Ally Financial Inc.

Good day and thank you for standing by. Welcome to the Ally Financial first quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sean Leary, Head of Investor Relations. Please go ahead.

Thank you, Elizabeth. Good morning and welcome to Ally Financial's first quarter 2025 earnings call. This morning, our CEO, Michael Rhodes, and our CFO, Russ Hutchinson, will review Ally's results before taking questions. The presentation we'll reference can be found on the Investor Relations section of our website, ally.com. Forward-looking statements and risk factor language governing today's call are on slide two. Gap and non-gap measures pertaining to our operating performance and capital results are on slides three and four. As a reminder, non-gap or core metrics are supplemental to and not a substitute for U.S. gap measures. Definitions and reconciliations can be found in the appendix. And with that, I'll turn the call over to Michael.

Thank you, Sean. Good morning, everyone, and thank you for joining the call. Before diving into the details of our first quarter performance, I'd like to take a moment to share a few key perspectives about our path forward. As I approached my one-year anniversary as CEO of Ally, I could not be more energized about our future. Since day one, my focus has been keeping culture at the core of everything we do, ensuring that we have the right talent to propel us forward, shaping our strategy for the future, and aligning our people around that strategy while delivering results through strong execution. As I reflect on these past 12 months, a few things have become clear. First, do it right is not just a catchphrase. It's embedded in our culture, creating a meaningful and direct impact on everything we do. This April, Fortune magazine again recognized us as one of the best 100 companies to work for. While awards are not our goal, this latest acknowledgement reinforced the culture of allies unique. I am humbled by the feedback. 90% of our colleagues believe that Ally is a great place to work, over 30 percentage points higher than the US average. I've seen firsthand how results like this can materialize in tangible ways, including how we show up for our customers and the value it creates for shareholders. Over the past year, we have also strengthened and solidified our leadership team, identifying key talent, both internally and externally, is critical to ensure we are positioned to navigate challenges and seize opportunities. Another thing that's become clear to me is the competitive advantage created by the Ally brand. We've built a strong emotional connection to our customers, a connection rooted in a history of consistently doing things right. This commitment continues to set us apart, and we have seen clear evidence of our brand strength leading the way in our peer set. Our net promoter score is well ahead of the industry averages, and our positive brand social sentiment is nearly 90%, almost double our banking peers. This favorability reflects the trust and loyalty that our customers place in us, which is not something we take for granted. A key aspect of our success is a differentiated approach to building and maintaining the Ally brand. In fact, just last week, we proudly announced a multi-year partnership with the WNBA, establishing Ally as the official banking partner of the league. We have been at the center of the rapid rise of women's sports since the beginning, and this partnership underscores the power of our brand and our commitment. The final item that's become more apparent to me as I've settled into the CEO role is the importance of focus. We've talked a lot about how we're becoming a more focused company, to transform Ally into a stronger institution, one that is better positioned to compete and deliver compelling returns. This strategy is simplifying our organization, allowing us to prioritize resources to win in areas where we have demonstrated competitive advantage, deep relationships, and relevant scale. Our three core franchises, dealer financial services, corporate finance, and deposits, remain strong with tremendous runway ahead. We are committed to further investing in these businesses for sustainable growth and long-term success as we see meaningful opportunities for creative organic expansion. Coupled with discipline, expense, and capital management, we continue to see a clear path to attractive returns given the strength of these franchises. With this clarity of purpose and a commitment to our objectives, we are well positioned to execute and deliver meaningful shareholder value. During periods of macroeconomic uncertainty like we're in today, the power of focus is more critical as we allocate resources where we have deep expertise, strong relationships, and relevant scale to successfully navigate these challenges, including the impact of tariffs. With that context of the journey ahead, let's turn to page four to discuss our financial results. In the first quarter, Ally delivered adjusted earnings per share of 58 cents a core pre-tax income of $247 million, an adjusted net revenue of $2.1 billion, reflecting solid execution across each of our core businesses. Net interest margin for the quarter was 3.35%, up two basis points compared to the fourth quarter, in line with our expectations to start the year. As we shared in January, the full year trajectory of margin expansion will not follow a straight line on a quarter-to-quarter basis, However, we are confident in the direction. Russ will cover this in more detail later, but the takeaway is this. Our results within the quarter highlight the opportunities within our franchises, reinforce our market leading positions, and are in line with full year guidance we provided in January. Before discussing results, there are a few notable items from the quarter to highlight. First, our results reflect the transfer of our credit card business to held for sale at the end of the quarter. These impacts have been adjusted out of our core metrics for the period. The transaction successfully closed on April 1st, and we remain committed to ensuring a smooth transition for our colleagues and customers. I would like to take a moment to express my gratitude to our entire team and for CardWorks for getting this deal across the finish line. The sale of our credit card business has allowed us to further strengthen our balance sheet. As we previously disclosed, in March, we executed a repositioning transaction involving a portion of our available-for-sale portfolio. We complete a second, similar transaction later in the quarter. These strategic moves reduce interest rate risk and immediately increase net interest income. These outcomes reflect careful and prudent management of our exposure to rate risk, helping support the sustainability of our returns over time. As we said in January, we continue to be disciplined in how we manage capital, prioritizing investment in the business and eventually share repurchases. Let's turn to page five to discuss our market-leading franchises. Within our auto finance business, consumer originations of 10.2 billion were driven by 3.8 million applications, our highest quarterly application volume ever. Once again, underscoring the strength of our dealer relationships and the scale of our franchise. This scale enables us to be highly selective in the loans we book, optimizing both pricing and credit. I am encouraged by the trends we're seeing in application flow to further strengthen and grow our position as the leading bank auto finance lender in the country. Originated yields of 9.8% increased 17 basis points in the prior quarter. Notably, 44% originations were made up of our highest credit quality tier, which will continue to drive strong risk-adjusted returns for the years ahead. As we discussed, we expect our origination mix to shift over time, particularly from the fourth quarter when nearly half our originations were made up of our highest credit quality tier. Our ability to dynamically adjust price and risk appetite for emerging trends allows us to modify registration strategies for differing interest rate and credit environments. On the insurance side, written premiums of $385 million represent an increase of 9% year-over-year, as we've benefited from new relationships, growth in P&C exposure, and synergies within our auto finance team. Our insurance team now serves over 6,000 dealers in the United States and Canada. The average number of Ally F&I insurance products sold by each of our dealers has increased to 2.2. That's the highest since our IPO. On the P&C side, dealer inventory insurance exposure grew by 30% year-over-year. I'm very pleased with the growth for our business, and the alignment that we have between auto insurance only enhances the value proposition we offer to our dealer network. In corporate finance, we delivered another strong quarter with pre-tax income of $76 million and a 25% ROE. This business has consistently demonstrated resilience across economic cycles. The robust relationships we have with private equity sponsors and asset-based lenders has enabled us to grow the business at attractive returns while prudently managing risk. We again ended the quarter with zero net charge-offs demonstrating the quality of our loan book. As we have said, this is not a zero loss business and we expect some normalization. We see opportunities to drive prudent organic growth within our current verticals and are actively exploring new verticals to generate incremental accretive business. Turning to our digital bank, we continue to invest in delivering best in class digital experiences and products to grow customer value proposition beyond rate. In March, Fortune magazine again recognized us as one of the most innovative companies for 2025. This recognition is a testament to our culture, our relentless obsession with the customer and our ability to disrupt the industry. Related to our deposits franchise, we proudly serve a total of 3.3 million customers with balances reaching $146 billion at the end of the quarter. Balances were up nearly $3 billion quarter-over-quarter as we harvested seasonally higher levels of money in motion and continued to add customers. Like last year, we expect tax payments to result in lower deposits in the second quarter and are aiming for approximately flat balances for the full year, aligned with what's needed to support the asset side of our balance sheet. During the quarter, we saw strong flows from existing customers, This enabled us to move liquid savings rates down 20 basis points during the quarter, despite no move in the Fed Fund since December. Notably, 92% of our retail deposits are FDIC-insured, underscoring the strength and stability of our deposit base. Deposits represent nearly 90% of our funding profile, highlighting the 15-year evolution of the largest digital-only bank in the U.S. And with that, I'll turn it over to Russ.

