Notes Receivable and Allowance for Losses

The Company segregates its notes receivable for the purposes of evaluating allowances for credit losses between two categories: Mezzanine and Other Notes Receivable and Forgivable Notes Receivable. The Company utilizes the level of security it has in the various notes receivable as its primary credit quality indicator (i.e. senior, subordinated or unsecured) when determining the appropriate allowances for uncollectible loans within these categories.

The following table shows the composition of our notes receivable balances:



	September 30, 2013						December 31, 2012
	($ in thousands)						($ in thousands)
Credit Quality Indicator	Forgivable Notes Receivable		Mezzanine & Other Notes Receivable		Total		Forgivable Notes Receivable		Mezzanine & Other Notes Receivable		Total
Senior	$	—	$	27,548	$	27,548	$	—	$	27,549	$	27,549
Subordinated	—		14,841		14,841		—		15,019		15,019
Unsecured	19,018		1,812		20,830		16,235		1,265		17,500
Total notes receivable	19,018		44,201		63,219		16,235		43,833		60,068
Allowance for losses on non-impaired loans	1,902		1,443		3,345		1,623		638		2,261
Allowance for losses on receivables specifically evaluated for impairment	—		8,453		8,453		—		8,289		8,289
Total loan reserves	1,902		9,896		11,798		1,623		8,927		10,550
Net carrying value	$	17,116	$	34,305	$	51,421	$	14,612	$	34,906	$	49,518
Current portion, net	$	425	$	13,701	$	14,126	$	420	$	13,995	$	14,415
Long-term portion, net	16,691		20,604		37,295		14,192		20,911		35,103
Total	$	17,116	$	34,305	$	51,421	$	14,612	$	34,906	$	49,518

The Company classifies notes receivable due within one year as other current assets and notes receivable with a maturity greater than one year as other assets in the Company’s consolidated balance sheets.

The following table summarizes the activity related to the Company’s Forgivable Notes Receivable and Mezzanine and Other Notes Receivable allowance for losses from December 31, 2012 through September 30, 2013:



	Forgivable Notes Receivable			Mezzanine & Other Notes Receivable
	(In thousands)
Balance, December 31, 2012	$	1,623		$	8,927
Provisions	598			969
Recoveries	(25		)	—
Write-offs	(147		)	—
Other⁽¹⁾	(147		)	—
Balance, September 30, 2013	$	1,902		$	9,896

(1) Consists of default rate assumption changes

Forgivable Notes Receivable

As of September 30, 2013 and December 31, 2012, the unamortized balance of the Company's forgivable notes receivable totaled $19.0 million and $16.2 million, respectively. The Company recorded an allowance for credit losses on these forgivable notes receivable of $1.9 million and $1.6 million at September 30, 2013 and December 31, 2012, respectively. At September 30, 2013 and December 31, 2012, the Company did not have any forgivable unsecured notes that were past due. Amortization expense included in the accompanying consolidated statements of income related to the notes for the three and nine months ended September 30, 2013 was $1.1 million and $3.0 million, respectively. Amortization expense for the three and nine months ended September 30, 2012 was $0.7 million and $2.0 million, respectively.

Mezzanine and Other Notes Receivable

The Company determined that approximately $13.2 million and $13.3 million of its mezzanine and other notes receivable were impaired at September 30, 2013 and December 31, 2012, respectively. The Company recorded allowance for credit losses on these impaired loans at September 30, 2013 and December 31, 2012 totaling $8.5 million and $8.3 million, respectively, resulting in a carrying value of impaired loans of $4.7 million and $5.0 million, respectively. The Company recognized approximately $81 thousand and $0.2 million of interest income on impaired loans during the three and nine months ended September 30, 2013, respectively, on the cash basis. The Company recognized approximately $38 thousand and $100 thousand of interest income on impaired loans during the three and nine months ended September 30, 2012, respectively, on the cash basis. The Company provided loan reserves on non-impaired loans totaling $1.4 million and $0.6 million at September 30, 2013 and December 31, 2012, respectively.

Past due balances of mezzanine and other notes receivable by credit quality indicators are as follows:



	30-89 days Past Due		> 90 days Past Due		Total Past Due		Current		Total Notes Receivable
	($ in thousands)
As of September 30, 2013
Senior	$	9,500	$	—	$	9,500	$	18,048	$	27,548
Subordinated	—		10,268		10,268		4,573		14,841
Unsecured	—		47		47		1,765		1,812
	$	9,500	$	10,315	$	19,815	$	24,386	$	44,201
As of December 31, 2012
Senior	$	—	$	—	$	—	$	27,549	$	27,549
Subordinated	619		9,629		10,248		4,771		15,019
Unsecured	—		47		47		1,218		1,265
	$	619	$	9,676	$	10,295	$	33,538	$	43,833

Subsequent to September 30, 2013, the amounts reflected in the 30-89 past due column for senior mezzanine notes receivable totaling $9.5 million were repaid in full.

Loans Acquired with Deteriorated Credit Quality

On December 2, 2011, the Company acquired an $11.5 million mortgage, held on a franchisee hotel asset, from a financial institution for $7.9 million. At the time of acquisition, the Company determined that it would be unable to collect all contractually required payments under the original mortgage terms. The contractually required payments receivable, including principal and interest, under the terms of the acquired mortgage totaled $12.0 million. The Company expects to collect $9.7 million of these contractually required payments. No prepayments were considered in the determination of contractual cash flows and cash flows expected to be collected. At both September 30, 2013 and December 31, 2012, the carrying amount of this loan, which is reported under senior mezzanine and other notes receivables, was $7.9 million and there was no allowance for uncollectable amounts. The Company's accretable yield at acquisition was $1.8 million or 7.36% and a reconciliation of the accretable yield for the nine months ended September 30, 2013 is as follows:



	Accretable Yield ($ in thousands)
Balance, December 31, 2012	$	1,161
Additions	—
Accretion	(433		)
Disposals	—
Reclassifications from nonaccretable yield	—
Balance, September 30, 2013	$	728