Finance Assets and Lessor Operating Leases

Finance Assets

Finance receivables are comprised of sales-type lease receivables and unsecured revolving loan receivables. Sales-type lease receivables are generally due in monthly, quarterly or semi-annual installments over periods ranging from three to five years. Loan receivables arise primarily from financing services offered to our clients for postage and supplies. Loan receivables are generally due each month; however, clients may rollover outstanding balances. Interest is recognized on loan receivables using the effective interest method and related annual fees are initially deferred and recognized ratably over the annual period covered. Client acquisition costs are expensed as incurred.

Finance receivables at March 31, 2019 and December 31, 2018 consisted of the following:



	March 31, 2019									December 31, 2018
	North America			International			Total			North America			International			Total
Sales-type lease receivables
Gross finance receivables	$	1,099,620		$	190,468		$	1,290,088		$	1,110,896		$	247,774		$	1,358,670
Unguaranteed residual values	48,204			11,671			59,875			52,637			12,772			65,409
Unearned income	(370,344		)	(43,966		)	(414,310		)	(383,453		)	(55,113		)	(438,566		)
Allowance for credit losses	(13,136		)	(1,884		)	(15,020		)	(10,252		)	(2,356		)	(12,608		)
Net investment in sales-type lease receivables	764,344			156,289			920,633			769,828			203,077			972,905
Loan receivables
Loan receivables	286,716			29,578			316,294			300,319			29,270			329,589
Allowance for credit losses	(6,399		)	(732		)	(7,131		)	(6,777		)	(837		)	(7,614		)
Net investment in loan receivables	280,317			28,846			309,163			293,542			28,433			321,975
Net investment in finance receivables	$	1,044,661		$	185,135		$	1,229,796		$	1,063,370		$	231,510		$	1,294,880

Loans receivable are due within one year. Maturities of gross sales-type lease finance receivables at March 31, 2019 were as follows:



	Sales-type Lease Receivables
	North America		International		Total
Remaining for year ending December 31, 2019	$	486,499	$	52,782	$	539,281
Year ending December 31, 2020	275,321		56,077		331,398
Year ending December 31, 2021	186,002		41,078		227,080
Year ending December 31, 2022	106,014		26,276		132,290
Year ending December 31, 2023	42,879		12,511		55,390
Thereafter	2,905		1,744		4,649
Total	$	1,099,620	$	190,468	$	1,290,088

Allowance for Credit Losses

We provide an allowance for probable credit losses based on historical loss experience, the nature and volume of our portfolios, adverse situations that may affect a client's ability to pay, prevailing economic conditions and our ability to manage the collateral. We continually evaluate the adequacy of the allowance for credit losses and make adjustments as necessary. The assumptions used in determining an estimate of credit losses are inherently subjective and actual results may differ significantly from estimated reserves.

We establish credit approval limits based on the credit quality of the client and the type of equipment financed. Our policy is to discontinue revenue recognition for lease receivables that are more than 120 days past due and for loan receivables that are more than 90 days past due. We resume revenue recognition when the client's payments reduce the account aging to less than 60 days past due. Finance receivables deemed uncollectible are written off against the allowance after all collection efforts have been exhausted and management deems the account to be uncollectible. We believe that our finance receivable credit risk is low because of the geographic and industry diversification of our clients and small account balances for most of our clients.

Activity in the allowance for credit losses for the three months ended March 31, 2019 and 2018 was as follows:



	Sales-type Lease Receivables						Loan Receivables
	North America			International			North America			International			Total
Balance at January 1, 2019	$	10,253		$	2,355		$	6,777		$	837		$	20,222
Amounts charged to expense	3,399			231			957			20			4,607
Write-offs and other	(516		)	(702		)	(1,335		)	(125		)	(2,678		)
Balance at March 31, 2019	$	13,136		$	1,884		$	6,399		$	732		$	22,151

	Sales-type Lease Receivables						Loan Receivables
	North America			International			North America			International			Total
Balance at January 1, 2018	$	7,721		$	2,812		$	7,098		$	1,020		$	18,651
Amounts charged to expense	2,186			399			1,925			140			4,650
Write-offs and other	(1,145		)	(127		)	(2,073		)	(176		)	(3,521		)
Balance at March 31, 2018	$	8,762		$	3,084		$	6,950		$	984		$	19,780

