Note 12: GECS Financing Receivables (investments in loans and financing leases)
| December 31 (In millions) | 2007 | 2006 |
|---|---|---|
| Loans, net of deferred income | $ 314,918 | $ 264,039 |
| Investment in financing leases, net of deferred income | 75,015 | 68,569 |
| 389,933 | 332,608 | |
| Less allowance for losses (note 13) | (4,329) | (4,019) |
| Financing receivables — net | $ 385,604 | $ 328,589 |
Included in the above are $9,708 million and $11,509 million of the financing receivables of consolidated, liquidating securitization entities at December 31, 2007 and 2006, respectively.
Details of financing receivables — net follow.
| December 31 (In millions) | 2007 | 2006 |
|---|---|---|
|
(a) At December 31, 2007, net of credit insurance, approximately 26% of this portfolio comprised loans with introductory, below market rates that are scheduled to adjust at future dates; with high loan-to-value ratios at inception; whose terms permitted interest-only payments; or whose terms resulted in negative amortization. (b) Included loans and financing leases of $11,685 million and $11,165 million at December 31, 2007 and 2006, respectively, related to commercial aircraft at Aviation Financial Services and loans and financing leases of $7,898 million and $7,574 million at December 31, 2007 and 2006, respectively, related to Energy Financial Services. (c) Included loans and financing leases of $5,106 million and $6,853 million at December 31, 2007 and 2006, respectively, related to certain consolidated, liquidating securitization entities. |
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| COMMERCIAL FINANCE | ||
| Equipment and leasing | $ 89,239 | $ 76,057 |
| Commercial and industrial | 58,853 | 50,186 |
| Real estate | 39,816 | 27,944 |
| 187,908 | 154,187 | |
| GE MONEY | ||
| Non-U.S. residential mortgages(a) | 73,759 | 58,237 |
| Non-U.S. installment and revolving credit | 33,924 | 29,976 |
| U.S. installment and revolving credit | 29,570 | 29,007 |
| Non-U.S. auto | 27,368 | 25,088 |
| Other | 10,198 | 8,059 |
| 174,819 | 150,367 | |
| INFRASTRUCTURE(b) | 22,095 | 21,200 |
| OTHER(c) | 5,111 | 6,854 |
| 389,933 | 332,608 | |
| Less allowance for losses | (4,329) | (4,019) |
| Total | $ 385,604 | $ 328,589 |
GECS 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 GECS depreciates the leased assets and is taxed upon the accrual of rental income. Certain direct financing leases are loans for federal income tax purposes in which GECS is taxable 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. GECS 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 GECS 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, GECS is entitled to deduct the interest expense accruing on nonrecourse financing related to leveraged leases.
Net investment in financing leases
| Total financing leases | Direct financing leases(a) | Leveraged leases(b) | ||||
|---|---|---|---|---|---|---|
| December 31 (In millions) | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 |
|
(a) Included $802 million and $665 million of initial direct costs on direct financing leases at December 31, 2007 and 2006, respectively. (b) Included pre-tax income of $412 million and $306 million and income tax of $156 million and $115 million during 2007 and 2006, respectively. Net investment credits recognized on leveraged leases during 2007 and 2006 were inconsequential. |
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| Total minimum lease payments receivable | $ 92,137 | $ 88,598 | $ 72,399 | $ 64,637 | $ 19,738 | $ 23,961 |
| Less principal and interest on third-party nonrecourse debt | (14,102) | (17,309) | — | — | (14,102) | (17,309) |
| Net rentals receivable | 78,035 | 71,289 | 72,399 | 64,637 | 5,636 | 6,652 |
| Estimated unguaranteed residual value of leased assets | 10,306 | 10,062 | 7,500 | 7,068 | 2,806 | 2,994 |
| Less deferred income | (13,326) | (12,782) | (10,650) | (9,634) | (2,676) | (3,148) |
| Investment in financing leases, net of deferred income | 75,015 | 68,569 | 69,249 | 62,071 | 5,766 | 6,498 |
| Less amounts to arrive at net investment | ||||||
| Allowance for losses | (571) | (392) | (559) | (370) | (12) | (22) |
| Deferred taxes | (7,089) | (8,314) | (2,654) | (3,410) | (4,435) | (4,904) |
| Net investment in financing leases | $ 67,355 | $ 59,863 | $ 66,036 | $ 58,291 | $ 1,319 | $ 1,572 |
Contractual maturities
| (In millions) | Total loans | Net rentals receivable |
|---|---|---|
| Due in | ||
| 2008 | $ 94,720 | $ 22,455 |
| 2009 | 36,401 | 15,534 |
| 2010 | 28,258 | 12,057 |
| 2011 | 21,267 | 8,778 |
| 2012 | 19,364 | 5,435 |
| 2013 and later | 114,908 | 13,776 |
| Total | $ 314,918 | $ 78,035 |
We expect actual maturities to differ from contractual maturities.
Individually “impaired” loans are defined by GAAP as larger balance or restructured loans for which it is probable that the lender will be unable to collect all amounts due according to original contractual terms of the loan agreement. An analysis of impaired loans follows.
| December 31 (In millions) | 2007 | 2006 |
|---|---|---|
|
(a) Recognized principally on cash basis. |
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| Loans requiring allowance for losses | $ 1,004 | $ 1,147 |
| Loans expected to be fully recoverable | 391 | 497 |
| $ 1,395 | $ 1,644 | |
| Allowance for losses | $ 366 | $ 393 |
| Average investment during year | 1,594 | 1,687 |
| Interest income earned while impaired(a) | 19 | 34 |