Ally Financial Inc Aktie

Moving right along, I'm very pleased to have Ally Financial with us. From the company, Russ Hutchinson, Chief Financial Officer, Russ, welcome.

Thanks, Jason. Glad to be here.

Maybe the best place to start is just big picture. I think when you were here 2 years ago in the third quarter, Ally put up a 5% ROTCE. Consensus for this quarter, 13%, 14%. Obviously, a big improvement if that proves right, which we'll get to. Let me talk a bit about kind of what's gotten you here and speak to kind of what work remains.

Great. Thanks, Jason. I'm glad you mentioned the improvement we've seen in profitability over the course of the last 2 years. I think it's really strong evidence that the power of focus, our focused strategy is working. We're doing 3 things simultaneously. We're growing our core franchises. We're increasing our profitability, and we're managing our risk. And that improvement in terms of our performance is anchored in real improvement in our franchises. We have a customer-obsessed culture, and that's delivering for us in terms of the traction we get. So if I look at our Dealer Financial Services business, you can see that traction in terms of our application volume. When I look at our Corporate Finance business, it's in our investment portfolio there. When I look at our deposit business, it's that strong customer growth that we see year-over-year.

So I'd say across all of our franchises, we're really delivering, and we're seeing the benefits of that delivery in terms of traction with our customers across all 3 franchises. I think we're pleased with our results so far to date. We expect to be on track with respect to the guidance that we delivered back in January. We're on track with respect to our medium-term targets. And I'm sure as we talk through this, we'll talk a lot about net interest margin. We're dealing with pressure along with the Stellantis relationship from the recalls. Obviously, we've seen the interest rate outlook change. But I'm glad to say we continue to be on track in terms of the guidance that we delivered.

We're managing through those. When you look at retail auto and retail auto NCOs, I'm sure we'll talk a lot about retail auto credit as we go through this. Again, we continue to be on track. We delivered guidance at the beginning of the year with the expectation that the midpoint was a pretty good guess of where we land within that guidance, and that continues to be our assumption today. And so I know we'll talk a lot. We'll probably talk about vintage curves and we'll talk about just some of the headwinds we've seen this year with oil prices, et cetera. But again, we've managed through that, and we continue to be very much on track.

And longer-term, it's our expectation that we'll see retail auto NCOs drift lower towards our originated target range of 1.6% to 1.8% as we move forward. So we feel pretty good about how credit is developing in terms of the trajectory.

In terms of operating expenses and capital efficiency, again, we feel good about how things are progressing there. First half of the year, you've seen our operating expenses flat to slightly down. We've always talked about a low single-digit range going forward. And we entered this year with guidance that we expected OpEx up about 1% over the year. So you'll start to see that lower single digits materialize over the back half of this year. But again, in our view, that reflects really strong discipline on operating expenses our commitment to delivering positive operating leverage. And then on the capital side, we continue to deliver on the story of and, not or. The heavy lifting is behind us in terms of building up our capital ratios, looking at it on an RSA fully phased-in view.

And as we look forward, we think the first half of this year provides a pretty good template for how we think about capital. That is having capital on hand to invest in the growth of our core franchises, prioritizing growth in our highest profitability products in retail auto loans and corporate finance and at the same time, returning capital to shareholders with our share repurchase program. So we look across the board, and we feel pretty good about the trajectory that we've established and the track record over the course of the last couple of years since we launched Focused Forward.

So a lot in there. Hoping we can unpack that. I guess the 2 areas I get most asked about is NIM and retail auto charge-offs. So let's maybe start with NIM. You've guided for the full year, 3.6% to 3.7%, which it sounds like you still feel good about. You talked about maybe the potential to exit this year above the high end of that range. Maybe talk to the ability to do that. You talked about kind of high 3s over time. The Fed, I'm told, is hiking tomorrow. How does that potentially impact your outlook? And just talk about the potential hedging strategies to maybe reduce some of that NIM variability going forward?

Yes. No, there's a lot in that question. And maybe where I'll start is we're pleased with the NIM expansion that we've delivered so far. And so you dial it back a couple of years, ex cards, our NIM hit about 3%. Second quarter, we're about 3.6%. And so that expansion is something that we're pleased to have delivered and gives us confidence as we think about the forward. And I'd say, look, the NIM story is very much anchored in that customer obsession, that traction that I described with customers beforehand. And we see it on both sides of our balance sheet. And so we exercise a lot of pricing discipline on both sides. Within retail auto, that application volume that we talked about, it gives us the ability to look at a lot of applications to really assess credit and then to manage our book from a quarter-to-quarter basis in terms of maximizing our risk-adjusted returns.

On the deposit side, that strong deposit growth -- the strong deposit customer growth that we have provides a nice anchor for us to be disciplined in terms of how we price deposits going forward. And that's anchored in real things that we're doing with our customers, our commitment to our dealers, our consistency over a long period of time. I was at the Ally Challenge a few weeks ago just outside of Detroit. And I'll tell you, dealer after dealer thanked us for our consistency, our reliability in the market. And I think that pays dividends in terms of the traction we have with our dealers. We've made a lot of changes to our business to help them sell more cars. One of the changes, we've asked our dealers to send us all their applications, and they're doing that, and that gives us more looks and more opportunity to manage towards risk-adjusted return and to be disciplined on the asset side of the balance sheet in terms of pricing.

Similarly, when you look at the deposit side, we've made real investments in our deposit platform, providing a digital experience that's second to none, a nationally recognized brand that resonates with our customers, a long track record built on trust and doing things the right way for our customers. And that's paid dividends for us in terms of 7% year-on-year growth in customer accounts in the first half of this year, and it's something that we expect to continue building upon. And so that NIM expansion that we've seen over the last couple of years is really anchored in things that we've done in the business.

Now as I think about kind of more current terms, if you look over the course of this year, we started the year back in January, we gave a guide of 3.6% to 3.7%. A lot of things have changed. Obviously, the interest rate outlook has changed. We've seen some headwinds in terms of gains or more appropriately losses on lease terminations. Some of you will remember at the start of the year, we talked about PHEVs, plug-in hybrid electric vehicles and some of the challenges we had there as a result of recalls and other changes in the industry. It's -- I think it's well known that our lease terminations this year are somewhat overconcentrated in Stellantis. Stellantis recalls on plug-in hybrids kind of hit us hard towards the beginning of this year and the end of last year. And now they've extended recalls to a broader swath of their vehicles, including internal combustion engine vehicles. And so we're seeing the impact of that.

We now expect to take about $20 million of lease losses in the third quarter. And so where previously I would have expected net interest margin to be up quarter-over-quarter on the back of some of the deposit pricing changes we made in the second quarter, we now expect it to be more or less flattish. And that's a headwind, obviously, we didn't anticipate in January, but I'm pleased to say that it's still our expectation that we'll be in the range of 3.6% to 3.7%. And it's still my expectation that we'll exit the year at the high end or above that 3.7% mark. And so we feel pretty good about our ability to manage a changing rate outlook and other bumps in the business and still deliver on the guidance that we gave back in January.

The rate outlook has obviously changed. You mentioned that in your question as well. We're now expecting 1 or 2 rate increases. The first one we expect tomorrow, and then we'll expect another one early in 2027. Interestingly, the effect of a rate increase in terms of the current quarter is positive. We do have a significant floating rate portfolio between our commercial auto, corporate finance as well as our hedging portfolio. And effectively, those yields adjust real time right away. And then on the deposit side, we're going to be disciplined on deposit pricing. So you saw us when rates were coming down, we were disciplined. We got to a 69% beta on the way down, and we're going to be disciplined on the way up. And so we'll manage our deposit pricing on the way up to hold on to some of the benefits of those rising rates on the floating rate side of our business.

So again, we've dealt with some headwinds here and some changes in terms of the rate outlook and in terms of lease residual performance. But again, we're managing through that. Our guidance remains intact and nothing has changed from that perspective. Similarly, a lot of the same factors that have been driving our overall expansion in NIM for the last couple of years remain intact. The biggest driver will be the remixing of the balance sheet. So as we continue to put on higher-yielding retail auto loans and corporate finance loans while running off lower-yielding mortgage loans and legacy mortgage securities, we have a natural gravitational pull upwards in terms of our net interest margin over time. And we continue to believe we have a strong trajectory towards our high 3s medium-term objective.

A lot in there.

A lot in there. Now you asked about hedging as well, which is an important part of our risk management strategy, and we continue to hedge very dynamically. But I'd also point out that we have made real structural changes to the business to reduce that interest rate risk volatility, exiting discontinuing mortgage originations running off that portfolio. The way that we've changed our approach to our investment portfolio, where we're taking the runoff of that portfolio, we're reinvesting it in shorter duration securities. A case in point is the securities repositioning we did last year in 2025, where we took a large chunk of that legacy portfolio and repositioned it into shorter duration securities. We're making real changes to our business to help manage that asset liability in a better way.

Okay. A couple of quick follow-ups. You talked about the $20 million lease residual loss in the third quarter. Is that just entirely tied to Stellantis and we'd expect that to kind of not reoccur in the fourth quarter? I guess, how should we frame that?

Yes. It's tied to Stellantis. It's vehicles that have been impacted as a result of their recalls. And I'd say I'm glad you doubled down on that one. We're overexposed on Stellantis lease terminations this year, but that changes over time. So many of you guys who have been following us for a while know that I think it was the first quarter of 2024, we entered into an arrangement with an EV manufacturer. And a lot of our lease volume actually pivoted towards that relationship. That relationship has residual value protection built into it. So those leases are going to start coming off at the beginning of 2027, so beginning of next year.

At the same time, we diversified the remainder of our lease originations more away from Stellantis and towards a more diversified mix of OEMs. And so once again, that takes effect as well. And so I think the Stellantis pressure will certainly be an issue through the remainder of 2026. But as we get into 2027, we'll see that Stellantis lease termination concentration abate. And by the time we get through the end of 2027, that pressure is gone.

And I guess on deposit pricing, I think the cumulative beta on liquid savings has been around 70%. One of the things we've seen is kind of CD rates drift higher in front of this Fed hike. Just -- how do we -- how should we think about that looking out?

Yes. I think we've seen a lot of competitors use the CD product as a way of offering rate to their customers. We're coming in, in a relatively strong position in terms of the strength of our brand and that underlying growth in customer accounts. And so we've been able to be a little bit more disciplined. Now we've put some rate increases on the CD side as well, but we've been more disciplined relative to the rest of the market. Also, when you look at our overall concentration of CDs, that's come down over the course of the last couple of years. And so again, we have a few benefits built into our business to help us manage through that.

Yes. And maybe shifting to the other side of the balance sheet. Q1 origination skewed richer and 2Q originations skewed towards kind of maybe higher credit quality. Just how are you thinking about the S-tier mix and just the impact to originated yields and portfolio yields rest of this year into next year?

Yes. Look, I think it's easy to get caught up in the quarter-to-quarter dynamics, but I really caution you against reading too much into any one quarter's originations. As you pointed out, Q1 was rich in terms of yield and with a lower S-tier concentration. Q2 swung the other way in terms of higher S-tier concentration, lower yield. And interesting in Q2, kind of buried in that improving S-tier mix, we put a lot of price into the market. And so if you look at Q2 -- if you looked at Q2 cohorts on a like-for-like basis in terms of credit, we actually put a significant amount of price increases through the market.

Now as I look at Q3, our expectation is we'll see a good improvement in originated yield, and that will come primarily from putting price into the market. We've talked about the S-tier mix settling in long-term in the low to mid-40s. I think for the third quarter, we'll probably be more like mid-40s. So maybe a little bit of progress there in terms of bringing that S-tier concentration down. But most of that yield improvement that you're going to see is going to be driven by the pricing actions we took in the second quarter, basically continuing through the full of this quarter and pricing actions that we've been able to put into the market over the course of third quarter as well.

So we continue to feel pretty good about the competitive environment, and we feel great about the traction that we have with our dealers that's really driving the application volume, which is giving us the ability to be able to manage for the best risk-adjusted yield possible in our portfolio. So again, we continue to feel good about where we are on the pricing side on the auto business, and we think it's supportive to our high 3s margins over time.

Helpful. Maybe shifting gears to credit quality. I guess this morning kind of reiterated the midpoint of the 1.8% to 2% guide for retail auto NCOs. I guess that's 1.9%. Just maybe just talk to just how to think about the progression in the back half of the year and just how you think looking out for the kind of normalization towards price expectations over time? I think used to talk about 1.6% to 1.8% for charge-offs?

Yes. So we're pleased with the performance that we've seen in the book year-to-date. I'd say in the first half of the year, total loss rates and used vehicle prices were probably better than we had expected. And we talked pretty openly about our expectation that those things will normalize through the back part of the year. When you look at our guide of 1.8% to 2% and you look in particular at the midpoint and you look at what we printed in the first and second quarter, it's pretty clear that in order to get to that midpoint, say, to 1.9%, that would imply that NCOs are flat to slightly up in the back part of the year.

And again, that was anticipated. That was expected on our part. That support that we were getting in particular from used vehicle values, we expected some normalization there, and we believe we're seeing that. So we feel pretty good about 2026 being yet another example of our calling credit and pricing risk appropriately. And then longer-term, we continue to expect retail auto NCOs to drift towards that originated range of 1.6% to 1.8%. We haven't put a time line on that, but we certainly expect that, that continuing drifting.

All right. So 2 follow-ups. I guess, one, you talked about kind of used vehicle prices. Just how do you think that plays out kind of looking maybe beyond this year into next year?

I think our expectation over the medium term is we expect to see continued support from used -- in terms of used vehicle prices. And it's really grounded in the supply of vehicles manufactured over the last 3 to 5 years. Just coming out of the pandemic, manufacturing capacity was constrained. The other part of support is just what we've seen on new vehicle MSRPs, just the price of new vehicles and the used vehicles really providing the best affordability option for the customer. And so we see those 2 things, the support we're getting from new vehicle MSRPs as well as just supply constraints as being helpful to used vehicle prices over the next couple of years.

And then I want to maybe just ask about kind of vintage curves. They've got a lot of attention recently, particularly around kind of 10-Q season, kind of looking at 2025, 2026 vintages in particular. I'd like to hear your take on kind of what you're seeing there? Any emerging trends in your book that may have contributed to some of these dynamics? Maybe just talk about what you're seeing.

Yes. Again, we continue to be pleased with what we're seeing. We've been talking for a few quarters now about the '24 vintage having outperformed our expectations. And that's not necessarily a goal of ours. And so we expected the '25 vintage to not perform quite as well as '24, and that's what we planned for. It's what we modeled for. And it's what we're seeing. And so nothing in the vintage curve surprises us. You mentioned '26. I know a lot of people look at the '26 data. In our view, it's too early to read anything from that, but there's nothing there that surprises us as well. And so we continue to feel pretty good about our loss guide for this year, obviously, and about the trajectory going forward. As you can imagine, for us, credit is very dynamic in terms of the way that we underwrite.

We simplify everything. We talk about the S-tier population, but the reality is we're looking at monthly vintages across a number of different cohorts. We divide them into what we call micro segments, and we're looking at multiple characteristics of each of the cohorts to define the micro segment. And we're constantly looking for micro segments that are outperforming our price expectations and micro segments that are underperforming our price expectations. And so as you can imagine, we're dynamically making changes to our pricing, to our underwriting threshold to our rules for what gets kicked to manual underwriting in order to address any kind of variances that we're seeing positively or negatively and again, at a very granular level in terms of analyzing all of these different micro segments.

So we continue to be dynamic in terms of how we manage credit. As you can imagine, we're always going through periods where we see certain segments that are underperforming and others that are overperforming. We're dynamic. We're adjusting for that on a real-time basis. But as we look at the vintage curves, '24, '25 and what we've seen in the early days of '26, we continue to be confident in our ability to manage credit moving forward.

So I guess, 1.9% in charge-offs this year, retail auto, 1.6% to 1.8% normalized? Is that something we could see next year? How should we think about that?

We'll give guidance in January the way that we typically do. And so that gives us the benefit of looking at how credit performs over the back half of the year. And that's how we do it. We haven't promised any specific timing on the 1.6% to 1.8%. So we'll come back to you in January with a view in terms of 2027 NCOs.

A lot on financing. Maybe let's go to the operational side of the house.

Great.

We've seen very strong growth in auto application flow despite the fact that I feel like the market has been competitive. Maybe just share kind of what's behind the strength we've seen and just kind of current expectations for the pipeline and continued growth opportunities.

Yes. Look, I think -- and I've said it a couple of times, we're -- we've been really pleased with the traction that we have with our customers. we launched the focused strategy, I guess, about 1.5 years ago. The dealer response was positive from the get-go, and it continues to be really positive. I mentioned earlier, I was at the Ally Challenge event a few weeks ago just outside of Detroit. And I'll tell you, multiple dealers came up to me, and they're really pleased with our ability to really focus on their business, right? Our goal is to help them sell as many cars as possible. And our focused strategy has allowed us to focus our capital to that end. And so it's allowed us to capitalize that strong growth that we've seen.

It's also allowed us to invest and focus our technology and platform investments in our dealer franchise. And so we get a tremendous amount of mileage from that with our dealers. We also have a 100-year history in the business of being a consistent and reliable partner. A lot of the dealers that I spend time with, we serve their parents and in some cases, their grandparents. And so one of the changes that we've made over the course of the last couple of years is we've asked our dealers to send us all their applications. Just given the scale and the breadth of our platform, we're one of the few originators out there who have the ability to do that and to be credible with dealers doing it.

Recently, we've changed our Ally Dealer Rewards programs to align incentives to delivering applications. And it's paid off. And it's one of the things that's been driving that strong year-over-year growth in application volume. And I do think we have more to go on this strategy and I'm excited to see the progress we've made so far, and I'm even more excited to see the progress that we can make going forward in terms of deepening our dealer relationships and driving even more traction.

Interesting. Let me just touch on the competitive landscape. We had Wells Fargo this morning talking about good growth in auto. We have Truist speaking next, talking about selling auto. I know there's always puts and takes. Maybe just talk about what you're seeing.

Yes. Auto is one of those areas where the competitive landscape is always shifting somewhat. I remember maybe it was like 1.5 years ago when Wells Fargo was just coming in, it felt like competition was heating up quite a bit. I'd say 2026 year-to-date, it feels like that's leveled off somewhat. And as I look at the competitive landscape, it feels pretty favorable. And obviously, we're seeing that in terms of our application flow and also the growth that we've printed in terms of originations. And you've seen some players step back somewhat from the sector as well. I think this ebb and flow of players coming and going, I think that serves us well with our dealers because our dealers respect the fact that we're consistent and reliable as partners in the industry.

Great. And maybe Carvana, I know you recently upsized your agreement with them to about $8 billion. Maybe just discuss that relationship in detail and the prospects for additional partnerships.

Great. I think Carvana is a great example of where we're partnering with those who are innovating and driving innovation across the industry. And we've been able to grow our relationship with them in tandem with their growth. And we've been partnered up with them for quite some time. We've got a great track record with their originations in terms of being able to compare what we see in our Carvana book with what we see in the dealer channel. The volume that we get from them performs as well and in some cases, better than what we see in the dealer channel. And so we feel really good about that relationship and our ability to grow with that. In my view, that's just one example of where we're partnering in the industry.

We're partnered up with a number of OEMs, including on the electric vehicle side. We're partnered up with most of the major public and private dealers in the country. And I'd say even as you look at our pass-through program and our SmartAuction program, we've got a number of strategic partnerships there that we're also proud of and are delivering accretive growth in our other revenue line. And so I think Carvana is just another example of that. And again, we're delighted with our ability to grow alongside them.

Got it. And then in terms of the digital bank, growth has been strong there. It's obviously another competitive segment. Maybe just talk about the type of deposits you're attracting and how you deepen those relationships beyond just the deposit.

Yes. No, it's a great question. When I look at that 7% year-over-year customer growth that we've seen in the first half of this year, I think that's pretty unique. I think you'd be challenged to find other regional banks of our size that can produce that kind of customer growth. And I think it's on the back of a number of things. I think, one, we were obviously early movers in digital, right? And that's clearly the -- where the gravitational pull is going in terms of consumer preference. And I think we've been consistent over the -- I guess, it's now 16 years that we've been digital deposit takers and doing it right for our customers. We're aligned in terms of our platform, in terms of our products and in terms of our brand, and we've been consistent for a long time. And so I think all those things feed into our ability to attract customers.

And when I look at that customer growth that we're seeing today, it's really important to note that we're growing customers in a place where we think it's really valuable. 75% of our customer growth is coming from millennials and Gen Z customers. So really attractive cohorts from a demographic perspective. There are also customers who tend to engage with us across our platform. So they're engaging across multiple products. So that means in addition to having a liquid savings account, they may have a savings account. They may be doing some direct -- sorry, they may have a checking account. They may be doing some direct deposit. They may have an invest account. They're investing with some of the tools that we've built around savings. So we think we're attracting a more engaged and ultimately stickier customer that's going to be more valuable to the franchise going forward. So there's a lot that we see that we feel really good about in terms of the growth of our deposit customer base.

And maybe shifting to Corporate Finance. We've seen pretty strong growth, decent -- good returns, good credit. Just how you think of the next phase of growth for that business?

Yes. So I mean, we've grown our loans in that business by about 25% since we moved to Focus Forward. We're delighted with that growth. A lot of it is coming from existing relationships. And it's important as we think about that Corporate Finance business. Our goal in Corporate Finance is to be the most important financial provider for a small set of relationships that we cover. And for the most part, our sponsor relationships extend for years and in many cases, for decades, where we're their preferred lender. And our model is to do senior secured lending alongside trusted long-term institutional and long-term partners who are putting a significant amount of capital at risk ahead of us. And so that business is absolutely a credit-first model. It's a business where we're leading the majority of the transactions that we're underwriting. So -- it comes from our relationships.

We're leading the structuring, the underwriting and the servicing of those loans. And in some cases, we're able to also scoop syndication fees by syndicating out to others. So there's a lot behind that growth in terms of being able to manage that growth responsibly. And our expectation is this is a growth area for us. We're going to continue to look for opportunities to grow both with our existing verticals and with our existing clients and as well as new verticals. We launched an energy and infrastructure vertical about a year ago. It's going really nicely. As you can imagine, we're growing at a measured pace, respectful of the credit culture of the business. But again, we -- this is an area we want to continue growing in.

Okay. We have 8 minutes left and 5 questions. So let's bang them out. Capital priorities, growth, buyback, how we think about CET1.

Yes. Look, I think the heavy lifting is behind us in terms of kind of building up our overall capital levels. Fourth quarter, looking at capital under RSA fully phased in, we feel pretty good about where we landed. And we also feel good about the story of and, not or, our ability to put a significant investment into growing the core businesses, particularly the higher return products in retail auto loans and corporate finance and also support capital return to our shareholders. And so we restarted our buyback program last December, and we've had a good start. I think you can look at the first half of this year is a pretty good template for how we execute the story of and going forward.

Got it. You guys have been active user of SRTs or CRTs, I guess. Just maybe how you think about that going forward and just the upcoming capital rule changes influence you at all?

Yes. We continue to see CRTs as an attractive outlet for us. We did a deal, I guess, a few weeks ago. It was just over $6 billion of notional. So I think it's probably the largest deal that's been done on the auto side. The investor demand was really strong. It's our expectation we'll continue to be opportunistic in that market and continue to look for -- look at it as a very low-cost source of capital for our business. We don't expect that to change under the new capital rules. We continue to expect to be active users of the CRT market.

And then maybe fee income, not always called out the main driver for Ally, but it does help profitability. Maybe just talk to kind of where you see that going, kind of where you're looking to maybe best opportunities to grow that go forward?

Yes. We're really pleased with the growth we've seen, in particular, in the pass-through program and SmartAuction. Both of those programs are leveraging our scale and our platform to drive high-margin revenues for the business. We're also proud of what we're doing on the insurance side. And we think there's a lot of opportunity to deepen the coordination between our insurance business and our auto finance business in terms of how we face the dealer and ultimately drive more revenue growth on the insurance side. So we feel pretty good about all the pillars of our other revenue and our ability to continue to grow that other revenue line going forward.

Got it. And then maybe on expenses, you guys have been disciplined. I think you talked about maybe a little pickup in growth in the back half of the year, but we should, I think, still see positive operating leverage. Just how do you weigh expense discipline kind of against investments needed, AI, cyber and the like?

Yes. So we've been self-funding a lot of our investment and then some. So we've been pretty proactively streamlining across the organization. And I got to say the focused strategy has been a good catalyst. Simplification in terms of our mandate as an enterprise has helped us streamline across the board. And we look for opportunities to get gains in our businesses. And so we've been able to leverage savings from that streamlining effort across the organization in order to make the necessary investments in cyber, in AI and then also investments in our core franchises in order to continue the growth trajectory that we have.

And so we've been pretty pleased with OpEx being flattish over the last few years, flat to down through the first half of this year. Our guide, as you mentioned, our guide for the year is about plus 1% on OpEx. That obviously implies in the back part of the year, OpEx will look more like our medium-term guide of kind of low single digits. And that's fine, that's reflective, again, of a tremendous amount of discipline on the operating side. And we think that positions us to make good on our commitment to drive positive operating leverage across the enterprise.

Got it. We've, I guess, come through a lot so far.

Yes.

But I guess before I wrap up, anything to note on the third quarter or beyond that we haven't discussed, what's getting most of your attention as we move through the back half of the year? Just how you begin to think about 2027?

Yes. Look, we feel good about our progress. We feel good about meeting our guidance that we've delivered back in January. Yes, I'd say the one piece of guidance that we've tweaked over the course of the year is we did lift our average earning assets growth target up. And as many of you guys know, average earning asset growth comes with CECL. And so that's something that we've been managing through as well. We talked a little bit about the headwinds we're managing through on the lease side.

So look, I think we've hit all the points. And I think the summary of it all is we're really pleased with the performance that we've seen year-to-date. Obviously, we're managing through some of the changes that we've seen in the environment and some of the headwinds in our business specifically. But it doesn't change our commitment to the guidance that we put out at the beginning of the year. And we expect we're on track with respect to our medium targets in terms of NIM, retail auto NCOs, our management of operating expenses and capital. And so we continue to feel good about our trajectory.

I guess you mentioned average earning asset growth. I know last quarter, you raised the guide from 2% to 4% to 3% to 5% for the year. Is that still the right way to think about it?

Yes. That's right.

And then you threw in CECL reserve build. I know we saw, I think, a $50 million build in the first quarter, $26 million or $36 million build in the second quarter. Are those kind of the pace of reserve builds we should think about going forward?

Yes. I don't have the math in front of me here, but that sounds like it's probably about right. But I think the math is just look at our reserve levels and then look at that earning asset growth. And I think it's pretty easy to back into the right math there.

Great. Perfect. On that note, please join me in thanking Russell for his time today.

Great. Thank you. Thanks, Jason.

Good day, and thank you for standing by. Welcome to Ally Financial's Second Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded.

I'd now like to hand the conference over to Sean Leary, Chief Financial Planning and Investor Relations Officer. Please go ahead.

Thank you, Elizabeth. Good morning, and welcome to Ally Financial's Second Quarter 2026 Earnings Call. This morning, our CEO, Michael Rhodes; and our CFO, Russ Hutchinson, will review Ally's results before taking questions. The presentation will reference can be found on the Investor Relations section of our website, ally.com.

Forward-looking statements and risk factor language governing today's call are on Page 2. GAAP and non-GAAP measures pertaining to our operating performance and capital results are on Page 3. As a reminder, non-GAAP or core metrics are supplemental to and not a substitute for U.S. GAAP measures. Definitions and reconciliations can be found in the appendix. And with that, I'll turn the call over to Michael.

Thank you, Sean, and good morning, everyone. I appreciate you joining us today.

Second quarter results were solid and reflect the progress we've made over the past several years to build a more focused, higher performing company. The strategic choices we've made are creating a franchise with a meaningfully greater earnings power. We are seeing that reflected not only in margin expansion and strong operating performance, but also our ability to invest for growth while simultaneously increasing capital returns to shareholders. Simply put, our results demonstrate our strategy backed by disciplined execution is working.

The Ally today is fundamentally stronger. We believe this positions us well to further enhance profitability, support customers through economic cycles and create long-term shareholder value. For the second quarter, adjusted EPS of $1.21 was up 22% year-over-year while core ROTC increased to 11.8%. Adjusted net revenue of $2.3 billion increased 10% year-over-year, reflecting continued asset growth and further margin expansion.

To the point, retail auto and corporate finance assets grew nearly $8 billion year-over-year, that's up 8% year-over-year, and NIM improved 11 basis points sequentially to 3.63%. Our balance sheet continued to strengthen during the quarter with CET1 increasing 20 basis points year-over-year. That strength is providing greater capital flexibility. Since announcing our authorization in December, we've returned more than $300 million to shareholders through share repurchases.

Taken together, these results reflect improved earnings power increased capital flexibility and a company that is better positioned to perform through the economic cycles. Importantly, we are seeing broad-based momentum across the company with each of our core franchises, executing well and contributing to our performance. That momentum is supported by investments we've made to strengthen both the Ally brand and our culture. Our revitalized marketing campaign, Life Today is resonating with customers and highlighting the unique value proposition of Ally, meeting customers where life and money intersect in today's world.

We continue to see encouraging results in brand health, awareness, engagement and industry-leading retention. Equally important, our culture remains a meaningful competitive advantage. Employee engagement scores improved again this year and ranked the top [indiscernible] companies nationally for the seventh consecutive year with particularly strong improvement across measures such as belief in our strategy. We believe highly engaged employees aligned around a clear strategy create better experiences for our customers and ultimately drive stronger business outcomes.

With that, let's turn to Page 5 and discuss performance across our core franchises. Starting with Dealer Financial Services. Our dealer-centric through-the-cycle approach remain a key differentiator and a meaningful competitive advantage. Within Auto Finance, applications reached a record $4.6 million, increasing 17% from a year ago, validating our strong value proposition and strategic initiatives are resonating with dealers more than ever. This application volume supported originations of $13.3 billion, up 21% year-over-year, while maintaining approval and pull-through rates.

Retail origination yield of 9.1% included 47% S-Tier, reflecting seasonal dynamics and our measured approach to navigating the current operating environment. Consumers have remained resilient, and we are encouraged by the credit performance across our portfolio. At the same time, we are mindful of the cumulative headwinds from ongoing inflationary pressures and an evolving macro backdrop. Insurance delivered another solid quarter, with written premiums of $382 million, up 9% year-over-year as we continue to demonstrate an ability to deepen relationships and highlight our unique full spectrum value proposition to dealers.

In Corporate Finance, we delivered record pretax earnings and continue to see strong client demand and attractive opportunities for disciplined growth. The portfolio ended the quarter at $13.7 billion. That's up 25% from the prior year while generating a 32% return on equity. Our success is built on long-standing client relationships, deep underwriting expertise, speed of execution and the ability to provide certainty when our clients need it most. We remain focused on profitable growth while maintaining the credit discipline that has consistently differentiated this business.

Now turning to the Digital Bank. Customer growth and engagement trends remained strong. Retail deposit balances ended the quarter at $144 billion with deposits representing 87% of total funding, and providing a stable and cost-efficient funding source for the company. We now serve 3.6 million customers, up 7% year-over-year and marking our 69th consecutive quarter of customer growth. Importantly, much of that growth is coming from younger consumers who are highly engaged in our digital platform.

Nearly 70% of new accounts come from millennials and longer consumers typically beginning with average balances just under $10,000 and growing over time. As consumer preferences increasingly shift towards digital first experiences, we believe, Ally's trusted brand, national scale and low-cost operating model positions us exceptionally well for the future. Taken together, these results demonstrate the increasing strength of our core franchises. We're growing in businesses where we have clear competitive advantages, generate attractive returns and deepening customer relationships across the company.

While there is more work ahead, we remain confident in our path forward. We believe the benefits of our strategic actions will continue to accumulate positioning Ally to deliver higher profitability and stronger returns over time. And just as importantly, those same actions are creating a more resilient company that we believe is well positioned to perform through economic cycles.

And with that, I'll turn to Russ to discuss the quarter in more detail.

Thank you, Michael. I'll begin by walking through second quarter performance on Slide 6. Net financing revenue, excluding OID, of $1.7 billion was up 11% year-over-year. Balance sheet growth in our core portfolios and lower funding costs supported continued NII expansion. Adjusted other revenue of $573 million was up $42 million year-over-year as we continue to see momentum across our diversified revenue streams, insurance, smart auction and pass-through programs.

Provision expense of $430 million was up $46 million year-over-year as CECL reserve builds associated with strong asset growth more than offset the improvement in the retail auto net charge-offs. Retail origination momentum was strong throughout 2Q, finishing nearly $1 billion higher than our initial expectations. The growth supported earnings beyond 2Q but drove $30 million of additional CECL build in the quarter. An $0.08 headwind to EPS.

Adjusted noninterest expense of $1.3 billion was up 5% year-over-year, in line with expectations. As noted earlier, adjusted revenue was up 10% year-over-year, driving strong positive operating leverage as we have successfully executed on focused accretive growth in our core businesses and disciplined expense management. During the quarter, we recognized a $15 million expense related to the early redemption of our Series B preferred stock. This onetime charge reflects a strategic capital management action and given its nonrecurring nature, is excluded from adjusted results.

Let's move to Slide 7 to discuss margin in detail. Net interest margin, excluding OID, of 3.63%, was up 11 basis points quarter-over-quarter, largely due to lower deposit costs. Retail auto portfolio yield, excluding the impact from hedges, was relatively flat sequentially and in line with our expectations. Average earning assets were up 6% year-over-year with growth concentrated in our highest returning assets, retail auto and corporate finance which on an end-of-period basis were up approximately 8% year-over-year.

On the liability side, cost of funds decreased 12 basis points quarter-over-quarter, driven by disciplined deposit pricing actions through the first and second quarters. Retail deposit balances decreased $2.6 billion during the quarter, driven by seasonal tax outflows, in line with normal seasonality. We maintain access to a wide range of alternative funding sources, which complement retail deposits and allow us to fund accretive asset growth in the most efficient manner possible.

During the quarter, we reduced liquid deposit pricing 20 basis points and reached a cumulative liquid deposit beta of 69%. We remain disciplined in how we price deposits, ensuring we continue to optimize customer growth and value and are encouraged by the performance we've seen. Deposit customers grew for a 69th consecutive quarter and are up 7% year-over-year, demonstrating the power of our brand in the market. I'll cover guidance later, but despite the movement in short-term rate expectations year-to-date, we remain confident in our path to a sustainable upper 3s margin over time. Structural momentum is evident in our accretive asset growth and efficient funding sources, each supporting continued NIM expansion.

Turning to Page 8. CET1 of 10.1% is up approximately 20 basis points versus the prior year. While not final, under the current proposal for RSA, our CET1 would be above 9% when fully phasing in AOCI, and Erba would provide roughly 3 basis points of additional benefit. We'll continue to assess each proposal as we await potential refinement following the comment period. During the quarter, we completed our fifth credit risk transfer transaction generating approximately 20 basis points of CET1 at the time of execution reflecting continued demand for our retail auto assets in the market and another efficient way to manage capital.

Additionally, we issued $1 billion of preferred stock at a 7.1% coupon. The proceeds from the transaction were used to support the redemption of our Series B preferred stock ahead of its reset on May 15. The issuance resulted in a $350 million decline in our preferred stock outstanding and favorable economics relative to the Series B reset rate. In the quarter, we executed $148 million of share repurchases and earlier this week, we announced our quarterly dividend of $0.30 for the third quarter of 2026, consistent with the prior quarter.

We remain pleased with our ability to execute a story of and not or. We're delivering strong growth in core portfolios at attractive risk-adjusted returns. We've migrated capital ratios higher and repurchased nearly $300 million of shares year-to-date. At the end of the quarter, adjusted tangible book value per share was $42, up 13% over the past year. And when combined with our solid dividend yield, underscores our continued focus on delivering strong shareholder value.

On Slide 9, we will review asset quality trends. Consolidated net charge-offs of 111 basis points were down 10 basis points versus prior quarter and roughly flat year-over-year. During the quarter, the consolidated NCO rate included the resolution of a corporate finance exposure. The loan was in nonaccrual since 2018, and we recorded a P&L benefit on this resolution as the specific reserves we had built exceeded our loss on the exposure. Within retail auto net charge-offs of 157 basis points were down 40 basis points quarter-over-quarter and down 18 basis points compared to a year ago, marking a sixth consecutive quarter of year-over-year improvement.

On the top right of the page, 30-plus all-in delinquencies of 4.8% were down 8 basis points from the prior year. While the year-over-year improvement in NCOs widened given record flow to loss and supportive used values, the year-over-year improvement in delinquencies continues to moderate as expected. Portfolio performance has been solid year-to-date, but the macro backdrop remains dynamic. And while delinquency rates are down year-over-year, they remain a watch item along with used values and flow-to-loss rates. In total, we remain confident in the credit quality of the portfolio and our ability to be dynamic in underwriting, servicing and collections in the current operating environment.

Turning to the bottom of the page on reserves. The consolidated coverage rate of 2.49% was down quarter-over-quarter driven by the specific reserve release and Corporate Finance previously mentioned. Retail auto coverage of 3.75% is flat to the prior quarter. Our coverage levels continue to balance consistent credit trends across our portfolios against broader macroeconomic uncertainty.

Moving to Slide 10 to review auto segment highlights. Pretax income of $410 million was lower year-over-year primarily due to CECL reserve build associated with strong retail asset growth in the period. On the bottom left, we have highlighted the trajectory of retail auto portfolio yields. Excluding the impact from hedges, yields were down 2 basis points quarter-over-quarter. Second quarter originated yield of 9.1% was down approximately 50 basis points quarter-over-quarter as S-Tier increased to 47% of originations.

The origination mix was influenced by normal seasonal trends, the measured posture we highlighted in April and a higher quality application mix, including stronger pull-through within those segments. As you recall, we had to credit mix and yield than we expected in 1Q, and we saw a pivot in the other direction this quarter with a cleaner mix and lower yield. The yield impact from higher S-Tier volume was partially offset by increased pricing on the like-for-like segments.

Looking ahead, we expect SP to decline modestly from 2Q levels and settle in the low to mid-40s over time, which we expect will support originated yields absent moves and benchmark rates. On the bottom right of the page, $13.3 billion of consumer originations were up 21% year-over-year as we continue to benefit from deeper dealer relationships supporting application growth. Application volume remains the key to our success and highlights the strength of our franchise. Approval and pull-through rates remained consistent with prior quarters, but a wider top of the funnel provided incremental opportunities for accretive growth.

Looking ahead, we remain confident in our ability to continue driving accretive growth, but we would expect the year-over-year growth rates to moderate in the back half of the year. Turning to insurance on Slide 11. Core pretax income was $24 million, up $26 million year-over-year. Total written premiums of $382 million were up $33 million year-over-year. While insurance losses of $208 million were up $5 million year-over-year. Insurance continues to drive capital efficient, diversified revenue and remains a key component of our long-term growth strategy. We continue to leverage synergies with auto finance to sustain momentum within the business and deepen our all-in dealer value proposition as we help them succeed in all aspects of their business.

Turning to Corporate Finance on Slide 12. The business delivered another strong quarter with record pretax income and a 32% ROE. The team has a proven ability to deliver compelling returns while also driving strong growth as the portfolio is nearly $14 billion today, up 25% over the past year. Our long-standing relationships and deep underwriting expertise are the foundation of our differentiated risk management framework.

Credit discipline underpins every decision we make, guiding our growth and is reflected in the performance of the portfolio. Credit has remained exceptionally strong with nonaccrual loans at historic lows. Results continue to showcase the durability of the franchise and our prioritization of credit risk management will drive accretive growth moving forward. I will provide a brief update on our outlook before moving to Q&A.

First half performance has been solid, and we are updating a couple of aspects of the guide to reflect our latest view. We now expect average earning assets to be up 3% to 5% versus 2% to 4% previously. As our expansion of the top of the funnel has resulted in strong consumer auto originations alongside continued momentum with the corporate finance. As we've consistently emphasized, we are growing where we want to be growing while maintaining a disciplined underwriting posture to optimize risk-adjusted returns.

This accretive growth will drive higher earnings over time, but it does present elevated reserve build under CECL in 2026. Additionally, we're tightening our range on consolidated NCOs, which we now expect will land between 1.2% and 1.3% compared to the 1.2% to 1.4% range we shared in January. Reflected within the guide for consolidated NCOs is our outlook for retail auto. As I mentioned previously, we're pleased with the credit performance through the first half of the year, and view the midpoint of our retail NCO guide as appropriate.

With respect to margin, the guide remains 3.6% to 3.7% with the potential to exit the year above the high end of the range. While we continue to closely monitor the impacts of macroeconomic uncertainty and evolving interest rate expectations, which now include rate hikes this year, we are confident in our ability to deliver. The timing and magnitude of potential rate actions can influence margin for a period of time, but we remain confident in our ability to deliver on the full year guide.

In total, our focused strategy and disciplined execution continue to drive improving operational and financial performance. While we have made significant progress, our focus remains on sustaining our momentum and executing on the meaningful opportunities ahead to deliver compelling long-term value for our shareholders.

And with that, I'll turn it over to Sean for Q&A.

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

[Operator Instructions]. Our first question comes from Robert Wildhack with Autonomous Research.

Maybe just start on retail auto and credit there. Net charge-offs were better than we were expecting and the year-over-year decline there is accelerating, but delinquencies are kind of like leveling out. And then add to that. You've got the quarter with a big spike in S-Tier volume. How does that all come together, both in the context of the 1.8% to 2% net charge-off guide this year? And then also like zooming out the 1.6% to 1.8% loss rate you've talked about bigger picture?

Great. Thanks for your question, Rob. It's a great question. And maybe I'll just start by saying we're pleased with performance and credit in the first half of this year. I think we've seen, as we mentioned earlier, we've seen record low levels of flow to loss rates, and we've seen good support from used vehicle prices, as you point out, yes, delinquencies have remained stubbornly high. Clearly, we're dealing with the consumer that is dealing with affordability. Gas prices also an issue.

Overall, I'd say we still see this macro as dynamic and obviously taking a measured posture in response to that. All that being said, we're pleased with the credit performance in the first half of the year. And we're holding our guide at 1.8% to 2%, as you pointed out, we continue to think the midpoint of that range is an appropriate state case to center around. As we think about credit evolving in the back half of the year, again, the watch items that we're paying close attention to are obviously delinquency. But obviously, looking at lot loss rates and used vehicle prices just given the support we've seen in the first half of the year from those items.

As we think about credit on a longer-term basis, as you pointed out, we've been originating in the 1.6% to 1.8% range the NCO rate that we print in a given quarter is an expression of multiple vintages as well as vintages that are at various stages of their life in terms of loss development. As we've said before, it's our expectation that we'll get there. We haven't given a time line to that. And as we've said before, that's the time line that has been to evolve over time. That's not something that we expect to get to in the next couple of quarters.

You talked a little bit about S-Tier mix in your question. As we noted, as you look at second quarter, the originated portfolio in the second quarter. S-Tier was elevated, had some impact on yield during the quarter as well. I wouldn't read too much into that. Obviously, if you look at first quarter versus second quarter, first quarter, we saw the opposite of that. We saw a richer credit mix and a richer originated yield and we saw a pivot back in the second quarter, a lot of explanations for that. Number one, just normal seasonality.

