Ally Financial Inc. (ALLY) Earnings Call Transcript & Summary

I'm Ruth Nagle. I'm an equity analyst at Fidelity, and I'm here with Ally Financial. Very happy to be here to do a fireside chat. Ally is a $11.5 billion market cap company, really specializing in digital finance and auto lending. Russ Hutchinson is the Chief Financial Officer. He's been in the role since July of 2023. And prior to joining Ally, you were at Goldman Sachs for how many years?

22 years.

22 years. So a long time in investment banking and doing M&A, I believe, at Goldman.

Yes, that's correct.

Yes. Well, great. Well, thank you so much for coming to Boston today. We appreciate having the opportunity at BAAB to be able to talk to executives in the banking industry. So it's very much appreciated that you made it.

Great. Thank you. It's great to be here.

So I'd like to just kind of start with overall trends, and we can kind of then double-click on things after that. But what are you seeing in the business today that kind of gets you most excited about the future?

That's a great question. Thanks, Ruth. Look, I got to say we're really excited about the momentum we've got in our leading franchises. We're really excited, of course, begin Ally. We're really excited about our do-it-right culture. But maybe kind of just digging into each of the leading franchises. In auto finance, we're partnered with OEMs, national retailers, the large dealers. We're basically partnered with players across the industry with a lot of the innovators who are really leading the industry forward. And we got a lot of momentum in our partnerships. We're seeing, once again, record application flow on track for another 14 million applications this year. And we're really proud of that momentum. It really kind of speaks to the depth and just the momentum we have in terms of our relationships with our dealer partners. We've positioned that part -- that business where it's a true partnership where we're really adding value by underwriting retail auto loans across a pretty wide spectrum of credit, by providing commercial finance to our customers in the form of floor plan finance, value-added insurance products that make their businesses better, access to our SmartAuction platform. We're really partnered with our dealers in order to position them to win in their business and for us to win. Our bank, Ally Financial is the largest U.S. digital-only bank in the country, and we're really proud of what we've built. We are now up to $140 billion of deposits, over 3 million customers. And we're at a point where we're fully funded from a deposit perspective, and that really gives us the luxury of being able to focus our business on one, just kind of optimizing our pricing and continuing to grow our engaged customer base. So once again, really proud of the momentum we've got in our deposit business and just the flexibility that gives us going forward. Our Corporate Finance business is on track once again to produce record pretax profit for that business, just fantastic momentum. And it's in a year where so far, we've had no charge-offs. So once again, we're really proud of that. When I kind of look at it, we're 15 years into the journey of building our digital bank. We're 25 years of steadily building our Corporate Finance business. And of course, we've been in auto finance for over a century. And so again, we're just really excited kind of given our long history in each of these businesses and in particular, about the amount of momentum that we have in those businesses now. We think it sets us up really nicely to see real net revenue growth, both for margin expansion as well as continued growth in our fee-driven businesses. Auto credit is stabilizing and we expect it to get better. We've exercised a lot of control around our expenses and you kind of take all those things together, and we think it sets us up really nicely to achieve our medium-term targets. So we're pretty excited about all that.

So Russ, I'm going to start with the balance sheet and kind of get into some of the drivers there. But you're not really looking to grow the balance sheet. I think you're kind of assuming interest earning assets are pretty flat. What are the parts where you think that you do want to grow? And what are the parts that you're not growing?

Yes. No, it's a great question, Ruth. You're right, we're anticipating to be kind of flattish in terms of balance sheet growth over the course of the next couple of years, but there's actually a lot going on under the surface there. There's a portfolio mix transformation that's occurring in our business. As many of you know, we've been running off a lot of our lower-yielding, less profitable products. Like our mortgage loan book, our securities book, those asset classes have been running off. And at the same time, we've been building up our portfolio of retail auto loans and also building our corporate finance business. Retail auto loans and corporate finance loans, those are 9% plus yield products on the retail loan side and 7% plus on the corporate finance side versus, call it, 3% area on mortgage loans and mortgage securities. So there's a pretty significant pickup in terms of the profitability from that kind of roll on, roll off. And so that portfolio mix is going to benefit us in terms of kind of how we think about margin expansion over the next couple of years. If I just kind of go into our retail auto business, our corporate balances, we expect them to kind of run kind of more or less flat, but they're at a level that's about 25% below where they were pre-pandemic. And so when you think about that, we're growing our retail loans. We continue to grow our insurance business. We're on track for a record year in terms of written premium in our insurance business since our IPO. We're also growing our SmartAuction. And so what we're doing is we're driving more of our higher-yielding lending products and more of our high-margin fee revenue business off of effectively a pool of commercial loans, which are lower yielding, that's 25% smaller than it was pre-pandemic. On the deposit side, again, we're talking about kind of maintaining relatively flat in terms of deposits. But here we are, we're sitting at roughly 90% deposit funded versus 75% pre-pandemic. So you cut across all of those trends, and again, it's a relatively flat balance sheet, but a lot of the trends underlying that are pointing towards supporting our margin expansion story over the next couple of years.

