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These 2 Bank Stocks Are Overlooked And They Just Crushed Earnings

July 27
10:37 2021

Despite interest rates sitting at all-time lows, banks have found ways to make record amounts of money — and financial stocks are among the best performers of 2021 as a result. Typically, banks are favored by institutional investors for their safe haven status and steady income streams, but this year many of them have performed like growth stocks.

Consumers are cashed up with stimulus dollars and appear willing to borrow and spend as we emerge from the pandemic. Ally Financial (NYSE:ALLY) and Western Alliance Bancorporation (NYSE:WAL) have been big beneficiaries, with their shares up roughly 46% and 59%, respectively, in 2021. Both companies just delivered second-quarter earnings reports that suggest there’s still plenty of growth left.

1. Ally Financial

Analysts expected Ally to generate $1.46 in earnings per share for the second quarter, but the company crushed that estimate by delivering $2.33 — a 59% beat and its highest-ever quarterly result. It was driven by a record 3.5 million car loan originations and 81% year-over-year growth in Ally Home originations, which is the company’s fast-growing foray into the mortgage market.

Ally retained its spot as America’s No. 1 all-digital bank, with its 49th consecutive quarter of customer growth, achieving 19% compounded annual growth since 2010. Customer deposits climbed to all-time highs partly because of the government stimulus, allowing the bank to lend more money and therefore generate more revenue.

Metric Q2 2020 Q2 2021
Revenue

$1.52 billion

$2.14 billion

Net interest margin 2.42% 3.57%
Earnings per share

$0.61

$2.33

DATA SOURCE: COMPANY FILINGS

Auto finance is the company’s largest segment, making up 64% of total Q2 revenue. It has an auto loan book of $101.8 billion, down 1% since the same time last year, as a lack of vehicle supply is making it harder for consumers to make purchases. However, Ally maintains over 19,700 relationships with car dealerships (a record high) — which are a vital source of loan originations.

Net interest margins recovered drastically since Q2 2020, which could be described as the deepest part of the pandemic, and it helped to boost overall earnings per share. If margins continue to rise, Ally can be expected to deliver greater profitability going forward.

Continue Reading at The Motley Fool

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