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 Company considers loans to be past due and in default when payments are not made when due. Although the Company considers loans to be in default if payments are not received on the due date, the Company does not suspend the accrual of interest until those payments are more than 30 days past due. The Company applies payments received for loans on non-accrual status first to interest and then principal. The Company does not resume interest accrual until all delinquent payments are received. For impaired loans, the Company recognizes interest income on a cash basis.

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



	September 30, 2015						December 31, 2014
	(in thousands)						(in thousands)
Credit Quality Indicator	Forgivable Notes Receivable		Mezzanine & Other Notes Receivable		Total		Forgivable Notes Receivable		Mezzanine & Other Notes Receivable		Total
Senior	$	—	$	29,700	$	29,700	$	—	$	10,152	$	10,152
Subordinated	—		6,215		6,215		—		3,863		3,863
Unsecured	43,435		3,695		47,130		32,379		3,995		36,374
Total notes receivable	43,435		39,610		83,045		32,379		18,010		50,389
Allowance for losses on non-impaired loans	4,571		1,451		6,022		3,661		1,540		5,201
Allowance for losses on receivables specifically evaluated for impairment	—		786		786		—		786		786
Total loan reserves	4,571		2,237		6,808		3,661		2,326		5,987
Net carrying value	$	38,864	$	37,373	$	76,237	$	28,718	$	15,684	$	44,402
Current portion, net	$	148	$	2,333	$	2,481	$	124	$	3,837	$	3,961
Long-term portion, net	38,716		35,040		73,756		28,594		11,847		40,441
Total	$	38,864	$	37,373	$	76,237	$	28,718	$	15,684	$	44,402

The Company classifies notes receivable due within one year as other current 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 for the nine months ended September 30, 2015:



	Forgivable Notes Receivable			Mezzanine & Other Notes Receivable
	(in thousands)
Beginning balance	$	3,661		$	2,326
Provisions	1,471			—
Recoveries	(498		)	(89		)
Write-offs	(511		)	—
Other⁽¹⁾	448			—
Ending balance	$	4,571		$	2,237

(1) Consists of default rate assumption changes

Forgivable Notes Receivable

As of September 30, 2015 and December 31, 2014, the unamortized balance of the Company's forgivable notes receivable totaled $43.4 million and $32.4 million, respectively. The Company recorded an allowance for credit losses on these forgivable notes receivable of $4.6 million and $3.7 million at September 30, 2015 and December 31, 2014, respectively. Amortization expense included in the accompanying consolidated statements of income related to the notes for the three months ended September 30, 2015 and 2014 was $2.1 million and $1.2 million, respectively. Amortization expense for the nine months ended September 30, 2015 and 2014 was $6.0 million and $3.6 million, respectively.

Past due balances of forgivable notes receivable 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, 2015
Forgivable Notes	$	—	$	1,191	$	1,191	$	42,244	$	43,435
	$	—	$	1,191	$	1,191	$	42,244	$	43,435

As of December 31, 2014
Forgivable Notes	$	—	$	1,227	$	1,227	$	31,152	$	32,379
	$	—	$	1,227	$	1,227	$	31,152	$	32,379

Mezzanine and Other Notes Receivable

The Company determined that approximately $0.8 million of its mezzanine and other notes receivable were impaired at both September 30, 2015 and December 31, 2014, respectively. The Company recorded allowance for credit losses on these impaired loans at both September 30, 2015 and December 31, 2014 totaling $0.8 million. For the nine months ended September 30, 2015 and 2014, the average mezzanine and other notes receivable on non-accrual status was approximately $0.8 million and $12.2 million, respectively. The Company recognized approximately $0 and $33 thousand of interest income on impaired loans during the three and nine months ended September 30, 2015, respectively, on the cash basis. The Company recognized approximately $11 thousand and $87 thousand of interest income on impaired loans during the three and nine months ended September 30, 2014. The Company provided loan reserves on non-impaired loans totaling $1.5 million at both September 30, 2015 and December 31, 2014.

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, 2015
Senior	$	—	$	—	$	—	$	29,700	$	29,700
Subordinated	—		—		—		6,215		6,215
Unsecured	—		47		47		3,648		3,695
	$	—	$	47	$	47	$	39,563	$	39,610
As of December 31, 2014
Senior	$	—	$	—	$	—	$	10,152	$	10,152
Subordinated	—		—		—		3,863		3,863
Unsecured	—		47		47		3,948		3,995
	$	—	$	47	$	47	$	17,963	$	18,010