Supplemental Information About The Credit Quality Of Financing Receivables And Allowance For Losses On Financing Receivables

9 Months Ended

Sep. 30, 2014

Credit Quality Financing Receivables [Abstract]

Supplemental Information About Credit Quality Of Financing Receivables And Allowance For Losses On Financing Receivables

18. SUPPLEMENTAL INFORMATION ABOUT THE CREDIT QUALITY OF FINANCING RECEIVABLES AND ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES

Credit Quality Indicators

We provide further detailed information about the credit quality of our Commercial, Real Estate and Consumer financing receivables portfolios. For each portfolio, we describe the characteristics of the financing receivables and provide information about collateral, payment performance, credit quality indicators and impairment. We manage these portfolios using delinquency and nonaccrual data as key performance indicators. The categories used within this section such as impaired loans, troubled debt restructuring (TDR) and nonaccrual financing receivables are defined by the authoritative guidance and we base our categorization on the related scope and definitions contained in the related standards. The categories of nonaccrual and delinquent are used in our process for managing our financing receivables.

Past Due and Nonaccrual Financing Receivables
		September 30, 2014									December 31, 2013
		Over 30 days			Over 90 days						Over 30 days			Over 90 days
(In millions)		past due			past due			Nonaccrual			past due			past due			Nonaccrual
Commercial
CLL
Americas	$	592		$	376		$	1,101		$	755		$	359		$	1,275
International		1,563			846			1,013			1,490			820			1,459
Total CLL		2,155			1,222			2,114			2,245			1,179			2,734
Energy Financial Services		-			-			57			-			-			4
GECAS		-			-			153			-			-			-
Other		-			-			-			-			-			6
Total Commercial		2,155			1,222			2,324	(a)		2,245			1,179			2,744	(a)
Real Estate		284			247			1,628	(b)		247			212			2,551	(b)
Consumer
Non-U.S. residential mortgages		3,044			1,892			1,960			3,406			2,104			2,161
Non-U.S. installment and revolving credit		320			95			50			512			146			88
U.S. installment and revolving credit		2,372			1,038			2			2,442			1,105			2
Non-U.S. auto		73			10			19			89			13			18
Other		131			66			218			172			99			351
Total Consumer		5,940			3,101	(c)		2,249	(d)		6,621			3,467	(c)		2,620	(d)
Total	$	8,379		$	4,570		$	6,201		$	9,113		$	4,858		$	7,915
Total as a percent of financing receivables		3.5	%		1.9	%		2.6	%		3.5	%		1.9	%		3.1	%

• Included $1,157 million and $1,397 million at September 30, 2014 and December 31, 2013, respectively, that are currently paying in accordance with their contractual terms.
• Included $1,355million and $2,308million at September 30, 2014 and December 31, 2013, respectively, that are currently paying in accordance with their contractual terms.
• Included $1,134million and $1,197million of Consumer loans at September 30, 2014 and December 31, 2013, respectively, that are over 90 days past due and continue to accrue interest until the accounts are written off in the period that the account becomes 180 days past due.
• Included $234million and $324million at September 30, 2014 and December 31, 2013, respectively, that are currently paying in accordance with their contractual terms.

Impaired Loans and Related Reserves
	With no specific allowance						With a specific allowance
	Recorded		Unpaid		Average		Recorded		Unpaid				Average
	investment		principal		investment		investment		principal		Associated		investment
(In millions)	in loans		balance		in loans		in loans		balance		allowance		in loans
September 30, 2014
Commercial
CLL
Americas	$	1,508	$	1,987	$	1,694	$	235	$	365	$	64	$	287
International(a)		1,064		3,009		1,139		312		445		125		508
Total CLL		2,572		4,996		2,833		547		810		189		795
Energy Financial Services		57		58		19		-		-		-		26
GECAS		61		61		27		-		-		-		19
Other		-		-		1		-		-		-		1
Total Commercial(b)		2,690		5,115		2,880		547		810		189		841
Real Estate(c)		1,994		2,315		2,468		478		631		27		778
Consumer(d)		131		173		115		2,369		2,503		484		2,673
Total	$	4,815	$	7,603	$	5,463	$	3,394	$	3,944	$	700	$	4,292
December 31, 2013
Commercial
CLL
Americas	$	1,670	$	2,187	$	2,154	$	417	$	505	$	96	$	509
International(a)		1,104		3,082		1,136		691		1,059		231		629
Total CLL		2,774		5,269		3,290		1,108		1,564		327		1,138
Energy Financial Services		-		-		-		4		4		1		2
GECAS		-		-		-		-		-		-		1
Other		2		3		9		4		4		-		5
Total Commercial(b)		2,776		5,272		3,299		1,116		1,572		328		1,146
Real Estate(c)		2,615		3,036		3,058		1,245		1,507		74		1,688
Consumer(d)		109		153		98		2,879		2,948		567		3,058
Total	$	5,500	$	8,461	$	6,455	$	5,240	$	6,027	$	969	$	5,892

