Ally Financial's Strong Culture and Financial Performance
2024-01-24
Ally Financial recently held its Q4 2023 earnings call on January 19, 2024. The participants in the earnings call included CEO Jeff Brown, CFO Russ Hutchinson, and interim CEO Doug Timmerman. During the call, the company discussed several important topics, including its financial performance, credit performance, loan portfolios, funding profile, financial statements, and strategic priorities.
One of the key topics discussed during the earnings call was the driving force behind the company's success. The company attributed its success to the commitment and hard work of its employees, highlighting the benefits of having an engaged workforce. This engagement creates customer obsession and helps the company better serve its customers. In fact, Ally Financial shared that it has achieved an impressive 88% customer satisfaction score across more than 380 million digital interactions.
The company also emphasized the importance of its culture. CEO Jeff Brown expressed pride in the culture that has been developed within the company. Ally Financial consistently prioritizes building its culture and creating a sense of belonging. In 2023 alone, Ally teammates donated over 60,000 hours of their time to support communities.
Turning to the financial performance, Ally Financial reported a full-year adjusted EPS of $3.05, a core ROTCE of 11.5%, and revenues of $8.2 billion. The company's net interest margin (NIM) has been impacted by rapid tightening in the past two years. Notable items announced in the quarter included the pending sale of Ally Lending and the sale of retail auto loans via the securitization market.
Ally Bank, a subsidiary of Ally Financial, serves over 3 million customers with $142 billion of deposit balances. The company's retail auto net charge-offs for 2023 were 177 basis points, and the customer retention rate for Ally Bank has remained above 95% since its launch in 2009. Total revenue has seen a significant increase of 76% since 2014, while net financing revenue has increased by 80% and NIM has increased by 80 basis points.
During the earnings call, Ally Financial also discussed its funding profile. The company is core funded, with deposits making up 88% of its profile. Ally Financial has multiple efficient funding sources, including unsecured, secured, and short-term vehicles like the FHLB. The company's total available liquidity is $63.5 billion, which is 5.5 times its uninsured deposit balances. Ally Financial's conservative liquidity profile remains a key priority and source of strength.
The financial statements for the quarter were also discussed during the earnings call. The company highlighted a $16 million benefit included in the financial statement for the Ally Lending assets, which was excluded from adjusted metrics. The noninterest expense included two significant one-time items: a $149 million write-down of goodwill associated with the Ally Lending sale and a $38 million charge from the FDIC special assessment associated with the 2023 banking crisis. The effective tax rate during the quarter on a GAAP basis was negative 20%, and the adjusted EPS for the quarter was $0.45.
Credit performance was another important topic discussed during the earnings call. The company attributed the charge-offs in the fourth quarter to seasonal trends and elevated activity within corporate finance and credit card. However, the retail auto net charge-offs in the fourth quarter were at the low end of the guidance provided. The company also noted that the charge-offs in commercial auto had minimal impact on the P&L within the quarter. While there were seasonal increases in 30- and 60-day retail auto delinquencies, the year-over-year increase in 30-day delinquency rates declined for the fourth consecutive quarter. The decrease in consolidated coverage was mainly driven by mixed dynamics, including the pending sale of Ally Lending and growth within commercial auto.
The performance of the company's loan portfolios was also discussed during the earnings call. The delinquency trends for the 2023 vintage were encouraging, with better loss performance compared to the 2022 vintage. Ally Financial has refined its approach to collections over time, resulting in more churn in the delinquency buckets but a meaningful improvement in eventual losses. The underperforming originations are expected to be ring-fenced to the second half of 2022, and the company expects its annual NCO rate to remain below 2% in 2024. The company assumes a 5% decline in used vehicle values in 2024, with much of that decline occurring in the first half of the year.
The company's net interest margin (NIM) outlook was another important topic discussed during the earnings call. Ally Financial expects to reach a 4% NIM by the middle of 2025, although it may take until the very end of 2025 if the interest rate environment remains flat. The company considers a variety of interest rate environments and evaluates different outcomes and scenarios. Ally Financial took the opportunity during the last quarter to further put on pay-fixed hedges, which provides insulation through 2024 and supports their outlook for that year.
Expense management and outlook were also discussed during the earnings call. Ally Financial expects its expense growth to be less than 1% in 2024, with controllable expenses expected to decline by more than 1%. The estimated full-year tax rate for 2024 is 18%, with quarterly fluctuations expected due to EV tax credits and tax planning strategies.
The company's strategic priorities were highlighted during the earnings call. These priorities include strong alignment between culture and stakeholders, differentiated offerings for consumer and commercial customers, delivering leading digital experiences, and disrupting the industry to remove friction for customers. Ally Financial's long-term goal is to achieve a 15% ROTCE and a 1.5% ROA.
Overall, Ally Financial's Q4 2023 earnings call covered a wide range of topics, providing insights into the company's financial performance, credit performance, loan portfolios, funding profile, financial statements, and strategic priorities. The company expressed confidence in its current plans and outlook for the future, emphasizing its commitment to building a strong culture and serving its customers.