GE 2014 Annual Report Download - page 161

GE 2014 FORM 10-K 141
FINANCIAL STATEMENTS PRESENTATION & POLICIES
The same financing receivable may meet more than one of the definitions above. Accordingly, these categories are not
mutually exclusive and it is possible for a particular loan to meet the definitions of a TDR, impaired loan and nonaccrual loan
and be included in each of these categories. The categorization of a particular loan also may not be indicative of the potential
for loss.
Our consumer loan portfolio consists of smaller-balance, homogeneous loans, including credit card receivables, installment
loans, auto loans and leases and residential mortgages. We collectively evaluate each portfolio for impairment quarterly. The
allowance for losses on these receivables is established through a process that estimates the probable losses inherent in the
portfolio based upon statistical analyses of portfolio data. These analyses include migration analysis, in which historical
delinquency and credit loss experience is applied to the current aging of the portfolio, together with other analyses that reflect
current trends and conditions. We also consider our historical loss experience to date based on actual defaulted loans and
overall portfolio indicators including nonaccrual loans, trends in loan volume and lending terms, credit policies and other
observable environmental factors such as unemployment rates and home price indices.
Our commercial loan and lease portfolio consists of a variety of loans and leases, including both larger-balance, non-
homogeneous loans and leases and smaller-balance homogeneous loans and leases. Losses on such loans and leases are
recorded when probable and estimable. We routinely evaluate our entire portfolio for potential specific credit or collection
issues that might indicate an impairment.
For larger-balance, non-homogeneous loans and leases, we consider the financial status, payment history, collateral value,
industry conditions and guarantor support related to specific customers. Any delinquencies or bankruptcies are indications of
potential impairment requiring further assessment of collectability. We routinely receive financial as well as rating agency
reports on our customers, and we elevate for further attention those customers whose operations we judge to be marginal or
deteriorating. We also elevate customers for further attention when we observe a decline in collateral values for asset-based
loans. While collateral values are not always available, when we observe such a decline, we evaluate relevant markets to
assess recovery alternatives – for example, for real estate loans, relevant markets are local; for commercial aircraft loans,
relevant markets are global.
Measurement of the loss on our impaired commercial loans is based on the present value of expected future cash flows
discounted at the loan’s effective interest rate or the fair value of collateral, net of expected selling costs, if the loan is
determined to be collateral dependent. We determine whether a loan is collateral dependent if the repayment of the loan is
expected to be provided solely by the underlying collateral. Our review process can often result in reserves being established
in advance of a modification of terms or designation as a TDR. After providing for specific incurred losses, we then determine
an allowance for losses that have been incurred in the balance of the portfolio but cannot yet be identified to a specific loan or
lease. This estimate is based upon various statistical analyses considering historical and projected default rates and loss
severity and aging, as well as our view on current market and economic conditions. It is prepared by each respective line of
business. For Real Estate, this includes assessing the probability of default and the loss given default based on loss history of
our portfolio for loans with similar loan metrics and attributes.
We consider multiple factors in evaluating the adequacy of our allowance for losses on Real Estate financing receivables,
including loan-to-value ratios, collateral values at the individual loan level, debt service coverage ratios, delinquency status,
and economic factors including interest rate and real estate market forecasts. In addition to these factors, we evaluate a Real
Estate loan for impairment classification if its projected loan-to-value ratio at maturity is in excess of 100%, even if the loan is
currently paying in accordance with its contractual terms. Substantially all of the loans in the Real Estate portfolio are
considered collateral dependent and are measured for impairment based on the fair value of collateral. If foreclosure is
deemed probable or if repayment is dependent solely on the sale of collateral, we also include estimated selling costs in our
reserve. Collateral values for our Real Estate loans are determined based upon internal cash flow estimates discounted at an
appropriate rate and corroborated by external appraisals, as appropriate. Collateral valuations are routinely monitored and
updated annually, or more frequently for changes in collateral, market and economic conditions. Further discussion on
determination of fair value is in the Fair Value Measurements section below.