Moving right along. Very pleased to have Ally Financial with us. From the company, Russ Hutchinson, Chief Financial Officer. Russ, welcome.
Thanks, Jason. Glad to be here.
Maybe the best place to start is just big picture. I think when you were here two years ago in the third quarter, Ally put up a 5% ROTCE. Consensus for this quarter, 13%-14%. Obviously, a big improvement if that proves right, which we will get to. Let me talk a bit about what has gotten you here and speak to kind of what work remains.
Great. Thanks, Jason. I am glad you mentioned the improvement we have seen in profitability over the course of the last two years. I think it is really strong evidence that the power of Focus, our Focus strategy, is working. We are doing three things simultaneously. We are growing our core franchises, we are increasing our profitability, and we are managing our risk. That improvement in terms of our performance is anchored in real improvement in our franchises. We have a customer-obsessed culture, and that is delivering for us in terms of the traction we get. If I look at our Dealer Financial Services business, you can see that traction in terms of our application volume. When I look at our Corporate Finance business, it is in our investment portfolio there. When I look at our deposit business, it is that strong customer growth that we see year-over-year.
Across all of our franchises, we're really delivering, and we're seeing the benefits of that delivery in terms of traction with our customers across all three franchises. I think we're pleased with our results so far to date. We expect to be on track with respect to the guidance that we delivered back in January. We're on track with respect to our medium-term targets. I am sure as we talk through this, we will talk a lot about net interest margin. We're dealing with pressure along with the Stellantis relationship from the recalls. Obviously, we've seen the interest rate outlook change. I am glad to say we continue to be on track in terms of the guidance that we delivered. We are managing through those. When you look at retail auto NCOs, I am sure we will talk a lot about retail auto credit as we go through this.
Again, we continue to be on track. We delivered guidance at the beginning of the year with the expectation that the midpoint was a pretty good guess of where we would land within that guidance, and that continues to be our assumption today. I know we will talk a lot. We will probably talk about vintage curves, and we will talk about just some of the headwinds we have seen this year with oil prices, et cetera. Again, we have managed through that, and we continue to be very much on track. Longer term, it is our expectation that we will see retail auto NCOs drift lower towards our originated target range of 1.6%-1.8% as we move forward. We feel pretty good about how credit is developing in terms of the trajectory. In terms of operating expenses and capital efficiency, again, we feel good about how things are progressing there.
First half of the year, you have seen our operating expenses flat to slightly down. We have always talked about a low single digits range going forward, and we entered this year with guidance that we expected OpEx up about 1% over the year. You will start to see that lower single digits materialize over the back half of this year. Again, in our view, that reflects really strong discipline on operating expenses, our commitment to delivering positive operating leverage. On the capital side, we continue to deliver on the story of and, not or. The heavy lifting is behind us in terms of building up our capital ratios, looking at it on an RSA fully phased-in view. As we look forward, we think the first half of this year provides a pretty good template for how we think about capital.
That is, having capital on hand to invest in the growth of our core franchises, prioritizing growth in our highest profitability products, in retail auto loans and Corporate Finance, and at the same time, returning capital to shareholders with our share repurchase program. We look across the board, and we feel pretty good about the trajectory that we have established and the track record over the course of the last couple of years since we launched Focus Forward.
A lot in there. Hoping we can unpack that. I guess the two areas I get most asked about is NIM and retail auto charge-off. Let's maybe start with NIM.
Yeah.
You've guided for the full year 3.6%-3.7%, which it sounds like you still feel good about. You talked about maybe the potential to exit this year above the high end of that range. Maybe talk to the ability to do that. You talked about kind of high 3s over time. The Fed, I'm told, is hiking tomorrow. How does that potentially impact your outlook? Just talk about the potential hedging strategies to maybe reduce some of that NIM variability going forward.
