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Ally Financial (ALLY) Beats on Q3 Earnings Despite Higher Costs
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Ally Financial’s (ALLY - Free Report) third-quarter 2023 adjusted earnings of 83 cents per share surpassed the Zacks Consensus Estimate of 80 cents. The bottom line reflects a decline of 25.9% 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 $269 million compared with $272 million in the prior-year quarter. Our estimate for the metric was $255 million.
Revenues Decline, Expenses Rise
Total GAAP net revenues were $1.97 billion, down 2.4% from the prior-year quarter. Also, the top line missed the Zacks Consensus Estimate of $2.04 billion.
Net financing revenues were down 10.8% from the prior-year quarter to $1.53 billion. The decline was primarily due to a drastic rise in interest on deposits. Our estimate for net financing revenues was $1.52 billion.
The adjusted net interest margin was 3.26%, down 57 basis points year over year.
Total other revenues were $435 million, up 46.5% from the prior-year quarter. We had projected other revenues of $498.9 million.
Total non-interest expenses increased 6.1% year over year to $1.23 billion. The upswing stemmed from higher insurance losses and loss-adjustment expenses, and other operating expenses. Our estimate for expenses was $1.22 billion.
The adjusted efficiency ratio was 52.1%, up from 48.2% in the year-ago period. A rise in the efficiency ratio indicates a deterioration in profitability.
Credit Quality Worsens
Non-performing loans were $1.50 billion as of Sep 30, 2023, up 8.5% year over year. Our estimate for the metric was $1.58 billion.
In the reported quarter, the company recorded net charge-offs of $456 million, up 65.2% from the prior-year quarter. We had projected net charge-offs of $423.4 million. The company also reported a provision for loan losses of $508 million, up 16% from the prior-year quarter. Our estimate for provisions was $452.7 million.
Loan Balances Increase, Deposits Fall Marginally
As of Sep 30, 2023, total net finance receivables and loans amounted to $136.42 billion, up 1.3% from the prior-quarter end. Our estimate for the metric was $135.3 billion. Deposits decreased marginally from the prior-quarter end to $152.84 billion. We had projected deposits of $151.3 billion.
Capital Ratios Mixed
As of Sep 30, 2023, the total capital ratio was 12.5%, up from 12.4% in the prior-year quarter. The tier I capital ratio was 10.7%, down from 10.8% as of Sep 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
Bank of New York Mellon Corporation’s (BK - Free Report) third-quarter 2023 adjusted earnings of $1.27 per share surpassed the Zacks Consensus Estimate of $1.14. The bottom line reflects a rise of 5% from the prior-year quarter.
BK’s results were primarily aided by a rise in net interest revenues, marginally higher fee revenues and lower expenses. The assets under management (AUM) balance witnessed a rise, which was another major positive for the company. However, the credit quality was relatively weak in the quarter for BK.
Wells Fargo & Company’s (WFC - Free Report) third-quarter 2023 adjusted earnings per share of $1.39 outpaced the Zacks Consensus Estimate of $1.25. The figure improved 6.9% year over year. The adjusted figure excludes the impact of discrete tax benefits relating to the resolution of the prior period’s tax matters.
WFC’s results benefited from higher net interest income and non-interest income. An improvement in capital ratios and a decline in expenses were other positives. However, worsening credit quality and a dip in loan balances were the undermining factors for WFC.
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Ally Financial (ALLY) Beats on Q3 Earnings Despite Higher Costs
Ally Financial’s (ALLY - Free Report) third-quarter 2023 adjusted earnings of 83 cents per share surpassed the Zacks Consensus Estimate of 80 cents. The bottom line reflects a decline of 25.9% 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 $269 million compared with $272 million in the prior-year quarter. Our estimate for the metric was $255 million.
Revenues Decline, Expenses Rise
Total GAAP net revenues were $1.97 billion, down 2.4% from the prior-year quarter. Also, the top line missed the Zacks Consensus Estimate of $2.04 billion.
Net financing revenues were down 10.8% from the prior-year quarter to $1.53 billion. The decline was primarily due to a drastic rise in interest on deposits. Our estimate for net financing revenues was $1.52 billion.
The adjusted net interest margin was 3.26%, down 57 basis points year over year.
Total other revenues were $435 million, up 46.5% from the prior-year quarter. We had projected other revenues of $498.9 million.
Total non-interest expenses increased 6.1% year over year to $1.23 billion. The upswing stemmed from higher insurance losses and loss-adjustment expenses, and other operating expenses. Our estimate for expenses was $1.22 billion.
The adjusted efficiency ratio was 52.1%, up from 48.2% in the year-ago period. A rise in the efficiency ratio indicates a deterioration in profitability.
Credit Quality Worsens
Non-performing loans were $1.50 billion as of Sep 30, 2023, up 8.5% year over year. Our estimate for the metric was $1.58 billion.
In the reported quarter, the company recorded net charge-offs of $456 million, up 65.2% from the prior-year quarter. We had projected net charge-offs of $423.4 million. The company also reported a provision for loan losses of $508 million, up 16% from the prior-year quarter. Our estimate for provisions was $452.7 million.
Loan Balances Increase, Deposits Fall Marginally
As of Sep 30, 2023, total net finance receivables and loans amounted to $136.42 billion, up 1.3% from the prior-quarter end. Our estimate for the metric was $135.3 billion. Deposits decreased marginally from the prior-quarter end to $152.84 billion. We had projected deposits of $151.3 billion.
Capital Ratios Mixed
As of Sep 30, 2023, the total capital ratio was 12.5%, up from 12.4% in the prior-year quarter. The tier I capital ratio was 10.7%, down from 10.8% as of Sep 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-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 Major Banks
Bank of New York Mellon Corporation’s (BK - Free Report) third-quarter 2023 adjusted earnings of $1.27 per share surpassed the Zacks Consensus Estimate of $1.14. The bottom line reflects a rise of 5% from the prior-year quarter.
BK’s results were primarily aided by a rise in net interest revenues, marginally higher fee revenues and lower expenses. The assets under management (AUM) balance witnessed a rise, which was another major positive for the company. However, the credit quality was relatively weak in the quarter for BK.
Wells Fargo & Company’s (WFC - Free Report) third-quarter 2023 adjusted earnings per share of $1.39 outpaced the Zacks Consensus Estimate of $1.25. The figure improved 6.9% year over year. The adjusted figure excludes the impact of discrete tax benefits relating to the resolution of the prior period’s tax matters.
WFC’s results benefited from higher net interest income and non-interest income. An improvement in capital ratios and a decline in expenses were other positives. However, worsening credit quality and a dip in loan balances were the undermining factors for WFC.