Prepared remarks
Good day, and thank you for standing by. Welcome to Ally Financial's Second Quarter 26 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 will 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 be advised that today's conference is being recorded. I would now like to hand the conference over to Sean Leary, Chief Financial Planning and Investor Relations Officer. Please go ahead.
Thank you, Elizabeth. Morning, and welcome to Ally Financial's second quarter 26 earnings call. This morning, our CEO, Michael G. Rhodes, and our CFO, Russell Hutchinson, will review Ally's results before taking questions. The presentation we will 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 2. GAAP and non-GAAP measures pertaining to our operating performance and capital results are on page 3. 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 will turn the call over to Michael.
Thank you, Sean, and good morning, everyone. I appreciate you joining us today. 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. The strategic choices we have made are creating a franchise with meaningfully greater earnings power. We are seeing that reflected not only in margin expansion and strong operating performance, but also our ability to invest for growth, while simultaneously increasing capital returns to shareholders. Simply put, our results demonstrate our strategy backed by disciplined execution is working. The Ally today is fundamentally stronger. We believe this positions us well to further enhance profitability, support customers through economic cycles, and create long-term shareholder value. For the second quarter, adjusted EPS of $1.21 was up 22% year over year while core ROTC increased to 11.8%. Adjusted net revenue of $2.3 billion increased 10% year over year, reflecting continued asset growth and further margin expansion. To the point, retail auto and corporate finance assets grew nearly $8 billion year over year; that is up 8% year over year. And NIM improved 11 basis points sequentially to 3.63%. Our balance sheet continued to strengthen during the quarter, with CET1 increasing 20 basis points year over year. That strength is providing greater capital flexibility. Since announcing our authorization in December, we have returned more than $300 million to shareholders through share repurchases. Taken together, these results reflect improved earnings power, increased capital flexibility and a company that is better positioned to perform through economic cycles. Importantly, we are seeing broad-based momentum across the company with each of our core franchises executing well and contributing to our performance. That momentum is supported by investments we have made to strengthen both the Ally brand and our culture. Our revitalized marketing campaign, Life Today, is resonating with customers and highlighting the unique value proposition of Ally — meaning customers where life and money intersect in today's world. We continue to see encouraging results in brand health, awareness, engagement, and industry-leading retention. Equally important, our culture remains a meaningful competitive advantage. Employee engagement scores improved again this year and ranked in the top decile of companies nationally for the seventh consecutive year, with particularly strong improvement across measures such as belief in our strategy. We believe highly engaged employees aligned around a clear strategy create better experiences for our customers, and ultimately drive stronger business outcomes. With that, let's turn to page 5 and discuss performance across our core franchises. Starting with Dealer Financial Services, our dealer-centric, through-the-cycle approach remains a key differentiator and a meaningful competitive advantage. Within auto finance, applications reached a record 4.6 million, increasing 17% from a year ago, validating our strong value proposition and that our strategic initiatives are resonating with dealers more than ever. This application volume supported originations of $13.3 billion, up 21% year over year, while maintaining approval and pull-through rates. Retail origination yield of 9.1% included 47% S tier, reflecting seasonal dynamics and our measured approach to navigating the current operating environment. Consumers have remained resilient and we are encouraged by the credit performance across our portfolio. At the same time, we are mindful of the cumulative headwinds from ongoing inflationary pressures and the evolving macro backdrop. Insurance delivered another solid quarter with written premiums of $382 million, up 9% year over year, as we continue to demonstrate an ability to deepen relationships and highlight our unique full-spectrum value proposition to dealers. In corporate finance, we delivered record pretax earnings and continue to see strong client demand and attractive opportunities for disciplined growth. The portfolio ended the quarter at $13.7 billion — that is up 25% from the prior year — while generating a 32% return on equity. Our success is built on long-standing client relationships, deep underwriting expertise, speed of execution, and the ability to provide certainty when our clients need it most. We remain focused on profitable growth while maintaining the credit discipline that is consistently differentiated in this business. Now turning to the digital bank. Customer growth and engagement trends remain strong. Retail deposit balances ended the quarter at $144 billion, with deposits representing 87% of total funding and providing a stable and cost-efficient funding source for the company. We now serve 3.6 million customers, up 7% year over year, marking our 69th consecutive quarter of customer growth. Importantly, much of that growth is coming from younger consumers who are highly engaged in our digital platform. Nearly 70% of new accounts come from millennials and younger consumers, typically beginning with average balances just under $10 thousand and growing over time. As consumer preferences increasingly shift toward digital-first experiences, we believe Ally's trusted brand, national scale, and low-cost operating model positions us exceptionally well for the future. Taken together, these results demonstrate the increasing strength of our core franchises. We are growing in businesses where we have clear competitive advantages, generate attractive returns, and deepen customer relationships across the company. While there is more work ahead, we remain confident in our path forward. We believe the benefits of our strategy will continue to accumulate, positioning Ally to deliver higher profitability and stronger returns over time. And just as importantly, those same actions are creating a more resilient company that we believe is well positioned to perform through economic cycles. And with that, I will turn to Russell to discuss the quarter in more detail.
