Notes Receivable and Allowance for Losses

9 Months Ended

Sep. 30, 2018

Accounts and Notes Receivable, Net [Abstract]

Notes Receivable and Allowance for Losses

Notes Receivable and Allowance for Losses

The following table shows the composition of the Company's notes receivable balances:

	September 30, 2018		December 31, 2017
Credit Quality Indicator	(in thousands)
Senior	$	89,568	$	73,700
Subordinated	25,728		18,647
Unsecured	2,517		3,182
Total notes receivable	117,813		95,529
Allowance for losses on non-impaired loans	490		490
Allowance for losses on receivables specifically evaluated for impairment	1,647		1,647
Total loan reserves	2,137		2,137
Net carrying value	$	115,676	$	93,392
Current portion, net	$	32,642	$	13,256
Long-term portion, net	83,034		80,136
Total	$	115,676	$	93,392

The Company utilizes the level of security it has in the notes receivable as its primary credit quality indicator (i.e., senior, subordinated or unsecured) when determining the appropriate allowances for uncollectible loans. 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 Company determined that approximately $1.7 million and $1.8 million of its subordinated notes receivable were impaired at September 30, 2018 and December 31, 2017, respectively, and recorded allowance for credit losses on these impaired loans totaling $1.6 million at both September 30, 2018 and December 31, 2017. The average notes receivable on non-accrual status was approximately $1.8 million for both the nine months ended September 30, 2018 and 2017, respectively. Approximately $43 thousand and $44 thousand of interest income on impaired loans was recognized on a cash basis during the nine months ended September 30, 2018 and 2017, respectively. The Company provided loan reserves on non-impaired loans totaling $0.5 million at September 30, 2018 and December 31, 2017. There were no changes in total loan reserves between December 31, 2017 and September 30, 2018.

The Company has identified loans totaling approximately $10.8 million and $2.1 million, respectively, with stated interest rates that are less than market rate, representing a total discount of $1.6 million and $0.1 million as of September 30, 2018 and December 31, 2017, respectively. These discounts are reflected as a reduction of the outstanding loan amounts and are amortized over the life of the related loan.

Past due balances of 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
As of September 30, 2018	(in thousands)
Senior	$	—	$	—	$	—	$	89,568	$	89,568
Subordinated	—		—		—		25,728		25,728
Unsecured	—		—		—		2,517		2,517
	$	—	$	—	$	—	$	117,813	$	117,813
As of December 31, 2017
Senior	$	—	$	—	$	—	$	73,700	$	73,700
Subordinated	—		—		—		18,647		18,647
Unsecured	—		—		—		3,182		3,182
	$	—	$	—	$	—	$	95,529	$	95,529

Variable Interest through Notes Issued

The Company has issued notes receivables to certain entities that have created variable interests in these borrowers totaling $59.4 million and $35.2 million as of September 30, 2018 and December 31, 2017, respectively. The Company has determined that it is not the primary beneficiary of these variable interest entities ("VIEs"). Each of these loans have stated fixed and/or variable interest amounts.

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. In the first quarter of 2018, an additional $0.2 million was transferred for a total of $24.4 million. The transaction did not qualify as a sale and therefore the outstanding note receivable was not de-recognized 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.  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. As of September 30, 2018 and December 31, 2017, Other long-term liabilities includes $24.4 million and $24.2 million, respectively, pursuant to this transaction.