GENERAL ELECTRIC CO | 2013 | FY | 3


NOTE 6. GECC FINANCING RECEIVABLES, ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES AND SUPPLEMENTAL INFORMATION ON CREDIT QUALITY

 

      
December 31 (In millions)2013 2012
      
Loans, net of deferred income(a)$ 231,268 $240,634
Investment in financing leases, net of deferred income  26,939  32,471
   258,207  273,105
Less allowance for losses   (5,178)  (4,944)
Financing receivables - net(b)$ 253,029 $268,161
      

 

GECC financing receivables include both loans and financing leases. Loans represent transactions in a variety of forms, including revolving charge and credit, mortgages, installment loans, intermediate-term loans and revolving loans secured by business assets. The portfolio includes loans carried at the principal amount on which finance charges are billed periodically, and loans carried at gross book value, which includes finance charges.

Investment in financing leases consists of direct financing and leveraged leases of aircraft, railroad rolling stock, autos, other transportation equipment, data processing equipment, medical equipment, commercial real estate and other manufacturing, power generation, and commercial equipment and facilities.

For federal income tax purposes, the leveraged leases and the majority of the direct financing leases are leases in which GECC depreciates the leased assets and is taxed upon the accrual of rental income. Certain direct financing leases are loans for federal income tax purposes. For these transactions, GECC is taxed only on the portion of each payment that constitutes interest, unless the interest is tax-exempt (e.g., certain obligations of state governments).

Investment in direct financing and leveraged leases represents net unpaid rentals and estimated unguaranteed residual values of leased equipment, less related deferred income. GECC has no general obligation for principal and interest on notes and other instruments representing third-party participation related to leveraged leases; such notes and other instruments have not been included in liabilities but have been offset against the related rentals receivable. The GECC share of rentals receivable on leveraged leases is subordinate to the share of other participants who also have security interests in the leased equipment. For federal income tax purposes, GECC is entitled to deduct the interest expense accruing on non-recourse financing related to leveraged leases.

Net Investment in Financing Leases

 

 Total financing leases Direct financing leases(a) Leveraged leases(b)
December 31 (In millions)2013 2012 2013 2012 2013 2012
                  
Total minimum lease payments receivable$29,970 $36,451 $24,571 $29,416 $5,399 $7,035
 Less principal and interest on third-party                 
    non-recourse debt (3,480)  (4,662)  0  0  (3,480)  (4,662)
Net rentals receivables  26,490   31,789   24,571   29,416   1,919   2,373
Estimated unguaranteed residual value                 
     of leased assets 5,073  6,346  3,067  4,272  2,006  2,074
Less deferred income (4,624)  (5,664)  (3,560)  (4,453)  (1,064)  (1,211)
Investment in financing leases, net of                 
    deferred income 26,939  32,471  24,078  29,235  2,861  3,236
Less amounts to arrive at net investment                 
    Allowance for losses (202)  (198)  (192)  (193)  (10)  (5)
    Deferred taxes  (4,075)   (4,506)   (1,783)   (2,245)   (2,292)   (2,261)
Net investment in financing leases$ 22,662 $ 27,767 $ 22,103 $ 26,797 $ 559 $ 970
                  

 

Contractual Maturities

 

 Total Net rentals
(In millions)loans receivable
      
Due in     
    2014$ 54,971 $ 8,184
    2015  19,270   6,114
    2016  19,619   4,209
    2017  17,281   2,733
    2018  14,714   1,798
    2019 and later  43,121   3,452
   168,976   26,490
    Consumer revolving loans  62,292   -
Total$ 231,268 $ 26,490
      

We expect actual maturities to differ from contractual maturities.

 

The following tables provide additional information about our financing receivables and related activity in the allowance for losses for our Commercial, Real Estate and Consumer portfolios.

 

    
December 31 (In millions)2013 2012
      
Commercial     
CLL     
Americas$ 68,585 $72,517
Europe (a)  37,962  37,037
Asia  9,469  11,401
Other (a)  451  603
Total CLL  116,467  121,558
      
Energy Financial Services  3,107  4,851
      
GE Capital Aviation Services (GECAS)  9,377  10,915
      
Other  318  486
Total Commercial   129,269  137,810
      
Real Estate  19,899  20,946
      
Consumer     
Non-U.S. residential mortgages  30,501  33,350
Non-U.S. installment and revolving credit  13,677  17,816
U.S. installment and revolving credit  55,854  50,853
Non-U.S. auto  2,054  4,260
Other  6,953  8,070
Total Consumer  109,039  114,349
      
