Finance Receivables

3 Months Ended

Mar. 31, 2024

FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES

We manage finance receivables as “consumer” and “non-consumer” portfolios. The receivables are generally secured by the vehicles, inventory, or other property being financed.

Finance receivables are recorded at the time of origination or purchase at fair value and are subsequently reported at amortized cost, net of any allowance for credit losses.

For all finance receivables, we define “past due” as any payment, including principal and interest, that is at least 31 days past the contractual due date.

NOTE 4. FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)

Total Finance Receivables, Net

Total finance receivables, net were as follows (in millions):


	December 31, 2023		March 31, 2024
Consumer
Retail installment contracts, gross	$	73,943	$	75,909
Finance leases, gross	7,793		7,999
Retail financing, gross	81,736		83,908
Unearned interest supplements from Ford and affiliated companies	(3,344)		(3,868)
Consumer finance receivables	78,392		80,040

Non-Consumer
Dealer financing	33,377		34,319
Other financing	1,936		1,885
Non-Consumer finance receivables	35,313		36,204
Total recorded investment	$	113,705	$	116,244

Recorded investment in finance receivables	$	113,705	$	116,244
Allowance for credit losses	(882)		(880)
Total finance receivables, net	$	112,823	$	115,364

Net finance receivables subject to fair value (a)	$	105,476	$	107,841
Fair value (b)	103,937		106,494

__________

(a)Net finance receivables subject to fair value exclude finance leases.

(b)The fair value of finance receivables is categorized within Level 3 of the fair value hierarchy.

Finance leases are comprised of sales-type and direct financing leases. Financing revenue from finance leases for the first quarter of 2023 and 2024 was $83 million and $117 million, respectively, and is included in Retail financing on our consolidated income statements.

At December 31, 2023 and March 31, 2024, accrued interest was $295 million and $288 million, respectively, which we report in Other assets on our consolidated balance sheets.

Included in the recorded investment in finance receivables were consumer and non-consumer receivables that have been sold for legal purposes in securitization transactions but continue to be reported in our consolidated financial statements. See Note 6 for additional information.

NOTE 4. FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)

Credit Quality

Consumer Portfolio. Credit quality ratings for consumer receivables are based on our aging analysis. Consumer receivables credit quality ratings are as follows:

•Pass – current to 60 days past due;

•Special Mention – 61 to 120 days past due and in intensified collection status; and

•Substandard – greater than 120 days past due and for which the uncollectible portion of the receivables has already been charged off, as measured using the fair value of collateral less costs to sell.

The credit quality analysis of consumer receivables at December 31, 2023 was as follows (in millions):


	Amortized Cost Basis by Origination Year
	Prior to 2019		2019		2020		2021		2022		2023		Total		Percent
Consumer
31-60 days past due	$	40	$	49	$	130	$	125	$	187	$	159	$	690	0.9	%
61-120 days past due	9		11		30		37		58		50		195		0.2
Greater than 120 days past due	7		4		7		10		10		5		43		0.1
Total past due	56		64		167		172		255		214		928		1.2
Current	891		2,360		7,395		11,325		20,281		35,212		77,464		98.8
Total	$	947	$	2,424	$	7,562	$	11,497	$	20,536	$	35,426	$	78,392	100.0	%
Gross charge-offs	$	47	$	40	$	75	$	85	$	117	$	37	$	401

The credit quality analysis of consumer receivables at March 31, 2024 was as follows (in millions):


	Amortized Cost Basis by Origination Year
	Prior to 2020		2020		2021		2022		2023		2024		Total		Percent
Consumer
31-60 days past due	$	63	$	98	$	103	$	164	$	172	$	12	$	612	0.8	%
61-120 days past due	13		21		27		46		54		2		163		0.2
Greater than 120 days past due	10		8		9		14		8		—		49		—
Total past due	86		127		139		224		234		14		824		1.0
Current	2,393		6,122		9,690		18,203		32,621		10,187		79,216		99.0
Total	$	2,479	$	6,249	$	9,829	$	18,427	$	32,855	$	10,201	$	80,040	100.0	%
Gross charge-offs	$	15	$	17	$	22	$	39	$	36	$	—	$	129

Non-Consumer Portfolio. The credit quality of dealer financing receivables is evaluated based on our internal dealer risk rating analysis. We use a proprietary model to assign each dealer a risk rating. This model uses historical dealer performance data to identify key factors about a dealer that we consider most significant in predicting a dealer’s ability to meet its financial obligations. We also consider numerous other financial and qualitative factors of the dealer’s operations, including capitalization and leverage, liquidity and cash flow, profitability, and credit history with ourselves and other creditors.

Dealers are assigned to one of four groups according to risk ratings as follows:

•Group I – strong to superior financial metrics;

•Group II – fair to favorable financial metrics;

•Group III – marginal to weak financial metrics; and

•Group IV – poor financial metrics, including dealers classified as uncollectible.

NOTE 4. FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)

The credit quality analysis of dealer financing receivables at December 31, 2023 was as follows (in millions):


	Amortized Cost Basis by Origination Year
	Dealer Loans
	Prior to 2019		2019		2020		2021		2022		2023		Total		Wholesale Loans		Total		Percent
Group I	$	383	$	30	$	58	$	156	$	61	$	349	$	1,037	$	29,095	$	30,132	90.3	%
Group II	16		—		1		3		2		44		66		2,834		2,900		8.7
Group III	—		—		—		—		1		8		9		292		301		0.9
Group IV	—		1		—		—		—		2		3		41		44		0.1
Total (a)	$	399	$	31	$	59	$	159	$	64	$	403	$	1,115	$	32,262	$	33,377	100.0	%
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	1	$	1	$	3	$	4

__________

(a)Total past due dealer financing receivables at December 31, 2023 were $33 million.

