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Ally Financial (ALLY) Dips on Q3 Earnings Miss, Revenues Rise
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Shares of Ally Financial (ALLY - Free Report) lost 7.9% following its third-quarter 2022 results. Adjusted earnings of $1.12 per share lagged the Zacks Consensus Estimate of $1.73. The bottom line reflects a decline of 48.1% from the year-ago quarter. Our estimate for earnings was $1.75.
Results were primarily hurt by a rise in expenses, a decline in other revenues and higher provisions. However, an improvement in net financing revenues was an offsetting factor. Loan balances witnessed a rise in the reported quarter.
After considering non-recurring items, net income (on a GAAP basis) was $272 million or 88 cents per share, down from $683 million or $1.89 per share in the prior-year quarter.
Revenues Improve, Expenses Rise
Total GAAP net revenues were $2.02 billion, up 1.6% year over year. The top line missed the Zacks Consensus Estimate of $2.15 billion. Our estimate for revenues was $2.21 billion.
Net financing revenues were up 7.8% from the prior-year quarter to $1.72 billion. The rise was driven by an increase in interest and fees on finance receivables and loans, interest on loans held for sale, total interest and dividends on investment securities, interest-bearing cash, other earning assets, and operating leases. Our estimate for net financing revenues was $1.76 billion.
The adjusted net interest margin was 3.83%, up 15 basis points year over year.
Total other revenues were $297 million, down 24% from the prior-year quarter.
Total non-interest expenses were up 15.9% year over year to $1.16 billion. The upswing stemmed from higher compensation and benefits expenses, insurance losses and loss-adjustment expenses, and other operating expenses. Our estimate for expenses was $1.21 billion.
The adjusted efficiency ratio was 48.2%, up from 41.7% in the year-ago period. A rise in the efficiency ratio indicates a deterioration in profitability.
Credit Quality Worsens
Non-performing loans of $1.38 billion as of Sep 30, 2022, were up 7.6% year over year.
In the quarter under review, the company recorded net charge-offs of $276 million, up significantly from $54 million in the prior-year quarter. Also, it reported a provision for loan losses of $438 million, up significantly from $76 million in the prior-year quarter.
Loans & Deposit Balances Increase
As of Sep 30, 2022, total net finance receivables and loans amounted to $128.8 billion, up 3.1% from the prior quarter. Deposits increased 3.8% from the prior-quarter end to $145.8 billion.
Capital Ratios Deteriorate
As of Sep 30, 2022, the total capital ratio was 12.4%, down from 14.6% in the prior-year quarter. Tier I capital ratio was 10.8%, down from 12.8% as of Sep 30, 2021.
Share Repurchase Update
In the reported quarter, the company repurchased $415 million worth of shares.
Our View
Ally Financial’s initiatives to diversify its revenue base will likely keep aiding profitability. Given a solid balance sheet, the company remains well-poised to expand through acquisitions. However, persistently rising expenses (mainly due to the company’s inorganic growth efforts) and higher provisions will likely hurt bottom-line growth in the near term.
Ally Financial Inc. Price, Consensus and EPS Surprise
Hancock Whitney Corporation’s (HWC - Free Report) third-quarter 2022 earnings of $1.55 per share were in line with the Zacks Consensus Estimate. The bottom line rose 6.9% from the prior-year quarter’s adjusted earnings of $1.45.
Results benefited from higher net interest income, a rise in loan balance and increasing rates. However, lower non-interest income mainly due to rising mortgage rates was the undermining factor. Higher adjusted expenses and a rise in provisions were the other headwinds for HWC.
Washington Federal’s (WAFD - Free Report) fourth-quarter fiscal 2022 (ended Sep 30) earnings of $1.07 per share handily surpassed the Zacks Consensus Estimate of 91 cents. The figure reflects a year-over-year jump of 48.6%.
Results were primarily aided by higher rates, robust deposits and improving loan balances, which drove net interest income. However, an increase in expenses, a fall in total other income and higher provisions were the headwinds for WAFD.