We expect to see a higher credit quality application pool in the second quarter versus the first quarter. We certainly saw that. As we talked about in April, we've got a measured posture with respect to credit. And so that's certainly something that we would have seen impacting the mix as well through the quarter. All that being said, broadly, approval rates and pull-through rates were consistent through the quarter. It's certainly our expectation as we evolve over time, we'll see that originated mix migrate to an S-Tier mix that's probably more in the low to mid-40s, again over time. So I wouldn't read too much into a single quarter's origination mix. We've seen that move from time to time. And as far as we see, we think the opportunity for that mix to kind of migrate back to normal, provide support for originated yield as we move forward.

Russ, I might just add something actually great that don't read 1 quarter. And if you take a step back and look at the consumer overall and on take a step back from our portfolio, we do see is that there's certain consumers which are certainly working through the higher cost that we're seeing in the system, particularly on a higher energy cost. Employment rates still are quite constructive. And so a dynamic you see is that consumers are basically triaging on a real-time basis kind of how they pay every single month and then what they're paying. And that can translate into delinquencies that I think we said in the last quarter that we were expecting the tax refunds have probably more of an impact on delinquency. We didn't quite see that.

I think we're seeing customers in delinquency more. But as Russ said, the total loss rates have been quite constructive. And so we're actually encouraged by what we see in unflow to loss and feel very good about how the consumers are performing overall. And again, I just -- I went over 1 quarter's worth of origination mix this does move around quarter-to-quarter.

Our next question comes from Moshe Orenbuch with TD Cowen.

Great. Pretty impressive growth numbers. You did mention that you expected growth to moderate some. Could you talk about perhaps what is driving that? Is it what you're seeing from an application side? Is it the competitive dynamic? Just maybe just talk about that a little bit.

Great. Well, maybe I'll start by giving our Auto Team a ton of credit here for the traction that they've delivered with our dealer base. The application flow that we're seeing that's been really strong. And that's a credit to the relationships we developed. I'd say also we've retrained our dealers over the last couple of years to really send us all their applications and in the last couple of quarters, we've also aligned our dealer rewards program and our overall strategy in terms of how we think about commercial complex all aligned around incentivizing our dealers to send us all of their application volume.

And so that strategy has been working out really well for us. We think it still has a runway ahead of it. And so our expectation is we'll continue to see strong applications grow, that strong application flow gives us an attractive opportunity set which we can really target to have, one, strong originations, obviously, in terms of volume, but also where we have the ability to manage yield and credit in order to target originations that deliver for us on a risk-adjusted basis. So a lot in there, but a lot of kind of what we see as the strength that's been really driving that growth in application volume and thereby fueling the growth that you see in origination volume.

Great. And I think the area in which the results kind of were lower than our expectation was purely in that reserve build area that you had noted, driven by that faster growth. As you look at that moderating growth? I think you mentioned that, that should have a more moderate build in reserves. Anything that you would kind of highlight in terms of the tenor? Obviously, you had high-quality loans originated this quarter, but anything that you would kind of point us to in terms of that reserve rate as we go forward?

Yes. Our overall reserve levels on the retail auto side at 3.75. They've held there that cares for a number of things. Obviously, we've continued to see good performance and improvement in terms of NPL levels and delinquency rates in terms of our own portfolio. At the same time, we're caring for a macro that's dynamic and has some degree of uncertainty into. As we've said previously, we don't plan around reserve releases as we think about our portfolio, our financials on a go-forward basis. But I'd say that the reserve rate that we have now, we think kind of cares for kind of both of the things that we're seeing in terms of performance in our current book, which we characterize as good as well as that macro uncertainty that we see in the background.

Our next question comes from Sanjay Sakhrani with KBW.

I guess I wanted to go back to the Star originations. I know you guys said not to read too much into it. But as we think about the NIM expectations, I think it actually improved despite you guys doing this. And it sounds like you're going to originate at a slightly higher run rate on S-Tier at least for the short run. Am I thinking about that correct? And maybe you could just talk about sort of what's driving that higher mix? Is it that there's these opportunities in front of you where there's a competitive void or some proprietary flow coming through? Just if you could help us with that, too, that would be great.

Yes. Thanks, Sanjay. It's a good question. Maybe I'll start with the S-Tier then I'll get to your question on the [indiscernible] across the NIM. On the S-Tier again, I wouldn't read too much into a quarter. There are a lot of things going on. I think there's that seasonality we pointed to earlier. Certainly, our measured posture with respect to credit played into it as well. But again, I wouldn't read too much into it. When you kind of think about the originated yield, I think it's important to point out that when we look at our originations on a like-for-like basis going from first quarter to second quarter, we increased price. So you saw the originated yield come down, but actually embedded in that is increased pricing on a like-for-like basis.

But obviously, overpowered by the movement up in credit in terms of that cure mix moving from the low 40s to 47% over the course of the quarter. And so I think that ability to put price into the market is a good fund that I don't want the overlooked here. As you think about the forward in terms of how to think about our originated yield and how that translates into the portfolio yield I'd say one -- as you pointed out, we do expect that the mix will continue to move around. We'd expect on balance. It's going to migrate towards a lower S-Tier mix.

We talked earlier about low to mid-40s, albeit over time. That provides some support, independent of benchmark rates that provide some support to the originated deal. As we think about portfolio yield, our expectation is it's going to be stable at current levels as you think about the next few quarters moving forward.

The read-across to NIM, however, is a little bit different. We still continue to expect our NIM to increase. We showed a nice increase going from first quarter to second quarter. A lot of that is on the back of changes we made in deposit pricing over the course of first and second quarter. Those changes still have runway in the third quarter. As you think about kind of the last price change on a full quarter basis. We also continue to have a benefit from a NIM perspective from CD maturities as we have kind of higher-yielding CDs maturing and rolling into, for the most part, rolling into liquid deposits or other CDs at lower rates.

And then on a long-term basis, we have a continued dynamic where we have low-yielding mortgage loans and lower-yielding mortgage-backed securities that continue to roll off our balance sheet. At the same time, we're really growing our higher-yielding retail auto loaning [indiscernible] portfolios. So there are a number of dynamics, some that play out stronger over the next quarter or 2, some that play out over a longer period of time that continue to contribute to that net interest margin expansion story that we've been talking about for some time.

And Russ, it's interesting to turn back at the -- sorry, Sanjay. [indiscernible] if you think about the kind of quarter origination mix, a lot of this stuff does work so well because of our top of the funnel at volumes. I know we talk about this a lot, but it's really incredibly powerful. And it's a real testament to what our teams are doing every single day because you see top the funnel increasing the high teens, it gives us the ability to constantly optimize our authorization this month might be during the next month might be different than the months after that.

All that have been the case, if you look at our share of volume that we're actually capturing it keeps on increasing. So we keep on increasing more share with an optimized mix which is why we say, look, if the staff in these strategies aren't set it and forget it. We're always optimizing and looking at what the market has and where pricing is more pricing and risk match and the top of hotel volumes make all this possible. And it's a real testament [indiscernible] franchise and as of the team is to make this happen every single day.

100%. That's very encouraging. Michael, just to make sure I'm not missing something because I know you touched on it earlier, just this measured approach on growth and obviously, credit. It sounds like those are just sort of the broader back row trends. Nothing specifically that you're seeing inside your portfolio on how consumers are behaving, correct? Because the credit numbers look pretty good, just making sure.

The credit numbers are very good. And yes, we are being measured. And I know you've probably heard a cautious tone from us for the past 1.5 years, I feel it is ever since the tariffs came into place and they've been working through those. And now with oil prices and they kind of inflow on a day-to-day basis. And so right now, like the uncertainty in the environment just feels a lot higher than the normal steady-state uncertainty and -- and that kind of volatility, the beta around the environment is all the use words like measured. And it's reflecting some of the approaches that we're taking underwriting our volume creation.

But we're building this business for the long term, and we think we're making the right decision every day given the fact that there's a lot of uncertainty in the environment. And when the environment hopefully settles down soon, then we'll hopefully stop sale measured a bit more. But between now and then, that is the world that we're living in. And like even just 3 weeks ago versus today, I mean, I think your conversations would have been different in and that has reflected in some of the lens we're using.

Our next question comes from Brian Foran with Truist.

Two questions on credit. Maybe to start on retail auto and Russ, I think you mentioned the vintage stuff you look at. I mean a while here, there's been this kind of built-in improvement because the '22 and '23 vintages are burning off, and then the '24 and '25 vintages are pretty consistent at better levels that you used to show us I wonder if you could just talk to that dynamic. First is the '22, '23 vintage burn off still a good guy? Or has that kind of played out? And then as you look at the '24,'25, I don't know if it's too early to look at any of the '26 originations. Are they all steady? Is there anywhere where you're seeing vintages improve or deteriorate from that kind of post '23 level?

Great. Thanks, Brian. It's a great question. As we mentioned earlier, when you look at our NCO rate during a given quarter, it's an expression of a lot of vintages at various points in their life cycle. And so while we've mostly been through the '22 vintage, we still have loans on our books from '22. And so they are still contributing to our overall loss rates today. And obviously, we still have loans, obviously, from first half '23 as well. As you pointed out, as you entered kind of the back part of '23 and certainly as you enter that '24 vintage, we saw a number of vintages that had the full effect of curtailments that we have put in place. As we've said previously, those vintages have exceeded our expectations in terms of performance. They continue to exceed our expectations in terms of how they're performing.

As you would expect, and as Michael pointed out earlier, when we make decisions around underwriting and pricing on a real-time basis, it's a dynamic process for us. and seeing that outperformance in '24. We made changes throughout the course of 2025. We don't expect to see that same outperformance on the '25 vintage versus '24. But again, still a very strong vintage from our perspective, from an economic perspective. And so as you look at our NCO rates during a given quarter, there's a lot going on in terms of the different vintages.

But again, we continue to see kind of what we've been talking about in terms of some benefit from the ongoing roll off of that '22 and first half '23 vintages, positive contribution as we see that outperformance of the '24 vintage. And then you'll see some normalization as we work through the '25 and '26 vintages.

And Russ, the item is that '22 vintage was clearly a tougher vintage both in terms of what these delinquency curves look like on the vintage curves, but also what the severity was. And we pretty much feel that severity hit was by a onetime thing. And so when you look at it all in, we are working through '22, and that's good, but we feel good about we're positioned.

If I could sneak one in on Corporate Finance, and I'm looking specifically at Page 15 in the supplement. And I don't want to miss the forest for the trees. It's only 4% of your reserve even with the loss, it's only 6% of lost dollars year-to-date, but it gets outsized in interest from investors given everything going on in the market. So I wonder if you could just speak to this new coverage ratio of 1.19. And now that, that kind of large legacy health care loan has gone, is that kind of a normalized level for this business?

Two, are there any other loans similar to that health care loan that have been hanging out for a while that may require a resolution? And then three, if it's meaningful. Is there any difference in that reserve level for the private credit versus the rest of the book?

Great. There's a lot there to unpack. I'll try to get through it. Maybe I'll start with the health care loan that we cure off over the course of the quarter. And maybe that's a good start given some of the headlines. I think it's important to point out, this is a loan that we made in 2015. It's part of a vertical that would no longer play in within Corporate Finance. This loan was actually put into nonaccrual status back in 2018. And I think it's a credit to our team in Corporate Finance, they're really their credit first truly a credit shop perspective and how they manage the business. But they worked through this loan, obviously, over the course of a long period of time reserved for it conservatively and got us to a good place where it was a P&L good guy in the quarter in that our charge-off was less than the reserves that we've built up over time.

And so overall, led to an overall release. When we think about the book more broadly, our criticized assets and our nonaccrual loans are at historic lows in the portfolio. And so it speaks to, again, the credit-first culture that we've built within our Corporate Finance business, and the fantastic job that they've done over a long period of time in terms of managing credit.

We don't run this business as a 0 loss business. This is a business where we expect losses, and we have a team fortunately, that's able to work through tough credit and often get to what we think are good resolutions of those like they did in that particular case, but we don't run it as a 0 loss business. And so when you look at our reserves at any given point in time, it's a combination of kind of the modeled loss reserve, specific reserves on specific loans and then obviously, some degree of management discretion as well.

Given the large charge-off we saw in the second quarter, our specific reserves have obviously come down meaningfully. And so that's what you're seeing as you look at the change in reserve levels for corporate finance and quite frankly, even on a consolidated basis for Ally overall. And so as we kind of manage the business, you should expect that I think Corporate Finance has kind of given the lumpiness of that business and the way credit evolves that you should see some movement in that overall reserve number over time. As you look at the dynamic between the different types of reserves that we hold in that business.

But in particular, as you see various items moving on and off the specific reserve. The [indiscernible] a couple of things on that. Look, we don't have any additional loans like that in our portfolio. You mentioned private credit, private credit portfolio is strong. And then maybe just underscore here something that may be obvious. We have our narrative in terms of how we're going to generate mid-teens returns and we we talked the three drivers that lead to that each business plays a role.

I hope you see in the results that we've been generating and the way corporate clients performing and growing, they are a very important component of our overarching story in terms of how this business is going to reform. There is one loan, I think the team handled it beautifully. And I think the way they had shows their effectiveness in working out loans and our conservatism in terms of how we take our marks. And if anything, our position give a lot of confidence that this is going to be a really important part of our business.

Our next question comes from Jeff Edelson with Morgan Stanley.

Just wanted to maybe focus on the expenses a bit here. You were pretty clear that the year-over-year growth rate would accelerate this quarter. I think due to some noise there some differences in the comps. But as we think about your unchanged guide for the year, it does -- as you noted before, it seems to imply a 3% growth rate from here. Is that the right way to be thinking about the level of expense growth required in the business? Or as you sort of have seen your revenue growth step up here. Maybe just help us understand how you're thinking about the operating leverage story from here, maybe the opportunity to reinvest back in the business?

Great question, Jeff. Thank you very much. As you pointed out, expenses in the quarter were very much as expected. I think it's also important to point out the positive operating leverage we saw in the quarter with expense is up roughly 5%, but revenue is up 10%. And it is -- as you asked, it is our expectation that we'll continue to show positive operating leverage on a go-forward basis.

I think your commentary around the outlook, the forward outlook on expenses, I think, is appropriate. Obviously, we don't provide guidance for '27 or forward. We'll do that at some point in January, but I think your kind of overall observations make sense. And obviously, we will -- we expect to and we seek to grow revenues faster than that and continue to benefit from operating leverage on a go-forward basis. And I would characterize that as a benefit of our focused strategy, right?

We're focusing on businesses where we have competitive advantages, managed businesses where we have solvent scale. And our growth story is very much doing what we have been doing very well and doing more of it. And that gives us in a position really to drive that positive operating leverage on a go-forward basis.

Okay. Great. And just as my follow-up, the share repurchase trend, you've kept that now at about $150 million a quarter the last few quarters. Is this sort of the right cadence to be thinking about from here? Are you maybe waiting for more final confirmation around the new capital rules before you sort of reevaluate that trend? And maybe just remind us is the right target post capital rules to be thinking about here still the 9% level that you thought about historically? Or just kind of help us understand what you're thinking about on the capital return path from here.

Great. Well, I'd say maybe start off, we're pleased with the capital build that we've executed on over the last couple of years. Obviously, the proposals are still proposals. They're being commented on. We don't have the time line for implementation. And obviously, they haven't been finalized yet. But as we look at RSA on a fully phased-in basis, we're north of which is the management target that we've talked about for a number of years. That positions us really well.

From our perspective, a heavy lifting on the capital build is largely behind us. and we're positioned now to execute on our story of and not or. And our expectation is we'll continue -- you'll continue to see a lot of what you've seen in the first half of this year. strong emphasis on providing capital to grow our businesses in an accretive way and also a focus on share -- on capital return to our shareholders, both through our dividend as well as repurchases. And any capital ratio that, again, we expect to drift higher over time. But obviously, with the heavy lifting in terms of capital growth largely behind us.

So we think we're really well positioned to execute on the story in hand here to support the growth of our businesses and also return capital to shareholders. We're not going to make any particular promises or guidance in terms of the volume of share repurchases as we progress through the quarters except to say that we're not going for growth today. We're growing where we believe it's accretive and additive to the business. And from our perspective, share repurchases are in a festive plugs, they're there what we do after we care for accretive growth in the business and our dividends.

Our next question comes from Ben Gerlinger with Citi.

I just wanted to quickly follow up on the deposit funding side. Russ, you kind of alluded to not a lot more to go lower. When I look at your OSA rates, it seems like you put them twice in the quarter. And then CD rates roll on and roll off or roughly the same. So to think like maybe 3Q, are you inciting 3Q is kind of the floor mainly just from the averages on that end of the OA rates specifically?

Yes. Well, I'd say, look, on the cuts during the quarter, we will have the benefit in third quarter from having those cuts in place for the full duration of the quarter. And so there's still some defect in overall deposit costs from that in the third quarter. On the CD roll-on roll off, a lot of our CDs actually, when they roll off, the customers roll them into OSA, and so we still expect to see some benefit from CDs rolling off into OSA as you progress through third and fourth quarter.

So we continue to have those benefits that we'll win. In terms of the broader economics of deposits, part of that depends on kind of what we see in terms of Fed funds. Our current expectation, we use the forward curve as of June 30. I think it was. And so we had one high in place, I think, in September of this year and then another high early next year. And so obviously, hikes affect the path for us. They affect the net interest margin that we print in any given quarter. They don't affect our destination and that our deposit pricing tends to -- our deposit pricing and our asset side of our balance sheet tend to react over time. And so our destination in terms of the high 3 NIM that we've been talking about for quite some time remains unchanged. But obviously, in any given quarter, you could see some movement in terms of the path we take there. So for us, I mean, we said ebbs and flows, but the restore travel is still north Yes.

Yes, that makes sense. I just kind to kind of keep here with the timing and modeling over the next 6 months. But when you guys think also just regarding asset mix, like your security obviously much lower yielding than your loans. Is this mix appropriate? Or can you think loans could be a little bit bigger in terms of average earning assets. I guess it's more of a cash flow, but I'm just trying to think like longer term where that direction of travel is it could be a better mix from here.

So, I think in terms of mix, maybe I'd start with the mortgage loans. That portfolio is in runoff. And so that runoff will benefit on the yield on the mortgage loans is about the same as the securities portfolio. And so that kind of rolls off. And then we've been growing our retail auto loans and corporate finance at a pace quicker than our earning assets overall.

And so you'd expect basically mortgage loans to run off retail auto loans and corporate finance loans growing and contributing to NIM expansion. The securities portfolio is a little bit more complicated because you got we've got within that portfolio, a legacy of lower-yielding securities that we continue to run off. But at the same time, we are reinvesting in that portfolio because we do need to maintain liquidity for a whole bunch of different reasons.

And so within that portfolio, you do have a runoff of older lower-yielding mortgage-backed securities and then a roll-on of investments, albeit in a shorter duration targeted portfolio, but a roll-on of securities at a higher yield, given the current interest rate environment. And so that one's a little bit different. In terms of the overall size of the investment portfolio, I wouldn't anticipate any major changes in the sizing of that going forward. We do have to care for kind of overall liquidity needs across the business.

Our next question comes from Rick Shane with JPMorgan.

Look, one of the things we've observed historically, and I'm not convinced it's as pronounced these days, is that when gas prices spike consumer substitute types of vehicles, and it creates distortions in terms of used car prices. I think over the last decade, U.S. consumers have become pretty sanguine about driving big SUVs, and that's been one of the things that's contributed to price stability of used car prices. I'm curious if there is anything that you guys are seeing right now in terms of auction prices by vehicle type that we should be thinking about or anything interesting in terms of consumer behavior, in terms of vehicle substitution.

Yes. No, it's a good question. And obviously, there's always a lot going on. There's vehicle pipe there's the gains that various manufacturers has been making in terms of fuel economy, even for some of their larger vehicles. There are some of the issues that individual OEMs have been dealing with from time to time in terms of recalls and other issues. So there's a lot that we could kind of go into there. Kind of maybe just to get directly to your question, and I think kind of one area to look at is EVs. And we have seen kind of more interest in EVs and hybrid electric vehicles as we've seen elevated gas prices. Again, there's always a lot going on. And in some cases, that's overwhelming price issues that are going with particular. But I'd say on the margin, there's probably incrementally more interest in those vehicles and all in kind of more fuel-efficient vehicles generally.

And is that dampening some of the sort of accelerated depreciation in quicker obsolescence of those newer types of vehicles that we've experienced over the last few years?

I wouldn't say that. And again, there's always a lot going on. And broadly speaking, used vehicle prices have been strong. And so that has been helpful to us as we see cars coming back from lease as well as we've seen kind of resolution on how [indiscernible]. So overall, broadly speaking, used vehicle pricing has been strong. Again, there are always individual issues with particular models. Some of that we've talked about with respect to our lease portfolio historically and has led to change it in how we think about depreciation rate. But I'd characterize those as more targeted to specific OEMs and models that have encountered issues that are specific and particular to that.

Do we have any more questions? Let me just take a moment, and we still have maybe 2 minutes. First of all, thank everyone for joining the call. The second, just provides some reflections here. the reflection is really on the quarter and kind of where we are in our path. And at often, I think this quarter really provides some wonderful evidence that our strategy is working.

For a while now, we've outlined our path to higher returns is dependent upon 3 drivers: lower auto losses, higher NIM and disciplined expense and capital management. And I think you can see we're making progress, very good progress on all three. And it's showing up in the business. And the combination of earnings up 20-plus percent year-over-year for this quarter, up 60% plus last year on a year-over-year basis. And we're doing that and growing our core businesses very well. have auto originations up 20%, corporate finance, 25% of loans, and our consumer bank have a 7% increase in customers, which is a great number for a retail bank.

These are very strong growth numbers on top of very strong in earnings numbers. Look, appreciate there'll be ebbs and blows from quarter-to-quarter how things are going. But we feel very confident about the destination and the direction and the path. This is a fundamentally different ally. We are driving stronger performance, great resilience and definitely see a path to continued improvement.

So thank you for joining the call, and appreciate the support.

Thank you, Michael. That's a great way to wrap. If anyone has any additional questions, as always, please reach out to Investor Relations. Thank you for joining us this morning. That concludes today's call.

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

All right. Next up is Ally Financial. I'm pleased to have a few of the leaders integral to Ally's Focus Forward strategy, which is driving improved financial and operational results as the company works through -- towards mid-teens returns.

Joining me on stage this morning are Doug Timmerman, President of Ally's Dealer Financial Services, who's been in the Auto Finance business at Ally for almost 40 years. Welcome, Doug.

Thank you.

Bill Hall, President of Ally's Corporate Finance business, who has been in business -- who's been with the business rather, since its founding 27 years ago. Welcome, Bill.

Thank you.

And last but not least, someone who investors already know pretty well, Sean Leary, Chief Financial Planning and Investor Relations Officer. He's been at Ally for almost 18 years in various finance and treasury leadership positions. So welcome, and let's get into it, guys.

So Sean, I'm going to start with you before we get into it with Bill and Doug. Last year on stage, you 3 took us through Ally's strategic pivot to become a more forward focused company and how that would serve as a catalyst towards the company's medium-term return targets. Can you talk about the progress you've made to date and perhaps what's left to be accomplished?

Sure. Thanks, Jeff. That's a great place to start. As you mentioned, last year, we announced a strategic pivot to exit noncore businesses and really double down on Dealer Financial Services, Corporate Finance and Deposits. And our goal was to capitalize on real competitive advantages in those businesses and position Ally for long-term improvement in both earnings and overall returns and profitability. A lot of times when a firm announces a pivot, it's sort of implied or understood that it's going to take some time before you start to see those benefits materialize, particularly as it relates to moving the needle from a financial perspective. And that certainly wasn't the case in our example. Last year, earnings per share was up 62% year-over-year. And our guidance for this year obviously implies a pretty meaningful step-up again in 2026.

In addition to earnings, returns also moving materially in the right direction. ROE was up 300 basis points year-over-year in 2025. And again, back to the guidance, expecting a pretty meaningful move up again in 2026 and feel increasingly confident in our ability to get to that sustainable mid-teens return. But more encouraging than the progress from a financial perspective is just the operational results and growth that we're seeing across the franchise.

In Auto, we've had multiple consecutive quarters of record application growth, top of the funnel. In Corporate Finance, we've materially grown the portfolio while remaining hyper-focused on credit performance. And in Deposits, our customer growth has continued to meaningfully outpace broader banking trends. So 18 months into this pivot, absolutely thrilled with the progress. We've materially improved earnings. We've reduced risk, reduced complexity, increased capital levels and started buying back shares.

In terms of your question on what's to come, in a lot of ways, we think we're just getting started. There's tremendous runway ahead of us across all of the core franchises. Bill and Doug are going to talk about how they're very well positioned in their respective markets. And it's that positioning in those franchises that give us a high degree of confidence that we're going to continue to deliver solid accretive growth, improved returns and return meaningful capital back to shareholders. As we always say, the work is never done, and our trajectory is certainly not going to be a straight line. But as we sit here today, more confident than ever, certainly in the strategic direction of the company, but more importantly, what we're capable of in terms of growth and profitability.

All right. Great, Sean. That was a great kickoff. Maybe let's move over to Bill. Over the past year, your portfolio at Corporate Finance has grown about 26%. So clearly, a lot has been going on there. Can you start by bringing us up to speed on what's going on in the business?

Sure. First of all, thanks for your interest. I know it's the morning after a disappointing Knicks' loss. It's early in the morning, but we appreciate your attendance.

I thought I'd start by reiterating what I think are the 4 principal reasons why Corporate Finance is a really good fit, a perfect fit actually for Ally's new Focus Forward strategy. And the first 2 are financial. What Sean described really was our drive to post improved returns for the shareholder and also demonstrate long-term organic growth. And Corporate Finance does that very, very well. We delivered $365 million in pretax income last year with an ROE of just shy of 30%. But just as importantly, since our IPO in 2024, Corporate Finance has delivered, on average, an ROE of about 25%.

Likewise, since our IPO, our pretax income and our assets have grown at a CAGR in the high mid-teens. So when you look at from a financial perspective, how Corporate Finance fits into the Focus Forward strategy, I think it's rather compelling. But it's not just financial results. One of the things that you'll hear Doug and I speak about all the time is our value proposition really sits right on top of what Doug offers to his dealers. Our clients are principally middle market private equity firms and leading asset managers. And what we provide to them is speed, certainty of execution, an element of creativity in our product offerings, all delivered in a relationship orientation that we've been able to sustain for decades. So our value proposition, where we're putting our customers as our ally and we are their ally, it's compelling, and it sits, as I said, very, very adjacent to what Doug does. And we think it enhances the brand, and we benefit from that as well.

And the last thing I'll say is our franchise also benefits tremendously from our deposit franchise. It's not only the fact that the deposit franchise gives us a compelling cost of funds, particularly when we compete against private credit units, but it's also the fact that our customers know that the large portion, over 90% of our deposits fall within the FDIC thresholds for insurance. So that's very reassuring to our customers, particularly given the volatility in a couple -- over the past couple of years. So those are, to my mind, the principal reasons why Corporate Finance is such a compelling fit as part of the Focus Forward strategy. And I'd argue the last one is we believe firmly that the best is yet to come.

And can we maybe double-click into each of the verticals under your hood, specialty finance, sponsor finance and lender finance or private credit. Maybe spend a minute on the outlook for each, how you differentiate and how they fit together at the same time?

Sure thing. We have about 6 different businesses within Corporate Finance, and I'll go into each one individually. But I thought a good place to start. There are some common threads in our product offering for all of our businesses. So as an example, all of what we do is first out senior secured floating rate lending. All of our lending is done in concert with savvy institutional investors that are putting significant amounts of at-risk capital behind our first-out senior secured position. And in virtually all cases, we have deep, long-standing relationships with those institutional capital providers, in many cases, established over many decades. So there is a lot of commonality in the different businesses.

Another example is virtually all of the lending that we do is such where we serve as lead agent or co-agent. Again, that's through all our verticals. That allows us to conduct proprietary due diligence, control the documentation, control the workout, if necessary. So again, all of our businesses share these components.

Let me talk about some of the businesses individually. I'll start with private credit since it's been in the press so much recently. It sits with about $6.5 billion or just a little under 50% of our total portfolio. We've had nothing but a terrific experience in this line of business. It's run as all our businesses are run by a team of subject matter experts that have gone through many cycles. But in our specific private credit portfolio, we have aggregate exposure of about $5.5 billion, and that's collateralized by just under 1,200 discrete largely middle market, upper middle market loans. We advance against those loans on average just a shade under 60%, and we have line item visibility into the performance of each one of these loans.

The loans generally, as I said, upper middle market, middle market leverage buyout financings. The average EBITDA in the portfolio is about $90 million. The average attachment point for the senior debt is under 5x. The loan-to-value is under 50%. And that's the portfolio of loans that we know, we get regular financial information, and we have the right to revalue our loans because it's asset-based lending. If loan deteriorates, we can shrink the amount of availability that we're providing against that loan. So we team with what we believe are the country's leading asset managers. They're making -- creating these loans, and we're lending on them in a pool at what we believe are very, very conservative advance rates. As I said, our experience in the business has been terrific.

The other part of that business is something called priority revolvers. That's about $1 billion of exposure. And in those deals, they are much larger transactions, where there's significant equity, a significant amount of debt, and our role as a priority revolver lender is to sit at the very, very top of the capital stack, where we're just basically providing liquidity in concert with the other lenders, but we're first out. And many of our clients there are the same ones that we help finance in our lender finance private credit vertical. So the business has been around for a while. It's done great. We are very anxious to lean in because we think it's a great opportunity for us.

I'll pivot to our sponsor finance business. It's really the -- how we started over 25 years ago. We back what we believe are very, very savvy institutional investors in their investing activities. We are generally below 4 in an attachment point, mid-3s. We are always -- almost always less than 50% of the enterprise value. Our track record in the space is compelling. We have a couple of areas of expertise, like defense and aerospace, but we are backing middle market private equity sponsors, and a lot of our growth has been as they are successful and they're growing from initial inaugural funds, second funds to funds 4 and 5. The size of the transactions gets larger, and the velocity of the transactions gets faster. So that's really fueled part of our growth. But again, a defensively constructed portfolio, where we believe we sit in a terrific spot in the capital structure.

The sponsor business is about the same size as what we call specialty finance. Both of those are about 25% of our portfolio. The specialty finance business is really 3 businesses, the largest of which is our commercial real estate business. The lion's share of that is in healthcare real estate financings. We're financing investors that are acquiring and investing in assisted living, medical office buildings, skilled nursing facilities. We have a very low attachment point on balance in our portfolio. It's about 63% loan-to-value. It's been a terrific run for us, again, managed by a team of subject matter experts. And the portfolio, even through COVID, performed remarkably, remarkably well.

Our 2 other businesses, we have a tech finance business. It's just coming up on $1 billion. Again, we finance the -- we support the investment activities of leading VC firms. In that business, for every dollar of senior debt that we've put out, there is $2.5 of investor capital that's behind us in an equity position. So that's very, very defensively orchestrated, and the performance has been terrific.

And lastly, I won't say that much about it because it's more embryonic, but we just launched -- we're about a year in, in energy and infrastructure vertical, and the investment thesis is there's an insatiable desire in this country for electricity demand, and we're financing the generation of electricity through geothermal, solar, natural gas in building power plants. So that's a little bit about the granular aspects of what corporate finance does. But we've been doing it for 25 years very, very successfully. And we believe our core competency is the ability to assess and manage senior secured floating rate credit risk, and that's a common thread that's kept us very, very safe and successful in all of these different verticals.

And we touched on this a bit. You've been able to grow the portfolio really nicely while maintaining very, very low losses. You have some exciting new growth opportunities ahead of you. So maybe just touch on real quickly on how you're able to balance that risk of growth versus maintaining that credit discipline? And how has that risk management philosophy evolved, especially as you consider this insatiable demand for energy going forward?

Sure. Our nonaccrual loans right now are well under 1% and are at historic lows. The portfolio is in terrific, terrific shape. When we went public in 2024, I believe 25% of our loans were asset-based. As you fast forward to today, if you include the priority revolver product, somewhat north of 80% of our loans are asset-based. So that's one of the reasons why we've been able to maintain such stellar credit performance even in the face of what we think is compelling growth. But we feel -- I've always said this, optimists make terrible lenders.

To be an optimist, it's better to be an equity guy. We always have to think that something bad is going to happen. And all our deals are structured to withstand the speed bumps, and we make sure we align our lending to like-minded investors, where we have long-standing relationships, and we lose the friction in transaction because of the number of deals that we've done. But we've built the business doing one good deal at a time, and it's going to be lumpy in terms of what the market offers for growth prospects, but that's something that we're not going to waver from. It's doing and growing the business one good deal at a time.

Great. I want to make sure we leave enough time for Doug. So Doug, moving to Dealer Financial Services, we've seen the momentum in that business continue. You've had record applications, origination volume and pricing remains strong. In your view, how has the business been able to maintain such strong momentum despite all the chatter we're hearing about elevated competition creeping in? Is there anything in particular that stands out as being a key driving force?

Sure. And yes, we're super excited about the continued momentum that we have in our business and particularly application flow, which is really the fuel to our business and growth. But if you look back at 2025, we have record application flow in each of our 4 quarters. Originations exceeded our expectations. We've arguably kicked it up a few notches this year. So on a year-to-date basis, our application flow is up 16% over last year. And again, last year was running at record levels.

As you recall, our origination volume for the first quarter was up $1.3 billion year-over-year, which is 13%. Second quarter, we expected to finish with similar results. So we have made some iterative changes to our rewards program coming into this year and as well as our value proposition. Those are certainly supporting that growth in application flow. I think the exciting thing is those aren't fully rolled out. So there's some further wind at our back as we go forward. But I think all of this really ties back to the kind of who we are, how we differentiate ourselves from the competition, and quite frankly, just the competitive advantages that we have in the marketplace. So we're a full spectrum lender. And I'll say we're a full spectrum lender that's been accentuated by the success of our pass-through program, which obviously supports more volume relative to the lower credit segment of the business, which obviously is critically important to our dealers.

We do business across all franchises, which is very important to dealer groups, which makes up a greater and greater portion of the overall industry. So competitive position versus captives continue to get accentuated. And then, our people, the people, our relationships, how well they serve our dealers. I think we continue to separate ourselves from the competition relative to the experience of our team and what they can do to help dealers to sell more cars and trucks and make more money.

And then, of course, if you look at our suite of products and services, well, we're clearly different than everybody else in a very big way. So we're a large commercial lender, floor plan, real estate lending, acquisition lines of credit. We have a full suite of insurance products and particularly relative to F&I, critical part of the dealers' profitability. Not only do we provide the consumer protection products, but we also provide the training and consulting to the dealers to help them optimize their F&I results.

We've got a large P&C business. As a matter of fact, we are the largest vehicle inventory insurer in the United States. And then, of course, our remarketing services, which includes SmartAuction is a service that's in very high demand across our dealers. In today's short supply of used vehicles, it's a critical difference in them being able to build out their inventories for the needs of their dealerships. So a lot of differentiation.

That's great. And as you talk about differentiation, I think one of the things we noticed last quarter with the strong earnings report was it seemed to highlight the natural synergies that exist between auto finance and the insurance business.

Yes.

So you were President of Insurance before your current role. Can you talk a little bit more about how that business has harnessed those synergies and how it's translated into the performance of the business? Maybe what are the opportunities you see for the business going forward as well?

Sure. Yes. And I appreciate the reminder of my time on the insurance business. It was no doubt a bright spot in my career. It gave me a great opportunity, one, to gain appreciation of that business, but also very importantly, the talent that we have in that business. When I was running the business on a day-to-day basis, we were really positioning ourselves to, call it, take our game to the balance of the market. We were very much GM-centric at the time. We had to change out our systems. We had to change out our product suite. There was a lot to do, but one thing that was very clear to us was there was a tremendous opportunity for us to grow. And that growth through the relationships that we have on the auto finance team.

I think the inflection point for us has really been the combination of our insurance and our auto finance businesses together under Dealer Financial Services, which is what I'm responsible for today. And if you kind of think about that, obviously, having the responsibility of both, very easy for me to make sure those businesses are properly focused, coordinated, pay plans are aligned and everyone understands their roles and responsibilities. So as an example, the auto finance team's responsibility is to leverage their relationships to find prospective insurance customers. And the insurance team's responsibility is do what they do really well, and that is to prove to those dealer customers that we can be a better provider. And obviously, we've had tremendous amount of success. I think what's exciting is there's still a lot more opportunity for us.

And can we just take it back to the competition? We continue to hear a lot about how that's intensified in the space. Your franchise has obviously shown some resiliency and continues to produce strong yields and strong volumes. Have there been any actions or changes you've made to your approach in response to the competition? And maybe just what are you seeing on that front as well?

Yes. I should say that our application flow gives us a tremendous amount of intel relative to what's happening in the marketplace, both with consumer behaviors as well as competitor movements. But really, from our perspective, we really stay focused on our core business. We stay focused on where we're confident we can win in the marketplace. And we really try to stay focused on where we have competitive edge. And so certainly, the competition has an impact, but we think that we stay focused on those 3 things. That we're going to be successful. And certainly, it proves it out.

And the reason why we're successful is because we're so much different than everybody else. And oftentimes, people say, are the competitors trying to do anything to kind of replicate what you do? And quite frankly, nobody is trying to replicate what we do. It's just so much different than what they have available to them, and that's a huge competitive advantage because it aligns to all the things that are important to a dealer and the dealer's business.

And one thing that's top of mind for a lot of investors today is affordability, higher gas prices and the effect on the consumer there. So beyond these direct competitive dynamics you talked about, how are you thinking about the broader consumer backdrop today? And what are you seeing in your data with how the consumer is dealing with that?

Yes. I'd say affordability has been a challenge for the industry for a considerable amount of time. Affordability is still a challenge today for sure. From my perspective, affordability is going to continue to be a challenge for the industry. Obviously, some OEMs are doing things relative to the product that that's going to help in the longer term. But affordability is something that the industry is going to wrestle with, I think, for the foreseeable future.

From our perspective, and as you guys know, we really like the used segment. We think the used segment is a bit underserved if you compare it as an example to the new segment. But also used vehicles are really how a dealer addresses challenges with affordability to today. So I think it's just another example of how we've thought about our business and how we align our business and our efforts to what's important to the dealer. And of course, that resonates extremely well.

Relative to gas prices, I'll just say we make the simple statement, gas prices do matter. Obviously, there's a lot of uncertainty out there relative to the macros. What are we seeing? I'd say if you kind of think about where we're at today versus maybe 6 months ago, there's certainly some segments that we like less. And like we do every day, those segments that we like less, we either curtail, we raise price, or in some cases, we'll change our decisioning method from automated to manual to put an underwriter on top of those decisions and just take a second look. So there has been some adjustments that we made.

But on the other side of things, as competition shifts, we've also found areas of opportunity that we like better. And all of it is kind of continuous optimization to define the very best risk-adjusted returns. And that's what we do each and every day. And obviously, if you think about those 2 examples on a net-net basis, obviously, our business is growing. So...

And speaking of the underwriting, through various forms in the past, you have mentioned or the company has mentioned leveraging a data-driven approach to enhance that underwriting as well as your servicing capabilities. Can you talk through what some of those tangible benefits are? Or what are the tangible benefits of those enhancements have been? How have those enhancements helped the franchise's ability to really navigate this dynamic macro?

Yes. I would say data and analytics, what we feel has always been a competitive advantage. What we think -- arguably, it's a strength of the business. We're fortunate in the fact that size, scale and experience helps accentuate that. We've invested heavily over the last 5 years. We'll continue to invest heavily. We see significant dividends in the investments that we made. As I tell the team, it's work that's never complete. But I think a good example, just how we use it, call it, in our consumer business, if you think of kind of front to back to the business of our consumer business, and you start with the application, which obviously gives us a tremendous amount of intel.

And then operationally, application goes to making a decision, goes to setting pricing, sets the risk ranking relative to that application and then flows through to servicing, collections, and ultimately, a timing as to when is the best time to issue a vehicle for repossession. You have data sets throughout that. Obviously, you have to have the data organized appropriately. You got to have analytics on top of it. But there's operational inflection points across that entire spectrum. So we test, we learn, we optimize, and because of our size and scale, just a little bit of fine-tune can create significant economics to the bottom line. And then the added benefit is as you have these data sets of these metrics set up and you see shifts relative to trends, it gives you indication relative to consumer behavior, what's happening in the macros. And those signals give us the signal to make adjustments where necessary.

Okay. Great. Thanks, Doug. Maybe, Bill, one last one for you before we turn it back to Sean. We've obviously seen how the Corporate Finance businesses fit nicely into the broader mid-teens return strategy at Ally. You've talked a little bit about leaning in here while maintaining that credit discipline. So how are you thinking about the progression of the business over the medium term as we think about both growth and credit?

We're very excited about the prospects for the business. I've been here over 25 years, and I've never felt better about where Corporate Finance sits in the ecosystem within Ally and the prospects. Each one of our verticals is extraordinarily well poised and positioned in the market, leading deep relationships that we think, in many cases, are the industry standard. And while it's difficult to predict what could happen, it can be a lumpy business transaction by transaction.

I think if you look at what we've been able to accomplish in the last 10 years, we think that, that should give people a lot of confidence in what we can accomplish in the ensuing 10 years. We do feel that Corporate Finance is a bit of an underappreciated gem within the Ally franchise, but you have our commitment to do as much as we possibly can to deliver for the shareholders compelling financial performance and compelling organic growth. So as I said, it's been a long time, but I've never felt better about our prospects.

Awesome. Thanks, Bill. And maybe, Sean, just to wrap things up, we've heard a lot about today about the operational momentum across both Bill and Doug's business lines. How do you see that showing up in the financials this quarter and as we progress through the rest of 2026 as well? And given that we're nearly out of time here, maybe you could just briefly touch on the capital proposal with the comment period, I think so. And how you think that helps or impacts Ally?

Sure. Thanks, Jeff. I'll actually start with capital. So look, we very much appreciate the thoughtful proposals that have been put forth and the clarity that they provide. They are still proposals, but at least as written, as you know, quite constructive for Ally. But that doesn't really change our capital allocation priorities. Accretive growth in the core remains the priority. And you just heard from Bill and Doug, we feel great about our prospects to grow those businesses. But fortunately, we're in a really good spot, and we feel good about our ability to do that, support that accretive growth while also growing the capital base and executing the buyback. As we've said before, this is very much an 'and' story and results in the first quarter. Really, year-to-date reflect our ability to execute all of those priorities simultaneously.

And then, as it relates to your question on the quarter and the balance of this year, look, Doug and Bill mentioned the momentum that we have on the lending side of the business. And I would say we're equally as excited about what we're seeing in the deposit franchise. The strong customer growth that we talked about at earnings has continued. Through May, we've grown customers 6% year-over-year, and that's given us confidence in the ability to make several pricing moves this year, including one just last week. And so that puts us in a really good spot in terms of cumulative beta expectations. I will call out that similar to all prior second quarters, we expect balances to be down modestly on a linked-quarter basis just due to tax outflows. But in aggregate, feel fantastic about what we're seeing in the deposits business.

Look, we'll cover the financial outlook in a lot more detail next month. So nothing really new to report in terms of guidance, but I'm happy to hit a couple of areas that we know are always top of mind for investors. As it relates to margin, those 3 OSA pricing moves give us a lot of momentum, certainly for the quarter, but even the balance of the year. And keep in mind, CD repricing continues to be a nice tailwind. We've got about $14 billion maturing in the back half of the year at a 3.8% yield. So see a nice continued tailwind in that regard.