The credit quality analysis of dealer financing receivables at March 31, 2024 was as follows (in millions):


	Amortized Cost Basis by Origination Year
	Dealer Loans
	Prior to 2020		2020		2021		2022		2023		2024		Total		Wholesale Loans		Total		Percent
Group I	$	299	$	60	$	111	$	61	$	268	$	150	$	949	$	30,180	$	31,129	90.7	%
Group II	16		—		4		2		4		26		52		2,859		2,911		8.5
Group III	—		—		—		—		—		7		7		240		247		0.7
Group IV	1		—		—		—		1		—		2		30		32		0.1
Total (a)	$	316	$	60	$	115	$	63	$	273	$	183	$	1,010	$	33,309	$	34,319	100.0	%
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

__________

(a)Total past due dealer financing receivables at March 31, 2024 were $19 million.

Non-Accrual of Revenue. The accrual of financing revenue is discontinued at the time a receivable is determined to be uncollectible or when it is 90 days past due. Accounts may be restored to accrual status only when a customer settles all past-due deficiency balances and future payments are reasonably assured. For receivables in non-accrual status, subsequent financing revenue is recognized only to the extent a payment is received. Payments are generally applied first to outstanding interest and then to the unpaid principal balance.

Loan Modifications. Consumer and non-consumer receivables that have a modified interest rate and/or a term extension (including receivables that were modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code) are typically considered to be loan modifications. We do not grant modifications to the principal balance of our receivables. If a receivable is modified in a reorganization proceeding, all payment requirements of the reorganization plan need to be met before remaining balances are forgiven.

NOTE 4. FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)

During the collection process, we may offer a term extension to a customer experiencing financial difficulty. During the extension period, finance charges continue to accrue. If the customer's financial difficulty is not temporary, but we believe the customer is willing and able to repay their loan at a lower payment amount, we may offer to modify the interest rate and/or extend the term in order to lower the scheduled monthly payment. In those cases, the outstanding balance generally remains unchanged. The use of interest rate modifications and term extensions helps us mitigate financial loss. Term extensions may assist in cases where we believe the customer will recover from short-term financial difficulty and resume regularly scheduled payments. Before offering an interest rate modification or term extension, we evaluate and take into account the capacity of the customer to meet the revised payment terms. Although the granting of an extension could delay the eventual charge-off of a receivable, we are typically able to repossess and sell the related collateral, thereby mitigating the loss. The effect of most loan modifications made to borrowers experiencing financial difficulty is included in the historical trends used to measure the allowance for credit losses. A loan modification that improves the delinquency status of a borrower reduces the probability of default, which results in a lower allowance for credit losses. At March 31, 2024, an insignificant portion of our total finance receivables portfolio had been granted a loan modification and these modifications are generally treated as a continuation of the existing loan.

Allowance for Credit Losses

The allowance for credit losses represents our estimate of the lifetime expected credit losses inherent in finance receivables as of the balance sheet date. The adequacy of the allowance for credit losses is assessed quarterly.

Adjustments to the allowance for credit losses are made by recording charges to the Provision for credit losses on our consolidated income statements. The uncollectible portion of a finance receivable is charged to the allowance for credit losses at the earlier of when an account is deemed to be uncollectible or when an account is 120 days delinquent, taking into consideration the financial condition of the customer or borrower, the value of the collateral, recourse to guarantors, and other factors.

Charge-offs on finance receivables include uncollected amounts related to principal, interest, late fees, and other allowable charges. Recoveries on finance receivables previously charged off as uncollectible are credited to the allowance for credit losses. In the event we repossess the collateral, the receivable is charged off and the collateral is recorded at its estimated fair value less costs to sell and reported in Other assets on our consolidated balance sheets.

An analysis of the allowance for credit losses related to finance receivables for the periods ended March 31 was as follows (in millions):


	First Quarter 2023						First Quarter 2024
	Consumer		Non-Consumer		Total		Consumer		Non-Consumer		Total
Allowance for credit losses
Beginning balance	$	838	$	7	$	845	$	879	$	3	$	882
Charge-offs	(96)		—		(96)		(129)		—		(129)
Recoveries	38		1		39		39		3		42
Provision for credit losses	78		(1)		77		91		(3)		88
Other (a)	5		—		5		(3)		—		(3)
Ending balance	$	863	$	7	$	870	$	877	$	3	$	880

__________

(a)Primarily represents amounts related to translation adjustments.

During the first quarter of 2024, the allowance for credit losses decreased $2 million, driven by the impact of improvement in our U.S. macroeconomic outlook assumptions, offset partially by an increase in finance receivables. Net charge-offs increased from a year ago, reflecting continuing normalization from lower levels following the COVID-19 pandemic. While credit performance has remained strong, high inflationary pressure and high interest rates have caused economic uncertainty, which we expect will have an unfavorable impact on our future consumer credit losses. We will continue to monitor economic trends and conditions and portfolio performance and will adjust the reserve accordingly.