And so now that you do have that deposit funding or in a really strong position with like you said, 90% loans to deposits. But how has that changed? Or how will that change your deposit strategy?

That's a great question, Ruth. I'm glad you asked because over the course of this year, we have shifted our deposit strategy. I think many of you noticed we took steps earlier in the year in terms of reducing our deposit pricing kind of ahead of the competitive environment. And that's just -- it's a reflection of the fact that we see ourselves as fully deposit funded and it gives us a little bit of extra flexibility. And as we think about that our overall deposit portfolio, that flexibility, it allows us to price a little bit more aggressively, and we've really benefited from the fact that even with kind of a more aggressive pricing on our side, we have continued to have a tremendous amount of momentum with our customers. And so what's going on under the surface is we're running off some of our more interest rate-sensitive kind of high balance customer balances, but at the same time we're increasing balances among our engaged customers, and we're adding a significant number of new customers, lower balance customers and less rate-sensitive customers. And so in effect, we're kind of optimizing the portfolio from both a pricing and a customer perspective. And we think that, again, kind of supports -- adds more kind of support to our margin expansion story over the next couple of years, this kind of rotation towards our more engaged deposit customer, a less price-sensitive customer, a customer who's with us for the full breadth of our value proposition, having attractive rates, but also an award-winning digital experience, and some really cool products in terms of things like our smart savings toolkit.

So I mean Ally has been kind of a done well in kind of the category of being a liability-sensitive benefiting from lower rates. But you've also talked, I think, in the last conference call, there was some discussion about some choppiness that comes with that. So can you maybe just talk about what the first and second order issues of the margin are with lower rates or no rates? You've talked a lot about the balance sheet dynamics, but what happens as rates move down?

Yes. No, it's a great question, and I'm happy to provide additional color in terms of how we think about that. Yes, maybe just to start, we're a beneficiary of lower rates in the medium term. There's no question it's a benefit to our business, the way we're set up with our deposit funding. But there is a difference in terms of the short term versus the medium term. In the short term, we carry north of $60 billion of floating rate exposure. That exposure comes from our commercial book, both commercial auto and commercial finance, as well as our hedging portfolio and our cash balances. And so that floating exposure reprices immediately with 100% beta. And that really dominates the very short-term picture in terms of how our net interest margin evolves in the short term. Over the medium term, that short-term asset sensitivity is overwhelmed by the power of the deposit franchise. The deposit franchise, we expect a 70% beta, but that beta evolves over time, subject to the competitive environment. And so that comes over the course of a couple of quarters. And so when we talk about our net interest margin expansion, we've got to understand there's short-term pressure as rates are coming down, and we get more pressure if rates come down faster or in larger increments, but that kind of overwhelming liability sensitivity that emerges over time due to the large deposit book.

Okay. Maybe we could shift over to talk about retail auto pricing, loan pricing. And you've kind of seen -- you have seen yields move up. Can you just -- what are the expectations for originated yields and especially as rates do move down?

Yes. No, it's a great question, particularly now as we enter into a falling rate environment. We've been really disciplined around caring for our risk-adjusted margin. And so you've seen in the third quarter, for example, as rates were coming down, we held our originated yield at 10.5%. We gave up some on -- in terms of volume in order to do that. And so we're very actively looking at the trade-off between margin, credit and yield. And we're really managing the business towards optimizing around that risk-adjusted yield. So we've been really impressed with our ability to hold yields so far. But benchmark rates are coming down, and it's certainly our expectation that our originated yield will come down somewhat as well. And we've talked about our expectation for the fourth quarter is -- we'll see some deterioration in originated yield, but we'll still be accretive overall to our portfolio yield, and that is our -- we continue to expect our originated yield to exceed our portfolio yield certainly for the near term. And when I kind of think about kind of going into the medium term and beyond, I think you got to remember that we've put a lot of curtailment on the underwriting side over the course of the last 18 months. A lot of that, of course, necessary and kind of in response to what we're seeing in terms of credit development in the book. But as we see credit improvement, as we continue to monitor our front book, we're going to unwind some of that curtailment. So we used to run at roughly 30% of our volume in our highest credit tier, our S-tier. The last 1.5 years, we've been running at 40% or more in the S-tier. Our expectation is, at some point, we start coming down from that 40% plus S-tier level. I don't think we'll go back to 30% anytime soon. And by the way, I don't anticipate we'll be moving down this quarter, but I do anticipate that over time we'll normalize the mix somewhat, and that's going to provide some support on the originated yield side and really kind of help us continue to maintain a strong originated yield and importantly, a strong risk-adjusted margin in the business.

