Q2 2019 Earnings Call

July 18, 2019

Yeah.

Kevin LaFlamme: K-E-V-I-N, and then L-A-F-L-A-M-M-E.

K E.V.I.N.

And then L.A.L.A.L.A.M.M.E.

Operator: Okay. Was that an S as in Sam or F as in Frank in your last name?

Was that an S.R.I.S. and say or at his in Frank in your last name.

Kevin LaFlamme: F as in Frank.

Daniel Eller: Marks for Q&A. You can find the presentation we'll reference during the call on the Investor Relations website, section of our website, Ally.com. I'll direct your attention to slide 2 of the presentation, where we have our forward-looking statements and risk factors. The contents of our call will be governed by this language. On slide 3, we've included some of our GAAP and non-GAAP or core measures. These and other core measures are used by management, and we believe they are useful to investors in assessing the company's operating performance and capital results. Please keep in mind, these are supplemental to and not a substitute for US GAAP measures. Supplemental slides at the end include full definitions and reconciliations. With that, I'll turn the call over to our CEO, Jeff Brown.

Operator: Okay, thank you. Your company name?

Kevin LaFlamme: Aiera. A-I-E-R-A.

Operator: Spell that for me one more time?

Kevin LaFlamme: A-I-E-R-A.

Operator: Thank you. Your line will be placed on music hold until the conference begins. Thank you.

You know.

And your line will be placed on music holding the conference weekend. Thank you.

Kevin LaFlamme: Thank you.

Thank you.

Operator: You're welcome.

Welcome marks for Tonight.

You can find the presentation, we'll reference during the call on the Investor Relations website section of our website Allied dotcom.

Ill direct your attention to slide two of the presentation, where we have our forward looking statements and risk factors.

The contents of our call will be governed by this language.

On slide three we've included some of our GAAP and non-GAAP or core measures.

These and other core measures are used by management and we believe they are useful to investors in assessing the company's operating performance and capital results.

Please keep in mind these are supplemental to and not a substitute for us GAAP measures.

Supplemental slides at the end include full definitions and reconciliations.

Now with that I will turn the call over to our CEO , Jeff Brown.

Jeff Brown: Thank you, Daniel. Good morning, everyone, and thank you for joining our call. Let's turn to slide number 4 and cover highlights from the quarter. We had another record-setting quarter across many metrics. Our performance reflects the consistent execution of the strategic path we've been on for several years. All of our businesses shined this quarter, demonstrating impressive momentum and financial performance. Adjusted EPS of $0.97 increased 17% year-over-year, representing our highest result since becoming a public company. Core ROTCE of 12.4% remained on a solid trajectory. Revenues of $1.56 billion grew 6% year-over-year. Our risk profile remains strong. Underpinning our performance is a relentless focus on the 7 million-plus customers and clients we are fortunate to serve.

Thank you Daniel Good morning, everyone and thank you for joining our call, let's turn to slide number four and cover highlights from the quarter.

We had another record setting quarter across many metrics.

Our performance reflects the consistent execution of the strategic path, we've been on for several years.

All of our businesses Shine this quarter, demonstrating impressive momentum and financial performance.

Adjusted EPS of 97 cents increased 17% year over year, representing our highest result, since becoming a public company.

Core ROTC at 12.4% remained on a solid trajectory.

Revenues of $1.56 billion grew 6% year over year, and our risk profile remains strong.

Underpinning our performance is a relentless focus on the 7 million plus customers and clients. We are fortunate to serve.

Jeff Brown: We originated $9.7 billion of auto loans and leases in the quarter and decisioned a record $3.3 million applications, demonstrating the broad access we have through our extensive dealer network. We grew our dealer relationships this quarter to over 18,000 dealers, the 21st consecutive quarter, where we've expanded our reach, with benefits extending well beyond volume generation. This affirms our position as the leading auto and insurance partner for dealers in the US, enhancing our opportunity to derive greater penetration across our full suite of products and services, while also providing us with key data and insights in real time across the consumer lending space. Risk-adjusted margins increased during the quarter as new origination yields of 7.6% expanded 56 basis points year-over-year, resulting in another quarter of increasing portfolio yields and declining loss rates.

We originated $9.7 billion of auto loans and leases in the quarter indecision, a record 3.3 million applications demonstrating the broad access we have through our extensive dealer network.

We grew our dealer relationships this quarter to over 18000 dealers the 20 onest consecutive quarter, where we've expanded our reach with benefits extending well beyond volume generation.

This affirms our position as the leading auto insurance partner for dealers in the us enhancing our opportunity to derive greater penetration across our full suite of products and services, while also providing us with key data and insights in real time across the consumer lending space.

Risk adjusted margins increased during the quarter as new origination yields of 7.6% expanded 56 basis points year over year, resulting in another quarter of increasing portfolio yields and declining loss rates.

New volume pricing remains strong even as benchmarks declined.

Jeff Brown: New volume pricing remains strong even as benchmarks declined. Competitive behaviors across the space remained rational. Banks tightened auto lending standards for the 11th time in the past 12 quarters as consumer demand remained relatively steady. This reinforces our view of a balanced backdrop in the auto lending space. Our credit trends remain solid as retail auto net charge-offs of 95 basis points declined 9 basis points compared to the prior year, highlighting the strength of our underwriting and credit risk management. We continue to see a strong backdrop for the US consumer, including healthy employment levels, increasing wages, and manageable debt service levels. Turning to deposits, we ended the quarter with over $116 billion in balances, an 18% increase in our deposit portfolio year-over-year.

Competitive behaviors across the space remained rational banks tighten auto lending standards for the 11th time in the past 12 quarters as consumer demand remained relatively steady.

This reinforces our view of a balanced backdrop and the auto lending space.

Our credit trends remained solid as retail auto net charge offs of 95 basis points declined nine basis points compared to the prior year, highlighting the strength of our underwriting and credit risk management.

We continue to see a strong backdrop for the us consumer, including healthy employment levels, increasing wages and manageable debt service levels.

Turning to deposits, we ended the quarter with over 116 billion and balances an 18% increase in our deposit portfolio year over year.

Jeff Brown: We experienced our strongest Q2 ever in retail deposits at Ally Bank, where balances grew $3.2 billion. We're often asked, What is the primary driver of success at Ally Bank? Our answer has remained the same since we launched 10 years ago, a relentless customer focus, anchored by industry-leading service levels, differentiated product offerings, a world-class digital and mobile experience, and consistently competitive rates. Deposit customers of 1.9 million grew by 100,000 quarter-over-quarter, a 23% increase year-over-year, or 350,000 new customers. A majority of inflows continue to be sourced from traditional banks, highlighting the ongoing trend among consumers who are seeking increased value and convenience from their bank.

We experienced our strongest second quarter ever and retail deposits at ally Bank, where balances grew 3.2 billion.

We're often asked what is the primary driver of success at ally Bank.

Our answer has remained the same since we launched 10 years ago, a relentless customer focus.

Anchored by industry, leading service levels differentiated product offerings, a world class digital and mobile experience and consistently competitive rates.

Deposit customers of $1.9 million grew by 100000 quarter over quarter, a 23% increase year over year or 350000, new customers.

All majority of inflows continued to be sourced from traditional banks highlighting the ongoing trend among consumers, who are seeking increased value and convenience from their bank.

Jeff Brown: These are the cornerstones of our nationwide, always-on digital bank, evidenced by Ally being named the Best Internet Bank for the third consecutive year by Kiplinger's earlier this month. The direct deposit market represents around 10% of total retail deposits in the US today and has grown by an average 15% per year since 2008. This represents a significant ongoing opportunity, something Ally is well-positioned for as the largest online-only bank. From a deposit pricing perspective, we've been purposeful across our history to offer great rates that align with our customer value proposition. During Q2, we led the market, taking pricing actions across several products, including a late June reduction to our liquid savings rate, which was largely in response to underlying benchmark activity. Following these actions, we've continued to see solid account openings and ongoing balance growth.

These are the cornerstones of our nationwide always on digital bank.

Evidenced by Allied being named the best online bank for the third consecutive year by Kiplinger's earlier this month.

The direct deposit market represents around 10% of total retail deposits in the us today and has grown by an average of 15% per year since 2008.

This represents a significant ongoing opportunity something ally is well positioned for as the largest online only bank.

From a deposit pricing perspective, we've been purposeful across our history to offer great rates that align with our customer value proposition.

During the second quarter, we led the market taking pricing actions across several products, including a late June reduction to our liquid savings rate, which was largely in response to underlying benchmark activity.

Following these actions we've continued to see solid account openings and ongoing balance growth.

Turning to our other businesses corporate finance posted a solid quarter expanding held for investment assets by 15% year over year.

Jeff Brown: Turning to our other businesses, corporate finance posted a solid quarter, expanding held for investment assets by 15% year-over-year. Ally Invest accounts grew to 336,000 during Q2, representing $7.1 billion of customer assets in trading accounts. In Ally Home, direct-to-consumer originations of $600 million were the strongest levels since our 2016 entry into this space. We began the pilot with Better.com in July and are on schedule to expand the offering by year-end. This morning, we are pleased to announce the acquisition of Health Credit Services, a point-of-sale payment provider. This digitally based, frictionless payment capability will enhance our product offerings at Ally Bank. With this acquisition, we are leveraging the growing desire of consumers to use alternative payment sources in a seamless manner. We expect the deal to close later this year.

Ally invests accounts grew to 336000 during the second quarter, representing $7.1 billion of customer assets in trading accounts.

And ally home direct to consumer originations of $600 million or the strongest levels since our 2016 entry into this space.

We began the pilot with better dotcom in July and are on schedule to expand the offering by year end.

This morning, we're pleased to announce the acquisition of health credit services, a point of sale payment provider.

This digitally based frictionless payment capability, we're enhance our product offerings at ally Bank.

With this acquisition, we are leveraging the growing desire of consumers to use alternative payment sources in a seamless manner.

We expect the deal to close later this year.

Jeff Brown: Remaining thoughtful and adaptable in the evolution of our offerings is a key strategic priority in taking Ally Bank to the next level and enhances our ability to serve the loyal, savvy Ally customers. Turning to capital management, we wrapped up $1 billion in share buybacks on 30 June. In total, we've repurchased over 100 million shares since initiating the program in mid-2016. The $1.25 billion program we announced last quarter began in July. We've continued to buy back shares at attractive levels, even as the gap to book value has narrowed. Let's turn to slide 5 to review our key metrics for the quarter. All of these trends reinforce the meaningful and ongoing progress we've delivered over the past several years, with each metric at the highest level for us as a public company in Q2.

Remaining thoughtful and adaptable in the evolution of our offerings is a key strategic priority and taking ally bank to the next level and enhances our ability to serve the loyal savvy ally customers.

Turning to capital management, we wrapped up $1 billion and share buybacks on June thirtyth.

In total we repurchased over 100 million shares since initiating the program in mid 2016.

The 1.25 billion program, we announced last quarter began in July .

We continued to buy back shares at attractive levels.

Even as the gap to book value has narrowed.

Let's turn to slide number five to review our key metrics for the quarter.

All of these trends reinforce the meaningful and ongoing progress we've delivered over the past several years with each metric at the highest level for us as a public company in Q2.

Jeff Brown: In the upper left, adjusted EPS of $0.97 per share increased from $0.83 a year ago. Adjusted total net revenue of $1.56 billion grew to $86 million year-over-year. Deposits, on the bottom left, expanded beyond $116 billion, an 18% increase compared to Q2 2018. On the bottom right, tangible book value increased to $33.56 per share, up from just over $28 per share last year, as we remain diligent in building long-term shareholder value. Our dominant, market-leading auto and bank business lines and growing adjacent product offerings positions us to continue executing both financially and operationally moving forward. With that, I'll turn it to Jen to take you through the detailed financial results.

In the upper left adjusted EPS of 97 cents per share increased from 83 cents a year ago.

Adjusted total net revenue of $1.50 $1.56 billion grew to $86 million year over year.

Deposits on the bottom left expanded beyond $116 billion, and 18% increase compared to Q2 2018.

And on the bottom right tangible book value increased to $33.56 per share up from just over $28 per share last year as we remain diligent in building long term shareholder value.

Our dominant market, leading auto and bank business lines and growing adjacent product offerings positions us to continue executing both financially and operationally moving forward.

With that I'll turn it to Gen to take you through the detailed financial results.

Jen: Thank you, JB. Good morning, everyone. Overall, Ally has continued to execute, driving strong operating and financial performance for the quarter. I'll start reviewing the detailed results beginning on slide 6. Net financing revenue, excluding OID, of $1.164 billion, increased $25 million linked quarter and $49 million year-over-year. The NII expansion was driven by balance sheet growth, particularly in capital-efficient assets, auto optimization, where portfolio yields continued to rise as new origination pricing remained above 7.5%, and the ongoing liability restack, where deposits are replacing high-cost debt and funding asset growth. These factors are firmer expectations that net interest income will continue to grow in the second half of the year.

[Company Representative] (Ally Financial): Thank you, JB. Good morning, everyone. Overall, Ally has continued to execute, driving strong operating and financial performance for the quarter. I'll start reviewing the detailed results beginning on slide 6. Net financing revenue, excluding OID, of $1.164 billion, increased $25 million linked quarter and $49 million year-over-year. The NII expansion was driven by balance sheet growth, particularly in capital-efficient assets, auto optimization, where portfolio yields continued to rise as new origination pricing remained above 7.5%, and the ongoing liability restack, where deposits are replacing high-cost debt and funding asset growth. These factors are firmer expectations that net interest income will continue to grow in the second half of the year.

Thank you JV and good morning, everyone. Overall ally has continued to execute driving strong operating and financial performance for the quarter.

Ill start reviewing the detailed results beginning on slide six.

Net financing revenue, excluding I'd of 1.164 billion increased 25 million linked quarter and 49 million year over year.

And I expansion is driven by balance sheet growth, particularly in capital efficient asset.

Auto optimization, where portfolio yield continued to rise as new origination pricing remained above 7.5%.

And the ongoing liability restack, where deposits are replacing high cost debt and funding asset front.

These factors are from our expectation that net interest income continued to grow in the second half of the year.

Jen: Adjusted other revenue of $393 million was down $4 million quarter-over-quarter and up $37 million year-over-year, reflecting solid investment gains and revenue growth from insurance. Provision expense of $177 million declined $105 million quarter-over-quarter, reflecting normal seasonal trends, and increased $19 million year-over-year, mainly driven by higher asset levels. Within our auto portfolio, year-over-year net charge-offs declined for the 6th consecutive quarter, demonstrating our disciplined approach to underwriting and collections and reflecting a healthy consumer and macroeconomic backdrop. Non-interest expense increased by $51 million linked quarter and $42 million compared to the prior year. Increases versus the prior quarter reflect seasonally higher weather losses. On a year-over-year basis, weather losses increased by $18 million, as losses in 2018 were relatively moderate.

