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Finance Receivables, Net
 6 Months Ended
Sep. 30, 2016
Receivables [Abstract]  
Finance Receivables, Net

Note 4 – Finance Receivables, Net

Finance receivables, net consist of retail receivables and dealer financing, which includes accrued interest and deferred fees and costs, net of the allowance for credit losses and deferred income.  Finance receivables, net include securitized retail receivables, which represent retail receivables that have been sold for legal purposes to securitization trusts but continue to be included in our consolidated financial statements, as discussed further in Note 10 – Variable Interest Entities.  Cash flows from these securitized retail 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.

Finance receivables, net consisted of the following:

 

 

 

September 30,

 

 

March 31,

 

 

 

2016

 

 

2016

 

Retail receivables

 

$

36,764

 

 

$

36,020

 

Securitized retail receivables

 

 

13,947

 

 

 

14,343

 

Dealer financing

 

 

15,445

 

 

 

15,899

 

 

 

 

66,156

 

 

 

66,262

 

 

 

 

 

 

 

 

 

 

Deferred origination (fees) and costs, net

 

 

656

 

 

 

663

 

Deferred income

 

 

(945

)

 

 

(868

)

Allowance for credit losses

 

 

 

 

 

 

 

 

Retail and securitized retail receivables

 

 

(295

)

 

 

(289

)

Dealer financing

 

 

(94

)

 

 

(132

)

Total allowance for credit losses

 

 

(389

)

 

 

(421

)

Finance receivables, net

 

$

65,478

 

 

$

65,636

 

Credit Quality Indicators

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.

Retail Loan Portfolio Segment

The retail loan portfolio segment consists of one class of finance receivables. While we use various credit quality metrics to develop our allowance for credit losses on the retail loan portfolio segment, 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 indicator of the credit quality of the underlying receivables.  Payment status also impacts charge-offs.

Individual borrower accounts within the retail loan segment are segregated into aging categories based on the number of days outstanding.  The aging for each class of finance receivables is updated monthly.


Note 4 – Finance Receivables, Net (Continued)

Dealer Products Portfolio Segment

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

When assessing the credit quality of the finance receivables within the dealer products portfolio segment, we segregate the finance receivables account balances into four categories representing 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 four credit quality indicators are:

 

•

Performing – Account not classified as either Credit Watch, At Risk or Default

 

•

Credit Watch – Account designated for elevated attention

 

•

At Risk – Account where there is an increased likelihood that default may exist based on qualitative and quantitative factors

 

•

Default – Account is not currently meeting contractual obligations or we have temporarily waived certain contractual requirements

The tables below present each credit quality indicator by class of finance receivables:

 

 

 

Retail Loan

 

 

 

 

September 30,

 

 

March 31,

 

 

 

 

2016

 

 

2016

 

 

Aging of finance receivables:

 

 

 

 

 

 

 

 

 

Current

 

$

49,780

 

 

$

49,590

 

 

30-59 days past due

 

 

691

 

 

 

584

 

 

60-89 days past due

 

 

162

 

 

 

129

 

 

90 days or greater past due

 

 

78

 

 

 

60

 

 

Total

 

$

50,711

 

 

$

50,363

 

 

 

 

 

Wholesale

 

 

Real Estate

 

 

Working Capital

 

 

 

September 30,

 

 

March 31,

 

 

September 30,

 

 

March 31,

 

 

September 30,

 

 

March 31,

 

 

 

2016

 

 

2016

 

 

2016

 

 

2016

 

 

2016

 

 

2016

 

Credit quality indicators:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

7,680

 

 

$

8,099

 

 

$

3,900

 

 

$

3,822

 

 

$

1,692

 

 

$

1,686

 

Credit Watch

 

 

1,064

 

 

 

1,041

 

 

 

693

 

 

 

763

 

 

 

198

 

 

 

229

 

At Risk

 

 

92

 

 

 

113

 

 

 

93

 

 

 

109

 

 

 

15

 

 

 

17

 

Default

 

 

8

 

 

 

9

 

 

 

10

 

 

 

10

 

 

 

-

 

 

 

1

 

Total

 

$

8,844

 

