XML 21 R9.htm IDEA: XBRL DOCUMENT v3.3.1.900
Finance Receivables
 9 Months Ended
Dec. 31, 2015
Receivables [Abstract]  
Finance Receivables

(2)

Finance Receivables

Finance receivables consisted of the following:

 

 

December 31, 2015

 

 

Lease

 

 

Retail

 

 

Dealer

 

 

Total

 

 

(U.S. dollars in millions)

 

Finance receivables

$

1,115

 

 

$

30,934

 

 

$

4,152

 

 

$

36,201

 

Allowance for credit losses

 

(2

)

 

 

(91

)

 

 

-

 

 

 

(93

)

Write-down of lease residual values

 

(11

)

 

 

-

 

 

 

-

 

 

 

(11

)

Unearned interest income and fees

 

(31

)

 

 

-

 

 

 

-

 

 

 

(31

)

Deferred dealer participation and IDC

 

2

 

 

 

366

 

 

 

-

 

 

 

368

 

Unearned subsidy income

 

(38

)

 

 

(671

)

 

 

-

 

 

 

(709

)

 

$

1,035

 

 

$

30,538

 

 

$

4,152

 

 

$

35,725

 

 

 

March 31, 2015

 

 

Lease

 

 

Retail

 

 

Dealer

 

 

Total

 

 

(U.S. dollars in millions)

 

Finance receivables

$

1,956

 

 

$

32,792

 

 

$

4,256

 

 

$

39,004

 

Allowance for credit losses

 

(2

)

 

 

(84

)

 

 

-

 

 

 

(86

)

Write-down of lease residual values

 

(13

)

 

 

-

 

 

 

-

 

 

 

(13

)

Unearned interest income and fees

 

(64

)

 

 

-

 

 

 

-

 

 

 

(64

)

Deferred dealer participation and IDC

 

3

 

 

 

390

 

 

 

-

 

 

 

393

 

Unearned subsidy income

 

(80

)

 

 

(690

)

 

 

-

 

 

 

(770

)

 

$

1,800

 

 

$

32,408

 

 

$

4,256

 

 

$

38,464

 

 

Finance receivables include retail loans with a principal balance of $8.0 billion and $7.4 billion as of December 31, 2015 and March 31, 2015, respectively, which have been transferred to securitization trusts and considered to be legally isolated but do not qualify for sale accounting treatment. These finance receivables are restricted as collateral for the payment of the related secured debt obligations. Refer to Note 9 for additional information.

The uninsured portions of the lease residual values were $184 million and $298 million at December 31, 2015 and March 31, 2015, respectively. Included in the gain or loss on disposition of lease vehicles are end of term charges on both direct financing and operating leases of $7 million and $6 million for the three months ended December 31, 2015 and 2014, respectively, and $20 million and $16 million for the nine months ended December 31, 2015 and 2014, respectively.

Credit Quality of Financing Receivables

Credit losses are an expected cost of extending credit. The majority of the credit risk is with consumer financing and to a lesser extent with dealer financing. Credit risk can be affected by general economic conditions. Adverse changes such as a rise in unemployment rates can increase the likelihood of defaults. Declines in used vehicle prices can reduce the amount of recoveries on repossessed collateral. Credit risk on dealer loans is affected primarily by the financial strength of the dealers within the portfolio. Exposure to credit risk is managed through purchasing standards, pricing of contracts for expected losses, focusing collection efforts to minimize losses, and ongoing reviews of the financial condition of dealers.

Allowance for Credit Losses

The allowance for credit losses is management’s estimate of probable losses incurred on finance receivables, which requires significant judgment and assumptions that are inherently uncertain. The allowance is based on management’s evaluation of many factors, including the Company’s historical credit loss experience, the value of the underlying collateral, delinquency trends, and economic conditions.

Consumer finance receivables in the retail loan and direct financing lease portfolio segments are collectively evaluated for impairment. Delinquencies and losses are monitored on an ongoing basis and this historical experience provides the primary basis for estimating the allowance. Management utilizes various methodologies when estimating the allowance for credit losses including models which incorporate vintage loss and delinquency migration analysis. These models take into consideration attributes of the portfolio including loan-to-value ratios, internal and external credit scores, and collateral types. Market and economic factors such as used vehicle prices, unemployment rates, and consumer debt service burdens are also incorporated into these models.

Dealer loans are individually evaluated for impairment when specifically identified as impaired. Dealer loans are considered to be impaired when it is probable that the Company will be unable to collect all amounts due according to the terms of the contract. The Company’s determination of whether dealer loans are impaired is based on evaluations of dealership payment history, financial condition, and ability to perform under the terms of the loan agreements. Dealer loans that have not been specifically identified as impaired are collectively evaluated for impairment.

There were no modifications to dealer loans that constituted troubled debt restructurings during the three and nine months ended December 31, 2015 and 2014.

