Ally (ALLY) Q2 2025 Earnings Call Transcript

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DATE

Friday, July 18, 2025 at 9 a.m. ET

CALL PARTICIPANTS

Chief Executive Officer — Michael Rhodes

Chief Financial Officer — Russ Hutchison

Head of Investor Relations — Sean Leary

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RISKS

Russ Hutchison said, Even with the improvement in delinquency seen in Q2 2025, we are still operating at elevated levels. Moreover, we are entering an environment where unemployment is generally expected to worsen.

Insurance Operations— Russ Hutchison reported a core pre-tax loss of $2 million in insurance, as higher losses outweighed growth in premiums and investment revenue.

Management noted that commercial floor plan balances are lower than expected due to tariff-related shifts in the first half of 2025, contributing to a downward revision in average earning asset guidance.

Russ Hutchison said, are now embedded in our run rate NIM and will not contribute to additional NIM expansion going forward. citing lease gains normalization and securities repositioning benefits that are not expected to recur.

TAKEAWAYS

Adjusted EPS— Adjusted earnings per share was $0.99.

Core Pre-Tax Income— Core pre-tax income was $480 million.

GAAP EPS— $1.04 for the second quarter.

Net Interest Margin (NIM) ex-OID— Net interest margin excluding OID was 3.45%, up ten basis points quarter over quarter. Full-year 2025 guidance held at 3.4%-3.5%.

Core ROTCE— 13.6% core ROTCE

Retail Auto Consumer Originations— $11 billion in consumer auto originations on 3.9 million applications

Originated Yield (Retail Auto)— 9.82% origination yield, up two basis points quarter over quarter but down 77 basis points year over year.

S Tier Mix (Retail Auto)— 42% of new originations, above the 40% threshold for nine consecutive quarters.

Auto Net Charge-Off (NCO) Rate— 1.75% retail auto net charge-off rate

Net Charge-Offs (Consolidated)— 110 basis points consolidated net charge-off rate, aided by card sale.

Thirty-Plus Day Delinquencies— 4.88% thirty-plus day all-in delinquencies, first year-over-year improvement since 2021, identified as a positive inflection in credit.

Insurance Written Premiums— $349 million total written premiums, up $5 million year over year but down $36 million sequentially due to excess-of-loss policy renewal charges.

Insurance Policies— 3.9 million active policies outstanding, an increase of one million active policies since IPO.

Corporate Finance Pre-Tax Income— Core pre-tax income of $96 million, a 31% return on equity; HFI loan balances up $1.3 billion year over year to $11 billion.

CET1 Ratio— 9.9%, more than $4 billion above SCB minimum; Fully phased-in CET1 for AOCI is 7.6%.

Available Liquidity— $66 billion in available liquidity, equal to 5.9x uninsured balances.

Deposit Balances— $143 billion in deposits, with 90% of interest-bearing liabilities funded by deposits and 92% of deposits FDIC insured; Deposit balance was down approximately $3 billion quarter over quarter due to tax outflows.

Adjusted Non-Interest Expense— $1.3 billion, down 4% sequentially and 2% year over year; controllable expenses excluding insurance/FDIC fees down for the seventh consecutive quarter.

Provision Expense— Adjusted provision expense of $384 million, down 23% from Q1 to Q2 2025 and down 16% year over year, mainly from credit card portfolio sale.

Dividend— Quarterly dividend of $0.30 per share announced for Q3 2025, consistent with prior quarter.

Adjusted Tangible Book Value Per Share— $37, a 12% gain year over year;Adjusted Tangible Book Value Per Share— Excluding AOCI, $48, up 125% from 2014.

Retail Auto Coverage Rate— 3.75% retail auto coverage rate, unchanged from previous quarter.

Capital Management— Share repurchase remains a key priority; Further credit risk transfer (CRT) transactions are planned for the second half of 2025.

Full-Year Guidance (Credit Losses)— Retail auto NCO now guided to 2%-2.15%; Consolidated NCO now guided to 1.35%-1.45% for the full year 2025.

Average Earning Assets— Average earning asset balances are expected to decline about 2% year over year in 2025, attributed mainly to lower commercial floor plan balances.

SUMMARY

Ally Financial Inc.(NYSE:ALLY) management emphasized that Q2 2025 benefited from an improved mix and pricing discipline, with ongoing margin expansion supported by deposit optimization and higher-yielding assets. Strategic clarity was reinforced by intentional de-risking of unsecured consumer credit, business line divestitures, and digital servicing enhancements. Management identified record application volume in auto finance and robust customer engagement, noting the company has reached an all-time high in digital bank customers, totaling 3.4 million. Executives underscored a deliberate approach to credit and growth, preferring disciplined, data-driven lending decisions and emphasizing continued caution amid macro uncertainty. Management committed to balancing capital deployment between franchise growth and returning capital to shareholders, prioritizing further CRT issuance and selective share repurchases, as discussed in the Q2 2025 earnings call. Technology investments, cost rigor, and strong employee engagement were highlighted as supporting future growth and operational leverage.

Russ Hutchison said, We remain confident in our ability to deliver a full-year NIM of 3.4% to 3.5% for 2025. citing embedded momentum but noting that certain NIM expansion factors will not recur.

Deposit pricing actions and CD repricing contributed meaningfully to funding cost improvement, though management noted these benefits will moderate in the second half of 2025.

Executives reported that improved delinquency rates in Q2 2025 are 'a positive inflection point for credit performance.' though they continue to anticipate a potential rise in unemployment and maintain reserve levels accordingly.

Russ Hutchison stated, "capital is not, at this point, what I would characterize as a limiting factor." attributing current portfolio growth pacing to return and risk considerations rather than capital constraints.

The company plans to maintain flat deposit balances for the full year, viewing current seasonal declines as consistent with guidance given ongoing tax outflows.

INDUSTRY GLOSSARY

OID (Original Issue Discount): An accounting convention in which securities issued below par create a yield adjustment affecting net interest margin calculations.

CRT (Credit Risk Transfer): Financial transactions that transfer portions of credit risk on loan portfolios to third parties, typically to improve regulatory capital ratios.

SCB (Stress Capital Buffer): The minimum capital cushion above regulatory requirements mandated for banks following supervisory stress testing.

