Good day, and thank you for standing by. Welcome to the Ally Financial First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one one on your telephone.

You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. 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, Head of Investor Relations. Please go ahead..

Thank you, Elizabeth. Good morning, and welcome to Ally Financial's first 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 slide two, GAAP and non-GAAP measures pertaining to our operating performance and capital results are on slides three and four. As a reminder, non-GAAP or core metrics are supplemental to and not a substitute for US GAAP measures.

Definitions and reconciliations can be found in the appendix. And with that, I'll turn the call over to Michael..

our results within the quarter highlight the opportunities within our franchises, reinforce our market-leading positions, and are in line with the full-year guidance we provided in January. Before discussing results, there are a few notable items from the quarter to highlight.

First, results reflect the transfer of our credit card business to held for sale at the end of the quarter. These impacts have been adjusted out of our core metrics for the period. The transaction successfully closed on April first, and we remain committed to ensuring a smooth transition for our colleagues and customers.

I would like to take a moment to express my gratitude to our entire team and for CardWorx for getting this deal across the finish line. The sale of our credit card business has allowed us to further strengthen our balance sheet.

As we previously disclosed, in March, we executed a repositioning transaction belonging to a portion of our available-for-sale portfolio. We completed a second similar transaction later in the quarter. These strategic moves reduce interest rate risk and immediately increase net interest income.

These outcomes reflect careful and prudent management of our exposure to rate risk, helping support the sustainability of our returns over time. As we said in January, we continue to be disciplined in how we manage capital, prioritizing investment in the business, and eventually share repurchases.

Let's turn to page five to discuss our market-leading franchises..

Within our auto finance business, consumer originations of $10.2 billion were driven by 3.8 billion applications, our highest quarterly application volume ever. Once again, underscoring the strength of our dealer relationships and the scale of our franchise.

This scale enables us to be highly selective in the loans we book, optimizing both pricing and credit. I am encouraged by the trends we're seeing in application flow, to further strengthen and grow our position as the leading bank auto finance lender in the country. Originated yields of 9.8% increased seventeen basis points from the prior quarter.

Notably, forty-four percent of originations were made up of our highest credit quality tier, which will continue to drive strong risk-adjusted returns for the years ahead.

As we discussed, we expect origination mix to shift over time, particularly from the fourth quarter when nearly half of originations were made up of our highest credit quality tier.

Our ability to dynamically adjust price and risk appetite for emerging trends allows us to modify origination strategies for differing interest rate and credit environments.

On the insurance side, written premiums of $385 million represent an increase of 9% year over year, as we benefited from new relationships, growth in P&C exposure, and synergies within our auto finance team. Our insurance team now serves over six thousand dealers in the United States and Canada.

The average number of Ally F&I insurance products sold by each of our dealers has increased to 2.2, the highest since our IPO. On the P&C side, dealer inventory insurance exposure grew by 30% year over year.

I'm very pleased with the growth of our business, and the alignment that we have between auto insurance only enhances the value proposition we offer to our dealer network. In corporate finance, we delivered another strong quarter with pre-tax income of $76 million and a 25% ROE.

This business has consistently demonstrated resilience across economic cycles. The robust relationships we have with private equity sponsors and asset-based lenders have enabled us to grow the business at attractive returns while prudently managing risk. We again ended the quarter with zero net charge-offs, demonstrating the quality of our loan book.

As we have said, this is not a zero-loss business, and we expect some normalization. We see opportunities to drive prudent organic growth within our current verticals and are actively exploring new verticals to generate incremental accretive business.

Turning to our digital bank, we continue to invest in delivering best-in-class digital experiences and products to grow customer value proposition beyond rate. In March, Fortune magazine again recognized us as one of the most innovative companies for 2025.

This recognition is a testament to our culture, our relentless obsession with the customer, and our ability to disrupt the industry. Related to our deposits franchise, we proudly serve a total of 3.3 million customers with balances reaching $146 billion at the end of the quarter.

The balances were up nearly $3 billion quarter over quarter, as we harvested seasonally higher levels of money in motion and continue to add customers.