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Ally Financial (ALLY) Dips on Q3 Earnings Miss, Revenues Rise
Shares of Ally Financial (ALLY - Free Report) lost 7.9% following its third-quarter 2022 results. Adjusted earnings of $1.12 per share lagged the Zacks Consensus Estimate of $1.73. The bottom line reflects a decline of 48.1% from the year-ago quarter. Our estimate for earnings was $1.75.
Results were primarily hurt by a rise in expenses, a decline in other revenues and higher provisions. However, an improvement in net financing revenues was an offsetting factor. Loan balances witnessed a rise in the reported quarter.
After considering non-recurring items, net income (on a GAAP basis) was $272 million or 88 cents per share, down from $683 million or $1.89 per share in the prior-year quarter.
Revenues Improve, Expenses Rise
Total GAAP net revenues were $2.02 billion, up 1.6% year over year. The top line missed the Zacks Consensus Estimate of $2.15 billion. Our estimate for revenues was $2.21 billion.
Net financing revenues were up 7.8% from the prior-year quarter to $1.72 billion. The rise was driven by an increase in interest and fees on finance receivables and loans, interest on loans held for sale, total interest and dividends on investment securities, interest-bearing cash, other earning assets, and operating leases. Our estimate for net financing revenues was $1.76 billion.
The adjusted net interest margin was 3.83%, up 15 basis points year over year.
Total other revenues were $297 million, down 24% from the prior-year quarter.
Total non-interest expenses were up 15.9% year over year to $1.16 billion. The upswing stemmed from higher compensation and benefits expenses, insurance losses and loss-adjustment expenses, and other operating expenses. Our estimate for expenses was $1.21 billion.
The adjusted efficiency ratio was 48.2%, up from 41.7% in the year-ago period. A rise in the efficiency ratio indicates a deterioration in profitability.
Credit Quality Worsens
Non-performing loans of $1.38 billion as of Sep 30, 2022, were up 7.6% year over year.
In the quarter under review, the company recorded net charge-offs of $276 million, up significantly from $54 million in the prior-year quarter. Also, it reported a provision for loan losses of $438 million, up significantly from $76 million in the prior-year quarter.
Loans & Deposit Balances Increase
As of Sep 30, 2022, total net finance receivables and loans amounted to $128.8 billion, up 3.1% from the prior quarter. Deposits increased 3.8% from the prior-quarter end to $145.8 billion.
Capital Ratios Deteriorate
As of Sep 30, 2022, the total capital ratio was 12.4%, down from 14.6% in the prior-year quarter. Tier I capital ratio was 10.8%, down from 12.8% as of Sep 30, 2021.
Share Repurchase Update
In the reported quarter, the company repurchased $415 million worth of shares.
Our View
Ally Financial’s initiatives to diversify its revenue base will likely keep aiding profitability. Given a solid balance sheet, the company remains well-poised to expand through acquisitions. However, persistently rising expenses (mainly due to the company’s inorganic growth efforts) and higher provisions will likely hurt bottom-line growth in the near term.
Ally Financial Inc. Price, Consensus and EPS Surprise
Ally Financial Inc. price-consensus-eps-surprise-chart | Ally Financial Inc. Quote
Currently, Ally Financial carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Banks
Hancock Whitney Corporation’s (HWC - Free Report) third-quarter 2022 earnings of $1.55 per share were in line with the Zacks Consensus Estimate. The bottom line rose 6.9% from the prior-year quarter’s adjusted earnings of $1.45.
Results benefited from higher net interest income, a rise in loan balance and increasing rates. However, lower non-interest income mainly due to rising mortgage rates was the undermining factor. Higher adjusted expenses and a rise in provisions were the other headwinds for HWC.
Washington Federal’s (WAFD - Free Report) fourth-quarter fiscal 2022 (ended Sep 30) earnings of $1.07 per share handily surpassed the Zacks Consensus Estimate of 91 cents. The figure reflects a year-over-year jump of 48.6%.
Results were primarily aided by higher rates, robust deposits and improving loan balances, which drove net interest income. However, an increase in expenses, a fall in total other income and higher provisions were the headwinds for WAFD.