S Tier: The highest credit quality segment in auto loan originations, generally reflecting prime or super-prime borrower characteristics.

Floor Plan Balances: Loans to auto dealers securing inventory held for sale, influenced by dealership sales and manufacturer inventory policies.

Full Conference Call Transcript

Michael Rhodes: Thank you, Sean. Morning, everyone. Thank you for joining us for our second quarter earnings call. Let's begin on page four. I'll start by saying that I'm encouraged and energized by the progress we've made as an organization over the first half of the year. Our sound strategic positioning and disciplined execution are contributing to an improved financial trajectory which is clearly reflected in our second quarter results. In the second quarter, Ally delivered adjusted earnings per share of $0.99 and core pre-tax income of $480 million. We achieved double-digit year-over-year growth in both metrics, underscoring the benefits of a more focused, streamlined, and purpose-driven institution.

Net interest margin excluding core OID, was 3.45%, expanding ten basis points quarter over quarter. That's more than offsetting the twenty basis point drag related to the sale of the credit card business. We continue to run off low-yielding mortgages and securities, and add higher-yielding retail auto and corporate finance assets funded by high-quality, stable, and low-cost deposits. This structural remixing of the balance sheet sets the foundation for continued margin expansion going forward. Our first half trajectory reinforces my conviction in our ability to deliver compelling and sustainable returns over time. We delivered a core ROTCE of 13.6% in the quarter, but as you know, AOCI reduces the ROE denominator. Excluding that benefit, we generated core ROTCE of 10%.

I'm pleased with the progress we've made, and even more encouraged by the momentum we're building. We recognize there's significant opportunity ahead, and we are well-positioned to capitalize on it. As I reflect on the quarter, there are three key takeaways that I will expand on. First, our sharp strategic focus is transforming Ally into a stronger, more profitable institution. Second, the Ally brand continues to resonate deeply with our customers, building loyalty and trust. And third, our customer-centric culture remains one of our greatest differentiators. Our strategy remains clear and is being executed with discipline by our over ten thousand colleagues across the organization. Our three core franchises are meaningfully differentiated with tremendous runway and scale.

The new business we're putting on the balance sheet today is expected to generate a mid-teens return over its life. In dealer financial services, we're booking new fixed-rate retail auto loans at nearly 10% funded by core deposits below 4%, with expected annual losses between 1.6% and 1.8%. DFS also continues to benefit from strong fee revenue driven by our pass-through and smart auction adjacencies. Our insurance business continues to benefit from natural auto-related synergy leading to robust written premium growth and investment revenue. In corporate finance, our portfolio has attractive floating rate yields and we continue to see healthy fee income from syndications.

This business continues to deliver strong returns across different credit cycles anchored by seasoned leadership and disciplined underwriting. Altogether, these businesses backed by a strong deposits franchise, are positioned to deliver mid-teens returns. And now to our brand. Whether through strategic partnerships, impactful marketing, or deep community partnerships, the Ally name stands as a brand that is synonymous with trust and purpose. Our net promoter score remains well above industry averages, reflecting the strength of the relationships we've built. Our customers are our greatest brand advocates, roughly 15% of new deposit clients are sourced from our refer-a-friend program. A strong trusted brand is a powerful growth multiplier.

And we are seeing that every day through efficient customer acquisition, strong retention, and deeper engagement. And finally, a few reflections on our culture. Do it right is more than a slogan. It's a shared ethos that shapes how we serve our customers, support our teammates, and show up in the communities we serve. We invest deliberately in nurturing our culture, and our results are clear. In fact, just last week, our latest employee engagement survey ranked us in the top 10% of all companies for the sixth consecutive year, eight points above the financial services industry benchmark. Beyond attracting and retaining top talent, this level of engagement fuels performance. It accelerates change.

And enhances the customer experience, which is reflected in our customer service satisfaction rating which is holding strong around 90%. With that context in place, let's turn to page five, to dive into operational results and performance trends this quarter. Within our auto finance business, consumer originations of $11 billion were driven by 3.9 million applications, marking our highest quarterly application volume ever for the second consecutive quarter. This sustained momentum of application flows speaks to the strength of our dealer relationships and the scale of our franchise. And reinforces our position as the top bank auto lender in the country. Our scale enables us to be highly selective of loans we book, optimizing both pricing and credit decisioning.

Origination yields of 9.82% are down 77 basis points from the prior year. Notably, this decrease was more modest than highlighting the relative strength in our pricing position. Forty-two percent of origination comes from the highest credit quality tier, which will continue to support strong risk-adjusted returns moving forward. This quarter marked the ninth consecutive with over 40% s tier mix in new origination volume. As we've outlined in previous calls, we expect our origination mix to normalize gradually over time. Our ability to dynamically adjust both price and risk appetite gives us the flexibility to evolve alongside market conditions. Let's turn to insurance, where our average dealer inventory exposure rose by 23% year over year.

Driven by new relationship wins, and tight integration with our auto finance business. We have 3.9 million active policies outstanding, an increase of over one million since our IPO. Our insurance team supports 7,000 dealers across the United States and Canada, and with access to a broader network, we see meaningful opportunity to grow our footprint. I'm pleased with the strong performance and the alignment which enhances the value proposition we offer our dealer customers. In Corporate Finance, we delivered another strong quarter generating a 31% ROE. Our long-standing relationships with financial sponsors have supported solid growth with attractive returns all while maintaining disciplined risk management.

We continue to see opportunities for prudent organic growth within our current verticals and are actively exploring new products and solutions to generate incremental accretive business. Turning to our digital bank. We remain focused on delivering best-in-class digital experiences that empower customers to save, invest, and spend with confidence. With no hidden fees, an award-winning mobile app, nationwide ATM rebates, and 24/7 access to live customer care, our customer-first approach sets us apart. This commitment earned us multiple accolades again this quarter for customer satisfaction. Our robust suite of digital tools is driving deeper engagement, fueling customer loyalty, and reducing rate sensitivity. We proudly serve an all-time high of 3.4 million customers marking 65 consecutive quarters of net customer growth.

