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Portfolio Assets

9 Months Ended

Sep. 30, 2011

(5) Portfolio Assets

Portfolio Assets are summarized as follows:

	September 30, 2011
	(Dollars in thousands)
	Carrying		Allowance for		Carrying
	Value		Loan Losses		Value, net
Loan Portfolios:
Purchased Credit-Impaired Loans
Domestic:
Commercial real estate	$	78,681	$	276	$	78,405
Business assets	12,104		176		11,928
Other	4,122		38		4,084
Latin America:
Commercial real estate	3,718		317		3,401
Residential real estate	5,818		—		5,818
Europe - commercial real estate	4,103		53		4,050
UBN loan portfolio - business assets:
Non-performing loans	48,115		46,038		2,077
Performing loans	1,282		—		1,282
Other	6,146		—		6,146
Total Loan Portfolios	$	164,089	$	46,898	117,191

Real Estate Portfolios:
Real estate held for sale, net					22,406
Real estate held for investment, net					6,809
Total Real Estate Portfolios					29,215

Total Portfolio Assets					$	146,406

	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				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
	(Dollars in thousands)
Loan Portfolios:
Purchased Credit-Impaired Loans	$	11,286	$	6,051	$	31,463	$	28,791
Purchased performing loans	86		87		372		213
UBN	404		130		946		766
Other	30		1,245		173		1,633
Real Estate Portfolios	158		682		948		2,877
Income from Portfolio Assets	$	11,964	$	8,195	$	33,902	$	34,280

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 September 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 nine-month periods ended September 30, 2011 and 2010 are as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
	(Dollars in thousands)
Beginning Balance	$	27,651		$	2,449		$	1,380		$	12,923
Accretion	(1,242		)	(37		)	(3,910		)	(2,163		)
Reclassification from (to) nonaccretable difference	35			4			2,930			(2,138		)
Disposals	(2,148		)	328			(5,450		)	(2,613		)
Transfer from (to) non-accrual	1,532			—			30,857			(3,039		)
Translation adjustments	(10		)	6			11			(220		)
Ending Balance	$	25,818		$	2,750		$	25,818		$	2,750

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
	(Dollars in thousands)
Face value at acquisition	$	15,129	$	11,390	$	20,840	$	63,146
Cash flows expected to be collected at acquisition, net of adjustments	11,351		12,939		16,831		51,557
Basis in acquired loans at acquisition	8,451		8,267		12,531		32,632

During the nine-month period ended September 30, 2011, the Company sold loan Portfolio Assets with an aggregate carrying value of $41.4 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 $7.9 million during the nine-month period ended September 30, 2010.

For the nine-month period ended September 30, 2011, the Company recorded provisions for loan and impairment losses, net of recoveries, through a charge to income of $2.0 million — which was comprised of a $0.8 million provision for loan losses, net of recoveries, and a $1.2 million impairment charge on real estate portfolios. For the nine-month period ended September 30, 2010, the Company recorded provisions for loan and impairment losses, net of recoveries, by a charge to income of $6.7 million — which was comprised of a $2.7 million provision for loan losses, net of recoveries, and a $4.0 million impairment charge on real estate portfolios.

Changes in the allowance for loan losses related to our loan Portfolio Assets for the three- and nine-month periods ended September 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, July 1, 2011	$	546		$	183		$	99		$	339		$	52	$	46,233		$	12		$	47,464
Provisions	514			49			6			8			—		—			—			577
Recoveries	(17		)	—			(7		)	—			—		(78		)	(9		)	(111		)
Charge offs	(767		)	(56		)	(60		)	—			1		(701		)	(3		)	(1,586		)
Translation adjustments	—			—			—			(30		)	—		584			—			554
Ending balance, September 30, 2011	$	276		$	176		$	38		$	317		$	53	$	46,038		$	—		$	46,898

	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	1,121			401			24			57		—			—			16			1,619
Recoveries	(49		)	(7		)	(7		)	—		—			(719		)	(28		)	(810		)
Charge offs	(1,150		)	(470		)	(69		)	—		(855		)	(701		)	(37		)	(3,282		)
Translation adjustments	—			—			—			—		42			4,167			—			4,209
Ending balance, September 30, 2011	$	276		$	176		$	38		$	317	$	53		$	46,038		$	—		$	46,898

Changes in the allowance for loan losses related to our loan Portfolio Assets for the three- and nine-month periods ended September 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, July 1, 2010	$	133		$	276		$	36	$	217		$	205	$	44,773		$	79		$	45,719
Provisions	505			265			54		3			116		—			—			943
Recoveries	—			(1		)	—		—			—		(138		)	(15		)	(154		)
Charge offs	(196		)	(327		)	—		—			—		—			—			(523		)
Translation adjustments	—			—			—		(3		)	13		1,583			—			1,593
Ending balance, September 30, 2010	$	442		$	213		$	90	$	217		$	334	$	46,218		$	64		$	47,578

	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	1,990			407			141			120			484			—			126			3,268
Recoveries	(70		)	(1		)	(7		)	—			—			(520		)	(16		)	(614		)
Charge offs	(7,392		)	(587		)	(434		)	—			(243		)	(2,955		)	(321		)	(11,932		)
Translation adjustments	—			—			—			(3		)	(35		)	(8,931		)	—			(8,969		)
Ending balance, September 30, 2010	$	442		$	213		$	90		$	217		$	334		$	46,218		$	64		$	47,578

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).

	September 30,
	2011
	(Dollars in thousands)
Commercial real estate	$	85,856
Business assets	15,287
Residential real estate	5,818
Other commercial	10,230
	$	117,191