RICHMOND, Va. -

CarMax Auto Finance reported “better than anticipated” loan charge-offs that had a favorable impact on both the provision for loan losses and the ending allowance for loan losses during the first quarter of its current fiscal year. The performance prompted investment analysts to question CarMax leadership about the possibility of the company’s captive buying deeper down the credit spectrum and expanding its ongoing venture into subprime auto financing.

Chief financial officer and executive vice president Tom Reedy was quick to stop that line of thinking that lower charge-offs would trigger more aggression by CAF.

“I think the two are actually unrelated,” Reedy said according to a transcript of last week’s company conference call posted by SeekingAlpha.com.

“We’re looking at the subprime test almost as a different line of business with a different pool of credit,” Reedy continued. “And as we’ve talked about before, we’re constantly testing within our core CAF business different pockets of credit, both pricing and what we'll approve on an ongoing basis. To the extent it makes sense and we keep the profile of the portfolio intact, then we'll roll those things out.

“As far as the current environment having an impact on that, these are anywhere from five to six-year loans,” he went on to say. “I think the results in any one quarter or a couple of quarters aren’t anything to go out and swing your credit policy for what you’re going to be collecting in five years.”

When the analysts followed up, Reedy addressed why charge-offs improved at least during the most recent quarter.

“The losses are really a combination of how many people are going bad and how well we’re doing recovering funds from those loans that have gone bad,” Reedy said. “We’ve had some success in doing a little bit better on the recovery side, but the vast majority of what we’re seeing in loss performance is that just fewer people are going bad. I think that’s not inconsistent with what’s going on in the lending industry in general right now, at least, at the higher credit level.”

CAF followed the general upward track Reedy referenced. Compared with last year’s first quarter, CAF income increased 15.3 percent to $109.1 million. Management indicated the improvement was driven by an increase in average managed receivables and continued favorable loss experience, partially offset by a lower total interest margin percentage.

The company added average managed receivables grew 17.2 percent to $8.66 billion.

And CarMax wants receivables to grow, especially as the quality of consumer credit company dealerships see from potential buyers continues to improve.

“One of our main goals at CarMax is to make sure that when customers show up at the store that they have access to credit,” president and chief executive officer Tom Folliard said.

“We always talk about global approval rating, which is of applicants, how many get an approval from one of our lenders starting with CAF and then heading down through all of our other partners,” Folliard said. “And that number is over 90 percent. So we’re pretty pleased with the credit offering that we have for our customers when they show up at the store, whether it’s through CAF or one of our partners.”