Like last year, we expect tax payments to result in lower deposits in the second quarter and are aiming for approximately flat balances for the full year, aligned with what's needed to support the asset side of our balance sheet.

During the quarter, we saw strong flows from existing customers, enabling us to move liquid savings rates down twenty basis points during the quarter despite no move in the Fed funds since December. Notably, ninety-two percent of retail deposits are FDIC insured, underscoring the strength and stability of our deposit base.

Deposits represent nearly ninety percent of our funding profile, highlighting the fifteen-year evolution of the largest digital-only bank in the US. And with that, I'll turn it over to Russ..

net interest margin expansion into the upper threes, retail auto losses below 2%, which translates to a consolidated loss rate of approximately 1.3%, as well as continued focus on expense discipline and capital allocation. With that, I'll turn it back to Michael for a wrap-up..

Thank you, Russ. Before we turn to Q&A, I'd like to close by highlighting a few key points. We have significant opportunities ahead within our core franchises, and we are poised to unlock even greater value. Despite a few unique headwinds in the quarter, financial and operational results were solid and aligned with our expectations from January.

While we expect some near-term volatility stemming from the changes in trade policy, we are well-positioned to effectively serve our customers and will benefit from a stronger economy in the long term. Our ability to navigate this environment reflects deliberate actions we have taken to strengthen the company.

We reduced credit risk by exiting card and shifting our auto origination mix towards higher credit quality borrowers. We reduced interest rate risk by running off long-dated fixed-rate assets and repositioning the securities portfolio.

We are growing fee income, which is capital efficient and less sensitive to changes in interest rates and credit cycles. The growth in our expenses has been arrested, and we've reduced controllable expenses while continuing to invest in key capabilities, particularly in servicing and collections.

And we've shown a consistent ability to generate capital, which we've used to de-risk the balance sheet while continuing to move CET1 higher. Looking ahead, we are leveraging the power of focus to originate accretive assets in our core business, poised for margin expansion in a variety of rate scenarios, and remaining disciplined with expenses.

And I am confident in our ability to deliver strong shareholder returns. And with that, I'll turn it over to Sean for Q&A..

Thank you, Michael. 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..

To withdraw your question, please press star one one again. Our first question will come from Sanjay Sakhrani with KBW. Thank you. Good morning..

Michael, maybe first one for you. Just a question on the evolving uncertainty as it relates to tariffs.

How do you think it impacts your business?.

Sanjay, thanks for the question. And I think your description of the evolving uncertainty is probably a fair one. The environment is undeniably fluid that we're dealing with, and as I think of the tariffs, I'd like to maybe leave you with two thoughts if I can.

One is the thought is how we're positioned today, and I say we're very much in a position of strength. And the second is I'll play out how I see this working for us given what we know today, you know, recognize all that can change. But first, the position strength.

I mean, objectively, if you look at our balance sheet today, you know, our position, our capital strength, our credit risk position, you know, what we've done by divesting the card business and the mix in assets for the auto lending business has put us in a much stronger position.

Our liquidity position, our interest rate risk, all that you look at our balance sheet, and we feel very good about where we are, and I could probably double-click any one of those for a while. But just, you know, rest assured you see strength like we haven't seen in years on the balance sheet. Now, this hasn't happened by accident.

It's happened because of several steps we've taken to enable this. We've sold the credit card business. We stopped originating mortgages. We executed several CRT transactions. We've undertaken two securities repositionings. And we made operational changes to improve our effectiveness, and I'd say especially in collections.

And so we feel very good about both the strategic and the tactical steps we're taking to manage the business and position us for any environment, including this. You know, going forward, there are lots of gives and takes, and, you know, we don't have perfect insights. I don't think anyone does right now.

But I'll probably break this into the near term and the medium term. You know, in the near term, I'd say we have a potential to see used car prices play out in a way that's, you know, beneficial for recoveries and lease gains. You know, there's also the near term on volumes or maybe a pull forward in demand.

