Finance receivables, net consist of retail and dealer accounts including accrued interest and deferred costs, less the allowance for credit losses and unearned income. Pledged retail receivables represent retail loan receivables that have been sold for legal purposes to securitization trusts but continue to be included in our consolidated financial statements. Cash flows from these receivables are available only for the repayment of debt issued by these trusts and other obligations arising from the securitization transactions. They are not available for payment of our other obligations or to satisfy claims of our other creditors.



(Dollars in millions)			December 31, 2011		March 31, 2011
Retail receivables			$	36,116	$	34,951
Pledged retail receivables				9,911		11,546
Dealer financing				11,778		12,189
Recorded investment				57,805		58,686

Deferred origination costs				641		650
Unearned income				(719)		(846)
Allowance for credit losses
	Retail and pledged retail receivables			(386)		(613)
	Dealer financing			(122)		(141)
		Total allowance for credit losses		(508)		(754)
Finance receivables, net			$	57,219	$	57,736

Finance receivables, net presented in the previous table includes direct finance leases of $209 million and $237 million at December 31, 2011 and March 31, 2011, respectively.

We are exposed to credit risk on our finance receivables. Credit risk is the risk of loss arising from the failure of customers or dealers to meet the terms of their contracts with us or otherwise fail to perform as agreed.

While we use various credit quality metrics to develop our allowance for credit losses on the retail loan and commercial portfolio segments, we primarily utilize the aging of the individual accounts to monitor the credit quality of these finance receivables. Based on our experience, the payment status of borrowers is the strongest indication of the credit quality of the underlying receivables. Payment status also affects charge-offs.

Individual borrower accounts for each of the two classes of finance receivables within the homogeneous portfolio segment (retail and commercial loans) are segregated into one of four aging categories based on the number of days outstanding. The aging for each class of finance receivables is updated quarterly.

For the three classes of finance receivables within the dealer products portfolio segment (wholesale, real estate and working capital), all loans outstanding to an individual dealer, affiliated entity or dealership group are aggregated and evaluated collectively by dealer or dealership group. This reflects the interconnected nature of financing provided to our individual dealer, affiliated entities and dealer group customers.

When assessing the credit quality of the finance receivables within the dealer products portfolio segment, we segregate the finance receivables account balances into four distinct credit quality indicators based on internal risk assessments. The internal risk assessments for all finance receivables within the dealer products portfolio segment are updated on a monthly basis.

The tables below show the recorded investment for each credit quality indicator by class of finance receivable as of December 31, 2011 and March 31, 2011:

		Retail Loan				Commercial
(Dollars in millions)		December 31, 2011		March 31, 2011		December 31, 2011		March 31, 2011

Aging of finance receivables:
	Current	$	44,826	$	45,351	$	358	$	416
	30-59 days past due		643		562		13		15
	60-89 days past due		135		108		4		5
	90 days past due		47		39		1		1
Total		$	45,651	$	46,060	$	376	$	437

		Wholesale				Real Estate				Working Capital
(Dollars in millions)		December 31, 2011		March 31, 2011		December 31, 2011		March 31, 2011		December 31, 2011		March 31, 2011

Credit quality indicators:
	Performing	$	5,482	$	6,073	$	3,650	$	3,409	$	1,268	$	1,088
	Credit Watch		591		699		491		505		91		147
	At Risk		50		78		142		148		4		13
	Default		4		10		-		11		5		8
Total		$	6,127	$	6,860	$	4,283	$	4,073	$	1,368	$	1,256

Note 5 – Finance Receivables, Net (Continued)

Impaired Finance Receivables

The following table summarizes the information related to our recorded investment in impaired loans by class of finance receivable as of December 31, 2011 and March 31, 2011:

									Individually Evaluated
	Recorded Investment				Unpaid Principal Balance				Allowance
	December 31,		March 31,		December 31,		March 31,		December 31,		March 31,
(Dollars in millions)	2011		2011¹		2011		2011¹		2011		2011

Impaired account balances individually evaluated for impairment with an allowance:

Wholesale	$	12	$	19	$	12	$	19	$	1	$	3
Real estate		141		156		141		156		40		50
Working capital		8		18		8		18		7		14
Total	$	161	$	193	$	161	$	193	$	48	$	67

Impaired account balances individually evaluated for impairment without an allowance:

Wholesale	$	38	$	62	$	38	$	62
Real estate		3		-		3		-
Working capital		1		3		1		3
Total	$	42	$	65	$	42	$	65

Impaired account balances aggregated and evaluated for impairment:

Retail loan	$	537	$	581	$	531	$	573
Commercial		1		3		1		3
Total	$	538	$	584	$	532	$	576

Total impaired account balances:

Retail loan	$	537	$	581	$	531	$	573
Commercial		1		3		1		3
Wholesale		50		81		50		81
Real estate		144		156		144		156
Working capital		9		21		9		21
Total	$	741	$	842	$	735	$	834
¹ Prior period amounts have been reclassified to conform to the current period presentation.

As of December 31, 2011 and March 31, 2011, all impaired finance receivables within the dealer products portfolio segment were on nonaccrual status and there were no charge-offs against the allowance for credit losses; therefore, the recorded investment in these finance receivables is equal to the unpaid principal balance.

The following table summarizes the average recorded investment in impaired loans and the related interest income recognized by class of finance receivable for the three and nine months ended December 31, 2011 and 2010:

	Average Recorded Investment								Interest Income Recognized
	Three Months Ended December 31,				Nine Months Ended December 31,				Three Months Ended December 31,				Nine Months Ended December 31,
(Dollars in millions)	2011		2010¹		2011		2010¹		2011		2010¹		2011		2010¹

Impaired account balances individually evaluated for impairment with an allowance:

Wholesale	$	11	$	18	$	11	$	18	$	-	$	-	$	-	$	1
Real estate		142		148		143		148		1		2		4		4
Working capital		8		15		8		14		-		-		-		-
Total	$	161	$	181	$	162	$	180	$	1	$	2	$	4	$	5

Impaired account balances individually evaluated for impairment without an allowance:

Wholesale	$	37	$	47	$	39	$	47	$	-	$	1	$	1	$	2
Real estate		2		2		2		2		-		-		-		-
Working capital		1		3		1		3		-		-		-		-
Total	$	40	$	52	$	42	$	52	$	-	$	1	$	1	$	2

Impaired account balances aggregated and evaluated for impairment:

Retail loan	$	554	$	591	$	566	$	566	$	12	$	12	$	36	$	38
Commercial		1		4		1		5		-		-		-		-
Total	$	555	$	595	$	567	$	571	$	12	$	12	$	36	$	38

Total impaired account balances:

Retail loan	$	554	$	591	$	566	$	566	$	12	$	12	$	36	$	38
Commercial		1		4		1		5		-		-		-		-
Wholesale		48		65		50		65		-		1		1		3
Real estate		144		150		145		150		1		2		4		4
Working capital		9		18		9		17		-		-		-		-
Total	$	756	$	828	$	771	$	803	$	13	$	15	$	41	$	45
¹ Prior period amounts have been reclassified to conform to the current period presentation.

For accounts not under bankruptcy protection, the amount of finance receivables modified as a troubled debt restructuring during the three and nine months ended December 31, 2011 is not significant for each class of finance receivables. Troubled debt restructurings for these accounts within the retail loan class of finance receivables are comprised exclusively of contract term extensions that reduce the monthly payment due from the customer, while accounts within the commercial class of finance receivables may consist of contract term extensions, interest rate adjustments, or a combination of the two. For the three classes of finance receivables within the dealer products portfolio segment, troubled debt restructurings may include contract term extensions, interest rate adjustments, waivers of loan covenants, or any combination of the three. No troubled debt restructurings of accounts not under bankruptcy protection included forgiveness of principal during the three and nine months ended December 31, 2011.

We recognize finance receivables under bankruptcy protection within the retail loan and commercial classes as troubled debt restructurings as of the date we receive notice of a customer filing for bankruptcy protection regardless of the ultimate outcome of the bankruptcy proceedings. The bankruptcy court may impose modifications as part of the proceedings, including interest rate adjustments and forgiveness of principal. For the three and nine months ended December 31, 2011, the financial impact of troubled debt restructurings related to accounts under bankruptcy protection was not significant to our Consolidated Statement of Income and Consolidated Balance Sheet.

Finance receivables modified as troubled debt restructurings for which there was a payment default during either the three or nine months ended December 31, 2011, and for which the modification occurred within twelve months of the payment default, were not significant for all classes of such receivables.