Russ, is there anything you can share on the competitive environment and kind of what you're seeing because it felt like there was some capital that left the business. Is it coming back? Is it -- is competition -- are there any changes in competition?

Yes, so we've been a beneficiary for a while in terms of the overall competitive environment. And it's really kind of given us the opportunity to capture margin and to move up credit. And our dealer partners, they really appreciated that consistency. We effectively kind of took up the opportunity to deepen the moat around our business. Yes, I'd say as of lately, we have seen competitors starting to come back. It's been predominantly in the super prime market. So it's a lot of the bank competitors. You tend to focus on credit that is probably towards the high end of what we do and above. So it's not really a direct competitor to us at this point. But yes, we certainly expect to see given just the attractiveness of the sector overall, more players come back. I would say I really like where we play at the intersection of prime and used. A lot of the bank players really kind of favor the super prime, which is a little bit above us. And some of the other players will go to a level of credit that's probably a little bit below us. And so kind of where we are, I think we feel great about kind of participating in the environment where we play. I'd say the traction that we have with our dealers and the way we deepen that moat, that 14 million applications that I referenced earlier, that speaks for $400 billion of volume that we look at every year. And we look to book $40 billion plus or minus. So that's a look to book of about 10%. So that just gives us a ton of flexibility in terms of how we play in order to optimize our risk-adjusted margin. So even with some competition coming in at the edges at the high end and maybe some coming in at some point on the low end, I feel pretty good about where we play and our ability to just take advantage of the application flow and the looks that we're getting to really kind of optimize our business.

So I want to kind of shift a little bit and talk about kind of this very unique operating environment since the pandemic and what happened with used car prices and consumer and everything that was related around that? But before we kind of get into the credit -- portfolio credit trends, could you just talk more broadly about what you're seeing in the consumer and kind of the view you have at Ally?

Yes. Yes. I think we continue to live in unique times. We're seeing a lot of the same things in our book that I think others who play in consumer finance see in their books across credit card and auto and other consumer asset classes. And I think within auto, I think it's particularly interesting. The pandemic was a long time ago, but that cycle that we saw from pandemic to pandemic stimulus to inflation, it created a unique set of circumstances. And in that, we saw used car prices rise very quickly. And then we've also seen them come down quite quickly. And so I think we're still seeing the effects of that. I think across the industry, the 2022 vintage, in particular, was problematic, and the '22 vintage was a big vintage for us. And so we're kind of working our way through that like the rest of the industry, and it's certainly something that's contributed to the elevated credit cost that we're seeing today. And I'd say for the auto borrower in that '22 vintage, I think you had all the stuff that everyone else sees in consumer finance around the pandemic and the pandemic stimulus and then the inflation that's impacting credit. But in auto, you also have that extra impact from what's going on with the underlying collateral where prices rose really quickly. And where the supply of cars on dealer lots back in '22 was really thin. And then, of course, as prices have come down. And so that underlying collateral is worth less than it was when those '22 vintage customers bought their cars.

So maybe could you talk a little bit about the different vintages of what you're seeing? And as you mentioned, '22 was kind of the peak in car prices and probably creates more severity at this point when there are issues. But what's the kind of underlying difference between what we're seeing in the early 2024 and '23 versus '22 vintages?

