensive suite of products and services, full-spectrum financing, and depth of experience position us to evolve with future shifts in automobile technologies, including electrification. We have provided and continue to provide automobile financing for battery-electric and plug-in hybrid vehicles, including brands such as Jeep, Tesla, Ford, and BMW. This positions us to remain a leader in automotive financing as we believe the majority of these vehicles will be sold through dealerships and automotive retailers with whom we have an established relationship. Additionally, we partner and build relationships with automotive manufacturers who use a direct-to-consumer model. During the six months ended June 30, 2024, $670…

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Current wording

Our Automotive Finance operations include purchasing retail installment sales contracts and operating leases from dealers and automotive retailers, extending automotive loans directly to consumers, offering term loans to dealers, financing dealer floorplans and providing other lines of credit to dealers, supplying warehouse lines to automotive retailers, offering automotive-fleet financing, providing financing to companies and municipalities for the purchase or lease of vehicles, and supplying vehicle-remarketing services. Our success as an automotive finance provider is driven by the consistent and broad range of products and services we offer to dealers and automotive retailers. The automotive marketplace is dynamic and evolving, including substantial investments in electrification by automobile manufacturers and suppliers. We continue to identify and cultivate relationships with automotive retailers, including those with leading e-commerce platforms. We also operate an online direct-lending platform for consumers seeking direct financing. We believe these actions will enable us to respond to the growing trends for a more streamlined and digital automotive financing process to serve both dealers and consumers. Additionally, we provide comprehensive automotive remarketing services, including the use of SmartAuction, our online auction platform, which efficiently supports dealer-to-dealer and other commercial wholesale vehicle transactions. SmartAuction provides diversified fee-based revenue and serves as a means of deepening relationships with our dealership customers. Beyond offering a full suite of solutions for our dealership customers, we also offer application pass-through programs for credit applications that do not meet our underwriting criteria, allowing dealers to provide expanded access to credit for consumers and improve sales at their dealership. Through our pass-through programs, we are able to monetize our declined applications by generating a combination of acquisition fee and servicing revenue for loans that are originated, sold to, and serviced on behalf of a third-party lender, or one-time acquisition fees for loans funded and serviced by a third party. Furthermore, our strong and expansive dealer relationships, comprehensive suite of products and services, full-spectrum financing, and depth of experience position us to evolve with future shifts in automobile technologies, including electrification. We have provided and continue to provide automobile financing for battery-electric and plug-in hybrid vehicles, including brands such as Jeep, Tesla, Ford, and BMW. This positions us to remain a leader in automotive financing as we believe the majority of these vehicles will be sold through dealerships and automotive retailers with whom we have an established relationship. Additionally, we partner and build relationships with automotive manufacturers who use a direct-to-consumer model. During the nine months ended September 30, 2024…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Our dealer-centric business model, value-added products and services, full-spectrum financing, and business expertise proven over many credit cycles, make us a premier automotive finance and insurance company ready to support and strengthen our approximately 21,800 active dealer relationships as of June 30, 2024. A dealer is considered to have an active relationship with us if we provided automotive financing, remarketing, or insurance services during the three months ended June 30, 2024.

Current wording

Our dealer-centric business model, value-added products and services, full-spectrum financing, and business expertise proven over many credit cycles, make us a premier automotive finance and insurance company ready to support and strengthen our approximately 21,700 active dealer relationships as of September 30, 2024. A dealer is considered to have an active relationship with us if we provided automotive financing, remarketing, or insurance services during the three months ended September 30, 2024.

Previous wording

Through our direct-to-consumer channel, we offer a variety of competitively priced jumbo and conforming fixed- and adjustable-rate mortgage products through a third party. Under our current arrangement, our direct-to-consumer conforming mortgages and certain direct-to-consumer non-conforming jumbo mortgages are originated as held-for-sale and sold. The remaining jumbo and LMI mortgages are originated as held-for-investment and subserviced by a third party. Loans originated in the direct-to-consumer channel are sourced by existing Ally customer marketing, prospect marketing on third-party websites, and email or direct mail campaigns. In April 2019, we announced a strategic partnership with BMC, which delivers an enhanced end-to-end digital mortgage experience for our customers through our direct-to-consumer channel. Through this partnership, BMC conducts the sales, processing, underwriting, and closing for Ally’s digital mortgage offerings in a highly innovative, scalable, and cost-efficient manner, while Ally retains control of all the marketing and advertising strategies and loan pricing. This partnership with BMC limits operational volatility as the mortgage industry continues to evolve in the current interest rate environment. During the six months ended June 30, 2024, we originated $494 million of mortgage loans through our direct-to-consumer channel.

Current wording

Through our direct-to-consumer channel, we offer a variety of competitively priced jumbo and conforming fixed- and adjustable-rate mortgage products through a third party. Under our current arrangement, our direct-to-consumer conforming mortgages and certain direct-to-consumer non-conforming jumbo mortgages are originated as held-for-sale and sold. The remaining jumbo and LMI mortgages are originated as held-for-investment and subserviced by a third party. During 2024, we shifted to prioritize held-for-sale loan originations. Loans originated in the direct-to-consumer channel are sourced by existing Ally customer marketing, prospect marketing on third-party websites, and email or direct mail campaigns. Additionally, we have a strategic partnership with BMC, which delivers an enhanced end-to-end digital mortgage experience for our customers through our direct-to-consumer channel. Through this partnership, BMC conducts the sales, processing, underwriting, and closing for Ally’s digital mortgage offerings in a highly innovative, scalable, and cost-efficient manner, while Ally retains control of all the marketing and advertising strategies and loan pricing. This partnership with BMC limits operational volatility as the mortgage industry continues to evolve in the current interest rate environment. During the nine months ended September 30, 2024, we originated $751 million of mortgage loans through our direct-to-consumer channel.

