| RECEIVABLES | NOTE 4: RECEIVABLES A summary of receivables included in the consolidated balance sheets as of June 30, 2021 and December 31, 2020 is as follows: June 30, December 31, 2021 2020 Retail $ 1,359,870 $ 833,864 Wholesale 644,395 639,934 Finance lease 174,221 156,161 Restricted receivables 6,905,625 7,402,988 Gross receivables 9,084,111 9,032,947 Less: Allowance for credit losses (123,918) (136,136) Total receivables, net $ 8,960,193 $ 8,896,811 Restricted Receivables and Securitization As part of its overall funding strategy, the Company periodically transfers certain receivables into VIEs that are special purpose entities (“SPEs”) as part of its asset-backed securitization (“ABS”) programs. SPEs utilized in the securitization programs differ from other entities included in the Company’s consolidated financial statements because the assets they hold are legally isolated from the Company’s assets. For bankruptcy analysis purposes, the Company has sold the receivables to the SPEs in a true sale and the SPEs are separate legal entities. Upon transfer of the receivables to the SPEs, the receivables and certain cash flows derived from them become restricted for use in meeting obligations to the SPEs’ creditors. The SPEs have ownership of cash balances that also have restrictions for the benefit of the SPEs’ investors. The Company’s interests in the SPEs’ receivables are subordinate to the interests of third-party investors. None of the receivables that are directly or indirectly sold or transferred in any of these transactions are available to pay the Company’s creditors until all obligations of the SPE have been fulfilled or the receivables are removed from the SPE. The secured borrowings related to the restricted receivables are obligations that are payable as the receivables are collected. The following table summarizes the restricted receivables as of June 30, 2021 and December 31, 2020: June 30, December 31, 2021 2020 Retail $ 4,796,942 $ 5,280,423 Wholesale 2,108,683 2,122,565 Total restricted receivables $ 6,905,625 $ 7,402,988 Within the U.S. retail receivables securitization programs, qualifying retail receivables are sold to bankruptcy remote SPEs. In turn, these SPEs either establish separate trusts to which the receivables are transferred in exchange for proceeds from asset-backed securities issued by the trusts or pledge the receivables as collateral in exchange for proceeds from a committed asset-backed facility. In Canada, the receivables are transferred directly to the trusts. These trusts were determined to be VIEs. In its role as servicer, the Company has the power to direct the trusts’ activities. Through its retained interests, the Company has an obligation to absorb certain losses, or the right to receive certain benefits, that could potentially be significant to the trusts. Consequently, the Company has consolidated these retail trusts. With regard to the wholesale receivable securitization programs, the Company sells eligible receivables on a revolving basis to structured master trust facilities, which are bankruptcy-remote SPEs. These trusts were determined to be VIEs. In its role as servicer, CNH Industrial Capital has the power to direct the trusts’ activities. Through its retained interests, the Company provides security to investors in the event that cash collections from the receivables are not sufficient to make principal and interest payments on the securities. Consequently, CNH Industrial Capital has consolidated these wholesale trusts. Allowance for Credit Losses The allowance for credit losses is the Company’s estimate of the lifetime expected credit losses inherent in the receivables owned by the Company. Retail receivables include retail and other notes and finance lease products offered for retail purchases of new and used equipment sold through CNH Industrial North America’s dealer network. Wholesale receivables include financing of the sale of goods to dealers and distributors by CNH Industrial North America, and to a lesser extent, the financing of dealer operations. Typically, the