Yeah, no, there's a lot in that question. Maybe where I'll start is, we're pleased with the NIM expansion that we've delivered so far. You dial it back a couple of years, ex cards, our NIM hit about 3%. Second quarter, we were about 3.6%. That expansion is something that we're pleased to have delivered and gives us confidence as we think about the forward. I'd say, look, the NIM story is very much anchored in that customer obsession, that traction that I described with customers beforehand. We see it on both sides of our balance sheet. We exercise a lot of pricing discipline on both sides.
Within retail auto, that application volume that we talked about, it gives us the ability to look at a lot of applications to really assess credit and then to manage our book from a quarter-to-quarter basis in terms of maximizing our risk-adjusted returns. On the deposit side, that strong deposit customer growth that we have provides a nice anchor for us to be disciplined in terms of how we price deposits going forward. That's anchored in real things that we're doing with our customers, our commitment to our dealers, our consistency over a long period of time. I was at The Ally Challenge a few weeks ago just outside of Detroit. I'll tell you, dealer after dealer thanked us for our consistency, our reliability in the market, and I think that pays dividends in terms of the traction we have with our dealers.
We've made a lot of changes to our business to help them sell more cars. One of the changes is we've asked our dealers to send us all their applications, and they're doing that, and that gives us more looks and more opportunity to manage towards risk-adjusted return and to be disciplined on the asset side of the balance sheet in terms of pricing. Similarly, when you look at the deposit side, we've made real investments in our deposit platform, providing a digital experience that's second to none, a nationally recognized brand that resonates with our customers, a long track record built on trust and doing things the right way for our customers, and that's paid dividends for us in terms of 7% year-on-year growth in customer accounts in the first half of this year, and it's something that we expect to continue building upon.
So that NIM expansion that we've seen over the last couple of years is really anchored in things that we've done in the business. Now, as I think about more current terms, if you look over the course of this year, we started the year back in January. We gave a guide of 3.6%-3.7%. A lot of things have changed. Obviously, the interest rate outlook has changed. We've seen some headwinds in terms of gains or more appropriately, losses on lease terminations. Some of you will remember at the start of the year, we talked about PHEVs, plug-in hybrid electric vehicles, and some of the challenges we had there as a result of recalls and other changes in the industry. I think it's well known that our lease terminations this year are somewhat over-concentrated in Stellantis.
Stellantis recalls on plug-in hybrids hit us hard towards the beginning of this year and the end of last year. Now they've extended recalls to a broader swath of their vehicles, including internal combustion engine vehicles, so we're seeing the impact of that. We now expect to take about $20 million of lease losses in the third quarter. So where previously I would have expected net interest margin to be up quarter over quarter on the back of some of the deposit pricing changes we made in the second quarter, we now expect it to be more or less flattish.
That's a headwind obviously we didn't anticipate in January, but I'm pleased to say that it's still our expectation that we'll be in the range of 3.6%-3.7%, and it's still my expectation that we'll exit the year at the high end or above that 3.7% mark. So we feel pretty good about our ability to manage a changing rate outlook and other bumps in the business and still deliver on the guidance that we gave back in January. The rate outlook has obviously changed. You mentioned that in your question as well. We're now expecting one or two rate increases. The first one we expect tomorrow, and then we'll expect another one early in 2027. Interestingly, the effect of a rate increase in terms of the current quarter is positive.
We do have a significant floating rate portfolio between our commercial auto Corporate Finance as well as our hedging portfolio. Effectively, those yields adjust real time, right away. On the deposit side, we are going to be disciplined on deposit pricing. You saw us when rates were coming down, we were disciplined. We got to a 69% beta on the way down, and we are going to be disciplined on the way up. We will manage our deposit pricing on the way up to hold on to some of the benefits of those rising rates on the floating rate side of our business. Again, we have dealt with some headwinds here and some changes in terms of the rate outlook and in terms of lease residual performance. Again, we are managing through that. Our guidance remains intact, and nothing has changed from that perspective.