[Company Representative] (Ally Financial): Adjusted other revenue of $393 million was down $4 million quarter-over-quarter and up $37 million year-over-year, reflecting solid investment gains and revenue growth from insurance. Provision expense of $177 million declined $105 million quarter-over-quarter, reflecting normal seasonal trends, and increased $19 million year-over-year, mainly driven by higher asset levels. Within our auto portfolio, year-over-year net charge-offs declined for the 6th consecutive quarter, demonstrating our disciplined approach to underwriting and collections and reflecting a healthy consumer and macroeconomic backdrop. Non-interest expense increased by $51 million linked quarter and $42 million compared to the prior year. Increases versus the prior quarter reflect seasonally higher weather losses. On a year-over-year basis, weather losses increased by $18 million, as losses in 2018 were relatively moderate.

Adjusted other revenue of 393 million down 4 million quarter over quarter, and up $37 million year over year, reflecting solid investment gains and revenue growth from insurance.

Provision expense of 177 million declined to 105 million quarter over quarter, reflecting normal seasonal trends and increased $19 million year over year, mainly driven by higher asset levels.

Within our auto portfolio year over year net charge off rate declined for the sixth consecutive quarter, demonstrating our disciplined approach to underwriting and collections and reflecting a healthy consumer and macroeconomic backdrop.

Noninterest expense increased by 51 million linked quarter and $42 million compared to the prior year.

Increases versus the prior quarter reflects seasonally higher weather losses.

On a year over year basis weather losses increased by 18 million as losses in 2018, we're relatively moderate.

Jen: Normalizing for weather, we drove positive operating leverage as revenue grew 6%, outpacing 3% expense growth. Higher costs were driven in part by volume and revenue-based activities directly linked to the record operating results we delivered again in Q2. We remain focused on realizing near-term efficiency gains while making disciplined long-term investments, including expanded consumer offerings and growth products and enhancements to digital, tech, and brand capabilities. Going forward, you should expect continued prudent investment spend throughout 2019 and improved operating leverage over time. Turning to some of our key metrics, GAAP and adjusted EPS were $1.46 and $0.97 per share, respectively. We normalized results for a tax-related event where we released approximately $200 million of valuation allowance associated with foreign credits set to expire in the coming years. This is accretive to capital levels and tangible book value.

[Company Representative] (Ally Financial): Normalizing for weather, we drove positive operating leverage as revenue grew 6%, outpacing 3% expense growth. Higher costs were driven in part by volume and revenue-based activities directly linked to the record operating results we delivered again in Q2. We remain focused on realizing near-term efficiency gains while making disciplined long-term investments, including expanded consumer offerings and growth products and enhancements to digital, tech, and brand capabilities. Going forward, you should expect continued prudent investment spend throughout 2019 and improved operating leverage over time. Turning to some of our key metrics, GAAP and adjusted EPS were $1.46 and $0.97 per share, respectively. We normalized results for a tax-related event where we released approximately $200 million of valuation allowance associated with foreign credits set to expire in the coming years. This is accretive to capital levels and tangible book value.

Normalizing for weather, we drove positive operating leverage as revenue grew 6% outpacing 3% expense growth.

Higher costs were driven in part by volume and revenue based activities directly linked to the record operating results. We delivered again in Q2.

We remain focused on realizing near term efficiency gains, we're making disciplined long term investments.

Including expanded consumer offerings, ingress products and enhancements to digital tech and brands capability.

Going forward you should expect continued prudent investments spend throughout 2019 and improved operating leverage over time.

Turning to some of our key metrics GAAP and adjusted EPS was $1.46 and 97 cents per share respectively.

We normalized results for a tax related event, where we released approximately 200 million of valuation allowance associated with foreign credits that you expire in the coming years.

It is accretive to capital levels and tangible book value.

Jen: Core ROTCE was 12.4%, our adjusted efficiency ratio was 46.1%, improving 160 basis points year over year. The reported tax rate of -18.2% includes the VA release impact. Our normalized tax rate of 22.5% is slightly below our 23% to 24% expected annual run rate. Moving to slide 7, we'll cover balance sheet and net interest margin. 2019 has been marked by a persistent trend of declining benchmark rates, a flattening to inverted yield curve, and shifting views on the Fed funds path. Our results have been, and will continue to be, largely insulated from these dynamics due to our neutral rate positioning.

[Company Representative] (Ally Financial): Core ROTCE was 12.4%, our adjusted efficiency ratio was 46.1%, improving 160 basis points year over year. The reported tax rate of -18.2% includes the VA release impact. Our normalized tax rate of 22.5% is slightly below our 23% to 24% expected annual run rate. Moving to slide 7, we'll cover balance sheet and net interest margin. 2019 has been marked by a persistent trend of declining benchmark rates, a flattening to inverted yield curve, and shifting views on the Fed funds path. Our results have been, and will continue to be, largely insulated from these dynamics due to our neutral rate positioning.

Core ROTC, he was 12.4% and our adjusted efficiency ratio was 46.1% improving a 160 basis points year over year.

The reported tax rate of negative 18.2% includes the V.A. release impact.

Our normalized tax rate of 22.5% is slightly below our 23% to 24% expected annual run rate.

Moving to slide seven we'll cover balance sheet and net interest margin.

2019 has been marked by a persistent trend of declining benchmark rate of flattening to inverted yield curve and shifting views on the fed funds path.

Our results have been and will continue to be largely insulated from these dynamics due to our neutral rate positioning.

Jen: We've remained balanced and disciplined around interest rate risk, something we will continue to prioritize as we assess repricing dynamics across both sides of our balance sheet. Average earning assets grew 7% year-over-year to nearly $175 billion, primarily in capital-efficient assets. Auto-related balances expanded by approximately $1 billion year-over-year and now represent 66% versus 70% of total earning assets compared to a year ago, as we continue to diversify our asset composition. On the funding side, year-over-year average deposit growth of $16.9 billion financed earning asset growth of $11.2 billion, the roll down of $3 billion in unsecured and $3.9 billion in secured funding. These dynamics have fueled top-line growth over the past five years, keeping us on pace to achieve $5 billion of annual net financing revenue over time.

[Company Representative] (Ally Financial): We've remained balanced and disciplined around interest rate risk, something we will continue to prioritize as we assess repricing dynamics across both sides of our balance sheet. Average earning assets grew 7% year-over-year to nearly $175 billion, primarily in capital-efficient assets. Auto-related balances expanded by approximately $1 billion year-over-year and now represent 66% versus 70% of total earning assets compared to a year ago, as we continue to diversify our asset composition. On the funding side, year-over-year average deposit growth of $16.9 billion financed earning asset growth of $11.2 billion, the roll down of $3 billion in unsecured and $3.9 billion in secured funding. These dynamics have fueled top-line growth over the past five years, keeping us on pace to achieve $5 billion of annual net financing revenue over time.

We remain balanced and disciplined around interest rate risk something we will continue to prioritize as we assess repricing dynamics across both sides of our balance sheet.

Average, earning assets grew 7% year over year to nearly a 175 billion, primarily and capital efficient assets.

Auto related balances expanded by us.

Approximately $1 billion year over year, and now represent 66 versus 70% of total earning assets compared to a year ago as we continue to diversify our asset composition.

On the funding side year over year average deposit growth of 16.9 billion finance, earning asset growth of 11.2 billion the roll down of $3 billion in unsecured and $3.9 billion in secured funding.

These dynamics have field topline growth over the past five years, keeping us on pace to achieve 5 billion of annual net financing revenue overtime.

Jen: Net interest margin, excluding OID, of 2.67% remained relatively stable, declining 2 basis points quarter-over-quarter, driven by ongoing diversification and elevated premium amortization in our mortgage and investment security portfolios as benchmarks declined and prepayments increased. The retail auto portfolio yield of 6.58% moved higher by 11 basis points quarter-over-quarter and 50 basis points year-over-year. The underlying two and three-year benchmark rates have declined 80 to 90 basis points, while our new volume pricing has remained consistent in the mid-7% range throughout the first half of 2019, reflecting the continued strength of our market position. We monitor rate trends and competitive dynamics but see a clear path for the retail portfolio yield to continue migrating toward new origination yields over time.

[Company Representative] (Ally Financial): Net interest margin, excluding OID, of 2.67% remained relatively stable, declining 2 basis points quarter-over-quarter, driven by ongoing diversification and elevated premium amortization in our mortgage and investment security portfolios as benchmarks declined and prepayments increased. The retail auto portfolio yield of 6.58% moved higher by 11 basis points quarter-over-quarter and 50 basis points year-over-year. The underlying two and three-year benchmark rates have declined 80 to 90 basis points, while our new volume pricing has remained consistent in the mid-7% range throughout the first half of 2019, reflecting the continued strength of our market position. We monitor rate trends and competitive dynamics but see a clear path for the retail portfolio yield to continue migrating toward new origination yields over time.

Net interest margin, excluding I'd of 2.67% remained relatively stable declining two basis points quarter over quarter, driven by ongoing diversification and elevated premium amortization in our mortgage and investment security portfolios as benchmarks declined in prepayments increase.

The retail auto portfolio yield of 6.58% moved higher by 11 basis points quarter over quarter, and 50 basis points year over year.

The underlying two and three year benchmark rates have declined 80 to 90 basis points with our new volume pricing has remained consistent in the mid 7% range throughout the first half of 2019, reflecting the continued strength of our market position.

We monitor rate trends and competitive dynamics and see a clear path for the retail portfolio yield to continue migrating toward new origination yields overtime.

Jen: The lease portfolio yield of 5.94% reflects higher gains linked quarter and year-over-year. Used car prices performed well during Q2, rebounding from a slight decline in Q1 and are flat year to date. Our 2019 outlook continues to incorporate a 3% to 5% decline as elevated off-lease supplies continue to increase and used vehicle sales typically moderate in the second half of the year. The commercial auto portfolio yield declined 5 basis points linked quarter and increased 55 basis points year-over-year, in line with one-month LIBOR. Turning to funding, deposits increased to 72% of overall funding, while unsecured balances declined to 8%. Through the end of the year, another $3 billion of high-cost debt is scheduled to mature with an average coupon of 5.8%.

[Company Representative] (Ally Financial): The lease portfolio yield of 5.94% reflects higher gains linked quarter and year-over-year. Used car prices performed well during Q2, rebounding from a slight decline in Q1 and are flat year to date. Our 2019 outlook continues to incorporate a 3% to 5% decline as elevated off-lease supplies continue to increase and used vehicle sales typically moderate in the second half of the year. The commercial auto portfolio yield declined 5 basis points linked quarter and increased 55 basis points year-over-year, in line with one-month LIBOR. Turning to funding, deposits increased to 72% of overall funding, while unsecured balances declined to 8%. Through the end of the year, another $3 billion of high-cost debt is scheduled to mature with an average coupon of 5.8%.

The lease portfolio yield of 5.94% reflects higher gains linked quarter and year over year.

Used car prices performed well during the second quarter rebounding from a slight decline in Q1 and are flat year to date.

Our 2019 outlook continues to incorporate a 3% to 5% decline is elevated awfully supplies continue to increase and used vehicle sales typically moderate in the second half of the year.

The commercial auto portfolio yield declined five basis points linked quarter and increased 55 basis points year over year in line with one month LIBOR.

Turning to funding deposits increased to 72% of overall funding, while unsecured balances declined to 8%.

Through the end of the year another $3 billion of high cost debt is scheduled to mature with an average coupon of 5.8%.

Jen: We accessed the wholesale funding markets during the quarter with a $750 million deal, our first unsecured issuance in over 3 years, with strong investor participation, our tightest spread on a 5-year issuance, and execution inside investment-grade levels. Moving forward, we expect to utilize unsecured markets for diversification, and parent company liquidity. Overall unsecured balances will continue declining. On slide 8, we'll look closer at some of our key deposit details. In the upper right, total deposits ended above $116 billion, reflecting $3.2 billion of retail growth, our strongest Q2 ever, while customer retention levels remained at 96%. During the Q2 last year, retail balances were essentially flat as we experienced elevated tax payment and alternative market-based investment outflows from our mass affluent high-net-worth customers.

[Company Representative] (Ally Financial): We accessed the wholesale funding markets during the quarter with a $750 million deal, our first unsecured issuance in over 3 years, with strong investor participation, our tightest spread on a 5-year issuance, and execution inside investment-grade levels. Moving forward, we expect to utilize unsecured markets for diversification, and parent company liquidity. Overall unsecured balances will continue declining. On slide 8, we'll look closer at some of our key deposit details. In the upper right, total deposits ended above $116 billion, reflecting $3.2 billion of retail growth, our strongest Q2 ever, while customer retention levels remained at 96%. During the Q2 last year, retail balances were essentially flat as we experienced elevated tax payment and alternative market-based investment outflows from our mass affluent high-net-worth customers.

We access the wholesale funding markets during the quarter with a $750 million deal our first unsecured issuance in over three years with strong investor participation, our tightest spread on a five year issuance and execution inside investment grade levels.

Moving forward, we expect to utilize unsecured markets for diversification and parent company liquidity, but overall unsecured balances will continue declining.

On slide eight we'll look closer at some of our key deposit details.

In the upper right total deposits ended above a 116 billion, reflecting $3.2 billion of retail growth, our strongest second quarter ever while customer retention levels remained at 96%.

During the second quarter last year retail balances were essentially flat as we experienced elevated tax payment and alternative market based investment outflows from our mass affluent high net worth customers.

Jen: While average per customer tax outflows were 5% to 10% higher year-over-year, net growth was driven by robust inflows from new and existing customers. This momentum is keeping us well on pace to achieve our 75% to 80% deposit funding objective. In the bottom left, retail deposit rates increased 8 basis points linked quarter, driven by time deposit repricing, resulting in a cumulative portfolio beta of 48% since the beginning of the tightening cycle. As JB mentioned, we led the market in reducing offered rates on many of our products in Q2. While we believe further opportunity exists as the Fed begins to ease, we will remain thoughtful on pricing actions. Looking back over the Fed tightening cycle, our cumulative percentage growth has significantly outpaced direct and traditional banks, while our beta has remained within our expectations.

[Company Representative] (Ally Financial): While average per customer tax outflows were 5% to 10% higher year-over-year, net growth was driven by robust inflows from new and existing customers. This momentum is keeping us well on pace to achieve our 75% to 80% deposit funding objective. In the bottom left, retail deposit rates increased 8 basis points linked quarter, driven by time deposit repricing, resulting in a cumulative portfolio beta of 48% since the beginning of the tightening cycle. As JB mentioned, we led the market in reducing offered rates on many of our products in Q2. While we believe further opportunity exists as the Fed begins to ease, we will remain thoughtful on pricing actions. Looking back over the Fed tightening cycle, our cumulative percentage growth has significantly outpaced direct and traditional banks, while our beta has remained within our expectations.

While average per customer tax outflows were 5% to 10% higher year over year net growth was driven by robust inflows from new and existing customers. This momentum is keeping us well on pace to achieve our 75% to 80% deposit funding objective.

In the bottom left retail deposit rates increased eight basis points linked quarter, driven by time deposit repricing, resulting in a cumulative portfolio beta 48% since the beginning of the tightening cycle.

As JB mentioned, we led the market in reducing offered rates on many of our products in Q2.

While we believe further opportunity exists as the fed begins to ease we will remain.

So on pricing actions.