We ended the quarter with balances of $143 billion reinforcing our position as the nation's largest all-digital bank. Overall, deposit balance was down approximately $3 billion quarter over quarter. Now this is aligned with our April guidance, largely due to seasonal tax outflows. For the year, we continue to expect relatively flat balances which is sufficient to support the asset side of our balance sheet. At the end of June, we lowered liquid savings pricing an additional ten basis points representing a cumulative 70% beta since the start of the Fed easing cycle. In the second half of 2024. Deposits are the foundation of our funding profile, representing nearly 90% of total funding. And 92% are FDIC insured.

We are demonstrating both the strength and stability of our deposit base. Now before I turn it over to Russ, I'd like to leave you with this. If there's one thing to take away from today's call, it's that Ally's focus strategy is working, and you're starting to see it in our results. We have three market-leading franchises with tremendous runway, backed by an industry-leading brand and a culture that sets us apart. And with that, I'll turn it over to Russ.

Russ Hutchison: Thank you, Michael, and good morning, everyone. Let's turn to page six, walk through second quarter performance. Our financial results for the quarter reflect the closing of the sale of our credit card business on April first. Accordingly, comparisons to both prior quarter and prior year impacted. Excluding core OID, net financing revenue totaled consistent with both the prior year and the prior quarter. We're seeing strong momentum in our core franchises led by continued yield expansion in our retail auto portfolio, strategic remixing of the balance sheet towards higher-yielding asset classes, and the ongoing optimization of deposit pricing. On a quarter-over-quarter basis, this momentum more than offset the lost revenue from the sale of credit card.

Turning to adjusted other revenue, which totaled $531 million results were approximately flat year over year as the removal of fee income from credit card and the wind down of our direct-to-consumer mortgage origination platform was offset by growth from insurance, smart auction, and our pass-through programs. Adjusted provision expense of $384 million was down 23% to the prior quarter and down 16% year over year primarily driven by the sale of credit card. In retail auto, the NCO rate declined six basis points year over year to 1.75%. We are encouraged by the trends within the portfolio as vintage dynamics and servicing strategy enhancements continue to drive an improvement in losses. However, we remain mindful of macroeconomic uncertainty.

I'll speak more about credit performance in a moment. Adjusted non-interest expense was $1.3 billion down 4% sequentially and 2% to the prior year. Notably, controllable expenses, which exclude insurance losses, commissions, and FDIC fees were down for the seventh consecutive quarter underscoring our commitment to cost discipline. We do not expect a year-over-year decline in controllable expenses next quarter but driven by nonrecurring benefits recorded in 2024. However, we are committed to prudent expense management going forward. In the quarter, we recognized tax expense of $84 million resulting in an effective tax rate for the quarter of 19%. This rate was favorably impacted by a recent state law change that drove a revaluation of certain tax credits.

Looking ahead, we continue to expect the normalized effective tax rate in the range of 22% to 23%. However, discrete items may cause the effective rate to differ in any given quarter. On a GAAP basis, we generated earnings per share of $1.04 for the quarter, which Adjusted earnings per share for the quarter was $0.99. Turning to page seven, net interest margin excluding OID was 3.45% an increase of ten basis points from the prior quarter. Margin expanded thirty basis points excluding the impact from the credit card sale. Which was an approximate twenty basis point headwind in the quarter.

On a quarter-over-quarter basis, NIM expansion was driven by the following: organic yield expansion in the retail auto loan portfolio, normalization in retail auto lease yields following a loss on lease termination benefit of securities repositioning transactions executed in March, deposit repricing across liquid savings and CDs, and continued portfolio remixing to higher-yielding retail auto and corporate finance assets. Some of these factors that are now embedded in our run rate NIM will not contribute to additional NIM expansion going forward. The normalization of lease gains and execution of securities repositioning transactions added eight basis points to the linked quarter margin expansion in 2Q. But are not expected to contribute to additional NIM expansion from here.

Also, we saw benefits from elevated securities runoff as well as higher auto prepayments particularly in lower-yielding loans likely tied to the pull forward of new vehicle sales. We albeit at a slower pace than we saw in 2Q. In retail auto, excluding the hedge, portfolio yield expanded eight basis points quarter over quarter to 9.19%. As the lower-yielding back book rolls down, we expect the portfolio yield to migrate towards originated yield over time. Turning to our retail auto lease portfolio, overall yield increased 119 basis points sequentially. As lease remarketing gains normalized in line with our expectations. On the liability side, 2Q results reflected the full impact of reductions in liquid savings rates in the first quarter.

In late June, we lowered liquid rates by ten basis points to 3.5%. Notably ahead of any upcoming Fed action. Bringing cumulative liquid beta to 70%. Also in the quarter, we continue to benefit from a natural tailwind in CD repricing. With $11 billion in maturities this quarter, with strong retention and renewal rates. We're pleased with the momentum of the franchise stability of the portfolio, and the pricing power today. As we've covered previously, Ally is liability sensitive over the medium term, but asset sensitive in the very near term. Driven by floating rate commercial loan and pay fixed hedge exposure.

As a result, reductions in fed funds particularly material reductions like we saw in late 2024, are a headwind to margin expansion in the near term. I'll cover the outlook in more detail later, but we remain confident in our ability to deliver a full year NIM of 3.4% to 3.5%. More importantly, we maintain conviction in our ability to achieve a sustainable margin in the upper threes over the medium term. Turning to page eight, our CET1 ratio of 9.9% represents more than $4 billion of excess capital above our SCB minimum. On a fully phased-in basis for AOCI, CET1 for the period would have been 7.6% an increase of 80 basis points from the prior year.

Both measures include the 20 basis points of capital generated from the closing of the credit card transaction on April first. A transaction that contributed 40 basis points of capital in total and enabled us to reposition a portion of the securities portfolio last quarter. While we did not execute a credit risk transfer transaction in the quarter, we continue to view CRT as an efficient way to generate excess capital that we will likely leverage in the second half of the year. Our capital management priorities remain unchanged. We are deploying capital to drive accretive growth in our core franchises while continuing to move our stated and fully phased-in CET1 levels higher.