Previous wording

Through the bulk loan channel, we purchase loans from several qualified sellers, including direct originators and large aggregators who have the financial capacity to support strong representations and warranties, and the industry knowledge and experience to originate high-quality assets. Bulk purchases are made on a servicing-released basis, allowing us to directly oversee servicing activities and manage refinancing through our direct-to-consumer channel. During the six months ended June 30, 2024, we purchased $8 million of mortgage loans that were originated by third parties. Our mortgage loan purchases are held-for-investment.

Current wording

Through the bulk loan channel, we purchase loans from several qualified sellers, including direct originators and large aggregators who have the financial capacity to support strong representations and warranties, and the industry knowledge and experience to originate high-quality assets. Bulk purchases are made on a servicing-released basis, allowing us to directly oversee servicing activities and manage refinancing through our direct-to-consumer channel. During the nine months ended September 30, 2024, we purchased $15 million of mortgage loans that were originated by third parties. Our mortgage loan purchases are held-for-investment.

Previous wording

•Our Corporate Finance operations primarily offer senior-secured loans to private equity sponsor-owned U.S.-based middle-market companies and to well-established asset managers that mostly provide leveraged loans. The portfolio is composed of floating-rate leveraged asset-based and cash flow/enterprise value loans. Our Corporate Finance operations had $9.9 billion of assets at June 30, 2024, and generated $268 million of total net revenue during the six months ended June 30, 2024, and continues to offer attractive returns and diversification benefits to our broader lending portfolio. Our Sponsor Finance business focuses on companies owned by private-equity sponsors with loans typically used for leveraged buyouts, refinancing and recapitalizations, mergers and acquisitions, growth, turnarounds, and debtor-in-possession financings. Additionally, our Lender Finance business provides asset managers with facilities to partially fund their direct-lending activities. We also provide a commercial real estate product, currently focused on lending to skilled nursing facilities, senior housing, and medical office buildings.

Current wording

•Our Corporate Finance operations primarily offer senior-secured loans to private equity sponsor-owned U.S.-based middle-market companies and to well-established asset managers that mostly provide leveraged loans. The portfolio is composed of floating-rate leveraged asset-based and cash flow/enterprise value loans. Our Corporate Finance operations had $10.4 billion of assets at September 30, 2024, and generated $406 million of total net revenue during the nine months ended September 30, 2024, and continues to offer attractive returns and diversification benefits to our broader lending portfolio. Our Sponsor Finance business focuses on companies owned by private-equity sponsors with loans typically used for leveraged buyouts, refinancing and recapitalizations, mergers and acquisitions, growth, turnarounds, and debtor-in-possession financings. Additionally, our Lender Finance business provides asset managers with facilities to partially fund their direct-lending activities. We also provide a commercial real estate product, currently focused on lending to skilled nursing facilities, senior housing, and medical office buildings.

Previous wording

Financial information related to our credit card business, Ally Credit Card, is included within Corporate and Other. Ally Credit Card is our scalable, digital-first credit card platform and features leading-edge technology, and a proprietary, analytics-based underwriting model. We believe Ally Credit Card enhances our ability to grow and deepen both new and existing customer relationships. As of June 30, 2024, our credit card business had $2.0 billion of finance receivables and loans and approximately 1.2 million active cardholders.

Current wording

Financial information related to our credit card business, Ally Credit Card, is included within Corporate and Other. Ally Credit Card is our scalable, digital-first credit card platform and features leading-edge technology, and a proprietary, analytics-based underwriting model. We believe Ally Credit Card enhances our ability to grow and deepen both new and existing customer relationships. As of September 30, 2024, our credit card business had $2.2 billion of finance receivables and loans and approximately 1.3 million active cardholders.

Previous wording

The following table summarizes our consolidated operating results for the periods shown. Refer to the reportable operating segment sections of the MD&A that follows for a more complete discussion of operating results by business line.

Current wording

The following table summarizes our consolidated operating results for the periods shown. Refer to the reportable operating segment sections of the MD&A that follow for a more complete discussion of operating results by business line.

Previous wording

We earned net income from continuing operations of $294 million and $451 million for the three months and six months ended June 30, 2024, respectively, compared to $329 million and $649 million for the three months and six months ended June 30, 2023. During the three months and six months ended June 30, 2024, results were favorably impacted by higher total financing revenue and other interest income, a decrease in income tax expense from continuing operations, and an increase in insurance premiums and service revenue earned. These items were more than offset by higher interest expense, provision for credit losses, and noninterest expense for the three months and six months ended June 30, 2024.

Current wording

We earned net income from continuing operations of $357 million and $808 million for the three months and nine months ended September 30, 2024, respectively, compared to $296 million and $945 million for the three months and nine months ended September 30, 2023. The increase for the three months ended September 30, 2024, was primarily driven by higher gains on investments and a decrease in income tax expense from continuing operations, partially offset by higher interest expense and higher provision for credit losses. The decrease for the nine months ended September 30, 2024, was primarily driven by higher interest expense and higher provision for credit losses, partially offset by higher total financing revenue and a decrease in income tax expense from continuing operations.