Looking back over the fed tightening cycle, our cumulative percentage growth has significantly outpaced direct and traditional banks are beta has remained within our expectations.

Jen: We added another 100,000 deposit customers, approaching 1.9 million total customers during Q2. Year-to-date, we have added 220,000 customers, essentially equal to full year 2018 growth in half the time. Our loyal and growing customer base at Ally remains strategically important to our future as we expand our adjacent product offerings. Capital details are on Slide nine. CET1 of 9.5% increased linked quarter and year-over-year, reflecting earnings growth and the valuation allowance release I discussed earlier. We repurchased 7.8 million shares in the Q2, and we have reduced shares outstanding by nearly 19% since we began the buyback program three years ago. Earlier this month, we began repurchasing shares under our board-approved buyback program of up to $1.25 billion.

[Company Representative] (Ally Financial): We added another 100,000 deposit customers, approaching 1.9 million total customers during Q2. Year-to-date, we have added 220,000 customers, essentially equal to full year 2018 growth in half the time. Our loyal and growing customer base at Ally remains strategically important to our future as we expand our adjacent product offerings. Capital details are on Slide nine. CET1 of 9.5% increased linked quarter and year-over-year, reflecting earnings growth and the valuation allowance release I discussed earlier. We repurchased 7.8 million shares in the Q2, and we have reduced shares outstanding by nearly 19% since we began the buyback program three years ago. Earlier this month, we began repurchasing shares under our board-approved buyback program of up to $1.25 billion.

We added another 100000 deposit customers approaching 1.9 million total customers during Q2.

Year to date, we have added 220000 customers essentially equal to full year 2018 growth in half the time.

Our loyal and growing customer base at ally remains strategically important to our future as we expand our adjacent product offerings.

Capital details are on slide nine.

C. One of 9.5% increase linked quarter and year over year, reflecting earnings growth and the valuation allowance release I discussed earlier.

We repurchased 7.8 million shares in the second quarter, and we have reduced shares outstanding by nearly 19%.

Since we began the buyback program three years ago.

Earlier. This month, we began repurchasing shares under our board approved buyback program of up to $1.25 billion.

Jen: As it pertains to CECL, we expect to disclose projections later this year. Given the opportunity to phase in capital impacts, we remain well positioned to incorporate the impact into our ongoing capital management processes. Let's turn to Slide 10 to review asset quality details. Consolidated net charge-offs were 56 basis points this quarter, declining 1 basis point year-over-year as we remain focused on disciplined risk management. We have seen strong performance across our portfolios, particularly in retail auto. In the top right, consolidated provision expense was $177 million, up $19 million compared to the prior year, driven by higher auto loan balances. Retail auto net charge-offs in the bottom right were solid at 95 basis points for the quarter, down 9 basis points year-over-year, the 6th consecutive quarter of year-over-year declines.

[Company Representative] (Ally Financial): As it pertains to CECL, we expect to disclose projections later this year. Given the opportunity to phase in capital impacts, we remain well positioned to incorporate the impact into our ongoing capital management processes. Let's turn to Slide 10 to review asset quality details. Consolidated net charge-offs were 56 basis points this quarter, declining 1 basis point year-over-year as we remain focused on disciplined risk management. We have seen strong performance across our portfolios, particularly in retail auto. In the top right, consolidated provision expense was $177 million, up $19 million compared to the prior year, driven by higher auto loan balances. Retail auto net charge-offs in the bottom right were solid at 95 basis points for the quarter, down 9 basis points year-over-year, the 6th consecutive quarter of year-over-year declines.

And as it pertains to see so we expect to disclose projections later this year given the opportunity to phase in capital impacts, we remain well positioned to incorporate the impact into our ongoing capital management processes.

Let's turn to slide 10 to review asset quality detailed consolidated net charge offs were 56 basis points. This quarter declined one basis point year over year as we remain focused on disciplined risk management.

We have seen strong performance across our portfolios, particularly in retail auto.

In the top right consolidated provision expense was 177 million up $19 million compared to the prior year driven by higher auto loan balances.

Retail auto net charge offs in the bottom right were solid at 95 basis points for the quarter down nine basis points year over year, the sixth consecutive quarter of year over year declines.

Jen: In the bottom right, 30-plus and 60-plus delinquencies increased year-over-year by 12 and 7 basis points, respectively. As we've previously discussed, we expect year-over-year delinquencies to move higher throughout 2019, reflecting the increased mix and seasoning of our used portfolio. These trends also reflect actions implemented in our servicing and collection efforts, resulting in slightly higher delinquencies, but improved flow to loss results reflected in the lower net charge-off rate. We continue to expect annual retail net charge-offs to remain on the low end of our 1.4% to 1.6% full year outlook. Our balance sheet is well positioned, comprised primarily of fully secured assets that have demonstrated high priority in the payment waterfall over many cycles.

[Company Representative] (Ally Financial): In the bottom right, 30-plus and 60-plus delinquencies increased year-over-year by 12 and 7 basis points, respectively. As we've previously discussed, we expect year-over-year delinquencies to move higher throughout 2019, reflecting the increased mix and seasoning of our used portfolio. These trends also reflect actions implemented in our servicing and collection efforts, resulting in slightly higher delinquencies, but improved flow to loss results reflected in the lower net charge-off rate. We continue to expect annual retail net charge-offs to remain on the low end of our 1.4% to 1.6% full year outlook. Our balance sheet is well positioned, comprised primarily of fully secured assets that have demonstrated high priority in the payment waterfall over many cycles.

In the bottom right 30, plus and 60, plus delinquencies increased year over year by 12, and seven basis points respectively.

As we've previously discussed we expect year over year delinquencies to move higher throughout 2019, reflecting the increased mix and seasoning of our U.S portfolio.

These trends also reflect actions implemented in our servicing and collection efforts, resulting in slightly higher delinquencies, but improved flow to loss results reflected in the lower net charge off rate.

We continue to expect annual retail net charge offs to remain on the low end of our 1.4% to 1.6% full year outlook.

Our balance sheet is well positioned comprised primarily of fully secured assets that have demonstrated high priority in the payment waterfall over many cycles.

Jen: On Slide 11, Auto Finance pre-tax income of $459 million increased $130 million versus prior quarter and $77 million versus prior year. The ongoing optimization of our auto franchise is evident across our operating and financial results. Net financing revenue grew year-over-year, driven by retail auto asset growth and higher-yielding originated volumes, replacing lower-yielding amortizing vintages. We continue to grow our dealer base and increase dealer engagement across our comprehensive suite of financing and insurance offerings. We have relationships with over 90% of franchise dealers in the US, who continue to retain and grow their businesses with us. We decisioned a record 3.3 million applications in Q2, bringing the year-to-date total to just under 6.5 million, a 9% year-over-year increase.

[Company Representative] (Ally Financial): On Slide 11, Auto Finance pre-tax income of $459 million increased $130 million versus prior quarter and $77 million versus prior year. The ongoing optimization of our auto franchise is evident across our operating and financial results. Net financing revenue grew year-over-year, driven by retail auto asset growth and higher-yielding originated volumes, replacing lower-yielding amortizing vintages. We continue to grow our dealer base and increase dealer engagement across our comprehensive suite of financing and insurance offerings. We have relationships with over 90% of franchise dealers in the US, who continue to retain and grow their businesses with us. We decisioned a record 3.3 million applications in Q2, bringing the year-to-date total to just under 6.5 million, a 9% year-over-year increase.

On slide 11 auto finance pre tax income of 459 million increased a $130 million versus prior quarter and $77 million versus prior year.

The ongoing optimization of our auto franchise is evident across our operating and financial results.

Net financing revenue grew year over year, driven by retail auto asset growth and higher yielding originated volumes, replacing lower yielding amortizing vintages.

We continue to grow our dealer base and increased dealer engagement across our comprehensive suite of financing and insurance offerings.

We have relationships with over 90% the franchise dealers in the US who continue to retain and grow their businesses with us.

The decision a record 3.3 million applications in Q2, bringing the year to date total to just under 6.5 million a 9% year over year increase.

Jen: The broad reach we have with dealers and increased application flow drives our ability to generate volume, maintain disciplined underwriting, and grow strong risk-adjusted margins. In the bottom right, estimated retail new origination yields increased 56 basis points year-over-year. Our retail portfolio yields increased by 50 basis points, while our retail auto net charge-offs declined 9 basis points. Turning to Slide 12, we booked $9.7 billion of loan and lease volume in Q2, an increase of nearly $600 million linked quarter and $165 million versus the prior year. Growth channel originations of 50% during the quarter represent an all-time high and a meaningful milestone, considering 85% of our originations were sourced from two channels just five years ago. Used originations were 54% of volume, while non-prime originations remained stable at 12%.

[Company Representative] (Ally Financial): The broad reach we have with dealers and increased application flow drives our ability to generate volume, maintain disciplined underwriting, and grow strong risk-adjusted margins. In the bottom right, estimated retail new origination yields increased 56 basis points year-over-year. Our retail portfolio yields increased by 50 basis points, while our retail auto net charge-offs declined 9 basis points. Turning to Slide 12, we booked $9.7 billion of loan and lease volume in Q2, an increase of nearly $600 million linked quarter and $165 million versus the prior year. Growth channel originations of 50% during the quarter represent an all-time high and a meaningful milestone, considering 85% of our originations were sourced from two channels just five years ago. Used originations were 54% of volume, while non-prime originations remained stable at 12%.

The broad reach we have with dealers and increased application flow drives our ability to generate volume maintain disciplined underwriting and grow strong risk adjusted margin.

In the bottom right estimated retail new origination yields increased 56 basis points year over year, and our retail portfolio yield increased by 50 basis points, while our retail auto net charge offs declined nine basis points.

Turning to slide 12, we bought $9.7 billion of loan and lease volume in Q2, an increase of nearly 600 million linked quarter and $165 million versus the prior year.

Growth channel originations of 50% during the quarter represent an all time high and a meaningful milestone considering 85% of our originations were sourced from two channels just five years ago.

Used originations were 54% in volume long Nonprime originations remained stable at 12%.

Jen: These metrics provide a clear indication of the success we've had evolving our business model despite a competitive and dynamic market environment. In the bottom left, consumer assets grew $2 billion year-over-year to $81.2 billion, primarily from retail auto balances, as lease balances remained relatively flat. Average commercial balances in the bottom right declined quarter-over-quarter and year-over-year to $34.8 billion due to normalizing dealer inventories. On Slide 13, insurance reported a core pre-tax loss of $4 million, reflecting seasonally elevated weather losses. Included in the re-results this quarter were impacts related to elevated tornado activity, including the largest tornado event in our history. Our teammates worked diligently to assist impacted dealers and customers across the Midwest during this active weather season.

[Company Representative] (Ally Financial): These metrics provide a clear indication of the success we've had evolving our business model despite a competitive and dynamic market environment. In the bottom left, consumer assets grew $2 billion year-over-year to $81.2 billion, primarily from retail auto balances, as lease balances remained relatively flat. Average commercial balances in the bottom right declined quarter-over-quarter and year-over-year to $34.8 billion due to normalizing dealer inventories. On Slide 13, insurance reported a core pre-tax loss of $4 million, reflecting seasonally elevated weather losses. Included in the re-results this quarter were impacts related to elevated tornado activity, including the largest tornado event in our history. Our teammates worked diligently to assist impacted dealers and customers across the Midwest during this active weather season.

These metrics provide a clear indication of the success Weve had evolving our business model, despite a competitive and dynamic market environment.

In the bottom left consumer assets grew 2 billion year over year to 81.2 billion, primarily from retail auto balances as lease balances remained relatively flat.

Average commercial balances in the bottom right declined quarter over quarter and year over year to 34.8 billion due to normalizing dealer inventories.

On slide 13 insurance reported a core pre tax loss of $4 million, reflecting seasonally elevated weather losses.

Included in the results this quarter were impacts related to elevated tornado activity, including the largest tornado event in our history.

Our teammates worked diligently to assist impacted dealers and customers across the Midwest. During this active weather season.

Jen: Overall, weather results were in line with expectations, but elevated compared to 2018, when losses were below historic norms. Earned revenues increased $22 million year-over-year, reflecting increased written premiums over the past several quarters. Written premiums of $314 million were $36 million higher year-over-year, driven by growth across our products, including vehicle service contracts and dealer inventory offerings. We continue to see solid new business activity due to our ongoing efforts to improve returns, grow dealers, and increase dealer penetration. Slide 14 has our corporate finance segment results. Core pre-tax income of $48 million increased $39 million linked quarter and declined $10 million year-over-year. Compared to the prior year, HFI assets grew 15%, primarily through the contributions from new verticals over the past 2 years, leading to higher net financing revenues.

[Company Representative] (Ally Financial): Overall, weather results were in line with expectations, but elevated compared to 2018, when losses were below historic norms. Earned revenues increased $22 million year-over-year, reflecting increased written premiums over the past several quarters. Written premiums of $314 million were $36 million higher year-over-year, driven by growth across our products, including vehicle service contracts and dealer inventory offerings. We continue to see solid new business activity due to our ongoing efforts to improve returns, grow dealers, and increase dealer penetration. Slide 14 has our corporate finance segment results. Core pre-tax income of $48 million increased $39 million linked quarter and declined $10 million year-over-year. Compared to the prior year, HFI assets grew 15%, primarily through the contributions from new verticals over the past 2 years, leading to higher net financing revenues.

Overall weather results were in line with expectations, but elevated compared to 2018 when losses were below historic norms.

Earned revenues increased $22 million year over year, reflecting increased written premiums over the past several quarters.

Written premiums of $314 million worth 36 million higher year over year, driven by growth across our products, including vehicle service contracts and dealer inventory offerings.

We continue to see solid new business activity due to our ongoing efforts to improve returns ROE dealers in increase dealer penetration.

Slide 14 has our corporate finance segment results core pre tax income of $48 million increased $39 million linked quarter and declined $10 million year over year.

Compared to the prior year HFI assets grew 15%.

Mainly through the contributions from new verticals over the past two years, leading to higher net financing revenue.

Jen: NII growth was partly offset by elevated syndication fees in the prior year period that did not repeat. Overall, portfolio performance remains strong and in line with our expectations. We have increased our focus on collateral-based lending, which represented around half of our new originations in Q2. We expect the year-over-year portfolio growth rate to remain in the mid to high teens throughout the remainder of 2019, as we navigate competitive dynamics and continue to focus on disciplined risk management in this space. On Slide 15, mortgage pre-tax income of $14 million this quarter was relatively flat versus prior quarter and prior years' periods. We originated approximately $600 million of direct-to-consumer loans, the highest level since launching Ally Home. Over half of our DTC customers come from existing depositors.

[Company Representative] (Ally Financial): NII growth was partly offset by elevated syndication fees in the prior year period that did not repeat. Overall, portfolio performance remains strong and in line with our expectations. We have increased our focus on collateral-based lending, which represented around half of our new originations in Q2. We expect the year-over-year portfolio growth rate to remain in the mid to high teens throughout the remainder of 2019, as we navigate competitive dynamics and continue to focus on disciplined risk management in this space. On Slide 15, mortgage pre-tax income of $14 million this quarter was relatively flat versus prior quarter and prior years' periods. We originated approximately $600 million of direct-to-consumer loans, the highest level since launching Ally Home. Over half of our DTC customers come from existing depositors.

