Finance Receivables

12 Months Ended

Dec. 31, 2019

Receivables [Abstract]

Finance Receivables

FINANCE RECEIVABLES

A summary of finance receivables included in the Consolidated Statements of Financial Position as of December 31, was as follows:

(Millions of dollars)	2019			2018
Retail loans, net(1)	$	15,424		$	15,509
Retail leases, net	7,660			7,499
Caterpillar purchased receivables, net	4,448			4,691
Wholesale loans, net(1)	664			626
Wholesale leases, net	60			109
Recorded investment in finance receivables	28,256			28,434
Less: Allowance for credit losses	(424		)	(511		)
Total finance receivables, net	$	27,832		$	27,923

⁽¹⁾ Includes failed sale leasebacks.

Maturities of our finance receivables, as of December 31, 2019, reflect contractual repayments due from borrowers and were as follows:

(Millions of dollars)
Amounts due in	Retail loans			Retail leases			Caterpillar purchased receivables			Wholesale loans		Wholesale leases			Total
2020	$	6,486		$	3,184		$	4,505		$	424	$	17		$	14,616
2021	3,696			2,043			—			121		12			5,872
2022	2,693			1,105			—			83		5			3,886
2023	1,688			494			—			7		2			2,191
2024	648			196			—			1		1			846
Thereafter	435			80			—			3		1			519
Total	15,646			7,102			4,505			639		38			27,930
Guaranteed residual value(1)	53			416			—			25		24			518
Unguaranteed residual value	—			829			—			—		2			831
Unearned income	(275		)	(687		)	(57		)	—		(4		)	(1,023		)
Total	$	15,424		$	7,660		$	4,448		$	664	$	60		$	28,256

⁽¹⁾ For Retail loans and Wholesale loans, represents residual value on failed sale leasebacks.

Our finance receivables generally may be repaid or refinanced without penalty prior to contractual maturity and we also sell finance receivables to third parties to mitigate the concentration of credit risk with certain customers.  Accordingly, this presentation should not be regarded as a forecast of future cash collections.

Revenues from finance leases were $518 million for the year ended December 31, 2019 and are included in retail and wholesale finance revenue in the Consolidated Statements of Profit. The residuals for leases classified as finance leases are included in Finance receivables, net in the Consolidated Statements of Financial Position. For finance leases, residual value adjustments are recognized through a reduction of finance revenue over the remaining lease term.

Allowance for credit losses

The allowance for credit losses is an estimate of the losses inherent in our finance receivable portfolio and includes consideration of accounts that have been individually identified as impaired, as well as pools of finance receivables where it is probable that certain receivables in the pool are impaired but the individual accounts cannot yet be identified.   In identifying and measuring impairment, management takes into consideration past loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of underlying collateral and current economic conditions.  

Accounts are identified for individual review based on past-due status and information available about the customer, such as financial statements, news reports and published credit ratings, as well as general information regarding industry trends and the economic environment in which our customers operate. The allowance for credit losses attributable to finance receivables that are individually evaluated and determined to be impaired is based on the present value of expected future cash flows discounted at the receivables' effective interest rate, the fair value of the collateral for collateral-dependent receivables or the observable market price of the receivable.  In determining collateral value, we estimate the current fair market value of the collateral less selling costs. We also consider credit enhancements such as additional collateral and contractual third-party guarantees. The allowance for credit losses attributable to the remaining accounts not yet individually identified as impaired is estimated based on loss forecast models utilizing probabilities of default, our estimate of the loss emergence period and the estimated loss given default.  In addition, qualitative factors not able to be fully captured in our loss forecast models including industry trends, macroeconomic factors and model imprecision are considered in the evaluation of the adequacy of the allowance for credit losses.  These qualitative factors are subjective and require a degree of management judgment.

Our allowance for credit losses is segregated into three portfolio segments:

• Customer - Finance receivables with end-user customers.

• Dealer - Finance receivables with Caterpillar dealers.

• Caterpillar Purchased Receivables - Trade receivables purchased from Caterpillar entities.

A portfolio segment is the level at which the Company develops a systematic methodology for determining its allowance for credit losses.

We further evaluate our portfolio segments by the class of finance receivables, which is defined as a level of information (below a portfolio segment) in which the finance receivables have the same initial measurement attribute and a similar method for assessing and monitoring credit risk. Typically, our finance receivables within a geographic area have similar credit risk profiles and methods for assessing and monitoring credit risk. Our classes, which align with management reporting for credit losses, are as follows:

• North America - Finance receivables originated in the United States and Canada.