Look, our full year NIM guide implies meaningful expansion throughout the rest of 2026, and that's certainly the case here in the second quarter. It won't be a straight line. We've said that before, but remain as confident as ever in sort of the trajectory and the destination. And I'm sure you'll ask, Jeff, that's true with or without any incremental rate cuts from here, particularly following the strong deposit pricing that we've seen year-to-date. And look, even if we get a hike, we've said this before, but that really changes the quarter-to-quarter trajectory, but not the destination. Still feel good about our ability to get there in a variety of rate environments.

On credit, a very consistent story from us, which is to say that we're pleased with what we're seeing in the portfolio, but remain measured just given everything that's going on in the macro environment. And Doug did a nice job of articulating exactly what we mean by being measured, at least as it relates to underwriting and originations.

Looking at expenses, we were down 6% year-over-year in the first quarter. That had some unique comps as it relates to elevated weather in the prior period and the disposition of card. Full year guide, 1% up year-over-year. And so that sort of implied -- implies a 3% annual growth rate for the back half and the remaining quarters of the year. I would again just point out not going to be a straight line. We actually expect the second quarter to be up a little bit more than that 3% year-over-year trajectory, but by in no way changes our sort of view on the full year outlook. Cost discipline remains an absolute priority.

So look, we feel great about the quarter, certainly from a financial perspective, but again, more importantly, just with the momentum that we're seeing in Doug's business, Bill's business and then the Deposits Franchise. Hopefully, investors heard Bill and Doug's updates and shares the same enthusiasm that we do as it relates to the forward on our lending businesses. So in aggregate, Jeff, look, we're incredibly thrilled with our progress. We recognize there's always more work to be done, but it's incredibly clear to us that we're on the right path.

Great. Thanks, Sean. That's great. And please join me in thanking Bill, Doug and Sean for joining us today. That's -- we're about out of time. So thank you, guys.

Thank you.

Thank you, Jeff.

Good morning, everyone, and thanks for joining. My name is Rob Wildhack. I cover the consumer finance group here at Autonomous. We're very excited to have Michael Rhodes, back with us today. Michael is the CEO of Ally and he's been in the seat for a little more than 2 years. It's great to have you back again, Mike.

Thanks. It's great to be here.

We are using pigeon hole for the Q&A this year, so you can submit your questions there, you vote on questions that are already submitted. I can get them over to Michael, and now we can get started. In your shareholder letter, Michael, you rolled out a refined strategy over the last year or so, and this time introduced the term focused forward. And I'm wondering how that strategy positions Ally better. How does focus or where are you most intentionally focused to drive durable and sustainable long-term value?

Rob, thanks, and thanks for being here and facilitating this conversation. And yes, I did just past 2 years in the role, and we did launch this term focus forward. And you could ask any one of our 10,000 colleagues inside of Ally to summarize our strategy in 2 words, and I'm quite confident they'll say focus forward. And this represents a strategy that we've been discussing for a while now, but we've been -- really been very disciplined about executing against over the past year plus. And early innings, but we're really encouraged by what we're seeing in this.

And for us, focus, it really represents leaning into the businesses where we believe we have sustained competitive advantage and a reason to win. And those are places where we have either long-standing relationships, which is a combination of long-standing relationships, unique capabilities, relevant scale -- and so we picked 3 places where we're really going to lean in and focus, and that's our dealer financial services platform, the consumer bank and corporate finance. And strategy is about choices. And so the choice we made was, okay, we're not going to be in the card business anymore, and we sold that.

And we stopped originating mortgages. We weren't originate to sell mode, but we still have some on the balance sheet, and we stopped originating them. And really just focusing our energies and resources in the places where we feel very good about our ability to compete and win. What I love about this strategy is if you think about these 3 markets that I said we're in, it's corporate finance, dealer financial services and the consumer bank, they all have some common factors that we get really excited by. They're active markets, they're large markets and they're fragmented, and we have relevant scale. And being in a place where you're in large attractive markets with relevant scale means those who are really -- they're like the ability to really start compounding advantages. And we think we're in a situation where we can actually do that to both increase returns and increase growth.

Again, I mentioned early innings, but you look at the results last year, '25 versus '24, EPS was up 60%. First quarter of this year was up 90%, clearly not promising 90% growth on year-over-year on an ongoing basis. But a nice earnings trajectory there. Our CET1 was up 60 basis points. Our ROTCE was up 400 basis points to 11%. A part of our investment thesis is to maintain expenses relatively be disciplined about expenses. We put a 1% guide for this year. We feel good about that guide, could be quarterly movement here and there, but we feel good about that guide.

And so we think we've done the right things. And in making these pivots, we also took risk out of the bank. And this is -- the risk we took out was unsecured credit risk, obviously, but interest rate risk as well. And we used some of the capital from the card sale to restructure our balance sheet, at least on some of the securities side. And then clearly not having a long -- on putting long-dated mortgages is very helpful. And so today, we find ourselves to be a stronger organization, a stronger foundation, a strengthened focus, and I think it really tees us up well for what's ahead.

Very good. We'll go from 30,000 feet to 300 feet. The macroeconomic and geopolitical landscape today are dynamic to put it mildly. What do you do as a CEO, as a management team to position the business to perform when the external world is marked by such a tremendous amount of uncertainty?

A lot of uncertainty. And to be fair, a lot of data points that you don't usually kind of see together in one place in this environment. And I'll start by saying that we're pleased with how our portfolio is performing. And so that's probably the most important thing to say. At the same time, you look kind of on a forward basis, and you've got these conflicting signals, consumer confidence, all-time low, yet consumer spend is actually holding up pretty well in many categories. Real wage growth is high, but probably slowing down. Personal savings is declining. Against that backdrop, we look at our portfolio and feel good about what we see.

And why is that? I think a couple of things. One is when you hear us use the word discipline a lot. We've been really disciplined in terms of how we're actually running our shop, particularly our credit shops, both on the commercial and the retail side. We've made adjustments to our underwriting approach. We've made enhancements to our servicing. And we think that actually serves us really, really well in this type of environment.

And if you listen to the first quarter earnings call, we used the word we're going to be measured and disciplined in this environment. I was mentioning earlier that in many ways, the economic data, it's almost like an ink block test. Different people can see different things when they look at the data. And we see a portfolio that we feel good about how it's performing. We're not blind to what's going on in the world. And so we're going to be very data informed and measured in terms of how we think of this on a go-forward basis.

Very good. The Dealer Financial Services segment, that's the core for Ally, continued to post strong results. And you guys repeatedly referenced dealer relationships as a core competitive advantage. And so in a business that's intensely competitive, first, why are dealer relationships so important, especially as somebody might think about like a loan as being a somewhat commoditized product? And then how do you continue to maintain and build relationships...

Great question. Look, our dealer relationships are clearly part of our secret sauce. I very much believe it's part of the competitive advantage. And these relationships are anchored in years, decades, sometimes generations of trust and consistent commitment. And that really matters. In the dealer community, we're known as a partner who's going to be there through good times and bad. And the fact that we actually simplified our business model to this more focused approach has resonated really well in the dealer community because they know we're not going to be kind of in and out. Some of our competitors, they almost view it as almost like a trading strategy, let's go in, let's go out and see how things are. We're there consistently and the dealers really value that. So having to be such an important core part of our business is part of the advantage of being there through cycles.

And our approach for the dealers is, look, we're not trying to be transactional. We're trying to help them be more successful. And we help our dealers be more successful. That means selling more vehicles and growing and earning a nice return on their business. And we do that by bringing a really comprehensive suite of solutions and like no one else does this like us. It's not just the retail auto loans. We offer commercial lending in terms of floor planning, acquisition financing, real estate financing. We offer insurance products. We offer SmartAuction, which is an online auction platform to kind of buy and sell vehicles. And then other fee-based services where the dealers can earn a nice return on their business and support their customers.

And so we try to be there for our dealers in a really, really holistic way. And if you look at what this means, take this year's an example in the first quarter, and the same was true as last year. First quarter this year, vehicle sales were down in new vehicle sales, used vehicle sales. Our application volume was up 16%. Last year, our application volume was up and new vehicle sales where I think they were down a bit and used might have been flat or a bit up. But we're seeing very strong top of the-funnel performance in this marketplace. And we think we're getting that because of the strength of the commitment that we have with our dealers. And they know we're in there to help them win and the value exchanges as they help us.

And you've started to prove the value of those relationships in some of the numbers, right, price is holding in, the originated yield holding in nicely and the S-tier mix remains elevated. And that's all despite as we see competition rising off of what you might call the nadir a couple of years ago. So would you agree with that characterization competitively? And then why do you think you've been able to be so successful despite an uptick in competition?

So competition, the fact there's competition in this business, there always is, sometimes it's more intense than others. The fact there's competition actually proves one of my investment thesis why we're in this is that's attractive business, and so that folks go in there because they see they can generate attractive returns. And so there's always been competition. Look, we believe that we will win because we bring the combination of the long-standing trusted relationship plus a set of capabilities that are really pretty unique. And sometimes we talk about the business being high tech and high touch. And the high touch is -- we have our relationship teams that are on the dealer sales floor, the showroom every single day. It could be on the consumer side, it could be insurance, it could be commercial. But we have people working with our dealers on a daily basis, along with trainers and underwriters.

And in many cases, our human underwriters are part of our secret sauce. And I'll get to the high-tech, high touch in a second, but that's kind of touch. On the tech side, look, we have lots of digital tools that we work with to build our relationship with our dealers. We move data very fast between the 2. We're very quick to settle and to fund our loans with the dealer community alike. Our automated underwriting decisions happen very, very fast. We have a very good machine to do that. And you think about relevant scale, if we want to make a change to our underwriting approach requires some technology, and it seems like just everything requires technology these days, it might cost us -- you pick a number, it's going to cost us.

But our business is of sufficient size that our return that we're going to get off that is going to be as good or better than any other bank lender just because we have a book that's bigger than theirs. We have some competitors who are 10x our size in terms of overall balance sheet size, but that doesn't actually impact the economics of making an investment in the auto business. And so we feel really good about that. And like high-tech and high-touch, they come together in really interesting ways. And so someone's there on the showroom floor, they're interested in a vehicle. majority will be auto approved in a very fast and rapid way. Some are not. Some are more complicated deals. That's where our underwriters come into play.

And when our underwriters get on the phone and have a conversation with the dealer F&I office, it helps us figure out a way to help the dealer move the inventory and us to underwrite a loan that actually matches the buy box that we have and to be fair, a loan that the customer can afford on a monthly basis. And so that kind of high-tech, high touch plays itself out in many, many ways. And we just think it's the winning formula. And again, I keep on pointing back to our application volumes. In the first quarter was strong. The second quarter is trending strong. We're pleased with what we're seeing. And you see that application volume, it gives the ability to maintain price, but also gives the ability to optimize risk-adjusted return. And as a long answer to the question about competition, yes, competition is a great asset class. But given that competition, like we're the ones that are doing pretty well with us.

Is there a risk that competitors will see Ally's success and say, "Oh, I'm going to adopt a more high-touch relationship-driven approach?" Or are there reasons structurally that they might not do that?

Look, these relationships have been built over a long, long period of time. And when I meet with dealers, I meet with -- we've been doing business with for honestly, decades, if not generations. And forming relationships doesn't happen overnight just because you hire someone and put them in the field.

Yes. Very true. You pointed out some capabilities or you've talked a little bit about capabilities. Among them are the SmartAuction and pass-through programs. So can you remind the listeners what those are and how they are monetized for Ally? And then talk about how those 2 components fit into the broader dealer proposition.

We love these products. SmartAuction is -- but both these products are -- give us the ability to deepen dealer engagement and earn profitable and really non-correlated income stream. So SmartAuction is our digital auction platform whereby dealers are able to buy and sell inventory. And they can do right through their lot. They use their digital tools. Since we started SmartAuction, we moved something like 9 million-plus vehicles. And so it's not a small number.

On the pass-through program, this allows us to monetize applications rather that we decline. You couple the strength at the top of the funnel with the ability to monetize some of those applications. We're running at a pace of roughly $1 billion or so a quarter of turn down applications that we actually pushed through our SmartAuction -- through our pass-through program. And those become annuity streams that we kind of earn on an ongoing basis. You look at the 2 of them together and their fee income, and we like fee income because it's pretty capital efficient. And our fee income line there on the dealer side with these 2 products, it's growing in the, call it, the high single digits and accelerating. And so we think we're on to something really, really good here, and we feel great about where we are.

And insurance rounds out the DFS value prop. Why -- or what's Ally's sort of right to win in insurance? Why do dealers go with Ally? And then how do you plan to scale that business moving forward?

Again, we love the insurance business, non-correlated, deeper engagement. In many cases, the F&I product helps the dealers earn more themselves. And certainly, for the vehicle inventory insurance, it's a really valuable service that they need. And for us, it's -- again, it's kind of non-correlated business. On the insurance side, one of the big advantages we have is like we have our existing auto relationships and we have insurance. And so like we have a reason to have a conversation about insurance like every single day. And so the edge we have in terms of selling into the dealer network is just far greater than those who are trying to hire their own sales force to go out and actually sell the product themselves directly. And we see that play out.

I'd say today, about 1/3 of our dealers use one of the insurance products in one way or the other. And the growth comes from 2 different categories. It's not just the 2/3 that we don't service in one way that we'd like to. But even the 1/3 that we do, in many cases, we have the opportunity to do even more. And so we see opportunity both with our existing customers on the insurance side, plus the untapped opportunity. And that's not even really going outside of the dealers who we may not be doing business with, which albeit it's a small number. So we think this business has a lot of legs in it. And again, it's non-correlated. It helps our dealer partners and it deepens relationships. And so when we're in talking to a dealer about their business, we have a really comprehensive set of solutions we can talk, and really, no one else has this depth of solutions they can go and work with dealers on. And we think it's a winning formula.

Very good. The Corporate Finance segment is the second sort of marquee business in terms of reaching those mid-teens returns, excuse me. It's high return on its own. What is Ally's competitive advantage here?

Yes, sure. So Corporate Finance, maybe some context. Our corporate commercial kind of lending business is about a $40 billion business and Corporate Finance is about 1/3 of that. And this is a business we've been in for 25 years through a number of cycles. And we work with really some of the finest asset managers and financial sponsors in the business. And our reason to win, so we have some long-standing relationships. And fundamentally, we are growing with our clients. It's not like we're going and chasing every single book that kind of hits the street and trying to figure out how to do something there. We have a number of clients that we've been banking for years and years and years. As they grow and they're successful and raise more and more money, we're able to kind of grow with them, and that's the best way you can grow.

Our value proposition, so why are these clients sticking with us? They're sticking with us because we're quick to act and we actually execute with certainty and conviction that really, really matters. We're fast and then they know that we're going to show up in the right types of ways. And again, this is a business where we really like what we're seeing. I'd say another one of the advantages we have. And the advantage is it ebbs and flows in terms of how this is advantaged. Being a retail deposit-funded business is really helpful. Those retail deposits are very, very sticky, and they're there through good times and bad.

And when times are tough, we're actually at a really significant advantage in terms of our availability of funding. And so we feel very good about that. Look, we're a credit first shop, and we've had some nice growth in this business without a doubt. I think we're 6% growth sequentially for the fourth quarter to the first quarter of last year was strong growth. We're also getting good returns in this business. So it's a business that we know, long-standing relationships. Maybe the last thing I'd actually offer is that we also -- it is an important point, we agent virtually all of our deals. And so what does that mean? It means we own the underwriting, the structuring, the due diligence process and the ongoing account management. So this is a real franchise business. And so we feel great about this business.

As it relates to -- we'll talk about the retail bank, but deposits as they relate to corporate finance, that's a durability...

It's the durability.

Is it the cost of funds advantage?

Yes, there's cost of funds advantage as well. And so between cost of funds and durability, we like them both.

Yes. Okay. And the broader sort of private credit space has come under the microscope as of late. First, talk about your exposure there to private credit specifically. And then when there are headlines around a particular segment, does that -- do you pull back and wait out the volatility? Or do you sort of skate into pockets of opportunity?

Great question. So first, when we talk about private credit, as we think about our corporate finance business, there are 3 primary verticals. There's a specialty finance bit, so we call sponsor finance, traditional private equity type funds. And there's what you call lender finance, which is where we're lending against diversified pools of loans. And so I hear the word private credit. I think lender finance from our language. And so this is a business, again, we've been doing for quite some time. We're a credit-first shop. And so as a credit first shop, again, we'll agent do the transactions. But we also work really hard on structuring these deals that we have kind of the right rights.

And there's a significant amount of risk-based capital in front of us. So the combination of risk-based capital in front of us, along with the right structuring and rights provides a lot of insulation in the event that there's a kind of a bump in the road. This lender finance business is one that since we've been doing this, we've never taken a loss, and we've never classified a loan as nonaccrual or criticized. And so again, we feel good about this business. We're not chasing volume for the sake of volume. I kind of keep on going back to that. Look, we're a credit-first shop. And all the headlines you may be seeing about private credit, they don't actually apply to what we're seeing. And so we're seeing something different.

Yes. Okay. So with that as the backdrop, right, I'm curious what the growth constraint is for corporate finance today. If you told Bill and the team, here's another $250 million, $500 million in capital. Could they find opportunities to put it to work? Or would they say, look, like the environment is not right?

So it's fundamentally a capital allocation question. And like Bill and his team, they have the capital. If they have opportunity for growth, the organization will support them. And you can actually probably see that since 2019, so I go pre-pandemic as kind of a reference point. That business has gone from $5 billion to $14 billion, I mean 20% plus ROEs the entire time. And so the team has a lot of credibility and support. And look, they're a credit for shop. They're not chasing deals, but we're going to be there. And when there are pockets of opportunity, we're going to make sure that we free up the capital to support them.

Okay. So if I'm here, it's more of a pull, hey, Michael, we've got this great opportunity rather than a push, go find places...

Yes. We'll go episodically and try to find out new verticals that we think we can be relevant in. Last year, we started an energy vertical. We've been very pleased with what we've been seeing out of that. And so we can find a new vein of opportunity, yes, we'll go at that. But I don't think Bill feels capital constrained right now.

Very good. And the last of the core franchises is the Ally Bank, obviously, a branchless digital bank. There are a lot of advantages in that model. But there is some intangible value to having a branch, right, customer awareness being the main one. So talk about how you're building the brand and customer awareness and recognition there without the branch footprint to walk or drive past every day.

Yes, that's great. Well, first of all, great question. And yes, there are benefits to having a branch network in terms of the branding element of it. And so for us, we don't have a branch network. And so what's our value proposition? Our value proposition is we offer a brand you know and trust and that really matters, value and a great customer experience. And the value equation is, since we don't have a branch network, we actually take the cost of a branch network, if you will, and put it into higher savings yields, lower fees and into our marketing, and we think this is something that really, really plays off well.

If I look at our consumer bank and our consumer bank is really -- our deposit platform is really spectacular. I'd argue it's one of the best in banking. We're $140 billion in deposits, 92% plus FDIC insured. And we've been really, really pleased by what we've seen out of this. Our growth rates for new customers last quarter, we said it was 6%. That's net customer growth on a year-over-year basis. For a large bank, that's a very strong number. Our retention rates are 95% plus. I stack that against any one of these fintechs that talks about what they're doing and 95% is a good number. Our NPS scores are very strong. And our awareness is 55% plus. And so like you pull it all together, and it's a formula that just works really, really well.

And I think about our customer, we just launched a new marketing campaign called Life Today. And really, really is -- it's a story about how Ally meets our customers where life and money intersect. And when life and money intersect, you're generally not in a bank branch, you're generally next to your phone. And then that's where Ally is. And so we think it works really, really well. And our value proposition is really attracting a younger kind of millennial or younger but still income over $75,000-plus type customer. And so we feel really good about what's coming out of this digital bank. And so yes, we don't have the bricks-and-mortar network, but the trade-off is it's a brand you know and trust, it's value and it's a great customer experience. And you pull them all together, and we really like what we're seeing. We think it's a winning model.

And you talked about the retail deposit base as an advantage for corporate finance from a funding perspective. But how does that apply to Dealer Financial services as well?

Look, having the retail deposits, it's a wonderful thing. A, it's cost of money. It's also a NIM expansion at the enterprise level because how we fund it, we get some advantages there. But the durability of the funding throughout the cycle is just incredibly valuable. And if you actually think back, if you go back -- I talked about year-over-year, if you go back 17 years. We have 17 years of growth of customer growth in this business. And so it just serves us really, really well. And we think it's a huge competitive advantage to have a branded backed deposit platform. it's one of the things that makes Ally Ally.

You've talked about the mid-teens return target, and you've made progress towards that. What underpins your conviction that, that is the right level of a through-the-cycle return? And then where do you get the confidence to not only get there, but then maintain that level of returns through the cycle?

So in terms of -- we've been talking mid-teens for a while. And anyone who's heard our calls or participating in these will know there are 3 major levers that we work with. It's NIM in the high 3s, auto losses below 2 and then maintain discipline on the expense line. And I'd say we've hit 2 of the 3 of those so far. It's auto losses and hopefully, you've seen the discipline in the expenses. And NIM, there are a lot of factors why NIM is actually drifting upwards. And so we feel good about our trajectory of how we're going to get there.

So if you do the math on the NIM and the losses and put an efficiency ratio I think makes sense for us against that little fee income, it just becomes math. And the math says that you get to something that looks like mid-teens returns. In terms of the durability of it, we made our strategic pivots. We did a few things in that, which is, a, focusing our investment in the places we're going to get the most bang for our dollar. But second is we derisked the business some. And the derisking was unsecured credit is out, virtually everything we have on the balance sheet today is secured in one way or another, and that helps through cycles. And the second is we have taken steps to reduce interest rate risk, and we continue to take steps to kind of reduce interest rate risk over time. And so that again helps with the variability of the cycle.

Rob, I get banking is a cyclical business. But we have really done some, I think, really strong things that position us well. And we talk about how dynamic the environment is. Given the strategic pivots we've made, given the operational pivots we made, we feel well positioned.

So your message on -- or to any investors who are maybe more concerned about sustainability of mid-teens would be, look, we're secured, more secured lending, so we're derisked and we're less rate sensitive than we were in the past.

And then it's just math at the end of the day, if you -- if you believe the dynamics on where NIM is going and if you believe where loss are going and you have confidence in management to maintain expenses, you kind of get there.

Yes. Okay. Let's talk about where the NIM is going. You mentioned target for the high 3s, that's an important ingredient there. We're at about 3.5% today, 3.5% in the first quarter, and Ally is naturally liability sensitive even though maybe less so than in the past. But how does that all add up? And what's the bridge from 3.5% today to 3...

Something.

High 3s sometime in the future.

Yes. So first of all, our NIM target is not the output of an economic environment, it's output of the underlying economics of the business. And that's an important point to make because a lot of folks will think about, well, if rates do this or rates do that, yes, it can change our trajectory our path, but it won't change the destination. In terms of the underlying economics of the business, you talk left-hand side of the balance sheet and the right-hand side of the balance sheet. And you have factors going on in both that are supportive of a higher NIM.

And so on the left-hand side of the balance sheet assets, we have basically a continued rundown of low-yielding mortgages and securities that are being replaced with higher-yielding corporate finance loans and auto loans. And so that's accretive to NIM on an ongoing basis. And on the liability side of the balance sheet, it's really a story of deposit transformation. And again, you probably heard me say this a few times here is this deposit franchise we have is just wonderful. And by the way, I didn't build this. I mean this was here when I arrived, and I just have the ability to kind of help shape the next chapter for this.

But this transformation takes -- there are many factors in it. One of which, again, I compare to 2019 pre-pandemic to today. Our mix of depository funding has gone from 75% to roughly 90%. So we have some mix advantages in terms of the deposit funding versus other higher cost funding sources. At the same time, our deposit funding cost relative to Fed funds has gone down. And so our spread has basically improved. You take the mix and the spread improvements together, our all-in cost of funds is down about 100 basis, and so that's a lot of strength, what's got to this point.

What gets us there going forward is we still have these dynamics. We've been a mid-6 -- we targeted a 60s beta, and we're in the low 60s right now. And then we also still have a time deposit or CD dynamic going on, where it's roughly, call it, $30 billion of CDs that are earning 3.9% or so when they wind off, they're going to high rate savings or CDs priced at lower rates. And so you have that dynamic going on. So on both sides of the balance sheet, we have tailwinds actually pushing NIM up. And again, look, I recognize the Fed can move up or down or do different things, but the destination is clear. And these factors will end up being the ones that went out.

So rate hike wouldn't throw a spanner in the works.

Rate hike would slow us down.

Slow, but not prevent...

Yes, that's right. not prevent.

And then on charge-offs, 1.8% to 2% in retail auto this year and the medium-term target is for 1.6% to 1.8%. Similar question. What's the bridge there?

Yes. And the bridge there is there are 3 primary factors that are impacting this. One is a disciplined underwriting approach, and you see that in our -- like our S-tier mix relative to what we might have done historically. Second is servicing improvements. And third is just a vintage rollover. And we've talked a lot about the different vintages, but those 3 factors come into play. And so we see them all playing out.

And I mean, if I just look at the data now, in order to have losses come down, you need less delinquency, better flow to loss and better recoveries. And all 3 are playing out delinquencies. 4 quarters in a row, they've been down. Flow to losses are kind of at or near all-time lows. And used vehicle prices are holding up. So severity has been in a positive place. And NCO has been down for 5 consecutive quarters. And so again, I don't want to say this is just math because there are a lot of macro factors that can come into play. And again, I'm not going to prognosticate in terms of what's going to happen in the macro environment. But as we're positioned today, we feel good about how we're positioned.

Yes. And you mentioned the S-tier mix. I mean I've got to imagine that increases your conviction.

Yes. Yes.

Yes. Listeners might be disappointed it took me this long to get to capital allocation or return. But your story has been one of and not or as it relates to capital deployment. I mean, just walk us through -- give us some more details on what you mean by that and how you're thinking about capital allocation today.

It has taken a while to get the capital. 3 uses of capital. First of all, and the most important one is accretive growth to our core franchises. Second is building capital on our balance sheet, just to have more capital and more protection. And third is back to our shareholders in the form of dividends and share repurchases. Again, I'll point to the most recent quarter or the first quarter and you kind of look at this on the growth side, our Corporate Finance business grew 6% sequentially quarter-over-quarter and actually more than that on a year-over-year basis. Our auto franchise originations were up more than 10% on a year-over-year, and so we're supporting the growth in the way that we feel is right.

At the same time, we actually built CET1 by 60 basis points on a year-over-year basis. And then last year, we announced a $2 billion share repurchase and did $150 million worth of stock repurchases -- share repurchases in the first quarter. And so you see those priorities playing out kind of in real time, and that is our priority. And we think we can do all 3. And clearly, there have been some new proposals that have come out from the Fed about capital and the RSA and the RBA, and we're doing our math to figure out what all that for us.

At the end of the day, we think these proposals are really constructive. We think they actually align the underlying risk of the business much more to the capital requirements. And so we think they're going to be good for us. We think it will be good for the American economy. And -- but then again, if someone is looking for like a clear definitive answer, what is the new proposal is going to mean for us, we can't say because there's still proposals. And people are commenting and we'll have to see what comes out at the end.

I was going to ask you about a clear...

Let's wait until the final rules come out and then we'll have a clear sense then.

Absolutely. Your shareholder letter also talked in depth about investments that you're making in AI and the cloud. I mean, I guess my first question, are those related? Are they separate investments? And then talk about -- a bit more about how each of those are paying off operationally?

Yes. So clearly, a huge investment thesis everywhere is going to be AI. The fuel for the furnace for AI is unambiguously data. And one of the big -- and I did mention the shareholder letter, cloud and AI and data together because one of the things that we've done -- and again, this predates my showing up at Ally is we had made the decision to move to a single cloud-based instance of our data environment as every interactions transaction and account of Ally in a modern cloud-based environment where we can use modern tooling against this. As a result, we want to sunset all the legacy data platforms. And this is a huge advantage because sometimes the biggest challenge in using AI is getting your data sorted and structured correctly.

And we've made some of these really hard foundational investments. And I would say hard foundational because these are investments that don't by themselves P&L out all that great because you have to do this before you do something else that drives the value. But we've actually made a lot of those investments and feel very good about our environment. And so now when it comes to AI, we have the opportunity to pursue real kind of value-added use cases. And we have in production a number of operational use cases for AI that actually make our operations more effective and smarter in the things that we're doing, and we like what we're seeing there. I think agentic coding is going to be a big thing. And I mean we're actually seeing in cases where you can take 6 months of work and really do it in 2 or 3 weeks now with some of the new coding tools.

And one of the things that gives us the ability to do is -- I don't know if the savings are not because it allows you to work on more of your backlog that you might have worked on before, which is actually more business value add in terms of what you get there. And then we've also enabled all of our colleagues with kind of AI productivity tools and everyone likes the productivity tools that they kind of play out. And so we are really encouraged by what we're seeing with AI. That being the case, maybe a couple of comments I would make is, one is, I think we're probably spending more on AI investment today than we're getting in kind of bottom line benefit. But I think that's okay because we have a lot of conviction in terms of where this is going.

And I also will link back a bit to the kind of strategic pivots that we took and what that kind of means with respect to AI. And if you think back through the past like 30 years and how technology has developed and advanced, the Internet really democratized information. It seemed like everything you want to know when the world was available on the Internet. And AI is really democratizing knowledge and expertise in one way or the other. We still need judgment. And judgment is hugely, hugely important, particularly when the cycle time between having an insight and getting it done gets really compressed.

And this is where being in fewer businesses, but businesses you know really well really matter because the value of that judgment is going to be amplified in an AI-first world. And so people have these hobby businesses are going to put AI against them, like I shutter to think what actually happens with all of that. We're putting AI against businesses where we've got years and decades of experience and a lot of confidence that we can apply the right type of judgment in order to drive the right types of outcomes. And so I'm really encouraged by what's going on with AI.

As you think about the investment you're making now to when it eventually bears fruit, is that -- do you see that as more of a top line thing we'll be able to originate more or better pricing or an expense thing, i.e., lower efficiency ratio at the end of the day?

Honestly, a little bit of both. And the efficiency use cases are sort of the easiest to stare and look at. But on the top line side, I mean, honestly, today, you already see top of the funnel activities online are already being disrupted by AI. And people are using the AI large language models. And this is, again, where being a digital bank, digital bank charters are easier to get today than they have been historically. But to get to the top of the consideration set for the large language models, what needs to be true, that's where your brand actually really, really helps. And so we actually see that in the large language models that we actually show up very, very well. And so we actually think there's a revenue opportunity there.

In terms of how we deal with our commercial clients and our dealer clients, speed really matters. And to the extent you can figure out how to show up in a better and faster way for our clients, we think there's a revenue opportunity here as well. I even offer on the risk side, that there's going to be opportunities, probably more in the predictive modeling, not the large language model stuff, but more predictive modeling that you're going to see opportunities there. But this is clearly -- I mean, this is probably like the iPhone, but bigger. It's like the Internet, but bigger. I mean the acceleration adoption curves for AI, there is something to behold, and we are highly, highly focused on this, and we're spending a lot of time and energy on it.

It's a very good segue to an audience question. OpenAI recently launched a personal finance product. How might this impact Ally's competitive position in retail deposits? And is Ally interested in building out those same AI-enabled features?

Look, in terms of our future road map, I don't know if I want to kind of spend a whole lot of time now going into kind of what our future road map might look like. At the end of the day, we think we're entering a world where decisions on how you actually use your money, you're going to be both marketing towards people and marketing towards machines. And you have to make sure that your marketing engine actually reflects that. And so yes, you can imagine we're going to be looking at every opportunity we can within the AI infrastructure to figure out how we show up in the right place in the right way to be there for our customers. And in terms of our road maps, I'll probably leave that for later.

Fair enough. Let's see another audience question. You've talked about how Ally carefully picks credits in corporate finance, but why do borrowers pick Ally over a competitor bank?

Yes. Again, with our Corporate Finance business, it's -- we've been in the business for 25 years. We have a number of clients, and we're growing with our clients. And so the fact that we've been there and we've been there through with our clients through all sorts of cycles and have been good partners with them, has been really, really impactful. And so it's really -- it's being fast to make a decision and it's executing with clarity and with certainty and being there through the cycle means that we've earned the right to grow with our partners.

And again, that's the best type of growth you can have because you're growing with people you know and trust. And we believe that our clients know and trust us, and that's why they keep on coming to us. And so like the vast majority of our business is, I'll call it, repeat business with people we've actually banked before. And that's the secret sauce.

Yes. One more from the audience. To what extent, if any, does Ally retain loan economics on pass-through originations?

No, we do have an economic strip that comes out of the pass-throughs. It's a servicing fee. There's some upfront consideration. And that servicing fee is what turns into kind of an ongoing annuity, which, again, we really like that business. I mean the ROE doesn't make sense in a pure fee-based business, but it's certainly helpful for ROE.

Yes. And then the last one from the audience. Is there any part of the current Basel proposal that you'd hope to see modified?

Look, there are probably some tweaks around the edge, but I'd say nothing really substantive. We feel very good about where Basel III end game has ended up. We think that the risk-based approach is right. Look, there are some -- this kind of narrow definitional items here and there that we might have an opinion on. But it's a very thoughtful proposal.

Okay. We'll leave it with one last big picture question for you, Michael. If we're here 5 years from today, we're looking back at this conversation and your focused forward strategy has played out. What does Ally look like as a company and then translate that, of course, to what the outcome would look like for shareholders?

Absolutely. Look, 5 years from now, we're on a journey. And I always say this is a journey that we take with our 10,000-plus colleagues. New in the job, everyone asked you kind of day 1, what do you want your legacy to be? And I framed upfront, our legacy is one that we're taking collectively. It's not just about me. But this is a journey with our 10,000 colleagues. And the journey is going to take to a place where a stronger, more focused, more disciplined organization has demonstrated the ability to generate attractive returns and growth at the same time in a highly differentiated way.

And one of the things I always say is strategy is about choices and strategy is not about sameness. And we've actually taken -- made some choices to not be like other banks, and we're actually really proud of that. When we talk about our strategic pivots, sometimes they frame it in where we compete and how we're going to win. And so 5 years from now, where we're going to compete, look, I think we're going to largely be in the businesses that we're in today, along with the adjacencies and adjacencies for dealer financial services insurance and some of the past due programs and things like that. For the consumer bank, it's what we do there. We also have invest platform, customers want to take advantage of invest capabilities. But the business that we're in today, I think, are going to be the business we're going to be in 5 years from now. But these are very large addressable markets, and we bring the capabilities, the investments and the focus on what we're doing well, we think that's going to translate into a really compelling story.

And for shareholders, you've got the opportunity to participate in this, and you get to get on the ground floor because we're still trading at or near book value. And I would expect that in a few years, I don't want to be a prognosticator of what our multiples are going to be, but show discipline in driving sustained attractive returns and growth with a strategy that's highly differentiated. We say Ally is not like other banks, and we say that with pride. We think folks will look back 5 years now and say that was a good journey.

Look forward to seeing that play out. Michael, this has been great.

Awesome. Thank you.

Good day, and thank you for standing by. Welcome to the First Quarter 2026 Ally Financial Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Sean Leary, Chief Financial Planning and Investor Relations Officer. Please go ahead.

Thank you, Liz. Good morning, and welcome to Ally Financial's First Quarter 2026 Earnings Call. This morning, our CEO, Michael Rhodes; and our CFO, Russ Hutchinson, will review Ally's results before taking questions.

The presentation will reference can be found on the Investor Relations section of our website, ally.com. Forward-looking statements and risk factor language governing today's call are on Page 2. GAAP and non-GAAP measures pertaining to our operating performance and capital results are on Page 3. As a reminder, non-GAAP or core metrics are supplemental to and not a substitute for U.S. GAAP measures. Definitions and reconciliations can be found in the appendix.

And with that, I'll turn the call over to Michael.

Thank you, Sean, and good morning, everyone. I appreciate you joining us today for our first quarter earnings call. In the last update, I know my optimism for the path ahead. One quarter into 2026, our results confirm we're on the right path and support my confidence in our outlook even as the macro environment remains dynamic.

That confidence is grounded in the position of strength we carried into the year driven by the actions to focus our business, streamline our operations and increase our capital levels. The focus forward strategy we rolled out last year is simple and powerful. Focused means we're doubling down the businesses and segments where we have clear competitive advantages. These are areas where we have long-standing relationships, differentiated capabilities, relevant scale and a right to win.

Forward reflects our ambition to create something extraordinary and sustainable from a position of strength. Together, these principles have allowed us to streamline and sharpen our focus, building a business that is increasingly impactful and enduring. The results since our refresh last year provide unmistakable evidence it's working. Record application flow has enabled strong origination volume with accretive risk-adjusted returns. Record written premium volume as we continue to leverage our insurance offering to deepen dealer relationships and help them win across their entire ecosystem.

Strong growth across the corporate finance portfolio while delivering an ROE of over 25% and maintain an unwavering focus on credit risk and reinforce our position as the nation's leading all digital direct bank as we continue to grow customers and increase engagement, providing stable cost-efficient funding. The progress is real, and we remain committed to delivering even more.

With that, let me cover some of the highlights from our first quarter. Adjusted EPS of $1.11 was up 90% year-over-year. Core ROTCE of 11.1% was up 440 basis points versus 2025, reflecting the structurally high returns we're capable of generating. Margin of 3.52% was impacted by the lease headwinds we discussed last quarter, but we remain confident in our ability to deliver a sustainable upper 3% margin. The final lever of our mid-teens thesis.

Adjusted net revenue of $2.2 billion was up 6% year-over-year and 12% when adjusting for the sale of credit card. Finally, CET1 of 10.1% was up roughly 60 basis points year-over-year. We're encouraged by the thoughtful Basel III proposal at least a few weeks ago and the clarity it provides. We appreciate the agency's efforts to modernize the capital rules and achieve a more streamlined framework that better aligns capital requirements with the risks inherent in our business.

Specific to Ally, I view the proposal as being constructive and supporting our existing capital allocation priorities. We remain confident in our ability to identify accretive opportunities for organic growth in our business, build CET1 and return capital to shareholders. The strategy is amplified by our brand and our culture. Our brand is an asset when known for authenticity and impact. Earlier this week, we announced that we met our 50-50 media pledge to spend equally in men's and women's sports. That's a year ahead of schedule and clear proof of the impact we can make.

Women's sports have been experiencing remarkable growth in recent years, and we're incredibly proud to partner with and support those shaping the evolution. The business outcomes of these investments have been encouraging with our brand health at an all-time high and customer retention continuing to lead the industry. Our culture is based on an unwavering commitment to do it right and establishes an ethos for everything we do.

In the first quarter, we were honored to be named to Fortune's 100 Best Companies to Work For, the highest ranking we've received and the fourth consecutive year being recognized. Additionally, Newsweek included Ally on their list of the most trusted companies. These recognitions reflect the kind of culture and customer-centricity our team builds every day. What mattered even more was hearing directly from our teammates. Over 90% of the Ally is a great place to work and saw meaningful gains in trust and leadership and confidence in where we are headed. That tells me our strategies of resonating. We're aligned, focused on executing in a way that employees can resonate with.

That alignment it energizing. The momentum is real, and I am excited for what relies ahead. With that, let's turn to Page 5 and discuss the core franchises. Operational momentum within each of our core franchises remain strong, builds on the progress we delivered in 2025 and positions us for further improvement in financial performance. Our dealer-centric through-the-cycle approach remains a key differentiator, driving results across dealer financial services and reinforcing the strength of our relationships.

4.4 million applications reflect another record quarter. The scale and breadth of our product offerings and mutually beneficial dealer relationships remain key strategic advantages that drive strong application flow and enable us to be selective in what we originate. The strength at the top of the funnel translate into solid origination performance with consumer originations of $11.5 billion, up 13% year-over-year despite a decline in industry light vehicle sales and healthy competition.

Importantly, with a focus on risk-adjusted returns, we are mindful of the economic environment and maintain a dynamic approach to underwriting. The benefit of the strong application flow extends beyond originations as we saw record volume and revenue from our pass-through programs this quarter. Insurance is a critical lever contributing to the success of our dealer partners and our ability to win. That strength is translating to results with written premium of $389 million, marking a first quarter record for Ally.

Growth continues to be fueled by leveraging synergies with the auto finance team as we highlight our all-in value proposition to support dealers across all aspects of their business. In Corporate Finance, we delivered a 26% ROE while growing the portfolio to $30.7 billion, up roughly 6% quarter-over-quarter. While we continue to see accretive growth opportunities, credit remains central to how we operate. As we've cited previously, we serve as the lead agent for virtually all transactions given the ability to own the diligence process, underwrite and structure transactions appropriately.

Turning to Ally Bank. Our customer-first approach sets apart as we continue to benefit from the shift to digital channels. We ended the quarter with $146 billion in retail deposit balances. Reinforcing our position as the largest all-digital direct bank in the U.S. Our focus remains on providing best-in-class products and services to drive customer growth and retention. We saw an improvement in customer acquisition in the first quarter and over the past year, we delivered 6% customer growth. We see meaningful opportunity to continue deepening relationships with 3.5 million customers as we look to provide value extending beyond rate paid.

The strength and stability of the portfolio remains critical to our success. Retail deposits continue to represent nearly 90% of total funding and 92% are FDIC insured. The franchise provides stable, low-cost funding source that enables our business to focus on prudent growth. Let me finish where I opened up. and that's with optimism. Our path ahead is clear and compelling. Our core franchises are delivering and returns are moving higher. I'm encouraged by the progress and momentum. And while mindful of the dynamic operating environment, I'm optimistic for what remains ahead.

And with that, I'll turn it over to Russ to walk through the financials in more detail.

Thank you, Michael. I'll begin by walking through first quarter performance on Slide 6. Net financing revenue, excluding OID, of $1.6 billion was up 8% year-over-year and up 15% when excluding credit card in the prior year. We continue to benefit from strong performance across our core franchises, ongoing optimization of the balance sheet towards higher-yielding assets and our disciplined approach to deposit pricing. Adjusted other revenue of $572 million in the first quarter was flat year-over-year despite an approximately $25 million headwind due to the sale of credit card.

This momentum reflects the strength of our diversified revenue streams, which include insurance, smart auction and our pass-through programs. Adjusted provision expense of $474 million was down $23 million year-over-year, largely driven by continued improvement in retail auto NCOs and the exit from credit card. Retail auto NCOs declined 15 basis points year-over-year to 1.97%. Adjusted noninterest expense of $1.2 billion was down $85 million year-over-year. demonstrating our continued commitment to cost discipline as well as reflecting the sale of credit card and historically elevated weather losses in March of last year.

Let's move to Slide 7 to discuss margin in detail. Net interest margin, excluding OID, was 3.52% as repricing of floating rate exposures and lower lease yields were offset by lower deposit costs. Retail auto portfolio yield, excluding the impact from hedges, was flat sequentially, consistent with the expectations noted in January. Lease yield included a $10 million loss on lease terminations, given the headwinds on select plug-in hybrids, we noted in January. We assess depreciation rates quarterly, and we accelerated depreciation on certain leases maturing in the near term, primarily due to these impacted models.

As a reminder, we expect our lease termination mix will start to shift next year. Approximately half of the leases we originated over the past 2 years have OEM residual value guarantees. While the other half reflect a more diversified mix of OEMs. This will continue to reduce lease gain and loss volatility over time. On the liability side, cost of funds decreased 9 basis points quarter-over-quarter, largely driven by a 9 basis point decrease in deposit costs. Retail deposit balances increased $2.6 billion and we added 74,000 net new customers. Clear proof our brand and products resonate in the market.

