GE 2013 Annual Report Download - page 55

’   
GE 2013 ANNUAL REPORT 53
fi nancing businesses in Japan. The ratio of nonearning receiv-
ables as a percent of fi nancing receivables increased from 1.7%
at December 31, 2012, to 4.4% at December 31, 2013, primarily
due to increased nonearning receivables mentioned above and
a decline in fi nancing receivables primarily in our asset-based
fi nancing businesses in Japan and Australia. Collateral supporting
these nonearning fi nancing receivables is primarily commercial
real estate, manufacturing equipment and corporate aircraft.
REAL ESTATE—DEBT. Nonearning receivables of $2.3 billion rep-
resented 31.8% of total nonearning receivables at December 31,
2013. The increase in nonearning receivables from December 31,
2012, was primarily due to $2.1 billion of fi nancing receivables
previously classifi ed as cash basis resulting from a revision to
our nonaccrual and nonearning methods to more closely align
with regulatory guidance in the fourth quarter of 2013, partially
offset by the resolution of North American multi-family and hotel
nonearning loans, as well as European retail and mixed-use loans
through payoffs, foreclosures and write-offs. The ratio of allow-
ance for losses as a percent of nonearning receivables decreased
from 72.1% to 8.3% refl ecting the increase in nonearning loans as
mentioned above. The ratio of allowance for losses as a percent of
total fi nancing receivables decreased from 1.5% at December 31,
2012 to 1.0% at December 31, 2013, driven primarily by the
reduction in overall reserves due to improving market conditions
and new loan originations in 2013.
The Real Estate fi nancing receivables portfolio is collateralized
by income-producing or owner-occupied commercial properties
across a variety of asset classes and markets. At December 31,
2013, total Real Estate fi nancing receivables of $19.9 billion were
primarily collateralized by offi ce buildings ($5.9 billion), apartment
buildings ($3.2 billion), retail facilities ($2.8 billion), warehouse
properties ($2.6 billion) and hotel properties ($2.2 billion). In
2013, commercial real estate markets continue to show signs of
improved stability and liquidity in certain markets; however,
the pace of improvement varies signifi cantly by asset class and
market and the long-term outlook remains uncertain. We have
and continue to maintain an intense focus on operations and risk
management. Loan loss reserves related to our Real Estate—Debt
fi nancing receivables are particularly sensitive to declines in
underlying property values. Estimating the impact of global prop-
erty values on loss performance across our portfolio depends
on a number of factors, including macroeconomic conditions,
property level operating performance, local market dynamics and
individual borrower behavior. As a result, any attempts to fore-
cast potential losses carry a high degree of imprecision and are
subject to change. At December 31, 2013, we had 116 foreclosed
commercial real estate properties totaling $1.0 billion.
CONSUMER—NON-U.S. RESIDENTIAL MORTGAGES. Nonearning
receivables of $1.8 billion represented 24.4% of total nonearning
receivables at December 31, 2013. The ratio of allowance for
losses as a percent of nonearning receivables increased from
18.7% at December 31, 2012, to 20.3% at December 31, 2013, as
a result of lower nonearning receivables due to improved collec-
tions and higher property values primarily in our U.K. portfolio.
Our non-U.S. mortgage portfolio has a loan-to-value ratio of
approximately 75% at origination and the vast majority are fi rst
lien positions. Our U.K. and France portfolios, which comprise a
majority of our total mortgage portfolio, have reindexed loan-to-
value ratios of 77% and 56%, respectively, and about 9% of these
loans are without mortgage insurance and have a reindexed
loan-to-value ratio equal to or greater than 100%. Re-indexed
loan-to-value ratios may not refl ect actual realizable values of
future repossessions. Loan-to-value information is updated on
a quarterly basis for a majority of our loans and considers eco-
nomic factors such as the housing price index. At December 31,
2013, we had in repossession stock 447 houses in the U.K., which
had a value of approximately $0.1 billion. The ratio of nonearning
receivables as a percent of fi nancing receivables decreased from
7.7% at December 31, 2012 to 5.8% at December 31, 2013 for the
reasons described above.
CONSUMER—NON-U.S. INSTALLMENT AND REVOLVING CREDIT.
Nonearning receivables of $0.1 billion represented 1.2% of total
nonearning receivables at December 31, 2013. The ratio of allow-
ance for losses as a percent of nonearning receivables increased
from 273.2% at December 31, 2012 to 675.0% at December 31,
2013, refl ecting an increase in the allowance for losses primarily
due to the approach described below and a decrease in nonearn-
ing receivables refl ecting the placing of consumer credit card
accounts on accrual status.
CONSUMER—U.S. INSTALLMENT AND REVOLVING CREDIT.
Nonearning receivables at December 31, 2013, refl ect the plac-
ing of consumer credit card accounts on accrual status. The
ratio of allowance for losses as a percent of fi nancing receiv-
ables increased from 4.5% at December 31, 2012 to 5.1% at
December 31, 2013, refl ecting an increase in the allowance for
losses primarily due to the approach described below.
In 2013, we completed our implementation of a more granular
portfolio segmentation approach, by loss type, in determining
the incurred loss period in our consumer revolving credit port-
folios, which resulted in an increase to the incurred loss period
and included a qualitative assessment of the adequacy of the
consumer revolving credit portfolios’ allowance for losses, which
compares this allowance for losses to projected net write-offs
over the next 12 months, in a manner consistent with regulatory
guidance. This resulted in an increase of $0.6 billion to the allow-
ance for losses on fi nancing receivables ($0.3 billion, after tax),
the vast majority of which was attributable to our U.S. consumer
revolving credit portfolios.
Nonaccrual Financing Receivables
The following table provides details related to our nonaccrual and
nonearning fi nancing receivables. Nonaccrual fi nancing receiv-
ables include all nonearning receivables and are those on which
we have stopped accruing interest. We stop accruing interest
at the earlier of the time at which collection becomes doubtful
or the account becomes 90 days past due, with the exception of
consumer credit card accounts, as discussed below.
Beginning in the fourth quarter of 2013, we revised our
methods for classifying fi nancing receivables as nonaccrual
and nonearning to more closely align with regulatory guidance.
Under the revised methods, we continue to accrue interest on
consumer credit cards until the accounts are written off in the