Thank you, Michael. Good morning, everyone. I'll begin on page six. In the first quarter, net financing revenue excluding OID was approximately $1.5 billion, in line with both the prior year and the prior quarter. On a quarter-over-quarter basis, net interest income was impacted by two fewer days in the period, lower average commercial auto balances, soft lease remarketing activity, and the full quarter impact of repricing floating rate assets and liquid deposits following the rate changes in December. Looking ahead, we are well positioned to grow net financing revenue through retail auto yield expansion, our portfolio shift toward higher yielding asset classes, and repricing our deposits lower. Together, these factors are expected to more than offset the revenue impact from the sale of our credit card business. GAAP other revenue of $63 million included a $495 million pre-tax loss related to securities repositioning, which has been excluded from adjusted metrics. Adjusted other revenue of $571 million was up over 10% year-over-year, reflecting strong momentum across diversified revenue streams, including insurance, smart auction, and our consumer auto pass-through programs. Gap provision expense of $191 million was down $316 million year-over-year, primarily driven by the release of the credit card reserves following its transfer to health for sale. Adjusted provision expense of $497 million was down $10 million year-over-year, driven by lower retail auto NCOs, slightly lower coverage rates, offset by reserve builds for balance growth. In retail auto, net charge-offs declined $32 million year over year. While delinquencies remain elevated, we continue to see consistently strong trends in flow-to-loss rates. More on this shortly. Gap non-interest expense of $1.6 billion included a write-down of goodwill associated with the transfer of card assets to help for sale, as well as $9 million of deal-related expenses, both of which have been excluded from adjusted metrics. Excluding the impact of the credit card sale, expenses were up approximately 8% quarter-over-quarter and 2% year-over-year, primarily driven by the highest first quarter of weather-related losses in our history. During the quarter, net weather losses totaled $58 million, with 80% of claims occurring over a three-day span in March and related to a single weather system that impacted Texas and Missouri and other states. Controllable expenses, which exclude insurance losses, commissions, and FDIC fees, were down approximately 3% year over year, demonstrating our commitment to cost discipline. Turning to tax, during the quarter, we recognized a GAAP tax benefit of $59 million, which was primarily driven by losses associated with the securities repositioning transactions. On a GAAP basis, we generated a loss per share of 82 cents for the quarter. adjusted earnings per share was 58 cents. Moving to page seven, net interest margin excluding OID of 3.35% was up two basis points from the prior quarter and in line with expectations from January. NIM excluding OID is up 16 basis points year over year. During the quarter, earning asset yields decreased 16 basis points compared to the prior quarter. primarily driven by the full quarter impact of repricing floating rate assets from the December rate cut and softer lease remarketing proceeds. Cost of funds declined 20 basis points versus the prior quarter and 39 basis points versus the prior year, more than offsetting the impact from lower asset yields. We continue to optimize pricing by further lowering liquid deposit rates by an incremental 20 basis points late in the quarter. the full impact of which will be felt in the second quarter. In addition, we are benefiting from favorable dynamics in the CD portfolio, as more than $12 billion of CDs with yields of 4.8% matured in the first quarter, migrating into lower yielding CDs and liquid savings. This migration will continue to be a meaningful tailwind as approximately 95% of the CD portfolio matures this year. We have included additional details on CDE maturities in the appendix section of the earnings presentation. We're pleased with our cumulative 60% beta through the first quarter and remain confident in our ability to achieve target beta of around 70%. We are well positioned for margin expansion and sustainably higher NIM over the medium term. Turning to page 8, CET1 of 9.5% represents $3.7 billion of excess capital above our SCB minimum. On a fully phased-in basis for AOCI, CET1 for the period would have been 7.3%, an increase of 20 basis points from the prior quarter. During the quarter, there were a few moving pieces impacting capital. The transfer of credit card assets to help for sale added 20 basis points to CET1 during the quarter. The sale of CARD closed and added another 20 basis points to CET1 after the quarter closed. So in total, the sale of CARD generated 40 basis points of CET1, resulting in a pro forma CET1 of 9.7%, 7.5% on a fully AOCI phased-in basis. During the quarter, 23 basis points of the CARD capital was redeployed into two securities repositioning transactions. In total, We sold lower yielding available for sale securities with an amortized cost of $4.6 billion for proceeds of $4.1 billion, recognizing a pre-tax loss of $495 million, which will be earned back through higher net interest income over time. Proceeds from both sales were reinvested in securities at current market rates, resulting in a portfolio with an overall lower duration. These securities portfolio repositionings have helped us to reduce interest rate risk, be marginally less liability sensitive, and protect against volatility and tangible book value. Taken together with the sale of CARD and these securities repositionings, we expect our continued earnings expansion to support our continued investment in the growth of our core franchises and eventual share repurchases. At this point, we are not expecting additional securities repositioning transactions We believe that we have addressed the areas of the portfolio that offered the most compelling combination of risk mitigation and net interest margin benefit. During the quarter, the final phase-in of CECL had a 19 basis point impact to CET1. Earlier this week, we announced our quarterly dividend of 30 cents for the second quarter of 2025, which remains consistent with the prior quarter. Excluding the impacts of AOCI, adjusted tangible book value per share of $47 is up more than two times from 2014. We remain focused on growing tangible book value per share and driving shareholder value through disciplined capital management in the years ahead. Let's turn to page nine. Credit quality trends remain encouraging. The consolidated net charge-off rate was 150 basis points. a decline of nine basis points to the prior quarter and a decline of five basis points to the prior year. Losses in our credit card portfolio for the full quarter are included in our consolidated net charge off rate. Retail auto net charge offs of 212 basis points were down 22 basis points quarter over quarter and down 15 basis points year over year. This represents the first year over year decline since 2021. reflecting our pricing and underwriting actions, moderating inflation, and stability in used vehicle prices. While the first quarter typically outperforms 4Q due to seasonality, we are seeing less of a benefit quarter over quarter due to larger monthly loan payments. We believe these dynamics are resulting in a slightly different seasonality curve. More specifically, a shallower decline in the first half of the year and a less steep increase in the back half of the year. On the bottom left, 30-plus day all-in delinquencies decreased 69 basis points from the prior quarter and were up 11 basis points to the prior year. This all-in view aligns with how we manage the business from an operational and loss mitigation perspective. The increase in the all-in delinquency metric is partially driven by deliberate servicing actions that result in increased delinquency churn but have consistently driven lower losses. Since 2019, we've seen