Finance Receivables



	September 30, 2019			December 31, 2018
Retail finance receivables
Retail finance receivables, collectively evaluated for impairment, net of fees	$	39,577		$	38,354
Retail finance receivables, individually evaluated for impairment, net of fees	2,390			2,348
Total retail finance receivables, net of fees^(a)	41,967			40,702
Less: allowance for loan losses - collective	(519		)	(523		)
Less: allowance for loan losses - specific	(337		)	(321		)
Total retail finance receivables, net	41,111			39,858
Commercial finance receivables
Commercial finance receivables, collectively evaluated for impairment, net of fees	13,258			12,680
Commercial finance receivables, individually evaluated for impairment, net of fees	40			41
Total commercial finance receivables, net of fees^(b)	13,298			12,721
Less: allowance for loan losses - collective	(66		)	(63		)
Less: allowance for loan losses - specific	(11		)	(4		)
Total commercial finance receivables, net	13,221			12,654
Total finance receivables, net	$	54,332		$	52,512
Fair value utilizing Level 2 inputs	$	13,221		$	12,654
Fair value utilizing Level 3 inputs	$	41,627		$	39,564

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(a) Net of unearned income, unamortized premiums and discounts, and deferred fees and costs of $72 million and $53 million at September 30, 2019 and December 31, 2018.

(b) Net of dealer cash management balances of $1.2 billion and $922 million at September 30, 2019 and December 31, 2018.

Rollforward of Allowance for Retail Loan Losses A summary of the activity in the allowance for retail loan losses is as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Allowance for retail loan losses beginning balance	$	881		$	815		$	844		$	889
Provision for loan losses	149			176			492			434
Charge-offs	(300		)	(285		)	(886		)	(878		)
Recoveries	133			130			410			398
Foreign currency translation	(7		)	3			(4		)	(4		)
Allowance for retail loan losses ending balance	$	856		$	839		$	856		$	839

Retail Credit Quality Our retail finance receivables portfolio includes loans made to consumers and businesses to finance the purchase of vehicles for personal and commercial use. We review the credit quality of our retail finance receivables based on customer payment activity. A retail account is considered delinquent if a substantial portion of a scheduled payment has not been received by the date such payment was contractually due. Retail finance receivables are collateralized by vehicle titles and, subject to local laws, we generally have the right to repossess the vehicle in the event the customer defaults on the payment terms of the contract. The following is a consolidated summary of the contractual amounts of delinquent retail finance receivables, which is not significantly different than the recorded investment for such receivables:



	September 30, 2019				September 30, 2018
	Amount		Percent of Contractual Amount Due		Amount		Percent of Contractual Amount Due
31 - 60 days	$	1,252	3.0	%	$	1,302	3.4	%
Greater than 60 days	514		1.2		498		1.3
Total finance receivables more than 30 days delinquent	1,766		4.2		1,800		4.7
In repossession	48		0.1		53		0.2
Total finance receivables more than 30 days delinquent or in repossession	$	1,814	4.3	%	$	1,853	4.9	%

At September 30, 2019 and December 31, 2018, the accrual of finance charge income had been suspended on retail finance receivables with contractual amounts due of $853 million and $888 million.

Impaired Retail Finance Receivables - TDRs Retail finance receivables that become classified as troubled debt restructurings (TDRs) are separately assessed for impairment. A specific allowance is estimated based on the present value of the expected future cash flows of the receivable discounted at the loan's original effective interest rate. Accounts that become classified as TDRs because of a payment deferral accrue interest at the contractual rate and an additional fee is collected (where permitted) at each time of deferral and recorded as a reduction of accrued interest. No interest or fees are forgiven on a payment deferral to a customer; therefore, there are no additional financial effects of deferred loans becoming classified as TDRs. Accounts in the U.S. in Chapter 13 bankruptcy would have already been placed on non-accrual; therefore, there are no additional financial effects from these loans becoming classified as TDRs. Finance charge income from loans classified as TDRs is accounted for in the same manner as other accruing loans. Cash collections on these loans are allocated according to the same payment hierarchy methodology applied to loans that are not classified as TDRs.

The outstanding recorded investment for retail finance receivables that are considered to be TDRs and the related allowance is presented below:



	September 30, 2019			December 31, 2018
Outstanding recorded investment	$	2,390		$	2,348
Less: allowance for loan losses	(337		)	(321		)
Outstanding recorded investment, net of allowance	$	2,053		$	2,027
Unpaid principal balance	$	2,416		$	2,379

Additional information about loans classified as TDRs is presented below:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Average outstanding recorded investment	$	2,372	$	2,293	$	2,369	$	2,268
Finance charge income recognized	$	60	$	59	$	191	$	185
Number of loans classified as TDRs during the period	19,074		17,924		53,013		51,020
Recorded investment of loans classified as TDRs during the period	$	343	$	319	$	969	$	932

The unpaid principal balance, net of recoveries, of loans charged off during the reporting period within 12 months of being modified as a TDR was insignificant for the three and nine months ended September 30, 2019 and 2018.

Commercial Credit Quality Our commercial finance receivables consist of dealer financings, primarily for inventory purchases. Proprietary models are used to assign a risk rating to each dealer. We perform periodic credit reviews of each dealership and adjust the dealership's risk rating, if necessary. Dealers in Group VI are subject to additional restrictions on funding, including suspension of lines of credit and liquidation of assets. The following table summarizes the credit risk profile by dealer risk rating of commercial finance receivables:



			September 30, 2019				December 31, 2018
			Amount		Percent		Amount		Percent
Group I	-	Dealers with superior financial metrics	$	1,924	14.5	%	$	2,192	17.2	%
Group II	-	Dealers with strong financial metrics	5,398		40.6		4,500		35.4
Group III	-	Dealers with fair financial metrics	4,243		31.9		4,292		33.7
Group IV	-	Dealers with weak financial metrics	1,327		10.0		1,205		9.5
Group V	-	Dealers warranting special mention due to elevated risks	332		2.5		449		3.5
Group VI	-	Dealers with loans classified as substandard, doubtful or impaired	74		0.5		83		0.7
Balance at end of period			$	13,298	100.0	%	$	12,721	100.0	%

At September 30, 2019 and December 31, 2018, substantially all of our commercial finance receivables were current with respect to payment status. Commercial finance receivables on non-accrual status were insignificant, and none were classified as TDRs. Activity in the allowance for commercial loan losses was insignificant for the three and nine months ended September 30, 2019 and 2018.