We remain disciplined on pricing through a key growth period. But given the strength of the portfolio, we were able to reduce liquid saving rates by 10 basis points in February, bringing our cumulative beta to 57%, while not reflected in 1Q results, we just reduced liquid savings another 10 basis points, bringing our cumulative beta to 63%. Additionally, CD maturities remain a tailwind with approximately $18 billion in maturities in the first half of 2026, carrying a weighted average yield of nearly 4%.

Looking ahead, we anticipate a decline in 2Q retail deposit balances, given seasonal tax payments. Our focus remains on customer growth trends and optimizing overall cost of funds. Average earning assets were up 2% year-over-year. Importantly, growth continues to be concentrated in our highest returning assets, retail auto and corporate finance. Those portfolios in aggregate were up 6% year-over-year. Momentum across the balance sheet supports my conviction in our path to a sustainable upper 3s margin over time across a variety of rate environments.

Turning to Page 8. CET1 of 10.1% was up approximately 60 basis points versus the prior year. Like Michael, I'm appreciative of our regulators thoughtful approach to the revised Basel proposals and the clarity they provide. I look forward to continued engagement throughout the comment period the proposals improved alignment between capital requirements and fundamental risk in our business is encouraging. Relative to current headline CET1 of 10.1% and the revised standardized approach would produce a CET1 ratio just above 9% when fully phasing in AOCI.

That is nearly 100 basis points higher than where we would have landed under the 2023 proposal. In addition to the standardized approach, we continue to evaluate the expanded risk-based framework. As Michael noted, the proposals indicate a favorable outcome for Ally and our capital allocation priorities remain the same. We look forward to continuing to drive accretive growth in our core franchises, build capital, support our dividend and repurchase shares. Earlier this week, we announced a quarterly dividend of $0.30 for the second quarter of 2026, which remains consistent with the prior quarter. And we repurchased shares worth $147 million.

Our open-ended buyback authorization continues to provide flexibility, enabling us to remain dynamic in any given quarter as buybacks complement the rest of our capital allocation framework. At the end of the quarter, adjusted tangible book value per share reached an all-time high of $41, up nearly 14% over the past year and reflecting our ability to concurrently increase book value and returns. On Slide 9, we will review asset quality trends. Consolidated net charge-offs of 121 basis points were down 13 basis points versus the prior quarter and down 29 basis points year-over-year.

Strength across our commercial portfolios continues to complement favorable trends in retail auto. Retail auto net charge-offs of 197 basis points were down 17 basis points quarter-over-quarter and down 15 basis points compared to a year ago. 1Q marked the fifth consecutive quarter of year-over-year improvement in NCOs as we benefited from particularly strong used vehicle prices and record low flow to loss rates. On the top right of the page, 30-plus all-in delinquencies of 4.6% were down 17 basis points from the prior year, marking the fourth consecutive quarter of year-over-year improvement on an all-in basis.

Industry data has shown that ex refunds increased roughly 11% year-over-year versus some earlier expectations for increases above 20%. Notwithstanding the increase in tax refunds and a dynamic macro, delinquency followed what we would consider to be a typical seasonal pattern during the quarter. We've continued to see a resilient consumer, but given the evolving backdrop, we feel it's appropriate to remain measured.

Turning to the bottom of the page on reserves. Consolidated coverage decreased 1 basis point this quarter to 2.53% given mix dynamics, while the retail auto coverage rate was flat at 3.75%, a Retail auto coverage levels continue to balance favorable credit results within our portfolio against macroeconomic uncertainty. Across our commercial portfolios, credit performance remained strong with stable fundamentals. We continue to see accretive growth opportunities, but risk-adjusted returns remain our focus. We'll remain disciplined on both underwriting and pricing as growth is assessed through a credit-first lens.

Moving to Slide 10 to review Auto segment highlights. Pretax income of $336 million was lower year-over-year due mainly to CECL reserve build. On the bottom left, we've highlighted the trajectory of retail auto portfolio yields. Excluding the impact from hedges, yields were flat quarter-over-quarter and up 16 basis points year-over-year. First quarter originated yield of 9.6% was relatively flat quarter-over-quarter despite ongoing competition coming in slightly favorable versus our original expectations.

As year concentration declined to 41% in the period. We will remain dynamic as we optimize risk-adjusted returns across the credit spectrum. On the bottom right of the page, $11.5 billion of consumer originations were enabled by an all-time record in consumer applications. Our strategic focus is on the top of the funnel and our all-in dealer-centric model. Our originations were up 13% year-over-year despite a continuation of strong competition and a decline in new and used industry sales. We remain disciplined in our approach to underwriting as we assess the potential impact of higher oil prices and lower consumer sentiment.

Our ability to actively calibrate our buy box with the evolving market will support accretive risk-adjusted returns over time. Turning to insurance on Slide 11. Core pretax income was $87 million, up $70 million year-over-year. Total written premiums of $389 million were up $4 million year-over-year. Insurance losses of $121 million were down $40 million, primarily due to lower weather losses given historic weather events in the prior year. Insurance continues to drive capital-efficient diversified revenue and remains a key component of our long-term growth strategy.

We continue to leverage synergies with Auto Finance to drive momentum within the business and deepen our all-in value proposition as we help our dealer partners succeed in all aspects of their business. Turning to Corporate Finance on Slide 12. The business delivered another strong quarter with core pretax income of $94 million and a 26% ROE. We have continued to prudently grow the portfolio, which stands at nearly $14 billion today. Credit discipline is embedded in everything we do. It guides our growth and is reflected in the credit characteristics of the portfolio.

Our strategy is built on long-standing relationships and deep underwriting familiarity, which we believe are advantages in managing risk. Additionally, our differentiated funding profile enables us to structure transactions conservatively while generating accretive returns. Given headlines related to the private credit industry more broadly, we've added some metrics highlighting the strength of our portfolio. We've never recorded a loss since we entered the business in 2019 and no loan has ever been classified as criticized or placed on nonaccrual.

Our approach remains highly disciplined anchored and conservative underwriting with loan-level detail, conservative advance rates, tight concentration limits and eligibility requirements, along with the ability to revalue underlying collateral and reduce borrowing limits. The portfolio is well diversified, spanning nearly 1,200 obligors with an average advance rate of 60%, reinforcing our strong collateral position. Our exposure is intentionally concentrated with groups of high-quality, scaled asset managers with proven through-the-cycle performance.

Our track record and ongoing prioritization of credit risk management give us confidence in our ability to drive accretive growth going forward. I will briefly discuss our outlook on Slide 13. Guidance remains consistent with what we shared 3 months ago. We are pleased with our execution during the quarter as we continue to capitalize on the momentum across our core franchises. While we are closely monitoring the impacts of macroeconomic uncertainty, we remain confident in our ability to deliver against our full year guidance. As noted on the page, our baseline assumptions reflect the March 31 forward curve, which doesn't include a Fed funds cut until June of 2027.

Movement in benchmark rates and may impact the timing and pace of future NIM expansion, but we remain confident in delivering a sustainable upper 3% margin over time across a range of rate environments. As Michael noted, we're encouraged by operational performance and improving financial results. Our focused forward strategy is working. Our team remains intensely focused on advancing our progress through disciplined execution. I remain confident in our ability to deliver compelling long-term value for our shareholders. And with that, I'll turn it over to Sean for Q&A.

Thank you, Russ. As we head into Q&A, we do ask that participants limit yourself to one question and 1 follow-up. Liz, please begin the Q&A.

[Operator Instructions]. Our first question comes from Ryan Nash with Goldman Sachs.

Michael, maybe to kick it off, there's clearly a lot out there that the consumer is facing, whether it's volatile oil prices, other pieces of inflation. Interest rates are not as low as people had hoped. So when you think about all things that are out there, can you maybe just give us an update on what you're seeing on the consumer? And what does that mean for your overall credit expectations going forward?

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category. And when you kind of look at it all together, on the whole, it has yet to materially impact our business. And let me unpack that a bit more as I think about both today and looking ahead, Today, we see the continued behavior is resilient. And I've mentioned this before in a couple of conversations is that there's a bit of a disconnect between consumer sentiment data and what we're seeing in our portfolio.

I'd also offer that today, we continue to see opportunities to generate loans with attractive risk-adjusted returns. We like the business that we're booking. And at the same time, I think you heard in the comments, we're choosing to be deliberately measured. If you look at the data from the quarter, auto originations or applications, I should say, are up 16% year-over-year. But origination volumes are at a slightly more moderate pace. And so we're prioritizing call it, discipline over volume. And I think the word you heard is what we're being measured, I think appropriately so. And if I think about looking ahead, look, my ability, I think our ability to predict exactly how conditions unfold is probably no better than anyone else's. And so we stay really focused on what we control.

First of all, we remain anchored in our long-term strategy. And I think the pivots that we took a year or so ago have really, really set us up well for this environment. Second, look, we run Ally with a strong data discipline. And we have lots of data, it's internal data, new origination data on the auto side. Clearly, you look at portfolio data and vintage trends and low severity and roll rates and skip rates and things like that. We also look at external data, macro data, savings rates and income rates and even credit card delinquency and credit card minimum pay day and things like that.

And so when you put it all together on a go-forward basis, look, we're -- I think we're being, I think, measured in this environment. But I think you saw for the quarter, we feel good about what we're delivering. So you put all this stuff together, you've got headwinds and tailwinds, but we feel good about what we're seeing in our portfolio. And so overall, I'm aware the environment is unusual, but I'm really pleased with our fundamentals and our recent performance.

Got you. Maybe as my follow-up, Russ, you reiterated the NIM of $3.60 to $3.70 despite the shipping rates, and you're assuming no cuts now. Can you maybe just talk about how the cadence of the margin has changed? Where do you see the exit run rate now? And maybe just talk about if you can continue to manage deposit costs lower, similar to the cut that you had yesterday in this sort of stable rate environment.

Great. Thanks, Ryan. Thank you for the question. There's a lot there. Let me try to break that down as best I can. And I guess maybe where I'd start is, we've talked before about medium-term trends in our business in terms of the portfolio mix in terms of our deposit pricing beta. All those things continue to be very much intact and give us confidence around our medium-term trajectory in terms of net interest margin. As you know, the pace and magnitude of Fed funds changes can impact us, particularly in a given quarter.

But all those trends remain intact. And so as you pointed out, we've seen a shift in terms of Fed funds expectations. Our guidance is now based on the assumption that Fed funds will be led through the rest of this year. And we've maintained our guide at $360 million to $370 million. And I'd say that's just a reflection of the business performing as expected with recent cuts to our OSA rates, we're operating at a 63% beta, that's very much in a range that we've talked about before that we've targeted for the business.

When you think about the next couple of quarters, second quarter will have the benefit of the recent cut that we put through the system yesterday as well as the full quarter impact of the cut that we made back in February as well as CD maturities, which will continue throughout the year. And then in the background, that ongoing portfolio mix migration as we run off lower-yielding mortgage securities and mortgage loans, and we continue to grow our higher-yielding retail auto loan book and corporate finance books. And we continue to leverage the momentum that we have in both of those businesses. So once again, our overall outlook on NIM is unchanged. For the year, we expect $3.60 to $3.70.

And as you do the mathematics on that, that very much implies that we exit the year at or above the high end of that range, and that continues to be our expectation. Again, as you know all too well, obviously, movements in rates can affect us in a given quarter, but the business is ways of offsetting that.

Our next question comes from Rob Wildhack with Autonomous Research.

I guess I'll start on capital. The buyback came in better than we were modeling. And Michael, you called out -- you and Russ called out some of the benefits to Ally from the new proposal. If you add those things up, I guess what kind of scope is there to maintain or even accelerate the current pace of buyback and wake of the new rules?

Yes, thanks. Maybe I'll start and Michael, you can jump in. I guess, first, I'd reiterate the comments we made on the call. We're appreciative of these very thoughtful proposals, they are proposals. They're going to go through a comment period. I'm confident they'll get a lot of comments as we go through that. and there may be some changes in terms of what the final rules look like.

And so with that as context, I'd say, overall, our expectation, though, is that they're constructive and they'll be favorable for Ally as we pointed out on the call. Our capital priorities remain unchanged. And I do think the first quarter provides an interesting template, a good template for the way that we prioritize growth in the businesses that we're focused on growing. And so you saw that strong growth in retail, auto and corporate finance.

And that is a priority for us is to ensure that we have the capital to support that growth. We are also prioritizing continuing to build our capital and to put a buffer on top of the effective kind of 9% plus CET1 ratio that you'd print if you fully phased in under the RSA. And then I'd say, obviously, it's supporting our dividend and continuing to buy back stock. I would say in terms of capital, we think of this as a story of and not or and that we can do all of these things at the same time, support the growth of our core businesses, build our capital, support our dividend and buy back shares.

Okay. And then on the competitive environment in a couple of different areas, can you just unpack what you're seeing on the retail auto side. Obviously, there have been some newer or potential re-entrants there? And then a similar question on deposits. You highlighted the 63% cumulative beta so far. So have there been any changes to what you're seeing competitively on the deposit side, too?

Yes, I'll start on the auto side. I'd say there really haven't been recent changes in the competitive environment. I think we're -- we've had four straight quarters where I'd say the -- where we've seen this kind of higher level of competition and what we had seen coming out of the pandemic. And it's been 4 straight quarters where we've continued to demonstrate momentum in our businesses.

Our dealers are responding to the fact that we are a through the cycle partner. We support their businesses in a number of different ways and we have long-standing and meaningful relationships. And that, for us, has translated into strong application volume, you saw the record application volumes we had this quarter. That gives us an opportunity set. And we've been able to use that in order to originate to originate volumes that we like, credit and that an originated yield that we like. And I think we saw all those things come through in the first quarter.

And Russ, on the deposit side, it's actually quite -- we're very pleased with what we're seeing and recognize there's competition for deposit balances we believe we are in a relatively rarified area and that we're a digital bank with a national brand, and there are not many who really take that box. And if you saw, we actually disclosed this quarter, our customer growth on a quarter on a year-over-year basis was 6%.

And in fact, in this environment, we're actually seeing our customer growth rate is actually accelerating, not decelerating. So pricing aside, we like the margin we're getting in that business, and we like new volume flows. New volume flows are albeit their lower balance customers, we actually like that dynamic. And so we're really pleased with what we're seeing there.

Absolutely. Thanks, Michael. The customer is clearly responding to a national brand a top-notch digital experience and competitive rates.

Our next question comes from Sanjay Sakhrani with KBW.

I guess I want to start on credit. Obviously, credit quality is doing pretty well. I'm curious sort of as we think out on the reserve coverage. How should we see the progression as we've seen credit charge-offs come down and delinquencies sort of follow? And then, Michael, I think you mentioned you're being measured or something like that. I'm just curious if given the success you're having with credit, you might want to lean in a little bit more on growth as we move forward if the geopolitical stuff sort of subsides.

Maybe I'll start on the credit -- the question around credit. Yes, as you pointed out, we're pleased with what we're seeing in the book. When you look at first quarter, flow to loss rates were solid. We got some support from used vehicle prices. It translated into another quarter where NCOs are down on a year-over-year basis and DQs are also down on a year-over-year basis. So once again, pleased with what we're seeing in our book Michael pointed out earlier, there's a lot going on in the macro. It's a very dynamic macro. And we would consider ourselves to have a measured posture.

You asked specifically about reserves we held reserves flat at 3.75%. That's very much taking into account what we're seeing in the book as well as the backdrop of a very dynamic macro. As you can imagine, we have a thorough process that we go through every quarter as we go about setting reserves, taking into account what we're seeing in the book, some of the uncertainties that are in the macro and the output of that process was holding reserves flat. As we think about our return ambitions going forward as we think about our mid-teens, we don't predicate that on the idea of reserve releases. It's not something that we model. Yes, we kind of look at the business kind of very much on a steady-state basis.

And you did hear the -- we used the word measured. You often hear us talk as being dynamic. And so like in this environment, with what we see today, measure the appropriate word, but look, as I said, we're very data dependent. And as data ebbs and flows, we'll make some adjustments to that we think is the best interest of the business to drive accretive business.

Got it. Maybe just on the application volume growth. I mean, obviously, very strong the originated yield also remains quite strong. And just going back to a little bit of the competition question, but also your success here, what's driving the success here in the application volume. I mean is it just dealer penetration? Or is it more diversification across brands? I'm just curious how we should think about that success and then how it would translate into the defensibility of that yield, right? Because I think that's a really critical piece of the NIM progression on a go-forward basis.

Yes. Let me take this one off and Russ, if you have anything to add to this. In terms of the strength of our application flows, I could take you back it was prior to last year when we announced by all our strategic pivot where we're going to sell the credit card business and stop originating mortgages and really focus on our core businesses. And that's -- we've been very intentional about that over the past year and really like what we're seeing. And I just have to tip my hat to the -- to our teammates in the -- in our financial services, and particularly those are the dealer-facing colleagues because they're working building their relationships every single day.

And as we do that, our dealers appreciate we're all in on them, and they appreciate the way we actually manage the relationships and they're there to help them win. And that's translating into more volumes. And so this is -- the premise of the strategy we call it focus forward is really leaning to things that we do very, very well. And what I see in terms of application flows is really just the fruits of disciplined execution against that strategy. And so we feel very pleased with that.

And then in terms of kind of yield, look, yield is going to ebb and flow with mix and there are seasonal factors that have kind of come into play. We like the yield that we saw in the first quarter. I mean, Russ is probably a bit little higher than we were expecting. And I don't know what do you think?

Yes. I think it outperformed our expectations a little bit. And as you pointed out, we expect the originated yield ebb and flow somewhat from quarter-to-quarter. And yes, certainly, as we look to kind of first quarter to second quarter, there's generally been some seasonality there, which would kind of drive that to your concentration a little higher in the second quarter and perhaps put a little pressure on yield. But again, I wouldn't get hung up on yield in any particular quarter. I think the important point to look at is that strong application volume that we see gives us a lot of flexibility in terms of being able to really kind of manage and be flexible and be dynamic with what we pull through in a given quarter in terms of volume and credit and originated yield.

Our next question comes from Brian Foran with Truist.

Maybe on capital, you've got this note that you're still evaluating Urba. Is there any thought that Urba might be better than the 9.1% and it's worth opting in?

I mean as we said before, both of the proposals are constructive. They are just proposals. There probably could be some movement between now and when they're finalized. That being said, on the face of it, Urba obviously has the advantage of lower risk weights for certain categories, including retail auto loans, which is a big part of our balance sheet. So there are certainly some advantages there. There are also some additional RWA categories like operational risk that offset some of that.

And so as you would imagine, we're very focused on evaluating both Urba and RSA to understand the implications of both of those as a category for bank will be kind of automatically put into the RSA bucket, and it's up to us to decide if we want to opt in, and I believe there's based on the current regs a 1-year transition process in terms of transitioning from RSA to Urba. So it's certainly something that we're looking at now. I imagine as these proposals go through the process finalization, we'll continue to look through it. And of course, we'll be judged in terms of kind of what positions us best for the long term as an organization. And what kind of best matches the risk in our book with the appropriate capital requirements.

Thanks. And then on Corporate Finance, the growth I mean the metrics are what they are, 26% ROE historical loss. So it's tough to argue with growing that business. But I'm curious you appreciate there's a lot of investor nervousness in the space. I wonder if you could just touch on qualitatively in terms of what's driving the growth? Is it tires? Is it competitors pulling back? And then also, if you could touch on. You mentioned some of the underwriting metrics, is there anywhere where you're starting to tighten up? Are you raising pricing, lowering advance rates, marking collateral? Maybe if you could just touch on those two things. Conceptually, what's driving the growth underneath the surface? And then from an underwriting standpoint, is it steady as she goes or any tightening you're doing?

Yes. Maybe I'll start with just the team that we have. It's a team that's more or less been in place for decades, and it's a credit-first team. I just want to make it clear. We don't chase growth in this business. We don't chase growth across our organization. And as you can see from the results, this is a team that prioritizes credit and returns above growth. And so we typically expect to see our corporate finance loan portfolio ebb and flow. You've seen that volatility over time. I think there were some quarters a little while back where we actually shrank the book over the course of the quarter.

And part of that, again, is our credit-first approach and the fact that we don't chase growth. And part of it is just the nature of the business in terms of the lumpiness of paydowns and originations. We're really pleased with what the business was able to do in the first quarter in terms of growth. But I just want to assure you that there haven't been any compromises made in terms of how we think about credit. Now there is a dynamic in this business with respect to the CLO model, where some of our facilities are taken out as our clients transition from basically our facilities to the CLO market, and there's certainly some ebb and flow in that. and obviously, some degree of pricing competition between where our facilities are priced versus that market. But I can assure you we're not making compromises based on credit here for the sake of growth.

And Russ, the other thing I might add to that is you talked about our team being in business for literally decades. Many of our clients that we work with have also been in business for decades. And when our commercial clients are doing very, very well. They are growing. And a lot of the growth you're seeing is just us growing with our clients. And so people who we've dealt with many, many times so far, we have long-standing trusted relationships we age in our businesses. And as they're successful, we're doing more and more business with them. And that's just -- it's probably the best way you can grow.

Our next question comes from Moshe Orenbuch with TD Cowen.

Was hoping to talk a little bit in more detail about the kind of retail auto credit both performance and outlook. I mean, clearly, you've got the current performance of the consumer and I guess in the spirit of being dynamic today is probably a better day to look at that going forward. But as you think about the key trends that you identify the vintage roll forward used car values and the underlying performance of the consumer. Just talk a little bit about how you expect that evolution in terms of should that performance be increasingly better as we go through 2026.

We've left our retail auto NCO guide for 26 unchanged at 1% to 2%. And Back in January, we talked a little bit about the guide. And we compared our approach to the guide this year versus last year. And I think the way we described it is that kind of 1% to 2% is very much down the middle guide. The portfolio continues to perform the way it has been in terms of photo loss and used car prices and the overall evolution of delinquency, we we'd expect to be very much in the middle of that range.

So it's -- from our perspective, a balanced guide. That being said, if I think about our book over a longer period of time, we originate to 1.6 to 1.8 annualized NCO rate. And so our expectation is, as you kind of look at this over -- with the benefit of years, we should have that migration towards that area. But based on just where we are delinquency, low to loss, a kind of down the middle view of used car prices, our expectation is still very much is a very kind of balanced view of what we expect for 2026.

Got it. And on the insurance business, profitability was quite strong. growth was a little bit lower. You mentioned lower weather losses and other things. Are there any other trends that we should be aware of? And any anything that would cause that the growth in kind of the top line premiums written your revenues to accelerate.

Yes. And thanks for pointing that out. And when you kind of look at the earnings in this quarter, a strong quarter from a weather perspective. And the year-on-year comp was interesting given March of last year, we had some record events. I think they were kind of one in 200 year weather event that impacted our profitability in the first quarter of last year. So we had a really easy year-over-year comp to me.

And so obviously, we had some favorability on the weather side this quarter. On the investment portfolio, I realized gains were also strong over the quarter. And so that certainly helped the business as well. As you think about the business over a longer term, kind of one of the shifts that we've been making is as we're underwriting, we're doing a lot of business that I would characterize as having kind of marginally lower risk than previously. And so with respect to weather in particular, we've entered into lower risk floor plan insurance policies where we're doing -- we're less concentrated in what we would consider to be the weather states where you have higher risk of the hail storms that tend to impact us.

And we're also doing more high deductible business where our customers are basically taking more of the risk through their deductible as opposed to passing that on to us. And so over time, we'd certainly expect that to translate into a little bit less volatility. Hard to see that, obviously, on a quarter-to-quarter basis based on kind of everything going on in that business. But that's one of the trends. And obviously, with kind of lower risk policies comes lower premium for the same nominal dollar value of vehicles insured.

Our next question comes from Jeff Adelson with Morgan Stanley.

Just wanted to ask one on operating leverage. You've done a pretty good job executing on some expense management here this quarter. Obviously, you're getting the benefit of card rolling off from the expenses and not having that 200-year event on weather. But can you maybe just unpack how you're trending relative your own expectations on expense management and where you think you can kind of go from here? And are there any other opportunities for you to really hone in and improve your efficiency from these levels?

Thanks for the question, Jeff, and I appreciate your mentioning that we had some benefits in terms of the year-over-year comp this year having given the card business was in play first quarter of last year, and then obviously, we had that 1 and 200-year weather event. And so while we saw that reduction in noninterest expenses year-over-year this quarter, as we think about the forward, we're going to have a more appropriate year-over-year comps to deal with.

All that being said, we've talked about our focus on expense discipline, extensively over the last few quarters it is very much in play. We are absolutely executing on that and a large part of kind of what you've seen, not just this quarter, but if you look over the last several quarters as you've seen an expression of that discipline in the way that we've really held the line on noninterest expenses. All that being said, we provide a guide for the year on noninterest expenses, but more importantly, as we think about the forward beyond 2026, we do think this is something that comes in the, call it, low single digits, low to mid-single-digit range in terms of expense growth on a long-term basis. But yes, certainly, over the course of the next year, we continue to expect we're sticking to our guide of up about 1% over the course of this year.

Russ, we talk a lot about disciplined execution, which certainly plays a role in terms of volumes we generate, but also plays a significant role in terms of just how we operate the business and ensuring the dollars we're spending are highly levered and constantly challenge ourselves to reprioritize our investment spend to ensure we're getting the maximum impact. And just getting real pleased with how the teams have been showing up for this.

Okay. Perfect. And maybe just a follow-up on tax refunds. I appreciate the comments earlier. You don't think it's really changing the cadence of your delinquency seasonality. But I guess given that they are starting to trend up at these levels year-to-date, I mean, are there any areas you do expect it to flow through? And I guess, maybe just thinking through the demand you've seen on applications, et cetera, do you maybe think that there's some potential pull-forward dynamic happening here as we think about tax refunds, people using that for car purchases or just getting ahead of expected impacts of higher oil prices, et cetera?

Look, I think refunds up probably about 11%, not the 20% that people probably anticipated coming into the year, but up meaningfully and yes, that was probably a helpful factor. As Michael pointed out, there's also a lot of other things going on in terms of the macro, including, as you pointed out, what's going on with oil prices, some of the changes we've seen in consumer sentiment, personal savings rates, I think there's a mix of a lot of things going on right now. And I think as you pull all that together, I'd say that the seasonality that we saw in the quarter was very much typical of what we would have expected.

Our next question comes from John Pancari with Evercore.

Just on the retail auto side, you noted the $10 million loss remarketing on the lease residuals. I just want to see if you could maybe give us an updated outlook there? How do you think that will trend? Is that largely factored into the guide? And then separately, I know you also acknowledge that the decline, the 5% decline in new light vehicle sales, does that -- what's your assumption internally? And does that temper or alter your 2% to 4% earning asset growth outlook at all?

Yes. Maybe I'll start on the lease side. And I'd say we showed $10 million of losses on lease terminations during the quarter. I'd say that was probably a little favorable to what we expected when we spoke back in January. And I think the pressure we're seeing on UGVs, a handful of models was very much consistent with what we were seeing coming into the quarter, but I would say we saw some favorability in used car prices, which affected the lease termination portfolio more broadly and probably provided some offsetting good guide there.

Yes. As we think about the remainder of the year, 1 of the changes we made was we accelerated depreciation on some of the vintages coming through in the near term. that acceleration of depreciation is very much related to that handful of PHEV models that where we've been seeing pressure. And so we think we've taken care of that through our processes around lease depreciation. And so I'd say our outlook for the year very much takes into takes into account what we expect in terms of any pressure, any remaining pressure from those models.

As far as light vehicle sales go, we sound light vehicle sales down in the quarter. We saw pressure on light vehicle sales in the fourth quarter we still had two very strong quarters in terms of applications that translated into two very strong quarters in terms of originations. And so we feel pretty good about our momentum on the retail auto loan side. And so we continue to feel really good about our guidance around earning assets.

Got it. All right. And then -- on the return front, I know you cited your confidence in your net interest margin despite the fluctuations in the rate backdrop, you cited the favorable Basel implications. How does this come into play in terms of your mid-teens ROTCE expectation? Any changes there? And maybe update us on what a reasonable timing they look like for that target?

No updates there, John. I mean on timing, we continue to resist the temptation to try and call a quarter. As you know, we -- we see things that impact our business in any given quarter, but those longer-term or medium-term trends persist. And we have a high degree of confidence of meeting our mid-teens target.

Our next question comes from Mark DeVries with Deutsche Bank.

Yes. I appreciate all the comments so far on capital. But Russ, I noticed you didn't refer to low and slow. Was that kind of a deliberate emission that reflects just greater optimism about the pace at which you can return capital? Or am I reading too much into that?

I think you're probably reading too much into it. I'd say we're going to be dynamic. Our capital priorities are unchanged. And so we're going to be dynamic as we see the opportunity on the origination side in our core businesses where we generate returns that are accretive to us. And obviously, we'll continue to build capital and support our dividend and buy back shares. But yes, I'd say, I think you probably overread into it a little bit.

And Russ, maybe, I think my very last question is bit to pivot off the capital question. You reflect again upon the past few years, the fact that we're having conversations at the pace of share repurchases I think this is a real testament to the fact that we've got the right strategy for our organization and the disciplined execution is playing through. We feel really good about our strategic positioning and really how we're going to -- not just how we delivered this quarter, which we feel very, very good about, but how we're teed up for the future. And I love the fact for having conversations about the pace of capital share repurchase.

Thank you, Michael. Sean, right at the top of the hour, we'll go ahead and wrap it for today. If you have any additional questions, as always, please feel free to reach out to Investor Relations. Thank you for joining us this morning. That concludes today's call.

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

Thank you for being here at our 30th Annual RBC Financial Institutions Conference. Starting my fireside chat sessions today with Russ from Ally Financial. Thank you for being here. Again, Russ, I appreciate it very much.

Thanks, Jon. Thanks for having me. Happy to be here.

Let's start at the high level. It's not like there isn't a lot going on, but let's start at a high level and step back and give us your view of the broader macro, how you'd characterize the current environment? And then just little bit about how you would define ensuring that Ally is successful in this kind of an environment?

Yes, absolutely. It's a good question, very topical. The macro is certainly dynamic right now. And maybe let me just start with what we're seeing. Our consumer continues to be resilient. The trends that we've been talking about in terms of flow to loss, delinquency, severity, they all continue to be favorable. We're really benefiting from a lot of the changes that we've made over the last few years to how we underwrite and how we service.

I'd say, we continue to get great traction with our dealers. Our application volumes continue to be strong. It's giving us a great opportunity set, the opportunity to be selective around credit as well as pricing. And so we continue to see strength in terms of originations.

And I'll say it's been particularly impressive, as you look in particular over the last 5 or so months, where you've seen new car sales down, but our application volumes and our origination volumes up, really bucking the trend and really showing the -- just the strength of the dealer relationships that we have.

When I look at our commercial portfolio, both commercial auto as well as corporate finance, we continue to see a continuation of the strong credit that we've been talking about for several quarters.

When we look at our -- at Ally Bank, our digital bank, we continue to see really good momentum in terms of customer acquisition and strong retention. So I'd say across all of our core franchises, we continue to see really strong momentum. Yes, we don't have a road map that's any clearer than your road map in terms of figuring out what comes next in this macro environment. But I will say the steps that we've taken, the choices that we've made in terms of focusing the business really put us in a position that's stronger than where we've been before. And so maybe just on that on focus, we've really focused our business on our core franchises where we have the competitive advantage.

We have relevant scale. We have long-standing relationships. We have a history of being committed to these businesses through cycles. We have a powerful brand that resonates with our customers. We've really focused the businesses on the places where we have competitive advantage. And in the process, we've reduced risk, right? We've taken our unsecured lending books that carry a lot more credit risk. We've taken those off the table. We've reduced interest rate risk. We've put capital on the balance sheet. We've exercised tremendous discipline around expenses.

And so as we look across our businesses, we've just taken a number of steps to reduce risk, to streamline and to put us in a position to navigate whatever comes next. So we feel pretty good about the choices we've made. When we think about the culture of Ally that we've got, it's a real asset to us. Our culture is very much focused and tuned to operating smarter, moving faster, delivering exceptional experiences for our customers.

So we feel pretty good about how we're prepared. And as you think about how we've prepared the organization for what comes next. It really revolves around the power of focus and the culture that we've got. And we think those things put us in a strong position in terms of navigating what comes next in terms of the macro.

Okay. Just on the theme of what comes next, let's talk about AI a little bit. It's emerged as a kind of a catalyst for change, positive and negative. How do you see it impacting your business? How are you preparing for some of these potential changes?

At Ally, we have a legacy of innovation and disruption. It's part of who we are. It's important part of our brand, and I think it positions us well with respect to AI because we see AI not just as an efficiency tool. It's certainly that, we see it in terms of efficiency. We also see it through the lens of an organization that's obsessive about our customer experience in terms of way of delivering better experiences for our customers.

So we are experimenting with AI across the platform. We actually have a pilot in place right now where we're using AI in our servicing operation focused right now on early-stage collection. So we actually have an Ally virtual agent trained on our data, trained in our way of communicating with our customers in doing business that's making outgoing early-stage collection calls. And we're encouraged by the results. It gives us a lot of optimism about the ability to roll AI out more broadly across customer servicing and collections.

Similarly, across Ally, we've got use cases that we're working through across the organization. We've been using AI for call summarization for quite some time now and we found it a real efficiency enhancer. We've got in Ally AI basically an environment that we've set up and that we've made available to all 10,000 of our teammates to be able to experiment and to learn on AI in a safe environment within Ally.

And we're approaching AI, its efficiency, its delivering a customer experience, but we're approaching it with a lens focused very much on risk management with an eye on privacy and security. And we think we're well prepared. We've spent the last couple of years centralizing our data on 1 platform. So we've got 90% of our data within our Enterprise on 1 platform, and we've done that with an eye towards data governance, data quality, privacy, security, all the things that you'd expect from us given our do-it-right culture. And we think that positions us well to really scale the use of AI across our organization.

So again, we think our culture is well suited to it. We think the fact that we're a focused organization, and we're really focused on places where we can make investments and leverage those investments across businesses that are at scale positions us well to really be able to deploy AI, not just for efficiency, but also to deliver better customer experiences.

Okay, good. Before we get into some of the numbers, just reflecting the last 3 years, Russ, that you've been at Ally. Anything else you want to touch on in terms of positioning of the company and some of the things that you're very focused on.

Yes, it's unbelievable that it's actually -- it's been nearly 3 years already. And I kind of picked up and moved my family from New York to Charlotte 3 years ago. I joined Ally with a bit of inside information. I'd spent a couple of decades covering the company as an investment banker. So I had a lot of relationships. I had a lot of admiration for the transformation that Ally had already executed and for the quality of the team and the culture that was there. And I'd say over the last 3 years, that sense of admiration has only grown. And I'm particularly proud of the way that we've adjusted the strategy and really focused the organization. And that focus is paying off.

I mean if I look at 2025, in particular, our pretax income was up 55%. We added 120 basis points to our fully phased-in CET1. We added 19% to our tangible book value per share. You look over the last 3 years, we've consecutively over 3 years, managed our controllable expenses to be flat or down. And so there's a lot to be proud of there in terms of the pivot and the results that are already being shown.

And I think we have a long road ahead of us of growing revenues, increasing profitability and compounding book value per share.

Thank you for that. Margin, obviously, a key topic for your company. It's really the 1 last piece that you need to achieve the mid-teens ROTCE. You've expressed confidence in the high 3% range. What drives that conviction? How do you think about some of the external factors that could impact that?

Yes. It's a great question. Maybe just to start off, we have no news here. No change from the guidance that we provided back in January. Very much on track in terms of what we're seeing in the business. All the drivers that we've talked about before are still there and are playing out the way that we expect. And it's about our asset mix, shifting towards higher-yielding assets in retail, auto loans, corporate finance, shifting away from lower-yielding assets, mortgage loans and some of the lower-yielding mortgage-backed securities that we had put on before.

As you pointed out, it's powered very much by what we see on the deposit pricing side by our March to 60-something percent beta over time. All the same factors that we've talked about before are very much in place, and we really don't have any changes to the guidance that we provided back in January.

Okay. One small nuance on lease terminations. It's a small piece of the balance sheet, but it did -- it has had an impact on the margin. Any update on how you think about -- how we should think about that for the quarter?

Yes. No update from what we've said in January. So there's nothing new here as well. I think you're right in terms of the pressure that it puts on net interest margin. And as we said back in January, we've thought about a wide range of scenarios. And we thought about that in providing the guidance that we provide in terms of full year net interest margin, and that's anticipated.

I would say, and this is probably reiterating some of the stuff we said back in January, but this is really limited to a few models and these models have been impacted by the confluence of a few things. The end of the EV lease tax credit, these are plug-in hybrid vehicles, a manufacturer recall, the discontinuation of these models by the manufacturer and then heavy rebating on new vehicles. All of those things together have impacted these models. And they're really kind of driving an impact to our lease gains. But again, there's no new news here. This has already been discussed. It's covered in terms of how we think about our guide for the full year.

Okay. Good. On the return path, you talked about exiting 2026 in the mid-teens range, level of comfort in that. And then once you get there, your confidence in the ability to sustain that?

Yes. We are absolutely on track and remain confident in our mid-teens trajectory. And as you've pointed out, we've talked about it historically in terms of 3 things: our net interest margin, getting to high 3s. Our retail auto NCOs below 2% and control over our operating expenses. Retail auto NCOs as you know, from our guide, we're currently operating in that below 2% area.

In terms of operating expenses. As we've discussed, we're exercising a tremendous amount of discipline. We think we've checked the box on OpEx control. So it really, really comes down to that net interest margin line. Now as we've talked about before, there are a number of factors that impact our business in the near term and the medium term, they don't change where the business is going in terms of net interest margin, but they certainly affect the trajectory. And so we've been really hesitant to call a particular quarter just understanding that changes, for example, in Fed funds in a particular quarter could impact our net interest margin but it doesn't change our confidence in terms of our march towards that trajectory.

Okay. Just turning to auto competition. It feels like it's a more competitive space, competitors are leaning back in. How does that impact your strategic approach? How are you balancing pricing and growth?

Yes. It's a great question. This is an attractive market. It's not surprising to us that our peers are coming in, in force. And that's not new, by the way. They've been really increasing their presence for the better part of a year now. And so we've seen a couple of competitors in particular ramp up their volumes over the course of the last 4 quarters. So there's nothing new there in terms of the competitive environment. It's a competitive environment that we've been dealing with for some time now.

That being said, our business continues to show incredible resilience and great traction to our dealers. We send our dealer financial services colleagues out with a mission basically to help our dealer partner sell more cars and run better businesses. And we ask our dealers to send us all their applications. The fact that our application volume is up is testament to the traction that we have with our dealer partners. And our ability to take that application volume and turn it into originations that meet our targets in terms of risk and returns; again, testament to the strength of the platform that we've built.

And I take a look at the fourth quarter as a great example of the strength of the platform. New vehicle sales were down, our application volume was up, our originations volume was up, our originated yield was resilient. I'd say across every dimension we look at, our dealer financial services platform continues to demonstrate just great traction with our dealers that's translating into business outcomes. So competition is there, it's intense. It should be. It's a very attractive market. But the benefit that we get from our long-standing dealer relationships, our commitment to this business through cycles is real, and it's showing in terms of the results that we're demonstrating.

On credit, you alluded to a couple of minutes ago, but your guide for the year is 1.8% to 2%. January, back in January, you talked about being at the midpoint of the range. Anything changed in the last 6 weeks or so and talk a little bit about the path and level of confidence to get back to the 1.6% to 1.8% over time.

Great question. Again, nothing's changed. So no new news here. We're continuing to see the favorable dynamics that we've been talking about for a few quarters now, in terms of flow-to-loss, delinquency, severity, we're continuing to benefit from the changes we made to underwriting and to servicing. As I think about that 1.8% to 2%, it's a balanced range from our perspective. And so we obviously spend a lot of time thinking about the midpoint of that range. As we think about that range and as we constructed it, as you pointed out, we're originating at 1.6% to 1.8%. Some of our recent vintages have been performing well relative to that.

But some of the things that impact that range, look, number 1 is we're continuing to benefit from portfolio turnover for some of those older vintages like 2022 and early 2023 that have struggled to the newer vintages, like 2024 and 2025 that are much -- that are performing much better and better than our expectations.

But if you kind of sit here right now, our 2022 vintage is probably still about 10% of the portfolio and its contribution to losses is outsized relative to that. And so that's something that impacts us in terms of how we think about our NCO guide for this year. The other piece of it is we're sitting here with unemployment in the mid-4s, and that's not a projection, that's just -- it's just where we are. A year ago, we were in the low 4s, and so unemployment right now is where it sits is probably about 30 basis points higher than where it was a year ago.

And as you can expect, that's something that impacts us as well on the credit side. That's anticipated. That's baked into our guide. And so we look at the 1.8% to 2% as a balanced guide that kind of balances both the upside and the downside risk from here. Again, calibrated kind of given the mix of loans by vintage that's in our portfolio and calibrated for a mid-4s unemployment rate.

Obviously, the macro continues to be dynamic. Gas prices, inflation, unemployment, these are all things that could impact us. Our road map is no better. As I've said before, our road map is no better than yours, Jon. But again, I think with the changes that we've made to our underwriting and to our servicing, I think we're better positioned than we've ever been to be able to manage through a challenging macro.

So no change?

No change.

Okay. anything on tax refunds, it's a very near-term topic and obviously impacts the consumer. Anything that you're seeing so far?

To the extent that we see stimulus effects, whether it's from tax refunds or kind of other things done by the administration, those are obviously good for us. On tax refunds in particular, the average refund so far is up about 11%. So that's helpful. It's not up as much as some people were thinking as we headed into tax return season. We had heard estimates up 20%, 25%. And so obviously, not up as much as some people had thought, but up meaningfully at about 11% so far. That's helpful. And it's certainly something that we've thought about as we think about our outlook for NCOs for the year. And certainly to the extent that you see more stimulus effects from tax returns or from other things the administration pursues. Those are obviously things that could be helpful to us on the margin as we march through the year.

Okay. Good. I want to get into funding and expenses in a second. But anything to note on Corporate Finance, that's obviously been a business where you've seen some momentum. It's also kind of in the spotlight as well. Can you give us any update on your thoughts on that business?

Yes. Our corporate finance team, they've been at this for 27 years now, and they've managed through a lot of different cycles over the course of the last 27 years. They've got long-standing relationships similar to what we have on our Dealer Financial Services business. And they are credit-focused people, it's a credit shop. And we're really delighted by their approach to disciplined growth with really a firm hand on credit.

So there's nothing new to report in terms of our corporate finance business. It continues to perform consistent with how it's performed in the past. Our level of criticized assets and nonperformers continue to be at historical lows. And so we feel pretty good about where that book is from a credit perspective. We feel great about everything that management team is doing to manage credit and to grow in a responsible way.

And I'll remind you, whether it's on the auto side of the house or the corporate finance side of the house, we're not chasing growth, right? We're growing responsibly with a focus on risk and return. And one of the things that we put in place towards the end of last year is we put our share repurchase authorization back in place. And we like having that there because it gives us another outlet for capital so that we're not in a position where we need to go chase growth.

Okay. Speaking of growth, you're obviously -- you seem a little bit more positive on the growth outlook. You talked a little bit about your funding objectives, talk how the digital bank might roll into that in your overall plan for funding the growth?

