Notes Receivable

3 Months Ended

Mar. 31, 2020

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
	March 31, 2020			December 31, 2019
CMS Energy, including Consumers
Current
EnerBank notes receivable, net of allowance for loan losses		$	241		$	223
EnerBank notes receivable held for sale		—			19
Non‑current
EnerBank notes receivable, net of allowance for loan losses		2,203			2,258
Total notes receivable		$	2,444		$	2,500
Consumers
Current
DB SERP note receivable – related party		$	7		$	7
Non‑current
DB SERP note receivable – related party		96			96
Total notes receivable		$	103		$	103

EnerBank Notes Receivable

EnerBank notes receivable are primarily unsecured, fixed-rate installment loans provided throughout the U.S. to finance home improvements. EnerBank records its notes receivable at cost, less an allowance for

loan losses. 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 $130 million at March 31, 2020 and $134 million at December 31, 2019.

At December 31, 2019, $19 million of notes receivable were classified as held for sale. These notes were reclassified as held for investment in March 2020. During the three months ended March 31, 2020, EnerBank purchased a portfolio of secured and unsecured consumer installment loans with a principal value of $9 million.

EnerBank utilizes FICO scores as a key credit quality indicator when underwriting new loans and in assessing the credit exposures in its loan portfolio. The score is determined at the time of a borrower’s application and is generally not updated since the average duration of loans is about two years. At March 31, 2020, 85 percent of EnerBank’s loans had a FICO score rating between good and excellent. At March 31, 2020, 97 percent of EnerBank’s loan portfolio was originated within the past five years.

The allowance for loan losses at March 31, 2020 reflects expected credit losses over the entire lifetime of the loan portfolio. EnerBank estimates the allowance by using the “weighted-average remaining maturity” methodology for their term loans, and the “probability of default and loss given default” methodology for their same-as-cash loans. These methodologies consider historical loan loss experience, prepayment expectations, and credit quality indicators. EnerBank considers current and projected economic conditions, and other reasonable and supportable forecast information to determine if adjustments to the allowance are necessary. The allowance is increased by the provision for loan losses and decreased by loan charge‑offs net of recoveries. 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
Three Months Ended March 31	2020
Balance at beginning of period		$	33
Effects of new accounting standard¹		62
Provisions for loan losses		13
Charge-offs		(11		)
Recoveries		2
Balance at end of period		$	99

¹  The allowance for loan losses at December 31, 2019 reflected expected credit losses over a 12-month period. On January 1, 2020, in accordance with ASU 2016-13, Measurement of Credit Losses on Financial Instruments, the allowance for loan losses was adjusted to reflect expected credit losses over the life of the loan. Additionally, EnerBank recorded $3 million for expected credit losses related to unfunded loan commitments. For further details, see Note 1, New Accounting Standards.

Loans that are 30 days or more past due are considered delinquent. The balance of EnerBank’s delinquent loans was $31 million at March 31, 2020 and $33 million at December 31, 2019. At March 31, 2020 and December 31, 2019, EnerBank’s loans that had been modified as troubled debt restructurings were immaterial.

As a result of the COVID‑19 pandemic, EnerBank has instituted new payment accommodations for current customers and has experienced slower lending growth. At March 31, 2020, EnerBank had not experienced increased delinquent loans, charge-offs, or increased loan modifications due to the COVID‑19 pandemic. EnerBank did not make any material adjustments to their allowance for loan losses

at March 31, 2020 due to the COVID‑19 pandemic. EnerBank cannot predict the longer-term impacts of the pandemic, but could experience higher loan write-offs, increased loan modifications, and slower lending growth.

EnerBank issues loan commitments to meet customer-financing needs. These commitments are agreements to provide credit as long as certain conditions are met and expire after 120 days. EnerBank uses the same credit policies in making these commitments as it uses for loans. EnerBank had $182 million of off-balance-sheet unfunded loan commitments at March 31, 2020, and had recorded a liability of $3 million for expected credit losses on those commitments.