Thank you, Michael. I will begin by walking through second quarter performance on Slide 6. Net financing revenue, excluding OID, of $1.7 billion was up 11% year over year. Balance sheet growth in our core portfolios and lower funding costs supported continued NII expansion. Adjusted other revenue of $573 million was up $42 million year over year as we continue to see momentum across our diversified revenue stream — insurance, SmartAuction, and pass-through programs. Provision expense of $430 million was up $46 million year over year as CECL reserve builds associated with strong asset growth more than offset the improvement in retail auto net charge-offs. Retail origination momentum was strong throughout 2Q, finishing nearly $1 billion higher than our initial expectations. The growth supported earnings beyond 2Q but drove $30 million of additional CECL build in the quarter — an $0.08 headwind to EPS. Adjusted noninterest expense of $1.3 billion was up 5% year over year, in line with expectations. As noted earlier, adjusted revenue was up 10% year over year, driving strong positive operating leverage as we have successfully executed on focused, accretive growth in our core businesses and disciplined expense management. During the quarter, we recognized a $15 million expense related to the early redemption of our Series B preferred stock. This one-time charge reflects a strategic capital management action and, given its nonrecurring nature, is excluded from adjusted results. Let's move to slide 7 to discuss margin in more detail. Net interest margin, excluding OID, of 3.63% was up 11 basis points quarter over quarter, largely due to lower deposit costs. Retail auto portfolio yield, excluding the impact from hedges, was relatively flat sequentially and in line with our expectations. Average earning assets were up 6% year over year with growth concentrated in our highest-returning assets: retail auto and corporate finance, which on an end-of-period basis were up approximately 8% year over year. On the liability side, cost of funds decreased 12 basis points quarter over quarter, driven by disciplined deposit pricing actions through the first and second quarters. Retail deposit balances decreased $2 billion during the quarter, driven by seasonal tax outflows in line with normal seasonality. We maintain access to a wide range of alternative funding sources which complement retail deposits and allow us to fund accretive asset growth in the most efficient manner possible. During the quarter, we reduced liquid deposit pricing 20 basis points and reached a cumulative liquid deposit beta of 69%. We remain disciplined in how we price deposits, ensuring we continue to optimize customer growth and value, and are encouraged by the performance we have seen. Deposit customers grew for a 69th consecutive quarter and are up 7% year over year, demonstrating the power of our brand in the market. I will cover guidance later, but despite the movement in short-term rate expectations year to date, we remain confident in our path to a sustainable upper-3s margin over time. Structural momentum is evident — our accretive asset growth and efficient funding sources each support continued NIM expansion. Turning to page 8. CET1 of 10.1% is up approximately 20 basis points versus the prior year. While not final, under the current proposal for RSA, our CET1 would be above 9% when fully phasing in AOCI, and IRBA would provide roughly 30 basis points of additional benefit. We will continue to assess each proposal as we await potential refinement following the comment period. During the quarter, we completed our fifth credit risk transfer transaction, generating approximately 20 basis points of CET1 at the time of execution, reflecting continued demand for our retail auto assets in the market and another efficient way to manage capital. Additionally, we issued $1 billion of preferred stock at a 7.1% coupon. The proceeds from the transaction were used to support the redemption of our Series B preferred stock ahead of its reset on May 15. The issuance resulted in a $350 million decline in our preferred stock outstanding and favorable economics relative to the Series B reset rate. In the quarter, we executed $148 million of share repurchases, and earlier this week, we announced our quarterly dividend of $0.30 for the third quarter of 26, consistent with the prior quarter. We remain pleased with our ability to execute a story of "and, not or." 