Previous wording

Net financing revenue and other interest income decreased $78 million and $224 million for the three months and six months ended June 30, 2024, respectively, as compared to the three months and six months ended June 30, 2023. Consumer automotive revenue increased as higher portfolio yields resulting from pricing actions taken in response to rising benchmark interest rates contributed to the increases in revenue. The increases were partially offset by lower average consumer assets resulting from the transfers of financial assets to nonconsolidated SPEs. Commercial automotive revenue increased due to higher average assets resulting from improvements in new vehicle supply. The increases were also impacted by higher yields from higher benchmark interest rates, as our commercial automotive loans are generally variable-rate. Additionally, revenue increased due to the impacts of a higher interest rate environment on the investment securities portfolio and higher interest associated with cash and cash equivalents. These increases were more than offset by higher interest expense for the three months and six months ended June 30, 2024, as compared to the same periods in 2023, in response to higher benchmark interest rates, which increased our cost of funds associated with our deposit liabilities. Additionally, the decrease in net financing revenue and other interest income was driven by the sale of Ally Lending, which closed on March 1, 2024.

Current wording

Net financing revenue and other interest income decreased $45 million and $269 million for the three months and nine months ended September 30, 2024, respectively, as compared to the three months and nine months ended September 30, 2023. Consumer automotive revenue increased as higher portfolio yields resulting from pricing actions taken in response to rising benchmark interest rates contributed to the increases in revenue. The increases were partially offset by lower average consumer assets resulting from the transfers of financial assets to nonconsolidated SPEs. Commercial automotive revenue increased due to higher average assets resulting from improvements in new vehicle supply. The increases were also impacted by higher yields from higher benchmark interest rates, as our commercial automotive loans are generally variable-rate. Additionally, revenue increased due to the impacts of a higher interest rate environment on the investment securities portfolio and higher interest associated with cash and cash equivalents. These increases were more than offset by higher interest expense for the three months and nine months ended September 30, 2024, as compared to the same periods in 2023, in response to higher benchmark interest rates, which increased our cost of funds associated with our deposit liabilities. Additionally, the decrease in net financing revenue and other interest income was driven by the sale of Ally Lending, which closed on March 1, 2024.

Previous wording

Insurance premiums and service revenue earned was $341 million and $686 million for the three months and six months ended June 30, 2024, respectively, compared to $310 million and $616 million for the three months and six months ended June 30, 2023. The increases for the three months and six months ended June 30, 2024, were primarily driven by growth of our P&C vehicle inventory insurance program due to higher dealer inventory levels and the addition of new relationships with Nissan and Toyota. The increases were also driven by higher other premium and service revenue written from non-automotive assumed reinsurance business.

Current wording

Insurance premiums and service revenue earned was $359 million and $1.0 billion for the three months and nine months ended September 30, 2024, respectively, compared to $320 million and $936 million for the three months and nine months ended September 30, 2023. The increases for the three months and nine months ended September 30, 2024, were primarily driven by growth of our P&C vehicle inventory insurance program due to higher dealer inventory levels and the addition of new relationships with Nissan and Toyota. The increases were also driven by higher other premium and service revenue written from non-automotive assumed reinsurance business.

Previous wording

Other loss on investments, net was $7 million for the three months ended June 30, 2024, and other gain on investments, net was $22 million for the six months ended June 30, 2024, compared to other gain on investments, net of $26 million and $100 million for the three months and six months ended June 30, 2023, respectively. The decreases for the three months and six months ended June 30, 2024, compared to the same periods in 2023, were primarily attributable to the performance of the equity securities included in the portfolio.

Current wording

Other gain on investments, net was $74 million and $96 million for the three months and nine months ended September 30, 2024, respectively, compared to other loss on investments, net of $41 million and other gain on investments, net of $59 million for the three months and nine months ended September 30, 2023. The increases for the three months and nine months ended September 30, 2024, compared to the same periods in 2023, were primarily attributable to the performance of the equity securities included in the portfolio in line with broader market performance.

Previous wording

Other income, net of losses was $165 million and $315 million for the three months and six months ended June 30, 2024, respectively, compared to $165 million and $279 million for the three months and six months ended June 30, 2023. The increase for the six months ended June 30, 2024, was primarily driven by increased servicing fees resulting from the growth in financial assets transferred to a nonconsolidated SPE for which we retain the ongoing right to service the assets.

Current wording

Other income, net of losses increased $24 million and $60 million for the three months and nine months ended September 30, 2024, respectively, compared to the three months and nine months ended September 30, 2023. The increases for the three months and nine months ended September 30, 2024, were primarily driven by increased servicing fees resulting from the growth in financial assets transferred to a nonconsolidated SPE for which we retain the ongoing right to service the assets and higher syndication income.

Previous wording

The provision for credit losses increased $30 million and $91 million for the three months and six months ended June 30, 2024, respectively, compared to the three months and six months ended June 30, 2023. The increases in provision for credit losses for the three months and six months ended June 30, 2024, were primarily driven by higher net charge-offs in our consumer automotive portfolio, partially offset by the sale of Ally Lending. Refer to the Risk Management section of this MD&A for further discussion on our provision for credit losses.