And I growth was partly offset by elevated syndication fees in the prior year period that did not repeat.

Overall portfolio performance remains strong and in line with our expectations.

We have increased our focus on collateral based lending, which represented around half of our new originations in Q2.

We expect the year over year portfolio growth rate to remain in the mid to high teens throughout the remainder of 2019 as we navigate competitive dynamics and continue to focus on disciplined risk management in this space.

On slide 15 mortgage pre tax income of 14 million this quarter was relatively flat versus prior quarter and prior years period.

We originated approximately $600 million of direct to consumer loans, the highest level since launching ally home.

And over half of our DTC customers.

From existing depositors.

Jen: We're confident in our ability to continue sourcing a steady flow of mortgage volume from the existing customer base, in addition to offering a compelling product to the broader marketplace. Our partnership with Better is progressing well. We launched a pilot in Texas earlier this month and expect our broader rollout by the end of the year. This digital frictionless model will drive a 40-plus% reduction to our existing cost per loan, with longer-term improvements driving us towards best-in-class performance. As I hand it back to JB, I'll close by saying we remain focused on delivering for our customers and building long-term value for our shareholders. Our momentum this quarter and through the first half of 2019, keeps us well on track to achieve our full year outlook, which we provided earlier this year.

[Company Representative] (Ally Financial): We're confident in our ability to continue sourcing a steady flow of mortgage volume from the existing customer base, in addition to offering a compelling product to the broader marketplace. Our partnership with Better is progressing well. We launched a pilot in Texas earlier this month and expect our broader rollout by the end of the year. This digital frictionless model will drive a 40-plus% reduction to our existing cost per loan, with longer-term improvements driving us towards best-in-class performance. As I hand it back to JB, I'll close by saying we remain focused on delivering for our customers and building long-term value for our shareholders. Our momentum this quarter and through the first half of 2019, keeps us well on track to achieve our full year outlook, which we provided earlier this year.

We are confident in our ability to continue sourcing a steady flow of mortgage volume from the existing customer base.

In addition to offering a compelling product to the broader marketplace.

Our partnership with better is progressing well.

We launched a pilot and Texas earlier, this month and expect our broader rollout by the end of the year.

Digital Frictionless model will drive a 40 plus percent reduction to our existing cost per loan with longer term improvements driving us towards best in class performance.

As I hand, it back to JB I'll close by saying, we remain focused on delivering for our customers and building long term value for our shareholders. Our momentum this quarter and through the first half of 2019 keeps us well on track to achieve our full year outlook, which we provided earlier this year.

Jen: Our consistent execution over the past several years results from our strong customer value, our leading market position, disciplined risk management, and our focus on driving sustainable long-term value for our shareholders, which we've delivered again this quarter through our operating metrics, earnings, return profile, and adjusted tangible book value per share of $33.56, up 20% year-over-year. With that, I'll hand it back to JB.

[Company Representative] (Ally Financial): Our consistent execution over the past several years results from our strong customer value, our leading market position, disciplined risk management, and our focus on driving sustainable long-term value for our shareholders, which we've delivered again this quarter through our operating metrics, earnings, return profile, and adjusted tangible book value per share of $33.56, up 20% year-over-year. With that, I'll hand it back to JB.

Our consistent execution over the past several years results from our strong customer value, our leading market position disciplined risk management and our focus on driving sustainable long term value for our shareholders, which we've delivered again this quarter through our operating metrics earnings results profile return profile and adjusted tangible book value per share of $33.56 up 20% year over year and with that ill hand, it back to JB.

Jeff Brown: Thank you, Jen. hard to add much commentary to Jen's close there. Very strong, very proud and appreciative of the results that the team delivered this quarter. I would say, slide number 16 reiterates our priorities for 2019, where each of the key themes is consistent with what we've previously discussed. Our comprehensive, adaptive, and digitally focused consumer and commercial offerings and our market-leading dominant franchises position us well for the long term. Across our 8,500 Ally associates, we continue to focus on leveraging expertise, being mindful of our history as we build a stronger company for the future. Central to our culture is our mantra to do it right, which applies to every interaction with our customers, within the communities we serve, and on behalf of our shareholders.

Thank you Jan.

Hard to add much commentary to James closed their very strong very.

Proud and appreciative of the results of the team delivered this quarter, but I would say on slide number 16, reiterates our priorities for 2019, where each of the key themes is consistent with what we've previously discussed our comprehensive adaptive and digitally focused consumer and commercial offerings and our market, leading dominant franchises position us well for the long term.

Across our 8500 ally associates, we continue to focus on leveraging expertise being mindful of our history as we build a stronger company for the future.

Central to our culture as our mantra to do it right, which applies to every interaction with our customers within the communities, we serve and on behalf of our shareholders.

Jeff Brown: I'm proud of the progress we've realized as a result of applying this principle to everything we do, and I'm encouraged around the prospects we have moving forward from here. With that, Daniel, back to you, and time for Q&A.

Im proud of the progress we've realized as a result of applying this principle to everything we do and I'm encouraged around the prospects we have moving forward from here.

And with that Daniel back to you and time for QNX, yes. Thanks, JV. So as we head into Q in a we would ask participants to limit yourself to one question and one additional follow up operator, if you'll begin with Univision.

Daniel Eller: Yeah, thanks, JB. As we head into Q&A, we would ask participants to limit yourself to one question and one additional follow-up. Operator, if you will, begin the Q&A session.

Jen: Ladies and gentlemen, at this time, if you have a question, please press the star, then the 1 key on your touch tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. To prevent any background noise, we ask that you please place your line on mute once your question has been stated.

Operator: Ladies and gentlemen, at this time, if you have a question, please press the star, then the 1 key on your touch tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. To prevent any background noise, we ask that you please place your line on mute once your question has been stated.

Ladies and gentlemen at this time, if you have a question. Please press the star and the number one key.

Touchtone telephone if your question has been answered or you wish to remove yourself from the queue. Please press the pound key to prevent any background noise. We ask that you. Please place your line on mute. Once your question has been stated and our first question is from Moshi Orange book from Credit Suisse. Your line is now open.

Operator: Our first question is from Moshe Orenbuch from Credit Suisse. Your line is now open.

Moshe Orenbuch: Great, thanks. Jen, I appreciate the commentary on origination yields in the competitive environment. I'm just wondering, I mean, obviously, you had very strong originations this quarter. Could you kind of maybe flesh that out a little bit and maybe talk a little bit about how that you think that could develop into Q3 in terms of the level of originations and the ability to get, you know, to maintain your yield in the face of, you know, the current environment?

Great. Thanks, and John I appreciate the commentary on origination yields in the competitive environment I'm. Just wondering I mean, obviously you had very strong originations. This quarter. So could you kind of maybe flesh that out a little bit and maybe talk a little bit about how that you think that could develop into third quarter in terms of the level of originations and the ability to.

Good.

To maintain your yield in the face of the current environment.

Yes, sure and good morning Moshe Thank you for the question.

Jen: Yeah, sure. Good morning, Moshe. Thank you for the question. Yeah, I mean, throughout the first half of 2019, we've had consistent origination flow at over 7.5% yields, that's in the context of a very volatile rate environment. In fact, our underlying benchmark rates have come down 80 to 90 basis points. You know, we're really pleased with the continued strength of our market position. We're number one in retail lending. We're continuing to find a lot of opportunities to originate strong flows at the right pricing. You know, in particular, in the used segment, you know, you look at from a consumer perspective, the price of a new vehicle versus the price of a used vehicle has kind of the largest gap it's had in over a decade.

[Company Representative] (Ally Financial): Yeah, sure. Good morning, Moshe. Thank you for the question. Yeah, I mean, throughout the first half of 2019, we've had consistent origination flow at over 7.5% yields, that's in the context of a very volatile rate environment. In fact, our underlying benchmark rates have come down 80 to 90 basis points. You know, we're really pleased with the continued strength of our market position. We're number one in retail lending. We're continuing to find a lot of opportunities to originate strong flows at the right pricing. You know, in particular, in the used segment, you know, you look at from a consumer perspective, the price of a new vehicle versus the price of a used vehicle has kind of the largest gap it's had in over a decade.

Yes, I mean throughout the first half of 2019, we've had consistent origination slow at over 7.5% yields in that in the context of a very volatile rate environment. In fact, our underlying benchmark rates have come down 80 to 90 basis points. So we're really pleased with our continued strength of our market positions. We're number one in retail lending, we're continuing to find a lot of opportunities to originate strong flows at the right pricing.

In particular in the U.S segment.

You look at from a consumer perspective, the price of a new vehicle versus the price of a used vehicle has kind of the largest gap has had in over a decade. So we continue to see strong consumer demand for use continues to be very profitable for dealers and is profitable for us as well. So we aren't seeing any of that slowdown for us.

Jen: We continue to see strong consumer demand for used, continues to be very profitable for our dealers, and it's profitable for us as well. You know, we aren't seeing any of that slow down for us, even out of the gate here in Q3, as we've come through July, continuing to see really strong originations at good yields and returns. Now, keep in mind, as we go through the back half of 2019, we do have some seasonality. Q1 and Q2 tend to be our heavy used seasons, and then Q3, and especially into Q4, we tend to have more of a new vehicle season. You know, we would expect yields for full year to be in that 7 to 7.5% range.

[Company Representative] (Ally Financial): We continue to see strong consumer demand for used, continues to be very profitable for our dealers, and it's profitable for us as well. You know, we aren't seeing any of that slow down for us, even out of the gate here in Q3, as we've come through July, continuing to see really strong originations at good yields and returns. Now, keep in mind, as we go through the back half of 2019, we do have some seasonality. Q1 and Q2 tend to be our heavy used seasons, and then Q3, and especially into Q4, we tend to have more of a new vehicle season. You know, we would expect yields for full year to be in that 7 to 7.5% range.

Even out of the gate here in Q3 as we've come through July continuing to see really strong originations at.

Good yields and returns now keep in mind as we go through the back half of 2019, we do have some seasonality first and second quarters tend to be our heavy use just seasons, and then Q3 and especially into Q4, we tend to have more of a new new.

Vehicle season, So we would expect yields for full year to be in that 77 and half percent range and certainly like I said, we're really pleased with the dynamics. So far this year now keep in mind that should migrate our overall portfolio yield up.

Jen: Certainly, like I said, we're really pleased with the dynamics so far this year. Now, keep in mind, that should migrate our overall portfolio yield up. You know, 2017, we were at 5.80%. 2018, we're at 6.14%. In terms of our retail portfolio yield, we're at 6.58% now, and we will see that continue to climb up towards that 7% over time. Hopefully that gives you a bit of color. I think we're continuing to see very good progress here. You know, on the asset side, should continue to see yield expansion.

[Company Representative] (Ally Financial): Certainly, like I said, we're really pleased with the dynamics so far this year. Now, keep in mind, that should migrate our overall portfolio yield up. You know, 2017, we were at 5.80%. 2018, we're at 6.14%. In terms of our retail portfolio yield, we're at 6.58% now, and we will see that continue to climb up towards that 7% over time. Hopefully that gives you a bit of color. I think we're continuing to see very good progress here. You know, on the asset side, should continue to see yield expansion.

2017, we were at 580.

2018, we're at 614 in terms on our retail portfolio yields were at 658, now and we will see that continue to climb up towards that 7% overtime.

So hopefully that gives you a bit of color I I think we're.

Continuing to see very good progress year end.

On the asset side should continue to see yield expansion.

Moshe Orenbuch: Great, thanks.

Moshe Orenbuch: Great, thanks. Maybe.

Great. Thanks, and maybe thank you JB. Thanks, JB you mentioned the payments acquisition could you kind of flesh that out a little bit and tell us what how you envision the bank offering kind of.

Jen: Thank you.

Moshe Orenbuch: Maybe. Yeah, thanks. JB, you mentioned the payments acquisition. Could you know, kind of flesh that out a little bit and tell us, you know, what, you know, how you envision the bank offering kind of developing over the next couple of years, and you know, what other things you might be thinking in that respect?

[Company Representative] (Ally Financial): Thank you.

Moshe Orenbuch: Yeah. JB, you mentioned the payments acquisition. Could you know, kind of flesh that out a little bit and tell us, you know, what, you know, how you envision the bank offering kind of developing over the next couple of years, and you know, what other things you might be thinking in that respect?

Developing over the next couple of years and what other things you might be thinking in that respect.

Jeff Brown: Moshe, thanks for the question. You know, I think we look at this as acquiring an important capability to have that fit well within Ally. I think, obviously, the existing business has been largely focused in the healthcare sector or sector. I think as we think about applicability, it's broader than just that when we think of our other lines of businesses in other areas. Clearly, consumers today are looking for alternative payment forms. We've been interested in the unsecured space. This was an ability to acquire a really nice platform at a relatively inexpensive price. We'll seek to grow it from there. Doesn't come with any balance sheet. Think about this as really a capability acquisition. We look forward to scaling it up from here.

Yeah. So.

Hi, Thanks for the question.

You know I think we look at this is.

Acquiring.

An important capability to have.

Fit well within ally I think.

Obviously, the existing business has been largely focused in the healthcare sector or sector and I think as we think about applicability.

It's broader than just that.

When we think of our other lines of businesses and other areas, but clearly consumers today are looking for alternative payment forms we've been interested and the unsecured space and this was an ability to acquire a really nice platform at a relatively inexpensive price and we will seek to grow it from there doesnt come with any balance sheet think about this is really a.

It capability acquisition, and we look forward to scaling it up from there.

Okay. Thank you.

Moshe Orenbuch: Okay. Thank you.

Jeff Brown: Thanks.

Thanks.

Thank you. Our next question comes from Arren Cyganovich from Citi. Your line is now open.

Operator: Thank you. Our next question is from Arren Cyganovich from Citi. Your line is now open.

Kevin LaFlamme: Thanks. I was just wondering if you could talk about the, on slide 21, you have your rate, shock and ramp. It's still showing somewhat asset sensitive, which is a little bit surprising. Do you see any potential for benefit as the deposits come down? Maybe just talk about what's included in that, in those shock tables.

Arren Cyganovich: Thanks. I was just wondering if you could talk about the, on slide 21, you have your rate, shock and ramp. It's still showing somewhat asset sensitive, which is a little bit surprising. Do you see any potential for benefit as the deposits come down? Maybe just talk about what's included in that, in those shock tables.

Thanks, I was just wondering if you could talk about the.

On Slide 21, you have your rig.

Shock and ramp.

It's still showing somewhat asset sensitive.

A little bit surprising do you see any potential for.

Benefit as the deposits come down.

Maybe just talk about what's what's included in that and in the shop tables.