Yes, it's interesting. We obviously spend a lot of time looking at our business in terms of kind of cutting the vintages. And we're encouraged by what we see in terms of the vintage to vintage improvement. So the '23 vintage performing better than '22. The '24 vintage, still early days. But the early read on the '24 vintage is even better. And so that encourages us, it kind of points the way towards credit improvement. And maybe I'd start by saying, look, we think our credit has stabilized, and we think the kind of what we see in terms of vintage to vintage improvement, points to, quite frankly, a path to lower credit costs down the road. And I'd say what we showed publicly is kind of the annual vintage data. Obviously, as a business, we're able to look at it on a quarterly basis and on a monthly basis as well. And what we see on a quarterly and monthly basis, I think, gives us even more comfort. And so for example, if I take the '23 vintage, we've been introducing curtailment now for quite some time. There were some big steps like early in 2023, we put some pretty significant curtailment in place. But we continue to put curtailment in place beyond that. And what we see is -- when we look at the vintages on a quarterly basis, we see the benefit of that incremental curtailment. And so our later '23 vintages are performing even better than our early '23 vintages. And our '24 vintages similarly are performing better, just reflecting the cumulative effect of curtailment that's been put in place over the course of the last 18 months or so. And so I think overall, I think we feel like all those trends point to stabilization and eventually improvement in credit costs. We guided -- this year, we upped our guidance to expect a full year NCO rate of 2.25% to 2.30% for 2024. Understand, given where we entered 2024, that points to on a seasonally adjusted basis are exiting 2024, probably above that range. And so as we think about 2025 onwards, that's part of the caution that you hear from us around -- the caution around kind of being able to call when we expect credit to really start to turn. But we do expect that turn is coming.

And so have you continued to do curtailment? I know -- I mean, you said started early 2023, but has that been progressive?

Yes, absolutely. We are constantly looking at our book, and we're adjusting our underwriting kind of very consistently. There are some periods where we make kind of big steps in terms of introducing large curtailments. But overall, we're looking at our credit, we're looking at our monthly vintages and we're making changes on a pretty regular basis. It's not a kind of one-and-done type process. It's continuous improvement in terms of our underwriting.

Okay. All right. Great. I'm going to switch topics again, and I want to talk -- you mentioned it earlier in your overview, but the kind of fee-related businesses and how strong you're doing in insurance and corporate finance. Can you just talk a little bit about the trends in the insurance business? And really how you're finding the success that you're having in insurance?

Yes. We -- yes, sure, absolutely. We're on track to probably do about $1.5 billion of written premium this year. And I look at kind of year-to-date and that's pretty much a kind of a post-IPO record for us in terms of the amount of written premium we're doing. There's 2 sides of the business. There's the F&I side. So essentially kind of vehicle service contracts and GAP insurance that's offered through the dealer's F&I office. And then there's the P&C side. We insure most of the cars that we finance through our floor plan business. On the F&I side, we've just got a really great track record of partnering with our dealers. Helping them in terms of training and setting them up for success in terms of selling a product that's great for them, that's great for the customer, and that's great for us. We partner in terms of training program. We put together a really great end customer experience. And it's a value proposition that has benefits for everyone involved. We like to talk about a win-win-win situation. And that's a business where I think we've got a lot of legs going forward, and it's a business that we're investing in. We think we're just naturally competitively advantaged because essentially, we're leveraging the relationships we already have with these dealers. We're leveraging the partnership that already exists to make their business better. On the P&C side, we ensure most of the cars that we finance in our floor plan business. And as dealer inventories have recovered post pandemic, it means there's kind of more cars on the lot, and we're insuring more cars, and we're getting fee revenue from that. But also, we found in the industry with the ebb and flow of competition, we've actually found -- we've formed some really great relationships with folks like Toyota, Nissan, Santander. And so we've added a significant volume of cars that we're insuring in our floor plan business related to our relationships with them as well. And so third quarter was, again, a post-IPO record just in terms of the amount of P&C written premium that we had. And so again, we feel really good about the momentum we have both on the P&C side and the F&I side. And importantly, it really leverages the relationships that we already have with our dealers. And so we think we're uniquely positioned to win in the insurance business, and that's an area that we're just going to continue to invest in going forward.

And Russ, just to be clear, you have reinsurance, I'm just thinking about storms and hurricanes and things like that. So you're well covered in that regard.

Yes. So on the P&C side of the business, we're well covered. We use reinsurance. Also, I'd say our exposure is interesting. It's more to things like hail storms and tornadoes that kind of come out of nowhere, is kind of where we see most of our exposure. The big named storms, typically, we're able to work with our dealers to move the collateral out of harm's way because you usually get a couple of days of notice in terms of when those storms are coming up. And obviously, we're close to our dealers. We have a pretty active dialogue with them, and we leverage that in order to move the collateral. And that's actually something our reinsurers really value is we've got a track record now in the reinsurance community over many years where we've successfully kind of moved collateral out of harm's way and avoided loss from a lot of the big named storms. But obviously, in a year like 2024 where we've seen a lot of loss and our reinsurance has provided us with a tremendous amount of value, they do take loss. And again, that reinsurance provides real value to us.

