GE 2009 Annual Report Download - page 46

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44 GE 2009 ANNUAL REPORT
Further information on the determination of the allowance
for losses on financing receivables is provided in the Critical
Accounting Estimates section and Note 1.
The portfolio of financing receivables, before allowance for
losses, was $345.0 billion at December 31, 2009, and $377.8 billion
at December 31, 2008. Financing receivables, before allowance
for losses, decreased $32.8 billion from December 31, 2008,
primarily as a result of core declines of $52.1 billion mainly from
collections exceeding originations ($44.0 billion) (which includes
securitization and sales), partially offset by the weaker U.S. dollar
($17.8 billion) and acquisitions ($11.9 billion).
Related nonearning receivables totaled $13.3 billion (3.8% of
outstanding receivables) at December 31, 2009, compared with
$8.0 billion (2.1% of outstanding receivables) at December 31,
2008. Nonearning receivables increased from December 31, 2008,
primarily in connection with the challenging global economic
environment, increased deterioration in the real estate markets
and rising unemployment.
The allowance for losses at December 31, 2009, totaled
$8.1 billion compared with $5.3 billion at December 31, 2008,
representing our best estimate of probable losses inherent in the
portfolio and reflecting the then-current credit and economic
environment. Allowance for losses increased $2.8 billion from
December 31, 2008, primarily due to increasing delinquencies
and nonearning receivables, reflecting the continued weakened
economic and credit environment.
“Impaired” loans in the table below are defined as larger
balance or restructured loans for which it is probable that the
lender will be unable to collect all amounts due according to
original contractual terms of the loan agreement. The vast
majority of our consumer and a portion of our CLL nonearning
receivables are excluded from this definition, as they represent
smaller balance homogenous loans that we evaluate collectively
by portfolio for impairment.
Impaired loans include nonearning receivables on larger
balance or restructured loans, loans which are currently paying
interest under the cash basis (but are excluded from the non-
earning category), and loans paying currently but which have
been previously restructured.
Specific reserves are recorded for individually impaired loans
to the extent we judge principal to be uncollectible. Certain loans
classified as impaired may not require a reserve. In these cir-
cumstances, we believe that we will ultimately collect the unpaid
balance (through collection or collateral repossession).
Further information pertaining to loans classified as impaired
and specific reserves is included in the table below.
December 31 (In millions) 2009 2008
Loans requiring allowance for losses $ 9,145 $ 2,712
Loans expected to be fully recoverable 3,741 871
Total impaired loans $12,886 $3,583
Allowance for losses (specific reserves) $ 2,331 $ 635
Average investment during the period 8,493 2,064
Interest income earned while impaired (a) 227 48
(a) Recognized principally on cash basis.
Impaired loans increased by $9.3 billion from December 31,
2008, to December 31, 2009, primarily relating to increases at
Real Estate ($5.7 billion) and CLL ($2.7 billion). We regularly review
our Real Estate loans for impairment using both quantitative and
qualitative factors, such as debt service coverage and loan-to-
value ratios. We classify Real Estate loans as impaired when the
most recent valuation reflects a projected loan-to-value ratio at
maturity in excess of 100%, even if the loan is currently paying
in accordance with contractual terms. The increase in impaired
loans and related specific reserves at Real Estate reflects our
current estimate of collateral values of the underlying properties,
and our estimate of loans which are not past due, but for which
it is probable that we will be unable to collect the full principal
balance at maturity due to a decline in the underlying value of
the collateral. Of our $6.5 billion impaired loans at Real Estate at
December 31, 2009, approximately $4.4 billion are currently paying
in accordance with the contractual terms of the loan. Impaired
loans at CLL primarily represent senior secured lending positions.
Our loss mitigation strategy intends to minimize economic loss
and, at times, can result in rate reductions, principal forgiveness,
extensions, forbearance or other actions, which may cause the
related loan to be classified as a troubled debt restructuring (TDR).
As required by GAAP, TDRs are included in impaired loans. As of
December 31, 2009, TDRs included in impaired loans were $3.0 bil-
lion, primarily relating to Real Estate ($1.1 billion), CLL ($1.0 billion)
and Consumer ($0.9 billion).
CLL — AMERICAS. Nonearning receivables of $3.2 billion repre-
sented 23.8% of total nonearning receivables at December 31,
2009. The ratio of allowance for losses as a percent of nonearning
receivables declined from 42.7% at December 31, 2008, to 37.4%
at December 31, 2009, primarily from an increase in secured
exposures requiring relatively lower specific reserve levels, based
upon the strength of the underlying collateral values. The ratio
of nonearning receivables as a percent of financing receivables
increased from 1.9% at December 31, 2008, to 3.6% at
December 31, 2009, primarily from an increase in nonearning
receivables in our senior secured lending portfolio concentrated
in the following industries: media, communications, corporate
aircraft, auto, transportation, retail/publishing, inventory finance,
and franchise finance.
CLL — EUROPE. Nonearning receivables of $1.4 billion represented
10.4% of total nonearning receivables at December 31, 2009.
The ratio of allowance for losses as a percent of nonearning
receivables declined from 83.5% at December 31, 2008, to 39.4%
at December 31, 2009, primarily from the increase in nonearning
receivables related to the acquisition of Interbanca S.p.A. The
ratio of nonearning receivables as a percent of financing receiv-
ables increased from 0.9% at December 31, 2008, to 3.5% at
December 31, 2009, primarily from the increase in nonearning
receivables related to the acquisition of Interbanca S.p.A. and an
increase in nonearning receivables in secured lending in the
automotive industry.