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Portfolio Assets

6 Months Ended

Jun. 30, 2011

(5) Portfolio Assets

Portfolio Assets are summarized as follows:

	June 30, 2011
	(Dollars in thousands)
	Carrying		Allowance for		Carrying
	Value		Loan Losses		Value, net
Loan Portfolios:
Purchased Credit-Impaired Loans
Domestic:
Commercial real estate	$	87,586	$	546	$	87,040
Business assets	13,740		183		13,557
Other	4,365		99		4,266
Latin America:
Commercial real estate	4,175		339		3,836
Residential real estate	6,312		—		6,312
Europe - commercial real estate	4,368		52		4,316
UBN loan portfolio - business assets:
Non-performing loans	48,397		46,233		2,164
Performing loans	1,250		—		1,250
Other	6,202		12		6,190
Total Loan Portfolios	$	176,395	$	47,464	128,931

Real Estate Portfolios:
Real estate held for sale, net					26,489
Real estate held for investment, net					6,809
Total Real Estate Portfolios					33,298

Total Portfolio Assets					$	162,229

	December 31, 2010
	(Dollars in thousands)
	Carrying		Allowance for		Carrying
	Value		Loan Losses		Value, net
Loan Portfolios:
Purchased Credit-Impaired Loans
Domestic:
Commercial real estate	$	117,534	$	354	$	117,180
Business assets	17,796		252		17,544
Other	4,889		90		4,799
Latin America:
Commercial real estate	4,013		260		3,753
Residential real estate	6,144		—		6,144
Europe - commercial real estate	18,046		866		17,180
UBN loan portfolio - business assets:
Non-performing loans	45,328		43,291		2,037
Performing loans	1,125		—		1,125
Other	3,263		49		3,214
Total Loan Portfolios	$	218,138	$	45,162	172,976

Real Estate Portfolios:
Real estate held for sale, net					36,126
Real estate held for investment, net					6,959
Total Real Estate Portfolios					43,085

Total Portfolio Assets					$	216,061

Certain Portfolio Assets are pledged to secure a loan facility with Bank of Scotland (see Note 9). In addition, certain Portfolio Assets are pledged to secure notes payable of certain consolidated affiliates of FirstCity that are generally non-recourse to FirstCity or any affiliate other than the entity that incurred the debt.

Income from Portfolio Assets is summarized as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
	(Dollars in thousands)
Loan Portfolios:
Purchased Credit-Impaired Loans	$	7,850	$	12,716	$	20,177	$	22,740
Purchased performing loans	194		66		286		126
UBN	455		92		542		636
Other	89		99		143		388
Real Estate Portfolios	510		1,649		790		2,195
Income from Portfolio Assets	$	9,098	$	14,622	$	21,938	$	26,085

Accretable yield represents the amount of income the Company can expect to generate over the remaining life of its existing Purchased Credit-Impaired Loans based on estimated future cash flows as of June 30, 2011 and December 31, 2010. Reclassifications from nonaccretable difference to accretable yield primarily result from the Company’s increase in its estimates of future cash flows on Purchased Credit-Impaired Loans, whereas reclassifications to nonaccretable difference from accretable yield primarily result from the Company’s decrease in its estimates of future cash flows on these loans. Transfers from (to) non-accrual primarily result from adjustments to the income-recognition method applied to Purchased Credit-Impaired Loans based on management’s ability to reasonably estimate both the timing and amount of future cash flows (see Note 1). Changes in accretable yield related to the Company’s Purchased Credit-Impaired Loans for the three- and six-month periods ended June 30, 2011 and 2010 are as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
	(Dollars in thousands)
Beginning Balance	$	19,980		$	10,176		$	1,380		$	12,923
Additions	—			—			—			—
Accretion	(1,137		)	(222		)	(2,668		)	(2,126		)
Reclassification from (to) nonaccretable difference	2,669			(2,493		)	2,895			(2,142		)
Disposals	(1,920		)	(2,082		)	(3,302		)	(2,941		)
Transfer from (to) non-accrual	8,052			(2,885		)	29,325			(3,039		)
Translation adjustments	7			(45		)	21			(226		)
Ending Balance	$	27,651		$	2,449		$	27,651		$	2,449

Acquisitions of Purchased Credit-Impaired Loans for the three- and six-month periods ended June 30, 2011 and 2010, respectively, are summarized in the table below:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
	(Dollars in thousands)
Face value at acquisition	$	1,574	$	17,219	$	5,711	$	51,756
Cash flows expected to be collected at acquisition, net of adjustments	1,270		9,819		5,480		38,618
Basis in acquired loans at acquisition	976		6,251		4,080		24,365

During the six-month period ended June 30, 2011, the Company sold loan Portfolio Assets with an aggregate carrying value of $39.9 million — which included $21.9 million of loans (plus real estate and certain other assets) that were sold to a European securitization entity (formed by an affiliate of Värde) in February 2011. FirstCity has a 13% beneficial interest in this securitization entity, and accounts for this investment as an available-for-sale security. The Company sold loan Portfolio Assets with an aggregate carrying value of $5.5 million during the six-month period ended June 30, 2010.