Okay. Great. And then on the Corporate Finance business, I mean, you said you've been in it 25 years. So it's not a new business. But maybe you could just -- maybe -- I think maybe I'd be good to just understand it a little bit better of who are you financing? What -- where is the deal flow coming from? What sort of risk do you have in this business?

Yes. Yes, we've been in it for 25 years. And the business has a really strong track record of consistent profitability and just kind of managing their risk really well. The loss rate over the last 10 years or so has averaged about 30 basis points. The ROEs on average, are north of 20%. This year will be 30% plus. So far, we've been 30% plus in terms of ROE and corporate finance. And so I think we've kind of proven over time, we can really manage the business well. And when you kind of think about an $11 billion book, it's obviously operating at a scale that's different from our auto and our deposit business. And so when I kind of think about how we manage the credit and kind of how we run the business at this size so effectively, it's about focusing on verticals and on sponsor relationships, where we can be relevant, where we can kind of really matter in the places where we play and where we can have enough of the knowledge to really be able to manage our risk well. And so I think that's part of kind of how we've been able to play very successfully there. The business has a couple of parts to it. There's the sponsor finance business. It's a lot of kind of middle market industrial type deals that we're financing there. And then we have a lender finance business where we're partnering with a lot of folks who are providing private credit, and we're essentially kind of providing financing to them against their portfolios. The business is almost all first lien. It's secured. And again, kind of look at that track record over 25 years, we feel good about the business' ability to manage risk and to produce a compelling ROE for the enterprise.

Okay. I'm going to take a pause and see if there are any questions in the audience. We'll start here with Ryan. There's a...

Good see you again, Russ. Russ, maybe to talk about the net interest margin. You commented that rates down faster in larger increments would be more negative for the margin. Maybe just talk about how a slower cutting cycle along with the more and potentially even a pause from the Fed in a more steep rate curve would impact both the passing of the margin and your ability to achieve a 4% NIM?

Yes. No, I appreciate the question. Everything I say, of course, is subject to what's going on in the competitive environment in terms of deposits. But yes, slower rate path, longer pauses are helpful to us. I think you've heard us talk in the past about back in the old days before the beginning of August when people were worried about higher for longer. We've talked about a rate environment where, let's just say, rates just held constant for a sustainable period of time. I think there were a lot of questions about whether our NIM expansion story would hold, and it absolutely does hold because we continue to benefit from the roll-off of kind of older vintages of retail auto at lower yields and the roll-on of newer vintages at higher yields. And we continue to benefit from that, that portfolio mix that I talked about earlier, where we're running off the mortgage loan and the mortgage securities book at the same time that we're investing in retail auto loans and corporate finance. And so there are a number of factors that are driving that NIM expansion independent of what happens with the Fed funds curve. And so obviously, look if rates move more slowly, it gives us more time to adjust pricing on the deposit side. And so that's kind of on the margin, helpful. But at the end of the day, it's a question of the path. It's not really the destination. The destination is unchanged. It's just a question of the path to get there.

Can I ask about one of your curtailment actions being to require income and employment verification in more cases. I'm curious in what percentage of successful applications do you not require income and employment verification? And to what extent that's contributed to losses. I presume it has given that you're now sort of changing your process there?

Look we're not asking for income and employment verification on the majority of applications. It's not entirely economical to do that. But we are asking for it in more cases, particularly where there are high monthly payments involved. And so this is kind of one of the areas where we're constantly testing. We're running champion challenger, and we're kind of looking at our performance on a monthly vintage basis and making adjustments as needed. But yes, I'd say it's not the industry standard to require income and employment verification on every application. So it's not -- that's probably not the bar that we're moving towards, but we're certainly testing kind of where and when and the bias, certainly over 2024 year-to-date has been in more circumstances require it. And again, I point to kind of the high payment -- the high monthly payments as a place where we've done that more recently.

And when you say volume you mean, it's from a processing cost perspective or [indiscernible] and therefore you lose business for [indiscernible]

It's all of the above. And it doesn't necessarily lead to better credit outcomes depending on the specifics of the loan we're looking at.