Jen: Yeah, sure. And as we've been discussing for some time now, you know, we're relatively neutral from an interest rate risk position. I mean, you'll see in that table some, you know, slight asset sensitivity. Keep in mind, we already have, you know, 4 cuts built into that forward. It's, you know, pretty aggressive forecast there. Overall, we are managing the balance sheet to be relatively neutral to interest rate risk. You see that in terms of when we cut our plan a year ago, we were expecting 2 hikes. Now we've got 3, maybe even 4 eases in our forecast. In spite of that, our NIM has remained relatively stable, and we're still expecting strong NII growth rates throughout the back half of this year.

[Company Representative] (Ally Financial): Yeah, sure. And as we've been discussing for some time now, you know, we're relatively neutral from an interest rate risk position. I mean, you'll see in that table some, you know, slight asset sensitivity. Keep in mind, we already have, you know, 4 cuts built into that forward. It's, you know, pretty aggressive forecast there. Overall, we are managing the balance sheet to be relatively neutral to interest rate risk. You see that in terms of when we cut our plan a year ago, we were expecting 2 hikes. Now we've got 3, maybe even 4 eases in our forecast. In spite of that, our NIM has remained relatively stable, and we're still expecting strong NII growth rates throughout the back half of this year.

Yes sure.

And as we've been discussing for some time now we are relatively neutral from an interest rate risk position I mean, you'll see in that table some.

Slight asset sensitivity and keep in mind, we already have.

For cost built into that forward so its.

Pretty pretty aggressive forecast there, but overall, we are managing the balance sheet to be relatively neutral to interest rate risk you see that terms of when we cut our plan a year ago, we are expecting to hike.

Now we've got three maybe even four eases in our forecast and in spite of that our our NIM has remained relatively stable and we're still expecting strong eni growth throughout the back half.

Jen: Now, specifically on deposits, certainly, we've led the market in terms of repricing deposits down ahead of any Fed action. Should we see Fed rate cuts in July or beyond, we would expect to have an opportunity to continue to rationalize pricing. Now, it's not just an automatic reduction. We do keep in mind our appetite for deposits as well as the competitive landscape. We feel like we are very well positioned to continue to optimize deposit pricing going forward.

[Company Representative] (Ally Financial): Now, specifically on deposits, certainly, we've led the market in terms of repricing deposits down ahead of any Fed action. Should we see Fed rate cuts in July or beyond, we would expect to have an opportunity to continue to rationalize pricing. Now, it's not just an automatic reduction. We do keep in mind our appetite for deposits as well as the competitive landscape. We feel like we are very well positioned to continue to optimize deposit pricing going forward.

Of this year now specifically on deposits certainly we've led the market in terms of repricing deposits down ahead of any fed action should we see fed rate cuts in July or or beyond we would expect to have an opportunity to continue to rationalize pricing now it's not just an automatic reduction we do take in mind, our appetite keep in mind, our appetite for deposits as well as the competitive landscape, but we feel like we are very well positioned to continue to optimize deposit pricing going forward.

Thanks, and just as a follow up.

Kevin LaFlamme: Thanks. Just as a follow-up, I was looking, I guess, at slide 8, the retail deposit customer growth. It really seems like it's kind of expanded pretty rapidly over the past few quarters. Is there anything you're doing differently there? Maybe you've got a new marketing strategy, or, you know, what's driving that kind of increase that you've had over the past few quarters?

Arren Cyganovich: Thanks. Just as a follow-up, I was looking, I guess, at slide 8, the retail deposit customer growth. It really seems like it's kind of expanded pretty rapidly over the past few quarters. Is there anything you're doing differently there? Maybe you've got a new marketing strategy, or, you know, what's driving that kind of increase that you've had over the past few quarters?

I was looking I guess, it's slide eight the retail deposit customer growth.

It really seems like it's kind of expanded pretty rapidly over the past few quarters is there anything you're doing differently there.

You got a new marketing strategy or what's driving that kind of increase that you've had over the past few quarters.

Jen: Yeah, and I would say no large pivot strategically. I think part of our success, a main reason for our success is the consistency that we've had in this space in terms of offering value to our customers over the last decade. You know, we do see over historic data that once yields get above 2%, you typically wake customers up to the value, and this year, as we've been above 2%, industry growth rate has increased about 1% or so. We've seen some elevated growth from an account perspective. You know, we're always investing in technology and brand, and I think you will see improvements in both of those this year as well as continuously. It's never one thing.

[Company Representative] (Ally Financial): Yeah, and I would say no large pivot strategically. I think part of our success, a main reason for our success is the consistency that we've had in this space in terms of offering value to our customers over the last decade. You know, we do see over historic data that once yields get above 2%, you typically wake customers up to the value, and this year, as we've been above 2%, industry growth rate has increased about 1% or so. We've seen some elevated growth from an account perspective. You know, we're always investing in technology and brand, and I think you will see improvements in both of those this year as well as continuously. It's never one thing.

Yeah, and I would say no large pivot strategically I think part of our success. Our main reason for our success is the consistency that we've had in this space in terms of offering value to our customers over the last decade.

You know, we do see over here.

Historic data that one.

Yields get above 2%, you typically weak customers up to the value and in this year as we've been above 2% industry growth rate has increased about a percent or so we've seen some elevated growth from an account perspective, and we're always investing in technology and brand and I think you will see improvements in both of those this year as well as continuously so it's never one thing.

Jen: We think we're well positioned from a price perspective relative to kind of the $5, 4 or 5 trillion getting paid less than 50 basis points, but also, continuing that investment in industry-leading technology and brand.

[Company Representative] (Ally Financial): We think we're well positioned from a price perspective relative to kind of the $5, 4 or 5 trillion getting paid less than 50 basis points, but also, continuing that investment in industry-leading technology and brand.

We think we're well positioned from a price perspective relative to kind of the five four or five trillion dollars getting paid less than 50 basis points, but also continuing that investment in industry, leading technology and brand.

Kevin Barker: Great. Thank you.

Arren Cyganovich: Great. Thank you.

Great. Thank you.

Jen: Thank you, Arren.

[Company Representative] (Ally Financial): Thank you, Arren.

Thank you Erin.

Thank you. Our next question is from Bill Karachi from Nomura. Your line is now open.

Operator: Thank you. Our next question is from Bill Carcache from Nomura. Your line is now open.

Thank you good morning, John can you give some additional color around how high use originations can grow as a percentage of the total and then perhaps how much of the pricing tailwind is coming from the growing mix shift towards more profitable use business.

Bill Carcache: Thank you. Good morning. Jen, can you give some additional color around how high used originations can grow as a percentage of the total? Perhaps how much of the pricing tailwind is coming from the growing mix shift towards the more profitable used business?

Yeah sure good morning, Bill and thank you for the question.

Jen: Yeah, sure. Good morning, Bill, and thank you for the question. You know, it's a good one in terms of that percent used. We never went out with a target in terms of what mix we were driving towards, and you dial back a couple of years ago, we were maybe a 30% used. Today, we're 50% to 55% used. I think what's so unique about our model is that we can adapt to changes in the industry dynamics. You know, as I mentioned just a minute ago, used is a really strong market right now. It's 2.5 times the size of new. We see strong demand there from a customer perspective, strong dealer demand.

[Company Representative] (Ally Financial): Yeah, sure. Good morning, Bill, and thank you for the question. You know, it's a good one in terms of that percent used. We never went out with a target in terms of what mix we were driving towards, and you dial back a couple of years ago, we were maybe a 30% used. Today, we're 50% to 55% used. I think what's so unique about our model is that we can adapt to changes in the industry dynamics. You know, as I mentioned just a minute ago, used is a really strong market right now. It's 2.5 times the size of new. We see strong demand there from a customer perspective, strong dealer demand.

It's it's a good one in terms of that percent use we never went out with a target in terms of what mix, we are driving towards and you dial back a couple of years ago. We were maybe 30% use today were 50% to 55% you that I think what's so unique about our model is that we can adapt to changes in the industry dynamics and.

As I mentioned, just a minute ago used is a really strong market right now, it's two and a half times the size of new.

We see strong demand there from a customer perspective strong dealer demand and so to the extent there's opportunities there and we can originate solid flows at the right risk adjusted yields will continue to grow in that space, but we don't have any particular target around that.

Jen: To the extent there's opportunities there, and we can originate solid flows at the right risk-adjusted yields, we'll continue to grow in that space, but we don't have any particular target around that. You know, relative to yield expansion, you know, we've priced in kind of 100% of the underlying benchmark rate increases at this time, and we've continued to maintain that even in spite of rates coming down. I'd say that's largely just reflective of our strong market position. I wouldn't say that's largely because of used, although the mix shift towards used is certainly helping. The vast majority of our yield expansion is just because the entire business is working well, and we've been able to garner the right pricing across new, used, and all the different name plates that we originate against.

[Company Representative] (Ally Financial): To the extent there's opportunities there, and we can originate solid flows at the right risk-adjusted yields, we'll continue to grow in that space, but we don't have any particular target around that. You know, relative to yield expansion, you know, we've priced in kind of 100% of the underlying benchmark rate increases at this time, and we've continued to maintain that even in spite of rates coming down. I'd say that's largely just reflective of our strong market position. I wouldn't say that's largely because of used, although the mix shift towards used is certainly helping. The vast majority of our yield expansion is just because the entire business is working well, and we've been able to garner the right pricing across new, used, and all the different name plates that we originate against.

Yes relative to yield expansion weve priced it in kind of 100% of the underlying benchmark rate increases at this time.

And we've continued to maintain that even in spite of rates coming down and I'd say, that's largely just reflective of our strong market position I wouldn't say, that's largely because of use although the the mix shift towards use is certainly helping.

Vast majority of our yield expansion is just because the entire businesses is working well and we've been able to garner the right pricing across new used and all the different nameplates that we originate against.

Got it thanks, John that's helpful and separately I have one for GB.

Bill Carcache: Got it. Thanks, Jen. That's helpful. Separately, I have one for JB.

Jen: Sure.

Jeff Brown: Sure.

Bill Carcache: We've been engaging with investors in some healthy bull-bear debate discussions on Ally this quarter, I was hoping you could comment on what we're hearing from both sides. In one camp, there, you know, the bulls that argue that you guys are growing tangible book value at an impressive, roughly 10% pace, and your tangible book value per share is growing even faster than that, in part because you trade below tangible book and your buybacks are accretive. In the other camp, the bears are arguing that you guys generate the lowest ROTCE among financials, you're not able to cover your cost of capital, and that you shouldn't be a standalone company, but belong inside of a bank with a better funding profile that would augment your returns. Could you speak to those points?

Weve been engaging with investors and some healthy bull bear debate discussions on ally this quarter and I was hoping you could comment on what we're hearing from both sides and one count there. The balls that argue that you guys are growing tangible book value at an impressive roughly 10% pace and your tangible book value per share is growing even faster than that in part because you trade below tangible book and your buybacks are accretive.

And then in the other captive bears, arguing that you guys generate the lowest our otcs among financials, you're not able to cover your cost of capital and that you shouldn't be a stand alone company, but belong inside of a bank with a better funding profile that would augment your returns.

Could you speak to those points.

Jeff Brown: Yeah. I mean, Bill, I think the bear case is pretty extreme in our minds. I mean, when I look across what we're delivering today in new assets that are coming on balance sheet, we are more than exceeding our cost of capital. I mean, this has been largely a restructuring story for the past several years, where we've kept our heads down, working extremely hard to improve financial performance, knock off some of the old legacy regulatory issues that kind of hindered performance, and now you're starting to see the benefits of the past couple of years. We haven't had those constraints on us. Do I see this institution belonging inside of somebody else? Absolutely not. I think we've got one of the strongest brands in business today. I'd say that even extends beyond banking.

Yes, I mean.

Bill I think the bear cases.

As pretty extreme in our minds I mean, when I look across what were delivering today and new assets that are coming on balance sheet, we are more than exceeding our cost of capital I mean this is Dan.

Largely of restructuring story for the past several years, where we've kept our heads down working extremely hard to improve financial performance knock off some of the old legacy regulatory issues like kind of hindered performance and now you're starting to see the benefits of the past couple of years, we havent had those constraints on us So do I see this institution belonging inside of somebody else absolutely not I think we've got one of the strongest brands.

And business today, I'd say that even extends beyond banking, we planted a very strong flights and being a leader and the world of digital banking and utilizing the great brands, great technologies to grow customers to grow deposit flows and I think that positions us exceptionally strong.

Jeff Brown: We've planted a very strong flag in being a leader in the world of digital banking and utilizing a great brand, great technologies to grow customers, to grow deposit flows. I think that positions us exceptionally strong. I think Jen obviously covered a number of the points around, you know, when we look at where new assets are coming on, there's an embedded tailwind. I mean, I think, look, the, relative to new assets that are coming on today versus portfolio yield, it's a 100 basis points difference. Through time, that's going to migrate up. While you're sitting here listening to bank after bank talk about contraction in asset yields, talk about substantial contraction in NIM, you're not seeing it at Ally. You're seeing us actually flat with an outlook of seeing that increase. I think the bear case is way overdone.

I think Jan obviously covered a number of the points around when we look at where new assets are coming on there's an embedded tailwind I mean, I think look relative to new assets that are coming on today versus portfolio yield.

It's a 100 basis points difference in three time, that's going to migrate up so while you're sitting here listening to bank after bag talk about.

Contraction in asset yields talk about substantial contraction in NIM youre, not seeing that ally youre seeing us actually flat with an outlook of seeing that increase so I think the bear case is way over Don I think we've built a phenomenal institution here, we continue to be very thoughtful in the way we deploy capital.

Jeff Brown: I think we've built a phenomenal institution here. We continue to be very thoughtful in the way we deploy capital. We are very prudent. Anytime we get asked the question about, do you guys think towards M&A in the future? You know, it starts with a focus on, first and foremost, anything we have to do has to be right and compelling for our customer. Number two, we have to believe that it can de-deliver a long-term appropriate return for our shareholders. For us, that's the focus today. I think on the bull case, I'm all about it. I mean, Jen closed her comments with that stat 20% increase in tangible book value per share relative to a year ago. We have been very disciplined in guarding our shareholders' capital, and that will be the philosophy going forward. We're all bulled up.

We are very prudent anytime we get asked the question about do you guys think towards M&A in the future you know it starts with a focus on first and foremost anything we have to do has to be right and compelling for our customer and number two we have to believe let it come to the liver a long term appropriate return for our shareholders and so for US. That's the focus today I think on the Bull case I'm all about it I mean, Jan close to her comments with.

That stat on.

28% increase in tangible book value per share relative to a year ago, we had been very disciplined and guardian, our shareholders' capital and that will be the philosophy going forward. So.

We're all bold up.

Jeff Brown: You know, we feel great about the direction of the company, we feel great about customer growth, and we feel really content about the way this place can generate a sustained return through time. You know, for us, as a management team, I think it's you know, foot on the gas and keep growing in a very thoughtful, prudent manner.

We we feel great about the direction of the company, we feel great about customer growth and we feel really content about the way this place can generate.

Sustained return through time so.

For us as a management team I think its foot on the gas and keep growing in a very thoughtful prudent manner.

Eric Wasserstrom: That's super helpful, JB. Thank you for taking my questions.

Bill Carcache: That's super helpful, JB. Thank you for taking my questions.

Super helpful. Jamie Thank you for taking my questions.

Jeff Brown: You got it. Thank you.

