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 the Company's notes receivable balances:



	September 30, 2017						December 31, 2016
	(in thousands)						(in thousands)
Credit Quality Indicator	Forgivable Notes Receivable		Mezzanine & Other Notes Receivable		Total		Forgivable Notes Receivable		Mezzanine & Other Notes Receivable		Total
Senior	$	—	$	70,616	$	70,616	$	—	$	61,482	$	61,482
Subordinated	—		18,526		18,526		—		9,336		9,336
Unsecured	66,698		3,476		70,174		51,475		3,618		55,093
Total notes receivable	66,698		92,618		159,316		51,475		74,436		125,911
Allowance for losses on non-impaired loans	6,307		770		7,077		5,013		770		5,783
Allowance for losses on receivables specifically evaluated for impairment	—		1,647		1,647		—		1,647		1,647
Total loan reserves	6,307		2,417		8,724		5,013		2,417		7,430
Net carrying value	$	60,391	$	90,201	$	150,592	$	46,462	$	72,019	$	118,481
Current portion, net	$	429	$	10,360	$	10,789	$	333	$	7,540	$	7,873
Long-term portion, net	59,962		79,841		139,803		46,129		64,479		110,608
Total	$	60,391	$	90,201	$	150,592	$	46,462	$	72,019	$	118,481

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, 2017:



	Forgivable Notes Receivable			Mezzanine & Other Notes Receivable
	(in thousands)
Beginning balance	$	5,013		$	2,417
Provisions	1,936			—
Recoveries	(172		)	—
Write-offs	(11		)	—
Other⁽¹⁾	(459		)	—
Ending balance	$	6,307		$	2,417

(1) Consists of changes in foreign currency exchange rates and default rate assumption changes

Variable Interest through Notes Issued

The Company has issued mezzanine and other notes receivables to certain entities that have created variable interests in these borrowers totaling $33.6 million as of September 30, 2017. The Company has determined that it is not the primary beneficiary of these variable interest entities. Each of these loans have stated fixed and/or variable interest amounts. The Company has identified loans totaling approximately $2.1 million with stated interest rates that are less than market rate, representing a total discount of $0.1 million. These discounts are reflected as a reduction of the outstanding loan amounts and are amortized over the life of the related loan.

Forgivable Notes Receivable

As of September 30, 2017 and December 31, 2016, the unamortized balance of the Company's forgivable notes receivable totaled $66.7 million and $51.5 million, respectively. The Company recorded an allowance for credit losses on these forgivable notes receivable of $6.3 million and $5.0 million at September 30, 2017 and December 31, 2016, respectively. Amortization expense included in the accompanying consolidated statements of income related to the notes for the three months ended September 30, 2017 and 2016 was $2.6 million and $2.3 million, respectively. Amortization expense included in the accompanying consolidated statements of income related to the notes for the nine months ended September 30, 2017 and 2016 was $7.5 million and $6.7 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, 2017
Forgivable Notes	$	24	$	1,591	$	1,615	$	65,083	$	66,698
	$	24	$	1,591	$	1,615	$	65,083	$	66,698

As of December 31, 2016
Forgivable Notes	$	116	$	1,349	$	1,465	$	50,010	$	51,475
	$	116	$	1,349	$	1,465	$	50,010	$	51,475

Mezzanine and Other Notes Receivable

The Company determined that approximately $1.8 million and $1.9 million of its subordinated mezzanine and other notes receivable were impaired at September 30, 2017 and December 31, 2016, respectively, and recorded allowance for credit losses on these impaired loans totaling $1.6 million at both September 30, 2017 and December 31, 2016. The average mezzanine and other notes receivable on non-accrual status was approximately $1.8 million and $1.4 million for the nine months ended September 30, 2017 and 2016, respectively. The Company recognizes interest income for impaired loans on a cash basis. Approximately $44 thousand and $43 thousand of interest income on impaired loans was recognized during the nine months ended September 30, 2017, and 2016, respectively. The Company provided loan reserves on non-impaired loans totaling $0.8 million at September 30, 2017 and December 31, 2016.

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, 2017
Senior	$	—	$	—	$	—	$	70,616	$	70,616
Subordinated	—		—		—		18,526		18,526
Unsecured	—		—		—		3,476		3,476
	$	—	$	—	$	—	$	92,618	$	92,618
As of December 31, 2016
Senior	$	—	$	—	$	—	$	61,482	$	61,482
Subordinated	—		—		—		9,336		9,336
Unsecured	—		—		—		3,618		3,618
	$	—	$	—	$	—	$	74,436	$	74,436

Transfer of interest

On September 12, 2017, the Company entered into an agreement to transfer $24.2 million of a $49.1 million outstanding note receivable with a maturity date of November 30, 2019 to a third party. The transaction did not qualify as a sale and therefore the outstanding note receivable was not derecognized on the balance sheet. The one-time cash proceeds were recorded as unrestricted cash and the future obligation to transfer principal and interest received under the note has been recorded within Other Long-Term liabilities. In addition, the proceeds from the transfer of the interest in the note receivable have been reflected on the statement of cash flows as a financing activity. The Company retains responsibility for collecting and distributing cash received on the note and interest paid to the participant is reflected as interest expense in the Company’s consolidated statements of income. At September 30, 2017, Other Long-Term liabilities includes $24.2 million pursuant to this transaction.