On Friday, Ally Financial (NYSE:ALLY) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Ally Financial reported a significant increase in adjusted EPS to $1.11, up 90% year-over-year, and a core ROTCE of 11.1%, indicating strong financial performance.
The company emphasized its Focusforge strategy, highlighting its success in doubling down on key business segments, resulting in record application flow and origination volumes with risk-adjusted returns.
Ally Financial remains optimistic about its future outlook, projecting sustainable upper 3% net interest margins and maintaining confidence in its ability to deliver mid-teens ROTCE despite a dynamic macroeconomic environment.
Operational highlights include record written premium volume in insurance, strong growth in corporate finance with a 26% ROE, and continued expansion of its digital bank customer base.
Management expressed confidence in capital allocation priorities, supported by a favorable Basel III proposal, and noted the company’s ability to balance growth, capital build, and shareholder returns.
Full Transcript
OPERATOR
Good day and thank you for standing by. Welcome to the first quarter 2026 Ally Financial Earnings Conference Call. At this time all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session. To ask a question during the session,, you’ll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised to withdraw your question. Please press star 11 again. Please note that today’s conference is being recorded. I’d now like to hand the conference over to Sean Leary, Chief Financial Planning and Investor Relations Officer. Please go ahead.
Sean Leary (Chief Financial Planning and Investor Relations Officer)
Thank you. Good morning and welcome to Ally Financial’s first quarter 2026 earnings call. This morning our CEO Michael Rhodes and our CFO Russ Hutchinson will review Ally’s results before taking questions. The presentation we’ll reference can be found on the Investor Relations section of our website, ally.com. Forward-looking statements and risk factor language governing today’s call are on page two. GAAP and non-GAAP measures pertaining to our operating performance and capital results are on page three. As a reminder, non GAAP or core metrics are supplemental to and not a substitute for U.S. GAAP measures, definitions and reconciliations can be found in the appendix. And with that I’ll turn the call over to Michael.
Michael Rhodes (Chief Executive Officer)
Thank you Sean and good morning everyone. I appreciate you joining us today for our our first quarter earnings call. In the last update I noted my optimism for the path ahead one quarter into 2026. Our results confirm we’re on the right path and support my confidence in our outlook even as the macro environment remains dynamic. That confidence is grounded in the position of strength we carried into the year, driven by the actions to focus our business, streamline our operations and increase our capital levels. The focus-forward strategy we rolled out last year is simple and powerful. Focused means we’re doubling down on the businesses and segments where we have clear competitive advantages. These are areas where we have long standing relationships, differentiated capabilities, relevant scale and a right to win. Forward reflects our ambition to create something extraordinary and sustainable from a position of strength. Together these principles have allowed us to streamline and sharpen our focus, building a business that is increasingly impactful and enduring. The results since our refresh last year provide unmistakable evidence it’s working. Record application flow has enabled strong origination volume with accretive risk adjusted returns. Record written premium volume as we continue to leverage our insurance offering to deepen dealer relationships and help them win across their entire ecosystem. Strong growth across the corporate finance portfolio while delivering an ROE of over 25% and maintain an unwavering focus on credit risk and reinforce our position as the nation’s leading all digital direct bank as we continue to grow customers and increase engagement providing stable, cost efficient funding. The progress is real and we remain committed to delivering even more. With that, let me cover some of the highlights from our first quarter. Adjusted EPS of $1.11 was up 90% year over year. Core ROTCE of 11.1% was up 440 basis points versus 2025 reflecting the structurally high returns we’re capable of generating. Margin of 3.52% was impacted by the lease headwinds we discussed last quarter, but we remain confident in our ability to deliver a sustainable upper 3% margin. The final lever of our mid teens thesis. Adjusted net revenue of 2.2 billion was up 6% year over year and 12% when adjusting for the sale of credit card. Finally, CET1 of 10.1% was up roughly 60 basis points year over year. We’re encouraged by the thoughtful Basel III proposal released a few weeks ago and the clarity it provides. We appreciate the agency’s efforts to modernize the capital rules and achieve a more streamlined framework that better aligns capital requirements with the