NOTE 7 — LOANS RECEIVABLE, NET

The following table presents the Company’s loans receivable, net as of:


(Dollars in thousands)	June 30, 2013			December 31, 2012
Residential real estate loans:
Unpaid principal balance	$	—		$	44,904
Discount		—			(22,695	)

Recorded investment		—			22,209
Allowance for loan losses		—			—

Total residential real estate loans		—			22,209


Commercial real estate loans:
Unpaid principal balance		1,622			1,734
Discount		(12	)		(12	)

Recorded investment		1,610			1,722
Allowance for loan losses		(50	)		(50	)

Total commercial real estate loans		1,560			1,672


Commercial loans:
Revolving lines of credit		1,643			—
Term note unpaid principal balance		1,000			1,000
Term note discount		(468	)		(509	)

Recorded investment		2,175			491
Allowance for loan losses		—			—

Total commercial loans		2,175			491

Loans receivable, net	$	3,735		$	24,372

Loans receivable, net due within one year consists of the following as of:


(Dollars in thousands)	June 30, 2013		December 31, 2012
Contractual principal payments due within one year⁽¹⁾ :

Residential real estate loans	$	—	$	527
Commercial real estate loans		90		93

		90		620
Revolving lines of credit		1,643		—

Loans receivable, net due within one year	$	1,733	$	620

⁽¹⁾	Excludes loans ninety or more days past due.

In the second quarter of 2013, the Company sold its remaining residential real estate loans (the “Residential Loans”). The aggregate carrying value of the Residential Loans, including accrued interest and servicing advances was $22.1 million. Proceeds of $27.1 million were received for the Residential Loans, resulting in a $5.0 million gain, classified as operating revenues of Signature Special Situations in the condensed consolidated statements of income.

Pro forma financial information

Had the Residential Loans been sold as of December 31, 2011, operating revenues of Signature Special Situations for the three and six months ended June 30, 2012 would have been reduced by $0.8 million and $4.2 million, respectively, related to interest income and change in market valuation allowance recognized on the loans sold. Operating costs for loan servicing-related expenses would have been reduced by $13 thousand and $33 thousand for the three and six months ended June 30, 2012, respectively. Loss from continuing operations and net loss would have increased by $0.8 million, or $0.01 per share, for the three months ended June 30, 2012, and would have increased by $4.1 million, or $0.04 per share, for the six months ended June 30, 2012.

This pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the financial position or results of operations for future periods or the results that would have been achieved if the sales of the Residential Loans had been consummated on the dates indicated. The unaudited pro forma financial information does not reflect any adjustments for nonrecurring items. In the opinion of management, all adjustments necessary to present fairly the unaudited pro forma financial information have been made. The unaudited pro forma financial information should be read in conjunction with this Report and the Company’s Annual Report.

The Residential Loans were reclassified to held for sale in the second quarter of 2013.

Generally, the residential real estate loans had original maturities of up to thirty years and were typically secured by first deeds of trust on single-family residences. Many of the loans had principal amortization terms in excess of thirty years or no principal amortization (interest-only loans). The loans were generally made to borrowers who did not satisfy all of the credit, documentation and other underwriting standards prescribed by conventional mortgage lenders and loan buyers, such as Fannie Mae and Freddie Mac, and are commonly referred to as “subprime” or “non-prime” borrowers. Before the reclassification and sale, the discount on residential real estate loans was accreted to interest income using the interest method over the contractual life, using the contractual terms of each loan.

Commercial real estate loans consist primarily of a participation interest in a pool of adjustable rate multi-family loans.

Commercial loans are comprised of senior debt of a manufacturing company that specializes in retail store fixtures and merchandise displays and includes a revolving line of credit and term note that are secured by the assets of the borrower. The line of credit provides for maximum borrowings of $7.0 million, has an interest rate of prime plus 2.75%, with a floor of 5.75%, and matures on March 31, 2017. The $1.0 million term note has an interest rate of prime plus 2.75%, with a floor of 5.75%, and matures on March 31, 2017, with interest due monthly. Draws on the revolving line of credit are subject to a borrowing base, with any outstanding balance due at maturity. Principal on the term note is due monthly beginning on April 1, 2015, with a final balloon payment due on March 31, 2017. At June 30, 2013 and December 31, 2012, the commercial loans were current and the borrower was in compliance with all loan covenants.

As of June 30, 2013 and December 31, 2012, zero and $2.2 million of residential real estate loans were in nonaccrual status, respectively. No other loans receivable, net were in nonaccrual status as of June 30, 2013 or December 31, 2012. The nonaccrual residential real estate loans represented 10.1% of the $22.2 million recorded investment of all residential real estate loans and 9.1% of the $24.4 million recorded investment of all loans receivable, net as of December 31, 2012.

The average recorded investment of impaired loans receivable was $9.3 million and $11.9 million during the six months ended June 30, 2013 and the year ended December 31, 2012, respectively. Interest income recognized on impaired loans receivable was $0.3 million and $1.2 million during the six months ended June 30, 2013 and the year ended December 31, 2012, respectively.

At June 30, 2013, no loans classified as loans receivable, net were modified under troubled debt restructurings (“TDRs”) in the twelve months ended June 30, 2013, and three loans aggregating $0.2 million, classified as loans receivable, net at December 31, 2012, were modified under TDRs in 2012. There were no losses on TDRs in the three or six months ended June 30, 2013 or in the year ended December 31, 2012. None of the loans modified under TDRs during the twelve months ended June 30, 2013 reached ninety or more days past due.

Credit quality indicator

A credit quality indicator is a statistic used by management to monitor and assess the credit quality of loans receivable. Management monitors delinquencies as its primary credit quality indicator and the following table presents delinquency information for loans receivable as of June 30, 2013 and December 31, 2012, based on recorded investment:


(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total
June 30, 2013
Commercial real estate loans	$	—	$	—	$	—	$	—	$	1,610	$	1,610
Commercial loans:
Revolving lines of credit		—		—		—		—		1,643		1,643
Term note		—		—		—		—		532		532

Total commercial loans		—		—		—		—		2,175		2,175

Total	$	—	$	—	$	—	$	—	$	3,785	$	3,785


December 31, 2012
Residential real estate loans	$	2,457	$	569	$	2,816	$	5,842	$	16,367	$	22,209
Commercial real estate loans		—		—		—		—		1,722	$	1,722
Commercial loans:
Revolving lines of credit		—		—		—		—		—		—
Term note		—		—		—		—		491		491

Total commercial loans		—		—		—		—		491		491

Total	$	2,457	$	569	$	2,816	$	5,842	$	18,580	$	24,422