• Write-offs to net realizable value are recognized against the allowance for losses primarily in the reporting period in which management has deemed all or a portion of the financing receivable to be uncollectible, but not later than 360 days after initial recognition of a specific reserve for a collateral dependent loan. However, in accordance with regulatory standards that are applicable in Italy, commercial loans are considered uncollectible when there is demonstrable evidence of the debtor’s insolvency, which may result in write-offs occurring beyond 360 days after initial recognition of a specific reserve.
• We recognized $139 million, $218 million and $173million of interest income, including none, $60 million and $53million on a cash basis, in the nine months ended September 30, 2014, the year ended December 31, 2013 and the nine months ended September 30, 2013, respectively, principally in our CLL Americas business. The total average investment in impaired loans for the nine months ended September 30, 2014 and the year ended December 31, 2013 was $3,721 million and $4,445million, respectively.
• We recognized $47 million, $187 million and $161million of interest income, including none, $135 million and $132million on a cash basis, in the nine months ended September 30, 2014, the year ended December 31, 2013 and the nine months ended September 30, 2013, respectively. The total average investment in impaired loans for the nine months ended September 30, 2014 and the year ended December 31, 2013 was $3,246million and $4,746million, respectively.
• We recognized $135 million, $221 million and $166million of interest income, including $3 million, $3 million and $3million on a cash basis, in the nine months ended September 30, 2014, the year ended December 31, 2013 and the nine months ended September 30, 2013, respectively, principally in our Consumer-U.S. installment and revolving credit portfolios. The total average investment in impaired loans for the nine months ended September 30, 2014 and the year ended December 31, 2013 was $2,788 million and $3,156million, respectively.

(In millions)	Non-impaired financing receivables		General reserves		Impaired loans		Specific reserves
September 30, 2014
Commercial	$	118,283	$	637	$	3,237	$	189
Real Estate		17,327		127		2,472		27
Consumer		98,756		3,706		2,500		484
Total	$	234,366	$	4,470	$	8,209	$	700
December 31, 2013
Commercial	$	125,377	$	677	$	3,892	$	328
Real Estate		16,039		118		3,860		74
Consumer		106,051		3,414		2,988		567
Total	$	247,467	$	4,209	$	10,740	$	969

Impaired loans classified as TDRs in our CLL business were $2,276 million and $2,961 million at September 30, 2014 and December 31, 2013, respectively, and were primarily attributable to CLL Americas ($1,312 million and $1,770million, respectively). For the nine months ended September 30, 2014, we modified $777 million of loans classified as TDRs, primarily in CLL Americas ($428 million). Changes to these loans primarily included extensions, interest only payment periods, debt to equity exchange and forbearance or other actions, which are in addition to, or sometimes in lieu of, fees and rate increases. Of our $1,133 million and $1,808million of modifications classified as TDRs in the twelve months ended September 30, 2014 and 2013, respectively, $33 million and $80 million have subsequently experienced a payment default in the nine months ended September 30, 2014 and 2013, respectively.