 

$

9,262

 

 

$

4,696

 

 

$

4,704

 

 

$

1,905

 

 

$

1,933

 

 

 


Note 4 – Finance Receivables, Net (Continued)

Impaired Finance Receivables

The following table summarizes the information related to our impaired loans by class of finance receivables: 

 

 

 

Impaired

 

 

 

 

 

 

 

 

 

 

Individually Evaluated

 

 

 

Finance Receivables

 

 

Unpaid Principal Balance

 

 

Allowance

 

 

 

September 30,

 

 

March 31,

 

 

September 30,

 

 

March 31,

 

 

September 30,

 

 

March 31,

 

 

 

2016

 

 

2016

 

 

2016

 

 

2016

 

 

2016

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired account balances individually evaluated for impairment with an allowance:

 

 

 

 

 

 

 

 

 

Wholesale

 

$

77

 

 

$

98

 

 

$

77

 

 

$

98

 

 

$

6

 

 

$

9

 

Real estate

 

 

83

 

 

 

119

 

 

 

83

 

 

 

119

 

 

 

12

 

 

 

15

 

Working capital

 

 

33

 

 

 

37

 

 

 

33

 

 

 

37

 

 

 

9

 

 

 

30

 

Total

 

$

193

 

 

$

254

 

 

$

193

 

 

$

254

 

 

$

27

 

 

$

54

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired account balances individually evaluated for impairment without an allowance:

 

 

 

 

 

 

 

 

 

Wholesale

 

$

125

 

 

$

185

 

 

$

125

 

 

$

185

 

 

 

 

 

 

 

 

 

Real estate

 

 

117

 

 

 

98

 

 

 

117

 

 

 

98

 

 

 

 

 

 

 

 

 

Working capital

 

 

-

 

 

 

3

 

 

 

-

 

 

 

3

 

 

 

 

 

 

 

 

 

Total

 

$

242

 

 

$

286

 

 

$

242

 

 

$

286

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired account balances aggregated and evaluated for impairment:

 

 

 

 

 

 

 

 

 

Retail loan

 

$

224

 

 

$

226

 

 

$

221

 

 

$

223

 

 

 

 

 

 

 

 

 

Total

 

$

224

 

 

$

226

 

 

$

221

 

 

$

223

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total impaired account balances:

 

 

 

 

 

 

 

 

 

Retail loan

 

$

224

 

 

$

226

 

 

$

221

 

 

$

223

 

 

 

 

 

 

 

 

 

Wholesale

 

 

202

 

 

 

283

 

 

 

202

 

 

 

283

 

 

 

 

 

 

 

 

 

Real estate

 

 

200

 

 

 

217

 

 

 

200

 

 

 

217

 

 

 

 

 

 

 

 

 

Working capital

 

 

33

 

 

 

40

 

 

 

33

 

 

 

40

 

 

 

 

 

 

 

 

 

Total

 

$

659

 

 

$

766

 

 

$

656

 

 

$

763

 

 

 

 

 

 

 

 

 

 

As of September 30, 2016 and March 31, 2016, the impaired finance receivables balance for accounts in the dealer products portfolio segment that were on nonaccrual status was $221 million and $299 million, respectively, and there were no charge-offs against the allowance for credit losses for these finance receivables.  Therefore, the impaired finance receivables balance is equal to the unpaid principal balance.  As of September 30, 2016 and March 31, 2016, impaired finance receivables in the retail portfolio segment recorded at the fair value of the collateral less estimated selling costs were not significant and therefore excluded from the table above.  Refer to Note 6 – Allowance for Credit Losses for detail about the impaired account balances which are aggregated and evaluated for impairment when determining the allowance for credit losses.

