By Peter Rudegeair
NEW YORK (Reuters) - Ally Financial Inc (N:ALLY), the second largest U.S. auto lender, posted a third-quarter profit on Wednesday as it set aside less money to cover future car loan defaults.
The bank believes its loan losses will be lower in the future because U.S. unemployment has been falling fast, and Ally has in recent months attracted a greater number of borrowers with higher credit scores, finance chief Chris Halmy said on a conference call.
Even as Ally set aside $109 million for future loan defaults, 38 percent less than a year earlier, its delinquencies and loan losses rose: 2.28 percent of borrowers were behind on their payments, up from 2.10 percent in the same quarter last year, and the company's loss rate rose to 0.93 percent from 0.82 percent.
"Our book is skewing a little bit towards the higher credit quality, which will bring losses from a percentage basis really down," Halmy said.
Subprime borrowers account for around 9 percent of the company's loan portfolio, and Chief Executive Michael Carpenter told Reuters in an interview that Ally has been investing in its collections operation in order to minimize losses on those car loans.
Ally made $11.8 billion in consumer auto loans in the third quarter, up 23 percent from a year earlier. The increase was driven by a record quarter in used car loans.
The bank's net income applicable to common shareholders rose to $356 million, or 74 cents per share, from a loss of $109 million, or 27 cents per share, a year earlier.
Analysts had forecast that Ally would earn 41 cents a share in the quarter, according to consensus estimates compiled by Thomson Reuters I/B/E/S.
Revenues rose 14 percent to $1.3 billion from a year earlier and the company decreased its borrowing costs by 0.50 percentage points.
Ally shares were up one percent to $22.4.
Ally is one of the few big financial institutions that is still partially owned by the U.S. government. Taxpayers injected $17.2 billion into the lender during the financial crisis because of its mounting losses from subprime mortgages.
Carpenter said on the investor conference call that Ally has repaid all of that money plus another $1.1 billion in dividends and interest payments. He had said previously that he expected the Treasury to sell its remaining stake, which stood at around 11 percent at the end of the third quarter, before the end of 2014, but that forecast may have been too rosy.
"I had expected that we would be making more progress on that front than we have or they have," Carpenter said.
(Reporting by Peter Rudegeair; Editing by Meredith Mazzilli and Andrew Hay)