Current wording

The provision for credit losses increased $137 million and $228 million for the three months and nine months ended September 30, 2024, respectively, compared to the three months and nine months ended September 30, 2023. The increases in provision for credit losses for the three months and nine months ended September 30, 2024, were primarily driven by higher net charge-offs in our consumer automotive portfolio and Credit Card, partially offset by the sale of Ally Lending. Refer to the Risk Management section of this MD&A for further discussion on our provision for credit losses.

Previous wording

Noninterest expense increased $37 million and $79 million for the three months and six months ended June 30, 2024, as compared to the three months and six months ended June 30, 2023. The increases for the three months and six months ended June 30, 2024, were primarily driven by insurance losses and loss adjustment expenses from our vehicle inventory insurance program attributable to higher weather frequency and severity, growth in our P&C business, higher GAP losses driven by used vehicle value normalization, and growth in non-automotive assumed reinsurance business. The increases were also driven by increased expenses to support the growth of our consumer product suite and expand our digital capabilities and portfolio of products, and higher collection and repossession costs. Additionally the increase for the six months ended June 30, 2024, was driven by an increase to our FDIC special assessment.

Current wording

Noninterest expense was $1.2 billion and $3.8 billion for the three months and nine months ended September 30, 2024, respectively, compared to $1.2 billion and $3.7 billion for the three months and nine months ended September 30, 2023. The increase for the nine months ended September 30, 2024, was primarily driven by insurance losses and loss adjustment expenses from our vehicle inventory insurance program attributable to growth in our P&C business, higher GAP losses driven by increased loss frequency and severity as vehicle values have declined from prior year, and growth in non-automotive assumed reinsurance business. The increase was also driven by increased expenses to support the growth of our consumer product suite and expand our digital capabilities and portfolio of products, and higher collection and repossession costs. Additionally, the increase was driven by an increase to our FDIC special assessment.

Previous wording

We recognized total income tax benefit from continuing operations of $37 million and $23 million for the three months and six months ended June 30, 2024, respectively, compared to income tax expense of $74 million and $142 million for the three months and six months ended June 30, 2023. The decreases in income tax expense for the three months and six months ended June 30, 2024, compared to the same periods in 2023, were primarily due to an increase in qualified clean vehicle tax credits and the tax effects of a decrease in pretax earnings. The increase in qualified clean vehicle tax credits was primarily driven by a new automotive manufacturer relationship added during the six months ended June 30, 2024, which increased our purchased battery-electric vehicle lease origination volume. The income tax benefit for qualified clean vehicle tax credits, along with other tax credits, resulted in a significant variation in the customary relationship between pretax income and income tax expense for the three months and six months ended June 30, 2024.

Current wording

We recognized total income tax benefit from continuing operations of $124 million and $147 million for the three months and nine months ended September 30, 2024, respectively, compared to income tax benefit of $68 million and income tax expense of $74 million for the same periods in 2023. The decreases in income tax expense for the three months and nine months ended September 30, 2024, compared to the same periods in 2023, were primarily due to an increase in qualified clean vehicle tax credits partially offset by an adjustment to the valuation allowance related to foreign tax credit carryforwards during the three months ended September 30, 2023. The increase in qualified clean vehicle tax credits was primarily driven by a new automotive manufacturer relationship added during the nine months ended September 30, 2024, which increased our purchased battery-electric vehicle lease origination volume. The adjustment to the valuation allowance related to foreign tax credit carryforwards during the three months ended September 30, 2023, was a nonrecurring tax benefit, primarily driven by a tax planning strategy.

Previous wording

(a)Includes net remarketing gains of $59 million and $105 million for the three months and six months ended June 30, 2024, respectively, compared to $70 million and $117 million for the three months and six months ended June 30, 2023.

Current wording

(a)Includes net remarketing gains of $24 million and $129 million for the three months and nine months ended September 30, 2024, respectively, compared to $57 million and $174 million for the three months and nine months ended September 30, 2023.

Previous wording

Our Automotive Finance operations earned income from continuing operations before income tax expense of $407 million and $729 million for the three months and six months ended June 30, 2024, respectively, compared to $501 million and $943 million for the three months and six months ended June 30, 2023. For the three months and six months ended June 30, 2024, the decreases were primarily due to higher interest expense and higher provision for credit losses, partially offset by higher total financing revenue and other interest income.

Current wording

Our Automotive Finance operations earned income from continuing operations before income tax expense of $175 million and $904 million for the three months and nine months ended September 30, 2024, respectively, compared to $377 million and $1.3 billion for the three months and nine months ended September 30, 2023. For the three months and nine months ended September 30, 2024, the decreases were primarily due to higher interest expense and higher provision for credit losses, partially offset by higher total financing revenue and other interest income.

Previous wording

Consumer automotive loan financing revenue and other interest income increased $188 million and $420 million for the three months and six months ended June 30, 2024, respectively, compared to the same periods in 2023. Higher portfolio yields resulting from pricing actions taken in response to rising benchmark interest rates contributed to the increases in revenue. The increases were partially offset by lower average consumer assets resulting from the transfers of financial assets to nonconsolidated SPEs. Refer to Note 10 to the Condensed Consolidated Financial Statements for additional information regarding assets sold to nonconsolidated SPEs.