Note 4 – Finance Receivables, Net (Continued)

The following table summarizes the average impaired loans by class of finance receivables as of the balance sheet date and the interest income recognized on these loans:

 

 

 

Average Impaired Finance Receivables

 

 

Interest Income Recognized

 

 

 

Three Months Ended September 30,

 

 

Six Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Six Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired account balances individually evaluated for impairment with an allowance:

 

Wholesale

 

$

59

 

 

$

88

 

 

$

72

 

 

$

84

 

 

$

1

 

 

$

1

 

 

$

1

 

 

$

1

 

Real estate

 

 

87

 

 

 

88

 

 

 

98

 

 

 

76

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

1

 

Working capital

 

 

33

 

 

 

35

 

 

 

34

 

 

 

35

 

 

 

1

 

 

 

1

 

 

 

1

 

 

 

1

 

Total

 

$

179

 

 

$

211

 

 

$

204

 

 

$

195

 

 

$

2

 

 

$

2

 

 

$

3

 

 

$

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired account balances individually evaluated for impairment without an allowance:

 

Wholesale

 

$

160

 

 

$

104

 

 

$

168

 

 

$

105

 

 

$

-

 

 

$

1

 

 

$

2

 

 

$

1

 

Real estate

 

 

112

 

 

 

85

 

 

 

108

 

 

 

87

 

 

 

2

 

 

 

1

 

 

 

3

 

 

 

2

 

Working capital

 

 

-

 

 

 

4

 

 

 

1

 

 

 

3

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

$

272

 

 

$

193

 

 

$

277

 

 

$

195

 

 

$

2

 

 

$

2

 

 

$

5

 

 

$

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired account balances aggregated and evaluated for impairment:

 

Retail loan

 

$

224

 

 

$

252

 

 

$

225

 

 

$

256

 

 

$

4

 

 

$

4

 

 

$

8

 

 

$

9

 

Total

 

$

224

 

 

$

252

 

 

$

225

 

 

$

256

 

 

$

4

 

 

$

4

 

 

$

8

 

 

$

9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total impaired account balances:

 

Retail loan

 

$

224

 

 

$

252

 

 

$

225

 

 

$

256

 

 

$

4

 

 

$

4

 

 

$

8

 

 

$

9

 

Wholesale

 

 

219

 

 

 

192

 

 

 

240

 

 

 

189

 

 

 

1

 

 

 

2

 

 

 

3

 

 

 

2

 

Real estate

 

 

199

 

 

 

173

 

 

 

206

 

 

 

163

 

 

 

2

 

 

 

1

 

 

 

4

 

 

 

3

 

Working capital

 

 

33

 

 

 

39

 

 

 

35

 

 

 

38

 

 

 

1

 

 

 

1

 

 

 

1

 

 

 

1

 

Total

 

$

675

 

 

$

656

 

 

$

706

 

 

$

646

 

 

$

8

 

 

$

8

 

 

$

16

 

 

$

15

 

 

The primary source of interest income recognized on the loans in the table above is from performing troubled debt restructurings.  In addition, interest income recognized using a cash-basis method of accounting during the three and six months ended September 30, 2016 and 2015 was not significant. Average Impaired Finance Receivables and Interest Income Recognized during the three and six months ended September 30, 2015 related to our commercial finance business were not significant.  As discussed in our Form 10-K for fiscal 2016, we sold our commercial finance business on October 1, 2015.

Note 4 – Finance Receivables, Net (Continued)

Troubled Debt Restructuring

For accounts not under bankruptcy protection, the amount of finance receivables modified as a troubled debt restructuring during the three and six months ended September 30, 2016 and 2015 was not significant for each class of finance receivables.  Troubled debt restructurings for non-bankrupt 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.  For the three classes of finance receivables within the dealer products portfolio segment, troubled debt restructurings include contract term extensions, interest rate adjustments, waivers of loan covenants, or any combination of the three.  Troubled debt restructurings of accounts not under bankruptcy protection did not include forgiveness of principal or interest rate adjustments during the three and six months ended September 30, 2016 and 2015.

We consider finance receivables under bankruptcy protection within the retail loan class to be 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 six months ended September 30, 2016 and 2015, the financial impact of troubled debt restructurings related to finance receivables under bankruptcy protection was not significant to our Consolidated Statement of Income and Consolidated Balance Sheet. 

Payment Defaults

Finance receivables modified as troubled debt restructurings for which there was a subsequent payment default during the three and six months ended September 30, 2016 and 2015, and for which the modification occurred within twelve months of the payment default, were not significant for all classes of such receivables.