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(Bloomberg) -- Ally Financial Inc. fourth-quarter earnings surged as its net interest margin beat analysts’ estimates and expenses and provisions for bad debt declined. Shares of the company soared as much as 8.7%, the most in a year.
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Net income jumped 74% to $108 million, or 26 cents a share. Loan-loss provisions of $557 million were well below Wall Street analysts’ expectations of $656.9 million.
“As we enter 2025, I am encouraged by strong momentum across our business,” Chief Executive Officer Michael Rhodes said in a statement Wednesday. “This optimism is driven by an improved outlook on credit, a balance sheet well positioned for margin expansion, and continued disciplined management of expenses and capital.”
The net interest margin, or the spread banks earn after they pay interest on deposits, was 3.3%, up 11 basis points from a year earlier. And Ally forecast this year’s NIM at 3.55% to 3.65%, according to a presentation on its website.
The firm also announced a deal on Wednesday with CardWorks Inc. to offload its credit-card business and a portfolio of $2.3 billion of loans. Ally said it took a $118 million partial goodwill impairment excluded from its adjusted metrics linked to the sale.
The online lender’s credit quality has stumbled in recent months as net charge-offs in its consumer auto loan portfolio climbed. Auto loans issued in 2022 in particular have struggled due to the combination of inflation, higher used-car prices and rising interest rates.
The fourth-quarter retail auto net charge-off rate increased 13 basis points to 2.34% from a year earlier. Net charge-off rates are expected to be between 2% and 2.25% this year, according to the presentation.
More borrowers could fall behind on their auto-loan payments if macroeconomic conditions worsen or used-vehicle prices fall, Chief Financial Officer Russ Hutchinson said on a call with analysts. But if conditions remain similar to what they were in the fourth quarter, loss rates could remain on the lower end of the guidance range, he said.
“We are pleased with momentum across the businesses entering 2025 after a year in which our financial results were pressured from a combination of volatile interest rates and a consumer burdened by the cumulative effects of inflation,” Rhodes said on on the call.