Aging of Receivables

The aging of gross finance receivables at March 31, 2019 and December 31, 2018 was as follows:



	March 31, 2019
	Sales-type Lease Receivables				Loan Receivables
	North America		International		North America		International		Total
1 - 90 days	$	1,065,521	$	186,947	$	280,124	$	29,302	$	1,561,894
> 90 days	34,099		3,521		6,592		276		44,488
Total	$	1,099,620	$	190,468	$	286,716	$	29,578	$	1,606,382
Past due amounts > 90 days
Still accruing interest	$	6,709	$	715	$	2,178	$	128	$	9,730
Not accruing interest	27,390		2,806		4,414		148		34,758
Total	$	34,099	$	3,521	$	6,592	$	276	$	44,488



	December 31, 2018
	Sales-type Lease Receivables				Loan Receivables
	North America		International		North America		International		Total
1 - 90 days	$	1,069,288	$	243,852	$	294,126	$	29,079	$	1,636,345
> 90 days	41,608		3,922		6,193		191		51,914
Total	$	1,110,896	$	247,774	$	300,319	$	29,270	$	1,688,259
Past due amounts > 90 days
Still accruing interest	$	7,917	$	1,111	$	1,769	$	72	$	10,869
Not accruing interest	33,691		2,811		4,424		119		41,045
Total	$	41,608	$	3,922	$	6,193	$	191	$	51,914

Credit Quality

The extension of credit and management of credit lines to new and existing clients uses a combination of an automated credit score, where available, and a detailed manual review of the client's financial condition and, when applicable, payment history. Once credit is granted, the payment performance of the client is managed through automated collections processes and is supplemented with direct follow up should an account become delinquent. We have robust automated collections and extensive portfolio management processes. The portfolio management processes ensure that our global strategy is executed, collection resources are allocated appropriately and enhanced tools and processes are implemented as needed.

We use a third party to score the majority of the North America portfolio on a quarterly basis using a commercial credit score. We do not use a third party to score our International portfolio because the cost to do so is prohibitive, given that it is a localized process, and there is no single credit score model that covers all countries.

The table below shows the North America portfolio at March 31, 2019 and December 31, 2018 by relative risk class based on the relative scores of the accounts within each class. The relative scores are determined based on a number of factors, including the company type, ownership structure, payment history and financial information. A fourth class is shown for accounts that are not scored. Absence of a score is not indicative of the credit quality of the account. The degree of risk (low, medium, high), as defined by the third party, refers to the relative risk that an account may become delinquent in the next 12 months.


•	Low risk accounts are companies with very good credit scores and are considered to approximate the top 30% of all commercial borrowers.


•	Medium risk accounts are companies with average to good credit scores and are considered to approximate the middle 40% of all commercial borrowers.


•	High risk accounts are companies with poor credit scores, are delinquent or are at risk of becoming delinquent and are considered to approximate the bottom 30% of all commercial borrowers.



	March 31, 2019		December 31, 2018
Sales-type lease receivables
Low	$	909,353	$	922,414
Medium	131,425		131,650
High	23,478		22,110
Not Scored	35,364		34,722
Total	$	1,099,620	$	1,110,896
Loan receivables
Low	$	224,517	$	238,620
Medium	45,167		43,952
High	5,429		5,947
Not Scored	11,603		11,800
Total	$	286,716	$	300,319

Lease income

Lease income from sales-type leases for the three months ended March 31, 2019 and 2018 was as follows:



	Three Months Ended March 31,
	2019		2018
Profit recognized at commencement ⁽¹⁾	$	36,360	$	47,294
Interest income	59,478		61,832
Total lease income from sales-type leases	$	95,838	$	109,126

⁽¹⁾ Lease contracts do not include variable lease payments.

Lessor Operating Leases

We also lease mailing equipment under operating leases with terms of 1 to 5 years. Maturities of these operating leases are as follows:



Remaining for year ending December 31, 2019	$	26,317
Year ending December 31, 2020	25,322
Year ending December 31, 2021	9,881
Year ending December 31, 2022	4,023
Year ending December 31, 2023	2,590
Thereafter	59
Total	$	68,192