All right. Good morning, everyone. Thanks for joining. My name is Rob Wildhack. I cover consumer finance here at Autonomous, and we are very excited to have Michael Rhodes with us today. Michael is the CEO of Ally, and he's been in that seat for a little more than a year now. Just a quick note for the audience: we're still using Pigeonhole for the Q&A. You can submit your questions there. They will make their way up to me on this iPad, and I will get them to Michael. Now we can jump right in. Michael, let's start with the high level. You've been CEO for about 12 months. Give us some insight into your first year on the job. What do you want investors to focus on or take away as it relates to the Ally story?
Right. Rob, thanks. It's great to be here, and thanks for hosting this. It has been about a year. I started in, I guess, late April of last year, so I celebrated my one-year anniversary pretty recently. If I think about the takeaways, let's keep it really simple. Just really three things to think about. One is we have some terrific franchises. When I talk to the franchises, I talk about the businesses. Even beyond that, I think about the brand the organization has, which is quite differentiated, the culture that we have, the technology that we bring to bear. When I talk to the franchise, the combination of the businesses and the capabilities that enable that, I'm really encouraged, actually more energized a year in by what I see than even maybe the day I started.
Second thing to take away is we've taken very meaningful steps to both streamline the organization and focus in areas where we have a competitive advantage. I think we're really beginning to see the fruits of that. They're going to play out now and hopefully in the near future. The third takeaway I'd offer is that as a business, we are not yet reaching our full potential. I think when you look at our returns today, we're not living up to the potential of what this franchise can do, but we're on the right track. I have a lot of conviction that we're on the right track to make things happen. If you sum that all up, today you think about Ally. Look, we're just a leaner, more focused, more purpose-built organization. We're on the track.
Our returns are what they are, but we have a path to see even better.
Right. You mentioned focus, and a common refrain from Ally recently has been the power of focus. What prompted a shift to be more focused? How does that set Ally up for this year and beyond? I know some of the aspects there are obvious, but for some of the people who maybe aren't as close to the details in the room, what's Ally doing differently today than in the past?
Great question. It is good you've done your work. The power of focus is something that we speak a lot about.
I agree.
You read the transcripts, and we talk about that a lot. Maybe just some history telling here first to be probably helpful is Ally, we're a 100-year-old organization. We've been public as a bank for 10 years. The roots and the bones of the organization are very much around auto finance, both commercial and retail auto finance. As a publicly traded bank, we obviously are taking deposits and doing other things to diversify the business. We're diversifying the business in many ways. Some of them included getting into some new business lines: credit card, personal lending, mortgage, and all good businesses. When we talk about the power of focus and what Ally brings to the table, we've really, last year, engaged early in the job. You do a couple of things when you're new in a role. You think about the talent.
You think about the organization, the structure. You think about strategy as well. Early in the job, looking at strategy, we said, "Look, we're going to actually make a pivot." The pivot's going to be to focus on areas where we have demonstrated strengths and a real reason to win. Those areas were dealer financial services. They were also in our corporate finance business and our banking business, our deposits business. Maybe if I can just kind of unpeel that a bit. When I think about focus and the reasons to win, if you look at dealer financial services, what's our reason to win? We're the largest bank originator of auto loans in the country. We're the best at what we do as a bank originator. We're also there to serve our customers in very, I'll just call it diversified ways.
We provide insurance products, commercial lending. We have fee-based products, including a SmartAuction product, which is like a virtual auction for used cars and even some kind of pass-through programs for risks that we do not want to take. We are actually showing up for our dealers in a relationship-based way, in a very big way. We have become very relevant for them. I call that real differentiation or reason to win. In our corporate finance business, this is a business that we have been doing for 25 years. Through this cycle, we have demonstrated very strong returns. We have a team with a lot of experience. Literally, the senior team has hundreds of years of experience. It is a business that has been growing, and that is something we feel very, very good about. Then our deposit business. Our deposit business, it is really quite remarkable.
We've taken this from we've been a bank for not that long. We're now the largest digital-only bank in the country, $140 billion of deposits. That business has done just really, really fabulously. When we talk about the power of focus, we're talking about really doubling down on the things where we have differentiated and very specific reasons to win. That was one of the big pivots that we made last year. Everyone inside the organization hears about it, and it's a real rallying cry. There's a real pride in that rallying cry because the businesses we are in and the businesses where we are investing are places where we have a real reason to win.
Let's zoom in on that pivot a little bit more because you mentioned acquisitions and personal lending and credit cards. With all the emphasis on returns, those businesses, especially credit cards, you probably know better than anybody here, can be very high-return businesses.