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. At the end of the quarter, adjusted tangible book value per share was $42, up 13% over the past year. When combined with our solid dividend yield, this underscores our continued focus on delivering strong shareholder value. On slide 9, we will review asset quality trends. Consolidated net charge-offs of 111 basis points were down 10 basis points versus the prior quarter and roughly flat year over year. During the quarter, the consolidated NCO rate included the resolution of corporate finance exposure. The loan was in nonaccrual since 2018, and we recorded a P&L benefit on this resolution as the specific reserves we had built exceeded our loss on the exposure. Within retail auto, net charge-offs of 157 basis points were down 40 basis points quarter over quarter and down 18 basis points compared to a year ago, marking a sixth consecutive quarter of year-over-year improvement. On the top right of the page, 30-plus day all-in delinquencies of 4.8% were down 8 basis points from the prior year. While the year-over-year improvement in NCOs has widened given record flow to loss and supportive used values, the year-over-year improvement in delinquencies continues to moderate as expected. Portfolio performance has been solid year to date, but the macro backdrop remains dynamic. While delinquency rates are down year over year, they remain a watch item along with used values and foreclosure rates. In total, we remain confident in the credit quality of the portfolio and our ability to be dynamic in underwriting, servicing, and collections in the current operating environment. Turning to the bottom of the page on reserves, the consolidated coverage rate of 2.49% was down quarter over quarter driven by the specific reserve release in corporate finance previously mentioned. Retail auto coverage of 3.75% is flat with the prior quarter. Our coverage levels continue to balance consistent credit trends across our portfolios against broader macroeconomic uncertainty. Moving to slide 10 to review auto segment highlights. Pretax income of $410 million was lower year over year primarily due to CECL reserve build associated with strong retail asset growth in the period. On the bottom left, we have highlighted the trajectory of retail auto portfolio yields. Excluding the impact from hedges, yields were down 2 basis points quarter over quarter. Second-quarter originated yield of 9.1% was down approximately 50 basis points quarter over quarter as S tier increased to 47% of origination. The origination mix was influenced by normal seasonal trends, the measured posture we highlighted in April, and a higher-quality application mix, including stronger pull-through within those segments. As you recall, we had a richer credit mix and yield than we expected in 1Q, and we saw a pivot in the other direction this quarter with a cleaner mix and lower yield. The yield impact from higher S tier volume was partially offset by increased pricing in the like-for-like segments. Looking ahead, we expect S tier to decline modestly from 2Q levels and settle in the low to mid-forties over time, which we expect will support originated yields absent moves in benchmark rates. On the bottom right of the page, $13.3 billion of consumer originations were up 21% year over year as we continue to benefit from our deeper dealer relationships supporting application growth. Application volume remains the key to our success and highlights the strength of our franchise. Approval and pull-through rates remain consistent with prior quarters, but a wider top of the funnel provided incremental opportunities for accretive growth. Looking ahead, we remain confident in our ability to continue driving accretive growth; we would expect the year-over-year growth rates to moderate in the back half of