Total financing receivables  258,207  273,105
      
Less allowance for losses  (5,178)  (4,944)
Total financing receivables – net$ 253,029 $268,161
      

 

Allowance for Losses on Financing Receivables

 Balance at Provision       Balance at
 January 1, charged to    Gross   December 31,
(In millions)2013 operations Other(a)write-offs(b)Recoveries(b)2013
                  
Commercial                 
CLL                 
Americas$490 $ 292 $ (1) $ (422) $ 114 $ 473
Europe 445   321   12   (441)   78   415
Asia 80   124   (11)   (115)   12   90
Other 6   (3)   -   (3)   -   -
Total CLL 1,021   734   -   (981)   204   978
                  
Energy Financial                 
    Services 9   (1)   -   -   -   8
                  
GECAS 8   9   -   -   -   17
                  
Other 3   (1)   -   (2)   2   2
Total Commercial 1,041   741   -   (983)   206   1,005
                  
Real Estate 320   28   (4)   (163)   11   192
                  
Consumer                 
Non-U.S. residential mortgages 480   269   10   (458)   57   358
Non-U.S. installment                 
  and revolving credit 582   589   (93)   (967)   483   594
U.S. installment and revolving credit 2,282   3,006   (51)   (2,954)   540   2,823
Non-U.S. auto 67   58   (13)   (126)   70   56
Other 172   127   11   (236)   76   150
Total Consumer 3,583   4,049   (136)   (4,741)   1,226   3,981
Total$4,944 $ 4,818 $ (140) $ (5,887) $ 1,443 $ 5,178
                  
                  

 Balance at Provision       Balance at
 January 1, charged to   Gross   December 31,
(In millions)2012 operations Other(a)write-offs(b)Recoveries(b)2012
                  
Commercial                 
CLL                 
Americas$889 $109 $(51) $(568) $111 $490
Europe 400  374  (3)  (390)  64  445
Asia 157  37  (3)  (134)  23  80
Other 4  13  (1)  (10)  0  6
Total CLL 1,450  533  (58)  (1,102)  198  1,021
                  
Energy Financial                  
   Services 26  4   -  (24)  3  9
                  
GECAS 17  4   -  (13)   -  8
                  
Other 37  1  (20)  (17)  2  3
Total Commercial 1,530  542  (78)  (1,156)  203  1,041
                  
Real Estate 1,089  72  (44)  (810)  13  320
                  
Consumer                 
   Non-U.S. residential mortgages 545  112  8  (261)  76  480
Non-U.S. installment                  
    and revolving credit 690  290  24  (974)  552  582
   U.S. installment and revolving credit 2,008  2,666  (24)  (2,906)  538  2,282
Non-U.S. auto 101  18  (4)  (146)  98  67
Other 199  132  18  (257)  80  172
Total Consumer 3,543  3,218  22  (4,544)  1,344  3,583
Total$6,162 $3,832 $(100) $(6,510) $1,560 $4,944
                  

 

 Balance at Provision       Balance at
 January 1, charged to    Gross   December 31,
(In millions)2011 operations(a)Other(b)write-offs(c)Recoveries(c)2011
                  
Commercial                 
CLL                 
Americas$1,288 $281 $(96) $(700) $116 $889
Europe 429  195  (5)  (286)  67  400
Asia 222  105  13  (214)  31  157
Other 6  3  (3)  (2)  0  4
Total CLL 1,945  584  (91)  (1,202)  214  1,450
                  
                  
Energy Financial                 
    Services 22  0  (1)  (4)  9  26
                  
GECAS 20  0  0  (3)  0  17
                  
Other 58  23  0  (47)  3  37
Total Commercial 2,045  607  (92)  (1,256)  226  1,530
                  
                  
Real Estate 1,488  324  2  (747)  22  1,089
                  
Consumer                 
Non-U.S. residential                 
   mortgages 688  116  (13)  (295)  49  545
Non-U.S. installment                 
   and revolving credit 898  470  (29)  (1,198)  549  690
U.S. installment and                 
   revolving credit 2,333  2,241  1  (3,095)  528  2,008
Non-U.S. auto 168  30  (4)  (216)  123  101
Other 259  142  (20)  (272)  90  199
Total Consumer 4,346  2,999  (65)  (5,076)  1,339  3,543
Total$7,879 $3,930 $(155) $(7,079) $1,587 $6,162
                  

(a)       Included a provision of $77 million at Consumer related to the July 1, 2011 adoption of ASU 2011-02.

