Ally's Q2: Margin Expansion and Measured Growth, but Credit Remains the Watch
Adjusted EPS up 22%, NIM hits 3.63%, and the company returns capital while keeping a cautious eye on the consumer.
ALLY · Earnings Call · 2026-07-21
New Quarter, Stronger Earnings Power
Ally Financial delivered a solid second quarter that underscores the payoff of its strategic reshaping. Adjusted EPS of $1.21 was up 22% year over year, and core ROTC improved to 11.8%. Adjusted net revenue rose 10% to $2.3 billion, with NIM expanding 11 basis points sequentially to 3.63%. The growth was broad-based, but the standouts were originated yield discipline and a continued shift toward higher-returning assets. As CEO Michael Rhodes put it:That focus is evident in the numbers: retail auto and corporate finance assets grew nearly $8 billion year over year, up 8%, while the balance sheet continues to strengthen. The operating income of $400 million was up 241% year over year, a clear sign that the earnings power story is real.Second quarter results were solid and reflect the progress we have made over the past several years to build a more focused, higher performing company.
Credit: Better Losses, Persistent Delinquency
Credit performance was a positive surprise. Consolidated net charge-offs of 111 basis points were down 10 bps Q/Q and roughly flat Y/Y. Retail auto NCOs fell to 157 bps, down 40 bps Q/Q and 18 bps Y/Y — the sixth consecutive quarter of year-over-year improvement. Management credited record-low total loss rates and supportive used vehicle prices, but they were quick to highlight the consumer backdrop. CFO Russell Hutchinson noted, “We still see this macro as dynamic. Clearly, we are dealing with a consumer that is dealing with affordability.” — Russell Hutchinson, Chief Financial Officer (CFO) · 2026-07-21 Delinquencies remain stubbornly high at 4.8% (though down 8 bps Y/Y), and the company is keeping its measured posture in underwriting. The NCO guidance for the year was narrowed to 1.2-1.3%, with management maintaining the midpoint as the base case.Capital Flexibility and the ‘And’ Story
Capital management took a big step forward. CET1 rose to 10.1%, and the company completed its fifth credit risk transfer transaction, generating ~20 bps of CET1. It also issued $1 billion of preferred stock and redeemed its Series B preferred, reducing preferred stock outstanding by $350 million. Share repurchases totaled $148 million in the quarter, and the company has now returned more than $300 million since December. The CEO summarized: “We are delivering strong growth in core portfolios at attractive risk-adjusted returns. We have migrated capital ratios higher, and repurchased nearly $300 million of shares year to date.” — Michael G. Rhodes, Chief Executive Officer (CEO) · 2026-07-21 This is the “and, not or” approach they have been building toward. The capital build is largely behind them, with the RSA fully phased-in CET1 north of 9%, giving them flexibility to both grow and return capital.Strategic Focus: Applications, Corporate Finance, and Deposit Pricing
The growth engine is humming. Auto applications hit a record 4.6 million, up 17%, supporting originations of $13.3 billion, up 21%. The shift to a higher S-tier mix (47%) lowered the originated yield to 9.1%, but on a like-for-like basis, pricing actually increased. Corporate finance continues to shine, with a record pretax income and a 32% ROE. On the deposit side, disciplined pricing reduced liquid deposit costs 20 bps, reaching a cumulative beta of 69%, which helped NIM expand despite the higher-quality loan mix. This is a continuation of the themes from prior calls, as noted in Q1: “When you kind of look at it altogether, on the whole, it has yet to materially impact our business, and let me unpack that a bit more…” — Michael Rhodes, CEO · 2026-04-17 The company is also seeing benefits from the runoff of low yielding legacy securities, which is a tailwind for NIM. Overall, the quarter shows a company that has executed well on its strategy: better credit, higher margins, and more capital flexibility. While the consumer remains a watch item, the momentum is real. As Michael Rhodes said in his closing remarks:This is a fundamentally different Ally. We are driving stronger performance, greater resilience, and definitely see a path to continued improvement.