Ally Financial’s ALLY fourth-quarter 2024 adjusted earnings of 78 cents per share handily surpassed the Zacks Consensus Estimate of 59 cents. Also, the bottom line reflected a jump of 95% from the year-ago quarter.
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As a part of its efforts to create a simplified and streamlined organizational structure, Ally Financial announced some business actions. These include an agreement to sell its credit card business, cease new mortgage loan originations on Jan. 31 and reduce the workforce. These initiatives will help the company prioritize its core businesses and drive solid returns.
Investors cheered these efforts and its better-than-expected quarterly performance, leading to a 3.9% jump in ALLY shares yesterday.
Behind ALLY’s Headline Numbers
Results benefited from a rise in net finance revenues. Further, lower expenses and a decline in credit costs provided support. However, lower other revenues a decline in net finance receivables and loans and deposits were the undermining factors.
After considering non-recurring items, net income available to common shareholders (GAAP basis) was $81 million, up significantly from $35 million in the prior-year quarter.
For 2024, adjusted earnings per share was $2.35, which outpaced the consensus estimate but declined 17.3% year over year. Net income available to common shareholders (GAAP basis) was $558 million, down 34.1%.
ALLY’s Revenues Dip, Expenses Decrease
Total quarterly GAAP net revenues were $2.03 billion, down 2.4% from the prior-year quarter. Also, the top line missed the Zacks Consensus Estimate of $2.07 billion.
For 2024, total GAAP net revenues were $8.18 billion, down marginally. The top line, however, surpassed the consensus estimate of $8.15 billion.
Net financing revenues grew marginally from the prior-year quarter to $1.51 billion. The rise was primarily driven by lower funding costs. Further, the adjusted net interest margin was 3.33%, up 11 basis points. Our estimate for net financing revenues was $1.48 billion.
Total other revenues were $517 million, down 9.9%. We projected other revenues of $603.2 million.
Total non-interest expenses decreased 4% year over year to $1.36 billion, reflecting a disciplined approach to expense management. Our estimate for expenses was $1.24 billion. Excluding repositioning-related charges, adjusted expenses declined almost 1% to $1.22 billion.
The adjusted efficiency ratio was 52.8%, down from 55.4% in the year-ago period. A fall in the efficiency ratio indicates an improvement in profitability.
ALLY’s Loan & Deposit Balance Fall
As of Dec. 31, 2024, total net finance receivables and loans amounted to $132.3 billion, down 1.1% from the prior quarter. Our estimate for the metric was $136.6 billion.
Deposits declined marginally to $151.6 billion. We projected deposits of $151.2 billion.
Ally Financial’s Credit Quality: Mixed Bag
Non-performing loans were $1.48 billion as of Dec. 31, 2024, up 6.6% year over year. Our estimate for the metric was $1.34 billion.
In the reported quarter, Ally Financial saw net charge-offs of $543 million, down 12.8% from the prior-year quarter. We had projected net charge-offs of $586.8 million.
The company reported a provision for loan losses of $557 million, down 5.1%. The fall was attributable to the lower Corporate Finance reserve build and the sale of Ally Lending. Our estimate for provisions was $642.2 million.
Capital Ratios of Ally Financial Improve
As of Dec. 31, 2024, the total capital ratio was 13.2%, up from 12.4% in the prior-year quarter. The tier 1 capital ratio was 11.3%, up from 10.8% as of Dec. 31, 2023.
Also, the common equity tier 1 (CET1) capital ratio of 9.8% grew from 9.4% in the prior-year quarter.
Ally Financial to Divest Credit Card Business
Ally Financial announced an agreement to sell its credit card business to CardWorks, and its wholly-owned bank subsidiary, Merrick Bank. The card portfolio included $2.3 billion in credit card receivables with 1.3 million active cardholders as of Dec. 31, 2024.
The financial terms of the deal were not disclosed. The transaction is expected to close later this year.
"Ally's decision to sell its credit card business is part of our broader strategy to pursue a more focused approach, enabling us to simplify and streamline our structure, prioritize our core businesses, and drive improved returns," said CEO Michael Rhodes.
Our View on Ally Financial
Ally Financial’s weak credit quality amid a tough operating backdrop and elevated operating expenses are major near-term headwinds. Nonetheless, initiatives to focus on core businesses are expected to drive growth.
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 & Earnings Release Dates of ALLY’s Peers
Capital One’s COF fourth-quarter 2024 adjusted earnings of $3.09 per share handily surpassed the Zacks Consensus Estimate of $2.66. The bottom line also compared favorably with $2.24 in the prior-year quarter.
COF’s results gained from higher net interest income (NII) and non-interest income and rise in loans and deposits. Also, provisions declined during the quarter. However, the increase in expenses was the undermining factor.
Navient NAVI is slated to announce fourth-quarter and full-year 2024 results on Jan. 29.
Over the past seven days, the Zacks Consensus Estimate for NAVI’s quarterly earnings has moved 16.7% downward to 20 cents. This implies a 71.4% decrease from the prior-year quarter.
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