Okay. I have a question on the charge-off process. And obviously, I don't understand the lead lag times of that book. But on the one hand, you're telling us that the '24 vintages are doing better than the '23, and '23 is doing better than '22 and late '23 is doing better than early '23. But on the other hand, you're telling us that charge-offs exiting this year will be higher than the average, so they're still mounting. So is it that the '22 book is just so outsized relative to '23-'24? What's -- how do you bring those two opposing dynamics together?

Yes. It's a combination of things. One, obviously, the '22 book is large. It was a $46 billion origination year versus '23-'24, which are kind of more like $40-ish billion each. So there is the size component. There's also -- there is a curve in terms of kind of how losses develop in auto finance. And so we're also kind of being respectful of the fact that we're growing our retail loan portfolio and just kind of where the vintages are in our loss curves looking at the '22 and also the early '23 is in terms of kind of where they are. We're also mindful of the fact that we're carrying around a large delinquency book. And so far, our flow to loss rates have been favorable relative to historicals, but we're carrying around a large delinquency book, particularly late-stage delinquencies and so that exposes us to probably a little bit more volatility around kind of what flows to loss in a given month.

Hello. Anna Aldrich, Cambiar Investors. So just curious on the delinquency, we hear that consumer in general is in a good space with full employment or close to full employment. And so is it just customers walking away because they're underwater? Or like can you expand in terms of where you are seeing the -- what do you see as the drivers of these higher delinquencies?

Sure. I think a lot of it kind of has to do with kind of what we saw where we've seen kind of -- people went into '22 with a lot of cash from pandemic stimulus kind of -- not a lot of collateral on the dealership lot. And they probably took on vehicles and payments that were kind of higher than kind of what they wanted to stepping into the dealership. Since then, we've seen a considerable amount of inflation. And so you've got a consumer who's dealing with the cumulative impact of the last 2 years of elevated inflation. They've run through their pandemic savings. They're dealing with cumulative inflation. The cost in particular of car ownership, the inflation there is probably the multiple of inflation more broadly, just the cost of repairs, maintenance, et cetera, and insurance. And so I think you got a customer who's dealing with kind of cost of vehicle ownership and cost of living with a relatively high car payment. But they still have a job. And so we're carrying around elevated delinquencies, but we're seeing favorability in our flow to loss. So we've got a large pool of consumers who's clearly struggling with kind of making the monthly budget balance. But at the same time, they've got a job, they may have other sources of income and money from family members, et cetera. And so that's kind of, I think, what's kind of contributing to kind of where we are in terms of both elevated delinquency, but also favorable flow to loss trends as we've got -- we just got customers who are still employed, still earning money, but struggling on a month-to-month basis with the overall cost of living.

And would you say that's has gotten better? I know you kind of alluded that the performance of the vintages are better, but is that pressure the same? Or I guess -- and I guess when we think about -- you've done the curtailment, so the mix has improved. But if you kind of stay constant with that consumer, is there a change?

Yes. Look, I think the buyer in '23, when they hit the dealer lot, I think there was a lot more selection there. I think in particular, there's probably more value certainly on the used car part of the lot where we do a lot of our business. And so I think you had a consumer who had a better understanding of their overall cost of living because they had -- a lot of the inflation was behind them. They had more choice in terms of affordable cars to buy. And so I think that's all helpful. And then I think from our perspective, in terms of curtailment, if you look at the payment to income levels, they've gone down significantly from kind of where they were '22 to kind of what we've been doing in 2024. And so I think you have the benefit of kind of a consumer who had more choice and probably had a more manageable payment, you have the benefit of lower PTI and a higher overall credit quality borrower. And then used car prices have been better behaved for the '23 and definitely for the '24 buyer versus what the '22 buyers saw.

Okay. One more question, I think.

Maybe one more question, Russ. So you made some positive comments about credit stabilizing and then eventually improving. Just how do you think about the evolution from both a frequency and a severity standpoint, just given the fact that on one side, you've made these curtailments to the book, but we also have used car prices stabilizing? And what do we need to see for this transition to happen from the kind of above seasonally adjusted losses to more in line or improve it?

I think it's a great question. You raised 2 great points. I think we're expecting to see the benefit unfold on both counts. We expect the curtailment, we've put in place and having a higher credit quality borrower to favor us on the frequency side. And then on the severity side, the stability we've seen in used car prices, which will certainly help us on the severity side as we move forward as well.

All right. That's very helpful. Yes. Russ, thank you.

Great.

So we're going to have lunch now. So we'll wrap it up. And I guess, we'll meet again after lunch. So thank you.