Company’s receivables within a geographic area have similar risk profiles and methods for assessing and monitoring risk. Retail receivables that share the same risk characteristics such as, collateralization levels, geography, product type and other relevant factors are reviewed on a collective basis using measurement models and management judgment. The allowance for retail credit losses is based on loss forecast models that consider a variety of factors that include, but are not limited to, historical loss experience, collateral value, portfolio balance and delinquency. The loss forecast models are updated on a quarterly basis. The calculation is adjusted for forward looking macroeconomic factors, such as GDP and Net Farm Income. The forward-looking macroeconomic factors are updated quarterly. In addition, qualitative factors, such as the evolving impact of COVID-19, that are not fully captured in the loss forecast models are considered in the evaluation of the adequacy of the allowance for credit losses. These qualitative factors are subjective and require a degree of management judgment. Wholesale receivables that share the same risk characteristics such as, collateralization levels, term, geography and other relevant factors are reviewed on a collective basis using measurement models and management judgment. The allowance for wholesale credit losses is based on loss forecast models that consider a variety of factors that include, but are not limited to, historical loss experience, collateral value, portfolio balance and delinquency. The loss forecast models are updated on a quarterly basis. The calculation is adjusted for forward looking macroeconomic factors, such as industry sales volumes. The forward-looking macroeconomic factors are updated quarterly. In addition, qualitative factors that are not fully captured in the loss forecast models are considered in the evaluation of the adequacy of the allowance for credit losses. These qualitative factors are subjective and require a degree of management judgment. Wholesale and retail receivables that do not have similar risk characteristics are individually reviewed based on, among other items, amounts outstanding, days past due and prior collection history. Expected credit losses are measured by considering: the probability-weighted estimates of cash flows and collateral value; the time value of money; current conditions and forecasts of future economic conditions. Expected credit losses are measured as the probability-weighted present value of all cash shortfalls (including the value of the collateral, if appropriate) over the expected life of each financial asset. Charge offs of principal amounts of receivables outstanding are deducted from the allowance at the point when it is estimated that amounts due are deemed uncollectible. Allowance for credit losses activity for the three months ended June 30, 2021 is as follows: Retail Wholesale Total Allowance for credit losses: Beginning balance $ 122,541 $ 9,780 $ 132,321 Charge-offs (1,088) (179) (1,267) Recoveries 575 3 578 Provision (benefit) (5,617) (2,384) (8,001) Foreign currency translation and other 273 14 287 Ending balance $ 116,684 $ 7,234 $ 123,918 Allowance for credit losses activity for the six months ended June 30, 2021 is as follows: Retail Wholesale Total Allowance for credit losses: Beginning balance $ 126,851 $ 9,285 $ 136,136 Charge-offs (4,320) (179) (4,499) Recoveries 1,351 6 1,357 Provision (benefit) (7,638) (1,901) (9,539) Foreign currency translation and other 440 23 463 Ending balance $ 116,684 $ 7,234 $ 123,918 Receivables: Ending balance $ 6,331,033 $ 2,753,078 $ 9,084,111 At June 30, 2021, the allowance for credit losses included a release of reserves primarily due to the improved outlook for the agricultural industry and a reduced expected impact on credit conditions from the COVID-19 pandemic. The Company continues to monitor the situation and will update the macroeconomic factors and qualitative factors in future periods, as warranted. At both June 30, 2020 and December 31, 2020, the allowance for credit