Current wording

Consumer automotive loan financing revenue and other interest income increased $141 million and $561 million for the three months and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. Higher portfolio yields resulting from pricing actions taken in response to rising benchmark interest rates contributed to the increases in revenue. The increases were partially offset by lower average consumer assets resulting from the transfers of financial assets to nonconsolidated SPEs. Refer to Note 10 to the Condensed Consolidated Financial Statements for additional information regarding assets sold to nonconsolidated SPEs.

Previous wording

Commercial loan financing revenue and other interest income increased $100 million and $212 million for the three months and six months ended June 30, 2024, respectively, compared to the three months and six months ended June 30, 2023. The increases were primarily due to higher asset balances resulting from improvements in new vehicle supply. The increases were also impacted by higher yields from higher benchmark interest rates, as our commercial automotive loans are generally variable-rate.

Current wording

Commercial loan financing revenue and other interest income increased $68 million and $280 million for the three months and nine months ended September 30, 2024, respectively, compared to the three months and nine months ended September 30, 2023. The increases were primarily due to higher asset balances resulting from improvements in new vehicle supply. The increases were also impacted by higher yields from higher benchmark interest rates, as our commercial automotive loans are generally variable-rate.

Previous wording

Interest expense was $1.1 billion and $2.2 billion for the three months and six months ended June 30, 2024, respectively, compared to $828 million and $1.6 billion for the three months and six months ended June 30, 2023. The increases for the three months and six months ended June 30, 2024, were primarily driven by a higher interest rate environment, resulting in higher funding costs.

Current wording

Interest expense was $1.2 billion and $3.3 billion for the three months and nine months ended September 30, 2024, respectively, compared to $927 million and $2.5 billion for the three months and nine months ended September 30, 2023. The increases for the three months and nine months ended September 30, 2024, were primarily driven by a higher interest rate environment, resulting in higher funding costs.

Previous wording

Total net operating lease revenue decreased $36 million and $60 million for the three months and six months ended June 30, 2024, respectively, compared to the same periods in 2023. The decreases in net operating lease revenue were driven by lower asset balances, as well as lower remarketing gains. Refer to the Operating Lease Residual Risk Management section of this MD&A for further discussion.

Current wording

Total net operating lease revenue decreased $58 million and $118 million for the three months and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. The decreases in net operating lease revenue were driven by lower asset balances, and lower remarketing gains. Additionally, the decreases in the net operating revenue were due to an increase in our battery-electric origination volume during both the three months and nine months ended September 30, 2024, as compared to the same periods in 2023. The qualified clean vehicle tax credits related to these originations are accounted for using the flow-through method and are recognized as a reduction to income tax expense. Additionally, the benefit of these tax credits is passed along to the lessee in the form of lower monthly payments, which reduces the net operating lease revenue for battery-electric operating leases. Refer to the Operating Lease Residual Risk Management section of this MD&A for further discussion.

Previous wording

Total other revenue increased $10 million and $30 million for the three months and six months ended June 30, 2024, respectively, compared to the same periods in 2023. The increases were primarily due to an increase in servicing fees resulting from the growth in financial assets transferred to a nonconsolidated SPE for which we retain the ongoing right to service the assets. Refer to Note 10 to the Condensed Consolidated Financial Statements for additional information regarding assets sold to nonconsolidated SPEs.

Current wording

Total other revenue increased $6 million and $36 million for the three months and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. The increases were primarily due to an increase in servicing fees resulting from the growth in financial assets transferred to a nonconsolidated SPE for which we retain the ongoing right to service the assets. Refer to Note 10 to the Condensed Consolidated Financial Statements for additional information regarding assets sold to nonconsolidated SPEs.

Previous wording

(c)Excludes the effects of derivative financial instruments designated as hedges, which is included within Corporate and Other. Including the impact of hedging activities, the yield was 9.19% and 9.13% for the three months and six months ended June 30, 2024, respectively, and 8.81% and 8.65% for the three months and six months ended June 30, 2023.

Current wording

(c)Excludes the effects of derivative financial instruments designated as hedges, which is included within Corporate and Other. Including the impact of hedging activities, the yield was 9.29% and 9.18% for the three months and nine months ended September 30, 2024, respectively, and 8.90% and 8.73% for the three months and nine months ended September 30, 2023.

Previous wording

(d)Excludes the effects of derivative financial instruments designated as hedges, which is included within Corporate and Other. Including the impact of hedging activities, the yield was 7.64% and 7.67% for the three months and six months ended June 30, 2024, respectively, and 7.71% and 7.51% for the three months and six months ended June 30, 2023.

Current wording

(d)Excludes the effects of derivative financial instruments designated as hedges, which is included within Corporate and Other. Including the impact of hedging activities, the yield was 7.68% and 7.67% for the three months and nine months ended September 30, 2024, respectively, and 7.88% and 7.64% for the three months and nine months ended September 30, 2023.

Previous wording

(f)Yield includes net gains on the sale of off-lease vehicles of $59 million and $105 million for the three months and six months ended June 30, 2024, respectively, compared to $70 million and $117 million for the three months and six months ended June 30, 2023. Excluding these gains on sale, the yield was 4.52% and 4.66% for the three months and six months ended June 30, 2024, respectively, compared to 4.83% and 4.93% for the three months and six months ended June 30, 2023.

