Ally Financial Inc. quarterly report, Q1 FY2024

Ally Financial Inc. — Q1 2024 Form 10-Q

Reporting period: Three months ended March 31, 2024; comparative period is Q1 2023 unless otherwise stated. Ally is a digital bank and financial-services company with major automotive finance and insurance businesses, as well as mortgage and corporate finance operations. Figures are unaudited and in U.S. dollars.

Financial performance

Metric	Q1 2024	Q1 2023 / comparison
Total net revenue	$1.986 billion	$2.100 billion; down 5%
Net financing revenue and other interest income	$1.456 billion	$1.602 billion; down 9%
Net interest margin	3.13%	3.51%
Provision for credit losses	$507 million	$446 million
Noninterest expense	$1.308 billion	$1.266 billion
Income from continuing operations before tax	$171 million	$388 million
Net income from continuing operations	$157 million	$320 million
Diluted EPS	$0.42	$0.96
Common dividend declared per share	$0.30	$0.30

Higher interest income on loans, securities, and cash was more than offset by increased funding costs, credit-loss provision, and expenses. Interest expense rose to $1.922 billion from $1.458 billion; the average rate on interest-bearing deposits increased to 4.28% from 3.23%. Return on average assets was 0.32% versus 0.67%, and return on average equity was 4.61% versus 9.60%.

Cash provided by operating activities was $1.341 billion, compared with $1.432 billion. Investing activities provided $3.501 billion, largely reflecting $1.949 billion of net proceeds from the Ally Lending sale; investing activities used $382 million in Q1 2023. Financing activities used $3.638 billion, versus providing $3.323 billion. Cash and cash equivalents were $8.153 billion at quarter-end, up from $6.945 billion at December 31, 2023.

Balance sheet, funding, liquidity, and capital

Total assets were $192.877 billion, down from $196.392 billion at year-end; finance receivables and loans, net, were $134.410 billion, compared with $135.852 billion.
Deposits totaled $155.084 billion, up from $154.666 billion. Long-term debt was $17.011 billion, down from $17.570 billion; short-term borrowings were zero, versus $3.297 billion at year-end. Total equity was $13.657 billion.
Available liquidity was $68.328 billion, including $7.420 billion of liquid cash and equivalents, $13.751 billion of unused FHLB capacity, $20.859 billion of unencumbered highly liquid securities, and $26.298 billion of FRB Discount Window capacity. Some liquidity is held at regulated entities and may not be freely transferable.
Ally’s Common Equity Tier 1, Tier 1, total capital, and Tier 1 leverage ratios were 9.41%, 10.84%, 12.51%, and 8.63%, respectively. Ally Bank met the regulatory “well capitalized” thresholds. The stress capital buffer requirement was 2.5%.
Approximately 92% of Ally Bank retail deposits, excluding affiliate and intercompany deposits, were FDIC-insured. Brokered deposits were $8.5 billion, or 5.5% of total deposits.

Material changes and business trends

Credit performance: Consumer net charge-offs increased to $539 million from $409 million. Automotive net charge-offs were $477 million, with the annualized net charge-off ratio rising to 2.3% from 1.7%. Management attributed higher losses to consumer stress amid persistent inflation, while noting that the pace of deterioration in automotive delinquencies had moderated. The allowance for loan losses was $3.550 billion, or 2.6% of finance receivables.
Automotive finance: Pretax income fell to $322 million from $442 million as funding costs and credit losses outweighed revenue growth. Consumer automotive originations and purchases were $9.756 billion, up from $9.521 billion; used-loan originations increased, while new-loan originations declined.
Insurance: Pretax income declined to $70 million from $92 million, in part due to lower investment gains and higher claims. The combined ratio improved to 98.6% from 102.0%. Premium and service revenue earned increased 13% to $345 million, supported by vehicle inventory insurance growth.
Other segments: Mortgage Finance pretax income was $25 million versus $21 million; Corporate Finance pretax income was $90 million versus $72 million. Corporate and Other reported a $336 million pretax loss, compared with a $239 million loss, chiefly reflecting higher funding costs.
Ally Lending sale: The sale closed March 1, 2024. Ally recognized an additional $7 million pretax loss in Q1; a $149 million goodwill impairment and $133 million net pretax loss had been recognized in 2023 in connection with the held-for-sale classification. Sale proceeds were $1.949 billion, net, in investing cash flows.
Investment marks: Available-for-sale securities had $4.434 billion of gross unrealized losses at March 31. AOCI loss was $3.989 billion, compared with $3.816 billion at year-end; Q1 other comprehensive loss, net of tax, was $173 million. Management reported no expected credit losses on the securities and said it did not expect to be required to sell them before recovery of amortized cost.

Outlook, risks, and other notable matters

The filing does not provide a specific earnings or revenue forecast. Management expects deposit balances to decline in Q2, citing typical customer outflows for tax payments. It reported a modestly asset-sensitive near-term interest-rate position, expected to revert to liability-sensitive within the 12-month horizon. The modeled 12-month pretax net financing revenue impact ranged from positive $147 million for a gradual 200-basis-point rate increase to negative $87 million for a gradual 100-basis-point decrease; management cautioned these are sensitivities, not forecasts, and depend on assumptions including deposit repricing.
Management cited persistent inflation, consumer credit deterioration, vehicle-value and lease-residual uncertainty, interest-rate and funding-cost sensitivity, market volatility, and operational, cyber, compliance, and regulatory risks. Q1 assumptions for credit-loss forecasting included slower near-term GDP growth and unemployment rising to about 4.1% in Q4 2024.
Potential banking-rule changes remain uncertain. Ally expects proposed long-term-debt requirements for Category IV firms to have a significant effect; proposed recognition of AOCI in regulatory capital is also expected to affect capital materially and could require gradual capital increases. Timing and final requirements are unclear.
The FDIC special-assessment estimate increased by $10 million during Q1 to $48 million, following an increase in estimated industry-wide assessed losses.
Legal matters are routine for the business; Ally said current matters are not likely to be material to consolidated financial condition after existing accruals, but a matter could materially affect results or cash flows in a particular period. The filing reported no material changes to previously disclosed risk factors, and management concluded disclosure controls were effective.
The board declared a $0.30-per-share common dividend payable May 15, 2024. Q1 share repurchases were limited to shares withheld for employee tax obligations; no 2024 repurchase program had been authorized at the filing date.

Most important facts for investors to verify

Whether consumer automotive delinquencies and charge-offs continue to moderate, and how future credit losses compare with the allowance.
Whether deposit pricing and the shift from CDs to liquid accounts stabilize funding costs and net interest margin.
Progress in insurance premium growth, claims severity, and the combined ratio, including weather-loss reinsurance coverage.
Realized returns on operating-lease vehicles and the impact of used-vehicle prices on residual values.
Final banking capital, liquidity, and long-term-debt rules, and any effect on capital distributions or funding costs.
The completed Ally Lending divestiture’s ongoing effect on earnings, assets, and cash flow, distinguishing the one-time sale proceeds from recurring performance.
Potential changes in the $4.434 billion of gross unrealized available-for-sale securities losses and the effect of any required securities sales or regulatory-capital treatment.