risks inherent in our business. Specific to Ally, I view the proposal as being constructive and supporting our existing capital allocation priorities. We remain confident in our ability to identify accretive opportunities for organic growth in our business, build CET1, and return capital to shareholders. The strategy is amplified by our brand and our culture. Our brand is an asset, one known for authenticity and impact. Earlier this week we announced that we met our 50/50 media pledge to spend equally in men’s and women’s sports. That’s a year ahead of schedule and clear proof of the impact we can make. Women’s sports have been experiencing remarkable growth in recent years and we’re incredibly proud to partner with and support those shaping the evolution. The business outcomes of these investments have been encouraging. With our brand health at an all time high and customer retention continuing to lead the industry, our culture is based on an unwavering commitment to do it right and establishes an ethos for everything we do. In the first quarter, we were honored to be named to Fortune’s 100 Best Companies to Work for, the highest ranking we’ve received and the fourth consecutive year being recognized. Additionally, Newsweek included Ally on their list of the most trusted companies. These recognitions reflect the kind of culture and customer centricity our team builds every day. What mattered even more was hearing directly from our teammates. Over 90% said that Ally is a great place to work and saw meaningful gains in trust and leadership and confidence in where we are headed. That tells me our strategy is resonating. We’re aligned, focused and executing in a way that employees can resonate with. That alignment is energizing. The momentum is real and I am excited for what lies ahead with that. Let’s turn to page five and discuss the Core Franchises Operational momentum within each of our core franchises remains strong, builds on the progress we delivered in 2025 and positions us for further improvement in financial performance. Our dealer centric through the cycle approach remains a key differentiator, driving results across dealer financial services and reinforcing the strength of our relationships. 4.4 million applications reflect another record quarter. The scale and breadth of our product offerings and mutually beneficial dealer relationships remain key strategic advantages that drive strong application flow and enable us to be selective in what we originate. The strength at the top of the funnel translate into solid origination performance with consumer originations of $11.5 billion up 13% year over year despite a decline in industry, light vehicle sales and healthy competition. Importantly, with a focus on risk adjusted returns, we are mindful of the economic environment and maintain a dynamic approach to underwriting. The benefit of the strong application flow extends beyond originations as we saw record volume and revenue from our pass through programs this quarter. Insurance is a critical lever contributing to the success of our dealer partners and our ability to win. That strength is translating to results. With written premium of $389 million marking a first quarter record for Ally, growth continues to be fueled by leveraging synergies with the auto finance team as we highlight our all in value proposition to support dealers across all aspects of their business. In corporate finance, we delivered a 26% ROE while growing the portfolio to $13.7 billion up roughly 6% quarter over quarter. While we continue to see accretive growth opportunities, credit remains central to how we operate. As we’ve cited previously, we serve as the lead agent for virtually all transactions, giving us the ability to own the diligence, process, underwrite and structure transactions appropriately. Turning to Ally bank, our customer first approach sets us apart as we continue to benefit from the shift to digital channels. We ended the quarter with $146 billion in retail deposit balances, reinforcing our position as the largest all digital direct bank in the us. Our focus remains on providing best in class products and services to drive customer growth and retention. We saw an improvement in customer acquisition the first quarter and over the past year we delivered 6% customer growth. We see meaningful opportunity to continue deepening relationships with 3.5 million customers as we look to provide value extending beyond rate paid. The strength and stability of the portfolio remains critical to our success. Retail deposits continue to represent nearly 90% of total funding and 92% are FDIC insured. The franchise provides stable, low cost funding source that enables our business to focus on prudent growth. Let me finish where I opened up and that’s with optimism. Our path ahead is clear and compelling. Our core franchises are delivering and returns are moving higher. I’m encouraged by the progress and momentum and while mindful of the dynamic operating environment, I’m optimistic for what remains ahead. And with that I’ll turn it over to Russ to walk through the financials in more detail.