I will say the recent volume numbers that we've been seeing have been quite strong, and, you know, there's a thesis floating around that some pull forward. Yeah. There's probably some truth to that. It's hard to be really precise. But that's what we see in the near term.

In the medium and longer term, like, the focus is very much to be on the macro economy and, you know, what this means for inflation, consumer health, affordability, and things like that. You know, you could see a place where there are fewer units, but higher average price. We step back from this.

You know, I think it's important that you actually also look at the mix of business that we finance. And if you look at our mix and kind of where they appear to be in the tariffs that we understand them today, we're on the less impact side of the spectrum. And so we think that sets us off on a comparative basis reasonably well.

So, you know, lots of uncertainty in the market and not easy to forecast the future. But my takeaway from this is, like, we're executing well today. We've positioned the bank, I think, quite well to handle this environment. And objectively, we're just in a strong position. And that's kind of how I see it, you know.

It's hard to be terribly precise, but I feel good about where we are..

Thank you. That's very comprehensive. Russ, just a two-parter on the NIM. Maybe you could just talk about, you know, one, sort of the rate backdrop and how that aligns with your guidance.

Like, do you think you can get to the high end of that range? Given the rate outlook? Just what was factored in before and what's factored in now? And then secondly, just talk about, you know, the mix of originations you're seeing now and sort of how that plays into the yield dynamic and competitive backdrop maybe? Thank you..

Yeah. Sure. Yeah. Yeah. Maybe I'll start on the rate backdrop and our guidance. As we've said before, as you know, you know, we consider a range of rate outcomes when we think about our guidance.

And so our guidance of 3.4 to 3.5 for 2025, yeah, we've considered scenarios where rates stay where they are for the foreseeable future, and we've considered scenarios where rates come down and, you know, three, four, rate moves by the Fed over the course of the year. You know, are certainly within what we've considered in terms of our rate guidance.

And as you'll recall, Sanjay, you know, as we said before, the size of a Federal Reserve rate change, the timing of that rate change could affect us in the quarter and the next quarter. But our business adjusts. And so as we think about our business kind of two quarters out, we tend to adjust for that.

And so we've avoided giving quarter-by-quarter guidance for that reason. But there is a resilience to our rate outlook as you kind of look at it over, yeah, our NIM outlook as you look at it over a longer period of time.

You know, on the origination side, you know, as Michael pointed out and as we said on the call, you know, we were pleased with the business's performance in the first quarter. You know, our application volume throughout the quarter was at record levels. And that's coming off of 2024, which as you know was really strong.

I think that speaks to the competitive environment that we're in. It continues to be favorable to us. And it continues to position us to be able to be selective in terms of both credit and rate. You saw our originated yield at 9.8%, strong up from the fourth quarter. You know, we were our S tier, still at 44% for the quarter.

Which as you know, we took steps to bring that down from 49% in the fourth quarter. Those were successful, but we're still running, you know, at a relatively attractive level in terms of the proportion of our originations that are in our highest credit quality tier.

So again, I think that speaks to just the competitive dynamic that we're in and it continues to be favorable. As Michael pointed out, you know, the outlook is volatile. There is some uncertainty there, and so, you know, as we kind of work our way through the year, we'll certainly provide any updates as we think about this.

But right now, our expectation is that, you know, we'll continue to originate in the high nines to ten percent originated yield..

Our next question comes from Jeff Adelson with Morgan Stanley..

Hey, good morning. Thanks for taking my questions. I guess just to circle back on the NIM. I appreciate that you're not giving specific quarterly NIM guidance from here.

But just given all the puts and takes we have, you know, with card coming off, you've done the securities repositioning, it seems like you're saying you're now past the worst of this mix issue on the lease residual side. So I guess just curious if you could maybe speak to what we should be expecting from here maybe in 2Q.

It just seems like for the rest of the year, you're still sort of thinking about a 3.4 to 3.55 for the average of the rest of the year. Should we be thinking about the second quarter as more flat or up from here? Thanks..