Got it thank you.

Operator: Thank you. Our next question's from Betsy Graseck from Morgan Stanley. Your line is now open.

Thank you. Our next question is from Betsy Graseck from Morgan Stanley . Your line is now open.

Jeff Brown: Betsy, we can't hear you. Are you on mute?

I'd say, we can't hear you are you on mute.

Pardon me Betsy your line is open.

Operator: Pardon me, Betsy, your line is open. Pardon me, Betsy, please check your mute button.

Pardon me Betsy please check your mute button.

Yes.

Let's move to the next Q will get messy back in there.

Jeff Brown: Let's move to the next queue. We'll get Betsy back in there.

Thank you. Our next question is from Kevin Barker from Piper Jaffray. Your line is now open good morning.

Operator: Thank you. Our next question's from Kevin Barker from Piper Jaffray. Your line is now open.

Kevin Barker: Good morning.

Jen: Good morning, Kevin.

[Company Representative] (Ally Financial): Good morning, Kevin.

Good morning, Kevin.

Jeff Brown: Kevin.

Kevin Barker: Good morning. I just want to follow up on the Health Credit Services acquisition. Could you help us understand the, you know, what you're thinking on the capabilities of this platform, and how you see it developing, whether it's products, or and whether you look at it as a, you know, a originate to sell model or originate to put on balance sheet, and just how you're thinking about that acquisition going forward?

So I just one follow up on the health credit solutions acquisition.

Could you help us understand the.

What you're thinking on the capabilities of.

This platform and how you see it developing whether its products.

Oh, and whether you look at it as a you know.

Originate to sell model or originate put on balance sheet, and and just how you're thinking about that.

That acquisition going forward.

Sure Kevin and thank you for the question, Yes, I mean from a capability perspective. This is a point of sale lending capability, we see very high utility value for our customers as they're looking for efficient.

Jen: Sure, Kevin, thank you for the question. Yeah, I mean, from a capability perspective, this is a point-of-sale lending capability. We see very high utility value for our customers as they're looking for efficient financing for purchases. It's one of the highest growth consumer asset classes across the industry right now. It's growing at 18 to 20%+ percent. So we see this as offering a really great value proposition to end consumers. For us, it gets us a new asset class. We intend to originate and invest and hold these on our balance sheet. This is accretive to ROA, accretive to ROE, typically very high FICO customer in the, you know, 725, over 700 range. It's also short duration.

[Company Representative] (Ally Financial): Sure, Kevin, thank you for the question. Yeah, I mean, from a capability perspective, this is a point-of-sale lending capability. We see very high utility value for our customers as they're looking for efficient financing for purchases. It's one of the highest growth consumer asset classes across the industry right now. It's growing at 18 to 20%+ percent. So we see this as offering a really great value proposition to end consumers. For us, it gets us a new asset class. We intend to originate and invest and hold these on our balance sheet. This is accretive to ROA, accretive to ROE, typically very high FICO customer in the, you know, 725, over 700 range. It's also short duration.

Financing for purchases and it's it's one of the highest growth consumer asset classes across the industry right now is growing at 18 to 20 plus percent.

And so we see this as.

Offering a really great value proposition to end consumers.

For.

It gets us a new asset class, we intend to originate and.

And invested in holdings on our balance sheet and this is accretive to our away accretive to our we typically very high FICO customer in those 725 over 700 range and it's also short duration. So we see this as just that.

Jen: We see this as just, you know, not only a terrific capability for our customer, but also an opportunity for us to grow our balance sheet in an ROE accretive manner.

[Company Representative] (Ally Financial): We see this as just, you know, not only a terrific capability for our customer, but also an opportunity for us to grow our balance sheet in an ROE accretive manner.

Not only a terrific capability for our customers, but also an opportunity for us to grow our balance sheet and our we accretive manner.

Kevin Barker: Okay. Can you size up, you know, the potential revenue opportunity or EBITDA, or even maybe just like loan balances you expect to be generated off of this platform, maybe in the next year or, you know, over the next five years, and how you're thinking about it? I'm just trying to understand, you know, this versus the auto business and how it fits in overall on, from a risk-adjusted perspective.

Okay can you size up the potential revenue opportunity or.

EBITDA or even maybe just like loan balances you expect.

It would be generated off of this platform maybe into next year.

Over the next five years, how you're thinking about it.

I'm just trying to understand this versus the auto business and how it fits in overall.

From a risk adjusted perspective.

Jen: Yeah, I know, Kevin, I appreciate the question. I mean, we are very early. We haven't even closed the transaction yet. As JB mentioned, we're gonna be very thoughtful in terms of getting the operating platform right, making sure we deploy capital when we can get accretive ROA and ROE. You know, at this point, I'd say, you know, ROE ranges in the 20+%, relative to where we are today. It's accretive, I think more to come in terms of the specific financial forecast for you, just as soon as we close and have more details in terms of the ramp up. Appreciate the question.

[Company Representative] (Ally Financial): Yeah, I know, Kevin, I appreciate the question. I mean, we are very early. We haven't even closed the transaction yet. As JB mentioned, we're gonna be very thoughtful in terms of getting the operating platform right, making sure we deploy capital when we can get accretive ROA and ROE. You know, at this point, I'd say, you know, ROE ranges in the 20+%, relative to where we are today. It's accretive, I think more to come in terms of the specific financial forecast for you, just as soon as we close and have more details in terms of the ramp up. Appreciate the question.

Yeah, I know Kevin I. Appreciate the question I mean, we are very early we haven't even closed the transaction yet.

And as JB mentioned, we're going to be very thoughtful in terms of getting the operating platform right, making sure we deploy capital when we can get accretive our ROA and ROE, we and so you know at this point I'd say, yes are we ranges in the 20 plus percent.

You know relative to where we are today, it's accretive I think I think more to come in terms of the specific financial forecast for you just as we as soon as we close and have more details in terms of the ramp up.

I appreciate the question Okay. Thank you. Thank you. Thank you Kevin.

Kevin Barker: Okay. Thank you, Betsy. Thank you.

Kevin Barker: Okay. Thank you, Jen.

Jen: Thank you, Kevin.

[Company Representative] (Ally Financial): Thank you, Kevin.

Thank you.

Operator: Thank you. Our next question is from Eric Wasserstrom from UBS. Your line is now open.

Our next question is from Eric Wasserstrom from U.B.S. Your line is now open.

Eric Wasserstrom: Thanks very much, good morning.

Thanks, very much and good morning.

Jen: Morning, Eric.

[Company Representative] (Ally Financial): Morning, Eric.

Good morning, Eric.

Jeff Brown: Morning, Eric.

Maybe just to follow up on.

Eric Wasserstrom: You know, maybe just to follow up on Bill's question for a moment. You know, I think the performance over the past several quarters has really done a lot to undermine the bear argument. I imagine that argument is gonna morph today into a discussion about peak earnings and peak profitability, with the view being, you know, credit obviously continues to improve, yields also continue to improve, you're pretty, you know, you're pretty efficient on capital, you're generating very strong operating leverage. Therefore, this is as good as it gets. How would you respond to that particular view, which I imagine will probably be the emerging discussion after the sprint?

On on bills question for a moment.

Yes, I think the the performance over the past several quarters has really done a lot to to undermine the bear argument. So I imagine that that argument is going to morph today.

Into a into a discussion about about peak earnings in peak profitability.

With the the view being.

Credit obviously continues to improve yields also continued to improve.

You are pretty.

You know you're pretty efficient on capital Youre generating very strong operating leverage and therefore this is as good as it gets so how would you respond to that to that particular view, which I imagine will probably be the BT immersion discussion after the sprint.

Yeah, and Eric we appreciate the bullish summary that you just provided but you know a couple of things I'd point out I mean, you talked about assets.

Jen: Yeah, Eric, we appreciate the bullish summary that you just provided. You know, a couple of things that I'd point out. I mean, you talked about assets, asset yield expansion, even in spite of rates, is going to continue over the next 2 years as we migrate our auto portfolio yield up over 7% to new origination yields. We've got this natural tailwind in terms of yield expansion. You know, on the deposit side, we've got a large, liquid OSA book, and as we see some potential eases on the horizon, we should eventually be able to reprice down the liability side of the balance sheet as well. That's not even considering the kind of $3 billion-plus we have in unsecured that's rolling down.

[Company Representative] (Ally Financial): Yeah, Eric, we appreciate the bullish summary that you just provided. You know, a couple of things that I'd point out. I mean, you talked about assets, asset yield expansion, even in spite of rates, is going to continue over the next 2 years as we migrate our auto portfolio yield up over 7% to new origination yields. We've got this natural tailwind in terms of yield expansion. You know, on the deposit side, we've got a large, liquid OSA book, and as we see some potential eases on the horizon, we should eventually be able to reprice down the liability side of the balance sheet as well. That's not even considering the kind of $3 billion-plus we have in unsecured that's rolling down.

But acid yield expansion even in spite of rates is going to continue over the next two years as we migrate our auto portfolio yield up over 7% to new origination yields and so we've got this natural tailwind in terms of yield expansion on the deposit side, we've got a large liquid as they book and as we see some potential uses on the horizon, we should eventually be able to reprice down the liability side of the balance sheet as well and that's not even considering considering the kind of 3 billion plus we have an unsecured that's rolling down. So you know the way that we see pricing on the asset and the liability side, we think positions us very well over the next you know two plus years here.

Jen: You know, the way that we see pricing on the asset and the liability side, we think positions us very well over the next, you know, two plus years here. From a strategic position, we are a digital bank, and we think that positions us extremely well for growth across all of our businesses. If you think about trends across customers, how they purchase financial products, how they interact with their banks, we are unencumbered by, you know, complicated and expensive infrastructure, brick and mortar, and kind of the social issues attached to migrating towards a digital platform. We, we feel like we're in a great place, not only from a financial perspective, but also a strategic perspective, being predominantly digital.

[Company Representative] (Ally Financial): You know, the way that we see pricing on the asset and the liability side, we think positions us very well over the next, you know, two plus years here. From a strategic position, we are a digital bank, and we think that positions us extremely well for growth across all of our businesses. If you think about trends across customers, how they purchase financial products, how they interact with their banks, we are unencumbered by, you know, complicated and expensive infrastructure, brick and mortar, and kind of the social issues attached to migrating towards a digital platform. We, we feel like we're in a great place, not only from a financial perspective, but also a strategic perspective, being predominantly digital.

And then just from a strategic position we are in digital bank, and we think that position us extremely well for growth across all of our businesses. If you think about trends across customers, how they how they purchase financial products, how they interact with their banks, we are unencumbered by complicated and expensive infrastructure brick and mortar and kind of the social issues attached to.

Migrating towards a digital platform. So we feel like we're in a great place not only from a financial perspective, but also a strategic perspective being predominantly digital and as we continue to be able to grow out capital light businesses Weve invested in Alpinvest, which is our only accretive we're seeing great momentum there we've got on the auto side, a smart auction platform that's.

Jen: As we continue to be able to grow out, capital-like businesses, we've invested in Ally Invest, which is ROE accretive, and we're seeing great momentum there. We've got, on the auto side, a SmartAuction platform that's, you know, fee generating, and we have some growth opportunities there as well, and then continuing to build out capabilities like HCS that are ultimately accretive to ROA and ROE. You know, we feel really, really good about our positioning on all fronts.

[Company Representative] (Ally Financial): As we continue to be able to grow out, capital-like businesses, we've invested in Ally Invest, which is ROE accretive, and we're seeing great momentum there. We've got, on the auto side, a SmartAuction platform that's, you know, fee generating, and we have some growth opportunities there as well, and then continuing to build out capabilities like HCS that are ultimately accretive to ROA and ROE. You know, we feel really, really good about our positioning on all fronts.

Fee generating and leave we have some growth opportunities there as well and then continuing to build out capabilities like HTS.

That are ultimately accretive to our away in our elite.

So we feel really really good about our positioning on all fronts.

Great. Thanks, John and if I can just have one follow up.

Eric Wasserstrom: Great. Thanks, Jen. If I can just have one follow-up.

Jen: Sure.

[Company Representative] (Ally Financial): Sure.

Eric Wasserstrom: The, the next phase of your capital return plan will obviously include the transition to the CECL accounting standard. Should we think about this upcoming pace of capital return as effectively a sustainable one? Or is this really one that, you know, takes some of these recent benefits, particularly around the margin expansion, and but that the future may look somewhat different than this?

The next phase of your capital return plan will obviously include the the transition to.

To the seasonal accounting standard.

So should we think about.

This upcoming piece of.

Of capital return as.

Effectively a sustainable one or is this really one that you know take some of these recent benefits, particularly around the margin expansion and.

But that the the future may look somewhat different than than this.

Yeah no. It. It's a question we get frequently I mean, the way that we're looking at seasonal as you know it will have a material impact and we'll be coming out with more details around the range of impact shortly.

Jen: Yeah, you know, it's a question we get frequently. I mean, the way that we're looking at CECL is, you know, it will have a material impact, and we'll be coming out with more details around the range of impact shortly. But if you think about the capital implications, we can phase it in over three years, which is essentially kind of a 25% over four year phase in. Due to the phase in, we think we'll be able to absorb that kind of in our normal capital allocation, capital management processes. We're not expecting any major, you know, any strategic changes to how we're thinking about capital deployment at this time. We think it's absorbable.

[Company Representative] (Ally Financial): Yeah, you know, it's a question we get frequently. I mean, the way that we're looking at CECL is, you know, it will have a material impact, and we'll be coming out with more details around the range of impact shortly. But if you think about the capital implications, we can phase it in over three years, which is essentially kind of a 25% over four year phase in. Due to the phase in, we think we'll be able to absorb that kind of in our normal capital allocation, capital management processes. We're not expecting any major, you know, any strategic changes to how we're thinking about capital deployment at this time. We think it's absorbable.

But if you think about the capital implications, we can phase in over three years, which is essentially kind of a 25% over four years.

Saizen and due to that phase and we think we'll be able to absorb that kind of in our normal capital allocation capital management processes, we're not expecting any majors.

Any strategic changes to how were thinking about capital deployment at this time, we think its absorbable.

Okay. Thanks very much.

Eric Wasserstrom: Thanks very much.

Jen: Thank you. Appreciate the question.

[Company Representative] (Ally Financial): Thank you. Appreciate the question.

Thank you appreciate the question.

Thank you. Our next question is from Betsy Graseck from Morgan Stanley . Your line is now open.

Operator: Thank you. Our next question's from Betsy Graseck from Morgan Stanley. Your line is now open.

Betsy Graseck: Hi, can you hear me?

Hi can you hear me.

Eric Wasserstrom: We got you this time.

We got you that's Oh go ahead.

Betsy Graseck: Yeah.

Eric Wasserstrom: Good morning.

Betsy Graseck: Oh, good. Okay, thanks. Second time's a charm. All right, a couple questions here. One, on the loan growth, generated, you know, really nice loan growth this quarter. Wanted to understand if that pace is something that you think you can continue to fund, and do you think it would come from, you know, kind of pulling down on the securities portfolio and seeing more of a mix shift, you know, back into auto? Are you suggesting that, you know, perhaps the target capital ratio has room to come down a little bit?