In terms of capital distributions, earlier this week, we announced a quarterly dividend of $0.30 per share for the third quarter of 2025 consistent with the prior quarter. Buying back shares particularly at the current valuation remains a key capital management priority. The combination of higher CET1 levels, improved returns, and consistent organic capital generation are key factors that will determine the appropriate time to repurchase shares. Turning to book value at the bottom of the page, adjusted tangible book value per share of $37 increased 12% from the prior year. Excluding the impacts of AOCI, adjusted tangible book value per share of $48 is up over 125% from 2014.

We remain focused on growing tangible book value per share and driving shareholder value through disciplined capital management in the years ahead. Turning to page nine, credit quality trends across all our lending portfolios remain encouraging. The consolidated net charge-off rate was 110 basis points a decline of 40 basis points to the prior quarter and a decrease of 16 basis points to the prior year. This quarter's consolidated net charge-off rate reflects the impact of the card sale. Which contributed to the year-over-year improvement. In retail auto, down 37 basis points sequentially and six basis points year over year.

This marks the second consecutive quarter of year-over-year improvement reflecting strong performance from recent vintages, and continued enhancements to our digital servicing capabilities. That said, we remain mindful of the elevated level of uncertainty that we are currently navigating. Moving to the top right of the page, thirty-plus day all-in delinquencies of 4.88% represents the first year-over-year improvement in delinquency rates since 2021. A positive inflection point for credit performance. Since delinquency trends are a leading indicator of charge-offs, this improvement reinforces our constructive view on the near-term loss trajectory. Vintage level delinquency performance trends are included in the supplemental section of the earnings presentation. And are also disclosed in our ten Q and ten Ks.

We continue to observe stable and consistent delinquency performance trends across the 2022 and 2024 vintages, and added the 2025 vintage to the disclosure. As we noted last quarter, the benefit of vintage rollover is clearly playing out in actual. Looking holistically at credit measures, we remain encouraged by the performance of the portfolio and the effectiveness of our servicing strategies. But remain cautious of macroeconomic uncertainty going forward. Turning to the bottom of the page on reserves. Consolidated coverage increased one basis point this quarter while the retail auto coverage rate remained flat at 3.75%. As we guided last quarter, the increase in the consolidated coverage rate was due to mix dynamics.

Our retail auto coverage levels continue to balance the favorable credit trends we're seeing namely improved delinquency rates and recent turnover in the portfolio higher quality vintages, against an uncertain macroeconomic outlook and the expectation of worsening unemployment. As we've consistently said, we do not forecast reserve releases and they are not incorporated into our mid-teens return guidance. Moving to our auto finance segment on page ten. Pretax income of $472 million was $112 million lower year over year. Primarily driven by lower lease gains and a decline in commercial auto balances. Our lease remarketing performance improved quarter over quarter to approximately breakeven. Versus a loss in 1Q.

Going forward, we expect remarketing performance to be less of a factor given the reduced volume of terminating units not covered by residual value guarantees. Commercial floor plan balances reflect industry trends and inventory levels. Partly influenced by tariffs that likely pulled forward consumer demand. That said, while dealer inventory levels remain lower, increased sales activity and the financing of leaner inventories have continued to support overall dealer health and profitability. As illustrated on the bottom left, retail auto portfolio yields excluding the impact from hedges increased eight basis points quarter over quarter, As we noted, the portfolio yield will continue to migrate towards originated yields through time.

Originated yield of 9.82% was up two basis points quarter over quarter with 42% of all retail volume coming from our highest credit tier. Turning to our insurance business on page eleven. We recorded a core pre-tax loss of $2 million as higher losses more than offset strong growth in premiums and investment revenue. Total written premiums of $349 million were up $5 million year over year and down $36 million on a sequential basis. As a reminder, our annual excess of loss policy renews each April. This year's renewal came at a higher cost as we increased coverage levels in response to growth in the business.

The associated premium paid for this policy is recognized as a reduction in written premium which impacted results for the current period. Excluding the impact of excessive loss written premiums increased 6% year over year. We continue to see great momentum across the business. The year-over-year increase in losses was primarily driven by an increase in exposure. Inventory exposure increased by $9 billion or 23% to the prior year but importantly our weather loss ratio remains in line with the five-year historical second quarter average. Our reinsurance program continues to materially reduce weather exposure within the book. Looking ahead, our focus remains on leveraging relationships in auto finance and growing earned premiums over time.

This remains a key driver of our long-term capital-efficient other revenue expansion. Corporate finance results are on page twelve. Core pre-tax income of $96 million reflected another strong quarter and translated to a 31% return on equity. Net financing revenue of $108 million was up $4 million quarter over quarter and down $4 million year on year. With the annual decline driven by lower amortized fee income. End of period HFI loans ended at $11 billion an increase of $1.3 billion year over year reflecting our focus on prudently growing the business. We had no new non-performing loans, and recorded no new specific reserves. A leading indicator of stable credit.

Criticized assets and non-accrual loan exposures were 10% and 1% of the total portfolio, near historically low levels. The team has leveraged its longstanding relationships with financial sponsors, along with the strategic expansion of our product suite to drive accretive, responsible loan growth even in a competitive market. Turning to page thirteen, I'll close with a brief update on our financial outlook. We're pleased with the execution of our core franchises. Our financial performance through the first half of the year has been in line to better than we expect in January. On net interest margin, we have maintained our prior guidance range of 3.4% to 3.5%.

We see a path to the upper half of that range based on current trends. Of course, the timing and magnitude of rate cuts will influence the exit rate given our near-term asset sensitivity. But we remain confident that full-year results will align with our guidance across a variety of interest rate scenarios. Turning to credit, we are narrowing the range of our retail auto net charge-off guidance by ten basis points to a range of 2% to 2.15% which results in a full-year consolidated net charge-off outlook of 1.35% to 1.45%. We're encouraged by the strong trends year to date and a solid 2Q delinquency exit which together give us incremental confidence in near-term portfolio behavior.

That said, we continue to approach credit with caution and discipline given the current macroeconomic backdrop. Moving to average earning assets, we now anticipate balances to decline by around 2% year over year. Through the first half of the year, commercial floor plan balances have been lower than expected. Due to tariff-related announcements following our January guidance. Dealer inventory trends are choppy and difficult to predict, however, lower floor plan balances are supporting healthier dealer fundamentals reinforcing our confidence in the credit quality of the portfolio. So in total, some moving pieces to our full-year financial guidance but we're on track or ahead of our performance expectations for the year.

