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Finance Receivables

12 Months Ended

Dec. 31, 2022

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)	2022		2021
Retail loans, net(1)	$	14,973	$	14,817
Retail leases, net	6,965		7,818
Caterpillar purchased receivables, net	4,297		4,462
Wholesale loans, net(1)	545		406
Wholesale leases, net	7		11
Total finance receivables	26,787		27,514
Less: Allowance for credit losses	(346)		(337)
Total finance receivables, net	$	26,441	$	27,177

(1) Includes failed sale leasebacks.

Maturities of our finance receivables, as of December 31, 2022, 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
2023	$	6,521	$	2,865	$	4,334	$	343	$	3	$	14,066
2024	3,864		1,818		—		74		1		5,757
2025	2,733		1,027		—		56		1		3,817
2026	1,518		547		—		18		—		2,083
2027	545		176		—		2		—		723
Thereafter	117		40		—		1		—		158
Total	15,298		6,473		4,334		494		5		26,604
Guaranteed residual value(1)	12		399		—		57		1		469
Unguaranteed residual value(1)	2		665		—		2		2		671
Unearned income	(339)		(572)		(37)		(8)		(1)		(957)
Total	$	14,973	$	6,965	$	4,297	$	545	$	7	$	26,787

(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.

Finance leases

Revenues from finance leases were $429 million, $481 million and $491 million for the years ended December 31, 2022, 2021, and 2020 respectively, and are included in retail and wholesale finance revenue in the Consolidated Statements of Profit. The residual values for finance leases are included in Finance receivables, net in the Consolidated Statements of Financial Position. Residual value adjustments are recognized through a reduction of finance revenue over the remaining lease term.

Allowance for credit losses

Portfolio segments

A portfolio segment is the level at which we develop a systematic methodology for determining our allowance for credit losses. Our portfolio segments and related methods for estimating expected credit losses are as follows:

Customer

We provide loans and finance leases to end-user customers primarily for the purpose of financing new and used Caterpillar machinery, engines and equipment for commercial use. We also provide financing for vehicles, power generation facilities and marine vessels that, in most cases, incorporate Caterpillar products. The average original term of our customer finance receivable portfolio was approximately 50 months with an average remaining term of approximately 27 months as of December 31, 2022.

We typically maintain a security interest in financed equipment and we require physical damage insurance coverage on the financed equipment, both of which provide us with certain rights and protections. If our collection efforts fail to bring a defaulted account current, we generally can repossess the financed equipment, after satisfying local legal requirements, and sell it within the Caterpillar dealer network or through third-party auctions.

We estimate the allowance for credit losses related to our customer finance receivables based on loss forecast models utilizing probabilities of default and our estimated loss given default based on past loss experience adjusted for current conditions and reasonable and supportable forecasts capturing country and industry-specific economic factors.

During the year ended December 31, 2022, our forecasts for the markets in which we operate reflected a continuation of the trend of relatively low unemployment rates and delinquencies. However, high inflation rates and consequent central bank actions are weakening global economic growth. We believe the economic forecasts employed represent reasonable and supportable forecasts, followed by a reversion to long-term trends.

Dealer

We provide financing to Caterpillar dealers in the form of wholesale financing plans. Our wholesale financing plans provide assistance to dealers by financing their mostly new Caterpillar equipment inventory and rental fleets on a secured and unsecured basis. In addition, we provide a variety of secured and unsecured loans to Caterpillar dealers.

We estimate the allowance for credit losses for dealer finance receivables based on historical loss rates with consideration of current economic conditions and reasonable and supportable forecasts.

In general, our Dealer portfolio segment has not historically experienced large increases or decreases in credit losses based on changes in economic conditions due to our close working relationships with the dealers and their financial strength. Therefore, we made no adjustments to historical loss rates during the year ended December 31, 2022.

Caterpillar Purchased Receivables

We purchase receivables from Caterpillar, primarily related to the sale of equipment and parts to dealers. Caterpillar purchased receivables are non-interest-bearing short-term trade receivables that are purchased at a discount.

We estimate the allowance for credit losses for Caterpillar purchased receivables based on historical loss rates with consideration of current economic conditions and reasonable and supportable forecasts.

In general, our Caterpillar Purchased Receivables portfolio segment has not historically experienced large increases or decreases in credit losses based on changes in economic conditions due to the short-term maturities of the receivables, our close working relationships with the dealers and their financial strength. Therefore, we made no adjustments to historical loss rates during the year ended December 31, 2022.

Classes of finance receivables

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. 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.

An analysis of the allowance for credit losses was as follows:


(Millions of dollars)	December 31, 2022								December 31, 2021
Allowance for Credit Losses:	Customer		Dealer		Caterpillar Purchased Receivables		Total		Customer		Dealer		Caterpillar Purchased Receivables		Total
Beginning Balance	$	251	$	82	$	4	$	337	$	431	$	44	$	4	$	479

Write-offs	(108)		—		—		(108)		(256)		—		—		(256)
Recoveries	62		—		—		62		51		—		—		51
Provision for credit losses(1)	75		(17)		—		58		30		38		—		68
Other	(3)		—		—		(3)		(5)		—		—		(5)
Ending Balance(2)	$	277	$	65	$	4	$	346	$	251	$	82	$	4	$	337








Finance Receivables	$	20,353	$	2,137	$	4,297	$	26,787	$	20,842	$	2,210	$	4,462	$	27,514

(1) Excludes provision for credit losses on unfunded commitments and other miscellaneous receivables.