the year. Turning to insurance on slide 11. Core pretax income was $24 million, up $26 million year over year. Total written premiums of $382 million were up $33 million year over year, while insurance losses of $208 million were up $5 million year over year. Insurance continues to drive capital-efficient, diversified revenue and remains a key component of our long-term growth strategy. We continue to leverage synergies with auto finance to sustain momentum within the business and deepen our all-in dealer value proposition as we help them succeed in all aspects of their business. Turning to corporate finance on slide 12. The business delivered another strong quarter with record pretax income and a 32% ROE. The team has a proven ability to deliver compelling returns while also driving strong growth as the portfolio is nearly $14 billion today, up 25% over the past year. Our long-standing relationships and deep underwriting expertise are the foundation of our differentiated risk management framework. Credit discipline underpins every decision we make, guiding our growth and is reflected in the performance of the portfolio. Credit has remained exceptionally strong with nonaccrual loans at historic lows in the portfolio. Results continue to showcase the durability of the franchise, and our prioritization of credit risk management will drive accretive growth moving forward. I will provide a brief update on our outlook before moving to Q&A. First-half performance has been solid. We are updating a couple aspects of the guide to reflect our latest view. We now expect average earning assets to be up 3% to 5%, versus 2% to 4% previously, as our expansion of the top of the funnel has resulted in strong consumer auto originations alongside continued momentum within corporate finance. As we have consistently emphasized, we are growing where we want to be growing while maintaining an underwriting posture to optimize risk-adjusted returns. This accretive growth will drive higher earnings over time but does present elevated reserve build under CECL in 2026. Additionally, we are tightening our range on consolidated NCOs, which we now expect will land between 1.2% to 1.3%, compared to the 1.2% to 1.4% range we shared in January. Reflected within the guide for consolidated NCOs is our outlook for retail auto. As I mentioned previously, we are pleased with the credit performance through the first half of the year and view the midpoint of our retail NCO guide as appropriate. With respect to margin, the guide remains 3.6% to 3.7% with the potential to exit the year above the high end of the range. While we continue to closely monitor the impacts of macroeconomic uncertainty and evolving interest rate expectations, which now include rate hikes this year, we are confident in our ability to deliver. The timing and magnitude of potential rate actions can influence margin for a period of time, but we remain confident in our ability to deliver on the full-year guide. In total, our focused strategy and disciplined execution continue to drive improving operational and financial performance. While we have made significant progress, our focus remains on sustaining our momentum and executing on the meaningful opportunities ahead to deliver compelling long-term value for our shareholders. And with that, I will turn it over to Sean for Q&A.
Thank you, Russell. As we head into Q&A, we do ask that participants limit themselves to one question and one follow-up. Elizabeth, please begin the Q&A.
Questions and answers
To withdraw your question, please press star 11 again. Our first question comes from Robert Wildhack with Autonomous Research.
Hi, guys. Maybe to start on retail auto and credit there. The net charge-offs were better than we were expecting, and the year-over-year decline there is accelerating, but delinquencies are kind of leveling out. And then add to that, you have got the quarter with the big spike in S tier volume. How does that all come together, both in the context of the 1.8% to 2% net charge-off guide this year? And then also, like, zooming out to the 1.6% to 1.8% loss rate you have talked about bigger picture.
