GM General Motors Company

By Lisa Beilfuss and Rachel Louise Ensign 

Ally Financial Inc.'s efforts to branch out from car loans are starting to bear fruit.

The lender logged stronger-than-expected earnings and revenue growth in the second quarter despite a drop in auto originations. That was thanks to higher yields on new loans and the bank's efforts to diversify its business.

Ally has faced a long road back to financial health since it was bailed out by the federal government during the financial crisis. Chief Executive Jeffrey Brown has recently charted a course for the lender to operate more like a normal bank by getting regulatory approval to pay a common-stock dividend and rolling out products such as mortgages and credit cards.

Ally reported a profit of $360 million, or 71 cents a share. A year earlier, Ally reported net profit of $182 million, although it had a per-share loss of $2.22 due to a preferred-stock dividend payment.

Excluding the preferred stock payment and other items, per-share profit rose to 54 cents in the latest quarter from 46 cents a year earlier. Analysts had projected 51 cents in adjusted earnings per share, according to Thomson Reuters.

As General Motors Co.'s former financing arm known as GMAC, Ally has long focused on auto lending. But since parting ways with its former parent, Ally has built an online-only bank and over the past year announced plans to add wealth management, credit cards and mortgages. In an interview, Mr. Brown said he plans to continue to expand those newer product lines: "We love auto but we realize we are pretty big in auto," he said.

During the quarter, retail deposits edged 3.9% higher to $61.2 billion as Ally added 16% more customers. Ally reported improvement in its mortgage-finance business, which swung to a profit, and an uptick in earnings in its corporate-finance segment.

Ally lost a big chunk of its auto-lending business last year when GM largely pushed it out of its lucrative subsidized-leasing business. Since then, the lender has grabbed back much of that lost business amid strong U.S. auto sales. In the latest quarter, though, auto originations slid 13% to $9.4 billion.

The decline reflects the loss of GM business and Ally's lower degree of origination in lower-margin segments, said Eric Wasserstrom, analyst at Guggenheim Securities. Excluding the GM lease and subvented business, Mr. Wasserstrom said originations edged up 1%. Profit from the segment climbed 14% to $426 million, thanks to stronger pricing on auto loans.

Ally shares are down 4% so far this year, less than the more than 7% decline in the KBW Nasdaq Bank index. One factor driving the shares higher: the U.S. Federal Reserve last month cleared the way for the firm to pay its first common-stock dividend since going public in 2014.

Corrections & Amplifications: Ally in its year-ago quarter reported a profit of $182 million, or a loss of $2.22 on a per-share basis. An earlier version of this article misstated the year-earlier figures.

Write to Lisa Beilfuss at lisa.beilfuss@wsj.com and Rachel Louise Ensign at rachel.ensign@wsj.com

(END) Dow Jones Newswires

July 27, 2016 02:47 ET (06:47 GMT)

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