Yes. Look, we've been really pleased with the momentum in our digital bank. We talked earlier about customer acquisitions and customer retention, all continue to be strong. Where we sit today, we're like 85%, 90% deposit funded. And in our view, that's more than core deposit funded. So we've underutilized some of our alternative funding sources. And that gives us the luxury of being able to run that book for optimization as opposed to stretching for growth in any way.

And so as we think about that business going forward, we're happy with an outcome where the business grows marginally or even stays flat as the rest of our balance sheet grows. And as we make more use of some of the other funding sources that we have available. So we feel great about the momentum there. We feel even better about the strong position it puts us in with respect to liquidity and funding and allowing us to really be strategic about where and how we grow that business.

Okay. On operating leverage, you had positive operating leverage last year. Your guidance implies you expect it for 2026 again. Talk about how you're approaching managing expenses and any drivers on the revenue side that you feel like might be underappreciated and you want to touch on?

Yes. It's another great question, Jon. And you're right to point out, positive operating leverage is something that's important to us, and it's something that we expect to continue going forward. It is a product of our culture and our focus when you kind of turn to the focus side, we've really focused our business on growing our earning assets, and we expect to demonstrate growing earning assets this year and expanding margins in terms of net interest margin.

We're growing in the assets that give us the most attractive margins from a risk-adjusted return perspective. And that's something that we expect to continue to feed into our P&L in terms of our results.

We're also growing our other revenue. We have an insurance business. We have SmartAuction. We have our pass-through programs. All of those are showing strong momentum. And so as we look at our business, we've got a number of things driving revenue growth, earning asset growth, margin expansion and other revenue growth. And we focus the business, and we've taken advantage of every opportunity to streamline. So when we look at our expense base, we've been able to manage controllable expenses flat or down for the last 3 years consecutively. We do have some modest growth in operating expenses as you look at the forward.

But again, our expectation is to grow revenues faster than expenses. It's -- and I kind of go back to this, our expectation is we've got road ahead of us to continue to grow revenues and increase profitability and again, that's an attractive bottom line result and allows us to compound tangible book value per share growth.

Okay. Great. On capital, your returns as they begin to improve, you're generating more capital, how are you thinking about the allocation of capital between growth and then returning capital back to shareholders?

Again, no changes here from what we've said in January. We're delighted to have the share repurchase authorization in place. I think you can see it as an expression of confidence from the management team as well as the Board in terms of our trajectory and our ability to generate capital organically. It's a reflection of the capital that we've built over the course of the last year and put on the balance sheet in terms of fully phased-in CET1 and so you can take that as a vote of confidence, not just by management but by the Board as well. Nothing's changed with respect to our capital priorities.

First and foremost, we want to grow our core businesses where it makes sense in terms of risk-adjusted return and margin. Yes, that's our first priority. We want to continue our trajectory in terms of lifting our fully phased-in CET1 ratio. Obviously, we have a dividend on preferred and common and we expect to continue to meet those as well. And so when we think about capital, it is a story of And not Or. We can do all those things, and buy back stock. And so we're happy to have reinitiated our share repurchases.

We'll start low and slow and our expectation is that as we continue to build capital organically, as we continue to march towards our management target in terms of fully phased-in CET1, that we'll be able to grow the amount of capital that we allocate towards share repurchases. But again, we're not going to do that at the expense of the core businesses. Where we see those attractive opportunities to grow the core, we're going to focus on that first and foremost. And then we're delighted to have share repurchases because, again, it gives us the luxury of not having to chase growth, but having that alternative use of capital.

Just a subtlety on that topic on CET1 getting to your target, you used credit risk transfers in the past. Any change to how you view these types of transactions to help you get to your targets?

No. We continue to see them as an attractive source of capital. It's a low-cost source of capital, when you look at the regulatory risk-weighted asset benefit that we get from executing those CRTs. And so we did -- I think it was $9 billion or $10 billion in notional volume last year. We expect to continue to use CRTs going forward. But we'll do it in a measured way. We don't want to put ourselves in a position where we feel like we have a dependency on the capital markets in order to continue to capitalize our business. So we're very cognizant of the runoff of the existing CRT book and managing our issuance so that we don't create a treadmill that we can't keep up with.

But again, we see CRTs as an attractive source of capital. It's a low-cost source of capital and it's a tool that we expect to continue to deploy alongside other tools to help build our capital ratios.

Okay. Before we wrap up, Russ, anything else on the regulatory environment or the regulatory backdrop that is more accommodative. But anything else you want to touch on in terms of potential changes to the capital framework or any other priorities?

I think like everyone in the industry, we're anticipating that we'll hear something from the Fed in the next few weeks. We've been told before the end of the month on Basel III. And as you know, we've been managing towards that August 2023 or July 2023 proposal.

We expect it's going to be better than that. We don't know the details of it. We certainly don't have any better information than you do around what's coming our way. So we'll have to analyze that when it comes out. But our expectation is it will be better, it will be helpful to the industry and to us.

Okay. Just about out of time. Anything else you want us to think about, as the quarter wraps up? It seems pretty consistent, but is there anything else?

Yes, right. There's no news here versus what we said back in January. No changes to our guidance. We are in execution mode. Our heads are down, our business is focused and we're leveraging our culture. And yes, that's where we are, blocking and tackling every single day.

Okay. Good. Thank you, Russ. I appreciate it.

Great. Thanks, Jon.

Hello, everyone. My name is Brandon Berman. I am the senior mid-cap bank analyst here at Bank of America. And joining me today on stage for this fireside chat is Sean Leary. He's the Chief Financial Planning and Investor Relations Officer at Ally Financial.

It seems like, Sean, you have a bit more of a unique role at Ally than your typical IR individual, right? And you have responsibilities that extend well beyond that function. And we appreciate you taking the time today to share some of your perspective. Anything that you want to talk about, about how '25 sort of played out that you're -- before we get to 2026?

Sure. Yes, I would just say that across the board, really pleased with everything that we saw in 2025. We've been talking a lot about solid operational and execution across all of our businesses. But to see that manifest on the face of the financials was very encouraging. So we take a lot of comfort and confidence, just the underlying momentum that's built up in the business and really excited about 2026.

Cool. Let's start at a high level, right? There's been a significant focus on the strategic shift at the bank that you guys announced last year. From your experience, right, has the organization, the evolution positioned Ally to sort of capitalize on the strategy moving forward?

Yes. Thanks, Brandon. I think that's a really good place to start. Look, our earnings call was about three weeks ago. And if there's one theme that we really hope investors took away from that discussion, it's our overall confidence and optimism about the business. I joined Ally almost 17 years ago and have been fortunate to lead the financial planning organization for the last 10 or so. And today, I'm more confident than ever in our ability to generate and sustain higher risk-adjusted returns.

As you mentioned, last year, we made a big strategic pivot and have been talking about our decision to double down on the core franchises. But I think it's important to keep in mind that those core franchises themselves have evolved considerably over the past 5 to 10 years and set up what we think is a really durable competitive.

And so just in Dealer Financial Services, we are a truly diversified lender that is OEM agnostic. We have spent years building and deepening our relationship with our dealer customers. And as you've heard this from us before, but our goal is simply to help dealers be successful in every aspect of their business. It's taken a long time to develop those relationships. And as we sit here today, have a great deal of engagement and that led to record application flow on the consumer side last year and record written premiums in the insurance business.

In Corporate Finance, I think the story there is actually more like auto than you might intuitively expect. This is also a business built on long-standing mutually beneficial relationship with great asset managers and private equity firms. The team is incredibly well respected and has built a reputation on speed, collaboration and certainty of execution. We absolutely expect to grow this business over time, but rest assured, it will not be at the expense of risk-adjusted returns. And not to myopically focus on credit, but the track record is quite impressive. Since we've gone public in 2014, the average annualized loss rate in that business has been about 30 basis points, while we've grown the asset base considerably.

On the other side of the balance sheet, we are thrilled with what we have built in the deposits franchise. It really is the oxygen for everything that we do on the lending businesses. We have a national brand and have been obsessed with the customer since we launched the bank in '09, and that's contributed to 67 straight quarters, almost 17 years of consecutive customer growth. So, being core funded, more than core funded with the vast majority of those deposits being FDIC insured, we think really speaks to the strength and stability of that deposits business.

And then beyond the financials or beyond the core franchises, just take a lot of confidence in the momentum that we saw in 2025 earnings were up 62% year-over-year. And if you looked at our guidance for this year, we expect to take another meaningful step forward in 2026. So thrilled about the momentum, but most importantly, just thrilled about the competitive advantage that we've built in those businesses. And I can probably talk about our optimism all day, but I suspect you have some more detailed questions you'd like to get to.

Speaking of guidance, right? And during the call, there was this emphasis of a story of two halves, right? The first half, the second half. But there was this sort of reiteration of just like the mid-teens, the exit rate was also much in focus. So I'm wondering if you could just tell -- share with the people here, the dynamics that are playing out in the first half and the second half that really are at the core of the year.

Yes. Let me talk a little bit about mid-teens in general because I think that translates into what we're going to see transpire this year. So we've said for quite some time, there's really three things that need to be true for Ally to be generating mid-teens return. That's a margin in the upper 3s, it's retail auto credit losses of less than 2% and being really disciplined around capital and expenses. And really pleased that in 2025, we effectively checked two of those boxes with retail auto credit losses of 1.97%, another year of effectively flat expenses and then a meaningful move higher in the CET1 ratio. And so that leaves importantly, net interest margin in the upper 3s as the remaining leg of the mid-teens thesis.

And so let me just talk about how margin we expect to unfold. I think most know, we are asset sensitive in the very near term, but liability sensitive over the medium term. And so on the back of Fed easing, late last year, it should not be a big surprise that we would expect margin to be flat for a quarter or two. That's similar to what we've been talking about, and it's actually similar to what we observed 12 months ago. Incremental to that, we're navigating some headwinds from a lease perspective.

And I'd start by saying, look, the vast majority of the lease portfolio is performing well, in line with our expectations and hurdling from a return standpoint. But there are a handful of models, literally four models that are underperforming the broader market. And it's a combination of factors that have led to it. These are all plug-in hybrid electric vehicles. And so following the expiration of the tax credit in September, that obviously put a bit of pressure on demand on the new side. That led to heavy incentive activity, which also led to pressure on the used side.

And then we had a couple of OEM-specific recalls on a few of the models. And so when you put that confluence of factors together, we actually generated lease termination losses in the fourth quarter, and that's a phenomenon we expect to continue to start the year. But if I sort of move beyond those near-term headwinds, we exited the year with a margin of around 3.50% because of the dynamics that I talked about, we expect to move down a little bit here in the first quarter, but are still confident that we're going to generate $360 million to $370 million on a full year basis. So if you just think about the entry point in the first quarter and that full year average, it clearly implies a really solid degree of margin expansion in the back half of the year.

And so we get the question from time to time about exactly what quarter we're going to get to upper 3s and which obviously translates to mid-teens returns. We've been hesitant to call a quarter, but you should not take away from that, that has anything to do with our confidence on the destination. It's simply a reality of being near-term asset sensitive. We don't want to be beholden to a particular quarter because from a timing standpoint, what the Fed does with interest rates does sort of play into that. But rest assured across all of that, as confident as we've ever been in our ability to get to that upper 3s NIM.

And so in piggybacking off that confidence, right, like tell us why a changing interest rate backdrop doesn't derail your confidence?

Yes. Well, let me talk about our confidence on sort of that margin trajectory in general. And I would say that we think about we exited at 3.50% sort of upper 3s, let's call it, 3.75% to 3.80%. So there's about 30 basis points of expansion more or less that we're talking about. And we take confidence in it because if you just sort of look at what transpired in 2025, excluding the sale of the credit card business, margin was up 35 basis points on a point-to-point basis, fourth quarter to fourth quarter. And it's a lot of those exact same ingredients that led to margin expansion last year that are going to contribute to the remaining margin expansion going forward.

Look, there's a lot of focus on OSA beta and exactly when we're going to get to that sort of 60% to 70% through-the-cycle beta. And clearly, that plays a big role. But there are other structural tailwinds that I don't want to lose sight of embedded in the balance sheet.

On the asset side, we do have a really nice sort of tailwind from what we call roll-on, roll-off dynamics. Every day, we're putting on retail auto and corporate finance loans at 9% or greater from a yield standpoint and rolling off the mortgage portfolio and some portions of the investment securities portfolio that are at 3%, in some cases, lower. So just that natural migration was a nice tailwind in '25, and we expect that to continue in '26 and beyond.

And then flipping to the other side of the balance sheet away from OSA for a minute, CD repricing remains a tailwind. We've got about $35 billion of CDs that are going to mature this year. And the ultimate refinance benefit clearly depends on the flow of funds and what products those go into. But as we see it, it's probably a 45, 50 basis point tailwind from that refinancing benefit. So those things are more certain in terms of the magnitude and timing. OSA beta is obviously going to be dependent on market conditions. We feel really comfortable with our long-term assumption, timing to be determined. But you asked about confidence, it's really the same ingredients that contributed last year is exactly what's going to get us and sustain us at that upper 3s.

Great. And so let's sort of dive into each of like the core businesses that Ally is now focusing on, right? So let's start with the auto side, if we can, right? It has seen an increase in competition, it seems as of late, especially last year with some of the core banks coming in. How does Ally distinguish itself, right, from the competition? Like how do you see the competitive landscape evolving and the impact to your volume, application flow?

Yes. As you mentioned, it's not new news that competition in the auto space intensified over the past 12-plus months. And frankly, to us, it's no surprise either. It's an incredibly attractive asset class. The way we get comfortable is really -- this is the core of what we do. It's by far our largest asset class, our largest contributor of revenue.

To us, it's not transactional. It's not episodic. It's not an ALCO trade. It's the core of who we are. And so to support that, we've built a value proposition that we think is incredibly comprehensive and unique in terms of what others may offer. Quite simply, as I mentioned, we try to help dealers win in every aspect of their business. And certainly, that means being a full spectrum lender on the consumer side, but it carries over to commercial lending where we help dealers secure their inventory from a financing perspective. And also on the commercial side, to the extent they want to grow their business, we provide acquisition financing as well.

On the insurance side, clearly, protecting dealer inventory is a critical part of their operation. We're a huge participant in that market. And we offer a number of F&I -- traditional consumer F&I products that, again, that's a meaningful share of the dealer profit pool. And so our ability to participate in that market. All of this comes back to a full spectrum ecosystem where we're trying to contribute to every aspect of a dealer's success.

And look, I can talk about the value proposition all day. We feel incredibly proud and confident in it. But fortunately, the 2025 results are the ultimate proof point, which is to say, to your point, competition was very intense all year. And we generated record application flow, decision $0.5 trillion in consumer loan and lease applications and ultimately put almost $44 billion on the balance sheet at 9.7% yields while maintaining a very consistent risk posture.

So we think that data point sort of proves that we have real durability and staying power of the auto business. Put simply, we love our dealers, and we work hard every day to make sure that, that feeling is mutual.

And does the recent charter approval of GM and Ford by the FDIC, does that change the landscape in your eyes?

Yes. Look, first, I certainly wouldn't speculate on exactly what competitors are going to do with their charters. But I go back to this is a highly competed -- fragmented, but a highly competed space. And what continues to give us comfort is we've been in the business for a very long time. We have built what we think is a best-in-class and unique value proposition. We have invested heavily in it. And then on the deposit side, similarly, 17 years at this, and we've invested considerably on building that national brand, continuing to ensure that the customer experience is best-in-class. And so none of that is easily replicable and none of it gets replicated quickly. And so we would never diminish any of our competition. We monitor it all very closely, take them all very seriously. But as sort of we think about it, it doesn't really change our view of the near-term or medium-term competitiveness.

Sticking with auto finance and just sort of shifting to credit, right? One of the things that was debated post earnings, and I want to talk about it was the credit guide for this year, the 1.8%, 2% retail auto net charge-off range. What do you need to see to unfold across the guide following very positive revisions in 2025?

Yes. Let me start with a couple of macro comments, which is -- and we've said this before. We're very pleased with what we're seeing inside of our portfolio, both in terms of performance and the underlying operational drivers. And to that end, just really proud of what our servicing and collections teammates are doing to optimize outcomes for both Ally from a loss standpoint and ultimately, our customers. So I feel good about the quality of the portfolio and everything we're seeing.

I would remind you to last year when we gave a guide on retail auto losses, it had a range on it. And we articulated what would need to materialize in order to be towards the lower end or the higher end of that guide. And we said to the extent drivers remain consistent with what we're seeing today, so current performance, we thought that actually pointed towards the lower end of the guide. And we were pleased to see that throughout the year, we were able to tighten it up, and that's exactly what materialized, ultimately coming in a few basis points below the low end of the guide. This year, similarly had a range, but we're clear that if current performance or current drivers continue, that probably points to the midpoint of the guide. And by drivers, I, of course, mean delinquency formation, flow to loss rates and used car prices. And I'll just touch on the macro because it got a little bit of attention coming out of the call.

Look, our view, again, is that the consumer has been quite resilient. We're pleased with what we're seeing in our own portfolio. But what we did do is just a factual acknowledgment that the unemployment rate, while still near historic lows, has moved up, call it, 30 basis points over the past 12 months. And so just sort of the calculus of framing our guide, a modest increase in unemployment, while again, still at historic levels was part of how we thought about it, maybe influenced how much year-over-year improvement we expected to see in terms of our base case.

But sort of zooming out from the guide for this year, I would come back to pleased with what we're seeing on the underwriting side, pleased with the changes that we made, thrilled with the performance of our servicing teammates and ultimately have a high degree of confidence that ultimately, we're headed towards that 1.6% to 1.8% through-the-cycle loss guide over time.

Got you. And so moving to insurance, right? And you and your team know how much I know you guys about how little attention it gets, and I think it should get more. But you did talk about it being such a great complement to the auto finance business in one of your earlier responses, right? And as you look to support the dealer customer. How should we think about -- on the outside, think about the growth of that business moving forward?

Yes. I'll start with the punchline, which is our bias is for more in the insurance business. We like the business for a number of reasons. One, it's important to the dealer. And as I mentioned earlier, that's a key part of our value proposition. And generally speaking, if it's important to the dealer and it hurdles from our standpoint, it's going to be important to us. Two, it's capital efficient, relatively low capital consumption and drives durable fee income that is less susceptible to changes in interest rates and consumer credit cycles. So a nice diversification benefit. in that regard. And then three, it's accretive to Ally's overall return profile. So it's a business we expect to generate returns in excess of that mid-teens sort of enterprise target.

And to be clear, insurance, look, the growth is not going to be linear. We have things like weather loss exposure that has some inherent volatility in it. And even normal course ebbs and flows of dealer inventory can contribute to ups and downs in the P&C business. And in the last couple of years, we've seen some unique phenomenon as it relates to parts inflation on VSC and even changes in used car prices impacting GAAP losses.

So all of that leads to -- the earnings can be a little bit choppier in that business. But again, I go back to 2025 being a good proof point. We incurred a 1 in 200-year weather event early in the year that led to the combined ratio of the business being north of 100% but we're still able to generate a return on equity approaching 20%, just given the strength in that core investment portfolio. So again, it provides a lot of diversification for us. It's important to the dealer, it hurdles. So it's a key part of how we think about the future.

And in terms of what we're seeing today, we've seen a lot of nice synergies in sort of the combined sales and acquisition engine of both auto and insurance and seeing some nice synergies there, even seeing things like product density or number of insurance products used by our dealer customers has had a really nice increase.

And so I agree with you, it's a business that you don't really see in a lot of peer institutions. We think that probably leads to not getting as much credit as it could. But it's a great business for us, important to our dealers, and it's a critical part of the Ally going forward.

Got you. And then just rounding out the third leg of the Tripod Corporate Finance, right? So the segment printed nearly a 30% ROE last year, second consecutive year of no net charge-offs. The sector did receive a lot of attention in the second half of last year, right? And so how do we get comfortable that Ally is going to grow that business segment responsibly?

Yes. In terms of the direction, similar to insurance bias is for more. It's a great business. We really like it. I would point out that Corporate Finance has gotten a lot more attention over the past year or so as it's been part of the core that we've doubled down on. But success in that business is by no means new. It's had a heck of a track record, certainly going back to when we went public in 2014, but really at the inception of the business, which was 25 or 26 years ago. And in fact, it's probably one of the longest tenured middle market lending teams in the industry.

And I mentioned all of that because sort of our approach to growth going forward, we've done things like diversify the verticals that we're starting to support things like that. But the playbook of how we've grown and how we expect to grow has remained remarkably consistent. We are the lead agent on senior secured first-out positions in portfolios with relatively low loss content sourced by private equity firms and asset managers that we've known for years, in some cases, decades. So it's a business that we expect to grow, won't do it at the expense of risk-adjusted returns. The one sort of tie-in to the deposits franchise that's worth mentioning, I said that deposits is the oxygen of the lending side, particularly true in Corporate Finance, particularly when we compete with nonbank lenders.

And so to your point, Brandon, the growth and the backdrop of the industry this year has got some attention. It's up 8% or 10% on a three-year average basis, but up 30-plus percent in 2025. But a couple of things I would point out. It was entirely consistent with the way we've done the business in the past. Nearly all of the transactions that we did, particularly late in the year were with firms that we've known for a considerable amount of time. And being the lead agent gives us the opportunity to control the structuring, get terms that are consistent with our risk appetite and really control the diligence process.

And while growth has been really strong lately, you only have to go back to 2024 to see a period where the team observed that sort of the economics of the opportunity set weren't meeting our return hurdles and the portfolio shrank a couple of quarters. And so I think that's yet another great data point of this team has an unwavering focus on discipline, will not reach in order to achieve growth targets because we just -- we're not going to grow the business for growth's sake. So our bias is for more, but the team is going to be incredibly disciplined and the track record to date, fortunately, speaks for itself.

Great. So shifting gears to Ally Bank. In 2025, you said balances would be roughly flat. That's how it played out. And then -- that was in a backdrop where average earning assets were declining, right? So given the inflection in loan growth expected for this year, how should we think about deposit growth for 2026? And what does that mean for pricing? You did talk about how important it was to the first pillar of the NIM ROTCE guidance.

Yes, it's a great question. I would characterize 2025 performance in the deposits business is very strong. So we articulated that our expectation would be for flat balances overall, which keep in mind, when we say flat balances, it's plus or minus a couple of billion dollars. On $150 billion portfolio, it just can't be that precise. That being said, it did sort of land at that flat balance number. And importantly, saw some nice tailwinds as it relates to customer acquisition exiting the year. So I feel good about the momentum there.

To your point, we do expect to grow the asset side of the balance sheet, assuming market conditions are appropriate, and we see the right risk-adjusted returns. So that in isolation probably points to deposit growth for 2026. But I would point out that we have a variety of alternative funding sources at the bank. And frankly, they've been, to some degree, underutilized in recent years. And those transactions tend to go a little bit more effectively from a pricing and execution perspective if you've got that steady presence in the marketplace.

And so I say all that to say, even with asset growth on the left side of the balance sheet, if we get to the end of 2026 and deposit balances are more or less flat, but we're seeing nice trends in terms of customer retention, customer growth and marching towards that terminal beta assumption, we would view 2026 as a success.

Got you. And then some, including myself, characterize the deposit franchise as a key differentiator. It's a competitive advantage for the bank. Can you speak to that advantage, that strength of the deposit base?

Yes. We certainly agree with you, Brandon. We think in some ways, it's the crown jewel of the organization. We started this thing back in 2009 into some that may have looked like a risk, but we saw this is where consumers were headed in terms of digital delivery and less brick-and-mortar, and we're thrilled with the decision that we've made because we think it's a real differentiator from a stability, strength perspective. And then, of course, the economics are real as well.

What really gives us the most degree of pride, I suppose, is just sort of the evolution or maturation of the bank over that same time period. We were thrilled to get to core funded. And frankly, we're a little above core funded today and balances have more or less been flat to your earlier point, but we're seeing some nice trends underlying the portfolio, which is to say new customer acquisition tends to be smaller average deposit sizes in aggregate, seeing high degrees of engagement. And of course, retention rates can't go much above the 96%. So we feel really good about where we are there.

And just from an economic perspective, when we launched back in '09, we sort of lived at the top of the rate tables in terms of rate paid. Today, I think we're barely inside of the top 50 because we have spent years investing in a brand and a technology experience that creates a value proposition that goes well beyond that rate paid. So consistent disciplined execution and remaining relentlessly focused on the consumer has put us in a good position where we certainly don't have to be the lead rate payer.

So if I just sort of put it all together, great stable funding source, a true differentiator on the corporate finance side. The asset generators at our company never have to think about funding alternatives. They can focus exclusively on generating appropriate risk-adjusted returns and sort of the momentum, both from a portfolio composition and ultimate economic contribution to the company, we feel really good about.

Great. Switching to the other side of the balance sheet and focusing on loan growth. You've given some answers or you talked about loan growth a little bit in some of your other answers, right? Putting it all together, how should we think about Ally growing its loan portfolio over the medium term?

Yes. Yes. Let me talk about '26 and then hit the medium term as well. But you saw in the guide, our expectation is for, call it, 2% to 4% growth in average earning assets. But again, we would come back to there's some nice underlying mix dynamics where if you think about retail auto and corporate finance in total, that will probably eclipse that 4% number and then just natural runoff of mortgage and securities brings the total back down to that 2% and 4%.

As we think about growth, this is a day-by-day decision, something that we're looking at. And I come back to right now, we see great opportunities in the lending side of the business. The opportunity set is rich. And based on the scale and strength of those origination engines, we feel comfortable that the left side of the balance sheet is going to grow in a strong way this year.

But I come back to our focus is on risk-adjusted returns. We are not at all going to pursue growth for growth's sake. And I know we'll talk about capital here in a minute. But that philosophy has always been true, but particularly true now that we've got a share authorization in place, which is to say that to the extent we don't see rich opportunity sets on the asset side, we won't hesitate to deviate and deploy that capital into other sources, some of which may include incremental buybacks.

Got you. Great. Shifting to expenses, right? It's one area that Michael and the team have stressed expense discipline. We've seen it in the numbers. The guide for '26 includes 1% OpEx growth. And this despite implying that revenue growth is going to be in the high single digits, right? So how is Ally balancing the investment with cost discipline?

Yes. We've been really pleased to see the pivot, and this goes back several years now with the last couple of years being effectively flat expenses and then controllable expenses as we define them, meaning ex insurance losses, ex FDIC and premiums have actually come down the last couple of years. And to be clear, that's had the sort of benefit, if you will, of divestiture activity that won't be the case going forward.

But just sort of our view on expense growth in general, like the natural expense growth trajectory of the business is clearly north of 1%. We have natural inflationary trends. We have variable cost drivers as we're growing the left side of the balance sheet and growing customers on the deposit side. And then we always will invest in things that make the customer experience best-in-class.

And then aside from all of that, we clearly have investments to make across the technology landscape, whether it be data, cyber or even AI. So there is a natural expense growth of the business that's north of 1%, but the team has been incredibly focused on finding efficiencies and opportunities to fund that investment going forward, such that we can manage the aggregate number in this year around 1%. I do expect it's probably the right longer-term planning assumption is a little bit north of that. But what you can expect for us is just continued focus on that cost number, irrespective of what we're seeing on the revenue side.

We are going to generate really strong operating leverage just based on the fact that we've got tailwinds across the balance sheet from a margin and fee income standpoint, but that's not going to allow us to loosen the reins as it relates to cost discipline. We kind of think about the two lines and manage the two lines independently, and there is a very clear focus across the entire organization at being really disciplined around cost.

Great. And so just rounding out the whole PPNR discussion, right? We haven't talked about noninterest income yet, right? You did talk about insurance being a clear driver of growth in that line item. But talk to us more broadly about just growth between flat to up 5% year-over-year. That is a wide range.

Yes, yes, sure. And I'll speak to the size of the range here in a minute. But -- and you hit it, Brandon. The largest portion, both from a quantum perspective and the growth will be the insurance business. But there are some really exciting opportunities or green shoots across other areas of the business that I do want to pause on for a second. In auto finance, you look at our pass-through program, where we're taking applications that maybe don't fit our credit box, but we are matching dealers with financing alternatives and earning a servicing fee on the back end. And similarly, on SmartAuction, think of this as a B2B digital auction platform where dealers can source key inventory -- critical inventory.

And the reason I mentioned those is less for their contribution, although they do have nice growth tailwinds. But it's a testament to the way that we think about the business more broadly, which is to say, leveraging core competency and what we do to better serve our dealer clients while accruing incremental economics to Ally. So some nice tailwinds from an auto finance perspective.

And then one of the many benefits of being lead agent in the corporate finance side is that we have the opportunity to periodically syndicate some of our larger transactions. Again, won't be linear, but has been a nice source of other revenue growth over the past couple of years.

To the guide, 0% to 5%, call it, 2.5% is the midpoint. A couple of things I would point out. One, credit card sale last year. It was in the results for a quarter, obviously, out 2026, that depresses the number by about 1 point. And then more broadly, we think a range on this line item makes sense. There's a few things in other revenue that can bounce around a little bit, in particular, gains in the insurance equity portfolio and then even our CRA portfolio, we were thrilled with the performance that we saw in insurance in 2025 from a gain standpoint, but aren't going to bank on that as it comes to setting guidance.

So that speaks to why we see the range. But I would say, overall, the direction of travel is north. And Russ has alluded to this at other conferences, we've got 0% to 5% out there for this year. I do think that sort of mid-single digits is a reasonable proxy for the way we expect this line item to grow over the medium term.

Great. And I wanted to actually go back to sort of the capital management discussion, right? You discussed the growth outlook and maybe just spend a little bit of time on the capital allocation at a high level, right? You clearly have room to grow the loan portfolio. But like with the buyback authorization that you just mentioned an answer two ago, does that change anything?

Yes. I would say it gives us yet another catalyst reason and mechanism to be incredibly disciplined around prioritizing risk-adjusted returns. You hit it, Brandon. We see rich opportunity sets across the lending organizations, and that's going to be our highest and best use of capital provided that it meets the right risk-adjusted return requirements. But the really compelling thing we think from a capital management perspective is this is not an or question. It's an and question, which is to say our base case is that there's enough capital generation embedded in the business that we'll be able to support solid loan growth on the asset side of the business, continue to cover the preferred and common dividend, continue to move that CET1 ratio up on a fully phased-in basis. Of course, we want to be in the 9s over time and still have capital to support a buyback, which we know is critically important to investors.

So I think of it as this has always been a dynamic discussion, but we've got several alternatives of where we want to deploy capital, and it's just going to be an ongoing discussion across the leadership team to make sure that we're capitalizing opportunities that we see in the marketplace and really deploying that capital in the highest and best use.

Got you. And sort of just double-clicking on the whole buyback conversation, right? The stock saw a great reaction to the announcement in December, but then the mantra was sort of like this low and slow sort of pace. The stock is trading around book value. It obviously clearly doesn't reflect the mid-teens -- the sustainable mid-teens returns that you guys have guided to. How does the valuation play a role in the buyback as well as the path to the 9% fully phased in CET1?

Yes. I mean I think low and slow for a number of reasons, makes sense for us. I just talked about there are several opportunities to deploy capital across the organization and several really important strategic objectives to us, which is to say, supporting growth on the asset side, continuing to get that capital buffer to the right place and then being opportunistic about deploying incremental excess towards the buyback. So we're going to balance all of those things.

And then to your point, valuation does play a role in that decision. But based on where the stock trades today and what we think a reasonable fair value is, assuming we hit our return and book value projections, I think we've got a minute before that becomes a binding constraint.

Got you. And I know we're sort of running out of time here, but I did want to talk about valuation, if we can, right? So what do you think leads to Ally's lower multiple versus peers, right? Is there something people that aren't appreciating? Is it a matter of time or something else that you think, in your opinion, that will sort of help close the gap to peers on valuation?

Sure. Look, we could speculate on what drives the valuation, but a couple of things I would just point out. We were a mid-single-digit ROE company two years ago. We just got to a 10% return in 2025. We see a very clear path to sustainable mid-teens. But when you've got a ramp that's that, in our minds, impressive, there's certainly going to be some that continue to view it as a bit of a show-me story. That can be frustrating, but we kind of view it as a challenge and an opportunity, which is to say we're focused on execution. We kind of have a very firm view of where we're headed from a return and book value perspective. And when we get there, we think the stock takes care of itself. And in the meantime, we're happy to buy it for ourselves.

Got you. Got you. And then just sort of just to close out, is there anything specific you'd like the audience to -- is there anything you would like to leave the audience with respect to guidance or Ally more broadly?

Yes. I would just sort of conclude with where I started, which is across the entire leadership team, management team and the Board, there is an incredible degree of optimism about the future of the company. A lot of that comes down to the strength of the franchises that I alluded to. We see great opportunities for growth and favorable risk-adjusted returns in auto finance, insurance, corporate finance, all of which is supported by a really great deposits franchise. So we're really excited about the path forward. And as you sort of put it all together and think about the power of those franchises, we think we're going to deliver on a uniquely compelling financial trajectory over time.

Great. And if there are no questions in the audience, we will leave it there. Sean, thank you so much for your time. I really appreciate it.

My pleasure.

Thank you.

Thank you.

Good day, and thank you for standing by. Welcome to Ally Financial Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded.

I will now turn the conference over to your speaker host for today, Sean Leary, Chief Financial Planning and Investor Relations Officer. Please go ahead.

Thank you, Lydia. Good morning, and welcome to Ally Financial's Fourth Quarter 2025 Earnings Call. This morning, our CEO, Michael Rhodes; and our CFO, Russ Hutchinson, will review Ally's results before taking questions. The presentation we'll reference can be found on the Investor Relations section of our website, ally.com. Forward-looking statements and risk factor language governing today's call are on Page 2. GAAP and non-GAAP measures pertaining to our operating performance and capital results are on Pages 3 and 4. As a reminder, non-GAAP or core metrics are supplemental to and not a substitute for U.S. GAAP measures. Definitions and reconciliations can be found in the appendix.

And with that, I'll turn the call over to Michael.

Thank you, Sean, and good morning, everyone. I appreciate you joining us today for our fourth quarter earnings call. Before we cover our results, I'd like to take a moment to reflect on the year. After my first full year as Chief Executive, I am grateful and optimistic. Grateful for what has been built before I joined and optimistic for what's ahead. My optimism is shaped by the strategic refresh we undertook in 2025. Deliberate choices backed by disciplined execution have delivered solid results. At the heart of our refresh was the focused strategy we rolled out to start the year.

Focus means we are investing in businesses and segments where we have clear competitive advantages and a reason to win, that is areas where we are unique and special. Our results validate that we are on the right path. 2025 marked a shift where results demonstrate tangible progress including delivering on the detailed guidance we provided in January.

With that, let me recap full year performance on Page 5. Adjusted EPS of $3.81 was up 62% year-over-year. Core ROTCE of 10.4% was up more than 300 basis points versus 2024. Encouraging progress with room to expand further. The 3 drivers for sustainable mid-teens returns have been consistent and the progress we are making is clear. We have executed against 2 of the 3 drivers and remain positioned to deliver on the final as we progress forward. Retail net charge-offs ended the year below 2%. Importantly, we see further opportunity as we continue to benefit from vintage rollover and our dynamic approach to underwriting and servicing.

Clearly, the macro will play a role in how losses materialize in any given year, but we remain confident in the direction of travel over time. Expense and capital discipline remain a top priority. We have been and will continue to be prudent stewards of shareholder capital and make investments to position Ally for durable long-term performance, and we remain on track to deliver NIM in the upper 3% range.

NIM increased more than 30 basis points in 2025 when you adjust for the sale of card. That progress along with embedded tailwinds across the balance sheet, give me confidence in our ability to drive further margin expansion for full year 2026. Adjusted net revenue of $8.5 billion was up 3% year-over-year and up 6% when adjusting for the sale of card. Finally, CET1 ended the year at 10.2%.

Taking into account AOCI, fully phased-in CET1 was up 120 basis points in 2025, ending the year at 8.3%. These financial results reflect the impact of a handful of deliberate choices, including exiting noncore businesses. Repositioning a portion of our investment securities portfolio as we continue migrating towards a more neutral rate position, maintain expense discipline to create capacity for appropriate investments or reducing controllable expenses by 1% versus 2024, and executing 2 credit risk transfer transactions for a total of $10 billion in notional retail auto loans, sourcing highly efficient capital.

Together, our actions have resulted in lower credit risk, lower interest rate risk, higher capital levels, a more efficient expense base and in aggregate, a stronger foundation. And we grew in the core businesses that we want to grow with a sharp focus on risk and returns. Retail Auto and Corporate Finance loans were up 5% in 2025 on the back of strong momentum in these core franchises. As a result of this progress, we announced a $2 billion open-ended share repurchase authorization in December. The resumptions of repurchases is not a declaration of victory but a clear indication of the progress we've made and our confidence in the path ahead. And as we've said before, we will start low and slow with share repurchases.

The opportunities for growth across our core franchises are encouraging and accretive. Organic growth remains our priority with allocating capital. However, adding share repurchases provides another option for capital deployment as we maintain an unwavering focus on risk-adjusted returns.

With that, let's turn to Page 6 and discuss those core franchises. Execution within each of our core franchises has been strong and momentum positions us for sustainably higher returns. Dealer Financial Services delivered an exceptional year of performance reflecting the benefits of our scale, the breadth of our products and services and the depth of our relationships with our dealer customers. 15.5 million applications were an all-in record and allow us to be selective in what we originate.

Given the strength of the top of the funnel, we originated $43.7 billion of consumer loans. That's up 11% year-over-year with a 9.7% origination yield, while 43% of the volume was concentrated within our highest tier of credit quality. We continue to see opportunities for responsible growth at attractive risk-adjusted spreads based on the uniquely strong partnership we have with our dealer network.

Beyond headline origination figures, I'm encouraged by the continued growth across SmartAuction and our Passthrough programs, which are expected to contribute durable fee growth moving forward.

Moving to insurance. Written premiums exceeded $1.5 billion, a record for Ally. Synergies between Auto Finance and Insurance continue to strengthen our all-in value proposition enables us to support our dealer partners across all aspects of their business. In Corporate Finance, we delivered 28% ROE with strong year-over-year growth in the loan portfolio. Managing credit risk remains a top priority and its second consecutive year with no charge-offs reflects the strength of our underwriting. We have the benefit of being a lead agent in virtually all of our transactions, given us the ability to own the diligence process and structure transactions appropriately.

Turning to digital bank, our customer first approach continues to set us apart. We ended the year with $144 billion in retail deposit balances, reinforcing our position as the largest all-digital direct bank in the U.S. We saw a solid growth in the fourth quarter and on a full year basis, balances were roughly flat. That's in line with our expectations to start the year. Our focus remains on providing best-in-class products and services to drive customer growth and retention. We now serve 3.5 million customers as 2025 marked our 17th consecutive year of customer growth.

Over time, this will continue driving a less rate-sensitive portfolio with lower average account balances. The strength and stability of what we've built is a valuable component of our enterprise. Retail deposits continue to represent nearly 90% of total funding and 92% are FDIC insured. Before passing to Russ, I want to share a few high-level thoughts. Our core franchises are well positioned and their success is fueled by our strong do-it-right culture and leading brand. I am energized by how our 10,000 teammates deliver for our customers every day and how they rallied around the focus strategy.

Our engagement scores remained in the top 10% of companies globally for the 6th consecutive year, and we were 8 points higher than the industry average, demonstrating Ally's purpose-driven culture remains a key differentiator. Our brand continues to resonate in the market and serves the key reason customers come to Ally and want to do more business with us. Overall, 2025 marked a meaningful step forward for Ally. I'm encouraged by the progress we've made, but more importantly, I'm excited for what remains ahead.

And with that, I'll turn it over to Russ to walk through the financials in more detail.

Thank you, Michael. I'll begin by walking through fourth quarter performance on Slide 7. In the fourth quarter, net financing revenue, excluding OID, of $1.6 billion was up 6% from the prior year. We continue to benefit from the momentum in our core franchises, disciplined deposit pricing and ongoing optimization of the balance sheet towards higher-yielding asset classes.

Adjusted other revenue of $550 million in the fourth quarter was down 2% year-over-year and excludes a $27 million loss as we move nearly $400 million of legacy mortgage assets to held for sale. This move reflects ongoing optimization of our balance sheet and is consistent with our focused strategy. We are taking advantage of a strong bid for mortgage credit to sell portions of our portfolio, which carry more complexity and higher servicing costs. Following the expected sale of these mortgage loans, our portfolio will be entirely first lien fixed rate mortgages, which will continue to run off over time.

Full year adjusted other revenue was up approximately 2%, despite the headwind from the sale of credit card and the exit from mortgage originations. Excluding that headwind, other revenue was up 5%, reflecting the momentum across our core franchises. Diversified other revenue streams, including insurance, smart auction and our auto pass-through programs are capital efficient and less sensitive to consumer credit cycles, positioning them to remain tailwinds into 2026 and beyond.

Fourth quarter adjusted provision expense of $486 million was down $71 million year-over-year, largely driven by continued improvement in retail auto NCOs as well as the exit from the credit card business. The year-over-year net charge-off comparison includes $56 million of credit card activity in 4Q 2024. The fourth quarter retail auto NCO rate declined 20 basis points year-over-year to 2.14%. Adjusted noninterest expense of $1.2 billion excludes a $31 million restructuring charge associated with a reduction in force. These decisions are never easy, but reflect our unwavering focus on balancing investments with expense discipline.

Our strategic pivot has created a more focused, efficient organization, and these actions create capacity to continue investing in our core businesses in areas like cyber and AI. Full year adjusted noninterest expense was approximately flat year-over-year, while controllable expenses were down 1%, demonstrating our commitment to cost discipline that will continue going forward. GAAP and adjusted EPS for the quarter were $0.95 and $1.09, respectively.

Moving to Slide 8. Net interest margin, excluding OID, of 3.51% decreased 4 basis points from the prior quarter, resulting in a full year NIM of 3.47%. That is in the top half of the net interest margin guide we provided at the beginning of the year. Continued expansion of the retail auto portfolio yields and decreasing deposit costs were offset by the repricing of floating rate exposures and lower lease yields during the quarter. Retail auto portfolio yield, excluding the impact from hedges, increased 6 basis points sequentially as we continue to originate above the portfolio yield. Resilient yields while maintaining consistent risk appetite, reflect the benefit of record application flow, enabling selectivity in what we ultimately originate.

Given the forward curve, we expect the portfolio yield has peaked and will remain relatively flat throughout 2026 as lower benchmarks are reflected in originated yields. While used values were stable in aggregate, we recognized losses of $11 million on lease terminations concentrated in a subset of weaker performing models. Residual values on plug-in electric hybrids have been pressured following the elimination of the EV tax credit, an OEM recall and increased OEM incentives on new models. Pressure on these models increased later in the quarter, and we'll continue to monitor trends as we move throughout 1Q and into the used vehicle selling season.

Our lease portfolio mix is shifting. About half of the leases we originated over the past 2 years have OEM residual value guarantees and the leases we have originated without the benefit of residual value guarantees reflect a more diversified mix of OEMs. While we may see pressure moving forward, the ongoing remixing of the portfolio should reduce gain and loss volatility over time. Cost of funds decreased 11 basis points quarter-over-quarter, driven by a 12 basis point decrease in deposit costs.

Last quarter, we spoke about deposit pricing beta starting low as we began another easing cycle. Over time, we expect deposit pricing beta will increase driving NIM expansion. We believe a through-the-cycle beta in the 60s, which we continue to expect is sufficient to reach our high 3s NIM target. Importantly, we have strong momentum on both sides of the balance sheet from our multiyear transformation and remain confident in our path to an upper 3s margin over time.

