Note 5. Allowance for Credit Losses and Credit Quality of Receivables

Delinquencies

Past due balances of Receivables still accruing finance income represent the total balance held (principal plus accrued interest) with any payment amounts 30 days or more past the contractual payment due date.

The Company monitors the credit quality of Receivables as either performing or non-performing monthly. Non-performing Receivables represent loans for which the Company has ceased accruing finance income. Generally, when retail notes are approximately 120 days delinquent, accrual of finance income is suspended, the collateral is repossessed or the account is designated for litigation and the estimated uncollectible amount, after charging the dealer’s withholding account, if any, is written off to the allowance for credit losses. Revolving charge accounts are generally deemed to be uncollectible and written off to the allowance for credit losses when delinquency reaches 120 days. Generally, when a wholesale receivable becomes 60 days delinquent, the Company determines whether the accrual of finance income on interest-bearing wholesale receivables should be suspended, the collateral should be repossessed or the account should be designated for litigation and the estimated uncollectible amount written off to the allowance for credit losses. Generally, when a financing lease account becomes 120 days delinquent, the accrual of lease revenue is suspended, the equipment is repossessed or the account is designated for litigation, and the estimated uncollectible amount, after charging the dealer’s withholding account, if any, is written off to the allowance for credit losses. Finance income for non-performing Receivables is recognized on a cash basis. Accrual of finance income is generally resumed when the receivable becomes contractually current and collections are reasonably assured.

An age analysis of past due Receivables that are still accruing interest and non-performing Receivables at October 31, 2016 was as follows (in millions of dollars):


					90 Days or
	30-59 Days		60-89 Days		Greater		Total
	Past Due		Past Due		Past Due		Past Due
Retail notes:
Agriculture and turf	$	106.3	$	51.0	$	59.6	$	216.9
Construction and forestry		73.6		32.4		25.1		131.1
Revolving charge accounts:
Agriculture and turf		12.9		3.5		2.1		18.5
Construction and forestry		2.4		.7		.4		3.5
Wholesale receivables:
Agriculture and turf		5.5		1.3		1.5		8.3
Construction and forestry						1.4		1.4
Financing leases:
Agriculture and turf		8.8		4.6		3.6		17.0
Construction and forestry		2.8		1.6		.2		4.6
Total Receivables	$	212.3	$	95.1	$	93.9	$	401.3


	Total		Total Non-				Total
	Past Due		Performing		Current		Receivables
Retail notes:
Agriculture and turf	$	216.9	$	90.2	$	14,658.7	$	14,965.8
Construction and forestry		131.1		23.7		2,347.6		2,502.4
Revolving charge accounts:
Agriculture and turf		18.5		1.3		2,979.2		2,999.0
Construction and forestry		3.5				76.0		79.5
Wholesale receivables:
Agriculture and turf		8.3		.3		5,530.7		5,539.3
Construction and forestry		1.4				1,021.8		1,023.2
Financing leases:
Agriculture and turf		17.0		6.1		409.0		432.1
Construction and forestry		4.6		2.6		166.0		173.2
Total Receivables	$	401.3	$	124.2	$	27,189.0	$	27,714.5

An age analysis of past due Receivables that are still accruing interest and non-performing Receivables at October 31, 2015 was as follows (in millions of dollars):


					90 Days or
	30-59 Days		60-89 Days		Greater		Total
	Past Due		Past Due		Past Due		Past Due
Retail notes:
Agriculture and turf	$	100.2	$	48.8	$	43.3	$	192.3
Construction and forestry		61.7		28.5		12.1		102.3
Revolving charge accounts:
Agriculture and turf		11.4		5.1		.8		17.3
Construction and forestry		2.1		.8		.3		3.2
Wholesale receivables:
Agriculture and turf		2.0		2.1		.6		4.7
Construction and forestry		.8				1.4		2.2
Financing leases:
Agriculture and turf		12.3		5.7		2.2		20.2
Construction and forestry		2.8		.7		.4		3.9
Total Receivables	$	193.3	$	91.7	$	61.1	$	346.1


