Financing Receivables, Receivables Purchased/Participated from IBM (Tables)

6 Months Ended

Jun. 30, 2020

Financing Receivables, Receivables Purchased/Participated from IBM

Components of financing receivables and receivables purchased/participated from IBM

	Client Loan and
	Installment
	Payment				Commercial
(Dollars in millions)	Receivables		Investment in		Financing
At June 30, 2020:	(Loans)		Leases		Receivables		Total
Financing receivables, gross	$	8,603	$	3,661	$	2,031	$	14,296
Unearned income		(317)		(281)		(3)		(601)
Deferred initial direct costs		63		25		—		88
Residual value*		—		483		—		483
Amortized cost	$	8,349	$	3,888	$	2,029	$	14,266
Allowance for credit losses		(101)		(72)		(9)		(182)
Total financing receivables, net	$	8,248	$	3,816	$	2,020	$	14,084

* Includes guaranteed and unguaranteed residual value

	Client Loan and
	Installment
	Payment				Commercial
(Dollars in millions)	Receivables		Investment in		Financing
At December 31, 2019:	(Loans)		Leases		Receivables		Total
Financing receivables, gross	$	9,566	$	4,626	$	3,400	$	17,592
Unearned income		(373)		(384)		(4)		(761)
Deferred initial direct costs		71		32		—		103
Recorded investment	$	9,264	$	4,274	$	3,396	$	16,934
Allowance for credit losses		(82)		(56)		(9)		(148)
Unguaranteed residual value		—		531		—		531
Guaranteed residual value		—		47		—		47
Total financing receivables, net	$	9,181	$	4,796	$	3,387	$	17,365

	At June 30,		At December 31,
(Dollars in millions)	2020		2019
Short-term purchased receivables from IBM	$	50	$	56
Allowance for credit losses		0		0
Total short-term purchased receivables from IBM, net	$	50	$	56
Long-term participated receivables from IBM	$	4,333	$	4,310
Allowance for credit losses		(21)		(7)
Total long-term participated receivables from IBM, net	$	4,312	$	4,303
Total receivables purchased/participated from IBM, net	$	4,362	$	4,359

The company has a long-standing practice of taking mitigation actions, in certain circumstances, to transfer credit risk to third parties. These actions may include credit insurance, financial guarantees, nonrecourse borrowings, transfers of receivables recorded as true sales in accordance with accounting guidance or sales of equipment under operating lease.

Schedule of financing receivables by portfolio segment

(Dollars in millions)
At June 30, 2020:	Americas		EMEA		Asia Pacific		Total
Amortized cost	$	8,948	$	4,759	$	2,863	$	16,570
Allowance for credit losses
Beginning balance at December 31, 2019	$	98	$	36	$	11	$	146
Adjustment for adoption of new standard		21		13		4		39
Beginning balance at January 1, 2020	$	120	$	50	$	16	$	185
Write-offs	$	(15)	$	(1)	$	(1)	$	(17)
Recoveries		0		—		2		2
Additions/(releases)		28		9		(1)		37
Other*		(12)		0		0		(12)
Ending balance at June 30, 2020	$	121	$	58	$	15	$	194

* Primarily represents translation adjustments.

(Dollars in millions)
At December 31, 2019:	Americas		EMEA		Asia Pacific		Total
Recorded investment
Lease receivables	$	3,160	$	710	$	404	$	4,274
Loan receivables		6,173		2,415		676		9,264
Participated receivables from IBM		717		1,671		1,922		4,310
Ending balance	$	10,049	$	4,796	$	3,003	$	17,848
Recorded investment collectively evaluated for impairment	$	9,957	$	4,770	$	2,993	$	17,720
Recorded investment individually evaluated for impairment	$	92	$	26	$	10	$	128
Allowance for credit losses
Beginning balance at January 1, 2019
Lease receivables	$	38	$	17	$	10	$	65
Loan receivables		66		28		5		98
Participated receivables from IBM		3		8		3		14
Total	$	107	$	53	$	17	$	177
Write-offs	$	(14)	$	(10)	$	(4)	$	(29)
Recoveries		0		0		0		1
Additions/(releases)		7		(6)		(2)		(2)
Foreign currency translation adjustment		(1)		0		0		(1)
Other		0		0		0		0
Ending balance at December 31, 2019	$	98	$	36	$	11	$	146
Lease receivables	$	27	$	21	$	8	$	56
Loan receivables	$	68	$	12	$	2	$	82
Participated receivables from IBM	$	3	$	3	$	1	$	7
Related allowance, collectively evaluated for impairment	$	23	$	11	$	3	$	36
Related allowance, individually evaluated for impairment	$	75	$	26	$	9	$	110