Average earning assets on a full year basis ended down 2% consistent with the outlook we shared during second quarter earnings. Importantly, ending asset balances were up 2%, reflecting the growth we've seen in the places where we want to grow and demonstrating our momentum as we head into 2026. In aggregate, ending balances across retail auto and Corporate Finance were up $5 billion or more than 5% year-over-year.

On a fully phased-in basis for AOCI, CET1 for the period was 8.3%, an increase of approximately 120 basis points during the year. During the quarter, we executed our second credit risk transfer of the year issuing a $550 million note on $5 billion of high-quality retail auto loans, which generated approximately 20 basis points of CET1 at issuance. Following our announced share repurchase authorization in December, we repurchased $24 million in common stock, reflecting the low and slow approach we've outlined.

Moving forward, we'll be dynamic with our level of buybacks in any given quarter. We're encouraged by our ability to execute a story of and not or. We are prioritizing organic growth across our core portfolios while maintaining our competitive dividend, continuing to build our fully phased-in capital levels and returning capital to shareholders through share repurchases.

At the bottom of the page, we ended the year with adjusted tangible book value per share of $40, up nearly 20% in the past year. Earnings expansion and AOCI accretion will support further book value growth over time. Additionally, we updated our calculation of core return on tangible common equity. This new methodology does not alter our earnings outlook in any way. It improves transparency and creates alignment between returns, book value and ultimately, earnings per share.

We have added incremental disclosure clearly outlining the changes in the supplemental slides of this presentation. In short, we have eliminated the deferred tax asset adjustment from our prior methodology to streamline calculation as well as increase transparency and comparability. As we approach our 9% management target for fully phased-in CET1, we believe this new core ROTCE metric is appropriately aligned to our mid-teens target for sustainable return.

Let's turn to Slide 10 to review asset quality trends. Consolidated net charge-offs of 134 basis points were up 16 basis points quarter-over-quarter, driven by seasonality. We continue to see strong credit performance in our commercial portfolios, resulting in 0 net charge-offs for the second consecutive year. Full year consolidated NCOs finished below the range provided a year ago, driven by continued improvement in retail auto credit and the aforementioned strength across our commercial portfolios. Retail auto net charge-offs of 214 basis points were up 26 basis points quarter-over-quarter, reflecting seasonal trends, but down 20 basis points compared to a year ago.

Year-over-year improvement across all quarters of 2025 reflects the tailwind from vintage rollover dynamics and the benefit of enhanced servicing strategies. Our full year retail auto net charge-off rate was 1.97% below the bottom end of our guide and notably below the 2% mark we've referenced as a key pillar to achieve our mid-teens return target.

Moving to the top of the page, 30-plus all-in delinquencies of 5.25% were down 21 basis points from the prior year, marking the third consecutive quarter of year-over-year improvement on an all-in basis. This continued improvement further reinforces our constructive view on the near-term loss trajectory within our portfolio, but we remain mindful of the macroeconomic environment, particularly the labor market and used vehicle values. Turning to the bottom of the page on reserves. Consolidated coverage decreased 3 basis points this quarter to 2.54%, while the retail auto coverage rate remained flat at 3.75%. Our retail auto coverage levels continue to balance favorable credit trends within our portfolio against macroeconomic uncertainty.

Moving to Slide 11 to review auto segment highlights. Pretax income of $372 million was lower year-over-year, primarily driven by lower commercial balances, lease mix dynamics and reserve build and higher servicing-related expenses given growth in the retail portfolio. On the bottom left, we've highlighted the trajectory of retail auto portfolio yields. Excluding the impact from hedges, yields were up 6 basis points quarter-over-quarter and 18 basis points year-over-year.

Our scale and record application volume led to another strong quarterly vintage with attractive risk-adjusted spreads. Fourth quarter originated yield of 9.6% was down quarter-over-quarter, but demonstrated resilience given the move in underlying benchmarks. Our ability to actively calibrate our buy box with the evolving market supports risk-adjusted returns through the cycle. On the bottom right of the page, $10.8 billion of consumer originations were up 6% versus the prior year period and were enabled by the 10% increase in application volume that we saw.

Our established dealer relationships and full spectrum approach enabled this accretive growth despite headwinds. Last year, we faced elevated competition, significant pull-forward demand in 2Q and 3Q tied to tariffs and EV tax credit expiration and fourth quarter new light vehicle sales that were down more than 5% year-over-year. Record application volume throughout the year has supported our ability to remain selective, driving accretive growth while also providing opportunity to monetize declined applications through our pass-through program.

Turning to insurance on Slide 12. Core pretax income was $89 million, roughly flat year-over-year. Total written premiums of $384 million were also relatively flat versus 2024, while insurance losses of $111 million were down $5 million year-over-year. Insurance provides a durable, capital-efficient revenue source and remains a key driver of our long-term growth strategy. As Michael noted, we continue to leverage synergies with auto finance to drive momentum within the business and deepen our all-in value proposition as we support our dealer partners in all aspects of their business.

Turning to Corporate Finance on Slide 13. The business delivered another strong quarter with core pretax income of $98 million. Fourth quarter ROE of 29% and a full year ROE of 28% underscore the strength of the franchise and the durable accretive profile of the business as we continue to look for growth opportunities within the markets we compete in. On a year-over-year basis, we grew the portfolio by just over $3 billion. Spot portfolio balances can move considerably given the timing of new deals, paydowns and capital markets activity.

Taking a step back, the portfolio has grown at an 8% CAGR since 2022, reflecting the disciplined approach that continues to guide our growth philosophy and is reflected in the credit characteristics of the portfolio. 2025 marked a second consecutive year with no new nonperforming loans, while criticized assets and nonaccrual loan exposures were 10% and 1% of the portfolio, remaining near historically low levels. Leveraging long-standing relationships with key partners in the industry remains critical to maintaining our culture of strong risk management.

I will discuss our financial outlook on Slide 14. We expect full year NIM between 3.6% and 3.7% -- the range for NIM reflects the evolving path of interest rates as the Fed easing cycle continues with 2 cuts assumed for 2026. As we have consistently messaged, we are liability sensitive over the medium term and asset sensitive in the very near term. We'd expect early beta to drive a relatively flat margin through 1Q. But given current trends on lease residuals, we expect NIM to be slightly down on a sequential basis.

Looking beyond 1Q, we remain confident in NIM migrating to the upper 3s over time, supported by continued optimization on both sides of the balance sheet. Deposit repricing and continued remixing of the balance sheet towards higher-yielding assets will support margin expansion. In aggregate, retail auto and Corporate Finance are expected to grow in the mid-single digits, while mortgage loans and lower-yielding investment securities will continue to run off.

In total, margin expansion will accelerate as deposit pricing beta increases toward our through-the-cycle target, consistent with what we observed in 2025 following Fed easing in 2024. Given the fourth quarter NIM of 3.51% and expectation for NIM to be down a bit in the first quarter, the full year guide implies we expect to be approaching our upper 3s NIM target exiting 2026. As a reminder, our NIM progression will be choppy on a quarter-to-quarter basis, but we remain confident in the destination.

Moving to other revenue. We expect continued momentum across insurance, SmartAuction and auto pass-through programs to drive low single-digit percent growth year-over-year, which includes a roughly $25 million headwind from the loss of card fees earlier this year. On credit, we see retail auto net charge-offs between 1.8% and 2% for the year. 2025 performance showed tangible results from the dynamic underwriting and enhanced servicing capabilities we have implemented over the past 2 years.

Our outlook reflects a balance between continued improvement from the remaining vintage rollover with ongoing macro uncertainty. Last year, we highlighted the continuation of existing trends across delinquency, flow to loss rates and used values provided a potential path to the low end of our guidance range. Those dynamics largely played out, and we achieved a full year NCO rate just below the low end of our guide. This year, a continuation of these same trends would support performance around the midpoint of our guide and achieving the lower end of the range would require incremental favorability within these drivers.

Looking beyond retail auto, we expect consolidated net charge-offs between 1.2% and 1.4%. As we have noted, we are pleased with the performance of our commercial portfolios. However, these are not 0 loss businesses, nor do we price for that, and our full year guide assumes a return to more normalized losses. On expenses, we expect 2026 to be up approximately 1% with investment focused on our core franchises fueling revenue growth while also investing in areas like AI, cyber, servicing and customer experiences. This disciplined expense management, along with top line revenue growth positions us for positive operating leverage this year and over the medium term.

Building upon the momentum we saw throughout the back half of 2025, average earning assets are expected to be up between 2% and 4% year-over-year. Importantly, our growth is focused on the areas where we want to grow for attractive returns, retail, auto and Corporate Finance. Finally, we expect an effective tax rate between 20% and 22%. We are encouraged by the momentum we've established across the businesses. We have said that achieving our mid-teens return target requires: one, an upper 3s NIM; two, a sub-2% retail auto NCO rate; and three, capital and expense discipline. As Michael noted, we have achieved 2 of the 3 and see a path to achieving the third.

That said, it remains a dynamic operating environment. And while reaching our targets continues to move closer, we don't feel it's prudent to call a specific quarter. We'll remain nimble and ready to pivot as the macro and competitive landscape evolves. Our focused strategy is working. I'm confident in our ability to deliver improved returns and drive long-term shareholder value. And with that, I'll turn it over to Michael for a few closing remarks.

Thanks, Russ. Before hanging into Q&A, I want to reiterate what we've accomplished over the past year and how that positions us for the future. First, our focused strategy has created clarity on where we will compete and how we will win. Second, we have a much stronger foundation. Our balance sheet and risk position are stronger today, giving us greater resilience and flexibility as we move forward. Our core franchises each have relevant scale and our refined focus has streamlined resources and strengthened our competitive positioning. Third, we are executing. That means we are operating smarter, moving faster and delivering improved efficiency and effectiveness.

Earnings growth, credit performance and capital metrics all showed meaningful progress and momentum as we head into 2026. Fourth, authorizing a $2 billion buyback program is an important step. Resuming share repurchases underscores the progress we've made and our confidence in our ability to execute moving forward. Finally, while we are encouraged by our progress, we remain focused on the road ahead. There is more work to do, but I'm certain we are on the right path and excited for what's ahead as we continue to execute and deliver compelling long-term value for our shareholders.

With that, I'll turn it back to you, Sean, so we can head to Q&A.

Thank you, Michael. As we head into Q&A, we do ask the participants limit yourself to one question and one follow up. Olivia, please begin the Q&A.

[Operator Instructions] Our first question coming from the line of Robert Wildhack with Autonomous Research.

Maybe just to start on the NIM. Russ, I appreciate the commentary that you gave. You said down quarter-over-quarter in 1Q and then sounded pretty strong on the exit trajectory. Just want to double check that I heard that correctly. And then is there any more detail that you could give on what exactly drives the NIM sort of progression through the year and how it ramps from kind of down quarter-over-quarter to what sounds like a pretty strong exit rate?

Yes, sure. Sure, Robert. Thanks for your question. I appreciate it. When you kind of look at the quarter-to-quarter NIM dynamic between third quarter and fourth quarter last year and heading into first quarter of this year, it really comes down to mainly early beta as well as some pressure from lease terminations. And so maybe I'll start on early beta. This is the same thing that we saw last year, right? We saw soft early beta exiting 2024 and starting 2025. And then we saw some nice catch-up in the middle of 2025 with some healthy NIM expansion. Our expectations are to see similar dynamics play out this year, right? And as I kind of get underneath what leads to that, rate cuts are beneficial to Ally over time. And we've talked about that before, but we've also talked about near-term asset sensitivity that impacts us on a quarter-to-quarter basis. So our NIM progression is not a straight line, and we've talked about that before. And it's part of why we don't guide for NIM on a quarter-to-quarter basis. We guide on a full year basis.

The beta catch-up dynamics are strong. The ongoing portfolio mix dynamics that we mentioned earlier are strong and give us confidence in driving meaningful and sustainable improvement both in profitability and NIM expansion. You pointed to the NIM guide at 3.60% to 3.70% for the year. I think as you dig in and you think about where we're starting the year, it's pretty clearly implied that we expect some meaningful NIM expansion through the course of the year. Again, this kind of NIM expansion that looks kind of like the dynamics that we saw play out last year. And obviously, on a quarter-to-quarter basis, we could get some impacts as no doubt our expectation is there will be some kind of ongoing movement in the Fed funds rate throughout the year. But again, we feel confident in terms of the medium trajectory around NIM. And I think as you kind of do the -- kind of as you dig in on our full year NIM expectations and then where we're starting the year, I think you'll see that we expect to end the year above the high end of our guide or approaching our high 3s medium-term target.

The pressure from -- on the lease side, as we mentioned earlier, it's driven by a few hybrid electric vehicle models, the plug-in hybrid models. Those specific vehicles were impacted by an OEM recall as well as significant OEM incentives on new vehicles that came with the expiration of the EV lease tax credit. And so that's kind of what we're dealing with in terms of kind of some of this near-term NIM pressure. But again, I just reiterate our confidence in the medium term and in terms of the destination in the high 3s.

That's great. And then just quickly on credit and the retail auto coverage ratio specifically. You talked a lot about the S-tier mix, vintage remixing, net charge-offs coming down, et cetera, et cetera. The retail auto coverage ratio, though hasn't budged in like a year. Just curious what you think it would take for you to actually start releasing some of the reserves there in retail auto.

It's a fair question, Robert, and we get that question from time to time. We've often said when we think about our returns over the medium term, as we think about our targets, we don't include reserve releases. Those are more of an output than an input from our perspective. And our focus is on just kind of managing the credit in a prudent way in terms of how we underwrite and how we service kind of just our overall approach to the portfolio. As I think about where our reserve is set today, it's really balancing a few things. On the one hand, we're seeing clear benefits, as you said, from vintage rollover to vintages that were originated towards the end of 2023 through '24 and now '25 that are clearly stronger vintages from a credit perspective than what we saw in early '23 and in 2022.

So that vintage rollover is a clear benefit. We've made improvements to our underwriting. We've made improvements to our servicing, and we're seeing that benefit over time. And that's certainly something that we're seeing in terms of delinquency improving, strong photo loss rates. And also, we're seeing good support from the used vehicle market in terms of used car prices and severity. So all those things are incorporated in terms of how we think about reserves. But at the same time, we're also looking at some of the macro uncertainty out there, in particular, focused on the labor market and used vehicle prices.

Our current expectation is that unemployment over the course of 2026 is going to be higher than the unemployment that we saw over the full year of 2025. And there's obviously some uncertainty around that, and that's factored into how we think about reserves as well as how we think about our forward NCO guide. And then similarly, we've got a careful eye on the used vehicle market. We're watching what we see on SmartAuction as well as in the auction lanes and very much paying attention to used car prices overall. So there are a number of things that factor in. But again, I'd just reiterate, reserve releases is not something that we factor into how we think about the business from a return perspective, and it's not factored into our mid-teens return guide.

And our next question coming from the line of Sanjay Sakhrani with KBW.

Maybe, Michael, can we start with contextualizing 2026 as you look ahead to the year? It's obviously been a bumpy ride so far. But curious, as you look at the guidance as a whole, where do you think the biggest risks lie, the opportunities as well? Russ, you could also chime in.

Yes. Sanjay, thanks for the question. And I think about '26, look, I can't think about '26 without reflecting a bit on '25. And like really proud of what this team did in '25. On Page 5 of our materials, we call our notable items and a lot of good work has been done. And I started out by talking about both gratitude for what's been built and optimism for what's in the future. And so I do feel a lot of optimism for '26. And it's anchored on the fundamentals of the business. And so while '25 was a year where we made a lot of shifts and pivots, '26, the rhetoric we have inside the organization is really about bridging strategy to execution.

And so it's really -- we've set the table, I think, quite nicely for ourselves. And '26 will be about building strong volumes with the right margins, the right pricing in the auto franchise, continue with the momentum we have in the Corporate Finance business, continue with our customer acquisitions, the strength that we have in our retail bank and our consumer bank, which, again, our balance has been relatively flat, but we're attracting a less rate-sensitive customers. So we like that dynamic, more of that. And then, of course, from a technology perspective, continue to deliver the capabilities that ensure that we win here in the 21st century and certainly for next year.

And so if I take a step back, I feel really good about the fundamentals of the business. So in terms of -- when I think about the guide for '26, you can kind of go line item by line item. And like on the expense side, you've seen a lot of discipline from this team in terms of how we manage expenses. So continue to expect to see some discipline on expense management. On revenue, look, there's -- we have NIM, you have fee income. And I think Russ did a nice job of talking about what's going on with NIM. And I hope you took away from that some optimism on the exit rate. We recognize there's probably some bumpiness as we go along. But the balance sheet dynamics are playing out the way we would expect that. And so I'd expect the continuity of that in '26.

And then again, on the fee income side, we like what we're seeing. And then credit, look, the dynamics playing out pretty much like we said it would. Last year, at the beginning of the year, we said if certain things happen, we'd be at the low end of the guide. We end up being below that low end. And so assuming the macro holds, we feel good about that. Consumer behavior right now, we're pleased with what we're seeing in the consumer. There's a bit of this disconnect between kind of the rhetoric and some of the headlines and what we're seeing consumer behavior, but we're pleased with what we're seeing on the consumer side.

So overall, I feel good about the estimate that we put out for '26 in terms of what we're going to do kind of by line item and feel good about the foundation of the business. I was going to say what I worry most about, it's really about the macro. And there's something going to happen that's going to affect a lot of financial institutions, not just us, from an unemployment perspective or some other discontinuity. But I start out by talking about optimism. I'll probably end this narrative on optimism. I feel very good about how we're positioned.

Sorry, Sanjay, you did say that I could comment as well.

Absolutely. Absolutely.

I mean I might just add, just as I kind of cut across the 3 main franchises, I just -- I feel really good about the level of dealer engagement we have. In a quarter where light vehicle sales were down and there were all sorts of reasons for -- there are all sorts of reasons and pressures, but our applications were up and it supported our ability to be selective and underwrite a really great vintage. Similarly, when I look at the consumer bank, we added customers. We kind of hit our expectations on the pin in terms of flat balances for the year. We continue to affect a nice migration in the customer base towards more favorable demographics.

On the Corporate Finance side, we continued with disciplined growth, and we really like what we see in the portfolio in terms of nonaccruals and criticized assets. So as I look across all 3 of the franchises, just a lot of really good things going on in each of those franchises. And then I turn to the balance sheet as a CFO. And I think we've taken deliberate steps to reduce credit risk, to reduce rate risk and to increase capital. We put a lot of capital on the balance sheet over the course of 2025. And so again, I feel good about all those things. And so it's really just watching that macro, particularly the labor market and the read across to used vehicle prices.

No question, you guys. Had a good 2025 and it seems like good momentum in 2026. Just one clarification on some of the questions Robert was asking on credit. Just as we look at the performance of credit, it would seem like the momentum you have on delinquencies suggests further improvement in the charge-off rate. And I know, Russ, you mentioned that you would probably need further improvement in delinquencies or momentum in the delinquencies to get to the low end of the range, but it seems like there's a progression there. Is there anything sort of weighing against that, that we need to think about?

Yes. I mean I kind of point back to unemployment. Our expectation for 2026 is that over the course of the year, unemployment is going to be higher than it was in 2025. And I know some of the data is a little up and down with some of the stuff that happened later last year, but our general expectation is that it's higher. And so that is something that weighs on kind of how we think about it.

In terms of our overall NCO guide at the [ 180% ] to 2% level that we mentioned earlier, we've effectively kind of priced into that guide, the vintage rollover. The strong indicators we've seen in terms of delinquency flow to loss rates used car pricing as well as somewhat a weaker labor market versus what we saw in 2025. So as I like to kind of think about the range and what takes us above the midpoint or below the midpoint. I think we'd actually have to see some improvement in terms of delinquency, in terms of flow to loss or in terms of used vehicle pricing to get us certainly below that midpoint. That could happen in the context of a labor market that's certainly stronger than we anticipate.

On the other hand, we could see things going the other way in terms of labor market, used vehicle prices, delinquency, flow to loss severity kind of moving in a different direction. And so I think the outlook that we've provided is balanced. And where last year, we pointed to a continuation of some of these favorable indicators we were seeing getting us to the low end this year, I'd say the given the persistence of those variables over the last 15 months or so, we're pricing that into the midpoint.

Our next question coming from the line of Mark DeVries with Deutsche Bank.

I have a follow-up question on some of the NIM commentary. I was just wondering if we could get you to maybe quantify kind of the upper bound on what you mean by kind of the upper 3s or high 3s. And then just a follow-up on that. I think, Russ, you indicated you expect to be the guide implies you're kind of near that run rate at the end of 2025. Does that imply you're kind of by then given charge-off guidance below the 2% range from Retail Auto that you're near kind of a 15% ROE run rate by the end of the year? Or are there other things you need to do around capital efficiency or operating leverage to get there?

Yes. It's a fair question. As you can imagine, we've stayed away from calling quarters and providing quarterly guidance, just kind of given some of the choppiness that we've talked about in our business in terms of the near-term impacts of rate moves and things like that. But as I think about your math, upper 3s, I think we've talked about it previously as being -- we talked about kind of 4% back when we still had the card business and we talked about, about a 20 basis point impact to NIM as a result of selling card. And so obviously, we've sold card and so, I think that kind of gives you a sense for how we dimension what we mean by upper 3s given that we no longer have that card business.

As you kind of think about the guide for the year at 3.60% to 3.70% and you look at kind of where we're starting the year, I mean I think the progression math, as you parse through that, is pretty clear. But again, I just reiterate, obviously, in any given quarter, we have impacts from just rate moves that are kind of very near term. But in terms of the medium term, don't really have a real impact. And so we don't call the quarter, but I think the basic arithmetic around kind of what you need to see over the course of the year is pretty clear. We've talked about mid-teens in terms of 3 things. Those 3 things are unchanged. It's high 3 NIMs, it's sub-2% Retail Auto NCO rate and its continued discipline around capital and expenses. We don't think we need to make a change to how we're running the business or what we're doing that's consistent, and we continue to see our path to mid-teens.

And so I would characterize us right now as having checked off 2 of those things with Retail Auto NCOs now sub-2% and with the capital and expense discipline that we currently have in place. And I'd say the kind of one outstanding item is getting NIM to the high 3s, and there's nothing that's changed with respect to that.

Our next question coming from the line of Jeff Adelson with Morgan Stanley.

Russ, maybe just a follow-up on the discussion around retail auto yield speaking. Is that assuming that you're keeping the S-Tier origination mix consistent with these 40%-plus levels you've been doing recently? And I know you're still mindful of the macro environment, but how are you thinking about the opportunity to maybe step down a little bit in tier and pick up some extra yield as you've talked about in the past? And when would you maybe think about actually doing that if at some point?

Yes. Look, I'd say, yes, to your kind of overall question around S-Tier consistency in kind of the 40% area. Obviously, we don't kind of micromanage that on a quarter-to-quarter basis. But overall, as we look at flat portfolio yields, I think that's kind of consistent with that level of S-Tier. I would point out though, we don't have a set-it-and-forget-it approach to credit, and there's a lot going on underneath the surface. And so even at S-Tier in that 40% range, as you can imagine, we're doing a lot of work at the micro segment level kind of analyzing kind of different combinations of credit characteristics that have over or underperformed our expectations over the last year or 2.

And so we're continuously tweaking our approach to underwriting to make it better. And our approach to kind of how we take risk. I would say as you kind of think about that kind of flattish portfolio yield over the next year. So the way to kind of think about that is we're running at about our expected 80% pricing beta on originated yield. And so as you think about our expectation of kind of roughly 2 Fed cuts over the course of this year and you kind of put on that portfolio beta and you look at where our originated yield goes versus where our portfolio yield is, I think you kind of get a good sense for why we're pointing to flattish portfolio yield over the course of the year.

Okay. Great.

I might also just point out, while I've got you, we're also obviously looking at continued improvements to deposit pricing. One is early beta catches up. And then two, obviously, as we get further cuts, we'll look forward to further benefits in terms of deposit pricing there. And so that flattish portfolio yield is made it to declining cost of deposits which is obviously an important driver of NIM expansion.

Okay. Great. And just in terms of the capital with the slow and slow approach to start here, it was, I think, nice to see you highlight the 9% fully phased-in target. I know that's the old historic target overall. Is the way to be thinking about here is like once you get there, you can start to think about being a little bit more aggressive on the cadence of buyback? And I don't believe you disclosed, but in terms of the securities repositioning, could you just quickly remind us how much capital that consumed? And I think previously, you were talking about in AOCI accretion of about $350 million per year. How did that perhaps change on the latest repositioning here?

Yes. So let me try and dissect that there's a lot there. I mean, maybe just starting on the AOCI accretion. We currently expect, call it, $400 million to $450 million per year after tax benefit from OIC -- AOIC accretion going forward. And so that's on top of our reported earnings level, and it's a good guy in terms of building tangible book value going forward. On the securities repositioning, that was kind of towards the end of the first quarter and beginning of second quarter of last year. I'd be happy to have our IR team follow up with you and spend some time just kind of going through what we disclosed at that time about the securities repositioning. Yes, that's obviously been kind of baked into our numbers and from our perspective is a bit in the past. But we're happy to go through and kind of go through the dynamics of that from last year, if that's helpful to you.

And our next question coming from the line of Ryan Nash with Goldman Sachs.

Maybe as a follow-up to Jeff's question. Maybe help us think a little bit about the pacing of buyback until we reach that 9%. Obviously, understand that it's an open-ended authorization. And I know you've been saying we're going to start slow and leg into it. But maybe just sort of contextualize how do you think about the pacing of buyback over the medium term?

It's a fair question, Ryan. Maybe I just kind of reiterate our capital priorities, right, which is, first and foremost, organic growth in the places we want to grow, predominantly our retail auto book and our corporate finance book. Those are our highest returning assets. We saw some nice growth in those books over the course of 2025, and we've got good momentum going into 2026. And so our first priority is going to go to growing those businesses, and we think that's the best outcome for our shareholders in terms of driving an improvement in our profitability going forward and driving some really good IRRs for the investor.

And then obviously, we've got our dividend. As you mentioned, we've got our capital build to 9%. We really see having this share repurchase authorization in place is something that gives us flexibility. It's another lever to do, as we say, to not chase growth for growth's sake, but to continue to be disciplined stewards of our shareholders' capital. And that's important to us. And you pointed out the 9% fully phased-in CET1 target. Obviously, as we're approaching that, we will do share repurchases while we're growing capital. We are not going to be subject to the tier any of or. Our story is a story of and, and we think we can build capital, support the organic growth of our core businesses, maintain our dividend and do share repurchases.

And I think as you and Jeff both pointed out, I think it's a fair expectation that obviously, as we get through that 9% build, our share repurchase level will accelerate. And so as you kind of think about it, low and slow, but doing share repurchases alongside all the other capital priorities kind of getting through that 9%. And then obviously, it's our expectation that getting through the 9% and with our earnings levels continuing to improve that is obviously going to support higher levels of share repurchases going forward.

Got you. Maybe just as my follow-up, Russ, on Slide 21, where you showed the new core ROTCE methodology change. Just so I'm looking at it, it doesn't seem like there's any big change here. But I'm curious, does this change impact the timing or the level of returns that you view as the destination return for the company?

No. And this is an important point. This is an updated methodology. It in no way alters our mid-teens return target. Our timing or our conviction in our ability to sustain that target over time. This is a simplification. In our view, it increases transparency and comparability. It has the benefit of aligning how we think about returns, book value and earnings per share, and so we think this is helpful to our investors in a number of ways. But importantly, we remain confident in the sustainability of our mid-teens return targets.

And as we kind of pointed out earlier, I just might point out the burn-off of AOCI obviously adds to our tangible book value per share trajectory over time on top of what we show in terms of reported EPS.

Our next question coming from the line of Moshe Orenbuch with TD Cowen.

Great. Most of my questions have been asked and answered. But maybe Michael or Russ, could you talk a little bit about the competitive dynamic? We've -- there have been some players that have come back into the market over the last year, some particularly hard by the end of the year. Anything that, that kind of makes you do? Obviously, you noted the 10% growth in applications, but I mean, does it make you kind of look at anything different from different credit tiers or anything like that? Maybe just discuss that a little bit.

Yes, maybe I'll jump in first. I kind of added this in the response to Sanjay's question earlier, but I feel really good about where the franchises are, in particular, our dealer financial services franchise. When you look at just the level of dealer engagement we're seeing, there are a lot of pressure, a lot of headwinds that we saw at the end of the year between light vehicle sales, the end of the EV lease tax credit. Some of the dynamics around pull forward that probably reversed a little bit in the fourth quarter. But as you pointed out, our application volume was strong, and it supported our credit selectivity and our ability to get what I think is a really great vintage in the fourth quarter. And that really comes from just the strength of the overall franchise.

We are consistent supporters of our dealer partners over time and across all aspects of their business. We have a value proposition that's attractive and helps them in the many aspects of running a better dealership. And that -- the strength of those relationships and that engagement translates directly into the application volume that really is the lifeblood of that business. And so it isn't -- this is an attractive business. And if anything surprised us that it took until this year before a number of our competitors realized how attractive it is. And so we expected that competition and we're pleased with how the business has responded and continue to really excel in the face of it.

Russ, and -- thanks for that, Russ. And Moshe, great question. And yes, it's a competitive marketplace, just a sign of how great the business that we have. Look, if you take away, there's been a lot on this call, and I'm going to take your question and kind of frame it with respect to a lot of what's going on. The competition was more intense this year, but incredibly proud of this team. And this team showed up in a big way, the strength of the relationships that we have, certainly in the auto business and the Corporate Finance business and the way we've delivered.

This whole year has been about strategic pivots backed by disciplined execution. We talk about the fact that we have seen solid results. This was a very good year. And I use the word solid because as good as we've done, we know there's a path to better. And I think Russ you talked a lot about that, but we have momentum. We feel good about how this business is playing out. And just a real thanks and shout out to this team for delivering a really, really strong solid year and for the momentum they've built going to '26.

Thank you, Michael. Seeing we're a little bit past time. We'll go ahead and wrap it there today. If you have any additional questions, please feel free to reach out to Investor Relations. Thank you for joining us this morning. That concludes today's call.

Goodbye. This concludes today's conference call. Thank you for your participation. You may now disconnect.

We're going to get started, just give me one second. All right. Up next, we're excited to have Ally Financial joining us once again. They've continued to execute on their strategy of being a leading direct bank and the premier auto lender in the market and has positioned itself to generate and sustain mid-teens returns through an improving margin, lower credit losses and continued cost discipline amongst other things.

Joining us for the second time to tell us how the momentum is going to continue is CEO, Michael Rhodes. Today's presentation is going to be a fireside chat.

Welcome, Michael. Thanks for coming back.

Great to be here, Ryan. Thanks.

So maybe to kick it off, you had an announcement out this morning, buyback authorization. People have been eagerly anticipating this. Maybe just frame to us, one, how we got here? How you're thinking about the $2 billion of authorization in terms of the pace and magnitude of buybacks going forward?

Absolutely, Ryan. Well, thanks, and thanks for the opportunity to get up here and tell our story. I'll start with how we got here. And it's actually a really good and compelling story, and I think a testament to the power of the franchise that we have. And I think, Ryan, you know and many folks know that we actually had some strategic pivots earlier this year.

With this narrative about the power of focus where we've taken our franchise, really focused on the core businesses, we have defined competitive advantages, relevant scale and a clear reason to win. And so we came with this power focused strategy that have executed very well, and that's created some real momentum. And so if I think with the momentum for this year, which is basically enabling the buyback that we announced earlier, is our adjusted earnings are up, give or take, 60% on a year-over-year basis so far. Our -- we've gotten there by keeping expenses flat. Revenue has been expanding. Credit losses have been going down. And so that's clearly a very nice dynamic. You add to that, the capital builds that we have and then just the strength of the core franchises, and that just puts us in a really, really nice spot.

And so I view the buyback announcement today as really a testament -- it is a clear testament to the momentum we have, but probably just as important, says confidence and conviction in terms of our path on a go-forward basis.

Now $2 billion, it's obviously a big number and how do we think about that? Look, it's open-ended. Look, we want the flexibility in terms of how we actually think about this. We are going to go slow. You've heard us say that, and we'll kind of ramp up over time. And as we think about capital, as you can imagine, we have aspirations to grow the balance sheet. We're going to support balance sheet growth. We'll support the dividends. We're also going to accrete capital as we're going along, but we have some residual capital after that to do the buyback, hence, the reason we're doing that.

And Ryan, the other thing I'll mention is if you look at returns on capital and -- last year, we were at times in the single digits, mid-single digits. Last quarter, we were, call it, 12% return on capital, which is great. But our trajectory, we believe, is higher than that. And so don't view this announcement as us declaring victory spiking the football. We still have work to do. We've got a lot of conviction on the path.

As a Giant fan, I'm not spiking any football. So but your response makes total sense. I appreciate the color.

So over the past 12 to 18 months, you talked about in your first answer, you've taken significant steps to create a more focused organization. Can you discuss how this strategic shift has impacted your competitive positioning and why you believe simplifying the organization was the right move for Ally over the longer term?

Yes, a great question. And we have taken some deliberate steps. And when I think about the strategy and the steps we've taken, just real simple framework I think about is let's be clear about where we compete and how we win. And so where we compete, it's one of the things I talk about all the time is we compete in places where we have relevant scale.

At the end of the day, the size of the bank doesn't really matter. It's the size of the business that you're running. And so in the place where we have relevant scale, Dealer Financial Services, we're the largest bank auto lender. And so that's relevant scale. If I think about our depository franchise, we're the largest direct bank. So again, that's relevant scale. We have a Corporate Finance business where the notion of relevant scale is actually less. And so we're actually relevant scale in terms of what we do there, albeit it's a smaller business. And so we're really putting our energy and effort in those places.

And why does relevant scale matter? Well, my operating cost, my unit cost to do something to process a widget to service a loan, to bring on a new loan. When we have scale, we get those scale economies, we get the advantages from that. And then I need to make a technology investment, I basically get to amortize that against a scale that's as good or better than anyone else's for that business. And so that's why we have such passionate conviction that we're going to double down the things that we're really, really good at. And then we execute well, you get the results that you actually see. And so that's what we talk about like where we compete.

Actually, the only thing I'll add with where we compete is relevant scale plus I often talk about this notion of adjacencies. So let's take Dealer Financial Services. We have relationships with 22,000 dealers. We're the largest bank-owned auto finance franchise in the U.S. We have a complete suite of solutions. We have Insurance. We have Passthrough programs. We have SmartAuction, a way for the dealer community to kind of move inventory back and forth. So we actually leverage our relationships, and we actually do that in a way to bring even more value to our partners. And so it's just basically a flywheel effect that really works.

In the consumer bank, we have adjacencies. Look, we have basically checking accounts or spending accounts we call them. We have the savings accounts. We also have the adjacency to the Invest platform. And so relevant scale adjacencies, that's how we're going to win, and that's the playbook. And if I think about this year and the pivots we've taken, we've made very deliberate choices this year. This isn't an accident. We've actually exited -- actually before I came, we exited the lending business. But then in the past year, we've gone pin down on mortgage originations, and we've actually stopped and we sold our credit card business. We actually repositioned our securities portfolio, and we've taken a lot of very disciplined steps to make sure we're managing expenses very, very carefully. And so when you take this and you couple good strategic intent with strong execution, basically good things happen. And I can probably talk on this forever. I know we only have a few minutes.

But the other element to talk about the competitive positioning and why it really matters is when I talk about the power of focus, and I talk about power of focus all the time. And really, if you look at all great businesses that you've seen these great successes, it's anchored in this notion of focus. Focus does not mean lack of ambition. In fact, quite the opposite. In large complex organization, bureaucracy and muddled priorities and confusion about what the commander's intent really is kind of take over and that lack of focus actually leads to a lot of times mediocrity. And so the fact that we are focused and don't have those kind of ailments that sometimes impact some larger institutions, I think it just puts us competitively in a really, really strong position. And that's how we think about it.

So no, super helpful. And as we approach year-end, it's clear Ally generated significant momentum over the course of the year. You talked about returns improving. Can you maybe just discuss your top priorities as we head into '26? And high level, how do you feel the business is positioned as we head into 2026?

So it's a top priority, as you can imagine, double down on things that we're actually really good at. So Dealer Financial Services, if I think about this year and what we've been able to accomplish, this year, it's a competitive marketplace. But if you look at our new accounts or our new lending originations, it's up about 14% on a year-over-year basis and margins have been holding strong. So we feel actually very good about that. And again, I think the strength of the relationships that our team has in Dealer Financial Services that has become so, so powerful.

And so we're actually leveraging that team. We're actually investing in the team, and we're investing in the technology to enable ourselves to serve our dealer customers better, but also to serve our customers in a better, more effective way. And so it's around technology and people are the type of investments that we're making in 2026 and beyond to really double down on what's just such a core, core strength of ours.

And if I look at the businesses that are less correlated to our retail auto lending and think about the fee-based products, Insurance and SmartAuction, our Passthrough programs. But I'd also put in the non-correlated bucket what we do in our Corporate Finance business. If you look at those fee-based products plus Corporate Finance, it's about $2.6 billion of revenue. And for us, give or take, about 1/3 of our revenue. That number is up 40% since pre-COVID. And so you see these non-correlated businesses, they're actually doing well and they're growing and have very attractive returns on capital, as you can imagine.

And then on top of that, if you look at what we're doing in our depository business and the margin expansion that we've actually seen in that business, again, a non-correlated business with the auto franchise. This just -- it just feels that we've positioned ourselves in a very nice way exiting '25 into '26. And again, with the share repurchase, it's all about confidence, and that's how I think about it.

So you talked a little bit about Dealer Financial Services. Year-to-date, we've seen competition pick up in the auto market, but you've continued to deliver incredibly strong volume. I think you just referenced before. Maybe just talk about what you're seeing in the market? How are you competing? And what gives you the confidence in your ability to continue to drive both volume and risk-adjusted returns that you're targeting?

So as I said, we're actually really pleased with what we're seeing. And look there is competition in the marketplace. And in a way, we see the competition in the marketplace is a real testament to what a great asset class it is because I think other folks in the market are actually seeing that this is a nice place to be.

So as competition has intensified, you actually look at our volumes, we're actually up on a year-over-year basis. We like our margins. And so why? And I keep on going back to relationships. These long-standing relationships that we have, and then we have this -- we have teams of people across the country who are dealing with our dealer partners every single day, and we've been doing that through the cycle. And so a lot of folks come and go in this, but I also appreciate our dealer partners recognize that we are the ones who are there through the cycle.

Earlier this year, I had the chance was at the National Association of Dealers -- it was Convention down in New Orleans. And it was just after we announced our focused approach, and our focused approach was selling the card business and going pin down a mortgage. We talked to the dealer community. The enthusiasm for the dealer community was off the charts because they saw like we are in it for them. It's unambiguous. We are in it to help them win. And we're only successful if our partners are successful. And that just creates a huge differentiation. And we have 100-plus years in this business, a lots of cycles and a complete set of capabilities to support our dealers. And we feel really good about that.

You talked about competition and you look at light vehicle sales and what's kind of going on with them, it's a little softness in the fourth quarter. We still expect to see volumes up on a year-over-year basis. Again, being a full spectrum lender, the top of the funnel activity. We're seeing more application flow this year for the first 3 quarters than we've ever seen. The fourth quarter of this year, we expect this to be the best fourth quarter for application flow. As the machine is working, I would love to take credit for all this. I can't, the team that's making this happen.

Got it. No, that makes total sense. Maybe you referenced earlier deposits. Ally Bank had, I think, over $140 billion in retail deposits. Talk about how the strategy has evolved, particularly since you've taken over in terms of customer targets? And what are you doing to grow or optimize the franchise at this point?

Great question. And look, I have the great fortune coming into an organization have built a fabulous deposit franchise. I mean, like we're more than -- about 90% funded by deposits, 92% FDIC insured. Like this deposit franchise is incredible. I just don't want to say that.

And so what makes that such? Well, again, I'd love to take all the credit for it, but I can't because this was built well before I showed up. And we're in the part of the market where consumer behaviors and preferences are going in that we're digital. More and more customers are seeking digital solutions for their banking needs, and we were very, very early in that game. And as a result, we built the capabilities and the customer experience that really resonate with consumers in a digital world.

Couple with that, if you think about the digital world, like so how do you actually attract customers because there is no physical storefront that you can actually go into or not in the communities in the way that many, many banks are. And so the virtual storefront, if you will, is our brand. And so look, we may not have the biggest brand in the marketplace in terms of dollar spend. But in terms of the impact that we create, it's really, really significant. Our awareness levels, we definitely punch above our weight, our consideration, our reputation for trust is just really off the charts. And again, the power of the brand really, really matters because it builds consideration. And when you build that consideration, people come to our site, and we actually kind of pull them through the funnel that actually helps create the goodness on a go-forward basis. And so we really like what we're seeing in the deposit business.

And this is one where, again, we've been investing in capabilities and experience in a way where, look, price is still important without a doubt. The rate we offer is important. We're very low fee, close to no fee, but we're a very low fee proposition but it's not all about rate. And you've actually seen our pricing reflect that. And so I feel very good about where we're positioned. At this moment, we don't have a need to really grow dynamically our deposit business, but you actually see us keep on growing our customer count. And so our typical new customers is probably lower balances than our historic customer. Those lower balances are deeper engaged, more primacy is the way I kind of think about it and honestly, a bit less rate sensitive. And so we really like the mix dynamics that are going on inside the deposit book.

So maybe just to round out the core franchises, let's spend a minute on Corporate Finance. You've been posting strong returns in the last couple of years. And as you articulated, it doesn't have a huge amount of overlap in the other businesses. Maybe just talk about what's your strategic view for its future? How does it fit in with the other businesses? And how do you see this complementing the broader balance sheet over the next few years?

Great question, Ryan. And as you talk about strong returns the past couple of years, I'd actually edit that to say this is creating strong returns for 25 years. And in fact, our time as a publicly traded company, you actually see this business has had a 20% plus return on capital the entire time.

And so you look at this business, let's talk about, first of all, the connectivity to the rest of the organization and why it's so important for us on a go-forward basis. First of all, this is a business where relationship matters. And in many ways, the way we deal with our dealer community, it's really on the philosophy of actually how we deal with partners. And that philosophy is common between the dealers and certainly Corporate Finance, which is we're there through the cycle. We're there to figure out solutions to complex financing needs, and it's very much a relationship-based business. A lot of our business, like I say the substantial majority is repeat business with clients who we've been dealing with not just for years, but in some cases, decades. And so again, relationship really, really matters there.

I'd also offer the fact that we have a depository franchise, which is, again, 92% FDIC insured and the size that it is, gives us access to very low cost and stable deposits. And because of that, we're actually able to go and really pursue deals that actually are a little bit lower risk because we actually have the depository base in order to support that.

And in terms of strategy, you also do think about the strategy of the organization, the balance sheet and what our balance sheet income statement look like. We actually like the diversity of this, again, non-correlated asset on our balance sheet. And we have the confidence in the team and what they can actually accomplish, that's really good. Plus, we actually like the fee income that goes with that. And so again, I feel really great about this business.

And Ryan, maybe one other thing, and again, I could talk for a long time about Corporate Finance is like what do you need in order to be successful in this? At end of the day, you need a great team. And we have a team with 25-plus years of experience working together through cycles, battle-tested and ups and downs. You want a team that has a credit-first mindset in terms of the risk that we take, how we underwrite, how we structure our transactions. You want a team that has a one deal at a time mindset, and so they're not going and chasing transactions, actually looking at every single deal. We agent virtually everything that we do, which is, again, a great place to be. We do our own diligence. And I just have to say we work with some top, top-notch sponsors who, again, have been great investors and through the cycle. And if you pull that together, like this is a business we want to invest in.

