AIG 2012 Annual Report Download - page 283

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specifically identified impairments, based on the analysis of internal risk ratings and current loan values. Internal risk
ratings are assigned based on the consideration of risk factors including past due status, debt service coverage,
loan-to-value ratio or the ratio of the loan balance to the estimated value of the property, property occupancy, profile
of the borrower and of the major property tenants, economic trends in the market where the property is located, and
condition of the property. These factors and the resulting risk ratings also provide a basis for determining the level of
monitoring performed at both the individual loan and the portfolio level. When all or a portion of a commercial
mortgage loan is deemed uncollectible, the uncollectible portion of the carrying value of the loan is charged off
against the allowance. Interest income on impaired loans is recognized as cash is received.
A significant majority of commercial mortgage loans in the portfolio are non-recourse loans and, accordingly, the only
guarantees are for specific items that are exceptions to the non-recourse provisions. It is therefore extremely rare for
us to have cause to enforce the provisions of a guarantee on a commercial real estate or mortgage loan.
The following table presents a rollforward of the changes in the allowance for losses on Mortgage and other
loans receivable:
Allowance, beginning of year $ 470 $ 408 $ 878 $ 432 $ 2,012 $ 2,444
Loans charged off (78) (47) (125) (217) (137) (354)
Recoveries of loans previously
charged off 37 1 38 – 8 8
Net charge-offs (41) (46) (87) (217) (129) (346)
Provision for loan losses (69) 51 (18) 342 6 348
Other (55) – (55) (34) (1,601) (1,635)
Reclassified to Assets of businesses
held for sale – – – (53) (5) (58)
Activity of discontinued operations – 22 22 – 125 125
Allowance, end of year $ 305(a) $ 435 $ 740 $ 470 $ 408 $ 878
(a) Of the total, $47 million and $65 million relates to individually assessed credit losses on $286 million and $476 million of commercial mortgage
loans as of December 31, 2012 and 2011, respectively.
(b) Included in Other loans were finance receivables, which were reported net of unearned finance charges, for both investment purposes and
held for sale.
Troubled Debt Restructurings
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We modify loans to optimize their returns and improve their collectability, among other things. When such a
modification is undertaken with a borrower that is experiencing financial difficulty and the modification involves us
granting a concession to the troubled debtor, the modification is deemed to be a troubled debt restructuring (TDR).
We assess whether a borrower is experiencing financial difficulty based on a variety of factors, including the
borrower’s current default on any of its outstanding debt, the probability of a default on any of its debt in the
foreseeable future without the modification, the insufficiency of the borrower’s forecasted cash flows to service any of
its outstanding debt (including both principal and interest), and the borrower’s inability to access alternative third-party
financing at an interest rate that would be reflective of current market conditions for a non-troubled debtor.
Concessions granted may include extended maturity dates, interest rate changes, principal forgiveness, payment
deferrals and easing of loan covenants.
As of December 31, 2012 and 2011, we held no significant loans that had been modified in a TDR during those
respective years.
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AIG 2012 Form 10-K266
2012 2011 2010
Years Ended December 31, Commercial Other Commercial Other Commercial Other
(in millions) Mortgages Loans Total Mortgages Loans Total Mortgages Loans(b) Total
)) )
)) )
))
))
(a)
$ 305 $ 435 $ 740
(23 (21 (44
13 4 17
(10 (17 (27
(136 33 (103
–– –
–– –
– (205 (205
$ 159 $ 246 $ 405
ITEM 8 / NOTE 8. LENDING ACTIVITIES