Great. Thanks for your question, Robert. It is a great question. Maybe I will just start by saying we are pleased with performance in credit in the first half of this year. We have seen record-low levels of total loss rate and good support from used vehicle prices. As you point out, delinquencies have remained stubbornly high. Clearly, we are dealing with a consumer that is dealing with affordability; gas prices are also an issue. Overall, I would say we still see this macro as dynamic and are taking a measured posture in response to that. All that being said, we are pleased with the credit performance in the first half of the year and are holding our guide at 1.8% to 2% as you pointed out. We continue to think the midpoint of that range is an appropriate base case to center around. As we think about credit evolving in the back half of the year, the watch items that we are paying close attention to are delinquency, total loss rates, and used vehicle prices, given the support we have seen in the first half of the year from those items. As we think about credit on a longer-term basis, we have been originating in the 1.6% to 1.8% range. The NCO rate that we have in a given quarter is an expression of multiple vintages at various stages of their life in terms of loss development. As we have said before, it is our expectation that we will get there; we have not given a timeline to that. That is not something that we expect to get to in the next couple of quarters. You talked a little bit about S tier mix in your question. As we noted, when you look at second quarter, the originated portfolio in the second quarter had elevated S tier and it had some impact on yield during the quarter as well. I would not read too much into that. If you look at first quarter versus second quarter, first quarter we saw the opposite of that — we saw a richer credit mix and a richer originated yield, and we saw a pivot back in the second quarter. There are a lot of explanations for that. Number one, just normal seasonality — we expect to see a higher credit quality application pool in the second quarter versus the first quarter; we certainly saw that. As we talked about in April, we have a measured posture with respect to credit, and so that is certainly something that would have played into the mix through the quarter. All that being said, broadly, approval rates and pull-through rates were consistent through the quarter. It is our expectation, as we evolve over time, that the originated mix will migrate to an S tier mix that is probably more in the low to mid-forties over time. So I would not read too much into a single quarter's origination mix. We have seen that move from time to time, and as far as we see it, we think there is opportunity for that mix to migrate back to normal and provide support for originated yield as we move forward.
Russell, I might just add something. Do not read one quarter in isolation. If you take a step back and look at the consumer overall and even beyond our portfolio, what we do see is that there are certain consumers who are working through the higher costs that we are seeing in the system, particularly with higher energy costs. Unemployment rates are still quite constructive. The dynamic you see is that consumers are triaging on a real-time basis how they pay each month, and that can translate into delinquencies. We said last quarter that tax refunds would probably have more of an impact on delinquency; we did not quite see that. As you heard, we are seeing customers in delinquency more, but as Russell said, the total loss rates have been quite constructive. We are encouraged about what we see in total loss, and feel very good about how consumers are performing overall. Again, I would not over-read one quarter's origination mix; this does move around quarter to quarter.
Very helpful.
Thank you both.
Our next question comes from Moshe Orenbuch with TD Cowen.
Great. Thanks. Pretty impressive growth numbers. You did mention that you expected growth to moderate some. Could you talk about perhaps what is driving that? Is it what you are seeing from an application side? Is it the competitive dynamic? Maybe just talk about that a little bit. Thanks.
Right. Maybe I will start by giving our auto team a ton of credit for the traction they have delivered with our dealer base. The application flow that we are seeing has been really strong, and that is a credit to the relationships we have developed. We have retrained our dealers over the last couple of years to really send us all their applications, and in the last couple of quarters we have aligned our dealer rewards program and our overall strategy in terms of how we think about commercial conquest — all aligned around incentivizing our dealers to send us all of their application volume. That strategy has been working well for us and we think it still has runway ahead of it. Our expectation is we will continue to see strong application flow. That strong application flow gives us an attractive opportunity set in which we can really target strong originations — both in terms of volume and where we have the ability to manage yield and credit to target originations that deliver for us on a risk-adjusted basis. There is a lot in there, but much of what we see is the strength that has been driving the growth in application volume and thereby fueling the growth you see in origination volume.
Great. Thanks. And the area where results were lower than our expectation was purely in that reserve build area that you had noted, driven by the faster growth. As you look at that moderating growth, I think you mentioned that should lead to more moderate build in reserves. Anything that you would highlight in terms of the tenor? Obviously, you had high-quality loans originated this quarter, but anything that you would point us to in terms of that reserve rate as we go forward?
Yes. Our overall reserve levels on the auto side at 3.75% have held there; that accounts for a number of things. We have continued to see good performance and improvement in terms of NCO levels and delinquency rates in our own portfolio. At the same time, we are accounting for a macro that is dynamic and has some degree of uncertainty. As we have said previously, we do not plan around reserve releases as we think about our portfolio or our financials on a go-forward basis. The reserve rate we have now we think accounts for both the performance we are seeing in our current book, which we characterize as good, as well as the macro uncertainty that we see in the background.
Our next question comes from Sanjay Sakhrani with KBW.