(2) Ending balances as of December 31, 2022 include higher reserves for the Russia and Ukraine portfolios.

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 ratings, loan-to-value ratios, probabilities of default, industry trends, macroeconomic factors and other internal metrics. On an ongoing basis, we monitor credit quality based on past-due status 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 finance receivable past due when any installment is over 30 days past due.

Customer

The tables below summarize the aging category of our amortized cost of finance receivables in the Customer portfolio segment by origination year.


(Millions of dollars)	December 31, 2022
	2022		2021		2020		2019		2018		Prior		Revolving Finance Receivables		Total Finance Receivables
North America
Current	$	3,915	$	3,276	$	1,525	$	653	$	206	$	34	$	240	$	9,849
31-60 days past due	25		26		18		12		4		1		4		90
61-90 days past due	9		15		7		3		1		—		3		38
91+ days past due	11		16		12		6		4		3		4		56

EAME
Current	1,270		953		477		280		155		68		—		3,203
31-60 days past due	10		12		7		1		1		—		—		31
61-90 days past due	8		4		3		1		—		—		—		16
91+ days past due	6		25		16		4		1		1		—		53

Asia/Pacific
Current	1,174		805		393		124		37		5		40		2,578
31-60 days past due	10		12		8		1		1		—		—		32
61-90 days past due	2		5		4		2		—		—		—		13
91+ days past due	2		6		6		4		—		—		—		18

Mining
Current	875		627		227		193		94		108		80		2,204
31-60 days past due	—		1		—		—		—		—		—		1
61-90 days past due	—		—		—		—		—		—		—		—
91+ days past due	—		—		—		—		—		1		—		1

Latin America
Current	770		400		150		69		26		20		—		1,435
31-60 days past due	7		8		4		2		—		1		—		22
61-90 days past due	2		5		1		1		—		—		—		9
91+ days past due	2		13		11		2		1		—		—		29

Caterpillar Power Finance
Current	82		87		146		51		18		161		125		670
31-60 days past due	—		—		—		—		—		—		—		—
61-90 days past due	—		—		—		—		—		—		—		—
91+ days past due	—		—		—		—		—		5		—		5

Totals by Aging Category
Current	8,086		6,148		2,918		1,370		536		396		485		19,939
31-60 days past due	52		59		37		16		6		2		4		176
61-90 days past due	21		29		15		7		1		—		3		76
91+ days past due	21		60		45		16		6		10		4		162
Total	$	8,180	$	6,296	$	3,015	$	1,409	$	549	$	408	$	496	$	20,353


(Millions of dollars)	December 31, 2021
	2021		2020		2019		2018		2017		Prior		Revolving Finance Receivables		Total Finance Receivables
North America
Current	$	4,792	$	2,596	$	1,426	$	630	$	182	$	32	$	182	$	9,840
31-60 days past due	27		32		20		12		4		1		5		101
61-90 days past due	7		8		5		3		1		1		5		30
91+ days past due	9		17		12		13		5		4		5		65

EAME
Current	1,499		836		577		352		140		26		—		3,430
31-60 days past due	5		4		3		1		1		—		—		14
61-90 days past due	3		3		3		1		—		—		—		10
91+ days past due	3		11		2		2		—		2		—		20

Asia/Pacific
Current	1,456		943		420		119		40		3		36		3,017
31-60 days past due	10		14		10		2		—		—		—		36
61-90 days past due	3		7		4		1		—		—		—		15
91+ days past due	2		10		10		3		—		—		—		25

Mining
Current	944		356		332		194		36		161		36		2,059
31-60 days past due	6		—		—		—		—		—		—		6
61-90 days past due	1		—		—		—		4		—		—		5
91+ days past due	—		1		8		9		3		1		—		22

Latin America
Current	617		299		160		70		17		18		—		1,181
31-60 days past due	4		7		3		3		1		—		—		18
61-90 days past due	3		3		1		1		—		—		—		8
91+ days past due	4		9		9		7		7		14		—		50

Caterpillar Power Finance
Current	120		152		119		70		180		104		101		846
31-60 days past due	—		—		—		—		—		—		—		—
61-90 days past due	—		—		—		—		—		—		—		—
91+ days past due	—		—		—		—		—		44		—		44

Totals by Aging Category
Current	9,428		5,182		3,034		1,435		595		344		355		20,373
31-60 days past due	52		57		36		18		6		1		5		175
61-90 days past due	17		21		13		6		5		1		5		68
91+ days past due	18		48		41		34		15		65		5		226
Total	$	9,515	$	5,308	$	3,124	$	1,493	$	621	$	411	$	370	$	20,842

Finance receivables in the Customer portfolio segment are substantially secured by collateral, primarily in the form of Caterpillar and other equipment. For those contracts where the borrower is experiencing financial difficulty, repayment of the outstanding amounts is generally expected to be provided through the operation or repossession and sale of the equipment.