Yeah. So we reiterated the full-year guidance 3.40 to 3.50. You know, Jeff, you're absolutely right on pointing out card. You know, card was included in the first quarter in our first quarter NIM. It comes out in the second quarter given that the sale closed on April first.

We've previously described that as a twenty basis point impact to NIM on a run rate basis. So we'll feel that impact in the second quarter. Yep. That being said, we expect to make up for that and, you know, expect to make up for that through a number of things.

I'd say number one on the deposit side, you've seen we've taken two relatively recent changes to price. You know, those changes will, you know, the full benefit of those benefits will accrue in the second quarter, and so that will be helpful.

You know, I'd also say, you know, at a sixty percent beta so far, we feel pretty good about, you know, overall views on our approximately seventy percent beta on our deposit book. And so again, that in our view kind of points to, you know, points to some confidence around our NIM expansion story.

Also on the deposit side, you know, we pointed to twelve billion dollars of CD maturities in the quarter. Yeah. Those CDs are maturing at, you know, 4.8%. They're maturing into CDs priced lower or into liquid savings, again, priced lower. That is a tailwind in terms of our net interest margin, and that continues through the year.

We added an extra exhibit to the appendix. We'll show about eleven billion dollars of CD maturities in the second quarter. That's another point that's helpful.

And then as you pointed out, you know, obviously, there's some benefits in terms of NIM to the securities repositioning trades, you know, as well as, you know, as well as relief from some of the pressure we saw from lease gains going negative in the first quarter.

So we've got a lot of moving pieces, but the fundamentals are still really strong in terms of the pricing momentum that we have in the deposit business and our ability to continue to get great credit at an attractive yield in the retail auto loan book.

And I would say just the longer-term trend of our migration away from lower-yielding mortgage loans and lower-yielding parts of our securities portfolio to our higher returning retail auto loan and corporate finance loans is very much intact and continues..

Great. Thanks. And as my follow-up, just on the credit performance, you know, you've seen some really nice stabilization the past few quarters. You know, you've highlighted a lot of the actions you've taken in your collections and mitigation practices.

Just kind of as we think about the trajectory to getting back down to a, you know, 2% or below loss rate. How quickly do you think you can get there? I mean, the delinquency trends in the vintage base look pretty good. I know the back half of the year is seasonality, but maybe on a seasonally adjusted basis.

Is there a case for you getting to below 2% by the end of the year?.

Yeah. Thanks for the question. You know, it's a good question. And we spent some time on this last quarter as well, and we talked about it in the context of the range that we presented for full-year 2025, right, which goes from 2 to 2.25%. Which more or less kind of covers the span of your question.

I think the way we described it last year was in terms of really three variables. You know, kind of overall delinquency levels entering the quarter, flow-to-loss, and then used vehicle prices.

And, you know, as I think about where we are this quarter relative to last quarter, you know, I'd say, obviously, on flow-to-loss rates, they continue to be very strong. You know, in terms of delinquency, you know, we did see some improvement in the second derivative. That is the smaller increase in delinquency on a year-over-year basis.

And as you parse through the buckets, you definitely see some green shoots there in terms of how our delinquency is evolving. But I'd still characterize it as elevated. You know, in terms of used vehicle prices, you know, still continue to be strong. You know, obviously, there's some uncertainty in the outlook around the macro.

But again, right now, as we speak, used car prices continue to be strong. And so as I take that set of ingredients and kind of carry that forward, I'd say, look, you know, I think there's reason to be optimistic.

And certainly, if you looked just on the basis of what we saw in the first quarter, you'd point towards the lower half of the range that we provided.

But on the other hand, as you think about the outlook, you think about the elevated delinquencies that we have, you think about the uncertainty in the macro, and how that in particular could impact us in terms of those in terms of carrying around that inventory of delinquent accounts. Yeah.

I think there's a lot of reason for caution, and so, you know, we've taken the decision we want to keep the full range intact of 2 to 2.25, and, you know, we think that's prudent just kind of given where we are. Now we're transparent, you know, and just like prior years, we're gonna call it as we see it.

And so, you know, certainly to the extent that we have a change in our view, we'll provide updates as appropriate..