For the six-month period ended June 30, 2011, the Company recorded provisions for loan and impairment losses, net of recoveries, through a charge to income of $0.6 million — which was comprised of a $0.3 million provision for loan losses, net of recoveries, and a $0.3 million impairment charge on real estate portfolios. For the six-month period ended June 30, 2010, the Company recorded provisions for loan and impairment losses, net of recoveries, by a charge to income of $2.6 million — which is composed of a $1.9 million provision for loan losses, net of recoveries, and a $0.7 million impairment charge on real estate portfolios.

Changes in the allowance for loan losses related to our loan Portfolio Assets for the three- and six-month periods ended June 30, 2011, are as follows:

	Purchased Credit-Impaired Loans													Other
	Domestic									Latin America		Europe
	Commercial			Business						Commercial		Commercial
(dollars in thousands)	Real Estate			Assets			Other			Real Estate		Real Estate		UBN			Other			Total
Beginning balance, April 1, 2011	$	422		$	244		$	90		$	287	$	50	$	45,084		$	49		$	46,226
Provisions	371			205			18			32		—		—			16			642
Recoveries	(19		)	(7		)	—			—		—		(607		)	(19		)	(652		)
Charge offs	(228		)	(259		)	(9		)	—		—		—			(34		)	(530		)
Translation adjustments	—			—			—			20		2		1,756			—			1,778
Ending balance, June 30, 2011	$	546		$	183		$	99		$	339	$	52	$	46,233		$	12		$	47,464

	Purchased Credit-Impaired Loans														Other
	Domestic									Latin America		Europe
	Commercial			Business						Commercial		Commercial
(dollars in thousands)	Real Estate			Assets			Other			Real Estate		Real Estate			UBN			Other			Total
Beginning balance, January 1, 2011	$	354		$	252		$	90		$	260	$	866		$	43,291		$	49		$	45,162
Provisions	607			352			18			49		—			—			16			1,042
Recoveries	(32		)	(7		)	—			—		—			(641		)	(19		)	(699		)
Charge offs	(383		)	(414		)	(9		)	—		(856		)	—			(34		)	(1,696		)
Translation adjustments	—			—			—			30		42			3,583			—			3,655
Ending balance, June 30, 2011	$	546		$	183		$	99		$	339	$	52		$	46,233		$	12		$	47,464

Changes in the allowance for loan losses related to our loan Portfolio Assets for the three- and six-month periods ended June 30, 2010, are as follows:

	Purchased Credit-Impaired Loans															Other
	Domestic									Latin America			Europe
	Commercial			Business						Commercial			Commercial
(dollars in thousands)	Real Estate			Assets			Other			Real Estate			Real Estate			UBN			Other			Total
Beginning balance, April 1, 2010	$	4,991		$	393		$	398		$	163		$	319		$	53,297		$	292		$	59,853
Provisions	607			132			79			56			164			—			75			1,113
Recoveries	(63		)	—			(7		)	—			—			(227		)	—			(297		)
Charge offs	(5,402		)	(249		)	(434		)	—			(243		)	(3,110		)	(288		)	(9,726		)
Translation adjustments	—			—			—			(2		)	(35		)	(5,187		)	—			(5,224		)
Ending balance, June 30, 2010	$	133		$	276		$	36		$	217		$	205		$	44,773		$	79		$	45,719

	Purchased Credit-Impaired Loans														Other
	Domestic									Latin America		Europe
	Commercial			Business						Commercial		Commercial
(dollars in thousands)	Real Estate			Assets			Other			Real Estate		Real Estate			UBN			Other			Total
Beginning balance, January 1, 2010	$	5,914		$	394		$	390		$	100	$	128		$	58,624		$	275		$	65,825
Provisions	1,485			142			87			117		368			—			126			2,325
Recoveries	(70		)	—			(7		)	—		—			(382		)	(1		)	(460		)
Charge offs	(7,196		)	(260		)	(434		)	—		(243		)	(2,955		)	(321		)	(11,409		)
Translation adjustments	—			—			—			—		(48		)	(10,514		)	—			(10,562		)
Ending balance, June 30, 2010	$	133		$	276		$	36		$	217	$	205		$	44,773		$	79		$	45,719

The following table presents our recorded investment in loan Portfolio Assets by credit quality indicator. Our loan Portfolio Assets, which are primarily comprised of Purchased Credit-Impaired Loans, are categorized by credit quality indicators based on the common risk characteristics (such as collateral type) that management generally uses for pooling purposes (when management elects to pool purchased loans).

	June 30,
	2011
	(Dollars in thousands)
Commercial real estate	$	95,192
Business assets	16,971
Residential real estate	6,312
Other commercial	10,456
	$	128,931