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.
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.
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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.
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.
Research Chief Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.
Free: See Our Top Stock And 4 Runners Up
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