Current wording

(f)Yield includes net gains on the sale of off-lease vehicles of $24 million and $129 million for the three months and nine months ended September 30, 2024, respectively, compared to $57 million and $174 million for the three months and nine months ended September 30, 2023. Excluding these gains on sale, the yield was 4.33% and 4.55% for the three months and nine months ended September 30, 2024, respectively, compared to 4.69% and 4.85% for the three months and nine months ended September 30, 2023.

Previous wording

During the three months and six months ended June 30, 2024, our portfolio yield for consumer automotive loans, excluding the impact of hedging activities, increased 100 and 102 basis points, respectively, as compared to the same periods in 2023. The increases for the three months and six months ended June 30, 2024, were primarily driven by higher portfolio yields resulting from pricing actions. We continued to opportunistically adjust pricing in response to elevated benchmark interest rates. Our portfolio yield for consumer automotive loans, including the effects of derivative financial instruments designated as hedges, was 36 and 40 basis points higher than our portfolio yield for consumer automotive loans excluding the effects of derivative financial instruments designated as hedges for the three months and six months ended June 30, 2024, respectively. This is attributable to the execution of hedging strategies that are used to mitigate interest rate risks. The effects of derivative financial instruments designated as hedges are included within Corporate and Other. Refer to Note 19 to the Condensed Consolidated Financial Statements for further discussion.

Current wording

During the three months and nine months ended September 30, 2024, our portfolio yield for consumer automotive loans, excluding the impact of hedging activities, increased 87 and 96 basis points, respectively, as compared to the same periods in 2023. The increases for the three months and nine months ended September 30, 2024, were primarily driven by higher portfolio yields resulting from pricing actions. We continued to opportunistically adjust pricing in response to elevated benchmark interest rates and competition in the industry. Our portfolio yield for consumer automotive loans, including the effects of derivative financial instruments designated as hedges, was 30 and 36 basis points higher than our portfolio yield for consumer automotive loans excluding the effects of derivative financial instruments designated as hedges for the three months and nine months ended September 30, 2024, respectively. This is attributable to the execution of hedging strategies that are used to mitigate interest rate risks. The effects of derivative financial instruments designated as hedges are included within Corporate and Other. Refer to Note 19 to the Condensed Consolidated Financial Statements for further discussion.

Previous wording

Retail loan originations with a term of 76 months or more represented 24% and 23% of total retail loan originations for the three months and six months ended June 30, 2024, respectively, compared to 24% and 22% for the three months and six months ended June 30, 2023. Substantially all the loans originated with a term of 76 months or more during both the three months and six months ended June 30, 2024, and 2023, were considered to be prime and in credit tiers S, A, or B. Our underwriting processes are designed to consider various deal structure variables—such as payment-to-income, LTV, debt-to-income, and FICO® score—that compensate for longer loan terms and mitigate underwriting risk.

Current wording

Retail loan originations with a term of 76 months or more represented 24% and 23%, of total retail loan originations for the three months and nine months ended, respectively, as of both September 30, 2024, and 2023. Substantially all the loans originated with a term of 76 months or more during both the three months and nine months ended September 30, 2024, and 2023, were considered to be prime and in credit tiers S, A, or B. Our underwriting processes are designed to consider various deal structure variables—such as payment-to-income, LTV, debt-to-income, and FICO® score—that compensate for longer loan terms and mitigate underwriting risk.

Previous wording

During the three months ended June 30, 2024, approximately 83% of our used retail loan originations were for vehicles with a model year of 2018 or newer. According to the Bureau of Transportation Statistics, the average age of light vehicles in operation in the United States during 2023 was approximately 13 years. Substantially all used retail loan originations with a term of 76 months or more during the three months ended June 30, 2024, were for vehicles with a model year of 2018 or newer.

Current wording

During the three months ended September 30, 2024, approximately 84% of our used retail loan originations were for vehicles with a model year of 2018 or newer. According to the Bureau of Transportation Statistics, the average age of light vehicles in operation in the United States during 2023 was approximately 13 years. Substantially all used retail loan originations with a term of 76 months or more during the three months ended September 30, 2024, were for vehicles with a model year of 2018 or newer.

Previous wording

(a)Includes CSG originations of $1.0 billion and $1.3 billion for the three months ended June 30, 2024, and 2023, respectively.

Current wording

(a)Includes CSG originations of $856 million and $1.2 billion for the three months ended September 30, 2024, and 2023, respectively.

Previous wording

(a)Includes CSG originations of $2.1 billion and $2.6 billion for the six months ended June 30, 2024, and 2023, respectively.

Current wording

(a)Includes CSG originations of $2.9 billion and $3.8 billion for the nine months ended September 30, 2024, and 2023, respectively.

Previous wording

Total consumer automotive loan and operating lease originations decreased $573 million and $338 million for the three months and six months ended June 30, 2024, respectively, compared to the same periods in 2023. The decreases were primarily driven by our dynamic underwriting strategies, including strategic pricing and curtailment actions to optimize returns within our risk appetite.

Current wording

Total consumer automotive loan and operating lease originations decreased $1.2 billion and $1.5 billion for the three months and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. The decreases were primarily driven by our dynamic underwriting strategies, including strategic pricing and curtailment actions to optimize returns within our risk appetite.

