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FINANCING RECEIVABLES

3 Months Ended

Jan. 31, 2021

(11) Financing Receivables

The Company monitors the credit quality of financing receivables based on delinquency status. Past due balances of financing 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. Non-performing financing receivables represent loans for which the Company has ceased accruing finance income. The Company ceases accruing finance income, and accrued finance income previously recognized is reversed when these receivables are generally 90 days delinquent. Generally, when receivables are 120 days delinquent the estimated uncollectible amount from the customer 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.

Due to the economic effects of COVID, the Company provided short-term relief to dealers and retail customers during 2020, and to a much lesser extent in 2021. The relief was provided in regional programs and on a case-by-case basis with customers that were generally current in their payment obligations. Financing receivables granted relief represented approximately 4 percent of the financing receivables balance at January 31, 2021. The majority of financing receivables granted short-term relief during 2020 are beyond the deferral period and have either resumed making payments or are reported as delinquent based on the modified payment schedule.

While the Company implemented a new strategy in fiscal year 2021 resulting in new operating segments, assets managed by financial services, including most financing receivables and equipment on operating leases, continue to be evaluated by market (agriculture and turf or construction and forestry).

The credit quality analysis of retail notes, financing leases, and revolving charge accounts (collectively, customer receivables), in millions of dollars at January 31, 2021 was as follows:


	Year of Origination
	2021		2020		2019		2018		2017		Prior		Revolving Charge Accounts		Total
Customer receivables:
Agriculture and turf
Current	$	2,531	$	9,427	$	5,129	$	2,817	$	1,400	$	686	$	2,564	$	24,554
30-59 days past due		4		65		49		30		13		7		27		195
60-89 days past due				20		17		11		5		3		5		61
90+ days past due						1										1
Non-performing				40		78		57		36		46		7		264
Construction and forestry
Current		737		2,251		1,276		573		164		39		77		5,117
30-59 days past due		5		53		32		17		6		1		3		117
60-89 days past due		1		15		16		7		3		1		1		44
90+ days past due				9		13		5		4		2				33
Non-performing				26		34		26		14		8		1		109
Total customer receivables	$	3,278	$	11,906	$	6,645	$	3,543	$	1,645	$	793	$	2,685	$	30,495

The credit quality analysis of customer receivables in millions of dollars at November 1, 2020 and February 2, 2020 was as follows:


	November 1, 2020						February 2, 2020
Customer receivables:	Retail Notes & Financing Leases		Revolving Charge Accounts		Total		Retail Notes & Financing Leases		Revolving Charge Accounts		Total
Agriculture and turf
Current	$	21,597	$	3,787	$	25,384	$	19,455	$	2,578	$	22,033
30-59 days past due		135		13		148		162		53		215
60-89 days past due		64		4		68		71		15		86
90+ days past due		2				2		4				4
Non-performing		263		6		269		301		6		307
Construction and forestry
Current		4,859		88		4,947		4,362		75		4,437
30-59 days past due		111		2		113		121		4		125
60-89 days past due		55		1		56		46		1		47
90+ days past due		14				14		19				19
Non-performing		106		1		107		156		1		157
Total customer receivables	$	27,206	$	3,902	$	31,108	$	24,697	$	2,733	$	27,430

The credit quality analysis of wholesale receivables in millions of dollars at January 31, 2021 was as follows:


	Year of Origination
	2021		2020		2019		2018		2017		Prior		Revolving		Total
Wholesale receivables:
Agriculture and turf
Current	$	78	$	226	$	67	$	18	$	8	$	1	$	2,297	$	2,695
30-59 days past due
60-89 days past due
90+ days past due
Non-performing						35										35
Construction and forestry
Current		3		11		20		2		1		2		315		354
30-59 days past due
60-89 days past due
90+ days past due												1				1
Non-performing
Total wholesale receivables	$	81	$	237	$	122	$	20	$	9	$	4	$	2,612	$	3,085

The credit quality analysis of wholesale receivables in millions of dollars at November 1, 2020 and February 2, 2020 was as follows:


	November 1		February 2
Wholesale receivables:	2020		2020
Agriculture and turf
Current	$	3,010	$	3,938
30-59 days past due				1
60-89 days past due
90+ days past due
Non-performing		47		76
Construction and forestry
Current		472		482
30-59 days past due
60-89 days past due
90+ days past due
Non-performing				2
Total wholesale receivables	$	3,529	$	4,499

The allowance for credit losses is an estimate of the credit losses expected over the life of the Company’s receivable portfolio. The Company measures expected credit losses on a collective basis when similar risk characteristics exist. Risk characteristics considered by the Company include finance product category, market, geography, credit risk, and remaining duration. Receivables that do not share risk characteristics with other receivables in the portfolio are evaluated on an individual basis.

The Company utilizes loss forecast models, which are selected based on the size and credit risk of the underlying pool of receivables, to estimate expected credit losses. Transition matrix models are used for large and complex customer receivable pools, while weighted average remaining maturity models are used for smaller and less complex customer receivable pools. Expected credit losses on wholesale receivables are based on historical loss rates, adjusted for current economic conditions. The modeled expected credit losses are adjusted based on reasonable and supportable forecasts, which may include economic indicators such as commodity prices, industry equipment sales, unemployment rates, and housing starts. Management reviews each model’s output quarterly, and qualitative adjustments are incorporated as necessary.

An analysis of the allowance for credit losses and investment in financing receivables in millions of dollars during the periods follows:


	Three Months Ended January 31, 2021
	Retail Notes		Revolving
	& Financing		Charge		Wholesale
	Leases		Accounts		Receivables		Total
Allowance:
Beginning of period balance	$	133	$	43	$	8	$	184
ASU No. 2016-13 adoption		44		(13)				31
Provision (credit)		5		(10)		(1)		(6)
Write-offs		(8)		(5)				(13)
Recoveries		5		9				14
Translation adjustments		1						1
End of period balance	$	180	$	24	$	7	$	211

Financing receivables:
End of period balance	$	27,810	$	2,685	$	3,085	$	33,580


	Three Months Ended February 2, 2020
	Retail Notes		Revolving
	& Financing		Charge		Wholesale
	Leases		Accounts		Receivables		Total
Allowance:
Beginning of period balance	$	107	$	40	$	3	$	150
Provision (credit)		16		(1)		6		21
Write-offs		(18)		(7)				(25)
Recoveries		2		8				10
Translation adjustments		(1)				2		1
End of period balance	$	106	$	40	$	11	$	157

Financing receivables:
End of period balance	$	24,697	$	2,733	$	4,499	$	31,929

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 the first three months of 2021, the Company identified 98 receivable contracts, primarily retail notes, as troubled debt restructurings with aggregate balances of $5 million pre-modification and post-modification. During the first three months of 2020, there were 88 receivable contracts, primarily wholesale receivables in Argentina, identified as troubled debt restructurings with aggregate balances of $85 million pre-modification and $74 million post-modification. The short-term payment relief related to COVID, mentioned earlier, did not meet the definition of a troubled debt restructuring. During these same periods, there were no significant troubled debt restructurings that subsequently defaulted and were written off. At January 31, 2021, the Company had no commitments to lend to borrowers whose accounts were modified in troubled debt restructurings.