Okay. Thanks.

Second Time's a charm huh.

Alright, so a couple of questions here one on the loan growth generated in a really nice loan growth. This quarter wanted to understand if that pace is something that you think you can continue to fund and do you think it would come from you know kind of pulling down on the securities portfolio and see more of a mix shift it back into auto.

Or is it are you.

Suggesting that perhaps the target capital ratio has room to come down a little bit.

Yeah, I mean first set in terms of loan growth that then I. Appreciate the question I mean, we're always going to be opportunistic in how we deploy capital across our balance sheet and you had mentioned a couple of times. This morning, we are seeing good originations loads and yields and returns on the auto side and so to the extent that will continue we'll be growing and retail auto.

Jen: Yeah, I mean, first, in terms of loan growth, Betsy Graseck, and appreciate the question, I mean, we're always going to be opportunistic in how we deploy capital across our balance sheet. You know, I've mentioned a couple of times this morning, we are seeing good origination flows and yields and returns on the auto side. To the extent that'll continue, we'll be growing in retail auto. Continuing to grow in mortgage, as we talked about, great progress there. Corporate finance continues kind of steady as you go at that 15, 20% growth rate. No changes there. I mean, I think with respect to securities, it'll depend a bit on the rate curve, both the level and the shape of the yield curve.

[Company Representative] (Ally Financial): Yeah, I mean, first, in terms of loan growth, Betsy Graseck, and appreciate the question, I mean, we're always going to be opportunistic in how we deploy capital across our balance sheet. You know, I've mentioned a couple of times this morning, we are seeing good origination flows and yields and returns on the auto side. To the extent that'll continue, we'll be growing in retail auto. Continuing to grow in mortgage, as we talked about, great progress there. Corporate finance continues kind of steady as you go at that 15, 20% growth rate. No changes there. I mean, I think with respect to securities, it'll depend a bit on the rate curve, both the level and the shape of the yield curve.

Continuing to grow and mortgage as we talked about great progress there in corporate finance continues kind of steady as you go at that 15% to 20% growth rate. So no changes there I mean, I think with respect to security is it'll depend a bit on the rate curve, both the level and the shape of the yield curve and right now we're seeing opportunities to grow at accretive yields but should that change will be opportunistic in kind of slow down and reallocate to the loan side over time, we do want to kind of close the gap on our securities portfolio. We think we're a bit under invested there and we'll look to migrate kind of percent of our portfolio from 17% to 20%, but we're not in any rush to do that like I said, we will be opportunistic and then you know on our 9% target around C. E T. One.

Jen: You know, right now we're seeing opportunities to grow at accretive yields. Should that change, we'll be opportunistic and kind of slow down and reallocate to the loan side. You know, over time, we do want to kind of close the gap on our securities portfolio. We think we're a bit underinvested there, and we'll look to migrate kind of percent of our portfolio from 17 to 20%. We're not in any rush to do that. Like I said, we'll be opportunistic. On our 9% target around CET1, you know, there hasn't been any major changes to our strategic positioning. We're not seeing any reason why we should change that 9%. You know, I will caveat that around a lot of potential changes on the horizon from a regulatory perspective.

[Company Representative] (Ally Financial): You know, right now we're seeing opportunities to grow at accretive yields. Should that change, we'll be opportunistic and kind of slow down and reallocate to the loan side. You know, over time, we do want to kind of close the gap on our securities portfolio. We think we're a bit underinvested there, and we'll look to migrate kind of percent of our portfolio from 17 to 20%. We're not in any rush to do that. Like I said, we'll be opportunistic. On our 9% target around CET1, you know, there hasn't been any major changes to our strategic positioning. We're not seeing any reason why we should change that 9%. You know, I will caveat that around a lot of potential changes on the horizon from a regulatory perspective.

There hasn't been any major changes to our strategic positioning we're not seeing any reason why we.

We should change that 9% I will caveat that around a lot of potential changes on the horizon from a regulatory perspective, we've got the STB enhanced Prudential standards, we should see some final rules coming out in the near future and should that change our positioning vis-a-vis that 9%.

Jen: We've got the FHC, enhanced prudential standards. We should see some final rules coming out in the near future. Should that change our positioning vis-a-vis that 9%? You know, that's a question that's outstanding. As we sit here today, we are really comfortable with that 9% CET1 target.

[Company Representative] (Ally Financial): We've got the FHC, enhanced prudential standards. We should see some final rules coming out in the near future. Should that change our positioning vis-a-vis that 9%? You know, that's a question that's outstanding. As we sit here today, we are really comfortable with that 9% CET1 target.

That's a question that's outstanding but as we sit here today, we are really comfortable with that 9% CTP target.

Betsy Graseck: Got it. All right. If the tailoring rule goes through, as, you know, currently proposed, does that impact how you think about capital?

Got it all right. So if the tailoring roll goes through.

As you know currently proposed does that impact how you think about capital.

Jen: Yeah, I mean, ultimately, it's a question up to our board of directors. You know, the FHC does suggest that, you know, if you, we build our capital target from the bottom up, that we don't have to hold quite as much in particular in a stress around our, you know, nine, eight, nine quarters of our capital actions. That could suggest that we have a lower starting point as we're establishing our target and goal framework. Ultimately, it's a question up to our board, and it'll be taken in the context of our strategic priorities and our risk profile going forward.

[Company Representative] (Ally Financial): Yeah, I mean, ultimately, it's a question up to our board of directors. You know, the FHC does suggest that, you know, if you, we build our capital target from the bottom up, that we don't have to hold quite as much in particular in a stress around our, you know, nine, eight, nine quarters of our capital actions. That could suggest that we have a lower starting point as we're establishing our target and goal framework. Ultimately, it's a question up to our board, and it'll be taken in the context of our strategic priorities and our risk profile going forward.

Yes, I mean ultimately at the question up to our board of Directors and you know the the STB does suggest that.

We build our capital target from the bottom up that we don't have to hold quite as much.

In particular in a stressed around EUR 98, nine quarters of our capital actions and so that could suggest that we have a lower starting point as we're establishing our target and gold framework, but ultimately it's a question up to our board and it will be taken in the context of our strategic priorities and our risk profile going forward.

Betsy Graseck: Okay. When we think about credit obviously doing extremely well, not only on, you know, the recoveries that you're getting, but also on delinquencies. I guess, a two-part question. One is, what do you think is going on with the consumer that the roll rates are so low and the delinquencies are staying, you know, down where they are? The second question is, how do you think about the outlook for net charge-offs for the full year? It feels like, you know, the 1.4% to 1.6% range is, you know, extraordinarily conservative.

Okay, and then when we think about credit credit, obviously doing extremely well not only on the recoveries that you're getting but also on delinquencies and.

I guess a two part question one is what do you think's going on with the consumer that to the roll rates are so low and the delinquencies are saying you know down where they are.

And then the second question is how do you think about the outlook for net charge offs for the full year feels like you know the 1416 range as you know extraordinarily conservative.

[laughter].

Jen: Yeah. First, on the consumer, you know, we are still seeing a really healthy consumer in the data, and that's, you know, look at consumer demand for autos, it's come down a bit in terms of new vehicle sales, but used continues to be really robust, and you see that reflected in the used vehicle prices that we've seen throughout Q2 here. On the demand side, continues to be positive, showing up in our flows, showing up in our yields, and we're seeing a really healthy consumer on that front. You know, from a credit perspective, the flow to loss has a lot to do with the mix shift toward used, where we tend to see higher frequency of, but lower severity. A bit of that is unrelated to kind of consumer health.

[Company Representative] (Ally Financial): Yeah. First, on the consumer, you know, we are still seeing a really healthy consumer in the data, and that's, you know, look at consumer demand for autos, it's come down a bit in terms of new vehicle sales, but used continues to be really robust, and you see that reflected in the used vehicle prices that we've seen throughout Q2 here. On the demand side, continues to be positive, showing up in our flows, showing up in our yields, and we're seeing a really healthy consumer on that front. You know, from a credit perspective, the flow to loss has a lot to do with the mix shift toward used, where we tend to see higher frequency of, but lower severity. A bit of that is unrelated to kind of consumer health.

Yes, so first on the consumer.

Yeah, we are still seeing really healthy consumer in the data and now you look at consumer demand for autos, it's come down a bit in terms of new vehicle sales type use continues to be really robust and you see that reflected in the used vehicle prices that weve seen throughout Q2 here. So on the demand side continues to be positive showing up in our flow is showing up in our yield.

And we're seeing a really healthy consumer on that front.

From a credit perspective.

The the flow to loss has a lot to deal with the mix shift toward used where we tend to see higher frequency of.

But lower severity and so a bit of that it is unrelated to kind of consumer health, it's more of a mix impact.

Jen: It's more of a mixed impact. Related to that, we've talked for some time now just around some of our collection strategies that have, you know, pushed out repo timing and have ballooned delinquencies a bit, but we don't see that flow to loss. We would expect that to continue, as I mentioned in my prepared remarks. You know, on net charge-offs, you know, certainly really pleased with Q1 and Q2 results. As we look to the back half of the year, you know, we've got this 3% to 5% decline in terms of used vehicle prices, that could materialize. I mean, if you just look at off-lease supply of vehicles, it will be at the highest point it's been in the history of the data.

[Company Representative] (Ally Financial): It's more of a mixed impact. Related to that, we've talked for some time now just around some of our collection strategies that have, you know, pushed out repo timing and have ballooned delinquencies a bit, but we don't see that flow to loss. We would expect that to continue, as I mentioned in my prepared remarks. You know, on net charge-offs, you know, certainly really pleased with Q1 and Q2 results. As we look to the back half of the year, you know, we've got this 3% to 5% decline in terms of used vehicle prices, that could materialize. I mean, if you just look at off-lease supply of vehicles, it will be at the highest point it's been in the history of the data.

And related to that we've talked for some time now just around some of our collection strategies that have.

Pushed out repo timing and have ballooned delinquencies event, but we don't see that flow to loss and we would expect that to continue as I mentioned in my prepared remarks.

Our net charge offs.

Certainly really pleased with first quarter and second quarter results as we look to the back half of the year and we've got this 3% to 5% decline in terms of used vehicle prices and.

That could that could materialize I mean, if you just look at off lease supply of vehicles and we will be at the highest point, it's been in the history of the data.

Jen: We could see a supply-side pressure on used vehicle prices, which could take up our net charge-offs in the back half of the year. That's what's embedded in our forecast today. Keep in mind, used vehicle prices can change pretty rapidly. You take Q1, the government shutdown, we saw almost an immediate reduction in terms of used vehicle prices. It's come back quickly. Used vehicle pricing can change fairly quickly. The supply and demand dynamics around off-lease vehicles would suggest that we would have some pressure in the back half of this year.

[Company Representative] (Ally Financial): We could see a supply-side pressure on used vehicle prices, which could take up our net charge-offs in the back half of the year. That's what's embedded in our forecast today. Keep in mind, used vehicle prices can change pretty rapidly. You take Q1, the government shutdown, we saw almost an immediate reduction in terms of used vehicle prices. It's come back quickly. Used vehicle pricing can change fairly quickly. The supply and demand dynamics around off-lease vehicles would suggest that we would have some pressure in the back half of this year.

And so we could see a supply side.

Pressure on used vehicle prices, which could could take up our net charge offs in the back half of the year and that's that's what's embedded in our forecast today and keep in mind used vehicle prices can change pretty rapidly you take first quarter. The government shutdown. We saw almost an immediate reduction in terms of used vehicle prices. It's come back quickly, but used vehicle pricing can change fairly quickly and the supply and demand dynamics around off lease.

Vehicles would suggest that we would have some pressure in the back half of this year.

Betsy Graseck: Okay. Thanks. Appreciate the color.

Okay.

Thanks appreciate the color on the quarter so conservative.

Jen: Thank you, Betsy.

[Company Representative] (Ally Financial): Thank you, Betsy.

Betsy Graseck: on why you're so conservative.

Jen: Absolutely.

[Company Representative] (Ally Financial): Absolutely.

Absolutely.

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

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

Ryan Nash: Hey, good morning, guys.

Hey, good morning, guys.

Jen: Good morning, Ryan.

[Company Representative] (Ally Financial): Good morning, Ryan.

Hi, Ryan Ryan.

Ryan Nash: Maybe just a follow-up on one of Betsy's questions regarding credit. You've had this target out there for 1.4% to 1.6% charge-offs, came in below it last year. It seems like you have the potential to come below it this year. I guess, as you look out over a 18 to 24-month period, what will we need to see happen in the economy for you to get either into that range or even potentially towards the high end of that range? It seems like credit is, you know, continues to drift away from it. I'd be curious on your views on that.

Maybe just a follow up on one of the Betsy's question regarding credit so.

This target out there for 1.4% to 1.6% charge offs came in below last year. It seems like you have the potential to come below it. This year I guess as you look out over.

10 to 24 month period, when we need to see happening in the economy for you to get into that range or even potentially towards the high end of that range. Because it seems like credit is is it continues to drift away from its I'd be curious on your views on that.

Yeah, I mean, the 1.4% to 1.6% ranges out there because that's what we originate too.

Jen: Yeah, I mean, the 1.4 to 1.6% range is out there because that's what we originate to. You know, if you look at, we've got this metric called a nailer. We are right now originating within that range. We would expect over time for that range to materialize in our financials. Now, there's a lot of impacts around the health of the consumer. You know, currently looks really great, but we're at a 50-year low in terms of unemployment and, you know, a lot of questions around wage growth. It still looks pretty solid, but on an inflation adjusted, maybe not as great as you would expect. I mean, there could be some pressures in terms of the health of the consumer. You know, I'd say that's number one.

[Company Representative] (Ally Financial): Yeah, I mean, the 1.4 to 1.6% range is out there because that's what we originate to. You know, if you look at, we've got this metric called a nailer. We are right now originating within that range. We would expect over time for that range to materialize in our financials. Now, there's a lot of impacts around the health of the consumer. You know, currently looks really great, but we're at a 50-year low in terms of unemployment and, you know, a lot of questions around wage growth. It still looks pretty solid, but on an inflation adjusted, maybe not as great as you would expect. I mean, there could be some pressures in terms of the health of the consumer. You know, I'd say that's number one.

If you look at that we've got this metric called on Naylor, we are right now.

Originating within that range and so we would expect over time to for that range to materialize in our financials now there is a lot of impact around the health of the consumer.

Yes, currently looks really great, but we're at a 50 year low in terms of unemployment and.

Lot of questions around wage growth is still looks pretty solid but on an inflation.

Adjusted maybe not as great as you would expect so I mean, there could be some pressures in terms of the health of the consumer I'd say that's number one.

Jen: Number two, we've implemented a lot of strategies to kind of curb that flow to loss. We'll continue to do that, but, you know, the pace of those strategic deployment, you know, could slow a bit now that we've implemented many of those. I think the big question is really around used vehicle pricing and kind of addressed that already with Betsy's question, but that could shift on us and, you know, we are expecting that 3% to 5% decline. We've been expecting that for some time, and it hasn't quite materialized yet, but I think that's a reality we need to be aware of.