improvement in customer payment behavior among our delinquent borrowers. The proportion of customers making payments within each delinquency bucket has increased. Customers three payment past due that made at least one full monthly payment during the quarter is 73% higher versus 2019. While those customers four payments past due are now twice as likely to make a payment, This higher payment activity is resulting in favorable flow-to-loss rates, reinforcing our confidence that losses will normalize below 2% over time. We remain encouraged by the vintage delinquency trends shown on the bottom right. As the benefit of vintage dynamics are clearly playing out in loss trends, we expect to remove this chart from our earnings step going forward, but we'll continue to report vintage delinquency data in the 10-Q and 10-K. Moving to page 10. Consolidated coverage decreased 18 basis points this quarter, while the retail auto coverage rate decreased three basis points. The decrease in the consolidated coverage rate was driven by the reserve release associated with the transfer of the card business to held for sale at the end of the quarter. Looking ahead, we expect the consolidated coverage rate to modestly increase over time, driven by asset remixing, as we run off our mortgage portfolio while growing our retail auto and corporate finance assets with higher risk-adjusted returns. The change in the retail auto coverage rate for the period was favorably impacted by vintage trends, actual unexpected delinquency flows, and the release of the remaining hurricane reserve overlay established last year. However, the favorable trends in the credit quality were partially offset by elevated levels of overall delinquency and ongoing macroeconomic uncertainty. As we have said before, we do not forecast reserve releases, and they are not incorporated into our mid-teens return guidance, but we continue to be encouraged by the trends of the overall portfolio. Moving to page 11 to review auto segment highlights. Pre-tax income of $375 million was $105 million lower year over year, primarily driven by lower lease gains and lower commercial auto balances. As illustrated on the bottom left, retail auto portfolio yields excluding the impact from hedges was up two basis points quarter over quarter. Seasonal factors such as higher liquidations typically experienced in the first quarter of the year have driven increased premium amortization, which impacted yield in the quarter as expected. In addition to typical seasonality, March saw strong consumer demand leading to higher sales and accelerated premium amortization. Originated yield of 9.8% was up 17 basis points quarter over quarter, driven by a shift in our origination mix down tier, generating strong risk-adjusted returns. As the overall credit environment improves, We will carefully evaluate the curtailment actions that we have taken since 2022. The shift in mix will occur gradually over time and be informed by front book performance and the evolving macroeconomic environment, including the impact of recently announced tariffs. Lease trends are on the bottom right. This quarter, we recognized losses of $19 million on lease remarketing. As communicated in January, we expected lease remarketing gains to be pressured by mix headwinds more specifically the impact of a small number of models that are generating losses at termination. Notably, two models accounted for the entirety of remarketing losses within the quarter. However, performance improved throughout the quarter, even for these loss-generating models, as auction values stabilized or improved. Looking ahead, the weaker performing units represent a smaller mix of future terminations. Additionally, the average carrying value at termination for these weaker performing units will be lower going forward. While lease gains will always fluctuate based on trends and used values, we do not expect first quarter trends to continue. Turning to insurance on page 12. Core pre-tax income of $17 million was down $36 million year over year driven by weather losses. Elevated losses overshadowed strong top line growth in earned premiums, which increased $19 million year over year. Total written premiums of $385 million were down $5 million quarter over quarter and up $31 million year over year. Growth in PNC written premiums of $37 million year over year are supported by new relationships. Insurance losses totaled $161 million, up $49 million year-over-year due to higher weather-related losses. During the quarter, we incurred net weather losses of $58 million, an increase of $41 million year-over-year, representing our highest 1Q ever for this activity. Over 80% of our net weather losses were attributed to an historic three-day severe weather event. Since our IPO, on average, net weather losses in the first quarter of the year have averaged approximately $13 million. To put it in context, the storm in March was a one-in-200-year event. While losses in this business are inherently unpredictable and tend to concentrate in the first half of the year, we maintain excess of loss reinsurance coverage that partially mitigated the impacts. As you know, our reinsurance policy is up for renewal each year. We recently executed a renewal of coverage the first quarter of 2026. While losses were higher, we remain pleased with the outcome, and those costs are captured in the full year guide I'll cover shortly. Despite weather-related volatility, the insurance business continues to generate attractive returns and remains a growth area for Ally going forward. Corporate finance results are on page 13. Core pre-tax income of $76 million demonstrated another strong quarter, translating to a 25% return on equity. Net financing revenue of $104 million was $11 million lower quarter over quarter and down $60 million year over year, driven by elevated syndication fee revenue in prior periods. Provision expense of $14 million increased $19 million quarter over quarter driven by balance growth. End of period HFI loans ended at $10.9 billion, an increase of $1.3 billion from the fourth quarter, reflecting our focus on prudently growing this core business. Our portfolio remains well diversified, high quality, and 100% first lane. Criticized assets, And non-accrual loan exposures were 12% and 1% of the total portfolio near historically low levels. Since 2019, the average historical loss rate for corporate finance was under 50 basis points, underscoring the credit quality of the portfolio. At the bottom of the page, we highlight balances across corporate finance's three main verticals. Since 2019, balances have grown from $5.7 billion to $10.9 billion, while maintaining disciplined credit management. The team has excelled at building relationships with equity sponsors and middle market asset managers. These partnerships, combined with a focus on expanding product offerings, have driven highly accretive, responsible loan growth. I'll conclude with a brief update on the financial outlook on page 14. We've been pleased with the execution in our core franchises through the first quarter. This strong start supports our confidence in our full year outlook, which remains unchanged. We are closely evaluating the impacts of macroeconomic uncertainty and tariffs. In the spirit of transparency that we are committed to, we will update investors on our outlook as it evolves. Looking beyond 2025, we remain confident in our ability to deliver a mid-teens return over the medium term. The exact timing will be driven by several factors, including the macroeconomic environment. We believe that our focused strategy best positions us to navigate this uncertain environment, including the potential impacts of tariffs. As we've talked about before, our ROE expansion story is simple and requires three things. net interest margin expansion into the upper threes, retail auto losses below 2%, which translates to a consolidated loss rate of approximately 1.3%, as well as continued focus on expense discipline and capital allocation. With that, I'll turn it back to Michael for a wrap-up.

