Loans Receivable

3 Months Ended

Mar. 31, 2012

Loans Receivable

Loans Receivable

(5)  Loans Receivable

The following is a composition of the Company’s loans receivable by loan type and region:  

	March 31,		December 31,
	2012		2011
	(Dollars in thousands)
Domestic:
Commercial loans:
Affiliates	$	6,677	$	6,719
SBA, net of allowance for loan losses of $441 and $333, respectively	22,649		26,765
Other, net of allowance for loan losses of $1,083 and $1,083, respectively	10,129		12,212
Total loans, net	$	39,455	$	45,696

Loans receivable — SBA held for sale

Loans receivable — SBA held for sale are summarized as follows:

	March 31,		December 31,
	2012		2011
	(Dollars in thousands)
Outstanding balance	$	3,212	$	7,483
Capitalized costs, net of fees	48		131
Carrying amount of loans, net	$	3,260	$	7,614

Changes in loans receivable — SBA held for sale are as follows:

	Three Months Ended
	March 31,
	2012			2011
	(Dollars in thousands)
Beginning Balance	$	7,614		$	11,608
Originations and advances of loans	2,825			5,939
Payments received	(21		)	(27		)
Capitalized costs	(82		)	(49		)
Loans sold and transferred	(7,076		)	(9,702		)
Ending Balance	$	3,260		$	7,769

Loans receivable — SBA held for sale represent the portions of SBA loans originated or acquired by the Company that are guaranteed by the SBA. These loans are generally secured by assets such as accounts receivable, property and equipment, and other business assets. The Company did not record any write-downs of SBA loans held for sale below their cost for the three-month periods ended March 31, 2012 and 2011.

Loans receivable — affiliates

Loans receivable — affiliates, which are designated by management as held for investment, are summarized as follows:

	March 31,			December 31,
	2012			2011
	(Dollars in thousands)
Outstanding balance	$	6,390		$	6,518
Discounts, net	(37		)	(59		)
Capitalized interest	324			260
Carrying amount of loans, net	$	6,677		$	6,719

A summary of activity in loans receivable — affiliates follows:

	Three Months Ended
	March 31,
	2012			2011
	(Dollars in thousands)
Beginning Balance	$	6,719		$	16,781
Advances	—			700
Payments received	(128		)	(430		)
Capitalized costs	64			(132		)
Discount accretion, net	22			22
Loan transfer (1)	—			(1,402		)
Foreign exchange gains	—			97
Ending Balance	$	6,677		$	15,636

(1)Represents the sale and transfer of a loan to an affiliated entity as partial consideration for the repayment of a note payable to that affiliated entity.

Loans receivable — affiliates represent advances to Acquisition Partnerships and other affiliates to acquire portfolios of under-performing and non-performing commercial and consumer loans and other assets; and senior debt financing arrangements with equity-method investees to provide capital for business expansion and operations. Advances to affiliates to acquire loan portfolios are secured by the underlying collateral of the individual notes within the portfolios, which is generally real estate; whereas advances to affiliates for capital investments and working capital are generally secured by business assets (i.e. accounts receivable, inventory and equipment).

The Company did not record any provisions for impairment during the three-month periods ended March 31, 2012 and 2011. During the three-month period ended March 31, 2011, the Company sold an affiliated loan with a carrying value of $1.4 million. The Company did not sell any affiliated loans during the three-month period ended March 31, 2012. Information related to the credit quality and loan loss allowances related to loans receivable — affiliates is presented under the heading “Credit Quality and Allowance for Loan Losses — Loans Held for Investment” below.

Loans receivable — SBA held for investment, net

Loans receivable — SBA held for investment are summarized as follows:

	March 31,			December 31,
	2012			2011
	(Dollars in thousands)
Outstanding balance	$	20,943		$	20,503
Allowance for loan losses	(441		)	(333		)
Discounts, net	(1,423		)	(1,292		)
Capitalized costs	310			273
Carrying amount of loans, net	$	19,389		$	19,151

Changes in loans receivable — SBA held for investment are as follows:

	Three Months Ended
	March 31,
	2012			2011
	(Dollars in thousands)
Beginning Balance	$	19,151		$	15,415
Originations and advances of loans	942			680
Payments received	(358		)	(333		)
Capitalized costs	37			24
Change in allowance for loan losses	(108		)	(58		)
Discount accretion, net	(138		)	(68		)
Charge-offs	(137		)	(86		)
Ending Balance	$	19,389		$	15,574

Loans receivable — SBA held for investment represent the non-guaranteed portion of SBA loans purchased or originated by the Company. These loans are secured by assets such as accounts receivable, property and equipment, and other business assets. The Company recorded net impairment provisions on SBA loans held for investment of $0.2 million for the three-month period ended March 31, 2012. The impairment provision recorded by the Company for the three-month period ended March 31, 2011 was $0.1 million. Information related to the credit quality and loan loss allowances related to SBA loans held for investment is presented under the heading “Credit Quality and Allowance for Loan Losses — Loans Held for Investment” below.

