Ally Financial Inc. annual report, FY2023

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Ally Financial Inc. — 2023 Form 10-K

Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report; the filing text does not provide a complete Q4-only results summary. Dollar amounts are U.S. dollars.

Business context and financial performance

Ally is a digital bank and automotive finance and insurance company, with additional mortgage, corporate finance, brokerage, credit-card and point-of-sale lending businesses. It reported $196.4 billion in total assets at year-end. On December 31, 2023, Ally committed to sell Ally Lending; the sale was expected to close in the first quarter of 2024.

  • Revenue and earnings: Total net revenue was $8.2 billion, down 3% from $8.4 billion in 2022. Net financing revenue and other interest income declined 9% to $6.2 billion, as higher interest income was more than offset by sharply higher funding costs. Net income from continuing operations fell 40% to $1.0 billion; diluted earnings per share from continuing operations were $2.99, versus $5.04.
  • Margins and returns: Net interest margin was 3.32%, down from 3.85%. Return on average assets was 0.53% (0.93% in 2022), and return on average equity was 7.52% (11.91%).
  • Credit costs: Provision for credit losses rose to $2.0 billion from $1.4 billion. Consumer net charge-offs increased to $1.8 billion from $897 million, driven mainly by automotive lending. The consumer automotive net charge-off ratio rose to 1.8% from 1.0%. The year-end allowance for loan losses was $3.6 billion, or 2.6% of finance receivables, compared with $3.7 billion, or 2.7%, a year earlier.
  • Cash flow: Net cash provided by operating activities was $4.7 billion, versus $6.2 billion in 2022. Investing activities used $7.3 billion and financing activities provided $3.8 billion. Cash flow movements at a lending bank can reflect loan and deposit activity and should not be read like those of a nonfinancial company.
  • Liquidity and funding: Deposits were $154.7 billion, up $2.4 billion; retail deposits grew $4.6 billion to $142.3 billion. Total available liquidity was $63.5 billion, up from $40.5 billion, including $26.0 billion of FRB Discount Window capacity. Deposits represented 88% of on-balance-sheet funding. Short-term borrowings and long-term debt totaled $20.9 billion on the balance sheet.
  • Capital: Ally’s Common Equity Tier 1 ratio was 9.36%, Tier 1 ratio 10.76%, and total capital ratio 12.41%; its stress capital buffer was 2.5%. Ally Bank met the regulatory definition of well capitalized.

Material changes and unusual items

  • Interest expense increased to $6.9 billion from $2.9 billion, largely reflecting higher deposit costs. The average rate paid on deposits rose to 3.80% from 1.39%.
  • Automotive Finance pretax income fell to $1.6 billion from $2.3 billion, as increased interest expense and credit provisions outweighed revenue growth. Consumer automotive originations declined to $40.0 billion from $46.4 billion.
  • Insurance returned to pretax income of $213 million from a $38 million loss. Its combined ratio worsened to 103.7% from 98.6%, reflecting higher weather, GAP and vehicle service contract losses.
  • Ally recorded a $149 million goodwill impairment related to Ally Lending’s planned sale and a $38 million FDIC special assessment expense. The Lending sale classification produced a net pretax loss of $133 million, including a $16 million benefit to credit-loss provision.
  • Net unrealized losses on investment securities remained substantial. Year-end accumulated other comprehensive loss was $3.8 billion. Ally transferred $3.6 billion of non-agency mortgage-backed securities from available-for-sale to held-to-maturity during the fourth quarter.

Outlook, commentary and risks

The filing does not provide a specific full-year 2024 earnings or revenue forecast. Management described elevated macroeconomic uncertainty and expected slow near-term GDP growth in its credit-loss forecast. It reported that the rate of increase in automotive delinquencies slowed during 2023, while early loss performance on 2022-originated auto loans—particularly second-half vintages—was running above expectations.

  • Key exposures include consumer auto credit performance, used-vehicle prices and lease residual values, inflation and interest rates, deposit competition and potential rapid withdrawals, and reliance on dealers and major automaker relationships. GM and Stellantis dealers and customers remain significant to automotive activity.
  • Ally expects proposed capital and resolution rules for large banks to require higher capital or eligible long-term debt; management said the proposed long-term-debt rule could significantly affect the company. Final requirements and their effects remain uncertain.
  • Moody’s maintained Ally’s investment-grade rating but changed its outlook to Negative in August 2023; other listed agencies showed Stable outlooks at year-end.
  • The CEO announced plans to retire; Ally appointed Doug Timmerman interim CEO effective February 1, 2024, while the permanent CEO search continued. The CFO and general counsel also changed during 2023; the filing disclosed the consumer and commercial banking president’s planned retirement effective July 1, 2024.
  • The company reported no cybersecurity threat or prior incident that had materially affected, or was reasonably likely to materially affect, its business, strategy, results or financial condition. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.

Important facts for investors to verify

  • Whether auto delinquencies, charge-offs and losses on 2022 loan vintages stabilize, and whether the $3.6 billion allowance remains adequate.
  • How deposit pricing, CD maturities ($43.5 billion due in 2024), and funding costs affect net interest margin and liquidity.
  • The status and final terms of the Ally Lending sale, including the resulting impact on earnings and capital.
  • The market and regulatory treatment of Ally’s securities losses and the eventual capital impact of proposed banking rules.
  • Insurance loss trends, vehicle residual values, and Ally’s exposure to GM, Stellantis and dealer financing.
  • Execution of leadership succession and any material developments in legal or regulatory matters; the filing says outcomes are uncertain and provides no clear aggregate maximum loss value.