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Shares of Ally Financial (ALLY - Free Report) gained 10.7% following the release of its fourth-quarter and 2023 results. Quarterly adjusted earnings of 45 cents per share surpassed the Zacks Consensus Estimate by a penny. However, the bottom line reflects a decline of 58.3% from the year-ago quarter.
Results were primarily aided by an improvement in other revenues. 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 $49 million compared with $251 million in the prior-year quarter. Our estimate for the metric was $53.2 million.
For 2023, adjusted earnings per share were $3.05, down 49.7% year over year. The figure missed the Zacks Consensus Estimate by a penny. Net income available to common shareholders (on a GAAP basis) was $910 million compared with $1.60 billion in 2022. Our estimate for the metric was pinned at $914.2 million.
Revenues Decline, Expenses Rise
Total quarterly GAAP net revenues were $2.07 billion, down 6.1% from the prior-year quarter. However, the top line surpassed the Zacks Consensus Estimate of $1.99 billion.
Full-year GAAP net revenues were $8.21 billion, down 2.5% from the previous year. However, the top line surpassed the Zacks Consensus Estimate of $8.19 billion.
Quarterly net financing revenues were down 10.8% from the prior-year quarter to $1.49 billion. The decline was primarily due to a drastic rise in interest on deposits. Our estimate for net financing revenues was $1.48 billion.
The adjusted net interest margin was 3.20%, down 48 basis points year over year.
Total other revenues were $574 million, up 8.9% from the prior-year quarter. We had projected other revenues of $501 million.
Total non-interest expenses increased 11.8% year over year to $1.42 billion. The upswing stemmed from higher insurance losses and loss-adjustment expenses, and other operating expenses. Also, a goodwill impairment charge of $149 million was recorded in the reported quarter. Our estimate for expenses was $1.23 billion.
The adjusted efficiency ratio was 55.7%, up from 50.6% in the year-ago period. A rise in the efficiency ratio indicates a deterioration in profitability.
Credit Quality: Mixed Bag
Non-performing loans were $1.39 billion as of Dec 31, 2023, down 4.1% year over year. Our estimate for the metric was $1.66 billion.
In the reported quarter, the company recorded net charge-offs of $623 million, up 59.7% 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 $587 million, up 19.8% from the prior-year quarter. Our estimate for provisions was $653.4 million.
As of Dec 31, 2023, total net finance receivables and loans amounted to $135.9 billion, down marginally from the prior-quarter end. Our estimate for the metric was $134.2 billion. Deposits increased 1.2% from the prior-quarter end to $154.7 billion. We had projected deposits of $153.7 billion.
Capital Ratios Increase
As of Dec 31, 2023, the total capital ratio was 12.4%, up from 12.2% in the prior-year quarter. The tier I capital ratio was 10.8%, up from 10.7% as of Dec 31, 2022.
Share Repurchase Update
In the reported quarter, the company did not repurchase any shares.
Concurrent with the earnings release, the company announced that it entered an agreement to sell its point-of-sale financing business, including $2.2 billion of loan receivables, to Synchrony. The transaction is expected to close in the first quarter of 2024, subject to the completion of customary closing conditions.
Upon the completion of the deal, ALLY expects its CET1 ratio to increase by 15 bps. Also, the sale is expected to be modestly accretive to the tangible book value and earnings per share in 2024.
Synchrony expects the acquisition to be accretive to 2024 earnings per share, excluding the impacts of the initial reserve build for credit losses at acquisition.
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
The Bank of New York Mellon Corporation’s (BK - Free Report) fourth-quarter 2023 adjusted earnings of $1.28 per share surpassed the Zacks Consensus Estimate of $1.12. However, the bottom line reflects a fall of 1.5% from the prior-year quarter.
Results have been primarily aided by a rise in net interest revenues and fee revenues. The assets under management (AUM) balance witnessed a rise, which was another major positive for BK. However, higher expenses hurt the results to some extent. Also, the credit quality was weak in the reported quarter.
Northern Trust Corporation’s (NTRS - Free Report) fourth-quarter 2023 adjusted earnings per share (excluding the impacts of loss on available-for-sale debt securities and FDIC special assessment fees) of $1.46 surpassed the Zacks Consensus Estimate of $1.33. However, the bottom line declined 11.5% year over year.
Rising fee income was a positive for NTRS. Also, an increase in total assets under custody and AUM balances supported financials. Nonetheless, a fall in net interest income and a deterioration in the credit quality were headwinds.