Yes.
Why the shift away there?
Yeah. Credit card, I love the credit card business. Credit cards are high-return businesses. To be fair, when I talk with the businesses that we either sold or stopped originating and personal lending before I arrived, we did the divestiture there, credit cards and mortgages. These are good businesses. The question really is about trade-offs and where you are going to make your trade-off decisions. For us, the trade-off decisions are really going to be investing in things that are either core or have adjacency to the core. When I talk about adjacency to the core, that is part of what creates an edge or sort of the reason that we will win. Again, kind of step back and I think about diversification. Look, we are still diversifying our business, but the way we are doing it is evolving.
We're evolving in a way that we're going to invest in places that are adjacent. Let me just bring that to life for just a moment if we can. If I think about our businesses and kind of what we've been able to do over the years, let's take 2019 versus today, so pre-COVID versus today. If you look at our fee-based businesses, and our fee-based businesses come from our corporate finance business, and they come from our dealer financial services, our fee-based income has gone from $1.6 billion to $2 billion over that period of time, which is a 5% CAGR. Our recent trajectory has been double digits. We're actually seeing an acceleration of the fee-based businesses. Things that are adjacent to the core, which is where we're doing well.
If you take our corporate finance business, this business, the assets have grown at a 10% + kind of CAGR over the past five years. The income's grown at 20% +. We have actually seen very strong returns there, and we like what we're getting there. In our retail bank, if I take our depository business, in our depository business, we've grown from under 2 million customers to over 3 million customers in five years, 1.3 million customer increase. During that period of time, again, we've seen that our pricing capabilities and our ability to have engaged customers has actually increased.
You look at the synergies, if you will, between the deposit business and what we do on the dealer financial services side, and actually the spread between what we earn on a new auto loan and what we're paying in terms of deposits, that spread has increased by about 100 points over the past five years. You are just kind of seeing the power of these things kind of working well together. We have a small invest business, and our invest business, again, plays off the adjacency for what we're doing on the depository side. Everything kind of plays together well. It is not that our businesses were not good businesses. We just see a better use for our capital and better returns by investing in the things that we think we do very, very well.
Sure. Okay. Let's touch on the topic du jour quickly. Tariffs policy there, obviously, changing very quickly. But acknowledging that, how are you thinking about tariffs today, the risks they present, especially given the outsized impact on the auto industry? And if tariffs do become a more permanent fixture, what's the potential longer-term impact for Ally?
Yeah. Yeah. Tariffs, it's interesting. Clearly, it seems like every day there's a new development on tariffs. When I think about tariffs, first of all, I'd say this is very dynamic. It's hard to kind of draw a line in the sand because things are moving around. There's deals being cut and negotiations and court cases and all this other type of stuff. It's actually quite dynamic. When I think about tariffs, I do have to break up. That's a long-term question. There's also a short-term question. As the story unfolds, I think those stories could end up maybe diverging, or they may end up aligning because it is dynamic. In the near term, we actually see some potential favorability in the near term. The favorability comes from potentially used car prices go up.
That's good for collections activities, recoveries. It's good for when cars come, vehicles come at the end of lease and what the values come there. In the near term, there could be some favorability. Over the long term, it is really tough to figure out. This could go a lot of different ways. The underpinning economic rationale of bringing manufacturing onshore and to bolster the economy, that would be good. There's also a bear case that goes with that. I don't claim to have a crystal ball that's any better than anyone else's. It's kind of difficult to project exactly where it's going to go long term. I will say if you kind of step back and look at an organization, we are in a structurally sounder position than we have been in years.
Our ability to do well in all sorts of environments has improved significantly. It has improved significantly for a number of reasons. If you look at the steps we took last year to improve our business, it links to the diversification. Look, we sold our credit card business. Our credit card business, it is a high-returning business. It is also a volatile business when it comes to losses, particularly where we were playing. We were in the near- prime segment. The near- prime segment is going to have a lot more choppiness with respect to loss content than other places in the marketplace. Selling that kind of derisks our balance sheet from a credit risk perspective. We took some of the proceeds of that, and not all of the proceeds, but some of the proceeds, and did a securities restructuring.
By doing the securities restructuring, we actually have a better income stream on an ongoing basis. We have also reduced interest rate risk at the same time. We have undertaken some credit risk transfer activities. In doing that, we have actually augmented the capital base. I look at our balance sheet today and the environment we are going into, less sensitive to interest rates, less sensitive to credit risk, stronger capital position. The flows of our business that we are getting in, I feel very, very good about. This tariff environment is going to throw all sorts of things at us. I am not trying to say it is not going to impact us in one way or the other because that would be a bit naive. I think we are very well positioned to handle whatever is going to come at us.
