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Ally Financial's profits jumped 20% in the third quarter even as the auto lender absorbed sharply higher write-offs on its auto loans.
More consumers struggled to repay their car loans, prompting Ally to charge off some 2.24% of those loans during the quarter, up from 1.85% a year earlier. The company had
"The challenges of managing through a unique environment are reflected in our results this quarter," Michael Rhodes, the CEO of the $193 billion-asset bank, said in a news release.
Despite the increased write-offs, the Detroit company saw its net income rise to $357 million during the quarter, up 20% from $296 million a year ago. Diluted earnings per share were $1.06, significantly outpacing analyst expectations of 42 cents per share, according to S&P Capital IQ data.
Interest-related income fell slightly at Ally, as it made fewer loans yet had to pay more interest to its depositors.
Other revenues at Ally helped power its earnings, as those rose to $615 million, up 41% from $435 million a year earlier. An increase in the equity securities Ally holds drove a large chunk of other revenues, as did increased premiums in Ally's insurance business and fee revenues from certain partnerships.
Rhodes pointed to strengths outside of Ally's bread-and-butter consumer auto loans. He said that trends in Ally's financing of dealers, its deposit book and its corporate finance arm should "position us to win in the marketplace and grow shareholder value."
Ally's loans to auto dealers rose to $23.8 billion, up 13% from last year, as dealers sought to expand their inventory. Income from Ally's loans to dealers rose to $432 million, up about 19% from $364 million a year ago.
The company's corporate finance group, which lends to sectors beyond auto, also saw its pre-tax income rise to $95 million, compared to $84 million a quarter earlier.
Ally has
The company had long targeted more middle-of-the-road consumers for its loans, but it's increasingly shifted toward customers with higher credit scores. The average FICO score of its auto borrowers rose to 710 during the quarter, up from 704 a year ago and 688 two years ago.
Auto loan approvals have also dipped sharply from 2022, when the pandemic-fueled boom in the auto market
And the company has charged higher interest rates to make up for potential losses if borrowers can't repay their loans. The yields on loans Ally made last quarter rose to 10.5% last quarter, up sharply from 8.7% two years ago.
In a presentation to investors, Ally flagged other steps it's taken to take on less risky loans. It's upped its requirements for proof of employment and income, decreased approvals for those with limited credit history and decreased approvals for higher monthly payments.
While Rhodes acknowledged charge-offs remain elevated, he said Ally is "confident the curtailment actions we've taken will drive losses lower over time."
Ally also set aside more money to cover potential loan losses, as provisions for credit losses rose to $645 million in the quarter, up from $508 million a year earlier.
Net financing revenues dropped to $1.48 billion during the quarter, down 3% from $1.53 billion, as its interest revenues stayed flat while interest expenses rose. Ally, whose high-yield savings platform added customers for the 62nd quarter in a row, saw the interest it paid on deposits rise to $1.62 billion, up from about $1.56 billion a year earlier.
