Ally Financial Inc. ($ALLY)

All right. Next up is Ally Financial. I'm pleased to have a few of the leaders integral to Ally's focus forward strategy, which is driving improved financial and operational results as the company works through towards mid-teens returns. Joining me on stage this morning are Doug Timmerman, President of Ally's Dealer Financial Services, who has been in the Auto Finance business at Ally for almost 40 years. Welcome, Doug.

Thank you.

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

Thank you.

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

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

Sure. Thanks, Jeff. That's a great place to start. As you mentioned, last year, we announced a strategic pivot to exit noncore businesses and really double down on dealer financial services, corporate finance and deposits. And our goal was to capitalize on real competitive advantages in those businesses and position Ally for long-term improvement in both earnings and overall returns and profitability. A lot of times when a firm announces a pivot, it's sort of implied or understood that it's going to take some time before you start to see those benefits materialize, particularly as it relates to moving the needle from a financial perspective. And that certainly wasn't the case in our example. Last year, earnings per share was up 62% year-over-year. And our guidance for this year obviously implies a pretty meaningful step-up again in 2026. In addition to earnings, returns also moving materially in the right direction. ROE was up 300 basis points year-over-year in 2025. And again, back to the guidance, expecting a pretty meaningful move up again in 2026 and feel increasingly confident in our ability to get to that sustainable mid-teens return. But more encouraging than the progress from a financial perspective is just the operational results and growth that we're seeing across the franchise. In Auto, we've had multiple consecutive quarters of record application growth, top of the funnel and corporate finance. We've materially grown the portfolio while remaining hyper-focused on credit performance. And in deposits, our customer growth has continued to meaningfully outpace broader banking trends. So 18 months into this pivot, absolutely thrilled with the progress. We've materially improved earnings. We've reduced risk, reduced complexity, increased capital levels and started buying back shares. In terms of your question on what's to come, in a lot of ways, we think we're just getting started. There's tremendous runway ahead of us across all of the core franchises. Bill and Doug are going to talk about how they're very well positioned in their respective markets, and it's that positioning in those franchises that give us a high degree of confidence that we're going to continue to deliver solid accretive growth, improved returns and return meaningful capital back to shareholders. As we always say, the work is never done, and our trajectory is certainly not going to be a straight line. But as we sit here today, more confident than ever certainly in the strategic direction of the company, but more importantly, what we're capable of in terms of growth and profitability.

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

Sure. First of all, thanks for your interest. I know it's the morning after a disappointing mix loss is early in the morning, but we appreciate your attendance. I thought I'd start by reiterating what I think are the 4 principal reasons why Corporate Finance is a really good fit, a perfect fit actually for Ally's new focus forward strategy. And the first 2 were financial. What Sean described really was our drive to post improved returns for the shareholder and also demonstrate long-term organic growth. And Corporate Finance does that very, very well. We delivered $365 million in pretax income last year with an ROE of just shy of 30%, but just as importantly, since our IPO in 2024, Corporate Finance has delivered, on average, an ROE of about 25%. Likewise, since our IPO, our pretax income and our assets have grown at a CAGR in the high mid-teens. So when you look at it from a financial perspective, how Corporate Finance fits into the focus forward strategy, I think it's rather compelling, but it's not just financial results. One of the things that you'll hear Doug and I speak about all the time is our value proposition really sits right on top of what Doug offers to his dealers. Our clients are principally middle market private equity firms and leading asset managers, and what we provide to them is speed, certainty of execution, an element of creativity in our product offerings, all delivered in a relationship orientation that we've been able to sustain for decades. So our value proposition, where we're putting our customers as our ally, and we are their ally, it's compelling, and it sits, as I said, very, very adjacent to what Doug does, and we think it enhances the brand, and we benefit from that as well. And the last thing I'll say is our franchise also benefits tremendously from our deposit franchise. It's not only the fact that the deposit franchise gives us a compelling cost of funds, particularly when we compete against private credit units, but it's also the fact that our customers know that the large portion, over 90% of our deposits, fall within the FDIC thresholds for insurance. So that's very reassuring to our customers, particularly given the volatility in a couple over the past couple of years. So those are, to my mind, the principal reasons why Corporate Finance is such a compelling fit as part of the focus forward strategy. And I'd argue the last 1 is we believe firmly that the best is yet to come.