Russ Hutchinson (Chief Financial Officer)
Thank you Michael. I’ll begin by walking through first quarter performance on slide 6. Net financing revenue excluding OID, of $1.6 billion was up 8% year over year and up 15% when excluding the credit card business in the prior year. We continue to benefit from strong performance across our core franchises, ongoing optimization of the balance sheet toward higher yielding assets and our disciplined approach to deposit pricing. Adjusted other revenue of $572 million in the first quarter was flat year over year despite an approximately $25 million headwind due to the sale of the credit card business. This momentum reflects the strength of our diversified revenue streams which include insurance, smart auction and our pass through programs. Adjusted provision expense of $474 million was down $23 million year over year, largely driven by continued improvement in retail auto NCOs and the exit from the credit card business. Retail auto NCOs declined 15 basis points year over year to 1.97%. Adjusted non interest expense of $1.2 billion was down $85 million year over year, demonstrating our continued commitment to cost discipline as well as reflecting the sale of the credit card business and historically elevated weather losses in March of last year. Let’s move to slide 7 to discuss margin in detail. Net interest margin excluding OID, was 3.52% as repricing of floating rate exposures and lower lease yields were offset by lower deposit costs. Retail auto portfolio yield excluding the impact from hedges was flat sequentially consistent with the expectations noted in January. Lease Yield included a $10 million loss on lease terminations given the headwinds on select plug in hybrids we noted in January. We assessed depreciation rates quarterly, and we accelerated depreciation on certain leases maturing in the near term primarily due to these impacted models. As a reminder, we expect our lease termination mix will start to shift next year. Approximately half of the leases we originated over the past two years have OEM residual value guarantees, while the other half reflect a more diversified mix of OEMs. This will continue to reduce lease gain and loss volatility over time. On the liability side, cost of funds decreased 9 basis points quarter over quarter, largely driven by a 9 basis point decrease in deposit costs. Retail deposit balances increased $2.6 billion and we added 74,000 net new customers, clear proof our brand and products resonate in the market. We remain disciplined on pricing through a key growth period, but given the strength of the portfolio, we were able to reduce liquid saving rates by 10 basis points in February, bringing our cumulative beta to 57%. While not reflected in 1Q results, we just reduced liquid savings another 10 basis points, bringing our cumulative beta to 63%. Additionally, CD maturities remain a tailwind with approximately $18 billion in maturities in the first half of 2026, carrying a weighted average yield of nearly 4%. Looking ahead, we anticipate a decline in 2Q retail deposit balances given seasonal tax payments. Our focus remains on customer growth trends and optimizing overall cost of funds. Average earning assets were up 2% year over year. Importantly, growth continues to be concentrated in our highest returning assets retail, auto and corporate finance. Those portfolios in aggregate were up 6% year over year. Momentum across the balance sheet supports my conviction in our path to a sustainable upper 3s margin over time across a variety of rate environments. Turning to page 8, CET1 of 10.1% was up approximately 60 basis points versus the prior year. Like Michael, I’m appreciative of our regulators thoughtful approach to the revised Basel proposals and and the clarity they provide. I look forward to continued engagement throughout the comment period. The proposal’s improved alignment between capital requirements and fundamental risk in our business is encouraging. Relative to current headline CET1 of 10.1%, the revised standardized approach would produce a CET1 ratio just above 9% when fully phasing in AOCI. That is nearly 100 basis points higher than where we would have landed under the 2023 proposal. In addition to the standardized approach, we continue to evaluate the expanded risk based framework. As Michael noted, the proposals indicate a favorable outcome for Ally and our capital allocation priorities remain the same. We look forward to continuing to drive accretive growth in our core franchises, build capital support our dividend and repurchase shares earlier this week we announced a quarterly, dividend of $0.30 for the second quarter of 2026, which remains consistent with the prior quarter and we repurchased shares worth $147 million. Our open ended buyback authorization continues to provide flexibility enabling us to remain dynamic in any given quarter as buybacks complement the rest of our capital allocation framework. At the end of the quarter, adjusted tangible book value per share reached an all time high of $41, up nearly 14% over the past year and reflecting our ability to concurrently increase book value and returns. On slide 9, we will review asset quality trends. Consolidated net charge offs of 121 basis points were down 13 basis points versus the prior quarter and down 29 basis points year over year. Strength across our commercial portfolios continues to complement favorable trends in retail auto. Retail auto net charge offs of 197 basis points were down 17 basis points quarter over quarter and down 15 basis points compared to a year ago. 1Q marked the fifth consecutive quarter of year over year improvement in NCOs as we benefited from particularly strong used vehicle prices and record low flow to loss rates. On the top right of the page 30 all in delinquencies of 4.6% were down 17 basis points from the prior year, marking the fourth consecutive quarter of year over year improvement on an all in basis. Industry data has shown that tax refunds increased roughly 11% year over year versus some earlier expectations for increases above 20%. Notwithstanding the increase in tax refunds and a dynamic macro delinquency followed what we would consider to be a typical seasonal pattern during the quarter. We’ve continued to see a resilient consumer, but given the evolving backdrop, we feel it’s appropriate to remain measured. Turning to the bottom of the page on reserves, Consolidated coverage decreased 1 basis point this quarter to 2.53% given mix dynamics, while the retail auto coverage rate was flat at 3.75%. Retail auto coverage levels continue to balance favorable credit results within our portfolio against macroeconomic uncertainty across our commercial portfolios. Credit performance remains strong with stable fundamentals. We continue to see accretive growth opportunities, but risk adjusted returns remain our focus. We’ll remain disciplined on both underwriting and pricing as growth is assessed through a credit first lens. Moving to Slide 10 to review auto segment highlights pretax income of $336 million was lower year over year due mainly to CECL reserve build on the bottom …
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