(b)       Other primarily included transfers to held-for-sale and the effects of currency exchange.

(c)       Net write-offs (gross write-offs less recoveries) in certain portfolios may exceed the beginning allowance for losses as a result of losses that are incurred subsequent to the beginning of the fiscal year due to information becoming available during the current year, which may identify further deterioration on existing 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 nonearning data as key performance indicators. The categories used within this section such as impaired loans, 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 nonearning and delinquent are defined by us and are used in our process for managing our financing receivables. Definitions of these categories are provided in Note 1.

 

Past Due Financing Receivables

The following tables display payment performance of Commercial, Real Estate, and Consumer financing receivables.

 2013 2012 
 Over 30 days Over 90 days Over 30 days Over 90 days 
December 31past due past due(a) past due past due 
         
Commercial        
CLL        
   Americas 1.1% 0.5% 1.1% 0.5%
   Europe 3.8  2.1  3.7  2.1 
   Asia 0.5  0.3  0.9  0.6 
   Other -  -  0.1  - 
Total CLL 1.9  1.0  1.9  1.0 
         
Energy Financial Services -  -  -  - 
         
GECAS -  -  -  - 
         
Other 0.1  0.1  2.8  2.8 
         
Total Commercial 1.7  0.9  1.7  0.9 
         
Real Estate 1.2  1.1  2.3  2.2 
         
Consumer        
Non-U.S. residential mortgages(b) 11.2  6.9  12.0  7.5 
Non-U.S. installment and revolving credit 3.7  1.1  3.8  1.1 
U.S. installment and revolving credit 4.4  2.0  4.6  2.0 
Non-U.S. auto 4.4  0.7  3.1  0.5 
Other 2.5  1.4  2.8  1.7 
Total Consumer 6.1  3.2  6.5  3.4 
Total 3.5% 1.9% 3.7% 2.1%
         

Nonaccrual Financing Receivables

 Nonaccrual financing Nonearning financing  
 receivables(a) receivables(a) 
December 31 (Dollars in millions)2013 2012 2013 2012 
             
Commercial            
             
CLL            
   Americas$ 1,275 $ 1,951 $ 1,243 $ 1,333 
   Europe  1,046   1,740   1,046   1,299 
   Asia  413   395   413   193 
   Other  -   52   -   52 
Total CLL  2,734   4,138   2,702   2,877 
             
Energy Financial Services  4   -   4   - 
             
GECAS  -   3   -   - 
             
Other  6   25   6   13 
Total Commercial  2,744(b)  4,166(b)  2,712   2,890 
             
Real Estate  2,551(c)  4,885(c)  2,301   444 
             
Consumer            
   Non-U.S. residential mortgages  2,161   2,598   1,766   2,567 
   Non-U.S. installment and revolving credit  88   213   88   213 
   U.S. installment and revolving credit  2   1,026   2   1,026 
   Non-U.S. auto  18   24   18   24 
Other  351   427   345   351 
Total Consumer  2,620(d)  4,288(d)  2,219   4,181 
Total$ 7,915 $ 13,339 $ 7,232 $ 7,515 
             
             
Allowance for losses percentage            
             
Commercial  36.6%  25.0%  37.1%  36.0%
Real Estate   7.5   6.6   8.3   72.1 
Consumer   151.9   83.6   179.4   85.7 
             
Total   65.4%  37.1%  71.6%  65.8%
             

Impaired Loans

The following tables provide information about loans classified as impaired and specific reserves related to Commercial, Real Estate and Consumer.

 With no specific allowance With a specific allowance
 Recorded Unpaid Average Recorded Unpaid   Average
 investment principal investment in investment principal Associated investment
December 31 (In millions)in loans balance loans in loans balance allowance in loans
                     
2013                    
                     
Commercial                    
CLL                    
   Americas$ 1,670 $ 2,187 $ 2,154 $ 417 $ 505 $ 96 $ 497
   Europe  802   1,589   956   580   921   211   536
   Asia  302   349   180   111   125   20   93
   Other  -   -   -   -   -   -   12
Total CLL  2,774   4,125   3,290   1,108   1,551   327   1,138
                     
Energy Financial Services  -   -   -   4   4   1   2
                     
GECAS  -   -   -   -   -   -   1
                     
Other  2   3   9   4   4   -   5
Total Commercial(a)  2,776   4,128   3,299   1,116   1,559   328   1,146
                     