Similarly, a lot of the same factors that have been driving our overall expansion in NIM for the last couple of years remain intact. The biggest driver will be the remixing of the balance sheet. As we continue to put on higher-yielding retail auto loans and Corporate Finance loans while running off lower-yielding mortgage loans and legacy mortgage securities, we have a natural gravitational pull upwards in terms of our net interest margin over time, and we continue to believe we have a strong trajectory towards our high threes medium-term objective.
A lot in there.
A lot in there. You asked about hedging as well, which is an important part of our risk management strategy, and we continue to hedge very dynamically. I would also point out that we have made real structural changes to the business to reduce that interest rate risk volatility. Exiting, discontinuing mortgage originations, running off that portfolio. The way that we have changed our approach to our investment portfolio where we are taking the runoff of that portfolio, we are reinvesting it in shorter duration securities. A case in point is the securities repositioning we did last year in 2025, where we took a large chunk of that legacy portfolio and repositioned it into shorter duration securities. We are making real changes to our business to help manage that asset liability in a better way.
Okay. A couple quick follow-ups. You talked about the $20 million lease residual loss in the third quarter. Is that just entirely tied to Stellantis and we'd expect that to kind of not reoccur in the fourth quarter? I guess, how should we frame that?
Yeah. It's tied to Stellantis. It's vehicles that have been impacted as a result of their recalls. I'd say, and I'm glad you doubled down on that one. We're overexposed on Stellantis lease terminations this year, but that changes over time. Many of you guys who've been following us for a while know that, I think it was the first quarter of 2024, we entered into an arrangement with an EV manufacturer. A lot of our lease volume actually pivoted towards that relationship. That relationship has residual value protection built into it. Those leases are going to start coming off at the beginning of 2027, so beginning of next year. At the same time, we diversified the remainder of our lease originations, more away from Stellantis and towards a more diversified mix of OEMs. Once again, that takes effect as well.
I think the Stellantis pressure will certainly be an issue through the remainder of 2026. As we get into 2027, we'll see that Stellantis lease termination concentration abate. By the time we get through the end of 2027, that pressure is gone.
I guess on deposit pricing, I think the cumulative data on liquid savings has been around 70%. One of the things we've seen is kind of CD rates drift higher.
Yeah.
In front of this Fed hike. Just how should we think about that looking out?
Yeah. I think we've seen a lot of competitors use the CD product as a way of offering rate to their customers. We're coming in a relatively strong position in terms of the strength of our brand and that underlying growth in customer accounts. We've been able to be a little bit more disciplined. Now we've put some rate increases on the CD side as well. But we've been more disciplined relative to the rest of the market. Also, when you look at our overall concentration of CDs, that's come down over the course of the last couple of years. Again, we have a few benefits built into our business to help us manage through that.
I guess then maybe shifting to the other side of the balance sheet. Q1 origination skewed richer and Q2 origination skewed towards kind of maybe higher credit quality. Just how are you thinking about the S tier mix, and just the impact to originated yields and portfolio yields, the rest of this year into next year?
Yeah. Look, I think it's easy to get caught up in the quarter-to-quarter dynamics, but I really caution you against reading too much into any one quarter's originations. As you pointed out, Q1 was rich in terms of yield and with a lower S tier concentration. Q2 swung the other way in terms of higher S tier concentration, lower yield. Interesting in Q2, kind of buried in that improving S tier mix, we put a lot of price into the market. If you looked at Q2 cohorts on a like for like basis in terms of credit, we actually put a significant amount of price increases through the market. Now, as I look at Q3, our expectation is we'll see a good improvement in originated yield. That'll come primarily from putting price into the market.
We've talked about the S tier mix settling in long term in the low to mid 40s. I think for the third quarter, we'll probably be more like mid 40s. So maybe a little bit of progress there in terms of bringing that S tier concentration down. Most of that yield improvement that you're going to see is going to be driven by the pricing actions we took in the second quarter, basically continuing through the full of this quarter, and pricing actions that we've been able to put into the market over the course of third quarter as well.
