CarMax Auto Finance

3 Months Ended

May 31, 2025

CarMax Auto Finance Income [Abstract]

CarMax Auto Finance

CarMax Auto Finance

CAF provides financing to qualified retail customers purchasing vehicles from CarMax.  CAF provides us the opportunity to capture additional profits, cash flows and sales while managing our reliance on third-party finance sources.  Management regularly analyzes CAF’s operating results by assessing profitability, the performance of its auto loans, including trends in credit losses and delinquencies, and CAF direct expenses.  The CODM reviews CAF income to assess CAF’s performance and make operating decisions, including resource allocations.

We typically use securitizations or other funding arrangements to fund loans originated by CAF.  Certain pools of loans may be sold in such a way that CAF relinquishes all, or nearly all, of its continuing financial interests in the loans. We classify these loans as held for sale when we have both the intent and ability to sell the loans in an off-balance sheet transaction. Auto loans held for sale include amounts due from customers related to retail vehicles financed through CAF and are assessed on an aggregate basis to determine the lower of amortized cost or fair value. The fair value of the auto loans held for sale is determined using a discounted cash flow model that utilizes various assumptions based on the company's historical experience and current market factors. If the amortized cost exceeds the fair value, a valuation allowance is recorded. No valuation allowance is recorded as of May 31, 2025. See Note 6 for discussion of fair values of financial instruments.

CAF income primarily reflects the interest and fee income generated by auto loans held for investment and auto loans held for sale less the interest expense associated with the debt issued to fund these loans, a provision for estimated loan losses on auto loans held for investment and direct CAF expenses. CAF income does not include any allocation of indirect costs.  Although CAF benefits from certain indirect overhead expenditures, we have not allocated indirect costs to CAF to avoid making subjective allocation decisions.  Examples of indirect costs not allocated to CAF include retail store expenses and corporate expenses.  In addition, except for auto loans held for investment, which are disclosed in Note 4, and auto loans held for sale, CAF assets are not separately reported nor do we allocate assets to CAF because such allocation would not be useful to management in making operating decisions.

Components of CAF Income

	Three Months Ended May 31
(In millions)	2025		2024
Interest margin:
Interest and fee income	$	485.4	$	452.5
Interest expense	(197.5)		(182.3)
Total interest margin	287.9		270.2
Provision for loan losses	(101.7)		(81.2)
Total interest margin after provision for loan losses	186.2		189.0
Direct expenses:
Payroll and fringe benefit expense	(20.0)		(18.6)
Depreciation and amortization	(4.3)		(4.2)
Other direct expenses	(20.2)		(19.2)
Total direct expenses	(44.5)		(42.0)
CarMax Auto Finance income	$	141.7	$	147.0