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

Sure thing. We have about 6 different businesses within Corporate Finance. And I'll go into each 1 individually, but I thought a good place to start. There are some common threads in our product offering for all of our businesses. So as an example, all of what we do is first out senior secured floating rate lending. All of our lending is done in concert with savvy institutional investors that are putting significant amounts of at-risk capital behind our first-out senior secured position. And in virtually all cases, we have deep, long-standing relationships with those institutional capital providers, in many cases, established over many decades. So there is a lot of commonality in the different businesses. Another example is virtually all of the lending that we do is such where we serve as lead agent or co-agent. Again, that's through all our verticals. That allows us to conduct proprietary due diligence, control the documentation, control the workout, if necessary. So again, all of our businesses share these components. Let me talk about some of the businesses individually. I'll start with private credit since it's been in the press so much recently. It sits with about $6.5 billion or just a little under 50% of our total portfolio. We've had nothing, but a terrific experience in this line of business. It's run as all our businesses are run by a team of subject matter experts that have gone through many cycles. But in our specific private credit portfolio, we have aggregate exposure of about $5.5 billion, and that's collateralized by just under 1,200 discrete largely middle market, upper middle market loans. We advance against those loans on average just the shade under 60%, and we have line item visibility into the performance of each one of these loans. The loans generally, as I said, upper middle market, middle market leverage buyout financings. The average EBITDA in the portfolio is about $90 million. The average attachment point for the senior debt is under 5x. The loan-to-value is under 50%. And that's the portfolio of loans that we know. We get regular financial information, and we have the right to revalue our loans because it's asset-based lending. If loan deteriorates, we can shrink the amount of availability that we're providing against that loan. So we team with what we believe are the country's leading asset managers. They're making -- creating these loans, and we're lending on them in a pool at what we believe are very, very conservative advance rates. As I said, our experience in the business has been terrific. The other part of that business is something called Priority revolvers. That's about $1 billion of exposure. And in those deals, there are much larger transactions where there is significant equity, a significant amount of debt, and our role as a priority revolver lender is to sit at the very, very top of the capital stack, where we're just basically providing liquidity in concert with the other lenders, but we're first out. And many of our clients there are the same ones that we help finance in our lender finance private credit vertical. So the business has been around for a while. It's done great. We are very anxious to lean in because we think it's a great opportunity for us. I'll pivot to our sponsor finance business. It's really the -- how we started over 25 years ago. We back what we believe are very, very savvy institutional investors in their investing activities. We are generally below 4 in an attachment point, mid-3s. We are always -- almost always less than 50% of the enterprise value. Our track record in this space is compelling. We have a couple of areas of expertise like defense and aerospace, but we are backing middle market private equity sponsors, and a lot of our growth has been as they are successful and they're growing from initial inaugural funds, second funds to funds 4 and 5, the size of the transaction gets larger and the velocity of the transactions gets faster. So that's really fueled part of our growth. But again, a defensively constructed portfolio, where we believe we sit in a terrific spot in the capital structure. The sponsor business is about the same size as what we call specialty finance. Both of those are about 25% of our portfolio. The specialty finance business is really 3 businesses, the largest of which is our commercial real estate business. The lion's share of that is in health care real estate financings. We're financing investors that are acquiring and investing in assisted living, medical office buildings, skilled nursing facilities. We have a very low attachment point on balance in our portfolio. It's about 63% loan-to-value. It's been a terrific run for us, again, managed by a team of subject matter experts, and the portfolio even through co- performed remarkably well. Our 2 other businesses, we have a tech finance business. It's just coming up on $1 billion. Again, we finance the -- we support the investment activities of leading VC firms in that business, for every dollar of senior debt that we've put out, there was $2.5 of investor capital that's behind us in an equity position. So that very, very defensively orchestrated, and the performance has been terrific. And lastly, I won't say that much about it because it's more embryonic, but we just launched we're about a year in an energy and infrastructure vertical, and the investment thesis is there's an insatiable desire in this country for electricity demand, and we're financing the generation of electricity through geothermal, solar, natural gas in building power plants. So that's A little bit about the granular aspects of what corporate finance does. But we've been doing it for 25 years, very, very successfully. And we believe our core competency is the ability to assess and manage senior secured floating rate credit risk, and that's a common thread that's kept us very, very safe and successful in all of these different verticals.

