GE 2013 Annual Report Download - page 57

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GE 2013 ANNUAL REPORT 55
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 evaluate a Real Estate
loan for impairment when the most recent valuation refl ects
a projected loan-to-value ratio at maturity in excess of 100%,
even if the loan is currently paying in accordance with its
contractual terms.
Of our $3.9 billion of impaired loans at Real Estate at
December 31, 2013, $3.6 billion are currently paying in accor-
dance with the contractual terms of the loan and are typically
loans where the borrower has adequate debt service coverage
to meet contractual interest obligations. Impaired loans at CLL
primarily represent senior secured lending positions.
Our impaired loan balance at December 31, 2013 and 2012,
classifi ed by the method used to measure impairment was as fol-
lows. See Note 1 for additional information.
December 31 (In millions) 2013 2012
Discounted cash flow $ 5,558 $ 6,693
Collateral value 5,182 7,277
Total $ 10,740 $ 13,970
Our loss mitigation strategy is intended to minimize economic
loss and, at times, can result in rate reductions, principal forgive-
ness, extensions, forbearance or other actions, which may cause
the related loan to be classifi ed as a troubled debt restructur-
ing (TDR), and also as impaired. Changes to Real Estate’s loans
primarily include maturity extensions, principal payment accel-
eration, changes to collateral terms and cash sweeps, which are
in addition to, or sometimes in lieu of, fees and rate increases.
The determination of whether these changes to the terms and
conditions of our commercial loans meet the TDR criteria includes
our consideration of all relevant facts and circumstances. At
December 31, 2013, TDRs included in impaired loans were
$9.5 billion, primarily relating to Real Estate ($3.6 billion), CLL
($3.0 billion) and Consumer ($2.9 billion).
Real Estate TDRs decreased from $5.1 billion at December 31,
2012 to $3.6 billion at December 31, 2013, primarily driven by
resolution of TDRs through paydowns, partially offset by exten-
sions of loans scheduled to mature during 2013, some of which
were classifi ed as TDRs upon modifi cation. For borrowers with
demonstrated operating capabilities, we work to restructure
loans when the cash fl ow and projected value of the underlying
collateral support repayment over the modifi ed term. We deem
loan modifi cations to be TDRs when we have granted a conces-
sion to a borrower experiencing fi nancial diffi culty and we do
not receive adequate compensation in the form of an effective
interest rate that is at current market rates of interest given
the risk characteristics of the loan or other consideration that
compensates us for the value of the concession. For the year
ended December 31, 2013, we modifi ed $1.6 billion of loans clas-
sifi ed as TDRs, substantially all in our Debt portfolio. Changes
to these loans primarily included maturity extensions, principal
payment acceleration, changes to collateral or covenant terms
and cash sweeps that are in addition to, or sometimes in lieu of,
fees and rate increases. The limited liquidity and higher return
requirements in the real estate market for loans with higher loan-
to-value (LTV) ratios have typically resulted in the conclusion that
the modifi ed terms are not at current market rates of interest,
even if the modifi ed loans are expected to be fully recoverable.
We received the same or additional compensation in the form
of rate increases and fees for the majority of these TDRs. Of our
$1.6 billion and $4.4 billion of modifi cations classifi ed as TDRs in
the last 12 months ended December 31, 2013 and 2012, respec-
tively, $0.2 billion have subsequently experienced a payment
default in both 2013 and 2012.
The substantial majority of the Real Estate TDRs have reserves
determined based upon collateral value. Our specifi c reserves
on Real Estate TDRs were $0.1 billion at December 31, 2013 and
$0.2 billion at December 31, 2012, and were 1.9% and 3.1%,
respectively, of Real Estate TDRs. In many situations these loans
did not require a specifi c reserve as collateral value adequately
covered our recorded investment in the loan. While these
modifi ed loans had adequate collateral coverage, we were still
required to complete our TDR classifi cation evaluation on each of
the modifi cations without regard to collateral adequacy.
We utilize certain short-term (three months or less) loan
modifi cation programs for borrowers experiencing tempo-
rary fi nancial diffi culties in our Consumer loan portfolio. These
loan modifi cation programs are primarily concentrated in our
non-U.S. residential mortgage and non-U.S. installment and
revolving portfolios. We sold our U.S. residential mortgage
business in 2007 and, as such, do not participate in the U.S.
government-sponsored mortgage modifi cation programs. For
the year ended December 31, 2013, we provided short-term
modifi cations of approximately $0.1 billion of consumer loans for
borrowers experiencing fi nancial diffi culties, substantially all in
our non-U.S. residential mortgage, credit card and personal loan
portfolios, which are not classifi ed as TDRs. For these modifi ed
loans, we provided insignifi cant interest rate reductions and pay-
ment deferrals, which were not part of the terms of the original
contract. We expect borrowers whose loans have been modifi ed
under these short-term programs to continue to be able to meet
their contractual obligations upon the conclusion of the short-
term modifi cation. In addition, we have modifi ed $1.4 billion of
Consumer loans for the year ended December 31, 2013, which
are classifi ed as TDRs. Further information on Consumer impaired
loans is provided in Note 6.