With that, I'll turn it back to Michael for a wrap-up.

Michael Rhodes: Thank you, Russ. Before we turn to Q&A, I'd like to close by highlighting a few key points on our strategic positioning. We've taken deliberate and decisive actions to fortify the foundation of this institution. This includes solidifying our capital and liquidity positions, and reducing interest rate risk and credit risk. We maintain over $4 billion in excess capital above our regulatory minimum and stress capital buffer. And both headline and fully phased-in CET1 are meaningfully up year over year. This despite absorbing the final CECL phase-in, changing the accounting method for EB tax credits, and redeploying capital to reposition the securities portfolio.

We bolstered our capital position through non-core business sales, including our point of sale lending, and credit card portfolios. We enhanced our toolkit with credit risk transfers, which we plan to continue to use opportunistically going forward. On the liquidity front, we maintain over $66 billion in available liquidity, representing 5.9 times uninsured balances. Deposits represent 90% of our interest-bearing liabilities and 92% are FDIC insured. Both among the highest in the industry. These efficient stable deposits remain a key component in our strategy and overall profitability. Enabling Ally to generate compelling returns. The deposits platform has created a uniquely strong funding profile and is a key differentiator for Ally.

We have also materially reduced interest rate risk through a combination of our hedging program, securities repositioning, and continued remixing of the loan portfolio. On the credit side, we practically reduced risk and volatility by eliminating exposure to higher risk unsecured consumer credit. Within retail auto, we made targeted underwriting enhancements to strengthen credit performance while preserving strong yields and risk-adjusted returns. These steps position us well to navigate potential headwinds. From tariff-related affordability pressures to the resumptions of student loan repayments and broader consumer health dynamics. We also made significant investments in our question strategies introducing targeted digital capabilities that improve customer engagement, and payment behaviors.

Through it all, remain committed to rigorous cost discipline with controllable expenses declining for a seventh consecutive quarter. At the same time, we continue to invest with intention allocating expense dollars to areas that drive revenue growth, and expand operating leverage. This includes our insurance business where we are focused on driving profitable written premium growth. We're also prioritizing investments across other critical areas. Enhancing cyber defenses, advancing AI capabilities, and developing innovative products tools and solutions that elevate the customer experience. This focus on cost control will continue to be a core pillar of our strategy as we remain mindful of how we deploy every dollar of shareholder capital. So let's pull all this together.

The actions we've taken to improve returns and reduce risk have meaningfully strengthened our foundation. As a result, we believe we are in the strongest strategic position we've been in as a public company. And with that, I'd like to turn over to Sean for Q&A.

Sean Leary: Thank you, Michael. We head into Q&A, we do ask that participants limit yourself to one question and one follow-up. Daniel, please begin the Q&A.

Operator: Star one on your telephone and wait for your name to be announced. To withdraw your question, please press star one again. Please standby while we compile the Q&A roster. And our first question comes from Sanjay Sakhrani with KBW. Your line is open.

Sanjay Sakhrani: Thank you. Good morning. My first question is on net interest margin. Obviously, good traction there. You've had a couple of headwinds and still saw very good performance in NIM. Russ got sort of the guidance you gave for the second half. I'm just curious what could lead you to outperform that expectation or underperform that expectation sort of what's baked into your assumptions for the rate outlook in the second half? And then just specific to the 4% NIM target, like, what the timeline now that you know, from this point onwards to get there?

Russ Hutchison: Great. Thanks for the question, Sanjay. Maybe I'll start with your question around kind of things that are driving the NIM outlook or the NIM guide for the year. And, you know, as we said on the call, the second quarter expansion, you know, particularly when you look at it, excluding the headwind from the card sale was particularly strong. And we had a number of items that are now baked into our NIM at 3.45, but, you know, that aren't expected to contribute to NIM expansion going forward. And so you know, as we think about NIM expansion in the remainder of the year, I think you need to factor that in.

So for example, we got eight basis points from the combination of the securities repositionings that we did towards the end of the first quarter, you know, as well as the benefit we got from the recovery in lease termination performance. And there were some good guys also that we saw throughout the quarter associated with securities repayments as well as some acceleration in retail auto loan repayments that we think skewed towards higher credit, lower-yielding customers who, you know, who may have been going into the dealership, to get new vehicles ahead of the implementation of tariffs. So we saw some good guys in the quarter.

We also saw, you know, we also, I would say, would continue to expect benefits from liquid deposit repricing and CD big as what we saw in the second quarter. And so as you'll recall, we had reduced rate on liquids by 20 basis points in the first quarter. We saw the full effect of that in the second quarter. You know, we also saw the benefit of CD repricing. So we had $23 billion of CDs repriced in the first half of the year. With a repricing spread of about 100 basis points. We certainly expect to continue to benefit from both repricing on liquids and CDs, but smaller.

And so you saw we had about ten basis point we had a ten basis point reduction in liquid pricing, you know, late in the second quarter, we'll benefit from that in the third quarter. You know, we added to the supplemental some of the stats around CD repricing. And so you can see the volume of CDs repricing in the second half is smaller. But in addition, that repricing spread is also smaller as we go forward. And so continue to benefit from all that, albeit at a smaller pace.

As we think about the things that impact NIM positively or negatively with respect to our guide, you know, as we've said before, you know, we are asset sensitive in the very near term. We're liability sensitive in the medium term. And so, you know, to the extent that we see similar to what we saw last year in terms of frequent and significant cuts in the rate environment in a short period of time. That's something that's gonna negatively impact us in the short term. You know, as we think about what we factored into our rate outlook, you know, we've considered a range of different paths for rates.

You know, our base case assumes three cuts in the back half of this year. And then additional cuts, you know, early in 2026. That being said, you know, our guide for this for 2025 is relatively insensitive to those cuts depending on, you know, assuming that they come late in the year. But obviously, to the extent that we see more significant cuts that could impact us certainly in the short term, similar to last year, we'd expect that over the medium term, we get the benefit from those costs as we are liability sensitive.