The Company generally does not grant concessions on consumer finance receivables that are considered to be troubled debt restructurings other than modifications of retail loans in reorganization proceedings pursuant to the U.S. Bankruptcy Code. Retail loans modified under bankruptcy protection were not material to the Company’s consolidated financial statements during the three and nine months ended December 31, 2015 and 2014. The Company does allow payment deferrals on consumer finance receivables. However, these payment deferrals are not considered to be troubled debt restructurings since the deferrals are deemed to be insignificant and interest continues to accrue during the deferral period.

The following is a summary of the activity in the allowance for credit losses of finance receivables:

 

 

Three and nine months ended December 31, 2015

 

 

Lease

 

 

Retail

 

 

Dealer

 

 

Total

 

 

(U.S. dollars in millions)

 

Beginning balance, October 1, 2015

$

2

 

 

$

91

 

 

$

-

 

 

$

93

 

Provision

 

1

 

 

 

37

 

 

 

-

 

 

 

38

 

Charge-offs

 

(1

)

 

 

(54

)

 

 

-

 

 

 

(55

)

Recoveries

 

-

 

 

 

18

 

 

 

-

 

 

 

18

 

Effect of translation adjustment

 

-

 

 

 

(1

)

 

 

-

 

 

 

(1

)

Ending balance, December 31, 2015

$

2

 

 

$

91

 

 

$

-

 

 

$

93

 

Beginning balance, April 1, 2015

$

2

 

 

$

84

 

 

$

-

 

 

$

86

 

Provision

 

2

 

 

 

94

 

 

 

(1

)

 

 

95

 

Charge-offs

 

(3

)

 

 

(139

)

 

 

-

 

 

 

(142

)

Recoveries

 

1

 

 

 

53

 

 

 

1

 

 

 

55

 

Effect of translation adjustment

 

-

 

 

 

(1

)

 

 

-

 

 

 

(1

)

Ending balance, December 31, 2015

$

2

 

 

$

91

 

 

$

-

 

 

$

93

 

Allowance for credit losses – ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

Collectively evaluated for impairment

 

2

 

 

 

91

 

 

 

-

 

 

 

93

 

Finance receivables – ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

$

-

 

 

$

-

 

 

$

1

 

 

$

1

 

Collectively evaluated for impairment

 

1,048

 

 

 

30,629

 

 

 

4,151

 

 

 

35,828

 

 

 

Three and nine months ended December 31, 2014

 

 

Lease

 

 

Retail

 

 

Dealer

 

 

Total

 

 

(U.S. dollars in millions)

 

Beginning balance, October 1, 2014

$

3

 

 

$

91

 

 

$

-

 

 

$

94

 

Provision

 

1

 

 

 

28

 

 

 

-

 

 

 

29

 

Charge-offs

 

(2

)

 

 

(55

)

 

 

-

 

 

 

(57

)

Recoveries

 

1

 

 

 

23

 

 

 

-

 

 

 

24

 

Effect of translation adjustment

 

-

 

 

 

(1

)

 

 

-

 

 

 

(1

)

Ending balance, December 31, 2014

$

3

 

 

$

86

 

 

$

-

 

 

$

89

 

Beginning balance, April 1, 2014

$

4

 

 

$

95

 

 

$

1

 

 

$

100

 

Provision

 

2

 

 

 

69

 

 

 

-

 

 

 

71

 

Charge-offs

 

(4

)

 

 

(139

)

 

 

(1

)

 

 

(144

)

Recoveries

 

1

 

 

 

62

 

 

 

-

 

 

 

63

 

Effect of translation adjustment

 

-

 

 

 

(1

)

 

 

-

 

 

 

(1

)

Ending balance, December 31, 2014

$

3

 

 

$

86

 

 

$

-

 

 

$

89

 

Allowance for credit losses – ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

Collectively evaluated for impairment

 

3

 

 

 

86

 

 

 

-

 

 

 

89

 

Finance receivables – ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

$

-

 

 

$

-

 

 

$

36

 

 

$

36

 

Collectively evaluated for impairment

 

2,214

 

 

 

33,919

 

 

 

4,138

 

 

 

40,271

 

 

Delinquencies

The following is an aging analysis of past due finance receivables:

 

 

 

 

 

 

 

 

 

 

90 days

 

 

 

 

 

 

Current or

 

 

Total

 

 

30 – 59 days

 

 

60 – 89 days

 

 

or greater

 

 

Total

 

 

less than 30

 

 

finance

 

 

past due

 

 

past due

 

 

past due

 

 

past due

 

 

days past due

 

 

receivables

 

 

(U.S. dollars in millions)

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New auto

$

206

 

 

$

42

 

 

$

11

 

 

$

259

 

 

$

26,114

 

 

$

26,373

 

Used and certified auto

 

65

 

 

 

13

 

 

 

3

 

 

 

81

 

 

 

3,106

 

 

 

3,187

 

Motorcycle and other

 

13

 

 

 

5

 

 

 

3

 

 

 

21

 

 

 

1,048

 

 

 

1,069

 

Total retail

 

284

 

 

 

60

 

 

 

17

 

 

 

361

 

 

 

30,268

 

 

 

30,629

 

Direct financing leases

 

6

 

 

 

2

 

 

 

-

 