We continue to feel pretty good about the competitive environment, and we feel great about the traction that we have with our dealers that's really driving the application volume, which is giving us the ability to be able to manage for the best risk-adjusted yield possible in our portfolio. Again, we continue to feel good about where we are in the pricing side on the auto business, and we think it's supportive to our high 3s margins over time.
Helpful. Maybe shifting gears to credit quality. I guess this morning kind of reiterated the midpoint of the 1.8%-2% guide for retail auto NCOs. I guess that's 1.9%. Just maybe just talk to just how to think about the progression in the back half of the year and just how you're thinking, looking out further at kind of normalization towards price expectations over time. I think you said talk about 1.6%-1.8% for-
Yeah.
NCOs.
Yeah. We're pleased with the performance that we've seen in the book year-to-date. I'd say in the first half of the year, flow to loss rates and used vehicle prices were probably better than we had expected. And we talked pretty openly about our expectation that those things will normalize through the back part of the year. When you look at our guide of 1.8%-2%, and you look in particular at the midpoint, and you look at what we printed in the first and second quarter, it's pretty clear that in order to get to that midpoint, say to 1.9%, that would imply that NCOs are flat to slightly up in the back part of the year. And again, that was anticipated. That was expected on our part.
That support that we were getting in particular from used vehicle values, we expected some normalization there, and we believe we are seeing that. We feel pretty good about 2026 being yet another example of our calling credit and pricing risk appropriately. Then longer term, we continue to expect retail auto NCOs to drift towards that originated range of 1.6%-1.8%. We haven't put a timeline on that, but we certainly expect that continuing drifting.
All right, so two follow-ups. I guess one, you talked about used vehicle prices. Just how do you think that plays out, looking maybe beyond this year into next year?
I think our expectation over the medium term is we expect to see continued support in terms of used vehicle prices, and it's really grounded in the supply of vehicles manufactured over the last three to five years. Just coming out of the pandemic, manufacturing capacity was constrained. The other part of support is just what we've seen on new vehicle MSRPs. Just the price of new vehicles and the used vehicles really providing the best affordability option for the customer. We see those two things, the support we're getting from new vehicle MSRPs, as well as just supply constraints as being helpful to used vehicle prices over the next couple of years.
Then I want to maybe just ask about vintage curves. They've got a lot of attention recently, particularly around 10-Q season, looking at 2025, 2026 vintages in particular. Love to hear your take on what you're seeing there or any emerging trends in your book that may have contributed to some of these dynamics. Let me just talk about what you're seeing.
Yeah. Again, we continue to be pleased with what we're seeing. We've been talking for a few quarters now about the 2024 vintage having outperformed our expectations. That's not necessarily a goal of ours, and so we expected the 2025 vintage to not perform quite as well as 2024, and that's what we planned for. It's what we modeled for. It's what we're seeing. Nothing in the vintage curves surprises us. You mentioned 2026. I know a lot of people look at the 2026 data. In our view, it's too early to read anything from that, but there's nothing there that surprises us as well. We continue to feel pretty good about our loss guide for this year, obviously, and about the trajectory going forward. As you can imagine, for us, credit is very dynamic in terms of the way that we underwrite.
We simplify everything. We talk about the S tier population, but the reality is we're looking at monthly vintages across a number of different cohorts. We divide them into what we call microsegments, and we're looking at multiple characteristics of each of the cohorts to define the microsegment. We're constantly looking for microsegments that are outperforming our price expectations and microsegments that are underperforming our price expectations. As you can imagine, we're dynamically making changes to our pricing, to our underwriting threshold, to our rules for what gets kicked to manual underwriting in order to address any kind of variances that we're seeing positively or negatively. Again, at a very granular level in terms of analyzing all of these different microsegments. So we continue to be dynamic in terms of how we manage credit.