Okay. Sticking with the nearest term, how about the consumer? What are you seeing with respect to consumer behavior today and financial health? Any emerging trends, good or bad, pressure points that you're noticing?
Yeah. Consumers are an unusual one for us because we have a couple of sets of data that we look at. One is external. We see the consumer sentiment surveys, and everyone reads those. There is clearly angst in the consumer when I see these surveys. If I look at our own activities within our own book, look, as a focused business, we have a view on customers in certain ways. One way is new vehicle purchases. New vehicle purchases are very strong right now. That is likely a pull ahead. There is some pull ahead in there. It is hard to quantify exactly how much. When I see that, I say, "That is strong." When I look at our payment activity, in particular our payments for delinquent customers, I am actually encouraged by what we see.
If I kind of decouple from what I'm reading externally and just kind of look at our payment behavior, you see some encouraging things. How can both these things be true is the question. You have to kind of decouple and again kind of unfold the activity within our own delinquent payments, which is we've made meaningful changes to how we underwrite our loans. We've taken meaningful changes and improvements to how we service our loans, i.e., collections, both the data and the modeling that we use and the digital tools that we use. For our book right now, kind of disaggregating those two is actually a little tricky because what we're seeing actually feels pretty good, but I also recognize that the world out there is potentially changing.
You're going to hear from us a combination of feeling good about the business and caution at the same time. That's how I think about the consumer health.
Okay. The team has been vocal about reaching that mid-teens returns target, clearly a major priority for the company over the medium term. What needs to occur for that to happen? How do the combinations of the core businesses where you're really emphasizing and highlighting today, auto finance, insurance, corporate finance, how do they come together to produce and maintain those return levels?
Yeah. Yeah. Great question. If anyone's listened to our earnings calls, we talk about this a fair amount. We are committed to hitting a mid-teens return. We're being less prescriptive as to when because there's some macro factors that come into play on the various line items. For this to happen, there are three things that need to be true. First of all, we need to have our Net Interest Margin improve, and somewhere in the high three's is what we talk about. Second is on the credit side, we've had very, very low credit losses in the commercial businesses. On the retail side, we're looking for retail auto to be below 2%. The third item is we very much look at managing to have discipline with both our capital and our expenses.
Keep expense growth low, be very smart about how we're using capital. Between NIM, credit losses, particularly retail auto, and expense discipline, that kind of gets you there. Maybe if I just kind of unfold it a bit more because you asked specifically what the business is, look, there's stock and flow in our business. We spend a lot of time thinking about the new business that we're underwriting and what does that look like. If I look at our new business, and particularly around, if you take our auto franchise and our corporate finance businesses, which is kind of where the growth in assets is happening as opposed to some other places where there's more stability. The business coming in the door there has kind of a roughly, I've called a 400-ish basis points spread from benchmarks.
Our deposit funding is basically about a 50-point spread on the other direction from benchmarks. Between the two, you've got about a 450-point spread. You take that spread, and then you actually go and put an efficiency ratio that reflects some discipline against it. If you go put a loss number that reflects our kind of commercial experience on a historic basis, and auto is below 2%. The business we're originating today gets you to a mid-teens. Look, we have a bit of a that we're dealing with some legacy investments that were made in mortgages and securities. Of course, my phone is ringing, which is always the trick with the Apple Watches.
If you take away some of those decisions that were made a while ago, and for the reasons that at the time made sense, but we're dealing with some negative P&L implications. As time goes by, they unwind and better business winds on. It's the on/off dynamic, the quality of the book and the business that we're generating. It gets you there.
Okay. Now, if you're successful, or when you're successful in reaching that milestone, it would probably suggest that Ally shares today are somewhat mispriced. I mean, what do you think the market's missing there?
It's a fair question. Look, I appreciate that Ally's still a bit of a show-me story. Again, when you look at the business that we're generating, this is an attractive return business. When you look at us overall, you don't see those because, again, we're dealing with some legacy issues that we're working our ways through. It's a bit of a show-me story. That being the case, I go back to the narrative of the things that we have done. We are structurally a different place today than we were a few years ago. We've got a more focused business model, more efficient business model. We're playing or competing in places where we know we can generate attractive returns. We're structurally a different place. We've got a lot of conviction we're going to get there.