• EAME - Finance receivables originated in Europe, Africa, the Middle East and the Commonwealth of Independent States.

• Asia/Pacific - Finance receivables originated in Australia, New Zealand, China, Japan, Southeast Asia and India.

• Mining - Finance receivables related to large mining customers worldwide.

• Latin America - Finance receivables originated in Mexico and Central and South American countries.

• Caterpillar Power Finance - Finance receivables originated worldwide related to marine vessels with Caterpillar engines and Caterpillar electrical power generation, gas compression and co-generation systems and non-Caterpillar equipment that is powered by these systems.

Our allowance for credit losses as of December 31, 2019 was $424 million or 1.50 percent of our recorded investment in finance receivables compared with $511 million or 1.80 percent as of December 31, 2018. An analysis of the allowance for credit losses was as follows:

(Millions of dollars)
	December 31, 2019
Allowance for Credit Losses:	Customer			Dealer		Caterpillar Purchased Receivables		Total
Balance at beginning of year	$	486		$	21	$	4	$	511
Receivables written off	(281		)	—		—		(281		)
Recoveries on receivables previously written off	44			—		—		44
Provision for credit losses	138			24		—		162
Adjustment due to sale of receivables	(11		)	—		—		(11		)
Foreign currency translation adjustment	(1		)	—		—		(1		)
Balance at end of year	$	375		$	45	$	4	$	424
Individually evaluated for impairment	$	178		$	39	$	—	$	217
Collectively evaluated for impairment	197			6		4		207
Ending Balance	$	375		$	45	$	4	$	424
Recorded Investment in Finance Receivables:
Individually evaluated for impairment	$	594		$	78	$	—	$	672
Collectively evaluated for impairment	18,770			4,366		4,448		27,584
Ending Balance	$	19,364		$	4,444	$	4,448	$	28,256

(Millions of dollars)
	December 31, 2018
Allowance for Credit Losses:	Customer			Dealer		Caterpillar Purchased Receivables		Total
Balance at beginning of year	$	353		$	9	$	3	$	365
Receivables written off	(235		)	—		—		(235		)
Recoveries on receivables previously written off	46			—		—		46
Provision for credit losses	337			12		1		350
Adjustment due to sale of receivables	(7		)	—		—		(7		)
Foreign currency translation adjustment	(8		)	—		—		(8		)
Balance at end of year	$	486		$	21	$	4	$	511
Individually evaluated for impairment	$	288		$	14	$	—	$	302
Collectively evaluated for impairment	198			7		4		209
Ending Balance	$	486		$	21	$	4	$	511
Recorded Investment in Finance Receivables:
Individually evaluated for impairment	$	859		$	78	$	—	$	937
Collectively evaluated for impairment	18,724			4,082		4,691		27,497
Ending Balance	$	19,583		$	4,160	$	4,691	$	28,434

Credit quality of finance receivables

At origination, we evaluate credit risk based on a variety of credit quality factors including prior payment experience, customer financial information, credit-rating agency ratings, loan-to-value ratios and other internal metrics. On an ongoing basis, we monitor credit quality based on past-due status and collection experience as there is a meaningful correlation between the past-due status of customers and the risk of loss.

In determining past-due status, we consider the entire recorded investment in finance receivables past due when any installment is over 30 days past due. The tables below summarize our recorded investment in finance receivables by aging category.

(Millions of dollars)
	December 31, 2019
	31-60 Days Past Due		61-90 Days Past Due		91+ Days Past Due		Total Past Due		Current		Recorded Investment in Finance Receivables		91+ Still Accruing
Customer
North America	$	72	$	23	$	55	$	150	$	8,121	$	8,271	$	15
EAME	30		31		141		202		2,955		3,157		4
Asia/Pacific	40		14		29		83		2,992		3,075		8
Mining	5		—		19		24		1,851		1,875		—
Latin America	41		23		80		144		1,178		1,322		2
Caterpillar Power Finance	10		10		225		245		1,419		1,664		—
Dealer
North America	—		—		—		—		2,514		2,514		—
EAME	—		—		—		—		600		600		—
Asia/Pacific	—		—		—		—		487		487		—
Mining	—		—		—		—		4		4		—
Latin America	—		—		78		78		758		836		—
Caterpillar Power Finance	—		—		—		—		3		3		—
Caterpillar Purchased Receivables(1)
North America	15		6		18		39		2,450		2,489
EAME	1		—		2		3		574		577
Asia/Pacific	1		—		—		1		891		892
Mining	—		—		—		—		—		—
Latin America	—		—		—		—		475		475
Caterpillar Power Finance	—		—		—		—		15		15
Total	$	215	$	107	$	647	$	969	$	27,287	$	28,256	$	29

⁽¹⁾ Caterpillar Purchased Receivables are non-interest bearing trade receivables purchased at a discount.