Thank you, Russ. Before we turn to Q&A, I'd like to close by highlighting a few key points. We have significant opportunities ahead within our core franchises, and we are poised to unlock even greater value. Despite a few unique headwinds in the quarter, financial and operational results were solid and aligned with our expectations from January. While we expect some near-term volatility stemming from the changes in trade policy, we are well positioned to effectively serve our customers and will benefit from a stronger economy in the long term. Our ability to navigate this environment reflects deliberate actions we have taken to strengthen the company. We reduce credit risk by exiting card and shifting our auto origination mix towards higher credit quality bars. We reduce interest rate risk by running off long dated fixed rate assets and repositioning the securities portfolio. We are growing fee income which is capital efficient and less sensitive to changes in interest rates and credit cycles. The growth in our expenses has been arrested, and we've reduced controllable expenses while continuing to invest in key capabilities, particularly in servicing and collections. And we've shown a consistent ability to generate capital, which we've used to de-risk the balance sheet while continuing to move CET1 higher. Looking ahead, we are leveraging the power of focus to originate accretive assets in our core business, poised for margin expansion in a variety of rate scenarios, and a remaining discipline with expenses. And I am confident in our ability to deliver strong shareholder returns.

And with that, I'll turn it over to Sean for Q&A. Thank you, Michael. As we head into Q&A, we do ask that participants limit yourself to one question and one follow-up. Elizabeth, please begin the Q&A.

