Ally Financial's second quarter is the strongest evidence yet of a company turning a disciplined balance sheet into durable earnings growth. The headline read cleanly: GAAP earnings per share of $1.18 rose 14% year over year, and adjusted earnings per share of $1.21 rose 22%, as core pre-tax income climbed 26% to $527 million and core return on tangible common equity expanded ~80 basis points to 11.8%. Net income attributable to common shareholders of $367 million was up 26% from the first quarter and 13% from a year ago.
The mechanics behind the number are what matter. Net interest margin, excluding the non-cash original issue discount, widened 18 basis points year over year to 3.63% - the payoff from aggressively repricing retail deposit costs as rates eased, with the average retail deposit yield down 46 basis points year over year even as retail deposit balances held at $143.6 billion. At the same time, the auto cycle that drove an industry-wide credit scare a year ago is improving. Retail auto net charge-offs fell to 1.57%, down 18 basis points year over year, and 30-plus-day delinquencies of 4.80% marked a fifth consecutive quarter of year-over-year improvement. Consumer auto originations of $13.3 billion, up 21% from a year ago off a record 4.6 million applications, show management is using its confidence in the credit cycle to grow at attractive risk-adjusted yields - a 9.09% estimated originated yield.
The quarter's one soft spot was the Auto Finance segment, whose pre-tax income fell 13% year over year to $410 million, because a CECL reserve build tied to loan growth masked genuine portfolio credit improvement. That is a timing cost, not evidence of deterioration. Around it, every other franchise improved: Insurance pre-tax income rose $25 million year over year, Corporate Finance delivered a 32% return on equity with non-performing loans under 1%, and the company returned $148 million to shareholders via repurchases while holding its $0.30 dividend. This remains a bank priced at approximately tangible book value that is, for the first time in this cycle, showing simultaneously expanding margin, improving credit, and accelerating growth.