Notes Receivable

12 Months Ended

Dec. 31, 2019

Accounts, Notes, Loans and Financing Receivable [Line Items]

Notes Receivable

Notes Receivable

Presented in the following table are details of CMS Energy’s and Consumers’ current and non‑current notes receivable:

In Millions
December 31	2019			2018
CMS Energy, including Consumers
Current
EnerBank notes receivable, net of allowance for loan losses		$	223		$	233
EnerBank notes receivable held for sale		19			—
Non‑current
EnerBank notes receivable		2,258			1,624
Total notes receivable		$	2,500		$	1,857
Consumers
Current
DB SERP note receivable – related party		$	7		$	7
Non‑current
DB SERP note receivable – related party		96			99
Total notes receivable		$	103		$	106

EnerBank Notes Receivable

EnerBank notes receivable are primarily unsecured consumer installment loans, largely for financing home improvements. EnerBank records its notes receivable at cost, less an allowance for loan losses. During 2019, EnerBank completed sales of notes receivable, receiving proceeds of $67 million and recording immaterial gains. At December 31, 2019, $19 million of notes receivable were classified as held for sale; the fair value of notes receivable held for sale exceeded their carrying value. These notes are expected to be sold in 2020.

During 2019, EnerBank purchased a portfolio of secured and unsecured consumer installment loans with a principal value of $373 million.

Authorized contractors pay fees to EnerBank to provide borrowers with same-as-cash, zero interest, or reduced interest loans. Unearned income associated with the loan fees, which is recorded as a reduction to notes receivable on CMS Energy’s consolidated balance sheets, was $134 million at December 31, 2019 and $102 million at December 31, 2018. Unearned income associated with loan fees for notes receivable held for sale was $2 million at December 31, 2019.

The allowance for loan losses is a valuation allowance to reflect estimated credit losses. The allowance is increased by the provision for loan losses and decreased by loan charge-offs net of recoveries. Management estimates the allowance balance required by taking into consideration historical loan loss experience, the nature and volume of the portfolio, economic conditions, and other factors. Loan losses are charged against the allowance when the loss is confirmed, but no later than the point at which a loan becomes 120 days past due.

Presented in the following table are the changes in the allowance for loan losses:

In Millions
Years Ended December 31	2019				2018
Balance at beginning of period		$	24			$	20
Charge-offs		(35		)		(24		)
Recoveries		6				3
Provision for loan losses		38				25
Balance at end of period		$	33			$	24

Loans that are 30 days or more past due are considered delinquent. The balance of EnerBank’s delinquent consumer loans was $33 million at December 31, 2019 and $21 million at December 31, 2018. At December 31, 2019 and December 31, 2018, EnerBank’s loans that had been modified as troubled debt restructurings were immaterial.

EnerBank has entered into interest rate swaps on $134 million of its loans (notes receivable). For information about interest rate swaps, see Note 6, Fair Value Measurements.

DB SERP Note Receivable – Related Party

The DB SERP note receivable – related party is Consumers’ portion of a demand note payable issued by CMS Energy to the DB SERP rabbi trust. The demand note bears interest at an annual rate of 4.10 percent and has a maturity date of 2028.

Consumers Energy Company

Accounts, Notes, Loans and Financing Receivable [Line Items]

Notes Receivable

Notes Receivable

Presented in the following table are details of CMS Energy’s and Consumers’ current and non‑current notes receivable:

In Millions
December 31	2019			2018
CMS Energy, including Consumers
Current
EnerBank notes receivable, net of allowance for loan losses		$	223		$	233
EnerBank notes receivable held for sale		19			—
Non‑current
EnerBank notes receivable		2,258			1,624
Total notes receivable		$	2,500		$	1,857
Consumers
Current
DB SERP note receivable – related party		$	7		$	7
Non‑current
DB SERP note receivable – related party		96			99
Total notes receivable		$	103		$	106

EnerBank Notes Receivable

EnerBank notes receivable are primarily unsecured consumer installment loans, largely for financing home improvements. EnerBank records its notes receivable at cost, less an allowance for loan losses. During 2019, EnerBank completed sales of notes receivable, receiving proceeds of $67 million and recording immaterial gains. At December 31, 2019, $19 million of notes receivable were classified as held for sale; the fair value of notes receivable held for sale exceeded their carrying value. These notes are expected to be sold in 2020.

During 2019, EnerBank purchased a portfolio of secured and unsecured consumer installment loans with a principal value of $373 million.

Authorized contractors pay fees to EnerBank to provide borrowers with same-as-cash, zero interest, or reduced interest loans. Unearned income associated with the loan fees, which is recorded as a reduction to notes receivable on CMS Energy’s consolidated balance sheets, was $134 million at December 31, 2019 and $102 million at December 31, 2018. Unearned income associated with loan fees for notes receivable held for sale was $2 million at December 31, 2019.

The allowance for loan losses is a valuation allowance to reflect estimated credit losses. The allowance is increased by the provision for loan losses and decreased by loan charge-offs net of recoveries. Management estimates the allowance balance required by taking into consideration historical loan loss experience, the nature and volume of the portfolio, economic conditions, and other factors. Loan losses are charged against the allowance when the loss is confirmed, but no later than the point at which a loan becomes 120 days past due.

Presented in the following table are the changes in the allowance for loan losses:

In Millions
Years Ended December 31	2019				2018
Balance at beginning of period		$	24			$	20
Charge-offs		(35		)		(24		)
Recoveries		6				3
Provision for loan losses		38				25
Balance at end of period		$	33			$	24

Loans that are 30 days or more past due are considered delinquent. The balance of EnerBank’s delinquent consumer loans was $33 million at December 31, 2019 and $21 million at December 31, 2018. At December 31, 2019 and December 31, 2018, EnerBank’s loans that had been modified as troubled debt restructurings were immaterial.

EnerBank has entered into interest rate swaps on $134 million of its loans (notes receivable). For information about interest rate swaps, see Note 6, Fair Value Measurements.

DB SERP Note Receivable – Related Party

The DB SERP note receivable – related party is Consumers’ portion of a demand note payable issued by CMS Energy to the DB SERP rabbi trust. The demand note bears interest at an annual rate of 4.10 percent and has a maturity date of 2028.