Look, there are all sorts of things in the macro that could take us one way or the other. The direction of travel is clear. Look, it's up for us as a management team to deliver the numbers that give the confidence that we're going to get there. We're committed to do that.
Okay. Let's dig into some of those key ingredients. The first one is the NIM. You've talked about optimizing the balance sheet. And earning assets are expected to be relatively flat for the time being. First, what's driving yield expansion moving forward? How sustainable is that? When do you think earning assets might be able to grow again?
Yeah. So when I think about NIM, first of all, our NIM story, the good thing about our NIM story is there is momentum on both sides of the balance sheet. You asked about assets. We'll talk about assets. There's also benefits on the liability side. On the asset side, it's really a mixed story. The mixed story, there are a few components to that. First of all, as I mentioned before, we have a number of both long-dated mortgages and securities that are earning something like around a 3% range. As those kind of wind off and we actually replace them with new business, you're at an 8%-10% type yield in the new business that we're generating. That on/off dynamic is a pull up in yield, unambiguously, on the asset side.
If you even double-click just on the auto business and look at our auto business, our new originations versus our portfolio yield, the auto has the benefit as a relatively short duration asset. You are actually seeing a pull up in terms of the portfolio yield on our auto business overall. The asset side, it's really a mixed story. Clearly today, we're talking about a flattish balance sheet. Over time, this will be growing. As we grow, you're going to see again the benefits of the higher margin business and the higher yielding business, which is again going to, we think, pull yield up.
Okay. And then on the deposit side, that's a platform that's really matured into a strategic differentiator for Ally. I mean, what does that franchise allow you to do today that the company couldn't do, say, five, 10 years ago? And then what's next for the deposit franchise?
I would tell you this deposit franchise, and this is something I inherited. I got to give credit to the team before me that has built this. This is a wonderful, wonderful franchise. This is a tremendous strategic differentiator. We have built the largest digital-only deposit franchise in the country. We are funding 90% of our assets, of our loans today, through deposit funding. It was 50% 10 years ago. We are 92% FDIC insured. A lot of folks talk about the risks of a bank. We have credit risk and capital risk. Liquidity risk is actually a big risk. Being 92% FDIC insured, that is a great place to be. Hats off to the team that has actually created what we have done here. It is just really amazing.
In terms of the differentiators that we have, I'll get to your margin question in a second. The differentiators, look, we have attractive rates. We have a brand that matters. Very, very few banks of our size have a brand that actually translates on a national basis. We have a strong culture inside the organization. That culture manifests itself, I think, every day in how we show up for our customers and how we show up for each other. We have great technology capabilities, digital data, and the things that we bring to bear as a digital-only bank. What has been built is really remarkable. I'm just so pleased to be part of and so proud of the team and what we've created.
On the margin side, the other thing is, look, with our FDIC insured deposit base, it's relatively short in terms of duration. You've heard us say we expect a roughly 70% beta through the cycle. We're about 60%, I think, give or take so far. We expect rates to be going down on an ongoing basis. With rates going down, we'll extract the beta. Look, there's some timing impacts that come into play. Again, the direction of travel on this is better NIM from both the liability side and how we're funding the business and the asset side. That's what gives us confidence. I may even double-click on that even a bit more, which is if you look at the quarter coming up, second quarter. On the first quarter call, we projected this. I'm saying something you may have already heard.
We sold the credit card business. The credit card business was adding about 20 percentage points of NIM to our business. We expect to fully cover that in the second quarter through the power we're seeing on both the asset and the liability side of the balance sheet. I think the direction of travel here is very clear.
That leaves the NIM about flat sequentially, even with the headwind from the credit card business.
That's right.
Okay. If I could ask one more on the NIM, any update or comments that you want to give on the timing of that high threes, maybe even 4% NIM target? What does the trajectory maybe look like for the rest of the year to be on the second quarter?
Yeah. Look, again, with NIM, the direction of travel is clear. There's definitely a pull up here. We expect to see NIM expansion this year. Even the quarter, look, we're going to come to 20 basis points. I'm hoping we even see maybe a little bit better than that. The direction of travel is clear. Timing is difficult because what happens is if the Fed moves 25 points, 50 points, they stay flat, there are near-term impacts which aren't the same as the medium-term impacts. It is hard for us to be precise in the timing. Recognizing the betas normalize the way they do on the liability side of the balance sheet, the direction of travel is in the right direction. Very difficult to be precise with timing. Again, I say the direction of travel is clear.