Real Estate TDRs decreased from $3,625 million at December 31, 2013 to $2,338 million at September 30, 2014, primarily driven by resolution of TDRs through paydowns. We deem loan modifications to be TDRs when we have granted a concession to a borrower experiencing financial difficulty 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. The limited liquidity and higher return requirements in the real estate market for loans with higher loan-to-value (LTV) ratios has typically resulted in the conclusion that the modified terms are not at current market rates of interest, even if the modified loans are expected to be fully recoverable. For the nine months ended September 30, 2014, we modified $531 million of loans classified as TDRs. Changes to these loans primarily included forbearance, maturity extensions and changes to collateral or covenant terms or other actions, which are in addition to, or sometimes in lieu of, fees and rate increases. Of our $768 million and $2,089million of modifications classified as TDRs in the twelve months ended September 30, 2014 and 2013, respectively, $311 million and $282 million have subsequently experienced a payment default in the nine months ended September 30, 2014 and 2013, respectively.

Impaired loans in our Consumer business represent restructured smaller balance homogeneous loans meeting the definition of a TDR, and are therefore subject to the disclosure requirement for impaired loans, and commercial loans in our Consumer–Other portfolio. The recorded investment of these impaired loans totaled $2,500 million (with an unpaid principal balance of $2,676 million) and comprised $131 million with no specific allowance, primarily all in our Consumer–Other portfolio, and $2,369 million with a specific allowance of $484 million at September 30, 2014. The impaired loans with a specific allowance included $134 million with a specific allowance of $17 million in our Consumer–Other portfolio and $2,235 million with a specific allowance of $467 million across the remaining Consumer business and had an unpaid principal balance and average investment of $2,503 million and $2,673 million, respectively, at September 30, 2014.

Impaired loans classified as TDRs in our Consumer business were $2,428 million and $2,874 million at September 30, 2014 and December 31, 2013, respectively. We utilize certain loan modification programs for borrowers experiencing financial difficulties in our Consumer loan portfolio. These loan modification programs primarily include interest rate reductions and payment deferrals in excess of three months, which were not part of the terms of the original contract, and are primarily concentrated in our non-U.S. residential mortgage and U.S. credit card portfolios. For the nine months ended September 30, 2014, we modified $788million of consumer loans for borrowers experiencing financial difficulties, which are classified as TDRs, and included $442 million of non-U.S. consumer loans, primarily residential mortgages, credit cards and personal loans and $346million of U.S. consumer loans, primarily credit cards. We expect borrowers whose loans have been modified under these programs to continue to be able to meet their contractual obligations upon the conclusion of the modification. Of our $1,074 million and $1,576million of modifications classified as TDRs in the twelve months ended September 30, 2014 and 2013, respectively,$95million and $215 million have subsequently experienced a payment default in the nine months ended September 30, 2014 and 2013, respectively.

Supplemental Credit Quality Information

Commercial

Substantially all of our Commercial financing receivables portfolio is secured lending and we assess the overall quality of the portfolio based on the potential risk of loss measure. The metric incorporates both the borrower’s credit quality along with any related collateral protection.

Our internal risk ratings process is an important source of information in determining our allowance for losses and represents a comprehensive, statistically validated approach to evaluate risk in our financing receivables portfolios. In deriving our internal risk ratings, we stratify our Commercial portfolios into 21 categories of default risk and/or six categories of loss given default to group into three categories: A, B and C. Our process starts by developing an internal risk rating for our borrowers, which is based upon our proprietary models using data derived from borrower financial statements, agency ratings, payment history information, equity prices and other commercial borrower characteristics. We then evaluate the potential risk of loss for the specific lending transaction in the event of borrower default, which takes into account such factors as applicable collateral value, historical loss and recovery rates for similar transactions, and our collection capabilities. Our internal risk ratings process and the models we use are subject to regular monitoring and validation controls. The frequency of rating updates is set by our credit risk policy, which requires annual Risk Committee approval. The models are updated on a regular basis and statistically validated annually, or more frequently as circumstances warrant.

As described above, financing receivables are assigned one of 21 risk ratings based on our process and then these are grouped by similar characteristics into three categories in the table below. Category A is characterized by either high-credit-quality borrowers or transactions with significant collateral coverage that substantially reduces or eliminates the risk of loss in the event of borrower default. Category B is characterized by borrowers with weaker credit quality than those in Category A, or transactions with moderately strong collateral coverage that minimizes but may not fully mitigate the risk of loss in the event of default. Category C is characterized by borrowers with higher levels of default risk relative to our overall portfolio or transactions where collateral coverage may not fully mitigate a loss in the event of default.