As you can imagine, we're always going through periods where we see certain segments that are underperforming and others that are over-performing. We're dynamic. We're adjusting for that on a real-time basis. As we look at the vintage curves 2024, 2025, and what we've seen in the early days of 2026, we continue to be confident in our ability to manage credit moving forward.
I guess 1.9% in charge-offs this year, retail auto at a 1.6%-1.8% normalized. Is that something we could see next year? How should we think about that?
We'll give guidance in January the way that we typically do. That gives us the benefit of looking at how credit performs over the back half of the year. That's how we do it. We haven't promised any specific timing on the 1.6%-1.8%. We'll come back to you in January with a view in terms of 2027 NCOs.
Okay. All right. A lot of financing. Maybe let's go to the operational side of the house.
Right.
We've seen very strong growth in auto application flow, despite the fact that I feel like the market's been competitive. Maybe just share what's behind the strength we've seen and just current expectations for the pipeline and continued growth opportunities.
Yeah. Look, I've said it a couple of times. We've been really pleased with the traction that we have with our customers. We launched the Focus strategy, I guess, about a year and a half ago. The dealer response was positive from the get-go, and it continues to be really positive. I mentioned earlier, I was at The Ally Challenge event a few weeks ago just outside of Detroit. I'll tell you, multiple dealers came up to me and they're really pleased with our ability to really focus on their business, right? Our goal is to help them sell as many cars as possible, and our Focus strategy has allowed us to focus our capital to that end. It's also allowed us to invest and focus our technology and platform investments in our dealer franchise.
We get a tremendous amount of mileage from that with our dealers. We also have a 100-year history in the business of being a consistent and reliable partner. A lot of the dealers that I spend time with, we served their parents and in some cases their grandparents. One of the changes that we've made over the course of the last couple of years is we've asked our dealers to send us all their applications. Just given the scale and the breadth of our platform, we're one of the few originators out there who have the ability to do that and to be credible with dealers doing it. Recently, we've changed our Ally Dealer Rewards programs to align incentives to delivering applications. It's paid off, and it's one of the things that's been driving that strong year-over-year growth in application volume.
I do think we have more to go on this strategy. I'm excited to see the progress we've made so far, and I'm even more excited to see the progress that we can make going forward in terms of deepening our dealer relationships and driving even more traction.
Interesting. Maybe just touch on the competitive landscape. We had Wells Fargo this morning talk about good growth in auto. We have Truist speaking next, talking about selling auto. I know there's always puts and takes. Maybe just talk about what you're seeing.
Yeah. Auto is one of those areas where the competitive landscape is always shifting somewhat. I remember, maybe it was like a year and a half ago, when Wells Fargo was just coming in. It felt like competition was heating up quite a bit. I'd say 2026 year-to-date, it feels like that's leveled off somewhat, and as I look at the competitive landscape, it feels pretty favorable. Obviously we're seeing that in terms of our application flow and also the growth that we've printed in terms of originations. You've seen some players step back somewhat from the sector as well. I think this ebb and flow of players coming and going, I think that serves us well with our dealers, because our dealers respect the fact that we're consistent and reliable as partners in the industry.
Great. As maybe Carvana, I know you recently upsized your agreement with them to about $8 billion. Maybe just discuss that relationship in detail and the prospects for additional partnerships.
Great. I think Carvana is a great example of where we're partnering with those who are innovating and driving innovation across the industry. We've been able to grow our relationship with them in tandem with their growth. We've been partnered up with them for quite some time. We've got a great track record with their originations in terms of being able to compare what we see in our Carvana book with what we see in the dealer channel. The volume that we get from them performs as well, and in some cases better than what we see in the dealer channel. We feel really good about that relationship and our ability to grow with that. In my view, that's just one example of where we're partnering in the industry. We're partnered up with a number of OEMs, including on the electric vehicle side.