Maybe just a quick follow-up to that. Obviously, middle market lending has been increasingly competitive. What do you see as the unique strength? And what are you -- what steps are you taking to ensure that these returns you've seen over the 25 years can be preserved?

Yes. It's really -- it's about the team and the relationships with the sponsors and kind of being there through the cycle, one deal at a time, long-standing sponsors. Since we've been a public company, this business has had a, call it, roughly 25 basis point loss rate and just very strong returns. And just as our Dealer Financial Services is part of the secret sauce is these long-standing relationships. We have long-standing relationships. We don't go chase every single deal. We actually have some spaces where we feel very good at, some verticals where we know the sponsors, we know the business, and we stick to what we do and we do it well. And that's why we have confidence in it.

So let's maybe shift gears and talk about returns. You've expressed confidence in recent times about achieving your mid-teens return target. I think it implies over $6 of EPS. What factors give you greater conviction today maybe versus a year ago, especially given the ongoing uncertainty in the operating environment?

Okay. So a lot to the question there. And look, there is some -- the operating environment is interesting. We can talk about that. All that being the case is stronger conviction today than a year ago, and here's why.

A year ago, actually, I was here. We talked about the 3 things that need to be true -- same time. Three things that need to be true to hit mid-teens returns. One is net interest margin had to progress to the upper 3s range. Two is we need to get credit losses, particularly on the auto side at 2% or lower. And three, we need to show discipline in terms of how we manage expense and capital.

So let me walk from the bottom of that to the top. In terms of the expenses, I think you've actually seen the controllable expenses, we've been very disciplined about how we're actually spending our money. And I can tell you, just expect that discipline to continue. And so I'd say we tick the box on that one.

In terms of the credit losses, we start out with a wide range of guide for credit losses. In the third quarter, we guided to the bottom end of the range, which is basically a 2% credit loss. When you look at the trends that we're seeing, the rollover of the vintages, the servicing enhancements that we have that we've seen, we've pretty much accomplished that. And so 2 of the 3 so far, I'm check, check in terms of what we've accomplished.

The third is NIM. Now NIM, roughly 20 basis points up on a year-over-year basis. Taking in mind this account, we actually sold the credit card business, which is very NIM rich, which was about 20 basis points of NIM. So we're basically up organically like 40 basis points, give or take, of NIM. And so again, we've actually -- we're not where we need to go, but we're very much on the path. We've said a number of times, the path to higher NIM is not linear, depending on how the Fed moves, we're asset sensitive in the near term, liability sensitive in the medium term. So there can be ups and downs, but the direction of travel is very, very clear.

And so the things that we need to do to generate mid-teens returns, in my mind, we've basically done 2 of them and the third we're well along the way.

So maybe to dig in a little bit further on some of those building blocks you laid out, starting with the last one, the margin. As you said, Ally has obviously gone from a high 2s NIM on a trajectory to a high 3s NIM. Talk about the changes driving this? What are your expectations in the near term? And just what are you doing to sustain that type of margin?

A great question, Ryan. You can imagine, I've been my job 1.5 years. And I think this might have been my day 1 question when I met with the finance team, let me understand this math here and have a lot of passion and where we are. It's grounded in a few simple observations.

First of all, the power on NIM is both sides of the balance sheet, both assets and liabilities, and I'll talk with them both. On the asset side, we have 2 things going on simultaneously. One, we have some low-rate securities and mortgages, which are running off, and we're replacing those with much higher rate, higher margin auto loans and Corporate Finance loans. So that dynamic is very accretive to NIM on an ongoing basis. That dynamic continues.

Second is our mix of auto lending has actually shifted, and we've actually more at the intersection call prime and used than we were back in, say, 2019. So then again, that's accretive to NIM. So the assets have some natural tailwinds, which are pushing NIM up.

On the liability side, the story is equally as powerful, if not more so. And so if you compare 2019 to today, in 2019, we're about 75% deposit funded. Today, we're about 90% deposit funded. If you look at our deposit pricing relative to Fed funds, we're 65 points better. And so if you take the 65 point better plus that mix shift, if you look at the total mix of how we actually fund our business, we're actually about 100 basis points better in terms of how our funding profile versus 2019. And so when I take, call it, give or take, 100 basis points of benefit on the liability side plus the rollover on the asset side, that is the direction of higher NIM.

Got you. There continues to be a lot of focus on the health of the consumer, particularly the low end. How would you characterize what you're seeing? Are there any notable shifts in behavior that you're observing within your portfolio?

Yes. No, absolutely. And maybe I'll talk a bit about our portfolio, and I'll talk about the environment as well. First of all, in our portfolio, I have to use this as one talking point that's fairly important is in this environment that we're entering into, this time last year, we actually had a near prime credit card business that we don't have today. And so we've actually taken a lot of inherent consumer credit risk off the balance sheet.

On the auto side, where is the stress? The stress is clearly in the subprime business. Now with subprime, there are a couple of things with that is, one, our mix of subprime is relatively low. We're call it 10% subprime, probably 2% deep subprime. Second is really a couple of years ago, we actually reset expectations in terms of how we thought this business would perform. And again, one of the benefits of being in the business through all cycles is you get really good data sets to inform your decisions. I mean folks come in and out, they don't really have that luxury. And for our reset expectations, we're actually performing just about how we expected. And so there basically have been no surprises.

And then we've taken a lot of actions in general in terms of our underwriting approach, our S-tier mix, our servicing approach and kind of how we actually do, how we engage with our customers, the channels, the offers, the timing, all that good stuff. And so that's actually teeing us up well.

Look, we are in this interesting situation where if I look at our data and how we're performing and I compare that to consumer confidence and kind of what I see in the headlines, there's a bit of an incongruity. To be fair, I think I read the notes from these conferences, I think other folks are seeing the same thing. But we're feeling good about how our customer is behaving. But I recognize there's some uncertainty in the environment. We're probably being a little on the cautious side in this environment. And we're not being cautious because we see anything in our own data. We're just being cautious because the environment feels a bit uncertain.

Got you. No, that makes total sense. So you talked before you began the year with a wide range expectations on credit losses and you've sort of honed it in, and you've seen a lot of improvement here, particularly in the flow to loss. And I think a lot of that's been driven by the actions you've taken across the company to improve servicing. I'm sure we'll get formal guidance. I see Russ sitting there in early '26. But maybe just talk about the main drivers of credit performance as you look into 2026.

So the main drivers of credit performance, as we've talked to this before, there are 3 primary drivers, and we feel good about all 3. One is delinquency trends, which are informed partially by the vintage dynamics. The '22 vintage, which was a little hotter is running off. It's, I think, roughly 10% of our book today and being replaced by vintages, which are actually performing better. So the vintage dynamics are positive going into 2026.

Second is the flow to loss trends as something becomes delinquent, how does it flow to loss. And again, I just can't say enough about the team that we have that does our collections work and how effective we are serving customers in times of need and making sure that we're there with the right offer, right product at the right time in order to collect the loans in an effective and empathetic way. And so those servicing improvements, you see those continue.

And then there's used car values, which is given default, what happens. And used car values have been strong and they've been holding. And there are a lot of factors that go into that. It's the affordability of new vehicles comes into play, the kind of the fewer cars that were produced or vehicles that are produced during COVID because of supply chain disruption. You can't create new used cars and just the overall consumer demand. And so we feel vehicle values are fairly constructive. And so you take all this, and again, we think we're positioned well going to '26. I appreciate there's some macro factors, and we're not immune to the macro, but we feel well how we're positioned.

Got you. That's helpful. So around 3 years ago, you began tightening underwriting. It's somewhat hard to see now because you've had such robust originations, but the amount of S-tier that you do, which is your highest quality still remains in the 40s. I think years ago, it was in the low 30s. Maybe just talk about what you're watching to decide when it makes sense to begin to unwind these furthers and over what time frame could we see this happen?

No. Look, it's a great question. And as you can imagine, we look at a lot of data, internal data, external data, macro data. We take our own portfolio and we segment it and micro segment in various ways. And generally, there is no bright line. And the beauty of our business is, again, when you have a rich data set and you can actually cut it and slice it in various ways, we've got a really real-time view into how our portfolio is performing and see segments where there may be more stress, we can pull back on those.

Alternatively, we see segments where actually the risk/reward ratio looks pretty good. And again, being in the cycle consistently enables you to have that data to make very informed decisions on how you're going to react. And so no bright line on curtailment or lack of curtailment, but continuous adjustments as we go along.

A couple of more questions as we round out here, Michael. So you touched on the share buyback authorization at the onset. How are you more broadly thinking about capital allocation priorities over the longer term? And how are you balancing returning capital to shareholders but also making decisions to invest in the business?

Well, I mean, clearly, capital allocation, the first and best use of capital is going to be to grow our balance sheet and grow our business, and we'll do so in a very disciplined way. We're not going to grow for the sake of growth. We're going to grow in places where we think the returns are attractive. And so that's really number one.

And then we have dividends. We're going to pay -- we're still on the path of accreting capital. But our viewpoint is the capital generation we're going to create is going to have some remaining capital for the opportunity for buybacks as well. But look, we look to grow the business. And if you look at our performance this year, our balance sheet, I know on average, the balance sheet is not showing growth this year, but we're growing in the places that we want to. And we're growing in the places with attractive returns and with the higher margins. We're actually running off the stuff that has lower returns and lower margins. This is what we want us to do. This is why I think our investors want us to do.

So shares continue to trade at a discount, maybe not as much after today to what one would expect for a company that is going to generate mid-teens returns on a sustainable basis. Maybe just talk, Michael, about as you go around and speak with investors, what are still the misperceptions that are out there? And what do you think the market is still missing about the overall story of the company?

I'd be fair. I'm not sure the market is missing much. We've told the story and what the path is to mid-teens returns. We've been stacking up consecutive quarters, which are demonstrating we're on the path. My sense is we continue to deliver and continue to perform and continue to do what we say we're going to do, that the valuation will follow. And the markets will price this in a way that reflects how they think about the business. And the best thing this management team can do is continue to drive strong turns to give that confidence.

No, that makes total sense. We spent a lot of time upfront talking about the simplification and focus of the organization. So I'm fairly confident that M&A is not part of the strategy at this point. But I'm wondering, assuming that there's no expectation, what are the things you could look to do to add to the franchise to enhance your strategic positioning if there's any of them?

Look, first of all, we spend no time thinking about M&A. I can tell you that. If I think about our franchise, the businesses that we're in are all very large addressable markets and also very fragmented. Look at the auto business. We're the largest. We're like 6% share, whatever it is of origination, very large multi-hundred billion dollar marketplace fragmented. Corporate Finance, very large, fragmented growing market. And our deposits business, when the part of the space which is growing in a very, very large addressable market.

And so we really feel no need to go bolt-on new things here or there. We love the markets we're in. We like the adjacencies relative to the marketplaces. And for the next several years, we just see just keep on doing what we do really well, do more of it, the volume growth and the returns will follow.

I guess before we run out of time here, you did give some guidance on the fourth quarter, stable-ish margin, losses of around 2% for the full year, average earning assets on a year-on-year basis to end relatively flat on an end-of-period basis. I guess now that we're 2 months into 4Q, any thoughts on either how the fourth quarter is progressing versus expectations or anything in particular in the last minute or so that you wanted to highlight?

Yes, sure. Thanks, Ryan. And in terms of fourth quarter, as we used word discipline a lot. We feel very good about stacking up the discipline of consecutive strong performing quarters.

In terms of full year guidance, just no change. Full year is what it is. We don't give quarterly guidance. I think you know that being the case. If you take our full year guidance and 3 quarters is over, you can kind of get a sense of what the fourth quarter may be. And so a couple of areas that people pay a lot of attention to, NIM and then NCO. On the NIM side, like we've said we're going to be in the upper end of the range, upper half of the range. We continue to believe so. We've also said a number of times, we're asset sensitive in the near term and liability sensitive in the long term. With the way the Fed is moving, likely move again today, like there could be a little bit of pressure on NIM in the quarter. But that doesn't impact anything, maybe a couple of points. It doesn't impact anything in terms of long-term destination because the betas will catch up and we've just got a lot of confidence in that.

On the flip side, credit losses, we guide to 2%, give or take. I think Russ in the call said you bet the under. 2 months in, I continue to bet the under. And in fact, I won't be surprised for a couple of basis points to the good on that. And so you net those 2 things out, quarter looks like we think the quarter is going to behave. A couple of geography changes but we feel very good about the quarter shaping out.

It sounds like it's going to be a really strong end to the year. So please join me in thanking Michael for his presentation.

All right. Thank you.

We're ready. Good morning, everyone. Thanks for joining us this morning. I'm here with Ally Financial. Ally, as everyone knows, is an automotive financing and insurance services business. We have presenting with us today, Russ Hutchinson. Russ has been at Ally since 2023. It's going by fast. Russ is CFO, and previously was at Goldman for more than 20 years, I believe.

Yes.

Yes. So Russ, thank you very much for coming to BAAB. We appreciate you making the time to come and talk to us. And look forward to hearing more about what's going on at Ally.

Great. Thanks, Ruth. Happy to be here.

Okay. So I'm going to just kind of start high level. And I think you've had very strong results this year after some challenges in previous year. So could we just kind of start from the very high level on where we finished Q3 and Q4? How does that kind of set us up for your 2026 outlook?

Yes, absolutely. It's a great question. Thank you. Look, I'd say we're really happy and really energized by the progress that was demonstrated through our Q2 and our Q3 results. They show strong momentum across all 3 of our Core Franchises, Dealer Financial Services, Corporate Finance and our digital bank. I think if you look at our Dealer Financial Services business, we're just getting really great traction with our dealers. It's showing through in terms of application volume and in terms of what we're originating. Our corporate finance business is showing disciplined year-over-year growth. And we have the leading digital bank in the country. So we feel great about just the level of momentum we're seeing.

I'd say we're also really happy with where we're positioned. We think we're position to grow where we want to grow and to expand our profitability. And we've talked over the last year or so about the 3 main drivers of our profitability expansion story. Our NIM expansion to the high 3s. Our credit normalization to sub-2%, NCOs on retail auto loans and discipline around expenses and capital. And I think the results that we showed in the second and the third quarter showed progress across all 3 of those and should give everyone a lot of confidence in our ability to get to our mid-teens targets -- our mid-teens ROE targets over time.

So we feel really great. And we look at this performance improvement, it's really been driven during a period in which we've also been paying a lot of attention to our risk exposure, credit, rate risk, and building capital. And so we think we've really positioned ourselves in a way that's going to help us navigate some of the uncertainty that we see around us now.

Great. Okay. So maybe you mentioned the drivers to the ROE. So let's turn to some of those drivers. The NIM expansion is central to the investment case. So the Fed cut rates just last week, I think it was last week. And it looks like there could be another rate cut even in December. So can you talk about how the NIM evolves from here? And with the lower rates, what that means to that high 3s target you have?

Yes, absolutely, Ruth. And you're absolutely right. NIM expansion is a really important part of our story. It's really an important part of our profitability expansion story, and it's really built off of the momentum that we have in our businesses. And so maybe I'd start. We're on track to our high 3s target. And you look at the expansion that we've seen in Q2 and Q3. It's driven by a lot of the things that we've been talking about for a while now. The asset rollover, the portfolio rollover on the asset side and do higher-yielding assets, portfolio mix optimization as we move more of our business towards our higher-yielding assets, and as we run off some of the lower-yielding assets on our balance sheet and then deposit repricing as rates move lower. All those things continue to be in place. Those are the primary drivers in terms of the NIM expansion that we've seen over the last couple of quarters and those things are all in place now.

That being said, it's not a straight line, and we've always said it's not -- our NIM expansion is not a straight line. And in particular, we have sensitivity in the near term to reductions in Fed funds. And so we're going through a period now where the Fed is lowering the Fed funds rate. It's similar actually to what we saw last year. Remember last year, this time of year, we went through a period where September through December, the Fed took 100 basis points off rates. And what we're seeing now looks a lot like what we saw last year. So off of the first two cuts we saw in September and October, we're running at about a 40% beta. So we've taken 20 basis points off of our OSA pricing for cumulative 50 basis point reduction in Fed funds. That's similar to what we saw last year. If you looked at December of last year, we were running at about a 40% beta. And you'll know that the strong NIM expansion that we saw throughout 2025 was in large part driven by what we call the catch-up in beta. So as beta expanded from 40% at December of last year to 70% by the second quarter of last year, that was a large part of what drove our NIM expansion. And so our expectations are very similar this year in terms of how things play out. That is our betas kind of start in that 40% range and then expand over time.

In terms of getting to our high 3s targets, a beta that ultimately settles it anywhere in the 60s would be sufficient to get us there, and that's certainly our expectation this time around. So we continue to feel great about our NIM expansion story. It's driven again by those fundamental things that we've been talking about for a while that have been in place and continue to be in place in terms of portfolio rollover, mix optimization and deposit pricing.

Okay. I guess the other area to touch on is on average assets. And I think you've talked about them being down for the year. But we've actually seen some growth happening. And I think you've also kind of adjusted that outlook to say that end of period would be -- would actually see some higher balance. So can you -- maybe just talk about the momentum you see and how that comes through to 2026?

Yes, absolutely. And this is a great example of how we're growing where we want to be growing. And so the growth is in our higher-yielding assets, our retail auto loans and our corporate finance book. And those are growing and they're growing in such a way that they outweigh their shrinkage from the businesses we're exiting. And so as many of you know, we exited our Card business earlier this year, and we've been running off our mortgage loan book as well. But fortunately, the growth that we've got in the business -- in the places where we want to grow is strong enough to offset the areas where we're exiting. And so as you pointed out, if you look on a point-to-point basis, our expectation is that our end of year earning assets will be approximately flat.

Now just given the timing of exits and asset growth, on an average basis, we've guided to be down about 2%. As we think about the forward and we look at the momentum that we've got in our businesses and we start thinking forward in terms of what to expect in terms of growth, our expectation is our earning assets grow in the kind of low single digits. But the places where we really want to grow in retail auto and corporate finance -- if you back out the areas that we're exiting and winding down, those assets are growing a little faster than that, again, offset by some of the areas where we're shrinking.

Okay. So maybe we could pivot to competition because I think that there's been banks that have been more interested in the space. They tend to come in and come out, and it seems like this is a period where we are seeing -- more traditional banks come back into the auto space. Can you talk about what that looks like? And what that means for the competitive environment and yields?

Yes. No, you're absolutely right, Ruth. There's a history of banks entering and exiting the auto finance space over time. And you're absolutely right. Competition has intensified. We've seen more competition throughout this year, quite frankly. And that's a reflection of something we've known for a very long time that this is a really attractive asset class. And so it's really not surprising to us to see other banks that are anxious to grow in this area. What's interesting, though, is we are really well positioned with our Dealer Financial Services business. Really what sets us apart is we have a 100-year history in this business, we have deep and long-standing relationships with our dealers, and we have a really great value proposition for our dealers. We're all in.

We originate across a broad spectrum, and we supplement that spectrum through our pass-through programs, which allow us to speak for an even wider swath of the credit spectrum. We help them with their businesses in a variety of ways. So we're in their F&I office with our insurance products. We finance their floor plan. We offer them access to our SmartAuction platform. We're there for our dealers in a number of ways to make their businesses better and ultimately, to help them sell more cars. And that value proposition resonates with our dealers. And so while we've seen heightened competition throughout the course of this year -- from a number of strong institutions, I'm proud to say, look, our application volume has set records every quarter this year, and it has translated into really strong originations, originations at attractive yields and with a great spread of risk. And so we're delighted with how our platform has performed and how it's set up to the competition. We think we have something that's differentiated and highly valued by our dealer partners.

Okay. So the other kind of area that I think to talk about is credit performance. And that's also part of the Ally improvement of normalization of auto credits. So you've mentioned that we saw in the third quarter results, so that's going the right way. The concern in the market is like we see these other players that are having problems. And so I think it'd be really interesting to hear your thoughts about what you think for Ally and what that looks like? And you've kind of already highlighted that it's normalizing, but how does that -- the industry kind of impact any of that for you?

Yes. No, it's a great question, Ruth. There's been a lot of press in the industry about losses. It's primarily been focused on the subprime customer. And this is not new news. We've talked about it extensively about a customer that's struggling with the impact of inflation. And with an employment picture that's been a bit spotty. That being said, maybe just to level set in terms of our book, it's a small part of our business. So it's probably 9% or 10% of our originations in a given quarter would be what we call subprime, so 6.40% and below, and less than 2% would be sub-5.40%. And so when we kind of look at our origination mix, it's really a very small part of our business that would fit into what we call subprime.

And maybe just talking a little bit more about what we're seeing in our portfolio. We've taken a lot of steps over the last couple of years in terms of origination and pricing that have positioned us well to navigate those. As you pointed out, Ruth, our credit trends are improving, and that's driven by the vintage rollover as we move away from some of the older vintages that didn't have the benefit of a lot of the underwriting changes that we made over the course of 2023 and into the later vintages, the second half of '23, the '24 vintage, the '25 vintage, these vintages all have the benefit of a lot of those underwriting changes that we made a couple of years ago, and they're performing well. They're performing better than our expectations. And that vintage rollover is a big part of what's driving the improvement in our credit even with some of this industry noise that's out there.

And then at the same time, we've made enhancements to our servicing strategies. And so that combination of vintage rollover and servicing strategy enhancement. That's really what's driving the improving picture for us going forward. All that being said, we live in an uncertain macro. And so while we have these benefits, we're also paying keen attention to what's going on in the macro and how that's impacting our book on a real-time basis. And so we've got a careful eye on credit. But as you pointed out, so far, credit trends continue to show real improvement. And that benefit that we're getting from vintage rollover and our servicing enhancements is outweighing the noise that we're seeing in the macro.

So Russ, is there any difference you can see in the -- your subprime book? I mean, I know you've also originated a lot more of the S prime. That's grown in your origination volumes. But if you kind of think about that 9% to 10% that you have at subprime, is there any new trend or anything to call out there?

No. It's -- when we cut our credit in the micro segments, we cut it quite finely. And we look at it on a vintage-by-vintage basis, we look at monthly vintages. Our subprime cohorts are performing better than our expectations. That being said, our expectations had already been informed by what we've been seeing coming out of the pandemic. And so our underwriting models, our pricing models had all been informed by that. And so we'd adjusted for what we're seeing. Again, what we're talking about today in terms of a subprime consumer, struggling with inflation in a shaky employment picture, this is not news. This is not new for us. This is something that we've been seeing for a couple of years, and we've been adjusting accordingly for it.

Okay. And then just kind of another topical news is the U.S. government shutdown. Is that -- has that shown up anywhere in either demand or credit or anything -- any comments around the U.S. government shutdown?

Yes. That's another cohort that we've been watching very closely. It's a pretty small cohort for us. It's less than 2% of our book, our federal government employees. But we've been watching it to see any signs. We've seen a slight uptick in people taking up extensions. But it's been very slight. And again, it's on such a small portion of the book that it's not something that's impactful to us.

Okay. So I know you mentioned this. I mean you've tightened underwriting a couple of years ago now. Has there been -- have you made any additional changes in underwriting?

Underwriting is a game of continuous improvement. So we are constantly tweaking our underwriting. As I said earlier, we look at our book on a micro segment basis, and we look at it based on monthly vintages. And so we're constantly looking at how each segment and each monthly vintage is performing relative to the expectations at the time when we price those loans and looking for micro segments that are performing better than our expectations and micro segments that are performing worse than our expectations. And so we're consistently -- we're continuously adjusting our pricing and our underwriting and our auto approvals in order to manage for what we're seeing real time in terms of the book. And so -- so we have. And so for example, a great example of this is on monthly payment size. Coming out of the pandemic, we tightened quite a bit around monthly payment size because we saw performance there that was underperforming our expectations from a credit perspective. As we dig in on a micro segment basis, we're funding pockets where you fund, for example, someone who actually has a low monthly payment size but reads higher risk based on other credit metrics. We're actually funding -- there are micro segments within there that actually outperform our expectations. And so we're looking at pockets where we can price differently and underwrite differently in order to capture those opportunities.

But when you look at our underwriting on a whole, as you pointed out, north of 40% of our originations continue to be in our highest credit tier. And so when you look at our underwriting on a whole -- but it doesn't -- there's not going to be a noticeable change. But under the surface, we're doing a lot of work month-to-month, really analyzing every micro segment, analyzing every vintage and making continuous improvements as we go.

Okay. I'm going to pivot for a little bit, and I'm sure we'll get back to auto finance again. But I want to talk about the Corporate Finance business because there's also been some news flow around that with the NDFI exposure that you have and some other people having issues in that segment. So I think you have about $4 billion of exposure. Can you just spend a minute talking about where that exposure is? And how you think about that part of your portfolio?

Yes. So you're right, it's about $4 billion of exposure. It's in our Lender Finance business within our Corporate Finance business. And NDFI is a pretty broad category. And so everyone's NDFI looks different. Ours is again concentrated within this particular product. And again, it's about $4 billion. These loans are conservatively underwritten with conservative advance rates. And this is a business where we're serving private credit players that, in many cases, we've known for a long time. We've had long-standing relationships with them, and they're very well established.

As we look at how we manage that business on a day-to-day basis, we have a number of protections in place in terms of just some of the procedures we go through. So we do obligor confirmations. We require independent audits. We do periodic UCC lean searches to make sure that our collateral is not double pledged. And then we have rights that kick in based on certain triggers and events that give us the ability to take control of collateral when things go awry.

When you look at our Corporate Finance business overall, it's been a great business for us. It's running right now at about a 30% ROE. It's a business we've been in for 25 years and with the same team running the business. So really great continuity. Our credit losses on our Corporate Finance business have been less than 50 basis points on average. Year-to-date, we've had no credit losses. Now that's pretty fantastic, but it's not our expectation. We actually underwrite the business for losses. We expect losses and losses will come. But again, it's a business that we've run over multiple cycles and seen consistently strong credit performance. And so we feel pretty good about our business and our book.

And Russ, does -- is there any industry concentrations or specific focus areas?

No, it's a pretty good spread across different industries.

Okay. Maybe we could focus on some of the other revenue sources that you have because I think you've been trying to build out more fee-based revenues. Can you talk a little bit about those opportunities?

Yes, sure. I mean this is another example of really kind of leveraging the momentum of our businesses and growing where we want to grow, and growing in places that generate -- stable sources of revenue that are high margin and low capital intensity. And so you kind of look at the areas where we source other revenue. It's insurance, our SmartAuction platform. It's our pass-through program, and that's our Corporate Finance business as well.

Now if you look over this year, our other revenue looks kind of flattish and that's as a result of our having exited the card business and the mortgage business. And so again, similar to the earning assets picture, this is an area where there's areas where we're leaning in where we feel like we have a strategic advantage and where they add to our profitability. And there are areas that we're exiting. And so once again, so on the insurance side, we're leveraging our relationships with dealers. We're already in the dealership. We have deep relationships there, and we're leveraging that relationship to drive insurance premium revenue, which again is high margin and low capital intensity.

We're also leaning into those dealer relationships for our SmartAuction platform and for our pass-through program. Our pass-through program is great. It helps our dealers sell more cars. For the marginal credit that doesn't fit our balance sheet, we can still provide a solution to our dealer and help them sell that marginal car. And for us, it's a -- we create a source of servicing revenue going forward. So by being there, we're able to service that loan, we're able to see the credit performance on that loan, and we're able to book a nice stream of fee revenue over the remaining life of that loan.

And no credit exposure to it.

With no credit exposure, exactly. In the Corporate Finance business, our Corporate Finance business is a credit shop. We lead the majority of the deals, the overwhelming majority of the deals that we originate. And so that gives us a source of fee income through syndication fees that we can earn by syndicating out some of our exposures where they exceed our concentration limits.

And so again, we've got a number of sources of fee income. We think they add to the quality of our overall revenue picture. And these are all areas that we're leaning into and that we're looking to grow over time. And so -- this year was kind of flattish again because you have the areas we're growing offset by the stuff we're exiting. But as we think about that going forward, you should think about that as a, call it, a mid-single digits growth area for us.

Okay. Why don't we switch to expenses. I think, again, talking about the 15% ROE project target. Expenses and disciplined expense management is a key part of getting that. So can you talk a little bit about areas of investing? Because I feel like there's always new technology, new opportunities to invest and how you balance that with keeping expenses -- expense growth moderate?

Yes, absolutely. And we are absolutely committed to expense discipline. As you pointed out, positive operating leverage is an important part of our margin improvement story. And so we're proud of the fact that we've actually reduced controllable expenses and pretty much held the line on expense levels over the course of the last couple of years.

As we think about expenses, we're really taking the benefits of our power of focus strategy by focusing our business by simplifying it gives us opportunities to streamline. And so as we think about investment, it's really -- a lot of it is a self-help story that is getting leaner and more agile and more efficient with our simplified, more focused business model and then leveraging some of those savings in order to be able to invest in the business and really invest in the places where we really want to grow. There was also -- as well as covering necessary investments in things like cybersecurity, but then also freeing up capacity to invest in our customer experience, making sure that the customer experience that our digital banking clients see is best in class. So that's how we look at expenses. It's very much about basically kind of getting lean and agile with our focused strategy and then taking some of those savings and then investing in the places where we really want to grow and get better.

Do you have any big tech investment plans, any big initiatives or projects coming up? Or is it -- should we think about it as more kind of investment as usual?

Look, in terms of how it presents itself on our financials, it will look like investment as usual underneath all that. We're saving a lot of money and streamlining in various places, and we're making the necessary investments you'd expect us to make across cybersecurity. Like a number of folks, we have a number of important projects in the AI area where we're looking for areas where we can get even more efficient and more lean. But again, as we look at expenses, we're very much sourcing the investment for those expenses by being more efficient. And so when you look at our expense levels overall, it's still our expectation that we'll see expense growth that will be more like low single digits. Again, kind of sourcing the dollars we need for investment from -- basically from savings.

Okay. So I want to -- before we open up for questions, I want to ask about capital because that's been also an area of focus that you've been building capital. And if we look at your adjusted CET1, you're now at 8%, which is kind of getting, I think, towards your goal of 9%. Can you talk about kind of the trajectory to get to 9% and then the opportunity to start repurchasing shares because you are very -- you generate organic capital. So let's talk about that.

Yes. I think the things I really like about our capital trajectory over the course of this year is we've done a number of things at the same time. We've invested in growth of the core businesses, growing our retail auto loan, our corporate finance books. We've exercised disciplined around the places where we're not investing, where we're harvesting with the exit of card and the runoff of the mortgage book. And we've built capital and we've built a significant amount of capital over the course of the year. We've also been thoughtful and leverage tools like our CRT in order to optimize capital across our business. And so there are a lot of things that we really like about the way that we've generated capital over the course of the last year.

And it's very much in sync with kind of how we think about capital, which is, first and foremost, the best use of capital, in our view, is always going to be in growing our core businesses, but growing them in a disciplined and thoughtful way with a keen eye on risk-adjusted return. We will not chase growth for the sake of chasing growth. But we do think where we have opportunities in our core businesses where we have competitive advantage to drive really attractive returns, that's the best use of our capital. And of course, we want to build our capital to get to and provide a buffer to that 9% target. And so those are our absolute clear priorities, and we're proud of the fact that this year-to-date really provides a great example of how we manage towards that.

Now as we think about the go forward and we think about the capital we're generating in the business, particularly as our margins have improved versus the capital usage in our core businesses, there is a place as you think about our playbook for share repurchases going forward. And share repurchases are -- getting back to share repurchases is absolutely a priority for us.

In terms of the timing of kind of when we start the share repurchase program, it will be very much informed by that same kind of hierarchy of uses that investment in the core business, building capital to a level that we feel comfortable and having organic capital generation that gives us visibility to getting to our targets of 9% plus on a fully phased-in basis. And so all those things feel pretty good. And again, all those things are going to inform the timing of when we come back to share repurchases. But I can assure you it's absolutely a priority, and it's a priority for the team to be responsible in terms of how we manage our shareholders' capital and really only to lean into growth where that growth makes sense and drives real value for our shareholders.

Okay. I'm going to poll the audience and see if there's any questions for Russ. We have one upfront.

Russ, thanks for your time coming here. Question just on how you're thinking about used car prices, how they're trajecting? There's been some news recently with some softness there and give us a sense as to how you're managing through that.

Yes. No, it's a great question. When we started this year and we gave our original guidance, we talked about some of the favorability we've seen and we've kind of really think about 3 variables. It's kind of entering delinquency rates, what flows to loss in a given period and then the support that we get from used car prices. And I'd say used car prices is one of the things that's actually been quite supportive and helpful to us as we move through the year. We still feel pretty good about the trajectory of used car prices today and as we kind of think about the forward. We still feel like there's shakiness, there is more volatility than you would expect in used car prices on a month-to-month basis just in terms of what's going on in the dealer lot. But again, I think we're well positioned to manage through that. And so far, we continue to feel pretty good about our trends. And certainly, in terms of credit, we continue to see that favorability that we've been talking about across all 3 of those variables, delinquency rates, flow to loss as well as used car prices.

Used car prices are still significantly above pre-pandemic level?

Yes. There's just a natural supply demand imbalance just given kind of what was being produced as we went through and came out of the pandemic versus where kind of vehicle demand is overall. And so there's still basically kind of a healthy supply-demand balance that certainly works towards our favor.

And what does the supply look like for the dealers today? I mean, is the new autos -- I know for a while, there was limited supply. Is that normalized?

Yes. Look, I'd say it is normalizing. And we all remember back in the days of 2021 and parts of '22, where you go into a dealer lot and you really didn't have a lot of choice. We're not living in that world. There's a healthy supply and a good choice on the dealer lot. That being said, inventory levels are lower than where they would have been pre-pandemic. And so there's -- and by the way, that's helpful for the dealers, right, to have enough inventory on hand that the customer has choice and can select the vehicle that's right for them, but not to be carrying a lot of excess inventory is a good place for the dealers to be.

We have seen our inventories pick up a little bit over the course of the last couple of months, which again, is natural, and we expect to see dealer inventories ebb and flow. They've been running below our expectations for the -- for -- actually for a couple of quarters. And so seeing a little pickup is healthy, but I'd still characterize dealer inventory levels as in the historical context, pretty lean.

Russ, Jon Arfstrom from RBC. On the credit trends, you talked about the vintage impact. And I guess I'm curious how long do you think this year-over-year improvement in credit can last and how low could delinquencies and losses go? I mean are you close to a trough where the tension between yields and losses, you're there? Or do you think this can continue to improve over time?

No. I think we still got more runway on the vintage rollover story. As you kind of look at our book, I think by the end of this year, the '22 vintage will be about 10% of the book, but still driving some lost content. And then the first half of '23 is still a piece of it. And then obviously, we have some of the vintages prior to 2022. So we still have a sizable chunk that kind of needs to roll through. And when I think about how we underwrite, we underwrite to, call it, a [ 1.6, 1.8 ] target. And so I do think at some point, we kind of exhaust that when we're kind of operating within that target. But I do think we've still got some legs on the vintage rollover store.

Emily Ericksen from Citi. You talked about seeing some competition coming back right into the space that's obviously pretty attractive and completely appreciate the story around deep relationships with the dealers. But if we could just double click into what that competition means in terms of spreads and your ability to continue to originate high 9s or portfolio accretive yields? Have you seen any spread compression or how significant has it been as a product of that competition?

Got it. No, it's a great question, Emily. And maybe let me try and dissect it and take it in pieces. So -- maybe I'll start with originated yield versus portfolio yield. And I'd say, look, our originated yield in the quarter at 9.7% kind of came in about 10 basis points from the prior quarter. That was benchmark driven, and it is our expectation that as benchmark rates come down, our originated yield will similarly come down. It's not dollar for dollar. We were able to kind of manage it to a sub-100 beta. But we do expect, as benchmark rates come down, our originated yield will come down. That being said, there's still some -- our originated yield still exceeds our portfolio yield. And so we still have some of that kind of gravitational pull upwards in terms of our portfolio yield, but it abates. And obviously, you can kind of look at the forward curve and look at kind of what's happening with benchmark rates and how that could feed through the portfolio yield. And so we should -- that should run its course over time. But it's really important to point out, and this is where it gets to the important part of your question, the spread, right? And the spread to think about is the spread between our portfolio yield and our deposit yield. And so as rates come down and as our beta evolves on the deposit side, we'll continue to see very attractive spreads between our portfolio yield and our cost of deposits.

Your question, you kind of started with competition, and competition has been strong all year. We saw a number of players come in really from the beginning of the year. And as I said before, our Dealer Financial Services platform is really differentiated and has really stood up to that competition. And maybe I'll just point out, even as we say over the course of October, as we've seen light vehicle sales moderate somewhat. Our application flow has continued to be strong, and our underlying originations through the months have continued to be strong. Our Dealer Financial Services business is showing well. And our value proposition to the dealers is really resonating in a way that's really helpful and differentiating for our business.

So we feel great about our ability to drive opportunity at the top of the funnel. And that is ultimately what gives us the ability to use our analytics and our pricing to select the loans that we like for our balance sheet based on an attractive risk-adjusted return and ultimately deliver an attractive spread between our originations, our portfolio and our cost of deposits.

I think we can stop there. I think we're out of time. So Russ, thank you very much. Appreciate you coming.

Great. Thanks, Ruth.

Good day, and thank you for standing by. Welcome to the Third Quarter 2025 Ally Financial Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sean Leary, Chief Financial Planning and Investor Relations Officer. Please go ahead.

Thank you, Daniel. Good morning, and welcome to Ally Financial's Third Quarter 2025 Earnings Call. This morning, our CEO, Michael Rhodes; and our CFO, Russ Hutchinson, will review Ally's results before taking questions. The presentation will reference can be found on the Investor Relations section of our website, ally.com.

Forward-looking statements and risk factor language governing today's call are on Page 2. GAAP and non-GAAP measures pertaining to our operating performance and capital results are on Page 3. As a reminder, non-GAAP or core metrics are supplemental to and not a substitute for U.S. GAAP measures. Definitions and reconciliations can be found in the appendix. And with that, I'll turn the call over to Michael.

Thank you, Sean, and good morning, everyone. I appreciate you joining us for our third quarter earnings call. Before we dive into results, I want to reflect on the refresh strategy we've rolled out in January, which has reshaped Ally into a more focused organization. These changes are not cosmetic. They are foundational and the third quarter provides clear evidence that our strategy is working. If I had to choose one word to define this quarter, it would be momentum. Not isolated wins but sustained improvement driven by our 10,000 colleagues who are executing with discipline, urgency and purpose.

We are seeing it in traction each of our three core business franchises have with our customers. We're seeing it in our financial performance, and we're seeing in the way our teams are showing up every day to serve our customers in a compelling way. With that, let's turn to our third quarter financial results.

We achieved significant year-over-year earnings growth with adjusted EPS up 166% to $1.15 per share. Core ROTCE was 15% on a headline basis and about 12% excluding the impact of AOCI. These increases are driven by embedded structural tailwinds in the balance sheet, continued credit normalization and disciplined expense and capital management. Third quarter adjusted net revenue of $2.2 billion is up 3% year-over-year despite the sale of the card business earlier this year. Excluding the sale of credit card, year-over-year net revenue growth was 9%. Net interest margin, excluding core OID, expanded to 3.55%, up 10 basis points quarter-over-quarter, driven by continued optimization on both sides of the balance sheet. And we remain confident in our ability to deliver on our medium-term target.

Meanwhile, CET1 of 10.1% equates to $4.5 billion of excess capital above our regulatory minimum. Importantly, these results reflect momentum across our franchise. Margin is expanding with a clear path to the upper 3% range. Operating leverage is improving, supported by top line revenue growth and disciplined expense management. Credit trends are supportive of delinquency rates continue to normalize and the net charge-off rates improved due to underwriting actions and servicing enhancements implemented over the past 2 years, and our capital ratios are growing steadily.

Expense discipline remains paramount. And this quarter, we rolled out our proprietary AI platform, ally.ai to 10,000 teammates to help them streamline tasks, automate routine work and make more informed decisions. Looking beyond the financial results, our unmatched brand and leading culture continue to provide distinct advantages in the markets we serve. Our brand continues resonating in the market as consumers once again choose Ally for a reputation at a higher rate than the industry average.

Our employees show up for our customers and communities every day, and that impact has felt in everything we do. While recognition is never the goal, Ally was recently honored by the American Banker with an award for the most powerful women in banking, top team, that's the first for a digital-only bank. We also climbed the rankings on Fortune's Best Workplaces within our industry. Recognitions like these are a testament to our culture, our people and what it means to be uniquely Ally. With that context, let's turn to Page 5 and discuss the core franchise that are fueling our momentum and position us for sustained growth moving forward.

Dealer Financial Services continues to be the cornerstone of our performance. Within the auto finance business, consumer originations of $11.7 billion were driven by 4 million applications. That's our highest application volume ever. The strength of our dealer relationships and the scale of our franchise enable us to be selective in loans we book, optimizing for both pricing and credit. Simply put, dealers want to do business with Ally, and we're seeing it in our results. Our differentiated model provides dealers a comprehensive suite of solutions, spanning consumer and commercial financing, SmartAuction and Passthrough programs and a broad range of insurance products. This positions Ally as a unique strategic partner to our customers. Originated yield came in at 9.7% with 42% of originations from our highest credit quality tier, a direct reflection of our disciplined strategy to balance attractive pricing with prudent risk management.

Turning to insurance. We continue to leverage synergies with auto finance to enhance the overall value proposition we offer to our dealer partners. Our insurance team remains focused on expanding relationships and deepening engagement with the 7,000 dealers they currently support. In Corporate Finance, we delivered another strong quarter, generating a 30% ROE along with 10% growth in the loan portfolio. We're maintaining disciplined risk management while actively exploring new verticals, structures, products and solutions to generate incremental accretive business. This is a business built on trust, speed and performance, and we're committed to scaling it responsibly.

Turning to our digital bank, which remains a key differentiator in the marketplace. Our customer-first approach continues to set us apart. We ended the quarter with $142 billion in balances, reinforcing our position as the largest all-digital bank in the U.S., serving 3.4 million customers. Deposits remain the foundation of our funding profile, representing nearly 90% of total funding. 92% are FDIC insured demonstrating the strength and stability of our deposit base.

Our mobile app continues to earn top-tier accolades for customer satisfaction, and our suite of digital products is driving deeper engagement, fueling loyalty and reducing rate sensitivity.

Before I turn it over to Russ, I want to leave you with this. We are pleased with our progress and even more confident in where we're heading. But let me be clear, we still have work to do. We are doubling down on our core franchises. They are driving improved results and setting us up for focused growth moving forward. We're creating long-term value for shareholders, customers, employees and the communities we serve. We've built a differentiated foundation, resilient, scalable and aligned with our long-term goals, and we see room for organic growth across each of our businesses over the years to come. Momentum is real, and we are confident in our ability to sustain it. And with that, Russ, I'll turn it over to you to walk through the financials in more detail.

Thank you, Michael. I'll walk through third quarter performance, starting on Page 6. As mentioned last quarter, our financial results reflect the closing of the sale of our credit card business at the beginning of second quarter. Prior year comparisons may be impacted by the sale, I'll highlight those areas as we move through the results.