Previous wording

Originations with a FICO® Score of less than 620 (considered nonprime) represented 7% and 8% of total consumer loan and operating lease originations for the three months and six months ended June 30, 2024, respectively, compared to 9% for both the three months and six months ended June 30, 2023. Consumer loans and operating leases with FICO® Scores of less than 540 represented 1% of total originations for both the three months and six months ended June 30, 2024, as compared to 2% of total originations for both the three months and six months ended June 30, 2023. Nonprime applications are subject to more stringent underwriting criteria (for example, maximum payment-to-income ratio, maximum debt-to-income ratio, and maximum amount financed), and our nonprime loan portfolio generally does not include any loans with a term of 76 months or more. The carrying value of our held-for-investment, nonprime consumer automotive loans before allowance for loan losses was $8.3 billion and $8.7 billion at June 30, 2024, and December 31, 2023, respectively, or approximately 10.0% and 10.3% of our total consumer automotive loans at June 30, 2024, and December 31, 2023. For discussion of our credit-risk-management practices and performance, refer to the section titled Risk Management.

Current wording

Originations with a FICO® Score of less than 620 (considered nonprime) represented 8% of total consumer loan and operating lease originations for both the three months and nine months ended September 30, 2024, compared to 8% and 9% for the three months and nine months ended September 30, 2023, respectively. Consumer loans and operating leases with FICO® Scores of less than 540 represented 1% of total originations for both the three months and nine months ended September 30, 2024, as compared to 2% of total originations for both the three months and nine months ended September 30, 2023. Nonprime applications are subject to more stringent underwriting criteria (for example, maximum payment-to-income ratio, maximum debt-to-income ratio, and maximum amount financed), and our nonprime loan portfolio generally does not include any loans with a term of 76 months or more. The carrying value of our held-for-investment, nonprime consumer automotive loans before allowance for loan losses was $8.1 billion and $8.7 billion at September 30, 2024, and December 31, 2023, respectively, or approximately 9.7% and 10.3% of our total consumer automotive loans at September 30, 2024, and December 31, 2023, respectively. For discussion of our credit-risk-management practices and performance, refer to the section below titled Risk Management.

Previous wording

During the first quarter of 2024, we amended our relationship with Carvana, a leading e-commerce platform for buying and selling used vehicles. Specifically, we maintained our committed facility at a maximum of $4.0 billion to support our continued efforts to optimize risk-adjusted returns. This commitment is effective for 364 days. As part of the agreement, we continue to purchase finance receivables on a periodic basis within prescribed eligibility requirements and risk appetite, consistent with purchase practices in prior years. All the finance receivables purchased through this channel are used vehicles, and are included in non-OEM-franchised dealers and automotive retailers in our consumer origination metrics. While different vintages and credit tiers exhibit varying performance, collectively to date, finance receivables purchased from Carvana have generally exhibited consistent delinquency and loss performance compared to loans with similar credit characteristics acquired through our indirect dealer channel. Consumer finance receivables and loans sourced from Carvana represented 8.3% and 8.2% of our total consumer automotive finance receivables and loans as of June 30, 2024, and December 31, 2023, respectively. Loan purchases from Carvana were 5% and 7% of our total consumer automotive financing originations during the three months and six months ended June 30, 2024, respectively, as compared to 10% and 9% for the same periods in 2023.

Current wording

During the first quarter of 2024, we amended our relationship with Carvana, a leading e-commerce platform for buying and selling used vehicles. Specifically, we maintained our committed facility at a maximum of $4.0 billion to support our continued efforts to optimize risk-adjusted returns. This commitment is effective for 364 days. As part of the agreement, we continue to purchase finance receivables on a periodic basis within prescribed eligibility requirements and risk appetite, consistent with purchase practices in prior years. All the finance receivables purchased through this channel are used vehicles, and are included in non-OEM-franchised dealers and automotive retailers in our consumer origination metrics. While different vintages and credit tiers exhibit varying performance, collectively to date, finance receivables purchased from Carvana have generally exhibited consistent delinquency and loss performance compared to loans with similar credit characteristics acquired through our indirect dealer channel. Consumer finance receivables and loans sourced from Carvana represented 8.4% and 8.2% of our total consumer automotive finance receivables and loans as of September 30, 2024, and December 31, 2023, respectively. Loan purchases from Carvana were 8% and 7% of our total consumer automotive financing originations during the three months and nine months ended September 30, 2024, respectively, as compared to 9% for both of the same periods in 2023.

Previous wording

Average commercial wholesale financing receivables outstanding increased $4.2 billion and $4.1 billion during the three months and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. The increases for the three months and six months ended June 30, 2024, as compared to the same periods in 2023, were primarily due to an increase in dealer new vehicle inventory levels, which is consistent with broader industry trends.

Current wording

Average commercial wholesale financing receivables outstanding increased $3.0 billion and $3.7 billion during the three months and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. The increases for the three months and nine months ended September 30, 2024, as compared to the same periods in 2023, were primarily due to an increase in dealer new vehicle inventory levels, which is consistent with broader industry trends.

Previous wording

Carvana's commercial line of credit totals $1.5 billion, with a scheduled maturity in the third quarter of 2025. The line of credit represents a commitment to fund Carvana’s wholesale floorplan financing of used vehicles and is consistent in form and structure with our other wholesale floorplan financing arrangements. This includes the line of credit being fully collateralized to mitigate counterparty credit risk in the event of a default. At June 30, 2024, Carvana’s gross wholesale floorplan assets outstanding balance was $72 million.