Thank you. Good morning. I wanted to go back to the S tier originations. I know you said not to read too much into it. But as we think about the NIM expectations, it actually improved despite you doing this. It sounds like you are going to originate at a slightly higher run rate on S tier at least for the short run. Am I thinking about that correctly? Maybe you could just talk about what is driving that higher mix. Is it that there are opportunities in front of you where there is a competitive void? Or some proprietary flow coming through? Just help us with that too, that would be great.
Thanks, Sanjay. On S tier, I would not read too much into a quarter. There are a lot of things going on: seasonality and our measured posture with respect to credit played into it. When you think about originated yield and the like-for-like basis from 1Q to 2Q, we actually increased price. So you saw originated yield come down, but embedded in that was increased pricing on a like-for-like basis, which was overpowered by the movement up in S tier mix during the quarter. That ability to put price into the market is a good sign that should not be overlooked. Looking forward, we expect mix to continue to move around, but on balance it will migrate toward a lower S tier mix over time — low to mid-forties — which provides support to originated yield independent of benchmark rates. On portfolio yield, we expect it to be stable at current levels over the next few quarters. The read-across to NIM is different: we continue to expect NIM to increase. We showed a nice increase from 1Q to 2Q, a lot of which is the result of changes we made in deposit pricing during the first and second quarters. Those changes still have runway in the third quarter. We also continue to benefit from CD maturities, as higher-yielding CDs mature and roll into, for the most part, liquid deposits at lower rates. Over the longer term, lower-yielding mortgage loans and mortgage-backed securities continue to roll off our balance sheet while we grow higher-yielding retail auto loan and corporate finance portfolios. Some dynamics play out over the next quarter or two and some over a longer period; together they continue to contribute to NIM expansion.
It is interesting — a lot of this works well because of our top-of-funnel volumes. I know we talk about this a lot, but it is incredibly powerful. Seeing the top-of-funnel increase in the high teens gives us the ability to constantly optimize. Our optimization in one month might be different than the month after. We keep increasing share with an optimized mix, which is why these strategies are not set-and-forget. We are always optimizing and looking at what the market has, how pricing and risk match, and top-of-funnel volumes make all this possible. It is a real testament to the team and the Dealer Financial Services franchise.
100%.
Thank you. Michael, just to make sure I am not missing something: this measured approach on growth and credit — it sounds like those are just broader macro trends, nothing specifically that you are seeing inside your portfolio on how consumers are behaving. Correct? The credit numbers look pretty good.
The credit numbers are good. We have had a cautious tone over the past year and a half; the uncertainty in the environment feels higher than normal with tariffs, oil price volatility, and other factors. That volatility is why we use words like 'measured.' It is reflected in some of our approaches in underwriting and volume creation. We are building the business for the long term and making the right decisions each day given this uncertainty. The environment can change quickly; even three weeks ago conversations would have been different than today, and that is reflected in our language.
Thank you.
Our next question comes from Brian Foran with Truist.
Hey. Good morning. Two questions on credit. Maybe to start on retail auto. Russell, I think you mentioned the vintage stuff you look at. For a while here there has been a built-in improvement because the 2022 and 2023 vintages are burning off, and then the 2024 and 2025 vintages are pretty consistent at better levels than you used to show us. Can you talk through that dynamic? First, is the 2022–2023 vintage burn-off still a benefit? Or is that played out? As you look at 2024 and 2025, is it too early to look at 2026 originations? Are vintages improving or deteriorating from that post-2023 level?
Great. It is a great question. When you look at our NCO rate during a given quarter it is an expression of many vintages at various points in their life cycle. While we have mostly been through the 2022 vintage, we still have loans from 2022 on our books and they still contribute to our overall loss rates today. We also have loans from the first half of 2023. As you entered the back part of 2023 and into 2024, we saw the full effect of curtailments we put in place. Those vintages exceeded our expectations in performance and continue to do so. We made changes throughout 2025 in response to observed performance. We do not expect to see the same outperformance from the 2025 vintage versus 2024, but 2025 is still a very strong vintage from our perspective.