Excluding core OID, net financing revenue totaled $1.6 billion, up approximately 4% on a linked quarter and year-over-year basis. We continue to benefit from the momentum in our core franchises given ongoing optimization of deposit pricing and strategic remixing of the balance sheet towards higher-yielding asset classes. I'll provide more detail on margin shortly. Adjusted other revenue totaled $557 million, up 5% quarter-over-quarter and approximately flat year-over-year. Growth in Insurance, SmartAuction and our Passthrough programs offset the headwind from the sale of credit card and ceasing mortgage originations. Taken together, total revenue of $2.2 billion is up 3% year-over-year, but up 9% when you adjust for the sale of credit card.

Provision expense of $415 million was down approximately 36% year-over-year given continued normalization in retail NCOs and reserve build in the prior year period. In retail auto, the NCO rate declined 36 basis points year-over-year to 1.88%. We continue to be encouraged by the trends within the portfolio as vintage dynamics and enhanced servicing strategies drive favorable loss trends. I'll cover credit performance in more detail shortly.

Noninterest expense was $1.2 billion, down $22 million sequentially and up $15 million versus the prior year. As mentioned previously, controllable expenses were up year-over-year, driven by nonrecurring benefits recorded in the third quarter of 2024. We continue to anticipate flat expenses this year and are committed to maintaining disciplined expense management going forward. In total, adjusted earnings per share of $1.15 was up 166% year-over-year. Another encouraging step as we progress towards our medium-term targets.

Turning to Page 7. Net interest margin, excluding OID, was 3.55%, an increase of 10 basis points from the prior quarter. On a quarter-over-quarter basis, NIM expansion was driven by repricing of the liquid deposit and CD portfolios and continued remixing of the balance sheet as growth across retail, auto and Corporate Finance replace lower-yielding mortgages and securities. Retail auto portfolio yield, excluding hedges, was up 2 basis points quarter-over-quarter to 9.21%. Looking ahead, we expect modest expansion in portfolio yield. Lower benchmark rates will influence originated yield and impact the portfolio's ultimate trajectory, but retail auto loan growth is expected to support accretive remixing of the balance sheet.

Industry-wide liquidation activity has increased, partly due to demand pull forward. Traditional trade-ins continue to represent most of the activity and liquidations have been concentrated in lower-yielding loans resulting in minimal impact to net interest margin. On the liability side, 3Q results reflected the full benefit of a 10 basis point reduction in liquid savings rates we made in June, and a modest benefit from our most recent liquid savings rate reduction in September. We also continue to benefit from the natural tailwind in CD repricing as $8 billion of CDs carrying out 4.3% yield matured during the third quarter. The value of our brand extends well beyond rate and fosters our consistently strong retention and renewal rates. The stability of the portfolio and our pricing power demonstrate the strength of our digital bank, with balances tracking in line with our expectation of relatively flat balances for the year.

Just like last year, we expect deposit beta will start to slow and gradually migrate to our cumulative beta target. We have included an additional schedule in the appendix providing a detailed view of how deposit beta played out starting this time last year as the Fed reduced benchmark rates by 100 basis points from 5.5% to 4.5%. This historical example is not guidance, but we feel it's a valuable comparison to frame how beta evolves through a series of Fed fund rate reductions.

As we've previously noted, Ally is a liability sensitive over the medium term but asset sensitive in the very near term, driven by floating rate commercial loans and pay fixed hedge exposure. Therefore, reductions in short-term rates, particularly material reduction, pressure margin expansion early on. I'll discuss our outlook for margin in more detail shortly.

Turning to Page 8. Our CET1 ratio of 10.1% represents approximately $4.5 billion of excess capital above our SCD minimum. On a fully phased-in basis for AOCI, CET1 for the period is 8%, an increase of 90 basis points year-to-date. In August, we executed a $5 billion retail auto credit risk transfer transaction, which generated approximately 20 basis points of CET1 at issuance. With significant investor demand, the transaction was the tightest spread we have seen to date. We will continue to use these structures opportunistically as a mechanism to efficiently supplement organic capital generation. To date, we've completed three transactions. And while they provide a low cost of capital, we remain balanced in our use given the relatively short duration of the capital they generate.

Our capital management priorities remain unchanged. We are focused on deploying capital to drive accretive growth in our core franchises while continuing to move our fully phased-in CET1 level higher. Last week, we announced a quarterly common dividend of $0.30 per share for the fourth quarter of 2025, consistent with the prior quarter. Share repurchases remain a key capital management priority. The continuing strength of our CET1 position and increasing organic capital generation through earnings will provide greater flexibility and inform the appropriate timing to resume repurchases.

Turning to book value at the bottom of the page. Adjusted tangible book value per share of $39 increased over 11% from the prior year. 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 9. Credit trends across our portfolios remain encouraging. The consolidated net charge-off rate was 118 basis points, a decline of 32 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, the net charge-off rate was 188 basis points, up 13 basis points sequentially given seasonal trends, but down 36 basis points year-over-year. A third consecutive quarter of year-over-year improvement reflects strong performance from recent vintages and the benefits of continuing servicing enhancements.

Moving to the top right of the page, 30-plus all-in delinquencies of 4.9% is down 30 basis points from the prior year and marks the second consecutive quarter of improvement year-over-year. This continued improvement further reinforces our constructive view on the near-term loss trajectory within our portfolio, but we continue to assess the dynamic macro environment. Vintage level delinquency trends are included in the supplemental section of the earnings presentation and are also disclosed in our 10-Q and 10-K. The benefit of vintage rollover continues to be evident in actual results.

Turning to the bottom of the page on reserves. Consolidated coverage increased 1 basis point this quarter to 2.57%, while the retail auto coverage rate remained flat at 3.75%. Our retail auto coverage levels continue to balance the favorable credit trends in our portfolio against an uncertain macroeconomic outlook and softening employment. Our modeled reserve contemplates the consensus outlook with peak unemployment of 4.6% before reverting to a historical mean near 6%. As we have consistently messaged, 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 10. Pretax income of $421 million was up $66 million year-over-year, primarily driven by lower provision expense. Our lease remarketing performance was breakeven for the second consecutive quarter. As noted, we expect remarketing performance to be less of a factor moving forward given the reduced volume of terminating units not covered by residual value guarantees. As illustrated on the bottom left, retail auto portfolio yield, excluding the impact from hedges, increased 2 basis points quarter-over-quarter, originated yield of 9.72% was down 10 basis points quarter-over-quarter with 42% of retail volume generated from our highest credit tier. We actively calibrate our buy box to adapt to the evolving market with a sharp focus on risk-adjusted returns. These capabilities give us conviction in our ability to sustain attractive originated yields through the cycle, while also improving the overall credit quality of our portfolio. Prime Credit remained the majority of our originations in the quarter with average FICO of 708. FICO scores below 620 represented roughly 10% of volume, while sub-540 volume was only 2%, both consistent with historical trends.

On the bottom right of the page, you'll see consumer originations of $11.7 billion, up 25% year-over-year, fueled by a record 4 million applications. Importantly, strong application volume increases our ability to be highly selective in underwriting targeting attractive risk-adjusted returns while maintaining discipline and prudence. For context, our 22,000 dealer network enabled us to look at roughly $125 billion worth of volume during the quarter, providing the opportunity to drive accretive growth and monetize declined applications to our Passthrough programs.

Turning to our insurance business on Page 11. We recorded core pretax income of $52 million, which was up $6 million versus the prior year. Total written premiums of $385 million were up $1 million year-over-year and up $36 million on a sequential basis. We continue to leverage synergies with auto finance to drive momentum within the business. The year-over-year increase in losses was primarily driven by loss reserves as we grew the portfolio. We didn't observe any large weather events in 3Q, but our reinsurance program continues to reduce exposure within the book. Insurance remains a key component of our capital-efficient other revenue expansion as we continue to focus on growing earned premiums over time.

Corporate Finance results are on Page 12. Core pretax income of $95 million reflected another strong quarter with a 30% return on equity. Net revenues of $136 million was up $9 million quarter-over-quarter and down $10 million year-on-year, with higher syndication and fee income in the prior year driving the annual decline. End-of-period HFI loans ended $11.3 billion, an increase of approximately $1 billion year-over-year, reflecting our focus on prudently growing the business. We delivered another quarter with no new nonperforming loans and no charge-offs. Criticized assets and nonaccrual loan exposures were 9% and 1% of the total portfolio remaining near historically low levels.

We continue to leverage long-standing relationships with financial sponsors, along with the strategic expansion of our product suite. Together, they drive accretive, responsible loan growth even in a competitive market.

On Page 13, I'll conclude with a brief update on our financial outlook. We remain encouraged by the momentum across our core franchises and the strong execution from our team. On margin, we narrowed the range to 3.45% to 3.5%, consistent with what we indicated in July, we said we expected full year NIM to land in the upper half of our 3.4% to 3.5% full year guide. We expect fourth quarter NIM to be roughly flat to the third quarter as the Fed embarks on a series of Fed fund rate reductions. As a reminder, given our near-term asset sensitivity, the magnitude and timing of rate cuts will influence margin over the next couple of quarters. We expect NIM to migrate to the upper 3s over time, but it won't be a straight line. The strong NIM expansion we saw in the second and third quarters of this year, following Fed actions at the end of last year support our confidence in our medium-term NIM trajectory.

On credit, we said full year NCOs could fall towards the low end of our 2% to 2.25% guide if the constructive trends we were seeing declining delinquencies, strong flow to loss rates and supportive used car prices continue through the year. We now expect full year NCOs of approximately 2% at the low end of our full year guide based on the continuation of those trends. We could print full year NCOs a few basis points higher or lower than 2% based on year-end flow to loss rates or changes in used car prices. As a reminder, the constructive trends we're seeing started in the fourth quarter last year, which will impact the year-over-year comparison in fourth quarter relative to what we printed in 3Q.

As a result of the update on retail auto NCOs, our outlook for consolidated NCOs is now approximately 1.3%. We continue to approach credit with discipline to ensure we remain well positioned in the current macroeconomic environment. The outlook for average earning assets is consistent, but it's important to note the underlying growth trends. Our guide continues to be impacted by commercial floor plan. Dealers are maintaining leaner inventory levels due to the impact of tariffs and the effects of demand pull forward. These leaner inventory levels are supportive to overall dealer health. However, even with this impact to average balances, we expect ending earning asset balances to be flat year-over-year. Growth in the portfolios we want to grow, retail auto and corporate finance loans are offsetting lower inventory levels as well as the nearly $4 billion headwind from the sale of card and runoff of mortgage assets. This trade-off supports our margin expansion and earnings growth. Finally, we expect our full year effective tax rate to be approximately 22%. The remainder of our guidance is unchanged, reflecting consistent execution across our businesses. With that, I'll turn it over to Sean for Q&A.

Thank you, Russ. [Operator Instructions] Daniel, please begin the Q&A.

[Operator Instructions] Our first question comes from Sanjay Sakhrani with KBW.

Obviously, lots of jitters around some of the cracks that we've seen in subprime auto and just broader consumer credit trends. Michael, it seems like your metrics don't necessarily suggest a lot of that. And I know you guys have gotten ahead by containing some of the growth and tightening your underwriting standards. But I'm just curious if you can comment on that and sort of how you see the path forward and if you've seen any contagion, so to speak. .

And maybe I'll start, Sanjay, thanks, and Russ, if you see anything to add. But look, we're observing consumer behaviors that are honestly better than our expectations. And I appreciate there's a lot of macro uncertainty in the environment, but we're not seeing that impact our credit performance. And so we feel good about what we're seeing right now.

Yes. We're certainly benefiting from a lot of the decisions we made around underwriting dating back to 2023 when we really started tightening, and that's giving us a benefit in terms of vintage rollover that, quite frankly, still has some legs to it. We've also, as we've talked about before, made a number of enhancements to our servicing strategies. And so we've got some benefits kind of baked into the trends we're seeing in our portfolio that we're seeing in the outcomes. I'd say as we kind of look through our portfolio, I know subprime has been a particular focus for folks. We look at some of our lower credit tiers and quite frankly, those tiers are performing better than our expectations at the time when we price them. So we continue to feel pretty good about what we're seeing in our book. All that being said, we have to acknowledge that there's an uncertain macro, and as you'd expect, we're watching that very closely.

And just a follow-up on the NIM. Obviously, Russ, you gave us some sort of expectations on a go-forward basis with the push and pull of rates going lower. But just that target of getting into the upper 3s, I mean like over what time line if you assume the forward curve, do you anticipate getting there? And then just on that specific point, if we think about the yield component, we've heard about banks kind of reengaging with the market. I'm just curious if you guys are seeing any impact related to that.

Greg, maybe I'll start with your question on the NIM trajectory first. We put in our presentation on Page 19 in the supplemental portion, a bit of a historical case study. We basically looked at our beta evolution following the Fed's rate reduction last year this time, as you'll recall, between September and December of last year, they took 100 basis points out of Fed funds. And just as we're guiding this year, it translated into a slower early beta. And then what you really saw with us is that NIM expansion that we saw in Q2 of last year and this past quarter Q3 was really driven by the catch-up of that beta. And so that's a dynamic that we expect to repeat as the Fed has once again embarked on a series of rate cuts to Fed funds. And so I think that provides us useful help in terms of understanding how our NIM and how our beta evolves through these rate cutting cycles. And I think that should give you and others confidence in terms of our overall trajectory and how we see the path to high 3s.

On your second question around just kind of competition in the market, maybe I'd start by saying the level of competition in the market isn't unexpected to us. It's not unexpected to us to see other smart sophisticated financial institutions recognize the attractiveness of the market that we play in. And we've talked extensively about just kind of how attractive we think our 2024 vintage has been in terms of the risk-adjusted returns on that vintage as well as, quite frankly, the back half of '23. So it's not surprising to us to see other institutions attracted to the sector. And they've been here all year. I mean, we've seen that increased competition from a number of players all year. All that being said, we've been really thoughtful about where we play and how we play, and that's translated into a tremendous amount of momentum with our dealers. We are a consistent player in the market. We are a consistent partner to the dealers and the OEMs that we work with. And we've been quite frankly, rewarded in terms of the amount of application volume we've seen. We've had three straight quarters of record application volume. It's translated into really great originations, both in terms of volume as well as in terms of credit and yield. This is a large and fragmented market. And I think we've been thoughtful about where we play. We've been thoughtful about providing a really attractive value proposition to our dealer and OEM partners, and we're seeing the benefit of that. I think we've also seen the benefit of some degree of demand pull forward, just given some of what's going on with tariffs as well as the EV lease tax credit program that terminated at the end of last month. And so we're seeing some benefits in terms of volume there that have certainly helped in terms of creating a great opportunity set. But I'd say we feel really good about our ability to compete in this market and our ability to continue to get really great originations in terms of credit, in terms of risk-adjusted yield that ultimately support our overall NIM trajectory.

Our next question comes from Robert Wildhack with Autonomous Research.

The past few quarters, you've called out favorable flow to loss trends. I was wondering if you could just give us a quick update on what you're seeing there most recently. Are they still as favorable as they were earlier in the year?

Yes. They've continued to be favorable. And as you've seen, we've had we've now seen delinquency levels overall starts to come down. And I'd say we're encouraged by the fact that our flow to loss rates continue to be solid even as delinquencies have come down.

Okay. Great. And then if I look back in the first quarter of 2020, you bought back stock with an 8.5% CET1 ratio that was kind of fully marked for CECL, obviously, higher than that on a reported basis. I appreciate that's not a perfectly comparable period to the present and obviously, it depends on the final rule going forward. But is there any reason you could think of why that wouldn't be like a at least a reasonable benchmark for the potential for capital return going forward here?

Maybe I'll pull back a little bit, and I'll just maybe at the risk of reiterating some of the stuff we said in our prepared remarks. We feel great about the progress we've made in capital over the course of this year. I mean we've both increased our CET1 ratio on a stated basis and a fully phased-in basis while supporting the growth of our core businesses. And that obviously comes from a lot of hard decisions we made about the businesses that we've chosen to exit. It also comes from some of the flexibility we get from transactions like the CRT transactions that we've been doing that we talked about earlier. But we feel great about our progress there. We also feel good about the organic capital generation of the business and our outlook and our expectation that we'll continue to increase that level of organic capital generation. And so we feel really good about the progress. And I'd say, as we said in the prepared remarks, share repurchases remain a key priority for us in terms of capital management. And I kind of go back to the remarks. And I think you're kind of pointing out some of the right factors to consider. But as we continue to see improvement in our fully phased-in CET1 ratio and as we continue to see improvement in our organic capital generation, those are the things that we're going to look towards in terms of determining the appropriate timing of returning to our share repurchase program. Those are kind of the right important kind of benchmarks that we think about.

Our next question comes from John Pancari with Evercore.

Just wanted if I could give a little bit of color around your earning asset expectation. I know you had reiterated the down 2% this year. And I believe previously, you had indicated on a more normalized basis, which we believe would be more like 2026 that you could see the average earning assets up low single digits. So implying that inflection into next year. Can you just give us that updated view there in terms of the components? Do you feel confident in that -- in the low single-digit pace that we could see next year and that inflection? And then maybe if you could also talk about liquidations that you might be seeing? I know you had indicated that refinancing pressure has picked up a little bit, although off of a low base, but just driven by some of the larger competitors in the space. I wanted to see if that's continuing if that poses any risk.

Yes. I'll start with the -- thanks, I'll start with the earning asset trajectory and I think the dynamics that you generally pointed out sound correct to me, and maybe I'll just kind of go through it a little bit. What we've seen this year is we've obviously seen the impact of exiting the card business as well as mortgage. And then we've also seen the impact of leaner dealer inventories. And so this -- so when we kind of look at our points of end-to-end earning asset levels start of the year, to our ending earning assets at the end of the year, to point to flat, the way we get there is through growth in the portfolios we really want to grow. Our highest margin, highest returning portfolios in retail auto and corporate finance. And so underlying that flat year-to-year comp on earning assets is really growth in the businesses we want to grow, and the impact of winding down some of the stuff we've exited as well as softness on the dealer inventory side. As we look forward, obviously, we've exited what we've exited.

And so as we go forward, really, the dynamic comes to the ongoing runoff of our mortgage loan portfolio which we continue to wind down versus the growth in our core businesses. And as you know, from a business perspective, floor plan is an important business for us. But it's important to us really as it supports a dealer relationship that gets us more business that's higher margin that we really like in terms of retail auto loans as well as insurance and SmartAuction and Passthrough. But as we look forward, our expectation is, call it, low single-digit percentage growth in earning assets overall. But obviously, faster growth in the places that we really want to grow in retail auto loans and Corporate Finance. Of course, the opportunity set that we see will impact our overall growth rates in any particular period. But I think as you look at us over the medium term, you should generally expect that kind of single -- low single-digit growth overall, but faster growth in retail auto loans and Corporate Finance.

And Russ, just to underscore that, like we really feel good about the places we're growing. We're growing where we want to be growing, and I think that will set us up very well.

Your question on liquidation rates. And I'd say, look, liquidation rates are certainly normalizing from a period post-pandemic where they were a little lower. But I would say, when you think about liquidation rates, it's still predominantly a trade-in story. That is -- it's more people trading in their vehicles as opposed to refinancing. They continues to be a pretty small part of the population overall. The auto product is not really a refinance product per se. All that being said, we're seeing trends that are consistent with the industry. We are seeing refinancings come up. But again, it's coming off of a really small base. It's still a really small part of the overall picture. When we look at liquidations more broadly, it's still kind of more driven by trade-ins, and it tends to be lower yielding loans. And so it really hasn't had a significant impact on us from a NIM perspective.

Great. Okay. Appreciate. And then just one follow-up, just around the business base, Michael, I was just wondering if you can give a little color here. I know you made some real good progress in streamlining the business space. You talked about mortgage, talked about card exits and really focusing on your core strength in auto and commercial and corporate finance. Over time, do you see any additional modifications to the business base, either expansion into areas that you feel better about from a risk-adjusted return basis, where you may not have critical mass now, I mean just as you've had time now to work with this business mix, how do you view that evolving longer term? .

Great question. Thanks. Look, overall, I look at our businesses, I feel really good about the businesses that we're in. And the characteristic of the businesses that were and where we're investing and growing, is they're generally fragmented businesses where we have, by call, relevant scale. As we feel great about our position is today, we feel no desire. We're not doing any work to try to figure out what's the next kind of product line to go into. We think there's lots of organic runway in front of us. Are there going to be adjacencies within Dealer Financial Services or adjacencies within the Corporate Finance business, which are kind of close cousins to what we're doing. There may be, and we'll look at those. But those are big situations we're actually leveraging some strength we already have as supposed to try to do something totally new and different. And so think about what we've done in Dealer Financial Services around insurance or the Passthrough programs or SmartAuction kind of examples where we've got a great set of relationships and distribution capability with our customers. And there's something else that fits that nicely, yes, we'll be looking at those. But the kind of going far field and other types of products that's not on the radar screen.

Our next question comes from Jeff Adelson with Morgan Stanley. .

Just to sort of follow back up on the origination strength. This was the fastest growth you've seen here, I think, in almost 4 years. You obviously highlighted the record application volumes. But it does maybe seem like you're improving a little bit more than the application growth, which I think was 11% growth year-over-year. So could you just talk about maybe what's driving the strength of application here? Maybe what's giving you some confidence to lean in a little bit more here? And how you're getting that with even keeping your S-tier at 42% or above where it's been historically. And I think just also as a part of that lease also looks like it has some strength growing a lot faster than the rest of the loan origination book. So maybe comment on that.

Yes. Maybe I'll start off by saying our approval rates and our capture rates were entirely consistent with historical. So the volumes that we saw were completely a function of the opportunity set, the application volume that we were able to drive. And we can go through the puts and takes with you as we kind of think about the call afterwards. Just on the strength we saw in lease volume, in particular, a big component of that was EV leases. As you know, Jeff, the -- the EV lease tax credit program expired on September 30, and we certainly saw some pull forward as consumers and dealers rush to get deals done ahead of that deadline and take advantage of that tax credit program.

And quite frankly, there's probably some pull-forward we saw in the second and third quarter as a result of just some of the noise around tariffs as well. So definitely some demand in the quarter, but I'd say -- we feel great about the traction that we have with our dealer and OEM customers. I think our go-to market, helping them sell as many vehicles as possible and making their businesses better. It's clearly something that resonates our consistency in the market and just the overall value proposition we provide being for them -- being there for them in terms of dealer floor plan, insurance, retail auto loans across a wide spectrum as well as the additional value we provide through our Passthrough programs in our SmartAuction, it's clearly resonating and we're seeing a lot of benefit and traction that's helping us deal with some of the increased competition in the sector.

Okay. Great. And maybe just a follow-up on Sanjay's question around credit performance. At least one of your peers did see some accelerating DQs this past quarter. And I think there's been some similar commentary around pulling back on standards and tightening standards over the past few years, which you've talked about, obviously. I guess, is there anything else you think you're doing different or what others are seeing that you're not at the low end of the spectrum? And just to maybe follow up on the servicing strategies. Could you talk about how that's performing, maybe modification rate and what the success rate has been of those coming off modification? .

Yes. So maybe I'll start just kind of what we're seeing within our own book in terms of kind of the lower end of the spectrum. We said in our prepared remarks, but the stuff that we do that's below, call it, a 620 FICO is pretty small. But as we look at some of our lower credit tiers, they're actually performing better than the expectations we set at pricing. But as you pointed out, again, it's a small portion of our book. And as you pointed out, we've been tightening now for a couple of years. And so what we're seeing, to a large degree, is the benefit of some of the underwriting decisions that we made through the course of 2023, and that gave us these really strong books, the back half of '23 and in particular, the '24 vintage. And so we're seeing the benefit of that. And then as you pointed out, we're also seeing the benefit of enhancements that we've made to our servicing strategies. We've talked about these extensively in the past. There's nothing new or different this quarter. It's stuff that we've been dealing and refining over the course of the last few years. But it comes down to -- one of the simple thing is just how we communicate with our customers. And we're a lot more digital in our communications, so we like to talk to our customers in the way that they're most responsive to you, whether that's e-mail or digital or chat or telephone, we're just much better at tailoring our communications to what resonates best with them. We're also doing -- we've also been doing some interesting things over the -- the last couple of years, things like sending customers kind of more notifications and transparency around kind of where they are in the process. And so for example, we'll issue a customer notification when the repo ticket is issued. And we found that those notifications help, sometimes they spur a customer who really want to stay in the car to give us a call and to work with us. And then on the other side of it, we've made changes in terms of kind of reducing some of the frictions and just making it easier and more seamless to run things like extensions and modifications. And then as you would imagine, we have been really careful to make sure that we're tracking those loans time to make sure we're getting the stick rates that we're looking for and that we truly are getting better outcomes and not kicking a can down the road. And we've talked about this a little bit in the past, but we have policies in place in terms of really making the customers pony up in terms of putting cash on the table in order to earn those -- earn entry into those programs.

And then finally, on repo timing. And this -- these policy changes date back now a few years, but we've been adjusting our approach to the timing of repossession. Not across the board, but in a thoughtful way, looking at kind of specific kind of consumer behavior and tiers, and using our behavioral modeling to figure out where it makes sense to delay the repossession. And we found giving our agents a little bit more time to work with our customer in a lot of cases, gives us a better outcome. Again, paying attention to kind of how those loans behave over time, we really do believe we're getting better outcomes here. So we've had a few years here in terms of making enhancements to our servicing. And we've had the benefit of being able to track how those changes have performed over time. And so we feel pretty comfortable that we're getting better outcomes here.

Now we can't talk about credit without talking about the macro. There's some macro uncertainty out there, potentially weakening in the employment picture, and that's all stuff that we're watching very closely and tracking. But I would say we definitely feel we're getting tangible benefits from both the vintage rollover and the servicing enhancements that we've put in place over the last few years.

And our final question will come from Moshe Orenbuch with TD Cowen.

Maybe at the risk of talking again about the competitive environment. You were able to have very, very strong application volume. Are there things that you'll be doing in the future that would actually help the conversion and closing rates? Or I mean, how do you sort of think about that? Like is that something that we could look forward to tail end of this year and into 2026.

Moshe, this is Michael. Great question. As you know, we have the the good fortune certainly on the auto side to look at a large volume of applications on a daily, weekly, quarterly basis. And one of the benefits that we have having in this market were in these markets through kind of all cycles and doing so, you create these very rich data sets. So you can imagine, we are always looking to try to find the segments where we see incremental opportunity. And that's a never-ending process. Data evolves, and then we learn more and more. I mean when we look at our segments in different ways and really micro segments. So yes, we're going to continue doing that. We'll do that today, tomorrow and ongoing. And hopefully, in doing so, we'll find new veins of profitable business for us to underwrite. And then as Russ said, that you do need to overlay a little bit of a macro view. We've got to be careful not to overweight the macro. Right now, things look good, but there is some uncertainty on a go-forward basis. But we feel that we're just in a really good position to have the volume of applications that we see and be able to really go to school and try to understand really how to maximize obviously business for ourselves and obviously how to maximize the impact we have in the dealer community.

Yes. And the only thing I'd add to that is we also have our Passthrough programs. And so we're providing value to our dealers beyond what we're underwriting for our balance sheet. And we also have the benefit of being able to service that paper and obviously get some economic benefit from it. But I think as Michael points out, I think we benefit tremendously just from the amount of application volume we see in the amount of loan activity we see in the sector. .

And Moshe, if you're the last question, I may use some of your time just for a bit of a wrap up as I think about the quarter.

Before you do that, Michael Could I just have one quick follow-up and obviously let some of that time go. But just from a capital standpoint, you did the CRT transaction. Should we expect more or less of that, Russ, as we go into 2026, I guess, recognizing that there's the RWA of the assets that ran off in '25 were higher than the ones probably running into '26.

We'll certainly do more transactions. We've done three transactions so far, and it's a tool that we like. It affords us a very low cost of capital and it's a tool that we intend to continue using. However, we'll use it thoughtfully and opportunistically and we pay very close attention to effectively the ramp we're creating as that capital runs off relatively quickly with the speed of the underlying loans. But yes, you can expect us to continue to be active in this market. .

And then Moshe, can. So I'm about 1.5 years into my role or so. And as I kind of reflect about where we are, and one of the comments I made in my prepared remarks was really this notion of momentum. And we talk about a strategy refresh we undertook and we've talked about disciplined execution and it's creating momentum as -- create momentum in the areas that we signaled really quarters and quarters ago that we wanted to do is about an improved net interest margin, auto losses and being disciplined in expense and capital. And so we actually see this quarter as a real testament to the fact that we're on the right path and are very pleased with the momentum that we're seeing right now.

Thank you, Michael. Seeing no additional questions in the queue, we'll go ahead and conclude today's call. As always, if you have additional questions, please do feel free to reach out to Investor Relations, and thank you for joining us this morning.

Great. Next up, very pleased to have Ally Financial with us. From the company, Russ Hutchinson, Chief Financial Officer. Russ, thanks for being back.

Great. Thanks for having me.

We just threw up the first ARS question that we've been asking for all our companies. And Russ, while the audience is responding, maybe start with a big picture. Obviously, a busy first half of the year for Ally. And just as you sit here today, some of the actions you've taken to improve the financial results, kind of how you're feeling about the world?

Yes. No, it's a great question. We feel really good about the world. I mean, we've taken a lot of actions to make Ally simpler, a more focused organization and reduced risk. So we've exited noncore businesses. We've increased our capital position.

We've improved our underwriting and our servicing. We've taken steps like the repositioning of our securities portfolio to reduce interest rate risk. And we've also taken meaningful steps to arrest the growth of expenses within the company, positioning ourselves for positive operating leverage going forward. And so we look across our core businesses, dealer financial services, corporate finance, the digital bank. We are focused. It's an exciting opportunity for us and for our teammates to deploy our resources against businesses where we have relevant scale.

We have deep relationships and we have differentiated products and a differentiated brand. We have every reason to win in the core businesses that we're focused on today. So it's an exciting time for us, and we think we've gotten a lot accomplished in terms of positioning Ally for the future.

I guess maybe just maybe delve more into that. You talked about reducing risk, increasing capital. You've scale back mortgage, you've sold card. We've seen some expense improvements. Earnings were up quite strongly in the second quarter. I guess, is kind of all the kind of hard work behind you and now we're kind of at an inflection point and we can start to see the improvement in returns? Or how are you thinking about kind of the trajectory from here?

Great. I'm pleased to say that the results that we've been delivering show real progress towards our medium-term targets. They reflect traction that we've seen across our customer base across all 3 of our core franchises. So if you look at our dealer financial services franchise, we've had record application volume in the first half of this year. That reflects strong engagement among our dealers. We've translated that into strong origination volume, again, reflecting the strength of that franchise.

Our corporate finance outstandings are up. When you look at our digital bank, our customer growth and our retention are strong. And so across all 3 of our franchises, I think we are demonstrating results in terms of moving those franchises forward. And it's translating into the bottom line as you see in terms of the improvement in our margins, the progression in terms of our credit, and again, just that discipline that we've exercised across our expense base. And I'd say when you look at our franchises and where we've chosen to focus, we've chosen to focus in large fragmented markets where we have a lot of opportunity for growth.

And so I think we've done a lot. We've taken a lot of steps to position the company here. I think where we're positioned now, I think, strategically, we're in a better position than we've been in for years.

Got it. You mentioned medium-term targets. And certainly, the net interest margin, reaching the upper 3% range is probably the most impactful variable to kind of get into your return targets. You actually had NIM up 20 basis points last quarter -- sorry, up 10 basis points last quarter despite a 20 basis point adverse impact from selling the card portfolio. I know there was kind of some other puts and takes in the second quarter. So just maybe just talk to in terms of how you see the margin trending in the back half of this year. I'm told that that's going to cut next week. And just how does that impact near-term longer-term results?

Yes. Look, I think the second quarter demonstrated solid progress towards our high 3 sustainable NIM target. And a lot of the factors that drove that, the asset repricing, the optimization of our portfolio, the discipline that we've been showing in pricing, both our deposits and our retail auto loans, all those things remain intact.

It's not going to be a straight line, of course, and we'll see those factors kind of play in differently in different quarters. But it's allowed us to kind of guide people towards the higher end of our full year NIM range. And so we feel pretty good about the progress that we've demonstrated. And again, it reflects not only discipline on our part, but also some real tailwinds in our business that we think have some legs to them and give us a lot of confidence, not just meeting our high 3% NIM guide -- NIM target, but actually doing it on a sustainable basis. We are setting the business up to be able to sustain attractive higher margins for the foreseeable future.

Got it. Maybe we have the next ARS question. But I guess maybe on that front, you talked earlier in the -- about the strong auto -- retail auto performance in the first half of the year, could you maybe talk to, I guess, in the past, you've talked about kind of keeping the balance sheet stable, I mean, potentially down given what's going on the in commercial side. Just talk to, maybe we should see balance sheet growth, particularly you talked in the past on the consumer finance side, you talked about strong auto production in the first half of the year. Maybe just talked about your thoughts on just balance sheet growth in general management.

Yes. Look, I mean, as I said earlier, we've positioned Ally for growth going forward. And we've deliberately focused on large, fragmented markets that present to us a lot of opportunity. But we're disciplined. We're growing in the places where we want to grow. And so you'll see our balance sheet emphasizing our retail auto loan product and our corporate finance product.

Those are the products they generate higher margins and there are businesses that we've been in for a long time. And we -- and again, we've got that relevant scale. We've got deep relationships, and we've got every reason to win. And so we are absolutely growing our balance sheet in the places that we want to grow.

Now that being said, this year, we've guided to average earning assets down 2% for the year. And that's driven by the exit of the card business, putting our mortgage business in runoff. A number of the things where we're deemphasizing the businesses and the product areas that are lower margin for us and lower return. And quite frankly, from an interest rate perspective, don't meet our balance sheet -- or don't meet our balance sheet needs.

But I think it's important to point out that when you look at -- sorry, when you look at end-of-period assets, our expectation is for end-of-period assets to be nearly flat. And that's driven by growth in the places where we really want to grow in retail auto loans and corporate finance.

As you pointed out, first half of the year has been excellent on the dealer financial services front. Our application volume in the first 2 quarters were both records. We sit here with strong application volume in the third quarter. And so we're on track for a record year in terms of application volume, and we've translated that into really strong originations activity.

Now, we're not just growing for the sake of growing. We're very disciplined and our application volume affords us a position where we can be selective about managing towards risk and return. And that's exactly what we've done. We've applied the same discipline to our corporate finance business as well. So we're growing those, but we're growing them in a responsible and disciplined way with an eye towards both risk as well as return.

I guess maybe looking further out into next year, I guess maybe just kind of more near term, you talked about margin being the upper half of that 3.45% to 3.50% range or 3.40% for the full year, 3.45% last quarter. So it sounds like we should expect kind of continued expansion in the back half of the year.

Yes. So we've guided towards the high end of our range. So our range was 3.40% to 3.50%. So we're guiding towards the upper half of that range. And that implies continued improvement in NIM. Now, it's not a straight line. And as we've discussed many times before, the pace, the timing, the frequency of Fed actions will impact the quarter-to-quarter dynamic in terms of that NIM progression, but the medium-term target is unchanged. It doesn't affect our drive and our confidence in getting to a high 3s sustainable NIM over time.

And then just on your comments on balance sheet growth, you have kind of a headwind this year from the card sale, obviously, commercial floor plan. As you think about balance sheet growth beyond this year, can you begin to restart to grow earning assets?

Yes, absolutely. I think it's our expectation that we'll grow earning assets beyond this year going forward, call it, a low single-digit percentage. And within that, if you just were to focus on retail auto and corporate finance, those assets, we expect to grow at more of a mid-single-digit percentage. And so yes, absolutely, the growth is there, and we expect to see that growth expressed as you move forward into 2026 and beyond.

You mentioned kind of record application volume in auto. There's been several competitors starting to lean back into the space. I just came from Wells Fargo, and they talked about their new relationship with Audi. Just -- maybe just talk to how you view the car competitive landscape and kind of just what's your outlook for the volume and pricing?

Yes. Look, the -- yes, the first half of the year, we saw competitors come back. I think it's other folks recognizing the attractiveness of the asset class. That being said, we're still a preferred partner for a lot of our dealers and for our OEMs. I mean I think they value our all-in value proposition. We're there for them through the cycle. We speak for a large portion of the credit spectrum. And we provide them with an all-in value proposition that combines access to our SmartAuction platform, floor plan financing, insurance products, both for the floor plan as well as in the F&I office.

We provide a lot of value to our dealers, and it puts us in a preferred position as a partner. And that's why we've been -- even amidst more competition from some of the folks you mentioned, we're still in this position where we're driving record application volumes, and we're showing significant origination volume growth.

Got it. Maybe shifting gears to deposits. I guess you've seen kind of deposit pricing come down early in the year. You talked about a target beta around 70%, which is, I think, where you are currently. The Fed is on the verge of easing, we think. Maybe just talk to how you think about that 70% beta and maybe more broadly, how you think about growth and customer acquisition as just this rate cycle evolves?

Yes. We've built a really resilient deposit franchise. It's a real asset for Ally, and it's really different from other deposit franchises that are out there. And that's something that we particularly value about our franchise. Our customers choose us because of trust, because of a top-notch digital experience, because of the all-in value proposition and the product offering. It's not just about price.

Offering a compelling price is important. It's something that's a valuable part of our proposition, but that's not all that it's about. And so we think we have a fantastic deposit franchise. I think the consistency in terms of customer growth and the strong retention that we have are evidence of the strength of the franchise as well as the fact that when you kind of look at the recent history of price changes in terms of deposit pricing, we've tended to be a leader and the market has tended to follow us. I think all of that speaks to the overall strength of our deposit franchise.

You mentioned betas, I think the last year actually provides a pretty good case study in that respect. And so you rewind a year ago, you saw the Fed take action pretty quickly with multiple rate cuts at the end of last year. And our deposit betas performed exactly the way that we expected them to in that price actions were slow in the beginning. But ultimately, our price actions caught up, our betas caught up and ended up exactly where we thought they'd be by the time you got to the first half of last year. And so I'd say that's a great case study in terms of kind of how you think things ought to progress going forward. Again, the pace of Fed cuts, the magnitude of Fed cuts, the actual timing of Fed cuts, they'll introduce variability in terms of how all that plays out and, of course, the overall competitive environment. But I think what we went through last year provides a pretty good case study and a pretty good road map for what to expect going forward.

And then before we move off of NII, we asked the audience when they expect Ally to get to the upper 3% NIM area. The consensus room was second half of next year. I'm not sure what your model has?

We have been very deliberate about not promising a specific NIM in a specific quarter. And it speaks to that quarter-over-quarter dynamic that I mentioned earlier, right? The pace, the timing, the magnitude of Fed actions are going to impact our NIM progression as you go quarter-to-quarter. But it doesn't change fundamentally the overall destination. And it doesn't significantly change the overall timing. It just affects that quarter-to-quarter progression. But I can't argue with that.

Maybe we shift gears to credit quality, which was a big focus at this event last year. It feels like the momentum has shifted because you look at the second quarter, charge-offs were down on a year-over-year basis for the second straight quarter. delinquencies down on a year-over-year basis for the first time in, I think, like 5 years. On the earnings call, you kind of brought down the upper end of the charge-off range. I felt like it could have come down maybe a little bit further just based on the other trends we're seeing. Maybe just talk to kind of what's driving the current performance and just how you kind of see the loss cycle playing out?

Yes. Look, our message on losses has been pretty consistent all year, right? And we like to think about it in terms of a framework where we kind of think about 3 things: delinquencies what goes to loss or flow to loss during a particular period and then severity heavily influenced by used car prices.

And those -- across all 3 of those factors, things have been pretty constructive. This year so far and at the tail end of last year as well. And so if you think, for example, just in terms of delinquency, as you pointed out, delinquency was down. Delinquency continues to trend really nicely, and we're kind of very pleased with where that's going. In terms of flow to loss, we continue to have a constructive flow to loss trend that's continued throughout the year. In terms of used car prices, used car prices continue to be constructive, supporting us from a severity perspective. And so I'd say the message is very consistent to what we've said before.

Continuation of the trends that we've been seeing would take us towards the low end of that loss range. And that, I should also say is also supported by the fact that we've got a front book that continues to outperform our expectations at the time when we priced it. And so again, kind of very similar message to what we've talked about before. Of course, there's a lot of noise in the macro. I don't think our borrowers have noticed. Our borrowers continue to be very resilient. Consumer credit has been resilient, but there is a lot of noise in the macro.

And so to the extent that we saw a pickup in unemployment, to the extent that we saw the used car prices change in a significant way, that could obviously change the course. But right now and for the last -- so far this year, actually, it's felt pretty constructive.

We just put up the next ARS question. I ask a follow-up. But, I guess, Russ, just to be clear, so you originally saying 2% and 2.25% for your charge-off guidance. On earnings, you said 2% to 2.15% for charge-offs. Now you're saying the low end of 2% to 2.15%.

No, I'm saying the exact same thing we said at the end of second quarter. And quite frankly, it's the same thing we said after first quarter as well, which is if we see a continuation of the trends that we've been seeing so far this year, that takes us to the low end of our guidance range. But we're not changing our range. It's 2% to 2.15%, and we're just pointing to the circumstances that would take us to the low end of that range versus some of the risks like unemployment, the macro, et cetera, that could take us to a different part of the range.

So range is still 2% to 2.15%, but you're feeling good.

That's right.

Fair enough. And I guess maybe just -- could you just maybe just talk about underwriting in general? I guess you're feeling good about credit quality, certainly a lot better today than we did a year ago. It's obviously a dynamic macro environment. You just kind of laid out several of the puts and takes. But as you look ahead, how do you see the opportunities to kind of optimize risk given the curtailments you put in place in 2022 and 2023? I think S-tier originations were over 40% for the last several quarters. Maybe, just kind of now we're feeling better. How do you just think about that dynamic?

Yes. Look, our underwriting, it's a dynamic process, and we look at it very much on a real-time basis. And so -- and we look at it at a very granular basis. And we look in particular at how our front book is performing relative to our expectations. We spend a lot of time kind of analyzing what we call micro-segments. And so for example, coming out of the post-pandemic period, we saw interesting trends in folks that have high payment sizes. And so a lot of the micro-segments that involved kind of high payment sizes have been curtailed. And some of that curtailment is through pricing actions where we've kind of priced ourselves to be less competitive.

In some cases, we'll cut segments off entirely and we won't approve them at any price. And so we've taken -- we took a number of those actions that we think significantly improved our underwriting and contributed to some of the favorability that we're seeing in our front book.

As we look at our performance now, we've also learned from micro-segments that outperformed our expectations even through the post-pandemic period. And so one example of that would be aged vehicles, which have traditionally underperformed, but we look at it on a micro-segment basis. We have an aged vehicle, a low monthly payment, strong borrower credit. We found segments like that, that actually have tended to outperform. And so where we are is in that kind of constant kind of tweaking of our underwriting, we continue to look for segments like that to experiment with those segments, starting with manual approvals and then ultimately moving them to auto approvals. And that's a continuous process. That's something that we do as a matter of course, and we expect we're going to continue to keep doing that. And again, the favorability that we've seen in front book. Front book performance certainly supports that approach.

You're not going to see a quarter where we go from underwriting 40-plus percent S-tier to sub-30% S-tier in one bank. We're not going to flip a switch. It's going to be organic. It's going to be dynamic, and it's going to be a constant tweaking of our underwriting to make our underwriting better in a very granular and analytical way.

Got it. And then we asked the audience about your 2026 charge-off guide. 1.8% to 2% is by far the most used answer.

That's interesting. And we'll give a 2026 retail NCO guide in January?