(Millions of dollars)
	December 31, 2018
	31-60 Days Past Due		61-90 Days Past Due		91+ Days Past Due		Total Past Due		Current		Recorded Investment in Finance Receivables		91+ Still Accruing
Customer
North America	$	65	$	18	$	84	$	167	$	7,883	$	8,050	$	14
EAME	19		9		153		181		2,850		3,031		5
Asia/Pacific	25		9		8		42		2,923		2,965		5
Mining	28		1		9		38		1,642		1,680		—
Latin America	38		29		71		138		1,421		1,559		—
Caterpillar Power Finance	10		1		384		395		1,903		2,298		—
Dealer
North America	—		—		—		—		2,210		2,210		—
EAME	—		—		—		—		619		619		—
Asia/Pacific	—		—		—		—		514		514		—
Mining	—		—		—		—		4		4		—
Latin America	—		—		78		78		731		809		—
Caterpillar Power Finance	—		—		—		—		4		4		—
Caterpillar Purchased Receivables(1)
North America	22		12		18		52		2,982		3,034
EAME	1		—		1		2		546		548
Asia/Pacific	5		1		1		7		756		763
Mining	—		—		—		—		—		—
Latin America	—		—		—		—		338		338
Caterpillar Power Finance	—		—		—		—		8		8
Total	$	213	$	80	$	807	$	1,100	$	27,334	$	28,434	$	24

⁽¹⁾ Caterpillar Purchased Receivables are non-interest bearing trade receivables purchased at a discount.

Impaired finance receivables

For all classes, a finance receivable is considered impaired, based on current information and events, if it is probable that we will be unable to collect all amounts due according to the contractual terms. Impaired finance receivables include finance receivables that have been restructured and are considered to be troubled debt restructures.

There were $78 million in impaired finance receivables with a related allowance of $39 million and $14 million as of December 31, 2019 and 2018, respectively, for the Dealer portfolio segment, all of which was in Latin America. There were no impaired finance receivables, as of December 31, 2017, for the Dealer portfolio segment. There were no impaired finance receivables as of December 31, 2019, 2018 and 2017, for the Caterpillar Purchased Receivables portfolio segment. Our recorded investment in impaired finance receivables and the related unpaid principal balances and allowance for the Customer portfolio segment were as follows:

(Millions of dollars)
	As of December 31, 2019						As of December 31, 2018
Impaired Finance Receivables With No Allowance Recorded	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
North America	$	6	$	6	$	—	$	10	$	10	$	—
EAME	—		—		—		1		1		—
Asia/Pacific	—		—		—		1		1		—
Mining	22		22		—		33		33		—
Latin America	8		8		—		29		29		—
Caterpillar Power Finance	58		58		—		69		83		—
Total	$	94	$	94	$	—	$	143	$	157	$	—
Impaired Finance Receivables With An Allowance Recorded
North America	$	30	$	30	$	11	$	40	$	41	$	14
EAME	61		61		29		92		92		57
Asia/Pacific	8		8		2		4		4		2
Mining	37		36		9		56		55		26
Latin America	58		58		20		75		75		25
Caterpillar Power Finance	306		319		107		449		455		164
Total	$	500	$	512	$	178	$	716	$	722	$	288
Total Impaired Finance Receivables
North America	$	36	$	36	$	11	$	50	$	51	$	14
EAME	61		61		29		93		93		57
Asia/Pacific	8		8		2		5		5		2
Mining	59		58		9		89		88		26
Latin America	66		66		20		104		104		25
Caterpillar Power Finance	364		377		107		518		538		164
Total	$	594	$	606	$	178	$	859	$	879	$	288

