Ally Bank 2012 Annual Report Download - page 117

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Impaired Loans
All classes of loans are considered impaired when we determine it is probable that we will be unable to collect all amounts due (both
principal and interest) according to the terms of the loan agreement.
For all classes of consumer loans, impaired loans are loans that have been modified in troubled debt restructurings.
All classes of commercial loans are considered impaired on an individual basis and reported as impaired when we determine it is
probable that we will be unable to collect all amounts due according to the terms of the loan agreement.
For all classes of impaired loans, income recognition is consistent with that of nonaccrual loans discussed above. For collateral
dependent loans, if the recorded investment in impaired loans exceeds the fair value of the collateral, a charge-off is recorded consistent with
the TDR discussion below.
Troubled Debt Restructurings (TDRs)
When the terms of finance receivables or loans are modified, consideration must be given as to whether or not the modification results in
a TDR. A modification is considered to be a TDR when both a) the borrower is experiencing financial difficulty and b) we grant a concession
to the borrower. These considerations require significant judgment and vary by portfolio segment. In all cases, the cumulative impacts of all
modifications are considered at the time of the most recent modification.
For all classes of consumer loans, various qualitative factors are utilized for assessing the financial difficulty of the borrower. These
include, but are not limited to, the borrowers default status on any of its debts, bankruptcy and recent changes in financial circumstances (loss
of job, etc.). A concession has been granted when as a result of the modification we do not expect to collect all amounts due, including interest
accrued at the original contract rate. Types of modifications that may be considered concessions include but are not limited to extensions of
terms at a rate that does not constitute a market rate, a reduction, deferral or forgiveness of principal or interest owed and loans that have been
discharged in a Chapter 7 Bankruptcy and have not been reaffirmed by the borrower.
In addition to the modifications noted above, in our consumer automobile class of loans we also provide extensions or deferrals of
payments to borrowers who we deem to be experiencing only temporary financial difficulty. In these cases, there are limits within our
operational policies to minimize the number of times a loan can be extended, as well as limits to the length of each extension, including a
cumulative cap over the life of the loan. Before offering an extension or deferral, we evaluate the capacity of the customer to make the
scheduled payments after the deferral period. During the deferral period, we continue to accrue and collect interest on the loan as part of the
deferral agreement. We grant these extensions or deferrals when we expect to collect all amounts due including interest accrued at the original
contract rate.
A restructuring that results in only a delay in payment that is deemed to be insignificant is not a concession and such modification is not
considered to be a TDR. In order to assess whether a restructuring that results in a delay in payment is insignificant, we consider the amount
of the restructured payments subject to delay in conjunction with the unpaid principal balance or the collateral value of the loan, whether or
not the delay is significant with respect to the frequency of payments under the original contract, or the loan's original expected duration. In
the cases where payment extensions on our automobile loan portfolio cumulatively extend beyond 90 days and are more than 10% of the
original contractual term or any cumulative extension beyond 180 days, we deem the delay in payment to be more than insignificant, and as
such, classify these types of modifications as TDRs. Otherwise, we believe that the modifications do not represent a concessionary
modification and accordingly, they are not classified as TDRs.
For all classes of commercial loans, similar qualitative factors are considered when assessing the financial difficulty of the borrower. In
addition to the factors noted above, consideration is also given to the borrower's forecasted ability to service the debt in accordance with the
contractual terms, possible regulatory actions and other potential business disruptions (e.g. the loss of a significant customer or other revenue
stream). Consideration of a concession is also similar for commercial loans. In addition to the factors noted above, consideration is also given
to whether additional guarantees or collateral have been provided.
For all loans, TDR classification typically results from our loss mitigation activities. For loans held-for-investment that are not carried at
fair value and are TDRs, impairment is typically measured based on the differences between the net carrying value of the loan and the present
value of the expected future cash flows of the loan. The loan may also be measured for impairment based on the fair value of the underlying
collateral less costs to sell for loans that are collateral dependent. We recognize impairment by either establishing a valuation allowance or
recording a charge-off.
The financial impacts of modifications that meet the definition of a TDR are reported in the period in which they are identified as TDRs.
Additionally, if a loan that is classified as a TDR redefaults within twelve months of the modification, we are required to disclose such
instances of redefault. For the purpose of this disclosure, we have determined that a loan is considered to have redefaulted when the loan
meets the requirements for evaluation under our charge-off policy except for commercial loans where redefault is defined as 90 days past due.
Our policy is to generally place all TDRs on nonaccrual status until the loan has been brought fully current, the collection of contractual
principal and interest is reasonably assured, and six consecutive months of repayment performance is achieved. In certain cases, if a borrower
has been current up to the time of the modification and repayment of the debt subsequent to the modification is reasonably assured, we may
choose to continue to accrue interest on the loan.
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K