And so you know, as we realize our full deposit beta and I would also point out you know, in the quarter with the last cut in liquid pricing, we did realize our 70% deposit beta. And so you know, to the extent we saw bigger cuts than we expect, that's something we benefit from next year as well. Great. Your last part of your question around the 4% guide. So, you know, post pro forma for the sale of card or post the sale of card, we're targeting towards the high threes. Right? Remember, just taking into account that 20 basis point headwind from the card sell. We still feel very confident and comfortable with that outlook. Yeah.

As we've said before, you know, we're not gonna put a particular quarter on it. Given that near-term asset sensitivity that we've discussed. But again, we feel great about achieving that guide, and we think the momentum that we showed at this quarter and I think the confidence that's expressed in our guide for the rest of the year, you know, I think I'll both speak to that confidence.

Sanjay Sakhrani: Thank you. Thank you for the detailed explanation. Michael, just one quick one for you. Obviously, credit seems better in control now with the 2022 and 2023 vintages kinda performing better. I'm just curious. Do you feel like it might be time to lean in a little bit more towards growth, or do you feel pretty good where you guys are at right now? Just trying to think about if you could get an acceleration in growth as a result of the underwriting stuff that you guys have done. Thanks.

Michael Rhodes: Yeah. No. Sanjay, great question. And you know, this is overall on credit. You know, the phrase I would use is we're encouraged by the trajectory. In terms of what we're seeing. Clearly, delinquency performance on a year-over-year basis, you look at the individual buckets. You look at some of our roll rate trends where used car values are holding up. It's all pointing to something, you know, encouraging. That being the case, I think you've heard us say before, you know, we're gonna be very disciplined and prudent when it comes to unwinding and the curtailment that we've undertaken. So we're gonna be a bit data-informed.

You know, there's still a lot of uncertainty in the environment, and we're, you know, you can never get perfect clarity on a go-forward basis. I know that. But we're gonna be prudent to be data-informed is the way I would view it. And so, you know, nothing to call right now, but, you know, if and when we make the changes, we'll certainly be transparent about that. Thank you.

Operator: Thank you. Our next question comes from Jeff Adelson with Morgan Stanley. Your line is now open.

Jeff Adelson: Hey, Good morning. Thanks for taking my questions. I just wanted to circle back on your credit trends. You know, they certainly seem to be improving and inflecting here. I know, Michael, you just talked about some of the roll rates and used car prices, but I guess just, you know, affordability concerns aside over the longer medium term, should we be expecting used car prices to continue to, you know, help credit over the back half of the year. And I guess, you know, I think you are, you know, still evaluating whether you wanna maybe pare back s tier a little bit more and get some more yield.

But you know, what would be the consideration at hand or the benchmarks you'd look at to decide you wanna lean a little bit back more into that below s tier tranche.

Russ Hutchison: Thanks, Jeff. And good morning. There's a lot in there to dissect in terms of that question. And so maybe I'll just start generally with our overall outlook around credit. And you mentioned used car prices. Yeah. As we've said in prior discussions, you know, think about credit in terms of, your kind of the given year in terms of a really kind of three broad variables. You know, our overall delinquency rates, our flow to loss, and then and then, of course, as you pointed out, used car prices, and I'd say all three of those things play into our expectations for a given year.

And as Michael and I pointed out on the call, delinquencies have improved, but we'd still characterize them as elevated. And so that's certainly something that factors into how we think about the outlook going forward. Our flow to loss rates, you know, obviously, coming out of last year in the fourth quarter, so far this year, you know, have been really solid. And that's something that gives us a lot of encouragement, and we think that's a reflection of, you know, kinda the servicing strategy changes that we've made. As well as the vintage rollover to the newer vintages. You know, kind of the 23, 24, and now the 25 vintages.

And then as you pointed out, used car pricing has been strong. You know, part of that may in fact be related to the broader macro and tariffs in particular. But as we think about our credit guide for the year, we're kinda looking at really, all three of those variables and, you know, we've seen some encouraging signs over the last six months and the fourth quarter of last year in terms of all of those.

And I'd say, you know, we're looking forward to kind of continuation of improvement in delinquencies, you know, strong flow to loss and used car prices and, you know, those things give us a lot of confidence with the guide that we have in front of us. As Michael pointed out, as we look at kinda real-time decisions around how we underwrite in terms of new originations, you know, it's very much it's data-driven. We're looking at recent vintage performance, and we're looking at a really granular level. In terms of places where we kinda open and close and widen our approach, you know, on a micro-segment basis.

Jeff Adelson: Okay. Great. Thanks, Russ. And if I could just sort of talk about capital return or ask about capital return. You know, you've talked about the higher CET1 levels and consistent organic capital generation as a key factor in determining a return to share repurchase here. It does look like you're very close to that 10% CET1, which is a nice buffer from where you targeted historically. I know you still have that AOCI hit to deal with, but we've been asked by investors if next year's stress test is sort of the right barometer to be thinking about for capital return.

Is that necessarily a gating factor you think about or maybe just a little bit about how you're thinking about capital return over the medium term here?

Russ Hutchison: Sure. Look. I think the increase in our capital ratios, you know, over the course of the last year has been really encouraging. And, you know, as you pointed out, seeing real progress both in terms of our stated CET1 as well as our fully phased-in CET1, which gives us a lot of encouragement. We're clearly moving in the right direction. You know, and that combined with, you know, just improvement in our overall margins and earning profile and our ability to generate capital organically give us a lot of confidence around kinda getting to the point where we can look at share repurchases. And as you know, that's a priority for this team. It's a priority for this company.

You know, as you think about the timing of that, we don't really think about it in terms of the stress test. I mean, if you look at our capital level now, you know, at 9.9% CET1 versus our CCAR requirement, you know, at 7.6%. You know, we carry a considerable amount of excess capital related to that. And so we don't see that as a gating item, and so we're really looking towards our fully phased-in CET1 ratio and our organic capital generation just based on the strength of earnings. Those are really the two things that we're looking at in terms of kinda getting to the point where we can repurchase shares.

Jeff Adelson: Okay. Great. Thank you.

Operator: Thank you. Our next question comes from Ryan Nash with Goldman Sachs. Your line is now open.

