(Bloomberg) -- Ally Financial Inc.’s net charge-offs fared better than expected as the consumer-focused lender navigates interest rates holding at high levels for longer than many analysts predicted.
Net charge-offs increased by more than 9% from a year earlier to $435 million, below the $481.3 million average estimate of analysts in a Bloomberg survey. Loan loss provisions — the amount a firm stockpiles for loans that go bad – increased 7% to $457 million, less than the expected $488.3 million.
Total US auto loan originations decreased around 6% year-over-year to $9.8 billion in the second quarter, missing estimates, but Ally Chief Executive Officer Michael Rhodes highlighted the strength of the firm’s auto dealer financial-services franchise.
“We decisioned 3.7 million consumer applications, a second quarter record, and originated nearly $10 billion retail loan and lease volume across the credit spectrum,” Rhodes said in a statement Wednesday. “Insurance written premiums of $344 million demonstrate our unique ability to provide comprehensive, all-in value to our dealer customers.”
Ally executed its first credit risk transfer during the three-month period, one way the firm can build capital ahead of looming Basel III rules that would force banks to do so.
“CRTs are another tool in our toolkit to generate capital and better serve our dealer customers,” Rhodes said on a conference call with analysts.
Chief Financial Officer Russ Hutchinson said Ally can be expected to do more CRTs in the future.
“We’ll be opportunistic about it,” he said in an interview. “I don’t think we’re going to commit to any regular cadence of it, but we are looking to do more.”
The auto lender didn’t comment on cyberattacks on software company CDK Global that took around 15,000 auto dealerships offline last month and affected lending and other capabilities for days. AutoNation Inc. said this week that the cyberattacks significantly affected the US car dealership conglomerate’s second-quarter earnings.
Ally’s net interest margin topped the expected 3.26%, coming in at 3.27%. It also changed its full-year NIM outlook to around 3.30%, compared to the previous range of 3.25% to 3.30%.
The firm fared the worst among its peers in the Federal Reserve’s annual stress tests last month, which mimic a hypothetical recession. Ally’s card portfolio saw a projected loss rate topping 40% in that scenario.
(Updates with CFO’s comments in eighth paragraph.)
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