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Ally Financial Sees Mixed Bag in Second-Quarter Earnings

Ally Financial (NYSE: ALLY) posted a 58% decline in second-quarter earnings as net income fell to $241 million, down from $582 million in the second quarter of 2019. But earnings were up compared with the first quarter, when the online bank posted a $319 million net loss.

Ally's adjusted earnings per share of $0.61 beat analysts' estimates, but were down 37% from $0.97 in Q2 2019.

The lower earnings stemmed from an 8.9% drop in net financing revenue to $1.05 billion. The bank, a major auto lender, was hurt by stay-at-home orders as auto sales declined. The company cited lower commercial auto balance and portfolio yield, losses on off-lease vehicles, higher mortgage premium amortization, and higher consolidated liquidity levels as reasons for the decrease. But there was gradual improvement over the quarter.

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"Our resilient and adaptable auto finance business saw meaningful improvement toward the end of the quarter, delivering $7.2 billion of consumer originations, and maintaining estimated retail auto originated yields above 7% for the ninth consecutive quarter, a tremendous accomplishment given the low interest rate environment," Ally CEO Jeffrey Brown said.

Ally set aside $287 million for credit loss provisions, which was up from $177 million a year ago, but far lower than the $903 million allocated in the first quarter.

It was a strong quarter for deposits, as they increased 12.6% to $131 billion. Retail deposits were up $17.2 billion year over year to $115.8 billion. The bank added 94,000 new retail deposit customers in the quarter year over year, the third highest quarterly total ever. Ally now has 2.1 million retail deposit customers. The net interest margin was 2.4%, down 26 basis points from the second quarter of 2019.

Ally's Common Equity Tier 1 (CET1) capital ratio was 10.1% in the second quarter, up from 9.3% in Q1 and above the minimum of 4.5%. The CET1, which is core capital divided by risk-weighted assets, measures a bank's liquidity and ability to absorb unexpected losses. It went up this quarter on lower commercial floor-plan balances and the suspension of share repurchases.

Ally declared a $0.19 quarterly dividend. The stock price was down nearly 6% in midday trading on Friday.

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