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Ally Financial (ALLY) Beats on Q3 Earnings, Stock Down 4.3%

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Ally Financial Inc.’s (ALLY - Free Report) third-quarter 2019 adjusted earnings of $1.01 per share surpassed the Zacks Consensus Estimate of 98 cents. The bottom line comes in 11% higher than the year-ago quarter’s reported figure.

Results were driven by improvement in revenues and growth in deposit balances. Also, capital ratios were impressive. However, higher non-interest expenses, along with rise in provision for loan losses, acted as major headwinds. Perhaps, due to these concerns the investors are skeptical about the company’s future performance. Thus, following the earnings release, the stock has declined 4.3%.

After taking into consideration non-recurring items, net income available to common shareholders (GAAP basis) was $381 million, increasing 2% from the prior-year quarter.

Revenues Improve, Expenses Rise

Total net revenues came in at $1.60 billion, up 6% year over year. Further, the figure surpassed the Zacks Consensus Estimate of $1.56 billion.

Total non-interest expenses flared up 4% year over year to $838 million. The upside stemmed from an increase in all components of expenses except insurance losses and loss adjustment expenses.

Credit Quality: Mixed Bag

Non-performing loans of $929 million as of Sep 30, 2019 were down 3% from the prior-year quarter end.

However, provision for loan losses increased 13% year over year to $263 million. The rise was mainly due to higher net charge-offs and asset growth.

Strong Balance Sheet, Capital Ratios Improve

Total net finance receivables and loans amounted to $127.33 billion as of Sep 30, 2019, decreasing marginally from the previous quarter. Deposits totaled $119.23 billion, increasing 2.5% sequentially.

As of Sep 30, 2019, total capital ratio was 12.8%, improving 12.7% from the prior-year quarter end. Tier I capital ratio was 11.2% as of Sep 30, 2019, up from 11.1% as of Sep 30, 2018.

Share Repurchases

During the reported quarter, the company repurchased shares worth $300 million.

Our Take

Steady growth in revenues and deposits, along with decent loan demand, will support Ally Financial’s profitability. Moreover, steady capital-deployment actions reflect strong balance sheet position. Nevertheless, persistently flaring up expenses and rise in provisions (as witnessed during the quarter) remain major near-term concerns. 

Ally Financial Inc. Price, Consensus and EPS Surprise

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 & Earnings Release Dates of Other Companies

Washington Federal’s (WAFD - Free Report) fourth-quarter fiscal 2019 (ended Sep 30) earnings of 66 cents per share were in line with the Zacks Consensus Estimate. The figure reflected year-over-year growth of 6.5%.

Hancock Whitney Corporation’s (HWC - Free Report) third-quarter 2019 adjusted earnings per share of $1.03 surpassed the Zacks Consensus Estimate of $1.01. The bottom line was 2% higher than the year-ago figure.

Associated Banc-Corp (ASB - Free Report) is slated to report results on Oct 24.

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