Ford Credit Finance Receivables (Notes)

6 Months Ended

Jun. 30, 2019

FORD CREDIT FINANCE RECEIVABLES

Ford Credit manages finance receivables as “consumer” and “non-consumer” portfolios. The receivables are generally secured by the vehicles, inventory, or other property being financed. Finance receivables, net were as follows (in millions):



	December 31, 2018			June 30, 2019
Consumer
Retail installment contracts, gross	$	70,874		$	68,737
Finance leases, gross	8,748			8,983
Retail financing, gross	79,622			77,720
Unearned interest supplements	(3,508		)	(3,512		)
Consumer finance receivables	76,114			74,208
Non-Consumer
Dealer financing	34,372			33,936
Non-Consumer finance receivables	34,372			33,936
Total recorded investment	$	110,486		$	108,144

Recorded investment in finance receivables	$	110,486		$	108,144
Allowance for credit losses	(589		)	(513		)
Finance receivables, net	$	109,897		$	107,631

Current portion	$	54,353		$	53,756
Non-current portion	55,544			53,875
Finance receivables, net	$	109,897		$	107,631

Net finance receivables subject to fair value (a)	$	101,471		$	99,010
Fair value (b)	100,877			99,142

__________


(a)	Net finance receivables subject to fair value exclude finance leases. Previously, certain consumer financing products in Europe were classified as retail installment contracts. We now classify these products as finance leases. Comparative information has been revised to reflect this change.


(b)	The fair value of finance receivables is categorized within Level 3 of the fair value hierarchy.

Ford Credit’s finance leases are comprised of sales-type and direct financing leases. Ford Credit offers finance leases to individuals, leasing companies, government entities, daily rental companies, and fleet customers. These financings include primarily lease plans for terms of 24 to 60 months. Financing revenue from finance leases for the second quarter of 2018 and 2019 was $95 million and $97 million, respectively, and for the first half of 2018 and 2019 was $190 million and $189 million, respectively. Financing revenue from finance leases is included in Ford Credit revenues on the consolidated income statement.

The amounts contractually due on Ford Credit’s finance lease receivables were as follows (in millions):



	June 30, 2019
Within one year	$	2,075
After one year and within two years	2,005
After two years and within three years	1,599
After three years and within four years	708
After four years and within five years	120
After five years	2
Total future cash payments	6,509
Less: Present value discount	(313		)
Finance lease receivables	$	6,196

NOTE 8. FORD CREDIT FINANCE RECEIVABLES (Continued)

The reconciliation from finance lease receivables to finance leases, gross and finance leases, net is as follows (in millions):



	June 30, 2019
Finance lease receivables	$	6,196
Unguaranteed residual assets	2,661
Initial direct costs	126
Finance leases, gross	8,983
Unearned interest supplements from Ford and affiliated companies	(345		)
Allowance for credit losses	(17		)
Finance leases, net	$	8,621

At December 31, 2018 and June 30, 2019, accrued uncollected interest was $264 million and $262 million, respectively, which is reported in Other assets in the current assets section of our consolidated balance sheet.

Included in the recorded investment in finance receivables at December 31, 2018 and June 30, 2019, were consumer receivables of $40.7 billion and $39.3 billion, respectively, and non-consumer receivables of $25.7 billion and $25.1 billion, respectively, that have been sold for legal purposes in securitization transactions but continue to be reported in our consolidated financial statements. The receivables are available only for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay the other obligations or the claims of Ford Credit’s other creditors. Ford Credit holds the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions.

Aging

For all finance receivables, Ford Credit defines “past due” as any payment, including principal and interest, that is at least 31 days past the contractual due date. The recorded investment of consumer receivables greater than 90 days past due and still accruing interest was $20 million at December 31, 2018. At June 30, 2019, there were no balances greater than 90 days past due that are still accruing interest.

The aging analysis of Ford Credit’s finance receivables balances was as follows (in millions):



	December 31, 2018		June 30, 2019
Consumer
31-60 days past due	$	859	$	662
61-90 days past due	123		103
91-120 days past due	39		31
Greater than 120 days past due	39		39
Total past due	1,060		835
Current	75,054		73,373
Consumer finance receivables	76,114		74,208
Non-Consumer
Total past due	76		70
Current	34,296		33,866
Non-Consumer finance receivables	34,372		33,936
Total recorded investment	$	110,486	$	108,144

NOTE 8. FORD CREDIT FINANCE RECEIVABLES (Continued)

Credit Quality

Consumer Portfolio. Credit quality ratings for consumer receivables are based on aging. Consumer receivables credit quality ratings are as follows:


•	Pass – current to 60 days past due;


•	Special Mention – 61 to 120 days past due and in intensified collection status; and


•	Substandard – greater than 120 days past due and for which the uncollectible portion of the receivables has already been charged off, as measured using the fair value of collateral less costs to sell.

Non-Consumer Portfolio. Dealers are assigned to one of four groups according to risk ratings as follows:


•	Group I – strong to superior financial metrics;


•	Group II – fair to favorable financial metrics;


•	Group III – marginal to weak financial metrics; and


•	Group IV – poor financial metrics, including dealers classified as uncollectible.

The credit quality analysis of dealer financing receivables was as follows (in millions):



	December 31, 2018		June 30, 2019
Dealer Financing
Group I	$	27,032	$	26,333
Group II	5,635		6,020
Group III	1,576		1,468
Group IV	129		115
Total recorded investment	$	34,372	$	33,936

Impaired Receivables. Impaired consumer receivables include accounts that have been rewritten or modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code that are considered to be Troubled Debt Restructurings (“TDRs”), as well as all accounts greater than 120 days past due. Impaired non-consumer receivables represent accounts with dealers that have weak or poor financial metrics or dealer financing that has been modified in TDRs. The recorded investment of consumer receivables that were impaired at December 31, 2018 and June 30, 2019 was $370 million and $337 million, or 0.5% and 0.5% of consumer receivables, respectively. The recorded investment of non-consumer receivables that were impaired at December 31, 2018 and June 30, 2019 was $129 million and $115 million, or 0.4% and 0.3% of non-consumer receivables, respectively. Impaired finance receivables are evaluated both collectively and specifically.