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Auto Loan Receivables
 9 Months Ended
Nov. 30, 2022
Receivables [Abstract]  
Auto Loan Receivables Auto Loans Receivable
 
Auto loans receivable include amounts due from customers related to retail vehicle sales financed through CAF and are presented net of an allowance for estimated loan losses.  These auto loans represent a large group of smaller-balance homogeneous loans, which we consider to be part of one class of financing receivable and one portfolio segment for purposes of determining our allowance for loan losses. We generally use warehouse facilities to fund auto loans receivable 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 loans receivable into the warehouse facilities and asset-backed term funding transactions (together, “non-recourse funding vehicles”) as secured borrowings, which result in recording the auto loans receivable and the related non-recourse notes payable on our consolidated balance sheets. The majority of the auto loans receivable serve as collateral for the related non-recourse notes payable of $16.24 billion as of November 30, 2022, and $15.47 billion as of February 28, 2022. See Note 10 for additional information on securitizations and non-recourse notes payable.

Interest income and expenses related to auto loans are included in CAF income.  Interest income on auto loans receivable is recognized when earned based on contractual loan terms.  All loans continue to accrue interest until repayment or charge-off.  When a charge-off occurs, accrued interest is written off by reversing interest income. Direct costs associated with loan originations are not considered material, and thus, are expensed as incurred.  See Note 4 for additional information on CAF income.
Auto Loans Receivable, Net
 As of November 30As of February 28
(In millions)20222022
Asset-backed term funding$12,342.0 $11,653.8 
Warehouse facilities3,420.9 3,291.9 
Overcollateralization (1)
688.1 489.1 
Other managed receivables (2)
201.7 217.5 
Total ending managed receivables16,652.7 15,652.3 
Accrued interest and fees83.3 67.3 
Other(4.2)3.1 
Less: allowance for loan losses(491.0)(433.0)
Auto loans receivable, net$16,240.8 $15,289.7 

(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 utilize 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 with the highest probability of repayment are A-grade customers. 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. After origination, credit grades are generally not updated.

CAF uses a combination of the initial credit grades and historical performance to monitor the credit quality of the auto loans receivable 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 November 30, 2022
Fiscal Year of Origination (1)
(In millions)20232022202120202019Prior to 2019Total
% (2)
Core managed receivables (3):
A$3,154.3 $2,815.6 $1,252.9 $800.6 $290.0 $63.4 $8,376.8 50.3 
B2,079.9 2,020.1 907.2 564.1 268.0 87.4 5,926.7 35.6 
C and other595.5 667.8 350.1 194.4 90.7 38.3 1,936.8 11.6 
Total core managed receivables5,829.7 5,503.5 2,510.2 1,559.1 648.7 189.1 16,240.3 97.5 
Other managed receivables (4):
C and other222.4 127.2 16.9 23.8 15.5 6.6 412.4 2.5 
Total ending managed receivables$6,052.1 $5,630.7 $2,527.1 $1,582.9 $664.2 $195.7 $16,652.7 100.0 
As of February 28, 2022
Fiscal Year of Origination (1)
(In millions)20222021202020192018Prior to 2018Total
% (2)
Core managed receivables (3):
A$3,885.5 $1,788.3 $1,266.1 $574.1 $203.4 $32.3 $7,749.7 49.5 
B2,795.2 1,288.5 857.7 473.1 205.2 50.4 5,670.1 36.2 
C and other919.1 496.2 294.8 156.7 73.8 29.6 1,970.2 12.6 
Total core managed receivables7,599.8 3,573.0 2,418.6 1,203.9 482.4 112.3 15,390.0 98.3 
Other managed receivables (4):
C and other165.2 23.9 34.7 23.8 10.0 4.7 262.3 1.7 
Total ending managed receivables$7,765.0 $3,596.9 $2,453.3 $1,227.7 $492.4 $117.0 $15,652.3 100.0 

(1)     Classified based on credit grade assigned when customers were initially approved for financing.
(2)     Percent of total ending managed receivables.
(3)     Represents CAF's Tier 1 originations.
(4)     Represents CAF's Tier 2 and Tier 3 originations.

Allowance for Loan Losses.  The allowance for loan losses at November 30, 2022 represents the net credit losses expected over the remaining contractual life of our managed receivables. The allowance for loan losses is determined using a net loss timing curve, primarily based on the composition of the portfolio of managed receivables and historical gross loss and recovery trends. Due to the fact that losses for receivables with less than 18 months of performance history can be volatile, our net loss estimate weights both historical losses by credit grade at origination and actual loss data on the receivables to-date, along with forward loss curves, in estimating future performance. Once the receivables have 18 months of performance history, the net loss estimate reflects actual loss experience of those receivables to date, along with forward loss curves, to predict future performance. The forward loss curves are constructed using historical performance data and show the average timing of losses over the course of a receivable’s life. The net loss estimate is calculated by applying the loss rates developed using the methods described above to the amortized cost basis of the managed receivables at inception of the loan.