Commercial Financing Receivables by Risk Category
	Secured
(In millions)	A		B		C		Total
September 30, 2014
CLL
Americas	$	63,828	$	1,279	$	1,409	$	66,516
International		41,030		609		1,030		42,669
Total CLL		104,858		1,888		2,439		109,185
Energy Financial Services		2,686		55		30		2,771
GECAS		8,236		106		107		8,449
Other		134		-		-		134
Total	$	115,914	$	2,049	$	2,576	$	120,539
December 31, 2013
CLL
Americas	$	65,545	$	1,587	$	1,554	$	68,686
International		44,930		619		1,237		46,786
Total CLL		110,475		2,206		2,791		115,472
Energy Financial Services		2,969		9		-		2,978
GECAS		9,175		50		152		9,377
Other		318		-		-		318
Total	$	122,937	$	2,265	$	2,943	$	128,145

For our secured financing receivables portfolio, our collateral position and ability to work out problem accounts mitigates our losses. Our asset managers have deep industry expertise that enables us to identify the optimum approach to default situations. We price risk premiums for weaker credits at origination, closely monitor changes in creditworthiness through our risk ratings and watch list process, and are engaged early with deteriorating credits to minimize economic loss. Secured financing receivables within risk Category C are predominantly in our CLL businesses and are primarily composed of senior term lending facilities and factoring programs secured by various asset types including inventory, accounts receivable, cash, equipment and related business facilities as well as franchise finance activities secured by underlying equipment.

Loans within Category C are reviewed and monitored regularly, and classified as impaired when it is probable that they will not pay in accordance with contractual terms. Our internal risk rating process identifies credits warranting closer monitoring; and as such, these loans are not necessarily classified as nonaccrual or impaired.

Our unsecured Commercial financing receivables portfolio is primarily attributable to our InterbancaS.p.A. and GE Sanyo Credit acquisitions in CLL International. At September 30, 2014 and December 31, 2013, these financing receivables included $342 million and $313 million rated A, $402 million and $580 million rated B, and $237 million and $231 million rated C, respectively.

Real Estate

Due to the primarily non-recourse nature of our Debt portfolio, loan-to-value ratios (the ratio of the outstanding debt on a property to the re-indexed value of that property) provide the best indicators of the credit quality of the portfolio.

	Loan-to-value ratio
	September 30, 2014						December 31, 2013
	Less than		80% to		Greater than		Less than		80% to		Greater than
(In millions)	80%		95%		95%		80%		95%		95%
Debt	$	16,564	$	1,044	$	1,368	$	15,576	$	1,300	$	2,111

The credit quality of the owner occupied/credit tenant portfolio is primarily influenced by the strength of the borrower’s general credit quality, which is reflected in our internal risk rating process, consistent with the process we use for our Commercial portfolio. As of September 30, 2014, the balances of our owner occupied/credit tenant portfolio with an internal risk rating of A, B and C approximated $575 million, $142 million and $106 million, respectively, as compared to the December 31, 2013, balances of $571 million, $179 million and $162 million, respectively.

The financing receivables within our Debt portfolio are primarily concentrated in our North American and European Lending platforms and are secured by various property types. A substantial majority of our Debt financing receivables with loan-to-value ratios greater than 95% are paying in accordance with contractual terms. Substantially all of these loans and the majority of our owner occupied/credit tenant financing receivables included in Category C are impaired loans that are subject to the specific reserve evaluation process. The ultimate recoverability of impaired loans is driven by collection strategies that do not necessarily depend on the sale of the underlying collateral and include full or partial repayments through third-party refinancing and restructurings.

Consumer

At September 30, 2014, our U.S. consumer financing receivables included private-label credit card and sales financing for approximately 60 million customers across the U.S. with no metropolitan area accounting for more than 6% of the portfolio. Of the total U.S. consumer financing receivables, approximately 65% relate to credit card loans that are often subject to profit and loss sharing arrangements with the retailer (which are recorded in revenues), and the remaining 35% are sales finance receivables that provide financing to customers in areas such as electronics, recreation, medical and home improvement.

