4. Financing Receivables: The following table presents financing receivables, net of allowances for credit losses, including residual values.

	At March 31,		At December 31,
(Dollars in millions)	2013		2012
Current:
Net investment in sales-type and direct financing leases	$	3,960	$	3,862
Commercial financing receivables	6,025		7,750
Client loan receivables	5,113		5,395
Installment payment receivables	1,044		1,031
Total	$	16,141	$	18,038
Noncurrent:
Net investment in sales-type and direct financing leases	$	5,732	$	6,107
Commercial financing receivables	1		5
Client loan receivables	5,582		5,966
Installment payment receivables	631		733
Total	$	11,946	$	12,812

Net 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. Net investment in sales-type and direct financing leases includes unguaranteed residual values of $750 million and $794 million at March 31, 2013 and December 31, 2012, respectively, and is reflected net of unearned income of $738 million and $728 million, and net of the allowance for credit losses of $112 million and $114 million at those dates, respectively.

Commercial financing receivables, net of allowance for credit losses of $31 million and $46 million at March 31, 2013 and December 31, 2012, respectively, relate primarily to inventory and accounts receivable financing for dealers and remarketers of IBM and non-IBM products. Payment terms for inventory and accounts receivable financing generally range from 30 to 90 days.

Client loan receivables, net of allowance for credit losses of $158 million and $155 million at March 31, 2013 and December 31, 2012, respectively, are loans that are provided primarily to clients to finance the purchase of software and services. Separate contractual relationships on these financing arrangements are for terms ranging generally from one to seven years.

Installment payment receivables, net of allowance for credit losses of $35 million and $39 million at March 31, 2013 and December 31, 2012, respectively, are loans that are provided primarily to clients to finance hardware, software and services ranging generally from one to three years.

Client loan receivables and installment payment receivables financing contracts are priced independently at competitive market rates. The company has a history of enforcing the terms of these separate financing agreements.

The company utilizes certain of its financing receivables as collateral for non-recourse borrowings. Financing receivables pledged as collateral for borrowings were $550 million and $650 million at March 31, 2013 and December 31, 2012, respectively.

The company did not have any financing receivables held for sale as of March 31, 2013 and December 31, 2012.

Financing Receivables by Portfolio Segment

The following tables present financing receivables on a gross basis, excluding the allowance for credit losses and residual value, by portfolio segment and by class, excluding current commercial financing receivables and other miscellaneous current financing receivables at March 31, 2013 and December 31, 2012. The company determines its allowance for credit losses based on two portfolio segments: lease receivables and loan receivables, and further segments the portfolio into two classes: major markets and growth markets. For additional information on the company’s accounting policies for the allowance for credit losses, see the company’s 2012 Annual Report beginning on page 85.

(Dollars in millions)	Major			Growth
At March 31, 2013	Markets			Markets			Total
Financing receivables:
Lease receivables	$	6,823		$	2,135		$	8,958
Loan receivables	8,688			3,878			12,566
Ending balance	$	15,511		$	6,013		$	21,524
Collectively evaluated for impairment	$	15,397		$	5,862		$	21,259
Individually evaluated for impairment	$	114		$	151		$	265
Allowance for credit losses:
Beginning balance at January 1, 2013
Lease receivables	$	59		$	55		$	114
Loan receivables	121			84			204
Total	$	180		$	138		$	318
Write-offs	(16		)	(2		)	(18		)
Provision	(13		)	21			9
Other	(4		)	(0		)	(4		)
Ending balance at March 31, 2013	$	148		$	157		$	306
Lease receivables	$	52		$	60		$	112
Loan receivables	$	96		$	98		$	193

Collectively evaluated for impairment	$	56		$	29		$	85
Individually evaluated for impairment	$	92		$	129		$	220

(Dollars in millions)	Major			Growth
At December 31, 2012	Markets			Markets			Total
Financing receivables:
Lease receivables	$	7,036		$	2,138		$	9,174
Loan receivables	9,666			3,670			13,336
Ending balance	$	16,701		$	5,808		$	22,510
Collectively evaluated for impairment	$	16,570		$	5,684		$	22,254
Individually evaluated for impairment	$	131		$	125		$	256
Allowance for credit losses:
Beginning balance at January 1, 2012
Lease receivables	$	79		$	40		$	118
Loan receivables	125			64			189
Total	$	203		$	104		$	307
Write-offs	(14		)	(1		)	(15		)
Provision	(9		)	38			28
Other	0			(2		)	(2		)
Ending balance at December 31, 2012	$	180		$	138		$	318
Lease receivables	$	59		$	55		$	114
Loan receivables	$	121		$	84		$	204

Collectively evaluated for impairment	$	69		$	29		$	98
Individually evaluated for impairment	$	111		$	109		$	220

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. 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.

Financing Receivables on Non-Accrual Status

Certain receivables for which the company has recorded a specific reserve may also be placed on non-accrual status. Non-accrual assets are those receivables with specific reserves and other accounts for which it is likely that the company will be unable to collect all amounts due according to original terms of the lease or loan agreement. Income recognition is discontinued on these receivables.

The following table presents the recorded investment in financing receivables which are on non-accrual status at March 31, 2013 and December 31, 2012.