We're partnered up with most of the major public and private dealers in the country. I'd say, even as you look at our pass-through program and our SmartAuction program, we've got a number of strategic partnerships there that we're also proud of and are delivering accretive growth in our other revenue line. I think Carvana is just another example of that, and again, we're delighted with our ability to grow alongside them.
Got it. In terms of the digital bank, growth's been strong there. That's obviously another competitive segment. Maybe just talk about the type of deposits you're attracting and how you deepen those relationships beyond just the deposit.
Yeah. No, it's a great question. When I look at that 7% year-over-year customer growth that we've seen in the first half of this year, I think that's pretty unique. I think you'd be challenged to find other regional banks of our size that can produce that kind of customer growth. I think it's on the back of a number of things. I think one, we were obviously early movers in digital, right? That's clearly where the gravitational pull is going in terms of consumer preference. I think we've been consistent over the, I guess it's now 16 years that we've been digital deposit takers and doing it right for our customers. We're aligned in terms of our platform, in terms of our products, and in terms of our brand. We've been consistent for a long time.
I think all those things feed into our ability to attract customers. When I look at that customer growth that we're seeing today, it's really important to note that we're growing customers in a place where we think it's really valuable. 75% of our customer growth is coming from millennials and Gen Z customers, so really attractive cohorts from a demographic perspective. They're also customers who tend to engage with us across our platform. So they're engaging across multiple products, so that means in addition to having a liquid savings account, they may have a savings account. They may have a checking account. They may be doing some direct deposit. They may have an invest account. They're investing with some of the tools that we've built around savings.
We think we're attracting a more engaged and ultimately stickier customer that's going to be more valuable to the franchise going forward. There's a lot that we see that we feel really good about in terms of the growth of our deposit customer base.
Maybe shifting to Corporate Finance, we've seen pretty strong growth, decent good returns, good credit. Just maybe think of the next phase of growth for that business.
Yeah. We've grown our loans in that business by about 25% since we moved to Focus Forward. We're delighted with that growth. A lot of it is coming from existing relationships. It's important as we think about that Corporate Finance business, our goal in Corporate Finance is to be the most important financial provider for a small set of relationships that we cover. For the most part, our sponsor relationships extend for years and in many cases, for decades. We're their preferred lender, and our model is to do senior secured lending alongside trusted long-term institutional and long-term partners who are putting a significant amount of capital at risk ahead of us. That business is absolutely a credit-first model. It's a business where we're leading the majority of the transactions that we're underwriting. It comes from our relationships.
We're leading the structuring, the underwriting, and the servicing of those loans. In some cases, we're able to also scoop syndication fees by syndicating out to others. There's a lot behind that growth in terms of being able to manage that growth responsibly. Our expectation is this is a growth area for us. We're going to continue to look for opportunities to grow, both with our existing verticals and with our existing clients, and as well as new verticals. We launched an energy and infrastructure vertical about a year ago. It's going really nicely. As you can imagine, we're growing at a measured pace, respectful of the credit culture of the business. But again, this is an area we want to continue growing in.
Okay, we have eight minutes left and five questions. Let's bang them out. Capital. Its priority is growth, buyback, how we think about CET1?
Yeah, look, I think the heavy lifting is behind us in terms of building up our overall capital levels. Fourth quarter, looking at capital under RSA fully phased in, we feel pretty good about where we landed. We also feel good about this story of and, not or. Our ability to put a significant investment into growing the core businesses, particularly the higher return products in retail auto loans and Corporate Finance, and also support capital return to our shareholders. We restarted our buyback program last December, and we've had a good start. I think you can look at the first half of this year as a pretty good template for how we execute the story of and going forward.
Got it. You guys have been an active user of SRTs, or CRTs, I guess. Just maybe how you think about that going forward and just the upcoming capital rule changes influence you at all?