Dealer

As of December 31, 2022 and 2021, our total amortized cost of finance receivables within the Dealer portfolio segment was current, with the exception of $62 million and $78 million, respectively, that was 91+ days past due in Latin America, all of which was originated in 2017.

Caterpillar Purchased Receivables

The tables below summarize the aging category of our amortized cost of finance receivables in the Caterpillar Purchased Receivables portfolio segment.


(Millions of dollars)
	December 31, 2022
	31-60 Days Past Due		61-90 Days Past Due		91+ Days Past Due		Total Past Due		Current		Total Finance Receivables
North America	$	11	$	7	$	4	$	22	$	2,458	$	2,480
EAME	1		—		2		3		812		815
Asia/Pacific	6		2		2		10		555		565

Latin America	9		2		14		25		406		431
Caterpillar Power Finance	1		—		—		1		5		6
Total	$	28	$	11	$	22	$	61	$	4,236	$	4,297


(Millions of dollars)
	December 31, 2021
	31-60 Days Past Due		61-90 Days Past Due		91+ Days Past Due		Total Past Due		Current		Total Finance Receivables
North America	$	8	$	6	$	5	$	19	$	2,499	$	2,518
EAME	1		—		1		2		844		846
Asia/Pacific	—		—		1		1		620		621

Latin America	1		1		—		2		472		474
Caterpillar Power Finance	—		—		—		—		3		3
Total	$	10	$	7	$	7	$	24	$	4,438	$	4,462

Non-accrual finance receivables

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. Contracts on non-accrual status are generally more than 120 days past due or have been restructured in a troubled debt restructuring (TDR). Recognition is resumed and previously suspended income is recognized when the 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.

In our Customer portfolio segment, finance receivables which were on non-accrual status and finance receivables over 90 days past due and still accruing income were as follows:


(Millions of dollars)	December 31, 2022						December 31, 2021
	Amortized Cost						Amortized Cost
	Non-accrual With an Allowance		Non-accrual Without an Allowance		91+ Still Accruing		Non-accrual With an Allowance		Non-accrual Without an Allowance		91+ Still Accruing
North America	$	52	$	4	$	11	$	47	$	9	$	12
EAME	43		—		10		18		1		2
Asia/Pacific	11		—		7		19		—		7
Mining	—		1		—		8		1		14
Latin America	45		—		—		52		4		1
Caterpillar Power Finance	5		11		—		40		11		—
Total	$	156	$	16	$	28	$	184	$	26	$	36

There was $17 million, $12 million and $12 million of interest income recognized during the years ended December 31, 2022, 2021 and 2020, respectively, for customer finance receivables on non-accrual status.

As of December 31, 2022 and 2021, finance receivables in our Dealer portfolio segment on non-accrual status were $62 million and $78 million, respectively, all of which was in Latin America.

Troubled debt restructurings

A restructuring of a finance receivable constitutes a 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, payment deferrals and reduction of principal and/or accrued interest. We individually evaluate TDR contracts and establish an allowance based on the present value of expected future cash flows discounted at the receivable’s effective interest rate, the fair value of the collateral for collateral-dependent receivables or the observable market price of the receivable.

There were no finance receivables modified as TDRs during the years ended December 31, 2022, 2021 and 2020 for the Dealer or Caterpillar Purchased Receivables portfolio segments. Finance receivables in the Customer portfolio segment modified as TDRs for the years ended December 31, were as follows:


(Dollars in millions)	2022				2021				2020
	Pre-TDR Amortized Cost		Post-TDR Amortized Cost		Pre-TDR Amortized Cost		Post-TDR Amortized Cost		Pre-TDR Amortized Cost		Post-TDR Amortized Cost
North America	$	6	$	6	$	6	$	6	$	13	$	13
EAME	1		1		3		3		—		—
Asia/Pacific	—		—		4		4		12		12
Mining	16		16		11		5		35		35
Latin America	22		22		12		12		45		45
Caterpillar Power Finance	20		19		26		22		115		115
Total	$	65	$	64	$	62	$	52	$	220	$	220

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


(Dollars in millions)	2022		2021		2020
	Post-TDR Amortized Cost		Post-TDR Amortized Cost		Post-TDR Amortized Cost
North America	$	—	$	1	$	8
EAME	—		—		10
Asia/Pacific	—		6		2
Mining	5		—		10
Latin America	—		15		1
Caterpillar Power Finance	—		7		18
Total	$	5	$	29	$	49

Concentration Risk Disclosure, Finance Receivables

Concentration of Credit Risk

As of December 31, 2022 and 2021, receivables from customers in construction-related industries made up approximately 40 percent of our total portfolio of which customers in North America were approximately 60 percent. No single customer or dealer represented a significant concentration of credit risk. We typically maintain a security interest in retail financed equipment and, in some instances, wholesale financed equipment. We also require physical damage insurance coverage on all financed equipment.