As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again.

Please stand by while we compile the Q&A roster. Our first question will come from Sanjay Sakrani with KBW.

Thank you. Good morning. Michael, maybe first one for you, just a question on the evolving uncertainty as it relates to tariffs. How do you think it impacts your business?

Sanjay, thanks for the question. And I think your description of the evolving uncertainty is probably a fair one. The environment is undeniably fluid that we're dealing with. And as I think of the tariffs, I'd like to maybe leave you with two thoughts if I can. One is the thought is, how we're positioned today, and I say we're very much in position of strength. And the second is, I'll play out how I see this working for us, given what we know today, recognize all that can change. But first, the position of strength. I mean, objectively, if you look at our balance sheet today, our position, our capital strength, our credit risk position, what we've done by divesting the card business and the mix in assets for the auto lending business, That's put us in a much stronger position our liquidity position our interest rate risk all that you look at our balance sheet and We feel very good about where we are today, and I could probably double-click any one of those for a while But just you know rest assured you see you see strength like we haven't seen in years on the balance sheet Now this hasn't happened by accident. It's happened because of several steps. We've taken to enable this We've sold a credit card business. We stopped regime mortgages and We executed several CRT transactions. We've undertaken two securities repositionings. And we've made operational changes to improve our effectiveness, especially in collections. And so we feel very good about the both strategic and the tactical steps we're taking to manage the business and positions for any environment, including this. Going forward, there are lots of gives and takes. And we don't have perfect insights. I don't think anyone does right now. But I'll probably break this into the near term and the medium term. In the near term, I'd say we have a potential to see used car prices play out in a way that's beneficial for recoveries and lease gains. There's also the near term on volumes. There may be a pull forward in demand. I will say the recent volume numbers that we've been seeing have been quite strong. And there's a thesis floating around that some pull forward. There's probably some truth to that. It's hard to be really precise. But that's what we see in the near term. In the medium and longer term, the focus is very much to be on the macro economy and what this means for inflation, consumer health, affordability, and things like that. You could see a place where there are fewer units but higher average price. We step back from this. I think it's important that you actually also look at the mix of business that we finance. And if you look at our mix and kind of where they appear to be in the tariffs as we understand them today, we're in the less impactor side of the spectrum. And so we think that sets us off on a comparative basis reasonably well. So, you know, lots of uncertainty in the market and not easy to forecast the future. But my takeaway from this is we're executing well today. We've positioned the bank from, I think, quite well to handle this environment. And, you know, And objectively, we're in a strong position, and that's kind of how I see it. It's hard to be terribly precise, but I feel good about where we are.

