AIG 2012 Annual Report Download - page 282

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8. LENDING ACTIVITIES
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Mortgage and other loans receivable include commercial mortgages, life insurance policy loans, commercial loans,
other loans and notes receivable. Commercial mortgages, commercial loans, and other loans and notes receivable
are carried at unpaid principal balances less credit allowances and plus or minus adjustments for the accretion or
amortization of discount or premium. Interest income on such loans is accrued as earned.
Direct costs of originating commercial mortgages, commercial loans, and other loans and notes receivable, net of
nonrefundable points and fees, are deferred and included in the carrying amount of the related receivables. The
amount deferred is amortized to income as an adjustment to earnings using the interest method.
Life insurance policy loans are carried at unpaid principal amount. There is no allowance for policy loans because
these loans serve to reduce the death benefit paid when the death claim is made and the balances are effectively
collateralized by the cash surrender value of the policy.
The following table presents the composition of Mortgages and other loans receivable:
Commercial mortgages*$ 13,554
Life insurance policy loans 3,049
Commercial loans, other loans and notes receivable 3,626
Total mortgage and other loans receivable 20,229
Allowance for losses (740)
Mortgage and other loans receivable, net $ 19,489
* Commercial mortgages primarily represent loans for office, retail and industrial properties, with exposures in California and New York representing
the largest geographic concentrations (22 percent and 15 percent, respectively, at December 31, 2012). Over 99 percent and 98 percent of the
commercial mortgages were current as to payments of principal and interest at December 31, 2012 and 2011, respectively.
The following table presents the credit quality indicators for commercial mortgage loans:
Credit Quality Indicator:
In good standing
Restructured(a)
90 days or less delinquent
>90 days delinquent or in
process of foreclosure
Total(b)
Valuation allowance
(a) Loans that have been modified in troubled debt restructurings and are performing according to their restructured terms. See
discussion of troubled debt restructurings below.
(b) Does not reflect valuation allowances.
Methodology Used to Estimate the Allowance for Credit Losses
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Mortgage and other loans receivable are considered impaired when collection of all amounts due under contractual
terms is not probable. For commercial mortgage loans in particular, the impairment is measured based on the fair
value of underlying collateral, which is determined based on the present value of expected net future cash flows of
the collateral, less estimated costs to sell. For other loans, the impairment may be measured based on the present
value of expected future cash flows discounted at the loan’s effective interest rate or based on the loan’s observable
market price, where available. An allowance is typically established for the difference between the impaired value of
the loan and its current carrying amount. Additional allowance amounts are established for incurred but not
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AIG 2012 Form 10-K 265
$ 13,788
2,952
3,147
19,887
(405)
$ 19,482
998 $ 1,549 $ 4,698 $ 2,640 $ 1,654 $ 1,153 $ 1,671 $ 13,365 97%
8 50 207 7 2 – 22 288 2
4 –17– –––17 –
6 – 13 26 – – 79 118 1
1,016 $ 1,599 $ 4,935 $ 2,673 $ 1,656 $ 1,153 $ 1,772 $ 13,788 100%
$ 5 $ 74 $ 19 $ 19 $ 1 $ 41 $ 159 1%
(in millions) December 31, 2012 December 31, 2011
Class
December 31, 2012 Number Percent
(dollars in millions) of Loans Apartments Offices Retail Industrial Hotel Others Total of Total $
ITEM 8 / NOTE 8. LENDING ACTIVITIES