[Company Representative] (Ally Financial): Number two, we've implemented a lot of strategies to kind of curb that flow to loss. We'll continue to do that, but, you know, the pace of those strategic deployment, you know, could slow a bit now that we've implemented many of those. I think the big question is really around used vehicle pricing and kind of addressed that already with Betsy's question, but that could shift on us and, you know, we are expecting that 3% to 5% decline. We've been expecting that for some time, and it hasn't quite materialized yet, but I think that's a reality we need to be aware of.

Number two we've implemented a lot of strategies to kind of curve that flow to loss will continue to do that.

But.

You know the pace of those strep a strategic deployment.

Could could could slow a bit now that weve implemented many of those and then I think the big question is really around used vehicle pricing and.

Weve addressed that already with betsy's question, but that could shift on us and.

We are expecting that 3% to 5% decline we've been expecting now for some time and it it hasn't quite materialized, yet, but I think thats, a reality and we need to be aware of.

Got it and then if I could ask thanks.

Ryan Nash: Got it. If I could ask some...

Got it if I could ask a.

Jen: Thanks, Ryan.

[Company Representative] (Ally Financial): Thanks, Ryan.

Ryan Nash: Got it. If I could ask as my follow-up question on repricing dynamics. You mentioned that, you know, pricing on the retail auto yield side is holding in well at around 7.60, despite the fact the benchmark interest rates have gone down a lot. When asset yields rose over time, we saw the benchmarks moving and the repricing happened on a lag. I guess, can you talk about how you're thinking about that, you know, on the way down? You know, as part of that question, you know, you've already been proactive in terms of lowering deposit pricing, yet you've continued to have really good growth.

As my follow up question.

On repricing dynamic so you mentioned that.

Pricing on the retail auto yields side is holding in well at around 760. Despite the fact that benchmark interest rates have gone down a lot when the when asset yields rose over time, we said the benchmarks moving in the repricing happened on a lag I guess can you talk about how you're thinking about that.

On the way down and then.

As part of that question, you've already been proactive in terms of.

Lowering deposit pricing.

You've continued to have really good growth how do you think about the relative tradeoff between continuing to grow deposits at a really robust pace.

Ryan Nash: How do you think about the relative trade-off between continuing to grow deposits at a really robust pace and rationalizing the price paid, given that you guys are a market leader in this space? Thanks.

And rationalizing.

Price paid given that you guys are market leader in this space.

Thanks.

Jen: Yeah, sure. You kind of described it correctly, Ryan. We did reprice on a lag. What we're seeing on the down here is that it's also on a lag. I think we've been really pleased in terms of our ability to maintain pricing. You really have to look back to historic data, because while prices are high relative to where they've been a couple of years ago, relative to historic yields on autos, we're still at a fairly low point. Consumers are able to absorb the yields that we're continuing to put in the market. It hasn't curbed demand at all. From a consumer perspective, we're not seeing a whole lot of pressure on yields.

[Company Representative] (Ally Financial): Yeah, sure. You kind of described it correctly, Ryan. We did reprice on a lag. What we're seeing on the down here is that it's also on a lag. I think we've been really pleased in terms of our ability to maintain pricing. You really have to look back to historic data, because while prices are high relative to where they've been a couple of years ago, relative to historic yields on autos, we're still at a fairly low point. Consumers are able to absorb the yields that we're continuing to put in the market. It hasn't curbed demand at all. From a consumer perspective, we're not seeing a whole lot of pressure on yields.

Yeah sure.

And you kind of described it correctly, Ryan we did re price on a lag and what we're seeing on the down series that is also on a lag I think we've been really pleased in terms of our ability to maintain pricing and you really have to look back to historic data because well prices are are high relative to where they've done a couple of years ago.

Relative to historic yields on autos were still at a fairly low point and so consumers are are able to absorb the yields that we're continuing to put in the market. It has incurred demand at all.

So from a consumer perspective, we're not seeing a whole lot of pressure on yields I think the question.

Jen: I think the question, and we're monitoring it incredibly closely, is what else happens in terms of the underlying benchmark rates, as well as what happens with our competitive positioning? You know, we continue to feel bullish there, in particular, playing in the used space, which is two and a half times the new space. There, it tends to be much larger, it's growing faster, and it's much more fragmented. You know, we're feeling good about it, but to your point, we are mindful of where benchmarks are going as well as where the competitive landscape is going. You know, on the deposit side, you know, we're fairly rapidly approaching our target funding rate of 75% to 80%. We're today at 72%. A year ago, we were at 64%. The flows have been incredibly strong.

[Company Representative] (Ally Financial): I think the question, and we're monitoring it incredibly closely, is what else happens in terms of the underlying benchmark rates, as well as what happens with our competitive positioning? You know, we continue to feel bullish there, in particular, playing in the used space, which is two and a half times the new space. There, it tends to be much larger, it's growing faster, and it's much more fragmented. You know, we're feeling good about it, but to your point, we are mindful of where benchmarks are going as well as where the competitive landscape is going. You know, on the deposit side, you know, we're fairly rapidly approaching our target funding rate of 75% to 80%. We're today at 72%. A year ago, we were at 64%. The flows have been incredibly strong.

And we're monitoring it incredibly closely as what what else happened in terms of the underlying benchmark rates as well as what happens with our competitive positioning we continue to feel bullish there in particular.

Playing in the United States, which is two and a half times the new space there it tends to be much larger it's growing faster and is much more fragmented. So we're feeling good about it but to your point, we are mindful of where benchmarks are going as well as where its been competitive landscape is going.

You know on the deposit side.

Yes, we're fairly rapidly approaching our target funding rate of 75% to 80% were today at 72%.

A year ago, we were at 64%.

And so the flows have been incredibly strong run our third record quarter consecutively and so we'll be mindful of our appetite for deposits will be mindful of consumers continuing to provide value to our customers.

Jen: We're in our third record quarter consecutively. We'll be mindful of our appetite for deposits. We'll be mindful of, you know, continuing to provide value to our customers. That's incredibly important to us. We do think we're very well positioned to be able to continue to optimize deposit costs, in particular, if there's some eases down the road.

[Company Representative] (Ally Financial): We're in our third record quarter consecutively. We'll be mindful of our appetite for deposits. We'll be mindful of, you know, continuing to provide value to our customers. That's incredibly important to us. We do think we're very well positioned to be able to continue to optimize deposit costs, in particular, if there's some eases down the road.

Incredibly important to us.

But we do think we're very well positioned to be able to continue to optimize deposit costs. In particular, if there is some eases down the road.

Got it thanks, taking my questions.

Jeff Brown: Got it. Thanks for taking my questions.

Jen: Thank you. Appreciate it.

[Company Representative] (Ally Financial): Thank you. Appreciate it.

Thank you appreciate it.

Thank you. Our next question is from Kevin same peer from K S. P. Research. Your line is now open.

Operator: Thank you. Our next question is from Kevin St. Pierre, from KSP Research. Your line is now open.

Kevin St. Pierre: Good morning. Thanks for taking my question. JB, you mentioned the other banks, and how when we look at results that are going on and we just see widespread Net Interest Margin pressure, and then you think about what their commentary has been around if the forward curve plays out and incremental margin pressure. Now, as we look at the quarter you just posted, you had the lowest increase quarter-to-quarter in deposit costs in about 6 or 7 quarters. Your asset yields, your origination yields holding up and portfolio yield migrating towards the origination yield. Can we make the case that if the forward curve does play out, that while other banks continue to see accelerating margin pressure, your margin will trend up?

Good morning, Thanks for taking my question.

JB you mentioned you you mentioned the other banks and when we look at results that are going on and we just see widespread net interest margin pressure and then you think about what their commentary has been around.

If the forward curve plays out.

And incremental margin pressure and.

Now as we look at the quarter did you just posted you had.

The lowest increase quarter to quarter in deposit costs, and about six or seven quarters and your asset yields your origination yields holding up in and portfolio yield migrating towards the.

Towards the origination yield can we make the case that if we if the forward curve does play out.

While other banks continue to see accelerating margin pressure your margin will will.

Will trend up.

Jeff Brown: Yeah, I mean, I'll give you the simple response, Kevin, and then Jen can elaborate, but I think we would both say, yeah, due to some of those embedded tailwinds. I mean, again, where we're originating today, on the auto side, relative to where the portfolio yield is and the natural migration that's going to occur there, is gonna lead to continued expansion on the asset side. Now, obviously, there's certain nuances that we face around our mortgage business and accelerated premium amortization through, you know, that refinancing activity, but the lion's share of our asset base still is in the form of auto and still has these natural tailwinds. So I think Jen and I both think about it very much that you can see continued expansion. Jen, maybe you talk about the deposit and liability side.

Yes, I'll give you the simple response, Kevin and then Gen Gonna last night, I think we would say yes.

Due to some of those embedded tailwinds I mean, again, where we're originating today.

On the auto side relative to where the portfolio yield as the natural migration that's going to occur there.

He is going to lead to continued expansion on the asset side now obviously, there's certain nuances that we face around our mortgage business and axelopran accelerated premium amortization through.

That refinancing activity, but the lion share of our asset base fills in the form of auto and still has these natural tailwind. So I think Jan and I don't think about it.

Very much that you can see continued expansion and Jan maybe you talk about the deposit and liability side, Yes, I mean, Kevin the right question to be to be asking and we are one of the few banks linked quarter that asset yields up.

Jen: Yeah, I mean, Kevin, it's the right question to be asking. We are one of the few banks linked quarter that saw asset yields up. You know, as we think about our interest rate positioning, we aim to be fairly neutral, especially in the near term here. We'll continue to grow as our balance sheet grows. You know, underneath that, I think what your question is really getting at, is on the asset side, we've got embedded tailwinds, and on the liability side, we've got embedded tailwinds as we see the Fed coming down. Over time, certainly, you know, yield curve dependent, over time, based on the pricing dynamics on both sides of the balance sheet, you could see, you know, expansion.

[Company Representative] (Ally Financial): Yeah, I mean, Kevin, it's the right question to be asking. We are one of the few banks linked quarter that saw asset yields up. You know, as we think about our interest rate positioning, we aim to be fairly neutral, especially in the near term here. We'll continue to grow as our balance sheet grows. You know, underneath that, I think what your question is really getting at, is on the asset side, we've got embedded tailwinds, and on the liability side, we've got embedded tailwinds as we see the Fed coming down. Over time, certainly, you know, yield curve dependent, over time, based on the pricing dynamics on both sides of the balance sheet, you could see, you know, expansion.

But you know as we think about our interest rate positioning we aim to be fairly neutral, especially in the near term here.

And so we will continue to grow as our balance sheet grows.

Underneath that and I think what your question is really getting out is on the asset side, we've got embedded tailwinds and on the liability side, we've got embedded tailwinds as we as we see the fed coming down and so over time.

Certainly.

Yield curve dependent but overtime based on the pricing dynamics on both sides of the balance sheet you could see.

Expansion.

Jen: You know, keep in mind, we are still looking to diversify our asset mix, and so as we, you know, as JB mentioned, as we continue to grow mortgage and continue to grow securities, that will have some pressure on NIM, but we'll be accretive to ROE and continue to grow our net interest income.

[Company Representative] (Ally Financial): You know, keep in mind, we are still looking to diversify our asset mix, and so as we, you know, as JB mentioned, as we continue to grow mortgage and continue to grow securities, that will have some pressure on NIM, but we'll be accretive to ROE and continue to grow our net interest income.

Keep in mind, we are still looking to.

Diversify our asset mix and and so as we.

JB mentioned as we continue to grow mortgage and continue to grow securities that will have some pressure on NIM, but will be accretive to our early and continue to grow our net interest income.

Kevin St. Pierre: Great, thanks. Maybe as a follow-up to that, as we think about perhaps diversifying into some higher-yielding categories, maybe talk about your, you know, initial success with the credit card partnership and uptake on that product, and maybe long-term plans for potentially bringing those loans on balance sheet.

Great. Thanks, maybe as a follow up to that.

As we think about perhaps diversifying into some higher yielding categories, maybe talk about your.

Initial success with the credit card partnership and uptake on that product and maybe long term plans for potentially bringing those loans on balance sheet.

Yes so.

Jeff Brown: Yeah. Kevin, I guess, you know, the unsecured space holistically continues to be of interest for us. Obviously, you see part of that as a step in what we're doing with HCS today. I guess the other thing we didn't talk about as a quarter is our partnership with TD on the credit card side has ended. That agreement wrapped up and really did not ultimately did not end up achieving objectives we had or probably objectives that TD had, given their credit risk appetite. Obviously, it was their credit rate, underwriting, their credit decisioning. You know, the total portfolio size, I think, was under $100 million that was accumulated. It's not a massive customer impact for us, but we basically wound down that relationship.

Kevin I guess.

The unsecured space.

Holistically continues to be of interest for us so.

Obviously, you see part of that as a step in and what we're doing with HCS today I guess the other thing.

We didnt talk about as the quarters our partnership.

With TD on the credit card side has ended.

Well that agreement.

Wrapped up and really.

It did not.

Alternatively did not end up achieving objectives, we had or probably objectives like TV had given their credit risk appetite. Obviously it was their credit rate underwriting credit decisioning. So.

Yes, the total portfolio size I think was under $100 million.

Was accumulated so it's not a massive customer impact for us, but we basically wound down that relationship.

Jeff Brown: Having said that, I still think unsecured is a core consumer product. You see what we're doing with HCS as a step into that space, where we, as Jen covered, where we would actually balance sheet that product as well. We continue to look for avenues, and obviously, as the stock continues to perform, you can have a little bit more opportunistic view on growth. We haven't maybe been afforded that over the history. Given the performance we've seen, we'll keep those 2 objectives that Jen and I talked about, was anything we do, is it right for the customer? Number 2, can it deliver an appropriate long-term return for our shareholders?

Having said that I still think unsecured is.

Core consumer product do you see what we're doing with HCS.

As a step into that space, where we as gen covered where we would actually balance sheet.

That product as well and so we continue to look for avenues and obviously if the stock continues to perform you can have a little bit more opportunistic view on growth.

And we have maybe been afforded that.

Over the history that.

Given the performance we've seen we'll keep those two objectives led general lighting talked about was anything we do is it right for the customer and number two can deliver an appropriate long term return for our shareholders.

Kevin St. Pierre: Thanks very much.

Thanks very much.

Jeff Brown: You got it, Kevin.

You got to kind of.

Operator: Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Daniel Eller for closing remarks.

Thank you at this time I'm showing no further questions I would like to turn the call back over to Daniel elder for closing remarks.

Jen: Great. Thank you. I appreciate everyone joining us this morning. I would remind participants, if you have additional questions, feel free to reach out to investor relations. Thanks. Have a great morning.

Daniel Eller: Great. Thank you. I appreciate everyone joining us this morning. I would remind participants, if you have additional questions, feel free to reach out to investor relations. Thanks. Have a great morning.

Great. Thank you and again I appreciate everyone. Joining us this morning, I would remind participants if you have additional questions feel free to reach out to Investor relations. Thanks, and have a great morning.

Operator: Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.

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

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