Financing receivables primarily consist of client loan and installment payment receivables (loans), investment in sales-type and direct financing leases and commercial financing receivables. Client loan and installment payment receivables (loans) are provided primarily to clients to finance the purchase of hardware, software and services. Payment terms on these financing arrangements are generally for terms up to seven years. Client loans and installment payment financing contracts are priced independently at competitive market rates. Investment in sales-type and direct financing leases relates principally to the company’s Systems products and are for terms ranging generally from two to six years. Commercial financing receivables relate primarily to inventory and accounts receivable financing for dealers and remarketers of IBM and OEM products. Payment terms for inventory and accounts receivable financing generally range from 30 to 90 days.

Beginning in the second quarter of 2019 and continuing throughout the year, the company is winding down the portion of its commercial financing operations which provides short-term working capital solutions for OEM information technology suppliers, distributors and resellers, which has resulted in a significant reduction of commercial financing receivables. This wind down is consistent with IBM’s capital allocation strategy and high-value focus. IBM Global Financing will continue to provide differentiated end-to-end financing solutions, including commercial financing in support of IBM partner relationships.

A summary of the components of the company’s financing receivables is presented as follows:

The company utilizes certain of its financing receivables as collateral for nonrecourse borrowings. Financing receivables pledged as collateral for borrowings were $939 million and $710 million at September 30, 2019 and December 31, 2018, respectively.

The company did not have any financing receivables held for sale as of September 30, 2019 and December 31, 2018.

The following tables present the recorded investment by portfolio segment and by class, excluding commercial financing receivables and other miscellaneous financing receivables at September 30, 2019 and December 31, 2018. Commercial financing receivables are excluded from the presentation of financing receivables by portfolio segment, as they are short term in nature and the current estimated risk of loss and resulting impact to the company’s financing results are not material. The company determines its allowance for credit losses based on two portfolio segments: lease receivables and loan receivables, and further segments the portfolio into three classes: Americas, Europe/Middle East/Africa (EMEA) and Asia Pacific.

* Primarily represents translation adjustments.

Write-offs of lease receivables and loan receivables were $11 million and $12 million, respectively, for the nine months ended September 30, 2019. Provision for credit losses recorded for lease receivables and loan receivables were a release of $3 million and $2 million, respectively, for the nine months ended September 30, 2019.

The average recorded investment of impaired leases and loans for Americas, EMEA and Asia Pacific were $141 million, $48 million and $46 million, respectively, for the three months ended September 30, 2019 and $143 million, $56 million and $76 million, respectively, for the three months ended September 30, 2018. Both interest income recognized and interest income recognized on a cash basis on impaired leases and loans were immaterial for the three months ended September 30, 2019 and 2018.

The average recorded investment of impaired leases and loans for Americas, EMEA and Asia Pacific were $144 million, $49 million and $48 million, respectively, for the nine months ended September 30, 2019 and $136 million, $56 million and $79 million, respectively, for the nine months ended September 30, 2018. Both interest income recognized

and interest income recognized on a cash basis on impaired leases and loans were immaterial for the nine months ended September 30, 2019 and 2018.


(Dollars in millions)
At December 31, 2018:	Americas		EMEA		Asia Pacific		Total
Recorded investment
Lease receivables	$	3,827	$	1,341	$	1,152	$	6,320
Loan receivables		6,817		3,675		2,489		12,981
Ending balance	$	10,644	$	5,016	$	3,641	$	19,301
Recorded investment collectively evaluated for impairment	$	10,498	$	4,964	$	3,590	$	19,052
Recorded investment individually evaluated for impairment	$	146	$	52	$	51	$	249

Allowance for credit losses
Beginning balance at January 1, 2018
Lease receivables	$	63	$	9	$	31	$	103
Loan receivables		108		52		51		211
Total	$	172	$	61	$	82	$	314
Write-offs	$	(10)	$	(2)	$	(23)	$	(35)
Recoveries		0		0		2		2
Provision		7		9		0		16
Other*		(11)		(3)		(4)		(19)
Ending balance at December 31, 2018	$	158	$	65	$	56	$	279
Lease receivables	$	53	$	22	$	24	$	99
Loan receivables	$	105	$	43	$	32	$	179

Related allowance, collectively evaluated for impairment	$	39	$	16	$	5	$	59
Related allowance, individually evaluated for impairment	$	119	$	49	$	51	$	219

* Primarily represents translation adjustments.

Write-offs of lease receivables and loan receivables were $15 million and $20 million, respectively, for the year ended December 31, 2018. Provisions for credit losses recorded for lease receivables and loan receivables were $14 million and $2 million, respectively, for the year ended December 31, 2018.

When determining the allowances, financing receivables are evaluated either on an individual or a collective basis. For individually evaluated receivables, the company determines the expected cash flow for the receivable and calculates an estimate of the potential loss and the probability of loss. For those accounts in which the loss is probable, the company records a specific reserve. The company considers any receivable with an individually evaluated reserve as an impaired receivable.

