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Ally Financial (ALLY) Stock Gains 2.7% on Q3 Earnings Beat

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Shares of Ally Financial (ALLY - Free Report) gained 2.7% following the release of its third-quarter 2020 results. Adjusted earnings of $1.25 per share handily surpassed the Zacks Consensus Estimate of 72 cents. Moreover, the bottom line improved 23.8% from the year-ago figure.

Results benefited from growth in revenues, partly offset by higher expenses. Moreover, a decline in provisions was a tailwind. Further, the balance sheet position remained strong during the quarter.

After considering non-recurring items, net income available to common shareholders (on a GAAP basis) was $476 million or $1.26 per share compared with $381 million or 97 cents per share recorded in the prior-year quarter.

Revenues Improve, Expenses Rise

Total net revenues were $1.68 billion, up 5.2% year over year. The figure also surpassed the Zacks Consensus Estimate of $1.50 billion.

Net financing revenues were up 1% from the prior-year figure to $1.20 billion. The rise was driven by higher gains on off-lease vehicles, higher retail auto revenues and lower funding costs, partially offset by higher mortgage premium amortization and lower commercial auto portfolio balance and yield.

Adjusted net interest margin was 2.67%, down 5 basis points (bps) year over year.

Total other revenues of $484 million improved 17.2% year over year.

Total non-interest expenses were up 8% year over year to $905 million. The upswing stemmed from a rise in all cost components.

Adjusted efficiency ratio at the end of the third quarter was 47.3%, up from 45.3% recorded in the comparable year-ago period. A rise in efficiency ratio indicates deterioration in profitability.

Credit Quality: Mixed Bag

Non-performing loans of $1.49 billion as of Sep 30, 2020, were up 60.7% from the corresponding period of 2019. However, net charge-off rate was 0.41%, down 42 bps year over year. Moreover, provision for loan losses declined 44.1% from the prior-year quarter to $147 million.

Balance Sheet Strong, Capital Ratios Improve

Total net finance receivables and loans amounted to $114.6 billion as of Sep 30, 2020, decreasing marginally from the second quarter. Deposits totaled $134.9 billion, up 3% sequentially.

As of Sep 30, 2020, total capital ratio was 14.1%, up from the prior-year quarter’s 12.8%. Tier I capital ratio was 12.1% as of Sep 30, 2020, up from the year-earlier quarter’s 11.2%.

Our Take

Ally Financial’s efforts to diversify the revenue base, enhance digital offerings and introduce products to further boost its profitability are impressive. However, continuously mounting expenses (as witnessed in the third quarter as well) make us apprehensive about the company's growth prospects.

Ally Financial Inc. Price, Consensus and EPS Surprise


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 Companies

Aided by robust mortgage banking revenues, Wells Fargo (WFC - Free Report) reported third-quarter 2020 adjusted earnings of 56 cents per share, beating the Zacks Consensus Estimate of 47 cents. Results, however, compared unfavorably with the prior-year quarter figure of 92 cents.

Citigroup (C - Free Report) delivered an earnings surprise of 38.6% in third-quarter 2020 on robust market revenues. Earnings per share of $1.40 for the quarter handily outpaced the Zacks Consensus Estimate of $1.01. Results were, however, down significantly from the prior-year quarter.

Unexpected lower provisions along with improvement in trading and mortgage banking businesses drove JPMorgan’s (JPM - Free Report) third-quarter 2020 earnings of $2.92 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $2.35.

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