Q : What factors could lead to outperforming or underperforming the net interest margin (NIM) expectations for the second half of the year, and what is the timeline for achieving the 4% NIM target? A : Russell Hutchinson, CFO, explained that the second quarter NIM expansion was strong, but several factors that contributed to it are not expected to continue. These include securities repositioning and lease termination performance recovery. The company expects continued benefits from liquid deposit and CD repricing, albeit at a slower pace. The base case assumes three rate cuts in the second half of 2025, with additional cuts in early 2026. The 4% NIM target is now adjusted to the high 3s due to the credit card sale, and while no specific timeline is given, the company remains confident in achieving this target.

The sale of the credit card business resulted in a 20 basis points drag on net interest margin, impacting overall financial performance.

The digital bank segment reported an all-time high of 3.4 million customers, marking 65 consecutive quarters of net customer growth, reinforcing its position as the nation’s largest all-digital bank.

Ally Financial Inc ( NYSE:ALLY ) continues to see strong performance in its Auto Finance business, with consumer originations reaching $11 billion, driven by a record application volume.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .

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Q: With credit trends improving, is it time to lean more towards growth, or is the current position satisfactory? A: Michael Rhodes, CEO, stated that while they are encouraged by the trajectory of credit trends, they will remain disciplined and data-informed before making any changes. There is still uncertainty in the environment, and the company will be prudent in its approach.

Q: How do used car prices and credit trends impact the outlook for the second half of the year? A: Russell Hutchinson, CFO, noted that used car prices, delinquency rates, and flow to loss rates are key variables. While delinquencies have improved, they remain elevated. The company is encouraged by strong flow to loss rates and used car prices, which support their credit guidance. Decisions on underwriting will be data-driven, focusing on recent vintage performance.

Q: What are the considerations for capital return, and is the stress test a factor in determining share repurchases? A: Russell Hutchinson, CFO, indicated that the increase in capital ratios and improved earnings profile are encouraging. The stress test is not a gating factor, as the company holds excess capital above CCAR requirements. The focus is on fully phased-in CET1 ratios and organic capital generation to determine the timing for share repurchases.

Q: What are the current limitations on asset growth, and how does the company view competition in the auto lending space? A: Russell Hutchinson, CFO, explained that growth is aligned with a focused strategy, with strong auto originations and corporate finance growth. The company remains prudent, focusing on credit and returns rather than capital limitations. Despite increased competition, Ally’s strong dealer relationships and focus on used and prime segments support their market position.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.