Ally Financial's Profit Jumps in Q2

Ally Financial (NYSE:ALLY) reported Q2 2025 results on July 18, delivering adjusted earnings per share of $0.99 and core pre-tax income of $480 million, both marking double-digit percentage growth year over year. Its net interest margin expanded to 3.45%, with a continued balance sheet shift toward higher-yielding auto and corporate finance assets, and a core return on tangible common equity reaching 13.6%, or 10% excluding the impact of accumulated other comprehensive income (AOCI). The earnings call highlighted the bank's strategic progress in deposit stability, credit trends, capital optimization, and operational discipline, all factors critical to its long-term performance trajectory.

Strategic Balance Sheet Remixing Boosts Margins and Returns

Net financing revenue, excluding core original issue discount (OID), remained stable despite the revenue loss from the April sale of the credit card business, as growth in retail auto and corporate finance assets offset runoff in legacy mortgage and securities portfolios. Origination yields for new retail auto loans were 9.82%, funded by core deposits with costs below 4%, and 42% of new originations qualified for the highest credit quality tier, allowing the bank to maintain a favorable risk profile.

"We continue to run off low-yielding mortgages and securities, and add higher-yielding retail auto and corporate finance assets funded by high-quality, stable, and low-cost deposits. This structural remixing of the balance sheet sets the foundation for continued margin expansion going forward."
— Michael Rhodes, CEO

The ongoing transition to a higher-yielding asset base positions Ally Financial to sustain elevated net interest margin and robust returns, improving resilience to interest rate pressures and reinforcing core profitability drivers for long-term investors.

Deposit Base Strength Maintains Funding Advantage

The company closed the quarter with $143 billion in balances, marking its 65th consecutive quarter of net customer growth and underscoring its position as the largest all-digital bank in the U.S. Seasonal tax outflows drove a $3 billion quarterly decline in total deposit balances, yet 92% of deposits remain FDIC-insured, and the cumulative deposit beta reached 70% as of June since the Fed's easing cycle began.

"Deposits are the foundation of our funding profile, representing nearly 90% of total funding. And 92% are FDIC insured. We are demonstrating both the strength and stability of our deposit base."
— Michael Rhodes, CEO

A dominant digital deposit platform provides a low-cost, highly sticky funding source, offering a strategic cushion against industry dislocations and supporting scalable growth across lending franchises without elevated liquidity or interest rate risk.

Disciplined Credit Risk Management Delivers Tangible Asset Quality Gains

Credit metrics reflected broad improvement: The consolidated net charge-off (NCO) rate fell to 1.10%, a 40 basis point sequential and 16 basis point year-over-year decline, while retail auto NCO declined to 1.75%. Thirty-plus day all-in delinquencies improved year-over-year for the first time since 2021, signaling constructive trends in the core loan book.

"Thirty-plus day all-in delinquencies of 4.88% represents the first year-over-year improvement in delinquency rates since 2021. A positive inflection point for credit performance. Since delinquency trends are a leading indicator of charge-offs, this improvement reinforces our constructive view on the near-term loss trajectory."
— Russ Hutchison, CFO

Enhanced underwriting discipline and servicing improvements, coupled with a favorable vintage mix, are driving measurable credit quality improvements and reducing the likelihood of outsized future loan losses.

Looking Ahead

Management affirmed full-year net interest margin guidance of 3.4% to 3.5%, while narrowing retail auto net charge-off expectations to the 2% to 2.15% range and consolidated net charge-off rate (NCO) outlook to 1.35% to 1.45%. Average earning assets are now anticipated to decline approximately 2% year over year due to lower commercial floor plan balances. Capital optimization remains a priority, with continued deployment of credit risk transfer (CRT) transactions expected in the back half of 2025 and a focus on resuming share repurchases once organic capital generation and CET1 levels further strengthen.

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Ally is an advertising partner of Motley Fool Money. This article was created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.