Current wording

Carvana's commercial line of credit totals $1.5 billion, with a scheduled maturity in the third quarter of 2025. The line of credit represents a commitment to fund Carvana’s wholesale floorplan financing of used vehicles and is consistent in form and structure with our other wholesale floorplan financing arrangements. This includes the line of credit being fully collateralized to mitigate counterparty credit risk in the event of a default. At September 30, 2024, Carvana’s gross wholesale floorplan assets outstanding balance was $76 million.

Previous wording

We also provide other forms of commercial financing for the automotive industry including automotive dealer term and revolving loans and automotive fleet financing. Automotive dealer term and revolving loans are loans that we make to dealers to finance other aspects of the dealership business, including acquisitions. These loans are usually secured by real estate or other dealership assets and are typically personally guaranteed by the individual owners of the dealership. Additionally, these loans generally include cross-collateral and cross-default provisions. Automotive fleet financing credit lines may be obtained by dealers, their affiliates, and other independent companies that are used to purchase vehicles, which they lease or rent to others. The average balances of other commercial automotive loans increased $476 million and $529 million for the three months and six months ended June 30, 2024, respectively, compared to the same periods in 2023, to an average of $6.4 billion for both the three months and six months ended June 30, 2024.

Current wording

We also provide other forms of commercial financing for the automotive industry including automotive dealer term and revolving loans and automotive fleet financing. Automotive dealer term and revolving loans are loans that we make to dealers to finance other aspects of the dealership business, including acquisitions. These loans are usually secured by real estate or other dealership assets and are typically personally guaranteed by the individual owners of the dealership. Additionally, these loans generally include cross-collateral and cross-default provisions. Automotive fleet financing credit lines may be obtained by dealers, their affiliates, and other independent companies that are used to purchase vehicles, which they lease or rent to others. The average balances of other commercial automotive loans increased $325 million and $460 million for the three months and nine months ended September 30, 2024, respectively, compared to the same periods in 2023, to an average of $6.3 billion and $6.4 billion for the three months and nine months ended September 30, 2024.

Previous wording

(a)Includes interest expense of $11 million and $21 million for the three months and six months ended June 30, 2024, respectively, and $7 million and $15 million for the three months and six months ended June 30, 2023.

Current wording

(a)Includes interest expense of $12 million and $33 million for the three months and nine months ended September 30, 2024, respectively, and $8 million and $23 million for the three months and nine months ended September 30, 2023.

Previous wording

(b)Includes net unrealized losses on equity securities of $28 million and $11 million for the three months and six months ended June 30, 2024, respectively, and net unrealized gains on equity securities of $24 million and $89 million for the three months and six months ended June 30, 2023.

Current wording

(b)Includes net unrealized gains on equity securities of $56 million and $46 million for the three months and nine months ended September 30, 2024, respectively, and net unrealized losses on equity securities of $47 million for the three months ended September 30, 2023, and gains of $42 million for the nine months ended September 30, 2023.

Previous wording

Insurance premiums and service revenue earned was $341 million and $686 million for the three months and six months ended June 30, 2024, respectively, compared to $310 million and $616 million for the same periods in 2023. The increases for the three months and six months ended June 30, 2024, were primarily driven by growth of our P&C vehicle inventory insurance program due to higher dealer inventory levels and the addition of new relationships with Nissan and Toyota. The increases were also driven by higher other premium and service revenue written from non-automotive assumed reinsurance business.

Current wording

Insurance premiums and service revenue earned was $359 million and $1.0 billion for the three months and nine months ended September 30, 2024, respectively, compared to $320 million and $936 million for the same periods in 2023. The increases for the three months and nine months ended September 30, 2024, were primarily driven by growth of our P&C vehicle inventory insurance program due to higher dealer inventory levels and the addition of new relationships with Nissan and Toyota. The increases were also driven by higher other premium and service revenue written from non-automotive assumed reinsurance business.

Previous wording

Other loss on investments, net was $6 million for the three months ended June 30, 2024, and other gain on investments, net was $29 million for the six months ended June 30, 2024, compared to other gain on investments, net of $25 million and $97 million for the same periods in 2023, respectively. The decreases for the three months and six months ended June 30, 2024, were primarily attributable to $28 million and $11 million, respectively, of unrealized losses on equity securities compared to $24 million and $89 million of unrealized gains on equity securities during the same periods in 2023, as a result of the performance of the equity securities included in the portfolio. The decreases were partially offset by realized capital gains of $21 million and $39 million during the three months and six months ended June 30, 2024, respectively, compared to $1 million and $8 million for the same periods in 2023.

Current wording

Other gain on investments, net was $75 million and $104 million for the three months and nine months ended September 30, 2024, respectively, compared to other loss on investments, net of $31 million and other gain on investments, net of $66 million for the same periods in 2023. The increases for the three months and nine months ended September 30, 2024, were driven by unrealized gains on equity securities, net of $56 million and $46 million, respectively, compared to unrealized losses on equity securities, net of $47 million and unrealized gains on equity securities, net of $42 million during the same periods in 2023, as a result of the performance of the equity securities included in the portfolio in line with broader market performance. Additionally, the increases were driven by realized capital gains of $19 million and