Loans receivable — other

Loans receivable — other, which are designated by management as held for investment, are summarized as follows:

	March 31,			December 31,
	2012			2011
	(Dollars in thousands)
Outstanding balance	$	11,457		$	13,541
Allowance for loan losses	(1,083		)	(1,083		)
Capitalized interest and costs	(245		)	(246		)
Carrying amount of loans, net	$	10,129		$	12,212

Changes in loans receivable — other are as follows:

	Three Months Ended
	March 31,
	2012			2011
	(Dollars in thousands)
Beginning Balance	$	12,212		$	13,011
Advances	379			679
Payments received	(2,462		)	(748		)
Capitalized interest and costs	—			50
Discount accretion, net	—			11
Ending Balance	$	10,129		$	13,003

Loans receivable — other include loans made to non-affiliated entities and are secured by assets such as accounts receivable, inventory, property and equipment, real estate and various other assets. The Company did not record any provisions for impairment for the three-month periods ended March 31, 2012 and 2011. Information related to the credit quality and loan loss allowances related to loans receivable — other is presented under the heading “Credit Quality and Allowance for Loan Losses — Loans Held for Investment” below.

Credit Quality and Allowance for Loan Losses — Loans Held for Investment

The Company has established an allowance for loan losses to absorb probable, estimable losses inherent in its portfolio of loans receivable held for investment. This allowance for loan losses includes specific allowances, based on individual evaluations of certain loans and loan relationships, and allowances for pools of loans with similar risk characteristics. In determining the appropriate level of allowance, management uses information to stratify its portfolio of loans receivable held for investment into loan pools with common risk characteristics. Certain portions of the allowance are attributed to loan pools based on various factors and analyses. Loans deemed to be impaired, including loans with an increased probability of default as determined by management, are evaluated individually rather than on a pool basis. Management’s determination of the adequacy of the allowance is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Actual losses experienced in the future may vary from management’s estimates. Management attributes portions of the allowance to loans that it evaluates and determines to be impaired and to groups of loans that it evaluates collectively.

The following tables summarizes the activity in the allowance for loan losses by our portfolio of loans held for investment for the three-month periods ended March 31, 2012 and 2011:

	Allowance for Loan Losses:
(Dollars in thousands)	SBA held for investment			Affiliates		Other		Total
Balance, January 1, 2012	$	333		$	—	$	1,083	$	1,416
Provisions	251			—		—		251
Recoveries	(5		)	—		—		(5		)
Charge-offs	(138		)	—		—		(138		)
Balance, March 31, 2012	$	441		$	—	$	1,083	$	1,524
Balance, January 1, 2011	$	365		$	—	$	1,083	$	1,448
Provisions	153			—		—		153
Recoveries	(9		)	—		—		(9		)
Charge-offs	(86		)	—		—		(86		)
Balance, March 31, 2011	$	423		$	—	$	1,083	$	1,506

The following table presents an analysis of the allowance for loan losses and recorded investment in loans (excluding loans held for sale):

	Commercial Loans:
(Dollars in thousands)	SBA		Affiliates		Other		Total
March 31, 2012:
Loans individually evaluated for impairment	$	703	$	6,677	$	11,212	$	18,592
Loans collectively evaluated for impairment	19,127		—		—		19,127
Total loans evaluated for impairment (excluding loans held for sale)	$	19,830	$	6,677	$	11,212	$	37,719
Allowance for loans individually evaluated for impairment	$	321	$	—	$	1,083	$	1,404
Allowance for loans collectively evaluated for impairment	120		—		—		120
Total allowance for loan losses	$	441	$	—	$	1,083	$	1,524
December 31, 2011:
Loans individually evaluated for impairment	$	404	$	6,719	$	13,295	$	20,418
Loans collectively evaluated for impairment	19,080		—		—		19,080
Total loans evaluated for impairment (excluding loans held for sale)	$	19,484	$	6,719	$	13,295	$	39,498
Allowance for loans individually evaluated for impairment	$	308	$	—	$	1,083	$	1,391
Allowance for loans collectively evaluated for impairment	25		—		—		25
Total allowance for loan losses	$	333	$	—	$	1,083	$	1,416

The following tables present our recorded investment in loans (excluding loans held for sale) by credit quality indicator as of March 31, 2012 and December 31, 2011. SBA commercial loans are detailed by categories related to underlying credit quality and are defined below:

·Pass — Includes all loans not included in categories of special mention, substandard or doubtful.