Our Consumer financing receivables portfolio comprises both secured and unsecured lending. Secured financing receivables comprise residential loans and lending to small and medium-sized enterprises predominantly secured by auto and equipment, inventory finance, and cash flow loans. Unsecured financing receivables include private-label credit card financing. A substantial majority of these cards are not for general use and are limited to the products and services sold by the retailer. The private-label portfolio is diverse with no metropolitan area accounting for more than 6% of the related portfolio.

Non-U.S. residential mortgages

For our secured non-U.S. residential mortgage book, we assess the overall credit quality of the portfolio through loan-to-value ratios (the ratio of the outstanding debt on a property to the value of that property at origination). In the event of default and repossession of the underlying collateral, we have the ability to remarket and sell the properties to eliminate or mitigate the potential risk of loss.

	Loan-to-value ratio
	September 30, 2014							December 31, 2013
	80% or		Greater than		Greater than		80% or		Greater than		Greater than
(In millions)	less		80% to 90%		90%		less		80% to 90%		90%
Non-U.S. residential mortgages	$	15,640	$	4,647	$	7,387	$	17,224	$	5,130	$	8,147

The majority of these financing receivables are in our U.K. and France portfolios and have re-indexed loan-to-value ratios of 71% and 56%, respectively. Re-indexed loan-to-value ratios may not reflect actual realizable values of future repossessions. We have third-party mortgage insurance for about 22% of the balance of Consumer non-U.S. residential mortgage loans with loan-to-value ratios greater than 90% at September 30, 2014. Such loans were primarily originated in France and the U.K.

Installment and Revolving Credit

We assess overall credit quality using internal and external credit scores. For our U.S. installment and revolving credit portfolio we use Fair Isaac Corporation (“FICO”) scores. FICO scores are generally obtained at origination of the account and are refreshed at a minimum quarterly, but could be as often as weekly, to assist in predicting customer behavior. We categorize these credit scores into the following three categories; (a) 661 or higher, which are considered the strongest credits; (b) 601 to 660, which are considered moderate credit risk; and (c) 600 or less, which are considered weaker credits.

	Refreshed FICO score
	September 30, 2014						December 31, 2013
	661 or		601 to		600 or		661 or		601 to		600 or
(In millions)	higher		660		less		higher		660		less
U.S. installment and
revolving credit	$	39,998	$	11,051	$	4,209	$	40,079	$	11,142	$	4,633

For our non-U.S. installment and revolving credit and non-U.S. auto portfolios, our internal credit scores imply a probability of default that we consistently translate into three approximate credit bureau equivalent credit score categories, including (a) 671 or higher, which are considered the strongest credits; (b) 626 to 670, which are considered moderate credit risk; and (c) 625 or less, which are considered weaker credits.

	Internal ratings translated to approximate credit bureau equivalent score
	September 30, 2014						December 31, 2013
	671 or		626 to		625 or		671 or		626 to		625 or
(In millions)	higher		670		less		higher		670		less
Non-U.S. installment and
revolving credit	$	6,026	$	2,183	$	1,889	$	8,310	$	2,855	$	2,512
Non-U.S. auto		1,274		152		162		1,395		373		286

U.S. installment and revolving credit accounts with FICO scores of 600 or less and non U.S. installment and revolving credit accounts with credit bureau equivalent scores of 625 or less have an average outstanding balance less than one thousand U.S. dollars and are primarily concentrated in our retail card and sales finance receivables in the U.S. and closed-end loans outside the U.S., which minimizes the potential for loss in the event of default. For lower credit scores, we adequately price for the incremental risk at origination and monitor credit migration through our risk ratings process. We continuously adjust our credit line underwriting management and collection strategies based on customer behavior and risk profile changes.

Consumer – Other

We develop our internal risk ratings for this portfolio in a manner consistent with the process used to develop our Commercial credit quality indicators, described above. We use the borrower’s credit quality and underlying collateral strength to determine the potential risk of loss from these activities.

At September 30, 2014, Consumer – Other financing receivables of $5,843 million, $325 million and $470 million were rated A, B and C, respectively. At December 31, 2013, Consumer – Other financing receivables of $6,137 million, $315 million and $501 million were rated A, B and C, respectively.