TCF Bank 2010 Annual Report Download - page 49

• 33 •
2010 Form 10-K
TCF Inventory Finance The following table summarizes the TCF Inventory Finance portfolio by marketing segment.
At December 31,
(Dollars in thousands) 2010 2009
Percent Percent
Equipment Type Balance of Total Balance of Total
Lawn and garden $441,691 55.8% $346,509 73.9%
Power sports and other 220,472 27.8 – –
Electronics and appliances 130,191 16.4 122,296 26.1
Total $792,354 100.0% $468,805 100.0%
finance portfolio tables above include lease residuals.
Lease residuals represent the estimated fair value of the
leased equipment at the expiration of the initial term of
the transaction and are reviewed on an ongoing basis. Any
downward revisions in estimated fair value are recorded in
the periods in which they become known. At December 31,
2010, lease residuals totaled $109.6 million, or 10.1% of
original equipment value, compared with $106.3 million,
or 8.7% of original equipment value, at December 31, 2009.
In the third quarter of 2010, TCF expanded into the power
sports industry by entering into an agreement with Arctic
Cat Sales Inc. to become the exclusive inventory finance
source for Arctic Cat’s Canadian dealers. This agreement
led to the acquisition of $125.8 million in loans towards
the end of the third quarter of 2010.
In the third quarter of 2009, TCF formed a joint
venture with The Toro Company (“Toro”) called Red Iron
Acceptance, LLC (“Red Iron”). Red Iron provides U.S.
distributors and dealers and select Canadian distributors
of the Toro and Exmark brands with reliable, cost-effective
sources of financing. TCF and Toro maintain a 55% and 45%
ownership interest, respectively, in Red Iron. As TCF has
a controlling financial interest in Red Iron, its financial
results are consolidated in TCF’s financial statements.
Toro’s interest is reported as a non-controlling interest
within equity and qualifies as tier 1 regulatory capital.
Credit Quality The following tables summarize TCF’s loan
and lease portfolio based on the most important credit
quality data that should be used to understand the overall
condition of the portfolio.
• Within the performing loans and leases, TCF classifies
customers within regulatory classification guidelines.
Loans and leases that are “classified” mean that
management has concerns regarding the ability of the
borrowers to meet existing loan or lease terms and
conditions but may never become non-performing
or result in a loss.
• Performing loans that are 60+ days delinquent
have a higher potential to become non-performing
and generally are a leading indicator for future
charge-off trends.
• Accruing troubled debt restructurings (“TDRs”) are
loans to borrowers that have been modified such
that TCF has granted a concession in terms to improve
the likelihood of collection of all principal and
interest owed.
• Non-accrual loans and leases generally have been
charged down to the estimated fair value of the
collateral less selling costs or reserved for expected
loss upon workout.
Included in Note 6 of Notes to Consolidated Financial
Statements, “Allowance for Loan and Lease Losses and Credit
Quality Information”, are disclosures of loans considered
to be “impaired” for accounting purposes. Impaired loans
comprise a portion of non-accrual loans and accruing TDRs
and therefore are not additive to the information in the
table below. Impaired loan accounting policies prescribe
specific methodologies for determining a portion of the
allowance for loan and lease losses. In addition, TCF has
modified certain loans and leases to troubled borrowers
where a concession was not granted and thus are not
considered TDRs. These other modified loans and leases
totaled $135.5 million and $101.5 million at December 31,
2010 and 2009, respectively, and are further discussed on
page 35 under “Loan Modifications”.