Thank you. That's very comprehensive. Russ, just a two-parter on the NIM. Maybe you could just talk about one sort of the rate backdrop and how that aligns with your guidance. Do you think you can get to the high end of that range? given the rate outlook, just what was factored in before and what's factored in now. And then secondly, just talk about, you know, the mix of originations you're seeing now and sort of how that plays into the yield dynamics and the competitive backdrop maybe. Thank you.

Yeah, sure. Yeah, maybe I'll start on the rate backdrop and our guidance. As we've said before, as you know, we consider you know, a range of rate outcomes when we think about our guidance. And so our guidance of 3.4 to 3.5 for 2025, you know, we've considered scenarios where rates stay where they are for the foreseeable future, and we've considered scenarios where rates come down. And, you know, three, four rate moves by the Fed over the course of the year are certainly within what we've considered in terms of our rate guidance. And as you'll recall, Sanjay, you know, as we said before, the size of a Federal Reserve rate change, the timing of that rate change could affect us in the quarter and the next quarter. But our business adjusts. And so as we think about our business kind of two quarters out, we tend to adjust for that. And so we've avoided giving quarter by quarter guidance for that reason. But there is a resilience to our rate outlook as you kind of look at it over – our NIM outlook as you look at it over a longer period of time. On the origination side, as Michael pointed out and as we said on the call, we were pleased with the business's performance in the first quarter. Our application volume throughout the quarter was at record levels, and that's coming off of 2024, which, as you know, was really strong. I think that speaks to the competitive environment that we're in. It continues to be favorable to us, and it continues to position us to be able to be selective in terms of both credit and rate. You saw our originated yield at 9.8%, strong up from fourth quarter. Our S tier still at 44% for the quarter. which, as you know, we took steps to bring that down from 49% in the fourth quarter. Those were successful, but we're still running at a relatively attractive level in terms of the proportion of our originations that are in our highest credit quality tier. So, again, I think that speaks to just the competitive dynamic that we're in, and it continues to be favorable. As Michael pointed out, the outlook – is volatile. There is some uncertainty there. And so, you know, as we kind of work our way through the year, we'll certainly provide any updates as we think about it. But right now, our expectation is that, you know, we'll continue to originate in the high nines to 10% originated yield.

Thank you.

Our next question comes from Jeff Adelson with Morgan Stanley.

Hey, good morning. Thanks for taking my questions. I guess just to circle back on the NIM, I appreciate that you're not giving specific quarterly NIM guidance from here, but just given all the puts and takes we have with card coming off, you've done the securities repositioning, it seems like you're saying you're now past the worst of this mixed issue on the lease residual side. So I guess just curious if you could maybe speak to what we should be expecting from here Maybe in QEQ, it just seems like for the rest of the year, you're still sort of thinking about a 3.4 to 3.55 for the average of the rest of the year. Should we be thinking about second quarter as more flat or up from here?

Thanks. Yeah, so we reiterated the full year guide at 3.40 to 3.50. You know, Jeff, you're absolutely right on pointing out CARD. You know, CARD was included in first quarter analysis. In our first quarter NIM, it comes out in second quarter given that the sale closed on April 1st. We've previously described that as a 20 basis point impact to NIM on a run rate basis. So we'll feel that impact in the second quarter. That being said, we expect to make up for that and, you know, we expect to make up for that through a number of things. I'd say number one on the deposit side, you've seen we've taken two relatively recent changes to price. You know, those changes will, you know, the full benefit of those benefits will accrue in the second quarter, and so that will be helpful. You know, I'd also say, you know, at a 60% beta so far, we feel pretty good about, you know, overall views on our approximately 70% beta on our deposit book. And so, again, that, in our view, kind of points to some confidence around our NIM expansion story. Also, on the deposit side, we pointed to $12 billion of CDE maturities in the quarter. Those CDs are maturing at 4.8%. They're maturing into CDs priced lower or into liquid savings, again, priced lower. That is a tailwind. in terms of our net interest margin, and that continues through the year. We added an extra exhibit to the appendix. We'll show about $11 billion of CD maturities in the second quarter. That's another point that's helpful. And then as you pointed out, you know, obviously there's some benefits in terms of NIM to the securities repositioning trades, you know, as well as, you know, as well as relief from the, you know, some of the pressure we saw from lease gains going negative in the first quarter. So we've got a lot of moving pieces, but the fundamentals are still really strong in terms of the pricing momentum that we have in the deposit business and our ability to continue to get great credit at an attractive yield in the retail auto loan book. And I would say just the longer-term trend of our migration away from lower yielding mortgage loans and lower yielding parts of our securities portfolio to our higher returning retail auto loan and corporate finance loans is very much intact and continues.