Schedule of past due financing receivables

					Amortized		Billed		Amortized
	Total		Amortized		Cost		Invoices		Cost
(Dollars in millions)	Amortized		Cost		> 90 Days and		> 90 Days and		Not
At June 30, 2020:	Cost		> 90 Days (1)		Accruing (1)		Accruing		Accruing (2)
Americas	$	8,948	$	306	$	230	$	29	$	96
EMEA		4,759		93		30		4		68
Asia Pacific		2,863		19		11		2		8
Total client financing receivables	$	16,570	$	418	$	271	$	35	$	172

(1) At a contract level, which includes total billed and unbilled amounts for financing receivables aged greater than 90 days.

(2) Of the amortized cost not accruing, there was a related allowance of $116 million. Financing income recognized on these receivables was immaterial for the three and six months ended June 30, 2020, respectively.

					Recorded		Billed		Recorded
	Total		Recorded		Investment		Invoices		Investment
(Dollars in millions)	Recorded		Investment		> 90 Days and		> 90 Days and		Not
At December 31, 2019:	Investment		> 90 Days (1)		Accruing (1)		Accruing		Accruing (2)
Americas	$	3,160	$	179	$	143	$	10	$	37
EMEA		710		24		11		1		16
Asia Pacific		404		9		2		0		7
Total lease receivables	$	4,274	$	213	$	156	$	11	$	59
Americas	$	6,173	$	107	$	66	$	10	$	56
EMEA		2,415		51		3		1		51
Asia Pacific		676		3		1		0		2
Total loan receivables	$	9,264	$	161	$	69	$	11	$	110
Americas	$	717	$	8	$	8	$	1	$	0
EMEA		1,671		7		7		1		1
Asia Pacific		1,922		6		5		1		1
Total participated receivables from IBM	$	4,310	$	21	$	20	$	3	$	2
Total	$	17,848	$	394	$	245	$	25	$	171

(1) At a contract level, which includes total billed and unbilled amounts for financing receivables aged greater than 90 days.

(2) Of the recorded investment not accruing, $128 million is individually evaluated for impairment with a related allowance of $110 million. Financing income recognized on these receivables was immaterial for the three and six months ended June 30, 2019, respectively.

Schedule of net recorded investment by credit quality indicators

(Dollars in millions)	Americas				EMEA				Asia Pacific
At June 30, 2020	Aaa – Baa3		Ba1 – D		Aaa – Baa3		Ba1 – D		Aaa – Baa3		Ba1 – D
Vintage year:
2020	$	1,539	$	1,173	$	904	$	1,030	$	513	$	206
2019		2,054		1,175		882		810		659		235
2018		1,161		601		387		319		463		192
2017		575		254		104		165		240		68
2016		142		92		48		55		167		37
2015 and prior		57		126		30		23		72		13
Total	$	5,528	$	3,420	$	2,356	$	2,403	$	2,113	$	750

	Lease Receivables						Loan Receivables						Participated Receivables from IBM
(Dollars in millions)					Asia						Asia						Asia
At December 31, 2019	Americas		EMEA		Pacific		Americas		EMEA		Pacific		Americas		EMEA		Pacific
Credit Ratings:
Aaa – Aa3	$	305	$	55	$	31	$	732	$	89	$	89	$	440	$	88	$	89
A1 – A3		700		88		124		1,166		178		237		71		271		934
Baa1 – Baa3		949		153		83		1,756		907		107		104		762		500
Ba1 – Ba2		733		206		61		1,461		532		159		49		442		245
Ba3 – B1		196		137		62		444		455		46		43		88		126
B2 – B3		236		45		32		513		228		33		4		18		26
Caa – D		13		5		2		32		15		3		2		0		2
Total	$	3,133	$	689	$	396	$	6,105	$	2,403	$	674	$	714	$	1,668	$	1,921