losses was based on the Company’s expectation of deteriorating credit conditions related to the COVID 19 pandemic. Allowance for credit losses activity for the three months ended June 30, 2020 is as follows: Retail Wholesale Total Allowance for credit losses: Beginning balance $ 96,835 $ 8,395 $ 105,230 Charge-offs (6,947) (33) (6,980) Recoveries 600 — 600 Provision (benefit) 21,730 (1,071) 20,659 Foreign currency translation and other 274 42 316 Ending balance $ 112,492 $ 7,333 $ 119,825 Allowance for credit losses activity for the six months ended June 30, 2020 is as follows: Retail Wholesale Total Allowance for credit losses: Beginning balance, as previously reported $ 64,750 $ 8,001 $ 72,751 Adoption of ASC 326 25,877 — 25,877 Beginning balance, as recast $ 90,627 $ 8,001 $ 98,628 Charge-offs (14,784) (212) (14,996) Recoveries 1,327 3 1,330 Provision (benefit) 35,551 (414) 35,137 Foreign currency translation and other (229) (45) (274) Ending balance $ 112,492 $ 7,333 $ 119,825 Receivables: Ending balance $ 6,076,780 $ 3,250,544 $ 9,327,324 Allowance for credit losses activity for the year ended December 31, 2020 is as follows: Retail Wholesale Total Allowance for credit losses: Beginning balance, as previously reported $ 64,750 $ 8,001 $ 72,751 Adoption of ASC 326 25,877 — 25,877 Beginning balance, as recast $ 90,627 $ 8,001 $ 98,628 Charge-offs (23,147) (1,530) (24,677) Recoveries 2,481 10 2,491 Provision 56,252 2,792 59,044 Foreign currency translation and other 638 12 650 Ending balance $ 126,851 $ 9,285 $ 136,136 Receivables: Ending balance $ 6,270,448 $ 2,762,499 $ 9,032,947 The Company assesses and monitors the credit quality of its receivables based on past due information. Receivables are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Delinquency is reported on receivables greater than 30 days past due. As the terms for retail receivables are greater than one year, the past due information is presented by year of origination. The aging of receivables as of June 30, 2021 is as follows: Greater 31 – 60 Days 61 – 90 Days Than Total Total Past Due Past Due 90 Days Past Due Current Receivables Retail United States 2021 $ 651 $ — $ — $ 651 $ 1,167,331 $ 1,167,982 2020 3,238 1,395 1,902 6,535 1,716,777 1,723,312 2019 3,373 1,821 3,380 8,574 964,258 972,832 2018 2,902 1,335 2,790 7,027 624,374 631,401 2017 2,073 281 2,604 4,958 308,375 313,333 2016 910 320 2,950 4,180 117,505 121,685 Prior to 2016 324 149 2,662 3,135 31,795 34,930 Total $ 13,471 $ 5,301 $ 16,288 $ 35,060 $ 4,930,415 $ 4,965,475 Canada 2021 $ 238 $ — $ — $ 238 $ 360,093 $ 360,331 2020 1,867 716 665 3,248 504,849 508,097 2019 991 581 2,301 3,873 248,828 252,701 2018 1,038 312 812 2,162 140,236 142,398 2017 257 302 551 1,110 67,501 68,611 2016 173 70 765 1,008 25,372 26,380 Prior to 2016 34 — 327 361 6,679 7,040 Total $ 4,598 $ 1,981 $ 5,421 $ 12,000 $ 1,353,558 $ 1,365,558 Wholesale United States $ 14 $ 4 $ 136 $ 154 $ 2,105,397 $ 2,105,551 Canada $ 2 $ — $ — $ 2 $ 647,525 $ 647,527 Total Retail $ 18,069 $ 7,282 $ 21,709 $ 47,060 $ 6,283,973 $ 6,331,033 Wholesale $ 16 $ 4 $ 136 $ 156 $ 2,752,922 $ 2,753,078 The aging of receivables as of December 31, 2020 is as follows: Greater 31 – 60 Days 61 – 90 Days Than Total Total Past Due Past Due 90 Days Past Due Current Receivables Retail United States 2020 $ 3,334 $ 569 $ 3,317 $ 7,220 $ 2,076,477 $ 2,083,697 2019 7,912 1,201 4,243 13,356 1,264,842 1,278,198 2018 5,742 1,261 5,385 12,388 849,397 861,785 2017 3,841 461 2,655 6,957 454,256 461,213 2016 1,699 220 2,894 4,813 223,024 227,837 2015 781 173 2,091 3,045 53,981 57,026 Prior to 2015 256 47 2,874 3,177 15,459 18,636 Total $ 23,565 $ 3,932 $ 23,459 $ 50,956 $ 4,937,436 $ 4,988,392 Canada 2020 $ 1,613 $ 30 $ 707 $ 2,350 $ 588,691 $ 591,041 2019 1,772 249 3,292 5,313 327,716 333,029 2018 1,254 218 1,508 2,980 197,895 200,875 2017 535 474 970 1,979 96,215 98,194 2016 265 127 1,209 1,601 43,480 45,081 2015 91 6 560 657 11,512 12,169 Prior to 2015 126 11 48 185 1,482 1,667 Total $ 5,656 $ 1,115 $ 8,294 $ 15,065 $ 1,266,991 $ 1,282,056 Wholesale United States $ 