GE 2013 Annual Report Download - page 82

80 GE 2013 ANNUAL REPORT
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Experience is not available for new products; therefore, while
we are developing that experience, we set loss allowances based
on our experience with the most closely analogous products in
our portfolio.
Our loss mitigation strategy intends 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 TDR.
We utilize certain loan modifi cation programs for borrowers
experiencing temporary 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 and include short-term (three
months or less) interest rate reductions and payment deferrals,
which were not part of the terms of the original contract. 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.
Our allowance for losses on fi nancing receivables on these
modifi ed consumer loans is determined based upon a formu-
laic approach that estimates the probable losses inherent in
the portfolio based upon statistical analyses of the portfolio.
Data related to redefault experience is also considered in our
overall reserve adequacy review. Once the loan has been modi-
fi ed, it returns to current status (re-aged) only after receipt of
at least three consecutive minimum monthly payments or the
equivalent cumulative amount, subject to a re-aging limita-
tion of once a year, or twice in a fi ve-year period in accordance
with the Federal Financial Institutions Examination Council
guidelines on Uniform Retail Credit Classifi cation and Account
Management policy issued in June 2000. We believe that the
allowance for losses would not be materially different had we
not re-aged these accounts.
For commercial loans, we evaluate changes in terms and con-
ditions to determine whether those changes meet the criteria
for classifi cation as a TDR on a loan-by-loan basis. In CLL, these
changes primarily include changes to covenants, short-term pay-
ment deferrals and maturity extensions. For these changes, we
receive economic consideration, including additional fees and/
or increased interest rates, and evaluate them under our normal
underwriting standards and criteria. Changes to Real Estate’s
loans primarily include maturity extensions, principal payment
acceleration, 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 of the relevant facts and circumstances.
When the borrower is experiencing fi nancial diffi culty, we care-
fully evaluate these changes to determine whether they meet
the form of a concession. In these circumstances, if the change is
deemed to be a concession, we classify the loan as a TDR.
When we repossess collateral in satisfaction of a loan, we
write down the receivable against the allowance for losses.
Repossessed collateral is included in the caption “All other assets”
in the Statement of Financial Position and carried at the lower of
cost or estimated fair value less costs to sell.
For Consumer loans, we write off unsecured closed-end
installment loans when they are 120 days contractually past due
and unsecured open-ended revolving loans at 180 days con-
tractually past due. We write down consumer loans secured by
collateral other than residential real estate when such loans are
120 days past due. Consumer loans secured by residential real
estate (both revolving and closed-end loans) are written down to
the fair value of collateral, less costs to sell, no later than when
they become 180 days past due. Unsecured consumer loans in
bankruptcy are written off within 60 days of notifi cation of fi ling
by the bankruptcy court or within contractual write-off periods,
whichever occurs earlier.
Write-offs on larger-balance impaired commercial loans
are based on amounts deemed uncollectible and are reviewed
quarterly. Write-offs are determined based on the consideration
of many factors, such as expectations of the workout plan or
restructuring of the loan, valuation of the collateral and the pri-
oritization of our claim in bankruptcy. Write-offs are recognized
against the allowance for losses at the earlier of transaction
confi rmation (for example, discounted pay-off, restructuring,
foreclosure, etc.) or not later than 360 days after initial recognition
of a specifi c reserve for a collateral dependent loan. If foreclosure
is probable, the write-off is determined based on the fair value of
the collateral less costs to sell. Smaller-balance, homogeneous
commercial loans are written off at the earlier of when deemed
uncollectible or at 180 days past due.
Partial Sales of Business Interests
Gains or losses on sales of affi liate shares where we retain a con-
trolling fi nancial interest are recorded in equity. Gains or losses on
sales that result in our loss of a controlling fi nancial interest are
recorded in earnings along with remeasurement gains or losses
on any investments in the entity that we retained.
Cash and Equivalents
Debt securities and money market instruments with original
maturities of three months or less are included in cash equiva-
lents unless designated as available-for-sale and classifi ed as
investment securities.
Investment Securities
We report investments in debt and marketable equity securi-
ties, and certain other equity securities, at fair value. See Note
21 for further information on fair value. Unrealized gains and
losses on available-for-sale investment securities are included
in shareowners’ equity, net of applicable taxes and other adjust-
ments. We regularly review investment securities for impairment
using both quantitative and qualitative criteria.
For debt securities, if we do not intend to sell the security
or it is not more likely than not that we will be required to sell
the security before recovery of our amortized cost, we evaluate
other qualitative criteria to determine whether we do not expect
to recover the amortized cost basis of the security, such as the
fi nancial health of and specifi c prospects for the issuer, including
whether the issuer is in compliance with the terms and covenants
of the security. We also evaluate quantitative criteria includ-
ing determining whether there has been an adverse change in
expected future cash fl ows. If we do not expect to recover the