Great, thanks. And as my follow-up, just on the credit performance, you know, you've seen some really nice stabilization the past few quarters. You know, you've highlighted a lot of the actions you've taken in your collections and mitigation practices. Just kind of as we think about the trajectory to getting back down to, you know, 2% or below loss rate, how quickly do you think you can get there? I mean, the delinquency trends and the vintage basis look pretty good. I know the back half of the year is seasonality, but maybe on a seasonally adjusted basis, is there a case for you getting to below 2% by the end of the year?

Yeah, thanks for the question. You know, it's a good question. And we spent some time on this last quarter as well. And we talked about it in the context of the range that we presented for full year 2025, right, which goes from 2% to 2.25%, which is more or less kind of covers the span of your question. I think the way we described it last year was in terms of really three variables. You know, kind of overall delinquency levels entering the quarter, flow to loss, and then used vehicle prices. And, you know, as I think about where we are this quarter relative to last quarter, you know, I'd say obviously on flow to loss rates, They continue to be very strong. You know, in terms of delinquency, you know, we did see some improvement in the second derivative. That is the smaller increase in delinquency on a year-over-year basis. And as you parse through the buckets, you definitely see some green shoots there in terms of how our delinquency is evolving. But I'd still characterize it as elevated. You know, in terms of used vehicle prices, you know, still continue to be strong. You know, obviously there's some uncertainty in the outlook around the macro. But again, right now as we speak, used car prices continue to be strong. And so as I take that set of ingredients and kind of carry that forward, I'd say, look, you know, I think there's reason to be optimistic, and certainly if you looked just on the basis of what we saw in the first quarter, you'd point towards the lower half of the range that we provided. But on the other hand, as you think about the outlook, you think about the elevated delinquencies that we have, you think about the uncertainty in the macro, and how that in particular could impact us in terms of carrying around that inventory of delinquent accounts, Yeah, I think there's a lot of reason for caution. And so, you know, we've taken the decision we want to keep the full range intact of two to two and a quarter. And, you know, we think that's prudent just kind of given where we are. Now, we're transparent, you know, and just like prior years, we're going to call it as we see it. And so, you know, certainly to the extent that we have a change in our view, we'll provide updates as appropriate.

Great. Thanks, Russ. Our next question comes from Robert Wildhack with Autonomous Research. Good morning, guys.

Russ, it sounded like you were still willing to unwind curtailment over time. I'm wondering if there's been any change to the absolute or aggregate amount of unwind you'd be willing to consider given the current environment today. And to the extent that there is, could you just comment on how that might weigh on originated yield and the NIM outlook?

Yeah, great question, Rob. You know, I guess I'd start, I'd just reiterate Michael's point that the outlook is uncertain. And, you know, we're watching obviously very closely. You know, we're looking at things on a pretty granular level in terms of how the OEMs are behaving, our dealer partners, as well as how consumers. And so you can imagine we're looking at things at a make and model level and we're looking at MSRP, dealer invoice, and auction values, and looking at changes in application volume just to understand how people are behaving. We're also paying very close attention to our recent vintages and how those are performing, and obviously that's an important data point as we think about how to think about curtailment, unwind, or mixed normalization as we move forward. And I'd say it's a dynamic process and it's not a set it and forget it approach. So we're going to continue to watch the market closely and evolve accordingly. A few things I would put out there, and you could see this in the vintage delinquency charts, but our 2024 vintages continue to outperform. They are outperforming our expectations in terms of our price loss expectations at the time that we originated them. And so in our view, that does give us some cushion in terms of how we think about our underwriting. All that being said, we're taking a very cautious approach to unwinding any of the curtailment, just given the need to understand and to see how kind of the current changes in trade policy in particular as it relates to the auto industry, how that affects our OEMs, our dealer partners, and our customers.

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

Yeah, so look, I'd say our models, as we said before, anticipate used car prices kind of in the neighborhood where they are. And that's at a level that's probably about 20% elevated to where they were pre-pandemic, driven by the supply-demand dynamic. And that's a view that kind of predates a lot of kind of what we've seen on the tariff side over the course of the last couple of weeks. I think it's too early to call it on where used car prices go. I think certainly intuitively the expectation is that tariffs increasing the effective price of new vehicles will have a positive impact on the value of used vehicles. And that, as Michael pointed out earlier, would have a positive impact on our business in a few different ways. One, in terms of on the credit side, in terms of severity, and then two, obviously in the lease book, in terms of what we see on lease gains going forward. But I'd say it's probably early to call it in terms of what to expect, but there's some potential benefit to used vehicle prices stronger than we anticipated through the year.