Great. Thanks, Russ..

Our next question comes from Robert Wildhack with Autonomous Research..

Morning, guys. Russ, it sounded like you were still willing to unwind curtailment over time. I'm wondering if there's been any change to the absolute or aggregate amount of unwind you'd be willing to consider given the current environment today.

And to the extent that there is, could you just comment on how that might weigh on originated yield and the NIM outlook?.

Yeah. Great question, Rob. Yeah. I guess I'd start by just reiterating Michael's point that the outlook is uncertain. And, you know, we're watching, obviously, very closely. Yeah. We're looking at things on a pretty granular level in terms of how the OEMs are behaving, our dealer partners, as well as how consumers.

And so you can imagine we're looking at things at a make and model level, you know, and we're looking at MSRP, dealer invoice, and auction values, and looking at changes in application volume just to understand how people are behaving. We're also paying very close attention to our recent vintages and how those are performing.

And, obviously, that's an important data point as we think about, you know, how to think about curtailment unwind or mix normalization as we move forward. And I'd say it's a dynamic process and, you know, it's not a set it and forget it approach. So we're just gonna continue to watch the market closely and evolve accordingly.

A few things I would put out there, and you could see this in the vintage delinquency charts, for our 2024 vintages, continue to outperform. They are outperforming our expectations in terms of our price loss expectations at the time that we originated them.

And so in our view, that does give us some cushion in terms of how we think about our underwriting.

All that being said, we're taking a very cautious approach to unwinding any of the curtailment just given, you know, given the need to understand and to see how kind of the current changes in trade policy in particular as it relates to the autos industry, how that affects our OEMs, our dealer partners, and our customers..

Thanks.

And then could you just comment on what kind of used car price outlook is embedded in your outlook and your underwriting today and remind us of the sensitivity there should, you know, used car prices end up increasing in a big way sometime this year?.

Yeah. So look. I'd say our models, as we said before, anticipate used car prices kind of in the neighborhood where they are and, yeah, that's at a level that's probably about twenty percent elevated to where they were pre-pandemic, driven by, you know, the supply-demand dynamic.

And, you know, that's the view that kind of predates a lot of what we've seen on the tariff side over the course of the last couple of weeks. I think it's too early to call it on where used car prices go.

I think, certainly, intuitively, the expectation is that, you know, tariffs increasing the effective price of new vehicles will have a positive impact on the value of used vehicles. And that, as Michael pointed out earlier, would have a positive impact on our business in a few different ways.

One, in terms of the credit side, in terms of severity, and then, two, obviously, in the lease book, in terms of what we see on lease gains going forward. You know, but I'd say it's probably early to call it in terms of what to expect, but, yeah, there's some potential benefit to use vehicle prices stronger than we anticipated through the year..

Thank you..

Our next question comes from Moshe Orenbuch with TD Cowen..

Actually have been asked and answered. But maybe going back to Sanjay's question about the origin, how much of the change is driven by, you know, the various different factors. You talked a little bit about premium amortization. Obviously, you've got the benefit from a lower S tier and then other kind of pricing changes.

Like, is there a way to just unpack those?.

Yeah. Let's separate the origination yield from the portfolio yield. And so when we talk about the 9.8%, that's the originated yield. So that's just on the book that we originated in the quarter. And, yeah, the benefit we saw moving from the fourth quarter to the first quarter, that's mostly attributed to the movement in STR from 49% to 44%.

That drove the overwhelming majority of the move up in yields. When you look at the portfolio yield, you know, that's where things like the premium amortization factor in..

It isn't you're saying it the 5% decrease in the S tier was not more than all of that change in the portfolio in the kind of new origination yield..

No. It wasn't more. It was approximately the change..

Okay. And maybe, you know, you talked a lot about the vintage delinquency. Could you talk a little bit about where the portfolio sits now? Obviously, we had the, you know, the stuff as of year-end. You know, in the 10-K.

Could you talk about, like, you know, where it'll sit or maybe perhaps at midyear, you know, and at what point you know, you get kind of that level of increased confidence that enough of that book, you know, is kind of, you know, in the, you know, out of the 22 vintage or perhaps even out of, you know, the 23 vintage.