18 $ — $ 458 $ 476 $ 2,206,690 $ 2,207,166 Canada $ 6 $ — $ — $ 6 $ 555,327 $ 555,333 Total Retail $ 29,221 $ 5,047 $ 31,753 $ 66,021 $ 6,204,427 $ 6,270,448 Wholesale $ 24 $ — $ 458 $ 482 $ 2,762,017 $ 2,762,499 Included in the receivables balance at June 30, 2021 and December 31, 2020 is accrued interest of $43,567 and $52,595, respectively. The Company does not include accrued interest in its allowance for credit losses. Recognition of income is generally suspended when management determines that collection of future finance income is not probable or when an account becomes 90 days past due, whichever occurs first. Accrued interest is charged off to interest income. Interest income charged off was not material for the three and six months ended June 30, 2021 and 2020. Interest accrual is resumed if the receivable becomes contractually current and collection becomes probable. Previously suspended income is recognized at that time. The receivables on nonaccrual status as of June 30, 2021 and December 31, 2020 are as follows: June 30, 2021 December 31, 2020 Retail Wholesale Total Retail Wholesale Total United States $ 27,942 $ 18,612 $ 46,554 $ 28,882 $ 35,402 $ 64,284 Canada $ 5,792 $ — $ 5,792 $ 8,597 $ — $ 8,597 As of June 30, 2021 and December 31, 2020, the Company’s receivables on non-accrual status without an allowance were immaterial. Interest income recognized for receivables on non-accrual status for the three and six months ended June 30, 2021 and 2020 was immaterial. Troubled Debt Restructurings A restructuring of a receivable constitutes a troubled debt restructuring (“TDR”) when the lender grants a concession it would not otherwise consider to a borrower that is experiencing financial difficulties. As a collateral-based lender, the Company typically will repossess collateral in lieu of restructuring receivables. As such, for retail receivables, concessions are typically provided based on bankruptcy court proceedings. For wholesale receivables, concessions granted may include extended contract maturities, inclusion of interest-only periods, modification of a contractual interest rate to a below market interest rate and waiving of interest and principal. TDRs are reviewed along with other receivables as part of management’s ongoing evaluation of the adequacy of the allowance for credit losses. The allowance for credit losses attributable to TDRs is based on the most probable source of repayment, which is normally the liquidation of the collateral. In determining collateral value, the Company estimates the current fair market value of the equipment collateral and considers credit enhancements such as additional collateral and third-party guarantees. Before removing a receivable from TDR classification, a review of the borrower is conducted. If concerns exist about the future ability of the borrower to meet its obligations based on a credit review, the TDR classification is not removed from the receivable. As of June 30, 2021, the Company had 204 retail and finance lease contracts classified as TDRs where a court has determined the concession. The pre-modification value of these contracts was $5,609 and the post-modification value was $5,039. Additionally, the Company had 339 accounts with a balance of $22,482 undergoing bankruptcy proceedings where a concession has not yet been determined. As of June 30, 2020, the Company had 275 retail and finance lease contracts classified as TDRs where a court has determined the concession. The pre-modification value of these contracts was $8,580 and the post-modification value was $7,549. Additionally, the Company had 330 accounts with a balance of $21,058 undergoing bankruptcy proceedings where a concession has not yet been determined. As the outcome of the bankruptcy cases is determined by a court based on available assets, subsequent re-defaults are unusual and were not material for retail and finance lease contracts that were modified in a TDR during the previous 12 months ended June 30, 2021 and 2020. As of June 30, 2021 and 2020, the Company’s wholesale TDRs were immaterial. |
