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Ally Financial (ALLY) Stock Rises 5.4% on Q2 Earnings Beat

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Ally Financial’s (ALLY - Free Report) shares have gained 5.4% following the release of its second-quarter 2023 results. Adjusted earnings of 96 cents per share surpassed the Zacks Consensus Estimate of 94 cents. The bottom line reflects a rise of 45.5% from the year-ago quarter.

Results were primarily aided by an improvement in other revenues. A decent increase in loans was another tailwind. However, a decline in net financing revenues, along with higher expenses and provisions, were the undermining factors.

After considering non-recurring items, net income available to common shareholders (on a GAAP basis) was $301 million or 99 cents per share, down from $454 million or $1.40 per share in the prior-year quarter. Our estimate for the metric was $299.8 million.

Revenues Improve, Expenses Rise

Total GAAP net revenues were $2.08 billion, marginally up year over year. However, the top line missed the Zacks Consensus Estimate of $2.09 billion.

Net financing revenues were down 10.8% from the prior-year quarter to $1.57 billion. The decline was primarily due to a drastic rise in interest on deposits. Our estimate for net financing revenues was $1.55 billion.

The adjusted net interest margin was 3.41%, down 65 basis points year over year.

Total other revenues were $506 million, up 62.2% from the prior-year quarter. We had projected other revenues to be $505 million.

Total non-interest expenses increased 9.8% year over year to $1.25 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 $1.29 billion.

The adjusted efficiency ratio was 51.7%, up from 43.9% in the year-ago period. A rise in the efficiency ratio indicates a deterioration in profitability.

Credit Quality Worsens

Non-performing loans were $1.40 billion as of Jun 30, 2023, up 1.7% year over year. Our estimate for the metric was $1.57 billion.

In the reported quarter, the company recorded net charge-offs of $399 million, up significantly from the $153 million reported in the prior-year quarter. We had projected net charge-offs of $381 million. The company also reported a provision for loan losses of $427 million, up 40.5% from $304 million in the prior-year quarter. Our estimate for provisions was $410 million.

Loans & Deposit Balances Increase

As of Jun 30, 2023, total net finance receivables and loans amounted to $134.67 billion, up 1.6% from the prior quarter. Our estimate for the metric was $133.95 billion. Deposits increased marginally from the prior-quarter end to $154.31 billion.

Capital Ratios Deteriorate

As of Jun 30, 2023, the total capital ratio was 12.5%, down from 12.7% in the prior-year quarter. Tier I capital ratio was 10.7%, down from 11.1% as of Jun 30, 2022.

Share Repurchase Update

In the reported quarter, the company did not repurchase any shares.

Our View

Ally Financial’s initiatives to diversify its revenue base will likely keep aiding profitability. Given a solid balance sheet, the company is well-poised to expand through acquisitions. However, rising expenses (mainly due to its 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 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

The PNC Financial Services Group, Inc.’s (PNC - Free Report) second-quarter 2023 earnings per share of $3.36 surpassed the Zacks Consensus Estimate of $3.31. However, the bottom line reflected a marginal decline year over year.

Results were aided by an increase in net interest income, supported by higher rates. However, PNC's rising expenses and higher provisions were headwinds.

Citizens Financial Group (CFG - Free Report) reported second-quarter 2023 earnings per share of 92 cents, missing the Zacks Consensus Estimate of $1. Nonetheless, the bottom line rose from 67 cents in the year-ago quarter.

Results reflected net interest income growth on a rise in interest-earning assets. However, an escalation in expenses, lower non-interest income and a decline in loans were the undermining factors for CFG.


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