Ryan Nash: Hey, morning, Michael. Good morning, Russ. Maybe just a follow-up on credit. So it's good to see delinquencies, you know, better delinquency improve performance. They're now down year over year. I guess, sort of a two-part question, like, Russ, what will we need to see or what would it take to actually move the charge-off rate range down. And, you know, last quarter, you talked about shifting seasonality. Maybe just help us think about seasonality for the back half of the year on losses. Thank you.

Russ Hutchison: Sure. Thanks for the question, Ryan. And, yeah, maybe kind of building on my answer to Jeff's question earlier, we've talked about these kind of three variables, the kind of delinquency rates, the flow to loss. And used car prices. And just to get your question directly in terms of what would we need to see to get to and, you know, and maybe I'll characterize it. What would we need to see to get to the low end of our range? I'd say, look, we'd have to see continued improvement in delinquency levels. Continued strong flow to loss rates, you know, and continued strong used car prices. Really a continuation of what we've been seeing so far this year.

You know, that being said, you know, we have a guide, you know, that we have actually taken some of the high end of the guide off the table this quarter, but we do have a guide and that guide, you know, entertains a range of potential outcomes and, you know, the way I would characterize that is, you know, even with the improvement we've seen in delinquency this quarter, we're still operating at elevated delinquencies. Yet, we're entering an environment where the general expectation is for unemployment to worsen.

You know, and so as we look forward, you know, we think about a range of potential outcomes depending on kinda what could transpire in terms of delinquency, how Florida laws behave, and, you know, all that in the context of a macro that, you know, that could weaken, you know, in particular, with respect to unemployment, which is an important variable for us. So a lot goes into kinda how we think about that guide. But again, you know, we've taken ten basis points off the top end of that, and so you should take that as an encouraging sign in terms of our building confidence around credit.

On your question on seasonality, you know, I think you're right to point out, you know, seasonality has been changing post-pandemic. You know, with kinda higher payments with the cumulative of inflation over the last few years, you know, we are seeing changes in seasonality. And I'd like I'd characterize it as, you know, seasonality is muted now relative to how it looked pre-pandemic. You know, we see kinda smaller dips moving from the first quarter to the second quarter in terms of NCO rates. And our expectation is to see smaller pickups. As you move from the second quarter through the back half of the year. You know, and so, you know, we've taken that into account.

We've updated our own models in terms of how we think about seasonality internally, and that's something that is baked into our NCO guidance for the remainder of the year.

Ryan Nash: Got it. And maybe as a follow-up, you know, we saw seasonal declines in the deposit book and but we obviously had, you know, really nice repricing. Maybe just talk about the strategy on deposits from here. I know that there's been remixing, you know, within the portfolio. And, you know, are there further opportunities to optimize and how do you how are you thinking about the trade-off between growth and price as we look to, you know, further easing that could be coming in the back half of the year? Thank you.

Russ Hutchison: Sure. Look, I characterize the quarter as kinda going exactly as expected. There's kinda really nothing notable. That I would point to in the way the deposit book performed in the quarter and, you know, I'd say it just reflects really solid performance across the board. So in terms of balances, as you pointed out, natural seasonality. As you know, this year, similar to 2024, we're managing for kinda full-year flattish on deposits, which could be plus or minus one or a couple billion dollars. But we're managing towards flat similar to last year and similar to last year, we saw very similar outflows during the second quarter. It's seasonality driven. It's a lot to do with the tax season.

And so we look at that deposit balance performance as being very much consistent with what we're trying to do from a business perspective in terms of managing towards flat. Oh, on the pricing side, you know, we feel pretty good about where we are from a pricing perspective. You know, as we pointed out on the call, we achieved the 70% beta we targeted off of the Fed's rate cuts. In the back part of last year. And so very much in line with our expectations, and I'd say the competitive environment has pretty much behaved pretty much accordingly.

And so I'd say the quarter in terms of how we look at the performance in terms of balances as well as in terms of pricing is very much behaving consistently with the strategy that we've been executing this year as well as last year. Yeah. That being said, as you also pointed out, we have seen some shift and it's continued shift in terms of our deposit book. Yeah, where we've seen a shift perhaps away from some of our more rate-sensitive customers and towards what we would characterize as our more engaged customer base.

We think that's a good thing in terms of the migration of the book and points towards, you know, kinda greater deposit stability as we think about the book going forward.

Ryan Nash: Thanks for the call, Russ.

Operator: Thank you. Our next question comes from Moshe Orenbuch with TD Cowen. Your line is open.

Moshe Orenbuch: Great. Thanks. And, you know, I think the improvement in capital you've shown has been pretty notable. I guess I'm kinda maybe, you know, you still talk about using these CRT transactions. I guess I'm not clear to me what those would do for you at this point.

Russ Hutchison: Given that they have a revenue cost. It seems like the alternative might be to try and continue to chip away at the AOCI and the, you know, as you know, maybe you could talk about how you're thinking about those tools as getting you closer to the point at which you could buy back stock.

Russ Hutchison: Yeah. So maybe I'll start with CRTs and, you know, what the CRTs effectively do is, you know, we're basically transferring credit risk related to a portion of the portfolio, you know, generally skewed towards kinda higher credit quality loans within the portfolio to the capital markets. You know, in exchange for that, we're able to lower the risk weighting on those loans. And so the benefit there is lower risk weighting, you know, which effectively translates into a pickup in terms of CET1 both on a stated basis as well as on a fully phased-in basis.

It's a very cost-effective source of capital if you kinda think about that CET1 pickup versus the cost of the effective capital markets insurance that we're picking up. We think it's a mid-single digits cost of capital type venture. And so yeah, we think that's, you know, that's an economically attractive way of building capital and managing our book and preserving our capacity to both grow organically and to ultimately repurchase shares. And so we like the CRT. It's a tool that, again, you know, as we said on the call, we expect to deploy over the back half of this year, and we think it'll help us in terms of adding more to our CET1 ratios moving forward.