In addition, the company records an unallocated reserve that is determined by applying a reserve rate to its different portfolios, excluding accounts that have been specifically reserved. This reserve rate is based upon credit rating, probability of default, term, characteristics (lease/loan) and loss history.

Past Due Financing Receivables

The company considers a client’s financing receivable balance past due when any installment is aged over 90 days. The following table summarizes information about the recorded investment in lease and loan financing receivables,

including recorded investments aged over 90 days and still accruing, billed invoices aged over 90 days and still accruing, and recorded investment not accruing.


					Recorded		Billed		Recorded
	Total		Recorded		Investment		Invoices		Investment
(Dollars in millions)	Recorded		Investment		> 90 Days and		> 90 Days and		Not
At September 30, 2019:	Investment		> 90 Days(1)		Accruing(1)		Accruing		Accruing(2)
Americas	$	3,279	$	213	$	179	$	13	$	37
EMEA		1,096		34		17		3		19
Asia Pacific		961		37		19		2		18
Total lease receivables	$	5,337	$	284	$	215	$	18	$	74

Americas	$	5,899	$	155	$	64	$	10	$	108
EMEA		3,161		93		28		15		67
Asia Pacific		2,356		41		16		6		26
Total loan receivables	$	11,415	$	288	$	108	$	31	$	200

Total	$	16,752	$	572	$	323	$	50	$	274

(1)	At a contract level, which includes total billed and unbilled amounts for financing receivables aged greater than 90 days.

(2)	Of the recorded investment not accruing, $229 million is individually evaluated for impairment with a related allowance of $202 million.


					Recorded		Billed		Recorded
	Total		Recorded		Investment		Invoices		Investment
(Dollars in millions)	Recorded		Investment		> 90 Days and		> 90 Days and		Not
At December 31, 2018:	Investment		> 90 Days(1)		Accruing(1)		Accruing		Accruing(2)
Americas	$	3,827	$	310	$	256	$	19	$	57
EMEA		1,341		25		9		1		16
Asia Pacific		1,152		49		27		3		24
Total lease receivables	$	6,320	$	385	$	292	$	24	$	97

Americas	$	6,817	$	259	$	166	$	24	$	99
EMEA		3,675		98		25		3		73
Asia Pacific		2,489		40		11		1		31
Total loan receivables	$	12,981	$	397	$	202	$	29	$	203

Total	$	19,301	$	782	$	494	$	52	$	300

(1)	At a contract level, which includes total billed and unbilled amounts for financing receivables aged greater than 90 days.

(2)	Of the recorded investment not accruing, $249 million is individually evaluated for impairment with a related allowance of $219 million.

Credit Quality Indicators

The company’s credit quality indicators, which are based on rating agency data, publicly available information and information provided by customers, are reviewed periodically based on the relative level of risk. The resulting indicators are a numerical rating system that maps to Moody’s Investors Service credit ratings as shown below. The company uses information provided by Moody’s, where available, as one of many inputs in its determination of customer credit ratings.

The following tables present the recorded investment net of allowance for credit losses for each class of receivables, by credit quality indicator, at September 30, 2019 and December 31, 2018. Receivables with a credit quality indicator

ranging from Aaa to Baa3 are considered investment grade. All others are considered non-investment grade. The credit quality indicators do not reflect mitigation actions that the company takes to transfer credit risk to third parties.


(Dollars in millions)	Lease Receivables						Loan Receivables
At September 30, 2019:	Americas		EMEA		Asia Pacific		Americas		EMEA		Asia Pacific
Credit ratings:
Aaa – Aa3	$	443	$	11	$	44	$	1,006	$	167	$	160
A1 – A3		727		201		441		855		308		874
Baa1 – Baa3		843		380		153		1,560		1,120		617
Ba1 – Ba2		697		311		149		1,380		830		396
Ba3 – B1		259		123		104		444		476		208
B2 – B3		258		46		44		499		222		62
Caa – D		16		1		5		47		7		14
Total	$	3,245	$	1,073	$	939	$	5,789	$	3,130	$	2,330


(Dollars in millions)	Lease Receivables						Loan Receivables
At December 31, 2018:	Americas		EMEA		Asia Pacific		Americas		EMEA		Asia Pacific
Credit ratings:
Aaa – Aa3	$	593	$	45	$	85	$	1,055	$	125	$	185
A1 – A3		678		158		413		1,206		436		901
Baa1 – Baa3		892		417		297		1,587		1,148		648
Ba1 – Ba2		852		426		191		1,516		1,175		417
Ba3 – B1		433		171		84		770		472		184
B2 – B3		299		90		50		531		249		109
Caa – D		26		10		7		47		28		15
Total	$	3,774	$	1,319	$	1,128	$	6,712	$	3,633	$	2,457

Troubled Debt Restructurings

The company did not have any significant troubled debt restructurings during the nine months ended September 30, 2019 or for the year ended December 31, 2018.