5. Portfolio Assets

Portfolio Assets are summarized as follows:

	December 31, 2012 (Dollars in thousands)

	Carrying Value		Allowance for Loan Losses		Carrying Value, net
Loan Portfolios:
Purchased Credit-Impaired Loans
Domestic:
Commercial real estate	$	28,487	$	—	$	28,487
Business assets		4,047		26		4,021
Other		3,087		—		3,087
Latin America—commercial real estate		1,034		327		707
Europe—commercial real estate		3,449		—		3,449
Other		5,194		41		5,153

Total Loan Portfolios	$	45,298	$	394		44,904

Real estate held for sale, net						10,171

Total Portfolio Assets					$	55,075

	December 31, 2011 (Dollars in thousands)

	Carrying Value		Allowance for Loan Losses		Carrying 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 loan facilities with Bank of Scotland and Bank of America (see Note 2). 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 9). This non-cash activity did not have a material impact on the Company's results of operations for 2012.

Income from Portfolio Assets is summarized as follows:

	Year Ended December 31,

	2012		2011
	(Dollars in thousands)
Loan Portfolios:
Purchased Credit-Impaired Loans	$	23,363	$	37,481
Purchased performing loans		312		445
UBN		—		1,760
Other		169		192
Real Estate Portfolios		2,863		744

Income from Portfolio Assets	$	26,707	$	40,622

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 December 31, 2012 and 2011. 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(f). Changes in accretable yield related to the Company's Purchased Credit-Impaired Loans for the years ended December 31, 2012 and 2011 are as follows:

	Year Ended December 31,

	2012			2011
	(Dollars in thousands)
Beginning Balance	$	4,732		$	1,380
Accretion		(600	)		(4,321	)
Reclassification from (to) nonaccretable difference		(2,040	)		4,253
Disposals		(2,092	)		(5,488	)
Transfer from non-accrual		—			8,912
Translation adjustments		—			(4	)

Ending Balance	$	—		$	4,732

Acquisitions of Purchased Credit-Impaired Loans for 2012 and 2011 are summarized in the table below:

	Year Ended December 31,

	2012		2011
	(Dollars in thousands)
Face value at acquisition	$	11,270	$	31,859
Cash flows expected to be collected at acquisition, net of adjustments		6,544		19,803
Basis in acquired loans at acquisition		4,120		14,329

During 2012, the Company sold loan Portfolio Assets with an aggregate carrying value of $28.7 million. During 2011, the Company sold loan Portfolio Assets with an aggregate carrying value of $50.3 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 (see Note 3) and $3.0 million of loans sold to a foreign equity-method investee of FirstCity.

During 2012, the Company recorded provisions for loan and impairment losses, net of recoveries, through a charge to income of $3.1 million—which was comprised of $0.6 million of impairment charges on real estate portfolios and $2.5 million of provision for loan losses, net of recoveries. During 2011, the Company recorded provisions for loan and impairment losses, net of recoveries, through a charge to income of $3.8 million—which was comprised of $2.1 million of impairment charges on real estate portfolios and $1.7 million of provision for loan losses, net of recoveries.

Changes in the allowance for loan losses related to our loan Portfolio Assets are as follows:

	Purchased Credit-Impaired Loans																		Other

	Domestic									Latin America
(dollars in thousands)	Commercial Real Estate			Business Assets			Other			Commercial Real Estate			Residential Real Estate			Europe			UBN(1)			Other			Total
Beginning balance,
January 1, 2011	$	354		$	252		$	90		$	260		$	—		$	866		$	43,291		$	49		$	45,162
Provisions		1,702			519			24			103			64			—			—			199			2,611
Recoveries		(164	)		(13	)		(7	)		—			—			—			(719	)		(28	)		(931	)
Charge offs		(1,339	)		(573	)		(69	)		—			—			(856	)		(701	)		(215	)		(3,753	)
Removal upon sale of loans(1)		—			—			—			—			—			—			(45,002	)		—			(45,002	)
Transfer to "held for sale" classification (see Note 4)		—			—			—			(317	)		(62	)		—			—			—			(379	)
Translation adjustments		—			—			—			(46	)		(2	)		(10	)		3,131			—			3,073

Ending balance, December 31, 2011		553			185			38			—			—			—			—			5			781
Provisions		1,996			329			15			100			—			—			—			130			2,570
Recoveries		(21	)		(87	)		—			—			—			—			—			—			(108	)
Charge offs		(2,528	)		(401	)		(53	)		—			—			—			—			(94	)		(3,076	)
Transfer from "held for sale" classification (see Note 4)		—			—			—			210			—			—			—			—			210
Translation adjustments		—			—			—			17			—			—			—			—			17

Ending balance, December 31, 2012	$	—		$	26		$	—		$	327		$	—		$	—		$	—		$	41		$	394

(1): The Company sold the underlying UBN loan portfolio in November 2011—refer to Note 1(f).

The following table presents our recorded investment in loan Portfolio Assets by credit quality indicator at December 31, 2012 and 2011. 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 groups of purchased loans).

	December 31, 2012		December 31, 2011

	(Dollars in thousands)
Commercial real estate	$	32,643	$	76,918
Business assets		4,021		10,557
Other commercial		8,240		9,615

	$	44,904	$	97,090