EnerBank has entered into interest rate swaps on $134 million of its loans (notes receivable). For information about interest rate swaps see Note 5, 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
	March 31, 2020			December 31, 2019
CMS Energy, including Consumers
Current
EnerBank notes receivable, net of allowance for loan losses		$	241		$	223
EnerBank notes receivable held for sale		—			19
Non‑current
EnerBank notes receivable, net of allowance for loan losses		2,203			2,258
Total notes receivable		$	2,444		$	2,500
Consumers
Current
DB SERP note receivable – related party		$	7		$	7
Non‑current
DB SERP note receivable – related party		96			96
Total notes receivable		$	103		$	103

EnerBank Notes Receivable

EnerBank notes receivable are primarily unsecured, fixed-rate installment loans provided throughout the U.S. to finance home improvements. EnerBank records its notes receivable at cost, less an allowance for

loan losses. 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 $130 million at March 31, 2020 and $134 million at December 31, 2019.

At December 31, 2019, $19 million of notes receivable were classified as held for sale. These notes were reclassified as held for investment in March 2020. During the three months ended March 31, 2020, EnerBank purchased a portfolio of secured and unsecured consumer installment loans with a principal value of $9 million.

EnerBank utilizes FICO scores as a key credit quality indicator when underwriting new loans and in assessing the credit exposures in its loan portfolio. The score is determined at the time of a borrower’s application and is generally not updated since the average duration of loans is about two years. At March 31, 2020, 85 percent of EnerBank’s loans had a FICO score rating between good and excellent. At March 31, 2020, 97 percent of EnerBank’s loan portfolio was originated within the past five years.

The allowance for loan losses at March 31, 2020 reflects expected credit losses over the entire lifetime of the loan portfolio. EnerBank estimates the allowance by using the “weighted-average remaining maturity” methodology for their term loans, and the “probability of default and loss given default” methodology for their same-as-cash loans. These methodologies consider historical loan loss experience, prepayment expectations, and credit quality indicators. EnerBank considers current and projected economic conditions, and other reasonable and supportable forecast information to determine if adjustments to the allowance are necessary. The allowance is increased by the provision for loan losses and decreased by loan charge‑offs net of recoveries. 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
Three Months Ended March 31	2020
Balance at beginning of period		$	33
Effects of new accounting standard¹		62
Provisions for loan losses		13
Charge-offs		(11		)
Recoveries		2
Balance at end of period		$	99

¹  The allowance for loan losses at December 31, 2019 reflected expected credit losses over a 12-month period. On January 1, 2020, in accordance with ASU 2016-13, Measurement of Credit Losses on Financial Instruments, the allowance for loan losses was adjusted to reflect expected credit losses over the life of the loan. Additionally, EnerBank recorded $3 million for expected credit losses related to unfunded loan commitments. For further details, see Note 1, New Accounting Standards.

Loans that are 30 days or more past due are considered delinquent. The balance of EnerBank’s delinquent loans was $31 million at March 31, 2020 and $33 million at December 31, 2019. At March 31, 2020 and December 31, 2019, EnerBank’s loans that had been modified as troubled debt restructurings were immaterial.

As a result of the COVID‑19 pandemic, EnerBank has instituted new payment accommodations for current customers and has experienced slower lending growth. At March 31, 2020, EnerBank had not experienced increased delinquent loans, charge-offs, or increased loan modifications due to the COVID‑19 pandemic. EnerBank did not make any material adjustments to their allowance for loan losses

at March 31, 2020 due to the COVID‑19 pandemic. EnerBank cannot predict the longer-term impacts of the pandemic, but could experience higher loan write-offs, increased loan modifications, and slower lending growth.

EnerBank issues loan commitments to meet customer-financing needs. These commitments are agreements to provide credit as long as certain conditions are met and expire after 120 days. EnerBank uses the same credit policies in making these commitments as it uses for loans. EnerBank had $182 million of off-balance-sheet unfunded loan commitments at March 31, 2020, and had recorded a liability of $3 million for expected credit losses on those commitments.

EnerBank has entered into interest rate swaps on $134 million of its loans (notes receivable). For information about interest rate swaps see Note 5, 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.