Real Estate(b)  2,615   3,036   3,058   1,245   1,507   74   1,688
                     
Consumer(c)  109   153   98   2,879   2,948   567   3,058
Total$ 5,500 $ 7,317 $ 6,455 $ 5,240 $ 6,014 $ 969 $ 5,892
                     
                     
2012                    
                     
Commercial                    
CLL                    
   Americas$ 2,487 $ 2,927 $ 2,535 $ 557 $ 681 $ 178 $ 987
   Europe  1,131   1,901   1,009   643   978   278   805
   Asia  62   64   62   109   120   23   134
   Other  -   -   43   52   68   6   16
Total CLL  3,680   4,892   3,649   1,361   1,847   485   1,942
                     
Energy Financial Services  -   -  2   -   -   -  7
                     
GECAS  -   -  17  3  3   -  5
                     
Other  17  28  26  8  8  2  40
Total Commercial(a)  3,697   4,920   3,694   1,372   1,858   487   1,994
                     
Real Estate(b)  3,491   3,712   3,773   2,202   2,807   188   3,752
                     
Consumer(c)  105   117   100   3,103   3,141   673   2,949
Total$ 7,293 $ 8,749 $ 7,567 $ 6,677 $ 7,806 $ 1,348 $ 8,695
                     

   
December 31 (In millions)2013 2012 
       
Commercial      
Non-impaired financing receivables$125,377 $132,741 
General reserves 677  554 
       
Impaired loans 3,892  5,069 
Specific reserves 328  487 
       
Real Estate      
Non-impaired financing receivables$16,039 $15,253 
General reserves 118  132 
       
Impaired loans 3,860  5,693 
Specific reserves 74  188 
       
Consumer      
Non-impaired financing receivables$106,051 $111,141 
General reserves 3,414  2,910 
       
Impaired loans 2,988  3,208 
Specific reserves 567  673 
       
Total      
Non-impaired financing receivables$ 247,467 $ 259,135 
General reserves  4,209   3,596 
       
Impaired loans  10,740   13,970 
Specific reserves  969   1,348 
       

Impaired loans classified as TDRs in our CLL business were $2,961 million and $3,872 million at December 31, 2013 and 2012, respectively, and were primarily attributable to CLL Americas ($1,770 million and $2,577 million, respectively). For the year ended December 31, 2013, we modified $1,509 million of loans classified as TDRs, primarily in CLL Americas ($737 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 $1,509 million and $2,936 million of modifications classified as TDRs during 2013 and 2012, respectively, $71 million and $217 million have subsequently experienced a payment default in 2013 and 2012, respectively.

 

Real Estate TDRs decreased from $5,146 million at December 31, 2012 to $3,625 million at December 31, 2013, primarily driven by resolution of TDRs through paydowns, partially offset by extensions of loans scheduled to mature during 2013, some of which were classified as TDRs upon modification. 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 have 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 year ended December 31, 2013, we modified $1,595 million of loans classified as TDRs. Changes to these loans primarily included maturity extensions, principal payment acceleration, changes to collateral or covenant terms and cash sweeps, which are in addition to, or sometimes in lieu of, fees and rate increases. Of our $1,595 million and $4,351 million of modifications classified as TDRs during 2013 and 2012, respectively, $197 million and $210 million have subsequently experienced a payment default in 2013 and 2012, respectively.

 

The vast majority of our Consumer nonaccrual financing receivables are smaller-balance homogeneous loans evaluated collectively, by portfolio, for impairment and therefore are outside the scope of the disclosure requirement for impaired loans. Accordingly, 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 $2,988 million (with an unpaid principal balance of $3,101 million) and comprised $109 million with no specific allowance, primarily all in our Consumer–Other portfolio, and $2,879 million with a specific allowance of $567 million at December 31, 2013. The impaired loans with a specific allowance included $261 million with a specific allowance of $35 million in our Consumer–Other portfolio and $2,618 million with a specific allowance of $532 million across the remaining Consumer business and had an unpaid principal balance and average investment of $2,948 million and $3,058 million, respectively, at December 31, 2013.

 

Impaired loans classified as TDRs in our Consumer business were $2,874 million and $3,041 million at December 31, 2013 and 2012, 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 year ended December 31, 2013, we modified $1,441 million of consumer loans for borrowers experiencing financial difficulties, which are classified as TDRs, and included $879 million of non-U.S. consumer loans, primarily residential mortgages, credit cards and personal loans and $562 million 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 $1,441 million and $1,751 million of modifications classified as TDRs during 2013 and 2012, respectively, $266 million and $334 million have subsequently experienced a payment default in 2013 and 2012, 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.