Okay. Let's dig into auto finance. The competitive landscape there seems to be shifting again. People had exited the business in 2022. Now it does seem that at least some are re-entering. What are you seeing competitively? What does Ally do in response to that? How do you continue to differentiate when competition is flowing in?
With competition, the auto business, I may leave you three thoughts. One, it's really good to be in a place where you are a through-the-cycle provider for the auto dealers. And we're a through-the-cycle provider. We've been there through thick and thin. There's real value that comes to that. I'll give you some more color on that in a moment. Second, there is more competition today. I describe the competition on the periphery. The periphery, I mean like the super, super prime and the subprime. Keep in mind that the auto market's a big market. We're generating $40 billion a year. We're 5% of the volume, give or take, in any given year. There's a lot going on outside of us. Our wheelhouse is the intersection of prime and used. We're seeing less competition there, more in what I call the periphery.
The third point, which may be the most important point, is we really like the returns we're seeing in the business today. Yes, there's more competition. You look at the power of our franchise, where the competition is happening in our returns. First of all, the power of the franchise. As you can imagine, you're in the job. I've spent a lot of time with our dealers. In my career, I've been in banking for 30 years. I've done an awful lot of what I call B2B2C businesses, business to business to credit. I was in the credit card business for a long time, and that's fundamentally a B2B2C business. Our business is a B2B2C business for auto. Our customer is the dealer. Yes, we have end retail customers, but we get them through a relationship with a dealer.
It really matters showing up and being there through a dealer, through thick and thin, through good times and bad. They reward us with that. They reward us by being able to look at a lot of their business. Just last year, as an example, we looked at $400 billion worth of volume to book $40 billion. We get an awful lot of bites at the apple. We are in a privileged position. We can do that. Why are we in a privileged position? This is a relationship-based business. We have very strong, deep-standing relationships that span not just years, in some cases, generations. Those become very, very powerful. We are there with the dealers with a more complete set of solutions. Yes, we are reasonably full spectrum. We do not on maybe some of the subprime credits.
We have third-party solutions that help us provide a full spectrum of solutions. We're providing commercial financing needs, whether it be floor planning, real estate planning for their physical facility, even acquisition financing. We have insurance products that we do. And we have advantages in insurance that we basically have a built-in distribution advantage on insurance. Yes, we have the underwriting costs. Everyone does. But our distribution model is better because we're already there at the dealers. And then we have all these other fee-based products that we're able to sell, including our SmartAuction product, which the dealer community just loves. And even the rental car community now is buying into that. And so coming with a complete set of solutions means we get a preferential bite of the apple. And you can't turn that on and off.
A lot of folks in this business will turn it on and off. You can't turn what we do on and off. That is power. The second thing about the competition, kind of where we're playing, again, when we play at the intersection of used and prime, A, that's an attractive market. B, the thing about that market also, it requires a certain degree of scale, capabilities, data, expertise, and history. You can't just conjure that up out of nothing. You have to have been there. Third is with returns. Look, we like the margin of the business that we're generating. Also, look, particularly in recent vintages, the last four to six quarters were the vintages that we've seen, our price loss expectations, we're actually seeing behavior better than price loss expectation. We actually like the business.
I appreciate there's more competition here. I feel good about the business we're originating.
On the credit side within retail auto, the first quarter showed some certainly improving trends. Net charge-offs were down year over year. I mean, can you speak to the dynamics underpinning that performance? Given the strength, should we be thinking about any revisions to the loss outlook?
Yeah. Okay. I was waiting for that question.
I asked that. Okay. Part of the job.
Yeah, I know. Anyway, we think about losses. I mentioned earlier, I'm encouraged by some of the behavior that we're seeing in terms of our credit book. I think that's playing out well. Two things can be true. The two things are, one, I'm encouraged by the behavior. Second, I'm still cautious about the macro environment. I don't have a great crystal ball in terms of where things are going. Also, often, you've heard us say this before, our delinquencies are elevated from where they may have been historically. We're probably a little more sensitive to the macro. Yes, I feel good about the trends that we're seeing. As I said, the most recent vintages, our 2024 vintages are performing better than 2023. Our 2024 vintages are performing better than we thought 2024 was going to perform.
We're doing better than our own expectations. There's some goodness there. I'm balancing the goodness with caution. What that means is I'm not going to make any announcements today. What I will say is, look, we're going to have a couple more data points where we report in July. We have more information. We'll talk then.
Okay. Have you adjusted underwriting at all in light of tariffs or broader macro sentiment affordability concerns?