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

Sure. Our nonaccrual loans right now are well under 1% at and are at historic lows. The portfolio is in terrific shape. When we went public in 2024, I believe 25% of our loans were asset-based. As you fast forward to today, if you include the priority revolver product such stellar credit make terrible lenders. To be an optimist, it's better to be an equity guy. We always have to think that something bad is going to happen. And all our deals are structured to withstand the speed bumps. And we make sure we align our lending to like-minded investors where we have long-standing relationships, and we lose the friction in transaction because of the number of deals that we've done. But we built the business doing one deal at a time. And it's going to be lumpy in terms of what the market offers for growth prospects, but that's something that we're not going to waver from. It's doing and growing the business one good deal at a time.

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

Sure. And yes, we're super excited about the continued momentum that we have in our business and particularly application flow, which is really the fuel to our business and growth. But if you look back to 2025, we had record application flow in each of our 4 quarters. Originations exceeded our expectations. We've arguably kicked it up a few notches this year. So on a year-to-date basis, our application flow is up 16% over last year. And again, last year was running at record levels. As you recall, origination volume for the first quarter was up $1.3 billion year-over-year, which is 13%. Second quarter, we expected to finish with similar results. So we have made some iterative changes to our rewards program coming into this year and as well as our value proposition. Those are certainly supporting that growth in application flow. I think the exciting thing is those aren't fully rolled out. So there's some further wind at our back as we go forward. But I think all of this really ties back to kind of who we are, how we differentiate ourselves from the competition. and quite frankly, just the competitive advantages that we have in the marketplace. So we're a full spectrum lender. And I'll say we're a full spectrum lender that's been accentuated by the success of our pass-through program, which obviously supports more volume relative to the lower credit segment of the business, which obviously is critically important to our dealers. We do business across all franchises, which is very important to dealer groups, which makes up a greater and greater portion of the overall industry. So competitive position versus captives continue to get accentuated. And then our people, the people, our relationships, how well they serve our dealers. I think we continue to separate ourselves from the competition relative to the experience of our team and what they can do to help dealers to sell more cars and trucks and make more money. And then, of course, if you look at our suite of products and services, where we're clearly different than everybody else in a very big way. So we're a large commercial lender, floor plan, real estate lending, acquisition lines of credits. We have a full suite of insurance products and particularly relative to F&I, critical part of the dealer's profitability. Not only do we provide the consumer protection products, but we also provide the training and consulting to the dealers to help them optimize their F&I results. We've got a large P&C business. As a matter of fact, we are the largest vehicle inventory insurer in the United States. And then, of course, our remarketing services, which includes smart auction is a service that's in very high demand across our dealers. In today's short supply of used vehicles, it's a critical difference and then being able to build out their inventories for further needs of their dealerships. So a lot of differentiation.

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

Yes.

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

Sure. Yes. And I appreciate the reminder of my time on the Insurance business. There was no doubt a bright spot in my career. It gave me a great opportunity, one, to gain appreciation of that business, but also very importantly, the talent that we have in that business. When I was running the business on a day-to-day basis, we were really positioned ourselves to, call it, take our game to the balance of the market. We were very much GM-centric at the time. We had to change out our systems. We had to change out our product suite. There was a lot to do, but 1 thing that was very clear to us was there was a tremendous opportunity for us to grow. And that growth through the relationships that we have on the auto finance team. I think the inflection point for us is it's really been the combination of our insurance and our auto finance businesses together under Dealer Financial Services, which is what I'm responsible for to today. And if you kind of think about that, obviously, having the responsibility of both, very easy for me to make sure those businesses are properly focused, coordinated, pay plans are aligned and everyone understands their roles and responsibilities. So as an example, the auto finance team's responsibility is to leverage their relationships to find prospective insurance customers. And the insurance team's responsibility is do what they do really well, and that is to prove to those dealer customers that we can be a better provider. And obviously, we've had a tremendous amount of success. I think what's exciting is there's still a lot more opportunity for us.