And you're now, you know, concentrated on this 24 and 5 vintages..

Yeah. Look, I think the vintage rollover is progressing exactly as we expected, and that 22 vintage is playing a smaller, smaller role. It's certainly in what we're seeing in terms of loss development. By the end of the year, we expect our 22 vintage to be about 10% of our book.

And so, you know, as we look at our vintage delinquency statistics, our, you know, our view is that the vintage delinquency and the vintage, you know, pretty much exactly as we would have expected. And, you know, we're pretty happy with where we are..

Hey, Rusty. Thanks for Yeah. Yeah. Moshe, it's a good question. And I mean, if you look at that chart that shows the vintages, like, we as Russ said, we feel good with where we are. The unpredictability in the environment is probably the reason for, you know, a bit of our caution on being more prescriptive.

And, you know, as the environment becomes clearer, you know, we may have a more definitive view. But, you know, right now, I think we set out some objectives, what we're trying to achieve, and we think we're tracking very nicely along that path..

Great..

Our next question comes from John Arfstrom with RBC Capital Markets..

Thanks. Good morning. Morning, John. Most of my questions have been asked and answered. I think it's, you know, it's about margin and credit. Those are the two things. But Michael, bigger picture question for you. You've been in the chair for a while. And the card business is now gone.

What are you focused on from a strategic point of view? What are your top couple of priorities from here?.

Well, great question. And when I think about our priorities, I think about first of all, we laid out the objective to achieve mid-teens returns, and we've been very clear in the three things that need to happen to achieve that. So this is less strategic, more tactical, but we're very focused on executing to deliver the commitments we've made.

And we think we're positioned to do so. Again, you know, timings, you know, the team to be determined, but we feel good that we're on the path. You know, in terms of the strategic priorities, I think our strategy, it's, you know, I boil it down to where you compete, how you're gonna win. I feel really good about our portfolio as it is today.

I think our dealer financial services, the whole ecosystem that we play in between the fee-based products, insurance, the lending that we do, both commercial and retail. The relationships we have, their dealers, like, I really view us as one of one in terms of how we compete in that space.

And feel very good about our ability to further deepen the relationships and continue to build on that business. And absolute confidence in the team and how we're delivering. If I flip to our consumer bank, where we have our deposit program going and we obviously have some of the invest, this is something that we, you know, wasn't me.

The team before made, you know, took this and built this out of nothing, and now they're the largest digital-only bank.

And if I see the volumes that we have in that portfolio, the margin to other funding alternatives that we have and the customer growth that we're getting, the brand that supports this, and that brand is really one of the big intangibles in terms of what makes us successful. Again, I feel very good about where we are.

And again, I think there's lots of ups. I'm being really simple. Our share of FDIC-insured deposits is almost about one percent. And we're competing in the category that is the growing category. We're not trying to grow or in this current year. We're not trying to grow our deposit balances. We are looking to grow customers.

And we think more customers, typically lower balance per customer, positions us well to, you know, extract the most value and to serve our customers in the best way possible. In our corporate finance business, look, we've got a few, you know, key relationships that we've had over the years, and we're growing those relationships.

This is a competitive market, to be fair, but we're being incredibly disciplined around deal structure and around pricing. And, again, we've got a strong team there. And to right look at the core business that we're in, I see a lot of upside here.

And, to be fair, the price of admission is to deliver the stronger returns that we know we can do, you know, in the medium term. But there's lots of good business to be had in the areas we're competing. And so we're not looking for any next new grand diverse pattern, and we're not talking about M&A and things like that.

We're talking about executing places where you have a really definitive reason and demonstrate that we can win..

Okay. Good. Thank you. I think it's important to get that out there. So thank you very much..

Yes. Great. Thank you, John. And I'm showing just about the top of the hour here. So that's all the time we have for this morning. As always, if you have any additional questions, please feel free to reach out to investor relations. Thank you for joining us. That concludes today's call..

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