Look, we're always adjusting underwriting, to be fair. And we use the data to try to influence where we want to take more and where we want to take less. In terms of tariffs, I will say this is that with tariffs, we don't view this as like a COVID-like event. COVID was a real, real massive disruption. We think tariffs are less of a magnitude of an impact on us. That being the case, we're being thoughtful about this. As I think about the environment now, we're making tweaks around the edges. We're evolving our criteria. I will say, particularly with our most recent vintages, our performance has been better than we would have thought. We kind of think there's room. We think we're more or less on the right track right now. No big sweeping changes.
Yep. As I think about some of those most recent vintages, a larger percentage of those have been upmarket in your S tier, a lot more than historical run rate. I mean, how should we think about the origination mix going forward? What would you want to see or need to see before remixing? Just lastly, is that decision, if it comes to remix back to the historical average, is that going to be more of a proactive thing or a reactive thing?
When it comes to the remixing of the business, and our S Tier, which is our highest level tier, it's been north of 40% for a while. I'll say this. It's like we're going to be very deliberate in terms of our kind of curtailment activities or how we kind of remix the portfolio on an ongoing basis. Again, you probably sense from me two tones. One is I feel good about the business. The second is a level of caution given the environment. We're going to be cautious and deliberate in terms of how we kind of remix that business. I'll offer this. We feel no pressure to move kind of faster than we might otherwise do. We're going to read the data. We're going to be thoughtful about the macro environment. Then we'll edge into it as it makes sense.
Okay. Let's jump over to corporate finance because that's been a consistent business for Ally and one that you're highlighting more and more. What do you consider the company's competitive advantages there? What do you see potential new growth opportunities in that segment?
That's great. Great question. Our corporate finance business, maybe some context first of all. If you look at our balance sheet and our lending balance sheet, hold securities out. On our lending balance sheet, about 25% of our loans are loans to businesses. Those loans to businesses, one-third of that, so our total loans to businesses is, call it, $32 billion. 1/3 of that is corporate finance, the other 2/3 is what we do in the dealer ecosystem where, again, I talk about our auto business where the dealer is our customer. That's the floor plan loans. That's our real estate loans for their physical facility. We also do acquisition financing for dealers in select situations. That's 2/3 of our business. One-third is corporate finance.
When I think about our corporate finance business, many of the things that we do in corporate finance, our approach to the business, there are actually similarities in terms of how we address the dealer community. This is a relationship-based business. We are not out chasing deals and trying to get everything done we possibly can. We have long-standing relationships with a number of financial sponsors and investors where they're looking for debt in one way or the other. Some of these relationships go back 20+ years. Our business has 25 years' experience. Our team has hundreds of years' experience in terms of the senior team. They anchor things on a relationship, prudent underwriting. The prudent underwriting is making sure the business makes sense, the cash flows work out, but also how you structure the deal.
If you think about what we're doing and sort of sources of competitive advantage, like your fundamental question, is this good business or not? We agent virtually everything that's on our balance sheet. We underwrite it. We actually syndicate a fair amount as well. There is a market for the stuff that we're doing. It's actually a very frothy and good market. We have lazy market tests almost every time we originate a loan that give confidence that we're actually doing something really good here. We feel good about this business. The growth of this business is going to come from two places. One is we have these long-standing relationships and just getting more and more out of those long-standing relationships. Second is, look, we are looking at kind of new verticals and places where we can bring capital with experienced teams.
We are very deliberate and thoughtful about when and how we do that. We've recently done something in the energy vertical. Look, we are going to be very deliberate, very thoughtful. We are a relationship-based credit-first shop. That is not going to change. We think what we do, we do very well. Again, if I look through the cycle and look at the last 25 years since we've been a public company, the data is available, this business has performed extraordinarily well. Competitive advantage comes to your relationship-based approach. It comes to your team, your underwriting discipline. We think we do really well on those.
Okay. You touched on fee income a little earlier. That's been growing at a nice pace recently and certainly less sensitive to interest rates, credit risk, all of those things. Fees grew 12% in 2024. I think the guide is only for flat this year. What is the right longer-term growth trajectory for that fee line?
Yeah. Fee income is important to us, obviously not capital intensive. We like fees. This year, the guide was flat. If you look at the first quarter, it was 10% on a year-over-year basis. I talked about double-digit. By giving up the card business, the card business is a fee-based business. We have actually overcome the card business, and that's a good story. In fact, if you think about the card business, we are going to overcome the fee income. I mentioned earlier that we are going to overcome the NIM loss. The revenue, we have actually kind of made up on one way or the other. We are getting rid of the credit losses and the costs. That's actually a good thing if you can do that.