	Total		Total Non-				Total
	Past Due		Performing		Current		Receivables
Retail notes:
Agriculture and turf	$	192.3	$	45.8	$	15,956.8	$	16,194.9
Construction and forestry		102.3		17.0		2,344.8		2,464.1
Revolving charge accounts:
Agriculture and turf		17.3		1.8		2,579.5		2,598.6
Construction and forestry		3.2		.1		78.9		82.2
Wholesale receivables:
Agriculture and turf		4.7		10.3		5,981.2		5,996.2
Construction and forestry		2.2				1,187.1		1,189.3
Financing leases:
Agriculture and turf		20.2		8.2		360.8		389.2
Construction and forestry		3.9		3.3		170.7		177.9
Total Receivables	$	346.1	$	86.5	$	28,659.8	$	29,092.4

Allowance for Credit Losses

Allowances for credit losses on Receivables are maintained in amounts considered to be appropriate in relation to the Receivables outstanding based on historical loss experience by product category, portfolio duration, delinquency trends, economic conditions and credit risk quality.

An analysis of the allowance for credit losses and investment in Receivables was as follows (in millions of dollars):


			Revolving
	Retail		Charge		Wholesale				Total
	Notes		Accounts		Receivables		Other		Receivables
2016
Allowance:
Beginning of year balance	$	53.3	$	39.7	$	8.1	$	8.7	$	109.8
Provision for credit losses		27.3		35.8		3.1		2.6		68.8
Write-offs		(29.9)		(54.3)		(4.1)		(3.0)		(91.3)
Recoveries		5.8		18.5		.1		.5		24.9
Other changes (primarily translation adjustments)		(.2)						(.3)		(.5)
End of year balance	$	56.3	$	39.7	$	7.2	$	8.5	$	111.7
Balance individually evaluated *	$	2.3			$	.2	$	.1	$	2.6

Receivables:
End of year balance	$	17,468.2	$	3,078.5	$	6,562.5	$	605.3	$	27,714.5
Balance individually evaluated *	$	44.5	$	8.4	$	.8	$	.6	$	54.3

* Remainder is collectively evaluated.


2015
Allowance:
Beginning of year balance	$	56.1	$	39.9	$	7.6	$	8.8	$	112.4
Provision for credit losses		9.4		20.7		.6		1.6		32.3
Write-offs		(17.8)		(36.2)		(.3)		(1.6)		(55.9)
Recoveries		6.5		15.3		.6		.2		22.6
Other changes (primarily translation adjustments)		(.9)				(.4)		(.3)		(1.6)
End of year balance	$	53.3	$	39.7	$	8.1	$	8.7	$	109.8
Balance individually evaluated *					$	1.0	$	.2	$	1.2

Receivables:
End of year balance	$	18,659.0	$	2,680.8	$	7,185.5	$	567.1	$	29,092.4
Balance individually evaluated *	$	20.2	$	.2	$	10.9	$	.8	$	32.1

* Remainder is collectively evaluated.


2014
Allowance:
Beginning of year balance	$	50.7	$	39.7	$	6.4	$	14.6	$	111.4
Provision (credit) for credit losses		13.2		10.5		9.0		(5.4)		27.3
Write-offs		(12.7)		(24.6)		(7.7)		(.7)		(45.7)
Recoveries		5.5		14.3		.1		.3		20.2
Other changes (primarily translation adjustments)		(.6)				(.2)				(.8)
End of year balance	$	56.1	$	39.9	$	7.6	$	8.8	$	112.4
Balance individually evaluated *	$	1.7	$	.2	$	.1			$	2.0

Receivables:
End of year balance	$	19,461.3	$	2,535.9	$	7,919.1	$	589.6	$	30,505.9
Balance individually evaluated *	$	24.5	$	.2	$	1.2			$	25.9

* Remainder is collectively evaluated.

Investments in non-performing Receivables at October 31, 2016 and 2015 were $124.2 million and $86.5 million, respectively. These Receivables as a percentage of total Receivables outstanding were .45 percent and .30 percent at October 31, 2016 and 2015, respectively. Total Receivable amounts 30 days or more past due and still accruing finance income were $401.3 million at October 31, 2016, compared with $346.1 million at October 31, 2015. These past due amounts represented 1.45 percent and 1.19 percent of total Receivables outstanding at October 31, 2016 and 2015, respectively. The allowance for credit losses represented .40 percent and .38 percent of Receivables outstanding at October 31, 2016 and 2015, respectively. In addition, at October 31, 2016 and 2015, the Company had $138.1 million and $151.9 million, respectively, of deposits primarily withheld from John Deere dealers and merchants available for potential credit losses.