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Ally Financial (ALLY) Gains on Q4 Earnings Beat, Costs Rise Y/Y
Shares of Ally Financial (ALLY - Free Report) gained 10.7% following the release of its fourth-quarter and 2023 results. Quarterly adjusted earnings of 45 cents per share surpassed the Zacks Consensus Estimate by a penny. However, the bottom line reflects a decline of 58.3% from the year-ago quarter.
Results were primarily aided by an improvement in other revenues. 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 $49 million compared with $251 million in the prior-year quarter. Our estimate for the metric was $53.2 million.
For 2023, adjusted earnings per share were $3.05, down 49.7% year over year. The figure missed the Zacks Consensus Estimate by a penny. Net income available to common shareholders (on a GAAP basis) was $910 million compared with $1.60 billion in 2022. Our estimate for the metric was pinned at $914.2 million.
Revenues Decline, Expenses Rise
Total quarterly GAAP net revenues were $2.07 billion, down 6.1% from the prior-year quarter. However, the top line surpassed the Zacks Consensus Estimate of $1.99 billion.
Full-year GAAP net revenues were $8.21 billion, down 2.5% from the previous year. However, the top line surpassed the Zacks Consensus Estimate of $8.19 billion.
Quarterly net financing revenues were down 10.8% from the prior-year quarter to $1.49 billion. The decline was primarily due to a drastic rise in interest on deposits. Our estimate for net financing revenues was $1.48 billion.
The adjusted net interest margin was 3.20%, down 48 basis points year over year.
Total other revenues were $574 million, up 8.9% from the prior-year quarter. We had projected other revenues of $501 million.
Total non-interest expenses increased 11.8% year over year to $1.42 billion. The upswing stemmed from higher insurance losses and loss-adjustment expenses, and other operating expenses. Also, a goodwill impairment charge of $149 million was recorded in the reported quarter. Our estimate for expenses was $1.23 billion.
The adjusted efficiency ratio was 55.7%, up from 50.6% in the year-ago period. A rise in the efficiency ratio indicates a deterioration in profitability.
Credit Quality: Mixed Bag
Non-performing loans were $1.39 billion as of Dec 31, 2023, down 4.1% year over year. Our estimate for the metric was $1.66 billion.
In the reported quarter, the company recorded net charge-offs of $623 million, up 59.7% 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 $587 million, up 19.8% from the prior-year quarter. Our estimate for provisions was $653.4 million.
Loan Balances Decline Marginally, Deposits Increase
As of Dec 31, 2023, total net finance receivables and loans amounted to $135.9 billion, down marginally from the prior-quarter end. Our estimate for the metric was $134.2 billion. Deposits increased 1.2% from the prior-quarter end to $154.7 billion. We had projected deposits of $153.7 billion.
Capital Ratios Increase
As of Dec 31, 2023, the total capital ratio was 12.4%, up from 12.2% in the prior-year quarter. The tier I capital ratio was 10.8%, up from 10.7% as of Dec 31, 2022.
Share Repurchase Update
In the reported quarter, the company did not repurchase any shares.
Concurrent with the earnings release, the company announced that it entered an agreement to sell its point-of-sale financing business, including $2.2 billion of loan receivables, to Synchrony. The transaction is expected to close in the first quarter of 2024, subject to the completion of customary closing conditions.
Upon the completion of the deal, ALLY expects its CET1 ratio to increase by 15 bps. Also, the sale is expected to be modestly accretive to the tangible book value and earnings per share in 2024.
Synchrony expects the acquisition to be accretive to 2024 earnings per share, excluding the impacts of the initial reserve build for credit losses at acquisition.
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 Other Banks
The Bank of New York Mellon Corporation’s (BK - Free Report) fourth-quarter 2023 adjusted earnings of $1.28 per share surpassed the Zacks Consensus Estimate of $1.12. However, the bottom line reflects a fall of 1.5% from the prior-year quarter.
Results have been primarily aided by a rise in net interest revenues and fee revenues. The assets under management (AUM) balance witnessed a rise, which was another major positive for BK. However, higher expenses hurt the results to some extent. Also, the credit quality was weak in the reported quarter.
Northern Trust Corporation’s (NTRS - Free Report) fourth-quarter 2023 adjusted earnings per share (excluding the impacts of loss on available-for-sale debt securities and FDIC special assessment fees) of $1.46 surpassed the Zacks Consensus Estimate of $1.33. However, the bottom line declined 11.5% year over year.
Rising fee income was a positive for NTRS. Also, an increase in total assets under custody and AUM balances supported financials. Nonetheless, a fall in net interest income and a deterioration in the credit quality were headwinds.