6. Loans Receivable

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

	December 31, 2012		December 31, 2011

	(Dollars in thousands)
Domestic:
Commercial loans:
Affiliates	$	6,584	$	6,719
SBA, net of allowance for loan losses of $518 and $333, respectively		20,459		26,765
Other, net of allowance for loan losses of $1,083		7,530		12,212

Total loans, net	$	34,573	$	45,696

Loans receivable—SBA held for sale

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

	December 31, 2012		December 31, 2011

	(Dollars in thousands)
Outstanding balance	$	1,083	$	7,483
Capitalized costs, net of fees		4		131

Carrying amount of loans, net	$	1,087	$	7,614

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

	Year Ended December 31,

	2012			2011
	(Dollars in thousands)
Beginning Balance	$	7,614		$	11,608
Originations and advances of loans		11,099			21,897
Payments received		(65	)		(96	)
Capitalized costs, net		(126	)		(8	)
Loans sold and transferred		(17,435	)		(25,787	)

Ending Balance	$	1,087		$	7,614

Loans receivable—SBA held for sale represent the portion of SBA loans acquired and originated 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 in 2012 and 2011.

Loans receivable—affiliates

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

	December 31, 2012		December 31, 2011

	(Dollars in thousands)
Outstanding balance	$	6,203	$	6,518
Discounts, net		—		(59	)
Capitalized interest		381		260

Carrying amount of loans, net	$	6,584	$	6,719

A summary of activity in loans receivable—affiliates follows:

	Year Ended December 31,

	2012			2011
	(Dollars in thousands)
Beginning Balance	$	6,719		$	16,781
Advances		—			700
Payments received		(316	)		(2,042	)
Capitalized costs, net		122			127
Discount accretion, net		59			89
Loan transfer(1)		—			(1,402	)
Transfer to "held for sale" classification (see Note 4)		—			(7,148	)
Other noncash adjustments		—			(492	)
Foreign exchange gains		—			106

Ending Balance	$	6,584		$	6,719

(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 on loans receivable—affiliates in 2012 or 2011. During 2011, the Company sold an affiliated loan with a carrying value of $1.4 million. The Company did not sell any affiliated loans during 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:

	December 31, 2012			December 31, 2011

	(Dollars in thousands)
Outstanding balance	$	21,013		$	20,503
Allowance for loan losses		(518	)		(333	)
Discounts, net		(1,499	)		(1,292	)
Capitalized costs		376			273

Carrying amount of loans, net	$	19,372		$	19,151

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

	Year Ended December 31,

	2012			2011
	(Dollars in thousands)
Beginning Balance	$	19,151		$	15,415
Purchases of loans		—			696
Originations and advances of loans		3,700			5,617
Payments received		(2,762	)		(2,085	)
Capitalized costs		104			137
Change in allowance for loan losses		(185	)		32
Discount accretion, net		(238	)		(245	)
Charge-offs		(398	)		(416	)

Ending Balance	$	19,372		$	19,151

Loans receivable—SBA held for investment represent the non-guaranteed portion of SBA loans purchased or originated by the Company. These loans are secured primarily by business assets such as accounts receivable, property and equipment, real estate and inventory. The Company recorded net impairment provisions on SBA loans held for investment of $0.6 million in 2012 and $0.4 million in 2011. 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:

	December 31, 2012			December 31, 2011

	(Dollars in thousands)
Outstanding balance	$	8,859		$	13,541
Allowance for loan losses		(1,083	)		(1,083	)
Capitalized interest and costs		(246	)		(246	)

Carrying amount of loans, net	$	7,530		$	12,212

Changes in loans receivable—other are as follows:

	Year Ended December 31,

	2012			2011
	(Dollars in thousands)
Beginning Balance	$	12,212		$	13,011
Advances		1,592			2,974
Payments received		(3,774	)		(3,838	)
Noncash consideration(1)		(2,500	)		—
Capitalized interest and costs		—			50
Discount accretion, net		—			15

Ending Balance	$	7,530		$	12,212

(1): Represents a principal reduction on a loan receivable upon FirstCity's acquisition of certain underlying loan collateral from the borrower as partial consideration for repayment. See Note 3 for additional information.