 

 

8

 

 

 

1,040

 

 

 

1,048

 

Dealer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale flooring

 

1

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

3,324

 

 

 

3,325

 

Commercial loans

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

827

 

 

 

827

 

Total dealer loans

 

1

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

4,151

 

 

 

4,152

 

Total finance

   receivables

$

291

 

 

$

62

 

 

$

17

 

 

$

370

 

 

$

35,459

 

 

$

35,829

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New auto

$

141

 

 

$

17

 

 

$

6

 

 

$

164

 

 

$

28,017

 

 

$

28,181

 

Used and certified auto

 

46

 

 

 

6

 

 

 

2

 

 

 

54

 

 

 

3,234

 

 

 

3,288

 

Motorcycle and other

 

9

 

 

 

3

 

 

 

1

 

 

 

13

 

 

 

1,010

 

 

 

1,023

 

Total retail

 

196

 

 

 

26

 

 

 

9

 

 

 

231

 

 

 

32,261

 

 

 

32,492

 

Direct financing leases

 

8

 

 

 

1

 

 

 

1

 

 

 

10

 

 

 

1,805

 

 

 

1,815

 

Dealer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale flooring

 

1

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

3,457

 

 

 

3,458

 

Commercial loans

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

798

 

 

 

798

 

Total dealer loans

 

1

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

4,255

 

 

 

4,256

 

Total finance

   receivables

$

205

 

 

$

27

 

 

$

10

 

 

$

242

 

 

$

38,321

 

 

$

38,563

 

 

Credit Quality Indicators

Retail Loan and Direct Financing Lease Portfolio Segments

The Company utilizes proprietary credit scoring systems to evaluate the credit risk of applicants for retail loans and leases. The scoring systems assign internal credit scores based on various factors including the applicant’s credit bureau information and contract terms. The internal credit score provides the primary basis for credit decisions when acquiring retail loan and lease contracts. Internal credit scores are determined only at the time of origination and are not reassessed during the life of the contract.

Subsequent to origination, collection experience provides a current indication of the credit quality of consumer finance receivables. The likelihood of accounts charging off becomes significantly higher once an account becomes 60 days delinquent. Accounts that are current or less than 60 days past due are considered to be performing. Accounts that are 60 days or more past due are considered to be nonperforming. The table below presents the Company’s portfolio of retail loans and direct financing leases by this credit quality indicator:

 

 

 

 

 

 

Retail

 

 

Retail

 

 

Direct

 

 

Total consumer

 

 

Retail

 

 

used and

 

 

motorcycle

 

 

financing

 

 

finance

 

 

new auto

 

 

certified auto

 

 

and other

 

 

lease

 

 

receivables

 

 

(U.S. dollars in millions)

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

$

26,320

 

 

$

3,171

 

 

$

1,061

 

 

$

1,046

 

 

$

31,598

 

Nonperforming

 

53

 

 

 

16

 

 

 

8

 

 

 

2

 

 

 

79

 

Total

$

26,373

 

 

$

3,187

 

 

$

1,069

 

 

$

1,048

 

 

$

31,677

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

$

28,158

 

 

$

3,280

 

 

$

1,019

 

 

$

1,813

 

 

$

34,270

 

Nonperforming

 

23

 

 

 

8

 

 

 

4

 

 

 

2

 

 

 

37

 

Total

$

28,181

 

 

$

3,288

 

 

$

1,023

 

 

$

1,815

 

 

$

34,307

 

 

Dealer Loan Portfolio Segment

The Company utilizes an internal risk rating system to evaluate dealer credit risk. Dealerships are assigned an internal risk rating based on an assessment of their financial condition. Factors including liquidity, financial strength, management effectiveness, and operating efficiency are evaluated when assessing their financial condition. Financing limits and interest rates are determined from these risk ratings. Monitoring activities including financial reviews and inventory inspections are performed more frequently for dealerships with weaker risk ratings. The financial conditions of dealerships are reviewed and their risk ratings are updated at least annually.

The Company’s outstanding portfolio of dealer loans has been divided into two groups in the tables below. Group A includes the loans of dealerships with the strongest internal risk rating. Group B includes the loans of all remaining dealers. Although the likelihood of losses can be higher for dealerships in Group B, the overall risk of losses is not considered to be significant.

 

 

December 31, 2015

 

 

March 31, 2015

 

 

Wholesale

 

 

Commercial

 

 

 

 

 

 

Wholesale

 

 

Commercial

 

 

 

 

 

 

flooring

 

 

loans

 

 

Total

 

 

flooring

 

 

loans

 

 

Total

 

 

(U.S. dollars in millions)

 

Group A

$

2,174

 

 

$

561

 

 

$

2,735

 

 

$

2,281

 

 

$

564

 

 

$

2,845

 

Group B

 

1,151

 

 

 

266

 

 

 

1,417

 

 

 

1,177

 

 

 

234

 

 

 

1,411

 

Total

$

3,325

 

 

$

827

 

 

$

4,152

 

 

$

3,458

 

 

$

798

 

 

$

4,256