Deposit surge highlights strong 3Q for Ally Financial

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Ally Financial reported double-digit profit gains in the third quarter as modest loan growth, higher loan yields and sharply lower taxes helped offset rising interest and noninterest expenses.

Net income at the $173 billion-asset company rose 34% to $374 million from the same quarter in 2017. Earnings per share of 88 cents were 7 cents better than the mean estimate of analysts compiled by FactSet Research Systems.

The results received a big boost from last year's cut in the corporate tax rate, as Ally's income tax expenses fell by 21% year over year to $91 million.

Deposits increased 12.5% to $101 billion as Ally added 57,000 new retail deposit customers during the quarter.

“We eclipsed $100 billion of total deposits during the quarter, an exceptional achievement for our company and a testament to the strength of the franchise and the brand we’ve built,” CEO Jeff Brown said in a news release. “Ally was the original disruptor in digital banking and I’m extremely proud of our leading market position, which has resulted in retail deposits increasing by more than ten-fold since becoming a bank holding company.”

Interest costs on deposits jumped 62% to $462 million. Online-only banks like Ally typically pay the market’s highest rates on deposits, using the savings from their lack of retail branches to fund the higher rates.

Net financing revenue, Ally’s equivalent to net interest income, increased 2.4% to $1.1 billion.

Total loans and finance receivables increased 6.6% to $125.4 billion. Auto loans rose 4.5% to $70 billion and the average yield on those loans increased 132 basis points to 7.53%

Meanwhile, charge-offs on retail auto loans dropped 13 basis points to 1.32%.

Noninterest income rose 4.5% to $398 million, driven by a gain on sale related to a loan sale in the auto business.

Noninterest expense spiked 7.2% to $807 million on higher employee compensation and benefits and increased technology investments.

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