Notes Receivable, Net

6 Months Ended

Jun. 30, 2023

Note 4 – Notes Receivable, net

The Company’s notes receivable, net consists of investments in loans to buyers of charged-off and nonperforming receivable portfolios. As of June 30, 2023 and December 31, 2022, the Company’s outstanding notes receivables, net of unamortized deferred fees and costs on originated loans, and adjusted for the reserve for credit losses was $15.0 million and $8.5 million, respectively. The activity during the six months ended June 30, 2023 includes the additional investment in notes receivable of approximately $18.7 million, which was offset by principal payments made by borrowers of approximately $3.4 million, the transfer of notes to partners of approximately $8.9 million, adjustments to the deferred fees and costs balance and the reserve for credit losses totaling approximately $0.1 million.

On January 1, 2023, the Company recorded an allowance for credit losses for notes receivable in accordance with ASC 326, as described in Note 2 – Summary of Significant Accounting Policies. The cumulative effects as of December 31, 2022 of the modified retrospective method of adoption of ASC 326 required the Company to record on the condensed consolidated balance sheets as of January 1, 2023 a reserve for credit losses to notes receivable of $0.1 million for the estimated credit losses to notes receivable as of December 31, 2022.

The following presents the adjustment to notes receivable, net as a result of the implementation of ASC 326 on January 1, 2023 (in thousands):


Notes receivable, net as of December 31, 2022	$	8,750

Reserve for credit losses of December 31, 2022		—
Cumulative effect of the implementation of ASC 326		(119	)
Beginning balance of reserve for credit losses as of January 1, 2023		(119	)
Notes receivable, net of reserve for credit losses as of January 1, 2023	$	8,631

In accordance with ASC 326, the Company performs a review of notes receivables on a quarterly basis. During the six months ended June 30, 2023, the Company recorded a provision for credit losses in selling, general and administrative expense on the condensed consolidated statement of income of $0.1 million. As of June 30, 2023, the reserve for credit losses was approximately $0.2 million. The provision relates primarily to the change in the outstanding balance of notes receivable.

To date, the Company has recorded no actual credit losses on notes receivable.