GM Financial Receivables, net
In the year ended December 31, 2013 GM Financial acquired certain international operations in Europe and Latin America from Ally Financial that conduct consumer and commercial lending activities. All of the loans acquired were made on a secured basis.
The following table summarizes the components of consumer and commercial finance receivables, net (dollars in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2013 | | December 31, 2012 |
| Consumer | | Commercial | | Total | | Consumer | | Commercial | | Total |
Pre-acquisition finance receivables, outstanding amount | $ | 1,294 |
| | $ | — |
| | $ | 1,294 |
| | $ | 2,162 |
| | $ | — |
| | $ | 2,162 |
|
Pre-acquisition finance receivables, carrying amount | $ | 1,174 |
| | $ | — |
| | $ | 1,174 |
| | $ | 1,958 |
| | $ | — |
| | $ | 1,958 |
|
Post-acquisition finance receivables, net of fees | 21,956 |
| | 6,050 |
| | 28,006 |
| | 8,831 |
| | 560 |
| | 9,391 |
|
Finance receivables | 23,130 |
| | 6,050 |
| | 29,180 |
| | 10,789 |
| | 560 |
| | 11,349 |
|
Less: allowance for loan losses | (497 | ) | | (51 | ) | | (548 | ) | | (345 | ) | | (6 | ) | | (351 | ) |
GM Financial receivables, net | $ | 22,633 |
| | $ | 5,999 |
| | $ | 28,632 |
| | $ | 10,444 |
| | $ | 554 |
| | $ | 10,998 |
|
| | | | | | | | | | | |
Fair value of GM Financial receivables, net | | | | | $ | 28,668 |
| | | | | | $ | 11,313 |
|
Of the total allowance for loan losses in the above table, $427 million and $266 million were current at December 31, 2013 and 2012.
GM Financial determined the fair value of consumer finance receivables using observable and unobservable inputs within a cash flow model. The inputs reflect assumptions regarding expected prepayments, deferrals, delinquencies, recoveries and charge-offs of the loans within the portfolio. The cash flow model produces an estimated amortization schedule of the finance receivables which is the basis for the calculation of the series of cash flows that derive the fair value of the portfolio. The series of cash flows is calculated and discounted using a weighted-average cost of capital (WACC) using unobservable debt and equity percentages, an unobservable cost of equity and an observable cost of debt based on companies with a similar credit rating and maturity profile as the portfolio. Macroeconomic factors could negatively affect the credit performance of the portfolio and therefore could potentially affect the assumptions used in GM Financial's cash flow model. Substantially all commercial finance receivables either have variable interest rates and maturities of one year or less, or were acquired or originated within the past year. Therefore, the carrying amount is considered to be a reasonable estimate of fair value.
GM Financial reviews its pre-acquisition finance receivables portfolios for differences between contractual cash flows and the cash flows expected to be collected to determine if the difference is attributable, at least in part, to credit quality. In the years ended December 31, 2013 and 2012 as a result of improvements in credit performance of the pre-acquisition finance receivables, GM Financial transferred the amount of excess cash flows from the non-accretable difference to accretable yield. GM Financial will recognize this excess as finance charge income over the remaining life of the portfolio.
The following table summarizes the activity for accretable yield (dollars in millions):
|
| | | | | | | |
| Years Ended December 31, |
| 2013 | | 2012 |
Balance at beginning of period | $ | 404 |
| | $ | 737 |
|
Ally Financial international operations acquisition | 127 |
| | |
Accretion of accretable yield | (342 | ) | | (503 | ) |
Transfer from non-accretable difference | 74 |
| | 170 |
|
Effect of foreign currency | (8 | ) | | — |
|
Balance at end of period | $ | 255 |
| | $ | 404 |
|
The following table summarizes activity for the allowance for loan losses on consumer and commercial finance receivables (dollars in millions):
|
| | | | | | | | | | | |
| Years Ended December 31,(a) |
| 2013 | | 2012 | | 2011 |
Balance at beginning of period | $ | 351 |
| | $ | 179 |
| | $ | 26 |
|
Provision for loan losses | 475 |
| | 304 |
| | 178 |
|
Charge-offs | (643 | ) | | (304 | ) | | (66 | ) |
Recoveries | 362 |
| | 172 |
| | 41 |
|
Effect of foreign currency | 3 |
| | — |
| | — |
|
Balance at end of period | $ | 548 |
| | $ | 351 |
| | $ | 179 |
|
________
| |
(a) | The balances and activity of the allowance for commercial loan losses included in the amounts at and for the years ended December 31, 2013 and 2012 were insignificant. |
Credit Quality
Consumer Finance Receivables
GM Financial uses proprietary scoring systems that measure the credit quality of the receivables using several factors, such as credit bureau information, consumer credit risk scores (e.g. FICO score) and contract characteristics. In addition to GM Financial's proprietary scoring systems GM Financial considers other individual consumer factors such as employment history, financial stability and capacity to pay. Subsequent to origination GM Financial reviews the credit quality of retail receivables based on customer payment activity. At the time of loan origination substantially all of GM Financial's international consumers have prime credit scores. In North America sub-prime is typically defined as a loan with a borrower that has a FICO score of less than 620. At December 31, 2013 and 2012 88% and 84% of the consumer finance receivables in North America were consumers with FICO scores less than 620.
