Ally Hits Earnings Mark as Cost of Funding Improves

Ally Financial in Detroit drew more deposits into its online bank last quarter, which helped improve its lending margin even as profits declined.

The $156 billion-asset company earned $268 million in the third quarter, down 37% from the third quarter last year, it said Thursday. However, the year-over-year comparison was affected by divestitures of certain operations, and earnings per share of 51 cents matched the average estimate of analysts tracked by Bloomberg.

Ally, which recently passed Wells Fargo to become the largest auto lender, improved its revenue thanks to growth in both consumer and commercial loans. Revenue from auto finance rose 2%, to $870 million, and Ally's total interest-bearing assets increased 4%, to $144.6 million.

Ally Chief Executive Jeffrey Brown has said he wants to fund more auto lending through Ally Bank, its online retail bank, and the company did so in the third quarter, when the bank funded 69% of total assets. Deposits grew 12%, to $62.9 billion, and the company's cost of funding dropped 5%, to $593 million. Ally's net interest margin expanded by 9 basis points, to 2.67%, and net revenue from financing increased 9%.

Its provision for loan losses grew 51%, to $211 million, mostly due to increased auto lending, Brown said.

Concerns that General Motors' decision last year to move more of its auto financing in-house would severely damage Ally so far appear to be overblown. Ally held 17.6% of the U.S. market for G.M. financing in the third quarter, down just 0.1% from a year ago. Ally, formerly GMAC, was G.M.'s captive lender before reinventing itself as an independent company after the financial crisis.

Ally is considering expanding its banking offerings, Brown said on a conference call with analysts Thursday, but he did not specify what new products it may offer. The company will offer more details in the first quarter, he said.