	At March 31,		At December 31,
(Dollars in millions)	2013		2012
Major markets	$	26	$	27
Growth markets	20		21
Total lease receivables	$	46	$	47

Major markets	$	41	$	67
Growth markets	59		25
Total loan receivables	$	100	$	92

Total receivables	$	146	$	139

Impaired Loans

The company considers any loan with an individually evaluated reserve as an impaired loan. Depending on the level of impairment, loans will also be placed on non-accrual status.

The following tables present impaired client loan receivables.

	At March 31, 2013				At December 31, 2012
	Recorded		Related		Recorded		Related
(Dollars in millions)	Investment		Allowance		Investment		Allowance
Major markets	$	70	$	64	$	88	$	77
Growth markets	86		78		72		65
Total	$	155	$	142	$	160	$	143

					Interest
	Average		Interest		Income
(Dollars in millions)	Recorded		Income		Recognized on
For the three months ended March 31, 2013:	Investment		Recognized*		Cash Basis
Major markets	$	79	$	0	$	0
Growth markets	79		0		0
Total	$	158	$	0	$	0

* Impaired loans are placed on non-accrual status, depending on the level of impairment.

					Interest
	Average		Interest		Income
(Dollars in millions)	Recorded		Income		Recognized on
For the three months ended March 31, 2012:	Investment		Recognized*		Cash Basis
Major markets	$	98	$	0	$	0
Growth markets	64		0		0
Total	$	162	$	0	$	0

* Impaired loans are placed on non-accrual status, depending on the level of impairment.

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 Standard & Poor’s Ratings Services credit ratings as shown below. Standard & Poor’s does not provide credit ratings to the company on its customers.

The tables below present the gross recorded investment for each class of receivables, by credit quality indicator, at March 31, 2013 and December 31, 2012. Receivables with a credit quality indicator ranging from AAA to BBB- are considered investment grade. All others are considered non-investment grade. The credit quality indicators do not reflect mitigation actions that the company may take to transfer credit risk to third parties.

	Lease Receivables				Loan Receivables
(Dollars in millions)	Major		Growth		Major		Growth
At March 31, 2013:	Markets		Markets		Markets		Markets
Credit Rating:
AAA – AA-	$	636	$	78	$	810	$	141
A+ – A-	1,556		209		1,982		379
BBB+ – BBB-	2,358		795		3,003		1,445
BB+ – BB	1,256		412		1,599		748
BB- – B+	549		408		699		741
B – B-	381		167		486		304
CCC+ – D-	86		66		109		120
Total	$	6,823	$	2,135	$	8,688	$	3,878

At March 31, 2013, the industries which made up Global Financing’s receivables portfolio consisted of: Financial (38 percent), Government (16 percent), Manufacturing (14 percent), Retail (8 percent), Services (8 percent), Communications (6 percent), Healthcare (6 percent) and Other (4 percent).

	Lease Receivables				Loan Receivables
(Dollars in millions)	Major		Growth		Major		Growth
At December 31, 2012:	Markets		Markets		Markets		Markets
Credit Rating:
AAA – AA-	$	646	$	86	$	887	$	148
A+ – A-	1,664		223		2,286		382
BBB+ – BBB-	2,285		776		3,139		1,333
BB+ – BB	1,367		450		1,878		773
BB- – B+	552		418		758		718
B – B-	399		127		548		218
CCC+ –D	124		58		170		99
Total	$	7,036	$	2,138	$	9,666	$	3,670

At December 31, 2012, the industries which made up Global Financing’s receivables portfolio consisted of: Financial (38 percent), Government (16 percent), Manufacturing (14 percent), Retail (9 percent), Services (7 percent), Healthcare (6 percent), Communications (6 percent) and Other (4 percent).

Past Due Financing Receivables

The company views receivables as past due when payment has not been received after 90 days, measured from the billing date.

							Recorded
	Total				Total		Investment
(Dollars in millions)	Past Due				Financing		> 90 Days
At March 31, 2013:	> 90 days*		Current		Receivables		and Accruing
Major markets	$	9	$	6,814	$	6,823	$	4
Growth markets	12		2,123		2,135		9
Total lease receivables	$	21	$	8,937	$	8,958	$	13

Major markets	$	14	$	8,673	$	8,688	$	6
Growth markets	40		3,839		3,878		24
Total loan receivables	$	54	$	12,512	$	12,566	$	30

Total	$	75	$	21,449	$	21,524	$	43

* Does not include accounts that are fully reserved.

							Recorded
	Total				Total		Investment
(Dollars in millions)	Past Due				Financing		> 90 Days
At December 31, 2012:	> 90 days*		Current		Receivables		and Accruing
Major markets	$	8	$	7,028	$	7,036	$	5
Growth markets	11		2,127		2,138		8
Total lease receivables	$	20	$	9,154	$	9,174	$	13

Major markets	$	27	$	9,639	$	9,666	$	8
Growth markets	36		3,634		3,670		31
Total loan receivables	$	63	$	13,273	$	13,336	$	39

Total	$	82	$	22,428	$	22,510	$	52

* Does not include accounts that are fully reserved.

Troubled Debt Restructurings

The company did not have any troubled debt restructurings during the three months ended March 31, 2013 and for the year ended December 31, 2012.