Impaired Receivables

Receivables are considered impaired when it is probable the Company will be unable to collect all amounts due according to the contractual terms. Receivables reviewed for impairment generally include those that are either past due, or have provided bankruptcy notification, or require significant collection efforts. Receivables, which are impaired, are generally classified as non-performing.

An analysis of impaired Receivables at October 31, 2016 and 2015 was as follows (in millions of dollars):


			Unpaid				Average
	Recorded		Principal		Specific		Recorded
	Investment		Balance		Allowance		Investment
2016 *
Receivables with specific allowance:
Retail notes	$	10.2	$	9.9	$	2.3	$	10.6
Wholesale receivables		.3		.3		.2		1.5
Financing leases		.4		.3		.1		.4
Total with specific allowance		10.9		10.5		2.6		12.5

Receivables without specific allowance:
Retail notes		9.5		9.4				10.6
Wholesale receivables		.2		.2				.3
Total without specific allowance		9.7		9.6				10.9
Total	$	20.6	$	20.1	$	2.6	$	23.4

Agriculture and turf	$	11.9	$	11.6	$	1.9	$	10.2
Construction and forestry		8.7		8.5		.7		13.2
Total	$	20.6	$	20.1	$	2.6	$	23.4

2015 *
Receivables with specific allowance:
Wholesale receivables	$	9.7	$	9.7	$	1.0	$	9.7
Financing leases		.8		.7		.2		.7
Total with specific allowance		10.5		10.4		1.2		10.4

Receivables without specific allowance:
Retail notes		9.5		9.5				11.8
Wholesale receivables		.6		.6				.7
Total without specific allowance		10.1		10.1				12.5
Total	$	20.6	$	20.5	$	1.2	$	22.9

Agriculture and turf	$	16.9	$	16.8	$	1.0	$	18.0
Construction and forestry		3.7		3.7		.2		4.9
Total	$	20.6	$	20.5	$	1.2	$	22.9

* Finance income recognized was not material.

A troubled debt restructuring is generally the modification of debt in which a creditor grants a concession it would not otherwise consider to a debtor that is experiencing financial difficulties. These modifications may include a reduction of the stated interest rate, an extension of the maturity dates, a reduction of the face amount or maturity amount of the debt, or a reduction of accrued interest. During 2016, 2015 and 2014, the Company identified 150, 106 and 66 Receivable contracts, primarily retail notes, as troubled debt restructurings with aggregate balances of $5.0 million, $3.1 million and $2.6 million pre-modification and $4.0 million, $2.4 million and $2.2 million post-modification, respectively. During these same periods, there were no significant troubled debt restructurings that subsequently defaulted and were written off. At October 31, 2016, the Company had no commitments to lend additional funds to borrowers whose accounts were modified in troubled debt restructurings.

Write-offs

Total Receivable write-offs and recoveries, by product, and as a percentage of average balances held during the year, were as follows (in millions of dollars):


	2016				2015				2014
	Dollars		Percent		Dollars		Percent		Dollars		Percent
Write-offs:
Retail notes:
Agriculture and turf	$	(10.5)	(.07)	%	$	(9.5)	(.06)	%	$	(6.1)	(.04)	%
Construction and forestry		(19.4)	(.79)			(8.3)	(.35)			(6.6)	(.33)
Total retail notes		(29.9)	(.17)			(17.8)	(.10)			(12.7)	(.07)
Revolving charge accounts		(54.3)	(2.13)			(36.2)	(1.58)			(24.6)	(1.11)
Wholesale receivables		(4.1)	(.05)			(.3)				(7.7)	(.09)
Financing leases		(3.0)	(.54)			(1.6)	(.29)			(.5)	(.09)
Operating loans										(.2)	(1.45)
Total write-offs		(91.3)	(.32)			(55.9)	(.19)			(45.7)	(.16)
Recoveries:
Retail notes:
Agriculture and turf		4.3	.03			4.7	.03			3.3	.02
Construction and forestry		1.5	.06			1.8	.08			2.2	.11
Total retail notes		5.8	.03			6.5	.03			5.5	.03
Revolving charge accounts		18.5	.73			15.3	.68			14.3	.65
Wholesale receivables		.1				.6	.01			.1
Financing leases		.5	.09			.2	.04			.2	.04
Operating loans										.1	.73
Total recoveries		24.9	.09			22.6	.08			20.2	.07
Total net write-offs	$	(66.4)	(.23)	%	$	(33.3)	(.11)	%	$	(25.5)	(.09)	%