As far as additional securities repositioning transactions, you know, as we said coming out of the first quarter, you know, we've done two securities repositioning transactions. Yeah. We feel like we took out the low-hanging fruit within our portfolio in terms of balancing what we were trying to achieve in terms of reducing our rate risk going forward and also getting some NIM pickup. And so we feel pretty good about what we have done and, you know, we don't anticipate doing any more securities repositioning transactions certainly in the near term.

Moshe Orenbuch: Got it. And thanks sorry for this next one not being or being so kind of technically oriented, but maybe Russ, could you talk a little bit more about the insurance business and what the renewal kinda means for profitability, of the insurance business over the next year, you know, how can you recover that in pricing and, you know, how we should kinda think about that. Thanks.

Russ Hutchison: Yeah. No. It's a great question. You know, as you'd expect, the renewal terms tightened on the back half of the experience that we saw. In the last, reinsurance cycle. You know? And so, you know, effectively, the pricing is similar to last year, albeit at kinda higher deductibles or attachment points. And so that's something that we've baked into how we think about the insurance business going forward.

You know, the great thing about the insurance business is that, you know, where, you know, those policies on the floor plan side, which is where we get impacted by weather, you know, we reprice those annually, and so we're able to factor in kinda how we think about pricing and turn that we offer our dealers more broadly. Kinda based on what we're seeing in the reinsurance market on a very real-time basis. And so we continue to be very bullish on the insurance business. That's a business we're gonna continue to invest in. It's accretive to our returns, you know, and it's a valuable source of noninterest revenue for us.

And so we're gonna continue to invest in it, and we think the returns there are very robust. And very stable moving forward. So that's a business we just again, we continue to be very bullish on.

Moshe Orenbuch: Thank you.

Operator: Thank you. Our next question comes from John Pancari with Evercore. Your line is open.

John Pancari: Mornings. Just wanna go back to the asset growth topic. I wanted to just ask a bit more about, you know, the current limitations on growth. I mean, I hear you regarding you're gonna be selective about when you scale back your curtailment and your overall risk appetite. And then I and we know you have mortgage loan runoff as headwinds as well. But, you know, we're still seeing some, you know, solid auto origination activity. The backdrop still seems conducive for auto growth. So can you remind us, you know, what are the greatest limitations as you look at the, you know, the coming quarters, the greatest limitations on growth?

Is it still the risk profile or is it to focus on returns over growth or is it your capital considerations? Thanks.

Russ Hutchison: Great. Maybe I'll start. And I imagine, Michael, you're gonna wanna comment on this as well. So I'll try and keep it brief. Yeah. Look. I say if you look at the second quarter, you know, you saw the growth very much aligned with our focus strategy. And so you know, you saw auto originations at $11 billion, you know, pickup from a year ago, strong pickup from our first quarter origination levels. You know, similarly, you saw growth, you know, in our corporate finance book at $11 billion, up about $1.3 billion from prior year. And so, again, you see growth focused exactly, you know, aligned with our strategy.

And, you know, as you pointed out, you know, we continue to see runoff in the mortgage book. We continue obviously, we saw the divestiture of the card business and the assets associated with that. You know? And at the same time, you also saw, you know, our commercial floor plan balances somewhat muted and you have that you have that's really the main driver of the change in our guidance is kinda what we're seeing on the lot in terms of commercial floor plan balances. They've been muted.

You know, certainly with tariffs, with all the activity on the dealer lots, in the first half of the year, that's been, you know, that's been helpful to the dealers in terms of their overall health. You know, but it's hit the balances somewhat. You know, we're not concerned about that. And in fact, again, it's a good thing in terms of dealer health and it actually contributes to their profitability as well. They don't have to carry around these large floor plan balances. So we feel good about it overall, but it has caused us to make this adjustment to our earning assets outlook for the year.

And so, again, I'd say what we saw in the quarter was very consistent with our focus on growing the retail auto loan and corporate finance books. And I would characterize that strategy as being one of prudent growth. And so with, yeah, with retail auto loans in particular, you saw it in terms of, you know, s tier continue to be north of 40%. The originated yield at 9.82%, again, very strong. And so you know, you kinda see that kind of prudence. And so, you know, I think capital is not, at this point, what I would characterize as a limiting factor.

I'd say it's, you know, it's more about being prudent about growing with an eye towards both credit as well as return and kinda getting the risk-adjusted returns that we like.

Michael Rhodes: Maybe, Russ, maybe I just wrap up with a doubling down this notion of being quite disciplined in terms of what we're doing. If I ladder up and just take a look at the quarter, And, like, I'd say that we're very pleased with the quarter results. And are encouraged by the trajectory that we're seeing. You look at what we've delivered this quarter, I think it demonstrates this focus strategy and discipline execution are working. Probably heard over and over again. We've talked about three things that we're really focused on is net interest margin, reducing autocorrect losses, and being disciplined.

And we delivered against all of those this quarter, and I think the trajectory on a go-forward basis is attractive. With growth, we're going to be very prudent. But I keep on anchoring back those three things that we're really focused on. And we're quite pleased with the performance that we've seen with those.

John Pancari: Got it. Okay. Thanks for that. I appreciate it. And just one more one quick follow-up just on competition. You saw the solid 9.8% retail origination yield. What's your expectation there in terms of the origination yield? And, you know, a lot of banks and other players are back in the auto game here. So what do you see in terms of implications for that for origination yield? As you continue that.

Russ Hutchison: Yeah. I'd say we did see banks coming in a little stronger during the quarter. We saw the overall kind of bank market share increase. Yeah. We've seen some of the banks that have reported already talk about their auto businesses specifically, and a few of them have shown significant pickups in terms of origination volume during the quarter. That being said, and as you pointed out, John, you know, we had a great quarter. We had record application volume. You know, we had a strong yield actually up a couple of basis points from the first quarter. And we continue to see strong originations in the s tier.

And so you know, we feel really great about where we play in the market. We think we're differentiated in terms of our relationships with dealers and, you know, I think our focus on used as well as prime and kinda where we play in terms of, you know, being able to continue to be disciplined and grow our business as we kinda think about things going forward.

John Pancari: Thanks. Thanks, Russ.

Operator: I'm showing a little past the hour here. So that's all the time that we have for today. If you have any additional questions, as always, please reach out to Investor Relations. Thank you for joining us this morning. This concludes today's call.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

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