Auto Loan Receivables

6 Months Ended

Aug. 31, 2019

Loans and Leases Receivable, Net Amount [Abstract]

Auto loan receivables include amounts due from customers related to retail vehicle sales financed through CAF and are presented net of an allowance for estimated loan losses. We generally use warehouse facilities to fund auto loan receivables originated by CAF until we elect to fund them through an asset-backed term funding transaction, such as a term securitization or alternative funding arrangement. We recognize transfers of auto loan receivables into the warehouse facilities and asset-backed term funding transactions (together, “non-recourse funding vehicles”) as secured borrowings, which result in recording the auto loan receivables and the related non-recourse notes payable on our consolidated balance sheets. The majority of the auto loan receivables serve as collateral for the related non-recourse notes payable of $13.14 billion as of August 31, 2019 and $12.54 billion as of February 28, 2019. See Note 9 for additional information on non-recourse notes payable.

Auto Loan Receivables, Net



	As of August 31			As of February 28
(In millions)	2019			2019
Asset-backed term funding	$	10,452.9		$	10,273.4
Warehouse facilities	2,265.0			1,877.0
Overcollateralization ⁽¹⁾	295.2			273.3
Other managed receivables⁽²⁾	118.4			86.5
Total ending managed receivables	13,131.5			12,510.2
Accrued interest and fees	59.3			49.6
Other	25.6			6.9
Less allowance for loan losses	(150.4		)	(138.2		)
Auto loan receivables, net	$	13,066.0		$	12,428.5


⁽¹⁾	Represents receivables restricted as excess collateral for the non-recourse funding vehicles.


⁽²⁾	Other managed receivables includes receivables not funded through the non-recourse funding vehicles.

Credit Quality. When customers apply for financing, CAF’s proprietary scoring models rely on the customers’ credit history and certain application information to evaluate and rank their risk. We obtain credit histories and other credit data that includes information such as number, age, type of and payment history for prior or existing credit accounts. The application information that is used includes income, collateral value and down payment. The scoring models yield credit grades that represent the relative

likelihood of repayment. Customers assigned a grade of “A” are determined to have the highest probability of repayment, and customers assigned a lower grade are determined to have a lower probability of repayment. For loans that are approved, the credit grade influences the terms of the agreement, such as the required loan-to-value ratio and interest rate.

CAF uses a combination of the initial credit grades and historical performance to monitor the credit quality of the auto loan receivables on an ongoing basis. We validate the accuracy of the scoring models periodically. Loan performance is reviewed on a recurring basis to identify whether the assigned grades adequately reflect the customers’ likelihood of repayment.

Ending Managed Receivables by Major Credit Grade



	As of August 31			As of February 28
(In millions)	2019⁽¹⁾		% ⁽²⁾	2019⁽¹⁾		% ⁽²⁾
A	$	6,533.6	49.8	$	6,225.6	49.8
B	4,753.5		36.2	4,488.2		35.9
C and other	1,844.4		14.0	1,796.4		14.3
Total ending managed receivables	$	13,131.5	100.0	$	12,510.2	100.0


⁽¹⁾	Classified based on credit grade assigned when customers were initially approved for financing.


⁽²⁾	Percent of total ending managed receivables.

Allowance for Loan Losses



	Three Months Ended August 31								Six Months Ended August 31
(In millions)	2019			%⁽¹⁾	2018			%⁽¹⁾	2019			%⁽¹⁾	2018			%⁽¹⁾
Balance as of beginning of period	$	147.0		1.14	$	134.3		1.13	$	138.2		1.10	$	128.6		1.11
Charge-offs	(76.3		)		(64.9		)		(142.2		)		(123.8		)
Recoveries	34.2				28.7				70.7				62.4
Provision for loan losses	45.5				40.0				83.7				70.9
Balance as of end of period	$	150.4		1.15	$	138.1		1.13	$	150.4		1.15	$	138.1		1.13


⁽¹⁾	Percent of total ending managed receivables.

The allowance for loan losses represents an estimate of the amount of net losses inherent in our portfolio of managed receivables as of the applicable reporting date and expected to become evident during the following 12 months. The allowance is primarily based on the composition of the portfolio of managed receivables, historical loss trends and forecasted forward loss curves. We also take into account recent trends in delinquencies and defaults, recovery rates and the economic environment. The provision for loan losses is the periodic expense of maintaining an adequate allowance.

Past Due Receivables



	As of August 31			As of February 28
(In millions)	2019		%⁽¹⁾	2019		%⁽¹⁾
Total ending managed receivables	$	13,131.5	100.0	$	12,510.2	100.0
Delinquent loans:
31-60 days past due	$	292.0	2.2	$	276.5	2.2
61-90 days past due	140.8		1.1	141.4		1.1
Greater than 90 days past due	33.7		0.3	33.9		0.3
Total past due	$	466.5	3.6	$	451.8	3.6

⁽¹⁾

Percent of total ending managed receivables.