An account is considered delinquent if a substantial portion of a scheduled payment has not been received by the date such payment was contractually due. At December 31, 2013 and 2012 the accrual of finance charge income has been suspended on delinquent consumer finance receivables based on contractual amounts due of $642 million and $503 million.
GM Financial purchases consumer finance contracts from automobile dealers without recourse and, accordingly, the dealer has no liability to GM Financial if the consumer defaults on the contract. Finance receivables are collateralized by vehicle titles and GM Financial has the right to repossess the vehicle in the event the consumer defaults on the payment terms of the contract.
The following table summarizes the contractual amount of delinquent contracts, which is not materially different from the recorded investment of the consumer finance receivables (dollars in millions):
|
| | | | | | | | | | | | | |
| December 31, 2013 | | December 31, 2012 |
| Amount | | Percent of Contractual Amount Due | | Amount | | Percent of Contractual Amount Due |
Delinquent contracts | | | | | | | |
31-to-60 days | $ | 952 |
| | 4.1 | % | | $ | 672 |
| | 6.1 | % |
Greater-than-60 days | 408 |
| | 1.7 | % | | 230 |
| | 2.1 | % |
Total finance receivables more than 30 days delinquent | 1,360 |
| | 5.8 | % | | 902 |
| | 8.2 | % |
In repossession | 41 |
| | 0.2 | % | | 31 |
| | 0.3 | % |
Total finance receivables more than 30 days delinquent or in repossession | $ | 1,401 |
| | 6.0 | % | | $ | 933 |
| | 8.5 | % |
Impaired Finance Receivables - Troubled Debt Restructurings
The following table summarizes the outstanding recorded investment for consumer finance receivables that are considered to be TDRs and the related allowance (dollars in millions):
|
| | | | | | | |
| December 31, 2013 | | December 31, 2012 |
Outstanding recorded investment | $ | 767 |
| | $ | 228 |
|
Less: allowance for loan losses | (103 | ) | | (32 | ) |
Outstanding recorded investment, net of allowance | $ | 664 |
| | $ | 196 |
|
| | | |
Unpaid principal balance | $ | 779 |
| | $ | 232 |
|
Commercial Finance Receivables
GM Financial's commercial finance receivables consist of dealer financings. A proprietary model is used to assign a risk rating to each dealer. A credit review of each dealer is performed at least annually and, if necessary, the dealer's risk rating is adjusted on the basis of the review. At December 31, 2013 and 2012 the commercial finance receivables or loans on non-accrual status were insignificant.
The following table summarizes the credit risk profile by dealer grouping of the commercial finance receivables (dollars in millions):
|
| | | | | | | |
| December 31, 2013 | | December 31, 2012 |
Group I - Dealers with strong to superior financial metrics | $ | 549 |
| | $ | 99 |
|
Group II - Dealers with fair to favorable financial metrics | 1,460 |
| | 278 |
|
Group III - Dealers with marginal to weak financial metrics | 1,982 |
| | 171 |
|
Group IV - Dealers with poor financial metrics | 1,462 |
| | 12 |
|
Group V - Dealers warranting special mention due to potential weaknesses | 385 |
| | |
Group VI - Dealers with loans classified as substandard, doubtful or impaired | 212 |
| | |
| $ | 6,050 |
| | $ | 560 |
|
The credit lines for Group VI dealers are suspended and no further funding is extended to these dealers.
