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Ally Financial (ALLY) Stock Gains 6.1% on Q2 Earnings Beat

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Shares of Ally Financial (ALLY - Free Report) gained 6.1%, following the release of its second-quarter 2021 results. Adjusted earnings of $2.33 per share convincingly surpassed the Zacks Consensus Estimate of $1.55. The bottom line showed significant improvement from 61 cents recorded a year ago.

Results benefited primarily from an improvement in revenues, partly offset by higher expenses. The company recorded provision benefits in the quarter, which was a major positive. However, loans and deposit balances declined marginally.

After considering non-recurring items, net income (on a GAAP basis) was $900 million or $2.41 per share, up from $241 million or 64 cents in the prior-year quarter.

Revenues Improve, Expenses Rise

Total GAAP net revenues were $2.09 billion, up 29.6% year over year. The reported figure outpaced the Zacks Consensus Estimate of $1.87 billion.

Net financing revenues were up 46.8% from the prior-year quarter to $1.55 billion. The rise was driven by lower funding costs, higher retail auto revenues and better gains on off-lease vehicles. These were partially offset by lower held for investment mortgage and commercial auto portfolio balances.

Adjusted net interest margin was 3.57%, up 115 basis points (bps) year over year.

Total other revenues were $538 million, down 3.1% from the prior-year quarter.

Total non-interest expenses were up 9.1% year over year to $1.08 billion. The upswing stemmed from a rise in compensation and benefits expenses, and other operating expenses.

Adjusted efficiency ratio at the end of the second quarter was 44.5%, down from 52.5% in the year-ago period. A decline in efficiency ratio indicates an improvement in profitability.

Credit Quality Improves

Non-performing loans of $1.28 billion as of Jun 30, 2021, were down 16.3% year over year. In the reported quarter, the company recorded net recoveries of $6 million against charge-offs of $178 million in the prior-year quarter.

Provision for loan losses was a benefit of $32 million against a provision of $287 million in the prior-year quarter.

Loans & Deposit Balances Decline

As of Jun 30, 2021, total net finance receivables and loans amounted to $109.1 billion, down marginally from the first-quarter 2021 level. Also, deposits totaled $139.1 billion, down marginally on a sequential basis.

Capital Ratios Improve

As of Jun 30, 2021, total capital ratio was 14.8%, up from 13.8% in the prior-year quarter. Tier I capital ratio was 13.1%, up from 11.9% as of Jun 30, 2020.

Share Repurchase Update

In the quarter, the company repurchased shares worth $502 million.

Our View

Ally Financial’s initiatives to diversify the revenue base will likely keep aiding its profitability. Given a solid balance sheet, the company remains well-poised to expand through acquisitions.

Ally Financial Inc. Price, Consensus and EPS Surprise

 

Ally Financial Inc. Price, Consensus and EPS Surprise

Ally Financial Inc. price-consensus-eps-surprise-chart | Ally Financial Inc. Quote

Currently, Ally Financial carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Release Dates of Other Consumer Loan Providers

Capital One (COF - Free Report) and Navient Corporation (NAVI - Free Report) are scheduled to report quarterly results on Jul 22 and Jul 27, respectively. Enova International (ENVA - Free Report) will report results on Jul 29.