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Ally Financial’s (ALLY - Free Report) third-quarter 2021 adjusted earnings of $2.16 per share convincingly surpassed the Zacks Consensus Estimate of $1.96. The bottom line showed a rise of 72.8% from the year-ago quarter’s number.
Results benefited primarily from an improvement in revenues and lower provisions. Also, loans and deposit balances increased sequentially. However, a rise in expenses hurt results to some extent. Probably, because of this, shares of the company lost 5.1% following the release.
After considering non-recurring items, net income (on a GAAP basis) was $683 million or $1.89 per share, up from $476 million or $1.26 per share in the prior-year quarter.
Revenues Improve, Expenses Rise
Total GAAP net revenues were $1.99 billion, up 17.9% year over year. The reported figure was in line with the Zacks Consensus Estimate.
Net financing revenues were up 32.8% from the prior-year quarter to $1.59 billion. The rise was driven by lower funding costs and higher consumer auto revenues, partially offset by lower commercial auto portfolio balances.
Adjusted net interest margin was 3.68%, up 101 basis points (bps) year over year.
Total other revenues were $391 million, down 19.2% from the prior-year quarter.
Total non-interest expenses were up 10.7% year over year to $1.00 billion. The upswing stemmed from a rise in compensation and benefits expenses, and other operating expenses.
The adjusted efficiency ratio at the end of the third quarter was 41.7%, down from 47.3% in the year-ago period. A decline in efficiency ratio indicates an improvement in profitability.
Credit Quality Improves
Non-performing loans of $1.29 billion as of Sep 30, 2021, were down 13.9% year over year. In the reported quarter, the company recorded net charge-offs of $54 million, down 55.7% from the prior-year quarter.
Provision for loan losses of $76 million declined 48.3% from the prior-year quarter.
Loans & Deposit Balances Rise
As of Sep 30, 2021, total net finance receivables and loans amounted to $111.3 billion, up from $109.1 billion recorded in second-quarter 2021. Also, deposits increased marginally from the previous quarter’s end to $139.4 billion.
Capital Ratios Improve
As of Sep 30, 2021, total capital ratio was 14.6%, up from 14.1% in the prior-year quarter. Tier I capital ratio was 12.8%, up from 12.1% as of Sep 30, 2020.
Share Repurchase Update
In the reported quarter, the company repurchased shares worth $679 million.
Our View
Ally Financial’s initiatives to diversify the revenue base will likely keep aiding its profitability. Given a solid balance sheet, the company remains well-poised to expand through acquisitions. However, persistently rising expenses (mainly owing to the company’s inorganic growth efforts) will likely hurt bottom-line growth.
Ally Financial Inc. Price, Consensus and EPS Surprise
Earnings Release Dates of Other Consumer Loan Providers
Capital One (COF - Free Report) and Navient Corporation (NAVI - Free Report) are scheduled to report quarterly results on Oct 26. Enova International (ENVA - Free Report) will report results on Oct 28.
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Ally Financial (ALLY) Stock Dips 5.1% Despite Q3 Earnings Beat
Ally Financial’s (ALLY - Free Report) third-quarter 2021 adjusted earnings of $2.16 per share convincingly surpassed the Zacks Consensus Estimate of $1.96. The bottom line showed a rise of 72.8% from the year-ago quarter’s number.
Results benefited primarily from an improvement in revenues and lower provisions. Also, loans and deposit balances increased sequentially. However, a rise in expenses hurt results to some extent. Probably, because of this, shares of the company lost 5.1% following the release.
After considering non-recurring items, net income (on a GAAP basis) was $683 million or $1.89 per share, up from $476 million or $1.26 per share in the prior-year quarter.
Revenues Improve, Expenses Rise
Total GAAP net revenues were $1.99 billion, up 17.9% year over year. The reported figure was in line with the Zacks Consensus Estimate.
Net financing revenues were up 32.8% from the prior-year quarter to $1.59 billion. The rise was driven by lower funding costs and higher consumer auto revenues, partially offset by lower commercial auto portfolio balances.
Adjusted net interest margin was 3.68%, up 101 basis points (bps) year over year.
Total other revenues were $391 million, down 19.2% from the prior-year quarter.
Total non-interest expenses were up 10.7% year over year to $1.00 billion. The upswing stemmed from a rise in compensation and benefits expenses, and other operating expenses.
The adjusted efficiency ratio at the end of the third quarter was 41.7%, down from 47.3% in the year-ago period. A decline in efficiency ratio indicates an improvement in profitability.
Credit Quality Improves
Non-performing loans of $1.29 billion as of Sep 30, 2021, were down 13.9% year over year. In the reported quarter, the company recorded net charge-offs of $54 million, down 55.7% from the prior-year quarter.
Provision for loan losses of $76 million declined 48.3% from the prior-year quarter.
Loans & Deposit Balances Rise
As of Sep 30, 2021, total net finance receivables and loans amounted to $111.3 billion, up from $109.1 billion recorded in second-quarter 2021. Also, deposits increased marginally from the previous quarter’s end to $139.4 billion.
Capital Ratios Improve
As of Sep 30, 2021, total capital ratio was 14.6%, up from 14.1% in the prior-year quarter. Tier I capital ratio was 12.8%, up from 12.1% as of Sep 30, 2020.
Share Repurchase Update
In the reported quarter, the company repurchased shares worth $679 million.
Our View
Ally Financial’s initiatives to diversify the revenue base will likely keep aiding its profitability. Given a solid balance sheet, the company remains well-poised to expand through acquisitions. However, persistently rising expenses (mainly owing to the company’s inorganic growth efforts) will likely hurt bottom-line growth.
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.
Earnings Release Dates of Other Consumer Loan Providers
Capital One (COF - Free Report) and Navient Corporation (NAVI - Free Report) are scheduled to report quarterly results on Oct 26. Enova International (ENVA - Free Report) will report results on Oct 28.