We expect to see continued growth in the fee incomes and in the fee businesses. That is a place that we are focusing on. I am not going to kind of give you a long-term projection now. Overcoming the loss of the card business and the 10% print in the first quarter kind of gives the idea of kind of how we think about this business.
Sure. Okay. And then let's hit on capital. You've made several moves recently. I mean, how should we think about the capital management playbook right now? Specifically, what would you need to see to be comfortable restarting the share repurchase?
No, great question. In terms of capital, again, there are some common themes I am talking about here. I am actually encouraged by our ability to generate organic capital that is in excess of dividends and in excess of risk-weighted asset growth. That feels like, oh, that feels like an opportunity for share repurchases. Again, probably two reasons for caution here. The first reason, again, the macro, which way things are going. My crystal ball is no better than anyone else's. The second, which is a very real one, is kind of what I call the regulatory uncertainty. Look, there were some guidelines that were proposed a year or so ago, probably more than a year ago about what capital should look like for category four banks such as ourselves. Clearly, a new administration and probably a different regulatory approach could be coming.
I've got no visibility into what that's going to be. I don't think really anyone does. We're working on the assumption that the proposed rules are going to be the rules we need to live with, including the elimination of the AOCI opt-out. If you've got this regulatory uncertainty, macro uncertainty, couple that with I'm offering some encouragement of our ability to generate capital organically, it kind of puts us in a we're still in kind of a wait mode. I would tell you this, though. Share repurchases are part of our playbook. No ambiguity about that. We look at the potential of this business to generate returns. We see share repurchases as being an important part of that. We're just not ready to call it quite yet.
Yep. Okay. You mentioned some credit risk transfers that you guys have been using recently. This also ties to an audience question as well. Do you see more of those ahead? How do they stack up against the other capital levers that are at your disposal?
Oh, we like those transactions. I wanted to say that. You should expect to see more of them. These are really nice transactions. I mean, they do not really have a meaningful impact on our NIM and hitting our high-threes NIM target. They do add capital. It actually helps get our kind of capital weights, if you will, particularly for some of our more prime business to where on balance sheet, take into account the credit risk transferred. It kind of looks like the economic risk because the regulatory risk sometimes can be higher. We really like these transactions. Anticipate us to do more of them. Timing and quantum to be determined on market factors and things like that. It sends some enthusiasm for us for these transactions.
Yeah. Absolutely. Okay. One more on capital, acknowledging that the regulatory environment is still unclear. If we could normalize for that, how should we think about and how do you think about the CET1 target, which had been 9%, give or take? Is that still the right place to run?
Yeah. I think 9%, give or take, and probably give, to be fair, when it goes to tire. 9% + some type of operational buffer. Again, the operational buffer, it's hardly prescriptive on that because a little bit of that depends upon where AOCI ends up. AOCI ends up adding a lot of capital volatility. To the extent we have to deal with that, you might have to hire a buffer than you might otherwise have. I think 9% + something.
Okay. Fair enough. On expenses, you've made solid progress on the expense front. I mean, is there still more room to squeeze out efficiency? I mean, it's the age-old question for a CEO. How do you balance sort of the operational efficiency with the necessary investment for growth?
No. It's a great question. We've been very disciplined on expenses. We've had six quarters in a row of flat or declining controllable expenses. I've only been in the job for four quarters. The team before me was working on a lot of this. We've kind of continued that. Expect to see continued discipline, I would say, on expenses. I'll get to your question about the trade-offs. I'd say expect continued discipline, even though we project to have nice revenue growth on a go-forward basis, expect discipline on expense growth. That should translate into nice operating margins on a go-forward basis. I will say that. In terms of the investments, I'd say we've been managed to both reduce our expenses and invest in things that we need to. That continues to be the focus.
It is around technology. It is around cyber. It is around marketing and branding. Some of you may have seen we just signed the WNBA. We are really excited. That plays totally into who our customer segment is. It also plays into what we are doing in women's sports generally, where we are just getting a ton of great goodwill from that. We are making the investments we need. Being in my role, it is always about trade-offs. What are you going to stop doing in order to do something else? Just as we think about our businesses and our business mix, it was about trade-offs. Our expenses are about trade-offs. Expect us to continue to show some discipline about maybe stopping doing some things and doing more of something else.
The general notion is the stuff that's adding less value we'll do less of and the things that are adding more value we'll do more of. If we keep on doing that on a regular basis, you're going to get better returns on the business.