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

Yes. I should say that our application flow gives us a tremendous amount of intel relative to what's happening in the marketplace, both with consumer behavior as well as competitor movements. But really, from our perspective, we really stay focused on our core business, what we stay focused on where we're confident we can win in the marketplace. And we really try to stay focused on where we have competitive edge. And so certainly, the competition has an impact, but we think if we stay focused on those 3 things that we're going to be successful, and certainly, it proves it out. And the reason why we're successful is because we're so much different than everybody else. And oftentimes, people say, are the competitors trying to do anything to kind of replicate what you do? And quite frankly, nobody is trying to replicate what we do. It's just so much different than what they have available to them, and that's a huge competitive advantage because it aligns to all the things that are important to a dealer and the dealers business.

And 1 thing that's top of mind for a lot of investors today is affordability, higher gas prices and the effect on the consumer there. So beyond these direct competitive dynamics you talked about, how are you thinking about the broader consumer backdrop today? And what are you seeing in your data with how the consumer is dealing with that?

Yes. I'd say affordability has been a challenge for the industry for a considerable amount of time. Affordability is still a challenge today for sure. From my perspective, affordability is going to continue to be a challenge for the industry. Obviously, some OEMs are doing things relative to the product that that's going to help in the longer term. But affordability is something that the industry is going to wrestle with, I think, for the foreseeable future. From our perspective, and as you guys know, we really like the used segment. We think the used segment is a bit underserved, if you compare it as an example to the new segment, but also used vehicles are really how a dealer addresses challenges with affordability today. So I think it's just another example of how we've thought about our business and how we align our business and our efforts to what's important to the dealer. And of course, that resonates extremely well. Relative to gas prices, I'll just say we make the simple statement, gas prices do matter. Obviously, there's a lot of uncertainty out there relative to the macros. What are we seeing? I say if you kind of think about where we're at today versus maybe 6 months ago, there's certainly some segments that we like less. And like we do every day, those segments that we like less, we either curtail, we raise price, or in some cases, will change our decisioning method from automated to manual to put an underwriter on top of those decisions and just take a second look. So there has been some adjustments that we made. But on the other side of things, as competition shifts, we've also found areas of opportunity that we like better. And all of it is kind of continuous optimization to define the very best risk-adjusted returns. And that's what we do each and every day. And obviously, if you think about those 2 examples on a net-net basis, obviously, our business is growing. So...

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

Yes. I would say data and analytics, what we feel has always been a competitive advantage. We think -- arguably, it's a strength of the business. But we're fortunate in the fact that size, scale and experience helps accentuate that. We've invested heavily over the last 5 years. We'll continue to invest heavily. We see significant dividends in the investments that we've made. As I tell the team, it's work that's never complete, but I think a good example of just how we use it, call it, in our consumer business, if you think you kind of front to back to the business of our consumer business, and you start with the application, which obviously gives us a tremendous amount of intel. And then operationally, application goes to making a decision, goes to setting pricing, sets a risk ranking relative to that application and then flows through to servicing, collections and ultimately a timing as to when is the best time to issue a vehicle for repossession. You have data sets throughout that. Obviously, you have to have the data organized appropriately. You got to have analytics on top of it. But there's operational inflection points across that entire spectrum. So we test, we learn, we optimize and because of our size and scale, just a little bit of fine tune can create significant economics to the bottom line. And then, the added benefit is, as you have these data sets of these metrics set up and you see shifts relative to trends, it gives you indication relative to consumer behavior what's happening in the macros, and those signals give us the signal to make adjustments where necessary.

Okay. Great. Thanks, Doug. Maybe Bill, 1 last 1 for you before we turn it back to Sean. We've obviously seen how the corporate finance businesses fit nicely into the broader mid-teens return strategy at Ally. You've talked a little bit about leaning in here while maintaining that credit discipline. So how are you thinking about the progression of the business over the medium term as we think about both growth in credit? .