The output of the net loss timing curve is adjusted to take into account reasonable and supportable forecasts about the future. Specifically, the change in U.S. unemployment rates and the National Automobile Dealers Association used vehicle price index are used to predict changes in gross loss and recovery rates, respectively. An economic adjustment factor, based upon a single macroeconomic scenario, is developed to capture the relationship between changes in these forecasts and changes in gross loss and recovery rates. This factor is applied to the output of the net loss timing curve for the reasonable and supportable forecast period of two years. After the end of this two-year period, we revert to historical experience on a straight-line basis over a period of 12 months. We periodically consider whether the use of alternative metrics would result in improved model performance and revise the models when appropriate. We also consider whether qualitative adjustments are necessary for factors that are not reflected in the quantitative methods but impact the measurement of estimated credit losses. Such adjustments include the uncertainty of the impacts of recent economic trends on customer behavior. The change in the allowance for loan losses is recognized through an adjustment to the provision for loan losses.
Allowance for Loan Losses

Three Months Ended November 30, 2022
(In millions)CoreOtherTotal
% (1)
Balance as of beginning of period$396.1 $81.4 $477.5 2.92 
Charge-offs(96.3)(16.3)(112.6)
Recoveries35.7 4.7 40.4 
Provision for loan losses60.9 24.8 85.7 
Balance as of end of period$396.4 $94.6 $491.0 2.95 

Three Months Ended November 30, 2021
(In millions)CoreOtherTotal
% (1)
Balance as of beginning of period$360.0 $38.1 $398.1 2.66 
Charge-offs(61.6)(6.6)(68.2)
Recoveries18.8 1.6 20.4 
Provision for loan losses68.5 7.7 76.2 
Balance as of end of period$385.7 $40.8 $426.5 2.75 

Nine Months Ended November 30, 2022
(In millions)CoreOtherTotal
% (1)
Balance as of beginning of period$377.5 $55.5 $433.0 2.77 
Charge-offs(241.9)(35.0)(276.9)
Recoveries104.7 11.2 115.9 
Provision for loan losses156.1 62.9 219.0 
Balance as of end of period$396.4 $94.6 $491.0 2.95 

Nine Months Ended November 30, 2021
(In millions)CoreOtherTotal
% (1)
Balance as of beginning of period$379.4 $31.7 $411.1 2.97 
Charge-offs(140.6)(13.1)(153.7)
Recoveries76.1 5.7 81.8 
Provision for loan losses70.8 16.5 87.3 
Balance as of end of period$385.7 $40.8 $426.5 2.75 

(1)     Percent of total ending managed receivables.
(2)     Net of costs incurred to recover vehicle.
 
During the first nine months of fiscal 2023, the allowance for loan losses increased $58.0 million, primarily reflecting growth in receivables. The increase in the allowance as a percent of total ending managed receivables was primarily driven by the previously disclosed expansion of our Tier 2 and Tier 3 originations within CAF's portfolio. While loss performance was unfavorable compared to the prior year period, the prior year performance fluctuated outside normal expectations. The allowance for loan losses as of November 30, 2022 reflects the historical loss performance experienced prior to the pandemic as well as increases for our Tier 3 expansion and growing Tier 2 portfolio.

Past Due Receivables. An account is considered delinquent when the related customer fails to make a substantial portion of a scheduled payment on or before the due date. In general, accounts are charged-off on the last business day of the month during which the earliest of the following occurs: the receivable is 120 days or more delinquent as of the last business day of the month, the related vehicle is repossessed and liquidated, or the receivable is otherwise deemed uncollectible. For purposes of
determining impairment, auto loans are evaluated collectively, as they represent a large group of smaller-balance homogeneous loans, and therefore, are not individually evaluated for impairment.

Past Due Receivables
As of November 30, 2022
Core ReceivablesOther ReceivablesTotal
(In millions)ABC & OtherTotalC & Other$
% (1)
Current$8,340.4 $5,570.5 $1,605.2 $15,516.1 $304.8 $15,820.9 95.01 
Delinquent loans:
31-60 days past due21.7 211.9 183.2 416.8 57.3 474.1 2.85 
61-90 days past due11.6 116.4 122.7 250.7 41.4 292.1 1.75 
Greater than 90 days past due3.1 27.9 25.7 56.7 8.9 65.6 0.39 
Total past due36.4 356.2 331.6 724.2 107.6 831.8 4.99 
Total ending managed receivables$8,376.8 $5,926.7 $1,936.8 $16,240.3 $412.4 $16,652.7 100.00 

As of February 28, 2022
Core ReceivablesOther ReceivablesTotal
(In millions)ABC & OtherTotalC & Other$
% (1)
Current$7,711.9 $5,401.3 $1,702.7 $14,815.9 $206.4 $15,022.3 95.98 
Delinquent loans:
31-60 days past due25.4 173.3 160.4 359.1 33.0 392.1 2.50 
61-90 days past due9.2 75.6 85.2 170.0 19.1 189.1 1.21 
Greater than 90 days past due3.2 19.9 21.9 45.0 3.8 48.8 0.31 
Total past due37.8 268.8 267.5 574.1 55.9 630.0 4.02 
Total ending managed receivables$7,749.7 $5,670.1 $1,970.2 $15,390.0 $262.3 $15,652.3 100.00 
(1)     Percent of total ending managed receivables.