Portfolio Assets

6 Months Ended

Jun. 30, 2012

Portfolio Assets

Portfolio Assets

(4)  Portfolio Assets

Portfolio Assets are summarized as follows:

	June 30, 2012
	(Dollars in thousands)
	Carrying		Allowance for		Carrying
	Value		Loan Losses		Value, net
Loan Portfolios:
Purchased Credit-Impaired Loans
Domestic:
Commercial real estate	$	47,211	$	415	$	46,796
Business assets	9,229		170		9,059
Other	3,253		12		3,241
Europe - commercial real estate	3,820		—		3,820
Other	5,457		20		5,437
Total Loan Portfolios	$	68,970	$	617	68,353
Real estate held for sale, net					14,320
Total Portfolio Assets					$	82,673

	December 31, 2011
	(Dollars in thousands)
	Carrying		Allowance for		Carrying
	Value		Loan Losses		Value, net
Loan Portfolios:
Purchased Credit-Impaired Loans
Domestic:
Commercial real estate	$	73,154	$	553	$	72,601
Business assets	10,742		185		10,557
Other	3,754		38		3,716
Latin America - commercial real estate	50		—		50
Europe - commercial real estate	4,267		—		4,267
Other	5,904		5		5,899
Total Loan Portfolios	$	97,871	$	781	97,090
Real estate held for sale, net					26,856
Total Portfolio Assets					$	123,946

Certain Portfolio Assets are pledged to secure a loan facility with Bank of Scotland and Bank of America (see Note 8). 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.

In March 2012, a real estate property with a carrying value of $6.9 million (owned by a subsidiary under the Company’s Special Situations Platform business segment) was acquired by the creditor holding the mortgage secured by this property in a foreclosure transaction. The Company had the legal right to bring the account into good standing by paying all past due payments; however, the Company believed it would be unable to facilitate a positive cash flow on the property for an extended period of time based on local economic conditions. Management further believed that the property’s liquidation value was less than the debt obligation securing the property. Upon acquisition of the real estate property by the creditor and legal release from the obligation, the Company de-recognized the related non-recourse debt obligation from its consolidated balance sheet (see Note 8). This non-cash activity did not have a material impact on the Company’s results of operations for the six-month period ended June 30, 2012.

Income from Portfolio Assets is summarized as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
	(Dollars in thousands)
Loan Portfolios:
Purchased Credit-Impaired Loans	$	5,500	$	7,850	$	13,075	$	20,177
Purchased performing loans	68		194		139		286
UBN	—		455		—		542
Other	10		89		45		143
Real Estate Portfolios	287		510		1,111		790
Income from Portfolio Assets	$	5,865	$	9,098	$	14,370	$	21,938

Accretable yield represents the amount of income the Company can expect to generate over the remaining life of its existing income-accruing Purchased Credit-Impaired Loans based on estimated future cash flows as of June 30, 2012 and 2011, respectively. 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, 2012 and 2011 are as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
	(Dollars in thousands)
Beginning Balance	$	4,378		$	19,980		$	4,732		$	1,380
Accretion	(229		)	(1,137		)	(576		)	(2,668		)
Reclassification from (to) nonaccretable difference	(2,103		)	2,669			(2,085		)	2,895
Disposals	(2,046		)	(1,920		)	(2,071		)	(3,302		)
Transfer from non-accrual	—			8,052			—			29,325
Translation adjustments	—			7			—			21
Ending Balance	$	—		$	27,651		$	—		$	27,651

Acquisitions of Purchased Credit-Impaired Loans for the three- and six-month month periods ended June 30, 2012 and 2011, respectively, are summarized in the table below:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
	(Dollars in thousands)
Face value at acquisition	$	2,380	$	1,574	$	7,585	$	5,711
Cash flows expected to be collected at acquisition, net of adjustments	1,663		1,270		3,362		5,480
Basis in acquired loans at acquisition	1,314		976		1,696		4,080

During the six-month period ended June 30, 2012, the Company sold loan Portfolio Assets with an aggregate carrying value of $18.7 million. The Company sold loan Portfolio Assets with an aggregate carrying value of $39.9 million during the six-month period ended June 30, 2011 — 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 non-controlling beneficial interest in this securitization entity, and accounts for this investment as an available-for-sale security.

For the six-month period ended June 30, 2012, the Company recorded provisions for loan and impairment losses, net of recoveries, through a charge to income of $0.9 million — which was comprised of a $0.5 million provision for loan losses, net of recoveries, and a $0.4 million impairment charge on real estate portfolios. For the six-month period ended June 30, 2011, the Company recorded provisions for loan and impairment losses, net of recoveries, by 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.

Changes in the allowance for loan losses related to our loan Portfolio Assets for the three- and six-month month periods ended June 30, 2012, 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 (1)		Other			Total
Beginning balance, April 1, 2012	$	510		$	200		$	38		$	—	$	—	$	—	$	5		$	753
Provisions	277			35			—			—		—		—		25			337
Recoveries	—			—			—			—		—		—		—			—
Charge offs	(372		)	(65		)	(26		)	—		—		—		(10		)	(473		)
Ending balance, June 30, 2012	$	415		$	170		$	12		$	—	$	—	$	—	$	20		$	617

	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 (1)		Other			Total
Beginning balance, January 1, 2012	$	553		$	185		$	38		$	—	$	—	$	—	$	5		$	781
Provisions	405			97			5			—		—		—		25			532
Recoveries	—			(44		)	—			—		—		—		—			(44		)
Charge offs	(543		)	(68		)	(31		)	—		—		—		(10		)	(652		)
Ending balance, June 30, 2012	$	415		$	170		$	12		$	—	$	—	$	—	$	20		$	617

(1)  The Company sold the underlying UBN loan portfolio in November 2011.

Changes in the allowance for loan losses related to our loan Portfolio Assets for the three- and six-month month period 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

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 that management generally uses for pooling purposes (when management elects to pool purchased loans).

	June 30,		December 31,
	2012		2011
	(Dollars in thousands)
Commercial real estate	$	50,616	$	76,918
Business assets	9,059		10,557
Other commercial	8,678		9,615
	$	68,353	$	97,090