E-Z-GO 2010 Annual Report Download - page 65

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53
leases provided to purchasers of new E-Z-GO and Jacobsen golf and turf-care equipment. These finance receivables are secured by
the financed equipment and, in some instances, by the personal guarantee of the principals, and typically have initial terms of three to
five years and had an average balance of less than $0.1 million.
Golf mortgage primarily includes golf course mortgages and also includes mortgages secured by hotels and marinas. Mortgages in
this product line are secured by real property and are generally limited to 75% or less of the property's appraised market value at loan
origination. These mortgages typically have initial terms ranging from five to ten years with amortization periods from 20 to 30 years.
As of January 1, 2011, loans in the golf mortgage product line have an average balance of $7 million and a weighted-average
contractual maturity of three years.
The timeshare product line primarily includes revolving loans secured by pools of timeshare interval resort notes receivable and also
includes construction/inventory mortgages secured by timeshare interval inventory, by real property and, in many instances, by the
personal guarantee of the principals. Construction/inventory mortgages are typically cross-collateralized with revolving notes
receivable loans to the same borrower. Loans in this portfolio typically have initial revolving terms of one to three years and final
maturity terms of an additional one to five years. As of January 1, 2011, borrowers in the timeshare product line have an average
balance of $16 million and a weighted-average contractual maturity of two years. Structured capital primarily includes leveraged
leases secured by the ownership of the leased equipment and real property.
Our finance receivables are diversified across geographic region, borrower industry and type of collateral. At January 1, 2011, 67% of
our finance receivables were distributed throughout the U.S. compared with 68% at the end of 2009. Finance receivables held for
investment are composed of the following types of financing vehicles:
(In millions)
January 1,
2011
January 2,
2010
Installment contracts
$ 2,130
$ 2,509
Mortgage loans
859
1,073
Revolving loans
501
1,137
Leveraged leases
279
313
Finance leases
262
403
Distribution finance receivables
182
771
$ 4,213
$ 6,206
At January 1, 2011 and January 2, 2010, these finance receivables included approximately $635 million and $629 million,
respectively, of receivables that have been legally sold to special purpose entities (SPE), which are consolidated subsidiaries of TFC.
The assets of the SPEs are pledged as collateral for their debt, which is reflected as securitized on-balance sheet debt in Note 8. Third-
party investors have no legal recourse to TFC beyond the credit enhancement provided by the assets of the SPEs.
In 2010, we sold $655 million of finance receivables resulting in net gains of $31 million.
Credit Quality Indicators and Nonaccrual Finance Receivables
We internally assess the quality of our finance receivables held for investment portfolio based on a number of key credit quality
indicators and statistics such as delinquency, loan balance to collateral value, the liquidity position of individual borrowers and
guarantors, debt service coverage in the golf mortgage product line and default rates of our notes receivable collateral in the timeshare
product line. Because many of these indicators are difficult to apply across an entire class of receivables, we evaluate individual loans
on a quarterly basis and classify these loans/portfolios into three categories based on the key credit quality indicators for the individual
loan. These three categories are performing, watchlist and nonaccrual. We classify finance receivables held for investment as
nonaccrual if credit quality indicators suggest full collection is doubtful. In addition, we automatically classify accounts as nonaccrual
that are contractually delinquent by more than three months unless collection is not doubtful. Accounts are classified as watchlist
when credit quality indicators have deteriorated as compared with typical underwriting criteria, and we believe collection of full
principal and interest is probable but not certain. All other finance receivables held for investment that do not meet the watchlist or
nonaccrual categories are classified as performing.