We continue to see CRTs as an attractive outlet for us. We did a deal, I guess, a few weeks ago. It was just over $6 billion of notional. So I think it is probably the largest deal that has been done on the auto side. The investor demand was really strong. It is our expectation we will continue to be opportunistic in that market and continue to look at it as a very low-cost source of capital for our business. We do not expect that to change under the new capital rules. We continue to expect to be active users of the CRT market.
Maybe fee income, not always called out as a main driver for Ally, but it does help profitability. Maybe just talk to kind of where you see that going, kind of where you are looking to maybe best opportunities to grow that go forward.
We are really pleased with the growth we have seen, in particular in the pass-through program and SmartAuction. Both of those programs are leveraging our scale and our platform to drive high-margin revenues for the business. We are also proud of what we are doing on the insurance side, and we think there is a lot of opportunity to deepen the coordination between our insurance business and our auto finance business in terms of how we face the dealer and ultimately drive more revenue growth on the insurance side. So we feel pretty good about all the pillars of our other revenue and our ability to continue to grow that other revenue line going forward.
Got it. Then maybe on expenses. You guys have been disciplined. I think you talked about maybe a little pickup of growth in the back half of the year, but we should, I think, still see positive operating leverage. Just how do you weigh expense discipline against investments needed, AI, cyber, and the like?
Yeah. So we've been self-funding a lot of our investment and then some. So we've been pretty proactively streamlining across the organization. I got to say, the Focus strategy has been a good catalyst. Simplification in terms of our mandate as an enterprise has helped us streamline across the board. We look for opportunities to get gains in our businesses. So we've been able to leverage savings from that streamlining effort across the organization in order to make the necessary investments in cyber, in AI, and then also investments in our core franchises in order to continue the growth trajectory that we have. So we've been pretty pleased with OpEx being flattish over the last few years, flat to down through the first half of this year. Our guide, as you mentioned, our guide for the year is about +1% on OpEx.
That obviously implies in the back part of the year, OpEx will look more like our medium-term guide of kind of low single digits. That's fine. That's reflective, again, of a tremendous amount of discipline on the operating side. We think that positions us to make good on our commitment to drive positive operating leverage across the enterprise.
Got it. We've, I guess, gone through a lot so far.
Yeah.
But I guess before we wrap up, anything to note on the third quarter beyond that we haven't discussed? What's getting most of your attention as we move through the back half of the year? Just how are you beginning to think about 2027?
Yeah. Look, we feel good about our progress. We feel good about meeting our guidance that we delivered back in January. Yeah, I'd say the one piece of guidance that we've tweaked over the course of the year is we did lift our average earning assets growth target up. As many of you guys know, average earning asset growth comes with CECL. That's something that we've been managing through as well. We talked a little bit about the headwinds we're managing through on the lease side. Look, I think we've hit all the points, and I think the summary of it all is we're really pleased with the performance that we've seen year-to-date. Obviously, we're managing through some of the changes that we've seen in the environment and some of the headwinds in our business specifically.
It doesn't change our commitment to the guidance that we put out at the beginning of the year. We expect we're on track with respect to our medium targets in terms of NIM, retail auto NCOs, our management of operating expenses, and capital. We continue to feel good about our trajectory.
I guess you mentioned average earning asset growth. I know last quarter you raised the guide from 2%-4% to 3%-5% for the year. Is that still the right way to think about it?
Yeah, that is right.
Then you threw in CECL reserve build. I know we saw, I think, a $50 million build in the first quarter, $26 million or $36 million build in the second quarter. Are those kind of the pace of reserve builds we should think about going forward?
Yeah. I do not have the math in front of me here, but that sounds like it is probably about right. I think the math is just look at our reserve levels and then look at that earning asset growth, and I think it is pretty easy to back into the right math there.
Great. Perfect. On that note, please join me in thanking Russell for his time today.
Great. Thank you. Thanks, Jason.