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 net impairment provisions on loans receivable—other in 2012 or in 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 table summarizes the activity in the allowance for loan losses by our portfolio of loans held for investment:

	Allowance for Loan Losses:

(Dollars in thousands)	SBA held for investment			Affiliates		Other		Total
Balance, January 1, 2012	$	333		$	—	$	1,083	$	1,416
Provisions		635			—		—		635
Recoveries		(46	)		—		—		(46	)
Charge-offs		(404	)		—		—		(404	)

Balance, December 31, 2012	$	518		$	—	$	1,083	$	1,601

Balance, January 1, 2011	$	365		$	—	$	1,083	$	1,448
Provisions		463			—		—		463
Recoveries		(78	)		—		—		(78	)
Charge-offs		(417	)		—		—		(417	)

Balance, December 31, 2011	$	333		$	—	$	1,083	$	1,416

The following table presents an analysis of the allowance for loan losses and recorded investment in loans (excluding loans held for sale) as of December 31, 2012 and 2011:

	Commercial Loans:

(Dollars in thousands)	SBA		Affiliates		Other		Total
December 31, 2012:
Loans individually evaluated for impairment	$	585	$	6,584	$	8,613	$	15,782
Loans collectively evaluated for impairment		19,305		—		—		19,305

Total loans evaluated for impairment (excluding loans held for sale)	$	19,890	$	6,584	$	8,613	$	35,087

Allowance for loans individually evaluated for impairment	$	325	$	—	$	1,083	$	1,408
Allowance for loans collectively evaluated for impairment		193		—		—		193

Total allowance for loan losses	$	518	$	—	$	1,083	$	1,601

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 table presents our recorded investment in loans (excluding loans held for sale) by credit quality indicator as of December 31, 2012 and 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).

(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total

December 31, 2012:
SBA—commercial loans	$	15,315	$	3,954	$	434	$	187	$	19,890

	Accrual		Non-Accrual		Total

Affiliates—commercial loans	$	3,323	$	3,261	$	6,584
Other—commercial loans(1)		3,484		5,129		8,613

	$	6,807	$	8,390	$	15,197

Total loans (excluding loans held for sale)					$	35,087

(Dollars in thousands)	Pass		Special 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(1)		4,398		8,897		13,295

	$	11,117	$	8,897	$	20,014

Total loans (excluding loans held for sale)					$	39,498

(1): Represents loans made to U.S. non-affiliated entities that are secured primarily by business assets (as disclosed previously under the heading "Loans receivable—other" of this footnote).

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

	Loans Past Due and Still Accruing

(Dollars in thousands)	31-60 Days		61-90 Days		Over 90 Days		Total		Non-Accrual Loans		Current Loans		Total Loans
December 31, 2012:
Commercial loans:
SBA	$	327	$	5	$	—	$	332	$	585	$	18,973	$	19,890
Affiliates		—		—		—		—		3,261		3,323		6,584
Other		—		—		—		—		5,129		3,484		8,613

Total loans (excluding loans held for sale)	$	327	$	5	$	—	$	332	$	8,975	$	25,780	$	35,087

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 December 31, 2012 and 2011:

	Recorded Investment In:

(Dollars in thousands)	Impaired Loans Without a Related Allowance		Impaired Loans With a Related Allowance		Total Impaired Loans		Unpaid Principal Balance		Related Valuation Allowance		Average Impaired Loans for the Year
December 31, 2012:
Commercial loans:
SBA	$	—	$	585	$	585	$	620	$	325	$	660
Affiliates		—		—		—		—		—		—
Other		2,159		2,970		5,129		7,027		1,083		6,984

Total loans (excluding loans held for sale)	$	2,159	$	3,555	$	5,714	$	7,647	$	1,408	$	7,644

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 in 2012 and 2011.