Thank you.

Our next question comes from Moshe Orenburg with TD Cowan.

Great, thanks. Most of my questions actually have been asked and answered, but maybe going back to Sanjay's question about the origination yield, is there a way to unpack how much of the change is driven by the various different factors? You talked a little bit about premium amortization. Obviously, you've got the benefit from a lower S-tier and then other kind of pricing changes. Is there a way to just unpack those?

Yeah, let's separate the origination yield from the portfolio yield. And so when we talk about the 9.8%, that's the originated yield. So that's just on the book that we originated in the quarter. And yeah, the benefit we saw moving from fourth quarter to first quarter, that's mostly attributed to basically the movement in S tier from 49% to 44%. That drove the overwhelming majority of the move up in yield. When you look at the portfolio yield, that's where things like the premium amortization factor in.

But you're saying the 5% decrease in the S-tier was not more than all of that change. in the portfolio in the, in the, uh, kind of new, new, uh, origination yield.

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

Okay. And maybe, you know, you talked a lot about the, the vintage delinquency. Could you talk a little bit about where the portfolio sits now? Obviously we have the, you know, the stuff as of year end, uh, you know, in the 10 K, uh, do you talk about like, you know, where it'll sit or maybe perhaps at mid year, you know, and at what point, you know, you get kind of that level of increased confidence that enough of that book, you know, is, is kind of, you know, in the, you know, out of the 22 vintage or perhaps even out of, you know, the 23 vintage and you're now, you know, concentrated on the 24 and five vintages.

Yeah, look, I think the vintage, the vintage rollover is progressing exactly as we expected. And that 22 vintages playing a smaller, smaller role is certainly in what we're seeing in terms of loss development. By the end of the year, we expect our 22 vintage to be about 10% of our book. And so you know, as we look at our vintage delinquency, um, statistics are, you know, our, our view is that the, the vintage delinquency and the vintage rollover is, is played out, you know, pretty much exactly as we would have expected. And, you know, we're, we're pretty, we're pretty happy with, with where we are.

Hey, Russ, you just, yeah. Yeah. It's a good question. And, I mean, if you look at that chart that shows the vintages, as Russ says, we feel good with where we are. The unpredictability in the environment is probably the reason for a bit of our caution on being more prescriptive. As the environment becomes clearer, we may have a more definitive view. But right now, I think we set out some objectives of what we're trying to achieve, and we think we're tracking very nicely along that path. Great. Thanks.

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

Thanks. Good morning.

Good morning, John.

Most of my questions have been asked and answered. I think it's about margin and credit. Those are the two things. Michael, a bigger picture question for you. You've been in the chair for a while and the card business is now gone. What are you focused on from a strategic point of view, what are your top couple of priorities from here?

Well, great question. And when I think about our priorities, I think about, first of all, we laid out the objective to achieve a mid-teens return. So we've been very clear on the three things that need to happen to achieve that. And so this is less strategic, more tactical, but we're very focused on executing in order to deliver the commitments we've made. And we think we're positioned to do so. Again, timing is a bit to be determined, but we feel good that we're on the path. In terms of the strategic priorities, I think our strategy, I boil it down to where you compete, how you're going to win. I feel really good about our portfolio as it is today. I think our dealer financial services, the whole ecosystem that we play in between the fee-based products, insurance, the lending that we do, both commercial and retail, the relationships we have with our dealers, I really view us as one of one in terms of how we compete in that space and feel very good about our ability to further deepen the relationships and continue to build on that business and absolute confidence in the team and how we're delivering. If I flip to our consumer bank where we have our deposit program going and we obviously have some of the best, This is something that wasn't me. The team before me took this and built this out of nothing, and now they're the largest digital-only bank. And if I see the volumes that we have in that portfolio, the margin relative to other funding alternatives that we have, and the customer growth that we're getting, the brand that supports this, and that brand is really one of the big intangibles in terms of what makes us successful. Again, I feel very good about where we are. And again, I think there's lots of upside there. If I'm being really simple, our share of FDIC insured deposits is, I don't know, something about 1%. And we're competing in the category that is the growing category. We're not trying to grow in this current year. We're not trying to grow our deposit balances. We are looking to grow customers. And we think more customers, typically lower balance per customer, positions us well to extract the most value from and to serve our customers in the best way possible. And then our corporate finance business, look, we've got a few key relationships that we've had over the years, and we're growing those relationships. This is a competitive market, to be fair, but we're being incredibly disciplined around deal structure and around pricing. And again, we've got a strong team there. And so when I look at the core business that we're in, I see a lot of upside here. And to be fair, the price of admission is to deliver the strong returns that we know we can do in the medium term. But there's lots of good business to be had in the areas we're competing. And so we're not looking for any next new grand diversification pattern, and we're not talking about M&A and things like that. We're talking about executing in places where we have a really definitive reason and demonstrate that we can win.

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

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

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