We're very excited about the prospects for the business. I've been here over 25 years, and I've never felt better about where corporate finance sits in the ecosystem within Ally and the prospects. Each 1 of our verticals is extraordinarily well poised and positioned in the market, leading deep relationships that we think, in many cases, are the industry standard. And while it's difficult to predict what could happen, it can be a lumpy business transaction by transaction. I think if you look at what we've been able to accomplish in the last 10 years, we think that, that should give people a lot of confidence in what we can accomplish in the ensuing 10 years. We do feel that Corporate Finance is a bit of an underappreciated gem within the Ally franchise, but you have our commitment to do as much as we possibly can to deliver for the shareholders compelling financial performance and a compelling organic growth. So as I said, it's been a long time that I've never felt better about our prospects.

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

Sure. Thanks, Jeff. I'll actually start with capital. So look, we very much appreciate the thoughtful proposals that have been put forth and the clarity that they provide. They are still proposals, but at least as written, as you know, quite constructive for Ally. But that doesn't really change our capital allocation priorities. Accretive growth in the core remains the priority. And you just heard from Bill and Doug, we feel great about our prospects to grow those businesses. But fortunately, we are in a really good spot, and we feel good about our ability to do that, support that accretive growth while also growing the capital base and executing the buyback. As we've said before, this is very much an and story and results in the first quarter and really year-to-date reflect our ability to execute all of those priorities simultaneously. And then as it relates to your question on the quarter and the balance of this year, look, Doug and Bill mentioned the momentum that we have on the lending side of the business. And I would say we're equally as excited about what we're seeing in the deposit franchise. The strong customer growth that we talked about at earnings has continued. Through May, we've grown customers 6% year-over-year, and that's given us confidence in the ability to make several pricing moves this year, including 1 just last week. And so that puts us in a really good spot in terms of cumulative beta expectations. I will call out that similar to all prior second quarters, we expect balances to be down modestly on a linked-quarter basis just due to tax outflows, but in aggregate, feel fantastic about what we're seeing in the deposits business. Look, we'll cover the financial outlook in a lot more detail next month. So nothing really new to report in terms of guidance, but I'm happy to hit a couple of areas that we know are always top of mind for investors. As it relates to margins, those 3 OSA pricing moves give us a lot of momentum certainly for the quarter, but even the balance of the year. And keep in mind, CD repricing continues to be a nice tailwind. We've got about $14 billion maturing in the back half of the year at a 3.8% yield. So see a nice continued tailwind in that regard. Look, our full year NIM guide implies meaningful expansion throughout the rest of 2026, and that's certainly the case here in the second quarter. It won't be a straight line. We said that before, but remain as confident as ever in sort of the trajectory and the destination. And I'm sure you'll ask Jeff. That's true with or without any incremental rate cuts from here, particularly following the strong deposit pricing that we've seen year-to-date. And look, even if we get a hike, we've said this before, but that really changes the quarter-to-quarter trajectory, but not the destination, still feel good about our ability to get there in a variety of rate environments. On credit, a very consistent story from us, which is to say that we're pleased with what we're seeing in the portfolio, but remain measured just given everything that's going on in the macro environment. And Doug did a nice job of articulating exactly what we mean by being measured, at least as it relates to underwriting and origination. Looking at expenses, we were down 6% year-over-year in the first quarter. That had some unique comps as it relates to elevated weather in the prior period and the disposition of card. Full year guide, 1% up year-over-year. And so that's sort of implied implies a 3% annual growth rate for the back half and the remaining quarters of the year. I would again just point out not going to be a straight line. We actually expect the second quarter to be up a little bit more than that 3% year-over-year trajectory, but in no way changes our sort of view on the full year outlook. Cost discipline remains an absolute priority. So look, we feel great about the quarter, certainly from a financial perspective. But again, more importantly, just with the momentum that we're seeing in Doug's business, Bill's business and then the deposits franchise. Hopefully, investors heard Bill and Doug's updates and shares the same enthusiasm that we do as it relates to the forward on our lending businesses. So in aggregate, Jeff, look, we're incredibly thrilled with our progress. We recognize there's always more work to be done, but it's incredibly clear to us that we're on the right path.

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

Thank you.