(Millions of dollars)
	Year Ended December 31, 2019				Year Ended December 31, 2018				Year Ended December 31, 2017
Impaired Finance Receivables With No Allowance Recorded	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
North America	$	9	$	—	$	16	$	1	$	13	$	1
EAME	6		—		14		—		48		1
Asia/Pacific	—		—		28		3		24		2
Mining	27		1		57		2		126		7
Latin America	21		1		38		2		64		3
Caterpillar Power Finance	54		3		130		7		221		9
Total	$	117	$	5	$	283	$	15	$	496	$	23
Impaired Finance Receivables With An Allowance Recorded
North America	$	34	$	2	$	49	$	2	$	49	$	1
EAME	81		2		53		2		6		—
Asia/Pacific	9		1		5		—		31		2
Mining	48		2		46		3		—		—
Latin America	72		5		67		3		99		4
Caterpillar Power Finance	396		11		378		12		180		6
Total	$	640	$	23	$	598	$	22	$	365	$	13
Total Impaired Finance Receivables
North America	$	43	$	2	$	65	$	3	$	62	$	2
EAME	87		2		67		2		54		1
Asia/Pacific	9		1		33		3		55		4
Mining	75		3		103		5		126		7
Latin America	93		6		105		5		163		7
Caterpillar Power Finance	450		14		508		19		401		15
Total	$	757	$	28	$	881	$	37	$	861	$	36

Recognition of income is suspended and the finance receivable is placed on non-accrual status when management determines that collection of future income is not probable (generally after 120 days past due). Recognition is resumed and previously suspended income is recognized when the finance receivable becomes current and collection of remaining amounts is considered probable. Payments received while the finance receivable is on non-accrual status are applied to interest and principal in accordance with the contractual terms. Interest earned but uncollected prior to the receivable being placed on non-accrual status is written off through Provision for credit losses when, in the judgment of management, it is considered uncollectible.

As of December 31, 2019 and 2018, there were $78 million in finance receivables on non-accrual status for the Dealer portfolio segment, all of which was in Latin America. The recorded investment in Customer finance receivables on non-accrual status as of December 31, was as follows: 

(Millions of dollars)
	2019		2018
North America	$	44	$	77
EAME	165		154
Asia/Pacific	21		4
Mining	47		50
Latin America	89		106
Caterpillar Power Finance	361		416
Total	$	727	$	807

Troubled debt restructurings

A restructuring of a finance receivable constitutes a troubled debt restructuring (TDR) when the lender grants a concession it would not otherwise consider to a borrower experiencing financial difficulties. Concessions granted may include extended contract maturities, inclusion of interest only periods, below market interest rates, extended skip payment periods and reduction of principal and/or accrued interest.

There were no finance receivables modified as TDRs during the years ended December 31, 2019, 2018 and 2017 for the Dealer or Caterpillar Purchased Receivables portfolio segments. Our recorded investment in finance receivables in the Customer portfolio segment modified as TDRs during the years ended December 31, 2019, 2018 and 2017, was as follows:

(Dollars in millions)	Year Ended December 31, 2019
	Number of Contracts	Pre-TDR Recorded Investment		Post-TDR Recorded Investment
North America	15	$	11	$	11
EAME	19	17		17
Asia/Pacific	—	—		—
Mining	2	8		8
Latin America	5	5		3
Caterpillar Power Finance	21	168		165
Total	62	$	209	$	204
	Year Ended December 31, 2018
	Number of Contracts	Pre-TDR Recorded Investment		Post-TDR Recorded Investment
North America	38	$	21	$	21
EAME	—	—		—
Asia/Pacific	—	—		—
Mining	1	29		29
Latin America	1	3		3
Caterpillar Power Finance	12	133		99
Total	52	$	186	$	152
	Year Ended December 31, 2017
	Number of Contracts	Pre-TDR Recorded Investment		Post-TDR Recorded Investment
North America	43	$	34	$	35
EAME	4	1		1
Asia/Pacific	10	39		31
Mining	2	57		56
Latin America	17	26		27
Caterpillar Power Finance(1)	68	422		407
Total	144	$	579	$	557

⁽¹⁾ In Caterpillar Power Finance, 48 contracts with a pre-TDR recorded investment of $265 million and a post-TDR recorded investment of $258 million were related to six customers.

TDRs in the Customer portfolio segment with a payment default (defined as 91+ days past due) during the years ended December 31, 2019, 2018 and 2017, which had been modified within twelve months prior to the default date, were as follows:

(Dollars in millions)	Year Ended December 31, 2019			Year Ended December 31, 2018			Year Ended December 31, 2017
	Number of Contracts	Post-TDR Recorded Investment		Number of Contracts	Post-TDR Recorded Investment		Number of Contracts	Post-TDR Recorded Investment
North America	11	$	5	10	$	10	4	$	3
EAME	—	—		—	—		1	—
Asia/Pacific	—	—		—	—		4	1
Latin America(1)	—	—		3	1		243	17
Caterpillar Power Finance	1	10		3	33		—	—
Total	12	$	15	16	$	44	252	$	21

⁽¹⁾ In Latin America, 238 contracts with a post-TDR recorded investment of $16 million were related to two customers for the year ended December 31, 2017.