 

The table below summarizes our Commercial financing receivables by risk category. 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.

 

 Secured
December 31 (In millions)A B C Total
            
2013           
            
CLL           
   Americas$ 65,444 $ 1,587 $ 1,554 $ 68,585
   Europe(a)  35,968   479   1,019   37,466
   Asia  8,962   140   218   9,320
   Other(a)  101   -   -   101
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
            
2012           
            
CLL           
   Americas$68,360 $1,775 $2,382 $72,517
   Europe(a) 33,756  1,188  1,256  36,200
   Asia 10,732  117  372  11,221
   Other(a) 159   -  94  253
Total CLL 113,007  3,080  4,104  120,191
            
Energy Financial Services 4,725   -   -  4,725
            
GECAS 10,681  223  11  10,915
            
Other 486   -   -  486
Total$128,899 $3,303 $4,115 $136,317
            

 

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 nonearning or impaired.

 

Our unsecured Commercial financing receivables portfolio is primarily attributable to our Interbanca S.p.A. and GE Sanyo Credit acquisitions in Europe and Asia, respectively. At December 31, 2013 and 2012, these financing receivables included $313 million and $458 million rated A, $580 million and $583 million rated B, and $231 million and $452 million rated C, respectively.

 

Real Estate

Due to the primarily non-recourse nature of our Debt portfolio, loan-to-value ratios provide the best indicators of the credit quality of the portfolio.

                  
 Loan-to-value ratio
 2013 2012
  Less than  80% to  Greater than  Less than  80% to  Greater than
December 31 (In millions)80% 95% 95% 80% 95% 95%
                  
Debt$ 15,576 $ 1,300 $ 2,111 $ 13,570 $ 2,572 $ 3,604

By contrast, 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. At December 31, 2013, the internal risk rating of A, B and C for our owner occupied/credit tenant portfolio approximated $571 million, $179 million and $162 million, respectively, as compared to December 31, 2012, ratings of $956 million, $25 million and $219 million, respectively.

 

Within Real Estate-Debt, these financing receivables are primarily concentrated in our North American and European Lending platforms and are secured by various property types. A substantial majority of the Real Estate-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 described in Note 1. 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 December 31, 2013, our U.S. consumer financing receivables included private-label credit card and sales financing for approximately 61 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 67% 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 33% 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. The table below provides additional information about our non-U.S. residential mortgages based on loan-to-value ratios.

                  
 Loan-to-value ratio
 2013  2012
 80% or Greater than Greater than 80% or Greater than Greater than
December 31 (In millions)less 80% to 90% 90% less 80% to 90% 90%
                  
Non-U.S. residential mortgages$ 17,224 $ 5,130 $ 8,147 $ 18,568 $ 5,699 $ 9,083

The majority of these financing receivables are in our U.K. and France portfolios and have re-indexed loan-to-value ratios of 77% 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 24% of the balance of Consumer non-U.S. residential mortgage loans with loan-to-value ratios greater than 90% at December 31, 2013. Such loans were primarily originated in France and the U.K.

Installment and Revolving Credit

For our unsecured lending products, including the non-U.S. and U.S. installment and revolving credit and non-U.S. auto portfolios, we assess overall credit quality using internal and external credit scores. 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
 2013 2012
 671 or 626 to 625 or 671 or 626 to 625 or
December 31 (In millions)higher 670 less higher 670 less
                  
Non-U.S. installment and revolving credit$ 8,310 $ 2,855 $ 2,512 $10,228 $4,267 $3,321
U.S. installment and revolving credit  36,723   11,101   8,030  33,204  9,753  7,896
Non-U.S. auto  1,395   373   286  3,141  666  453

Of those financing receivable accounts with credit bureau equivalent scores of 625 or less at December 31, 2013, 97% relate to installment and revolving credit accounts. These smaller-balance accounts 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. (which are often subject to profit and loss-sharing arrangements), 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

Secured lending in Consumer – Other comprises loans to small and medium-sized enterprises predominantly secured by auto and equipment, inventory finance and cash flow loans. 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 December 31, 2013, Consumer – Other financing receivables of $6,137 million, $315 million and $501 million were rated A, B and C, respectively. At December 31, 2012, Consumer – Other financing receivables of $6,873 million, $451 million and $746 million were rated A, B and C, respectively.


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