Yep. Okay. We do have some time for a couple of audience questions. This one, you've exited card and mortgage, which most would agree was the right move for the business. From a longer-term perspective, are there any markets where Ally might want to make an entrance?
Yeah. It's a great question. We talked about the power of focus just even before this meeting. The team and I, we were chatting about things. Folks are always coming up with great ideas of things we can be doing. I would tell you that for the near term, take the next few years, we think there's such tremendous opportunity in what we're doing today. We're not really trying to widen the aperture. We're really playing this power of focus and just doing the things that we're doing very, very well. We actually see meaningful upside by doing that. I mean, if I look at our auto business, we're 5% of the origination volume. That's a big marketplace. I think we're the best at what we do. It feels like there's upside.
The dealer community in general, if there are other adjacencies to the dealer community, that could be interesting. I'll use the word adjacencies. Adjacencies are really important here. In our corporate finance business, look, leverage the business we've been doing. There are other verticals to get into that make sense where we feel that we have something to bring. We'll look at that. In our consumer bank, clearly the banking activities that we're doing, probably the one place I haven't spent a lot of time talking about and we're still kind of in the norming, storming, and forming type stage is really our invest capabilities. We do think there's a real adjacency between what we're doing on the invest side and our consumer bank. Actually, we see a very attractive overlap in customers that have a depository relationship that open up an invest relationship.
We're seeing real stickiness in that relationship when those two things happen. In terms of going, we're not going to do home equity loans or other types of things that we haven't been doing in the past. We're not focused on that at all right now.
Okay. One more. Can you talk about the competitive environment as it relates to competition from captives? You've had Stellantis bank spin up, GM Financial, I think, renewed their application for an ILC. How could that impact Ally?
Yeah. No, look, I see the captives are there. Captives are there for a number of reasons. One of which is they really like to move new inventory. When I talk about what we do, we say we compete at the intersection of prime and used. 60% of our volumes are used. We feel really good about where we're competing and do not see captives really getting into our space as much as they might have historically. I mean, I do not think they have historically. It is similar to how it has been historically. That is kind of how I think about captives. Also, look, to be fair, we are there providing a pretty robust set of solutions in a way that captives are probably not going to do the same thing.
Okay. I'll leave it with one more question to close us out. I mean, this is a more generalist audience. What are the two things or three things that you would want the investment community here to take away from the Ally story?
Great. The three things, I'll probably start the three things to take away sort of in a similar way. I start the whole conversation overall. First of all, look, we've taken meaningful steps to streamline this business and to focus on areas of competitive advantage. Competitive advantages are core and things that are adjacent to the core and where we have edge or an advantage. Number one is just to streamline the business and the focus. Number two is we've taken, again, meaningful steps to strengthen and improve the balance sheet. When I think of the balance sheet, it's both our sensitivity to rates, our sensitivity to credit risk, the amount of capital that we have. We're just in a stronger position on our balance sheet, which is a great place to be as a bank.
The third thing I take away from this is, again, we're showing a lot of discipline on expenses and capital. Seeing that historically, expect that to continue. When you sum it all up, this translates to this is a business that has the potential to generate better returns than we're generating today. We think there is a compelling return future in front of us. We feel very, very good about that. Also, look, to be fair, this business, returns are very important as shareholders. You care about that. At the same time, look, we've got a mandate. We're trying to provide an outstanding customer experience. We're as committed to doing that as ever. Also, a great place for our colleagues to work. We're very proud of the culture of the organization.
I mean, Fortune Magazine always has us in one of the best places to work. We attract great talent that people try to build their careers there. That stuff is going to be as important as it's ever been. Plus, we're going to generate attractive returns. If I were to boil it down to just one simple theme, you're in the job. Everyone keeps on asking you the one question that people love to ask new chief executives, what do you want your legacy to be? I probably got this question a 100 times. What's your legacy? First of all, I take this question, I pivot it. I say, it's not my legacy. This is our legacy. This is something we're doing collectively. I'm just one guy. I'm just the good fortune to be in my role. This is a team effort.
We're doing this collectively. Second, when we think about our legacy, there's one word that we're using. It's extraordinary. We are looking to build something extraordinary. We are not like other banks. We are not trying to catch up or follow anyone. We are differentiated. We celebrate that differentiation. We think that's going to create something extraordinary. You've heard from me this combination of hopefully passion and excitement for where we're going and caution. I can't control the macro environment. There are all sorts of things that can happen. I feel good about this business. I think we really will create something extraordinary here.
I think that's a perfect place to leave it.
Good.
Thank you very much. This has been great.
Thank you.