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Ally Financials' (ALLY) Stock Gains on Q2 Earnings Beat

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Shares of Ally Financial Inc. (ALLY - Free Report) increased nearly 4.9% following the release of the company’s second-quarter 2017 results. Adjusted earnings of 58 cents per share surpassed the Zacks Consensus Estimate of 53 cents. Also, earnings increased 7.4% from the prior-year quarter.

Results benefitted from an increase in total net revenues, partially offset by higher expenses. Capital ratios remained unchanged on a year-over-year basis in the quarter. However, higher provision for loan losses was a headwind.

Net income available to common shareholders (GAAP basis) was $252 million, down 27% from the prior-year quarter.

Revenues & Expenses Increase

Total net revenue for the quarter increased nearly 7.1% year over year to $1.46 billion, owing to a rise in total other revenue as well as net financing revenue. Also, the reported figure was above the Zacks Consensus Estimate of $1.42 billion.

Total non-interest expenses increased 4.8% year over year to $810 million. The increase was due to an increase in compensation and benefits expense, and other operating expenses.

Credit Quality Deteriorates

Non-performing loans of $783 million were up 6.7% year over year. Moreover, provision for loan losses surged 56.4% year over year to $269 million.

Balance Sheet Strengthens, Stable Capital Ratios

Total finance receivables and loans amounted to $119.30 billion as of Jun 30, 2017 compared with $117.85 billion as of Mar 31, 2017. Further, deposits totaled $86.18 billion, up from $84.49 billion as of Mar 31, 2017.

As of Jun 30, 2017, total capital ratio came in at 12.8%, in line with the prior-year quarter. Similarly, Tier I capital ratio was 11.2%, unchanged year over year.

Share Repurchases

During the quarter, the company repurchased shares worth $204 million.

Our Take

Ally Financial’s efforts to diversify its revenue sources by enhancing digital offerings and introducing new products will help bottom-line growth. Further, the company’s encouraging capital deployment activities reflect a strong balance sheet position.

However, high debt levels may restrain its ability to procure additional funds for working capital, acquisitions or other purposes. This may also negatively impact the company’s access to liquidity and increase borrowing costs in the unsecured market.

Ally Financial Inc. Price, Consensus and EPS Surprise

Ally Financial Inc. Price, Consensus and EPS Surprise | Ally Financial Inc. Quote

Currently, Ally Financial carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Finance Companies

Among others, Capital One Financial Corporation (COF - Free Report) reported second-quarter 2017 adjusted earnings of $1.96 per share, surpassing the Zacks Consensus Estimate of $1.90. Results benefitted from higher revenues and easing margin pressure. However, an increase in provisions and rising expenses acted as headwinds.

Sallie Mae (SLM - Free Report) reported second-quarter 2017 core earnings of 16 cents per share, in line with the Zacks Consensus Estimate. Earnings growth was supported by an increase in net interest income. The private education loan portfolio and deposits grew considerably. However, these positives were offset by lower non-interest income, higher expenses and rise in provision for loan losses.

Navient Corporation’s (NAVI - Free Report) second-quarter 2017 adjusted core earnings per share of 43 cents surpassed the Zacks Consensus Estimate of 41 cents. The quarter witnessed higher non-interest income and lower provision for credit losses. However, on the downside, the company recorded reduced net interest income.

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