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 also includes 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:

	March 31,			March 31,
	2018			2017
Retail receivables	$	41,265		$	38,338
Securitized retail receivables		12,130			13,071
Dealer financing		17,420			17,899
		70,815			69,308

Deferred origination (fees) and costs, net		630			644
Deferred income		(1,335	)		(1,023	)
Allowance for credit losses
Retail and securitized retail receivables		(312	)		(344	)
Dealer financing		(151	)		(123	)
Total allowance for credit losses		(463	)		(467	)
Finance receivables, net	$	69,647		$	68,462

Contractual maturities on retail receivables and dealer financing are as follows:

	Contractual maturities
Years ending March 31,	Retail receivables		Dealer financing
2019	$	14,348	$	13,220
2020		12,838		1,527
2021		10,702		772
2022		8,051		667
2023		5,232		515
Thereafter		2,224		719
Total	$	53,395	$	17,420

A significant portion of our finance receivables has historically settled prior to contractual maturity. Contractual maturities shown above should not be considered indicative of future cash collections.

Note 4 – Finance Receivables, Net (Continued)

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.

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

Note 4 – Finance Receivables, Net (Continued)

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

	Retail Loan
	March 31,		March 31,
	2018		2017
Aging of finance receivables:
Current	$	52,559	$	50,631
30-59 days past due		613		586
60-89 days past due		158		129
90 days or greater past due		65		63
Total	$	53,395	$	51,409

	Wholesale				Real Estate				Working Capital
	March 31,		March 31,		March 31,		March 31,		March 31,		March 31,
	2018		2017		2018		2017		2018		2017
Credit quality indicators:
Performing	$	9,451	$	9,592	$	4,070	$	4,010	$	2,118	$	2,082
Credit Watch		946		1,269		484		613		105		143
At Risk		75		12		29		45		33		5
Default		41		78		47		45		21		5
Total	$	10,513	$	10,951	$	4,630	$	4,713	$	2,277	$	2,235

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
	March 31,		March 31,		March 31,		March 31,		March 31,		March 31,
	2018		2017		2018		2017		2018		2017

Impaired account balances individually evaluated for impairment with an allowance:
Wholesale	$	107	$	93	$	107	$	93	$	14	$	12
Real estate		86		94		86		94		5		12
Working capital		55		31		55		31		51		9
Total	$	248	$	218	$	248	$	218	$	70	$	33

Impaired account balances individually evaluated for impairment without an allowance:
Wholesale	$	83	$	134	$	83	$	134
Real estate		142		105		142		105
Working capital		22		-		22		-
Total	$	247	$	239	$	247	$	239

Impaired account balances aggregated and evaluated for impairment:
Retail loan	$	222	$	220	$	220	$	217

Total impaired account balances:
Retail loan	$	222	$	220	$	220	$	217
Wholesale		190		227		190		227
Real estate		228		199		228		199
Working capital		77		31		77		31
Total	$	717	$	677	$	715	$	674

As of March 31, 2018 and 2017, the impaired finance receivables balance for accounts in the dealer products portfolio segment that were on nonaccrual status was $249 million and $251 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 March 31, 2018 and 2017, 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 details related to the retail loan portfolio segment’s 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:

	Average Impaired Finance Receivables
	Years Ended March 31,
	2018		2017

Impaired account balances individually evaluated for impairment with an allowance:
Wholesale	$	103	$	77
Real estate		88		96
Working capital		42		33
Total	$	233	$	206

Impaired account balances individually evaluated for impairment without an allowance:
Wholesale	$	104	$	153
Real estate		115		107
Working capital		9		1
Total	$	228	$	261

Impaired account balances aggregated and evaluated for impairment:
Retail loan	$	222	$	223

Total impaired account balances:
Retail loan	$	222	$	223
Wholesale		207		230
Real estate		203		203
Working capital		51		34
Total	$	683	$	690

The primary source of interest income recognized on the loans in the table above is from performing troubled debt restructurings. Interest income on impaired finance receivables and interest income recognized using a cash-basis method of accounting during fiscal 2018 and 2017 were not significant.

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 fiscal 2018 and 2017 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 fiscal 2018 and 2017.

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 fiscal 2018 and 2017, the financial impact of troubled debt restructurings related to finance receivables under bankruptcy protection was not significant to our Consolidated Statements of Income and Consolidated Balance Sheets.

Payment Defaults

Finance receivables modified as troubled debt restructurings for which there was a subsequent payment default during fiscal 2018 and 2017, and for which the modification occurred within twelve months of the payment default, were not significant for all classes of such receivables.