CarMax Auto Finance upped its provisions for loan losses in the quarter ended November 30, Tom Reedy, chief financial officer, said during the company’s earnings call last Tuesday. CAF’s allowance for loan losses were at $114.8 million in 3Q, versus $90.9 million at the same time a year ago — a
26% increase.
Loss provision is determined by historical information and how the company is performing to-date, relative to that historical performance, versus “speculation,” he said on the call. “Used values definitely have an impact on loss rates, but historically, customer behavior has been a much bigger driver, and on an ongoing basis there’s many things moving,” Reedy said. “So it’s hard to say that one individual factor could have a dramatic impact on a go-forward basis.”
Despite the rising losses, CAF typically manages its portfolio for a 2% to 2.5% cumulative net loss rate, and during the recession, the company saw loss rates go to double that in the portfolio, Reedy said. “One thing I think I’d point out, if you look at the size of the loan loss allowance today, which is a 12-month look, it’s 1.10%,” he added. “So if you double that, you can see they [losses] were still well within the range of expectation in the zone that we are looking to originate.”
CAF originated $1.3 billion in loans in 3Q, up from $1.2 billion at the same time a year prior. However, despite the increase in originations, overall income was down 2.3% for the quarter, to $89.4 billion, due to the increase in loss provisions.