When you look at NCO rates for a given quarter there is a lot going on with different vintages. We continue to see some benefit from the roll-off of the 2022 and first-half-2023 vintages, positive contribution from the outperformance of the 2024 vintage, and some normalization as we work through the 2025 and 2026 vintages. The 2022 vintage was a tougher vintage in terms of delinquency curves and severity; working through it has been constructive. We feel good about where we are positioned.
Thank you. If I could sneak one in on corporate finance, I am looking specifically at page 15 in the supplement. It is only 4% of your reserve even with the loss, but it gets outsized interest from investors given everything in the market. Could you speak to this new coverage ratio of 1.19% now that the large legacy healthcare loan is gone — is that a normalized level for this business? Are there any other loans similar to that healthcare loan that may require resolution? And, if meaningful, is there any difference in that reserve level for the private credit versus the rest of the book?
There is a lot to unpack. I'll start with the healthcare loan we charged off in the quarter. This loan was made in 2015 and is part of a vertical we no longer play in corporate finance. The loan was put into nonaccrual status back in 2018. Our corporate finance team is very credit-first and worked through this loan over a long period of time, reserving conservatively and getting to a resolution where the charge-off was less than the reserve built over time. That led to an overall release. More broadly, our criticized assets and nonaccrual loans are at historic lows in the portfolio, which speaks to the credit-first culture in corporate finance and the team's long-term management of credit. We do not run this business as a zero-loss business; we expect losses and have a team that can work through tough credits to good resolutions. When you look at our reserves at any point in time, it is a combination of modeled loss reserves, specific reserves on specific loans, and some management discretion. Given the large charge-off in 2Q, our specific reserves have come down meaningfully, which is what you are seeing in the change in reserve levels for corporate finance and consolidated Ally overall. As you manage the business, expect some movement in that overall reserve number over time, particularly given the lumpiness of the business and how credit evolves. To your question about similar loans, we do not have additional loans like that in our portfolio. The private credit portfolio is strong. Corporate finance is an important component of our strategy and performance, and the team's handling of this loan demonstrates effective workout capability and conservative marks.
Thanks so much.
Our next question comes from Jeff Adelson with Morgan Stanley.
Hey, good morning. Thanks for taking my question. I wanted to focus on expenses a bit. You are pretty clear that the year-over-year growth rate accelerated this quarter, I think due to some noise or differences in the comps. As we think about your unchanged guide for the year, does that imply about a 3% growth rate from here? Is that the right way to think about the level of expense growth required? As you have seen revenue growth step up, help us understand how you are thinking about operating leverage from here and the opportunity to reinvest back in the business.
Great question, Jeff. Expenses in the quarter were as expected. It is important to point out the positive operating leverage we saw in the quarter — expenses up roughly 5% while revenues were up 10%. We expect to continue to show positive operating leverage going forward. Your commentary about the forward outlook on expenses is appropriate. We do not provide guidance beyond this year, but your overall observation makes sense. We expect to grow revenues faster than expenses and continue to benefit from operating leverage on a go-forward basis.
I would characterize that as a benefit of our focused strategy. We are focusing on businesses where we have competitive advantages and relevant scale. Our growth is concentrated in areas where we do well, which puts us in a position to drive positive operating leverage going forward.
Great. And as my follow-up, the share repurchase trend has been about $150 million a quarter over the last few quarters. Is this the right cadence to think about from here? Are you waiting for more final confirmation around the new capital rules before re-evaluating that trend? Remind us: is the right target post capital rules still the 9% level you have thought about historically? Help us understand the capital return path.
We are pleased with the capital build we have executed over the last couple of years. The proposals are still proposals and have not been finalized, but under RSA on a fully phased-in basis we are north of 9%, which is the management target we have talked about for years. That positions us well. The heavy lifting on the capital build is largely behind us and we are positioned to execute on our strategy of "and, not or." You will continue to see a strong emphasis on providing capital to grow our businesses in an accretive way, along with capital returns to shareholders through dividends and repurchases. We expect our capital ratio to drift higher over time, with heavy lifting behind us. We are not going to give specific promises about repurchase volumes quarter to quarter, but we are growing where we believe it is accretive and additive. Share repurchases are something we execute after caring for accretive growth and our dividend.
