Yahoo Finance Ally Financial (ALLY) Gains 2.2% Despite Q1 Earnings Miss
Ally Financial’s ALLY first-quarter 2023 adjusted earnings of 82 cents per share missed the Zacks Consensus Estimate of 88 cents. The bottom line reflects a decline of 59.6% from the year-ago quarter. Our estimate for adjusted earnings was 79 cents.
Results were primarily hurt by a decline in revenues and higher expenses. A significant increase in provisions was another undermining factor. However, an increase in loans was a tailwind. This perhaps drove the company’s shares, which gained 2.2% following the earnings release.
After considering non-recurring items, net income available to common shareholders (on a GAAP basis) was $291 million or 96 cents per share, down from $627 million or $1.86 per share in the prior-year quarter. Our estimate for the metric was $232.5 million.
Revenues Decline, Expenses Rise
Total GAAP net revenues were $2.10 billion, down 1.6% year over year. However, the top line beat the Zacks Consensus Estimate of $2.05 billion. Our estimate for revenues was $1.97 billion.
Net financing revenues were down 5.4% from the prior-year quarter to $1.60 billion. The decline was primarily due to a drastic rise in interest on deposits. Our estimate for net financing revenues was $1.47 billion.
The adjusted net interest margin was 3.54%, down 41 basis points year over year.
Total other revenues were $498 million, up 12.7% from the prior-year quarter. We had projected other revenues of $505.2 million.
Total non-interest expenses were up 12.8% year over year to $1.27 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 $1.22 billion.
The adjusted efficiency ratio was 55.8%, up from 45.6% in the year-ago period. A rise in the efficiency ratio indicates a deterioration in profitability.
Credit Quality Worsens
Non-performing loans of $1.38 billion as of Mar 31, 2023, were down marginally year over year. Our estimate for the metric was $1.65 billion.
In the quarter under review, the company recorded net charge-offs of $409 million, up significantly from $133 million in the prior-year quarter. We projected net charge-offs of $415.6 million. The company also reported a provision for loan losses of $446 million, up significantly from $167 million in the prior-year quarter. Our estimate for provisions was $426.5 million.
Loans & Deposit Balances Increase
As of Mar 31, 2023, total net finance receivables and loans amounted to $132.55 billion, up marginally from the prior quarter. Deposits increased 1.1% from the prior-quarter end to $154.01 billion.
Capital Ratios Deteriorate
As of Mar 31, 2023, the total capital ratio was 12.5%, down from 13.1% in the prior-year quarter. Tier I capital ratio was 10.7%, down from 11.5% as of Mar 31, 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, persistently 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
Wells Fargo’s WFC first-quarter 2023 earnings per share of $1.23 outpaced the Zacks Consensus Estimate of $1.15. The figure improved 35% year over year.
WFC’s results benefited from higher net interest income, rising rates and solid average loan growth. A fall in non-interest expenses acted as another tailwind. Yet, dismal non-interest income, higher provisions and weakness in the mortgage business were the major undermining factors for WFC.
Citigroup Inc.’s C first-quarter 2023 earnings per share (excluding divestiture-related impacts) of $1.86 outpaced the Zacks Consensus Estimate of $1.66. Our estimate for earnings was $1.40 per share.
Citigroup witnessed revenue growth in the quarter, backed by higher revenues in the Institutional Clients Group, and Personal Banking and Wealth Management segments. However, the higher cost of credit was a spoilsport.
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