·Special Mention — Loans that have potential weaknesses which may, if not reversed or corrected, weaken the credit or inadequately protect the Company’s position at some future date. Loans in this category may also be subject to economic or market conditions which may, in the future, have an adverse effect on the borrower’s debt service ability.

·Substandard — Loans that exhibit a well-defined weakness, or weaknesses, which presently jeopardizes debt repayment, even though they may be currently performing. These loans are characterized by the distinct possibility that the Company may incur a loss in the future if these weaknesses are not corrected.

·Doubtful — Loans for which management has determined that full collection of principal or interest is in doubt.

Classes in the affiliated and non-affiliated portfolio asset and commercial loan portfolios are disaggregated by accrual status (which is generally based on management’s assessment on the probability of default).

			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
March 31, 2012:
SBA - commercial loans	$	15,714	$	3,314	$	372	$	430	$	19,830

	Accrual		Non-Accrual		Total
Affiliates - commercial loans	$	6,677	$	—	$	6,677
Other - commercial loans	2,529		8,683		11,212
	$	9,206	$	8,683	$	17,889
Total loans (excluding loans held for sale)					$	37,719

			Special
	Pass		Mention		Substandard		Doubtful		Total
December 31, 2011:
SBA - commercial loans	$	15,325	$	3,648	$	107	$	404	$	19,484

	Accrual		Non-Accrual		Total
Affiliates - commercial loans	$	6,719	$	—	$	6,719
Other - commercial loans	4,398		8,897		13,295
	$	11,117	$	8,897	$	20,014
Total loans (excluding loans held for sale)					$	39,498

The following tables include an aging analysis of our recorded investment in loans held for investment as of March 31, 2012 and December 31, 2011:

	Loans Past Due and Still Accruing
	31-60		61-90				Non-Accrual		Current		Total
(Dollars in thousands)	Days		Days		Total		Loans		Loans		Loans
March 31, 2012:
Commercial loans:
SBA	$	—	$	104	$	104	$	703	$	19,023	$	19,830
Affiliates	—		—		—		—		6,677		6,677
Other	—		—		—		8,683		2,529		11,212
Total loans (excluding loans held for sale)	$	—	$	104	$	104	$	9,386	$	28,229	$	37,719
December 31, 2011:
Commercial loans:
SBA	$	—	$	—	$	—	$	404	$	19,080	$	19,484
Affiliates	—		—		—		—		6,719		6,719
Other	—		—		—		8,897		4,398		13,295
Total loans (excluding loans held for sale)	$	—	$	—	$	—	$	9,301	$	30,197	$	39,498

The following table presents additional information regarding the Company’s impaired loans as of March 31, 2012 and December 31, 2011:

	Recorded Investment In:
	Impaired		Impaired
	Loans		Loans								Average
	Without a		With a		Total		Unpaid		Related		Impaired
	Related		Related		Impaired		Principal		Valuation		Loans for
(Dollars in thousands)	Allowance		Allowance		Loans		Balance		Allowance		the Year
March 31, 2012:
Commercial loans:
SBA	$	—	$	703	$	703	$	737	$	321	$	796
Affiliates	—		—		—		—		—		—
Other	5,713		2,970		8,683		10,311		1,083		8,786
Total loans (excluding loans held for sale)	$	5,713	$	3,673	$	9,386	$	11,048	$	1,404	$	9,582
December 31, 2011:
Commercial loans:
SBA	$	—	$	404	$	404	$	425	$	308	$	652
Affiliates	—		—		—		—		—		—
Other	5,897		3,000		8,897		10,569		1,083		9,648
Total loans (excluding loans held for sale)	$	5,897	$	3,404	$	9,301	$	10,994	$	1,391	$	10,300

The Company did not recognize any significant amounts of interest income on impaired loans during the three-month periods ended March 31, 2012 and 2011.