Great. Thank you, Russell.
Our next question comes from Ben Gurlier with Citi.
Hi, good morning. I wanted to follow up on deposit funding. You alluded to not a lot more juice to go lower. When I look at your OSA rates, it seems like you cut them twice in the quarter. And CD rates roll on and roll off are roughly the same. So to think about Q3 as kind of the floor mainly just from the averages on that end — the OSA rate specifically — is that right?
I would say on the cuts during the quarter, we will have the benefit in 3Q from having those cuts in place for the full duration of the quarter. There is still some benefit left in overall deposit costs from that in the third quarter. On CD roll-off and roll-on, a lot of our CDs roll into OSA when they mature, and so we still expect to see some benefit from CDs rolling off into OSA as you progress through third and fourth quarter. We continue to have those benefits.
In terms of the broader economics of deposits, part depends on what we see in terms of the Federal funds rate.
Our current expectation uses the forward-rate curve as of June 30, which had one hike priced in September and another early next year. A hike affects the path for us and can influence NIM in any given quarter, but it does not change our destination: our deposit and asset pricing tend to react over time. Our destination in terms of the high-threes for NIM remains unchanged, but you could see some movement quarter to quarter depending on rate actions.
That is helpful. Thank you.
Our next question comes from Rick Shane with JPMorgan.
Hey, guys. Thanks for taking my question. One of the things we have observed historically is that when gas prices spike, consumers substitute vehicle types and it creates distortions in used car prices. Over the last decade, U.S. consumers have become pretty sanguine about driving big SUVs, which has helped price stability of used cars. Is there anything you are seeing now in terms of auction prices by vehicle type that we should be thinking about, or anything interesting in terms of consumer behavior in vehicle substitution?
It is a good question. There is always a lot going on: vehicle type, manufacturer-specific fuel economy gains, and individual OEM issues like recalls. One area to look at is EVs. We have seen more interest in EVs and hybrid vehicles with elevated gas prices. On the margin, there is incrementally more interest in those vehicles and generally in more fuel-efficient vehicles.
And is that dampening some of the accelerated depreciation and quicker obsolescence of those newer types of vehicles we have experienced over the last few years?
I would not say that. Broadly speaking, used vehicle prices have been strong, which has been helpful as cars come back from lease and in repossession resolution. There are individual issues with specific models that have led to changes in how we think about depreciation rates, but those are targeted to OEMs and models that encountered specific issues.
Got it. Always interesting. I appreciate it very much, guys.
Thank you. Okay, Rick, thank you. Do we have any more questions? That is it.
I might just take a moment — we still have maybe two minutes — to thank everyone for joining the call and to provide some reflections on the quarter and where we are on our path. This quarter provides evidence that our strategy is working. For a while now, we have outlined our path to higher returns is dependent upon three drivers: lower auto losses, higher NIM, and disciplined expense and capital management. I think you can see we are making very good progress in all three, and it is showing up in the business. The combination of earnings up over 20% year over year for this quarter and up over 60% last year on a year-over-year basis — we are doing that while growing our core businesses very well: auto originations up 20%, corporate finance loans up 25%, and our consumer bank with a 7% increase in customers, which is a great number for a retail bank. These are very strong growth numbers on top of very strong earnings numbers. There will be ebbs and flows quarter to quarter, but we feel very confident about the destination, the direction, and the path. This is a fundamentally different Ally — we are driving stronger performance and greater resilience, and we see a path to continued improvement. Thank you for joining the call, and I appreciate the support.
Thank you, Michael. That is a great way to wrap up. If anyone has any additional questions, as always, please reach out to Investor Relations. Thank you for joining us this morning.
That concludes today's call. Goodbye. This concludes today's conference call. Thank you for participating. You may now disconnect.