PINX:BFCFB BFC Financial Corporation Class B Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-Q

 

 

 

    x     Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarter Ended June 30, 2012

OR

 

    ¨     Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number

001-09071

 

 

BFC Financial Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Florida   59-2022148

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification Number)

 

2100 West Cypress Creek Road  
Fort Lauderdale, Florida   33309
(Address of Principal executive office)   (Zip Code)

(954) 940-4900

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer    ¨    Accelerated filer    ¨
Non-accelerated filer    ¨    Smaller reporting company    x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

The number of shares outstanding of each of the registrant’s classes of common stock as of August 10, 2012 is as follows:

Class A Common Stock of $.01 par value, 70,275,222 shares outstanding.

Class B Common Stock of $.01 par value, 6,859,501 shares outstanding.

 

 

 


Table of Contents

BFC Financial Corporation

TABLE OF CONTENTS

 

         Page  
PART I.   FINANCIAL INFORMATION   
  Item 1.    Financial Statements:   
    

Consolidated Statements of Financial Condition as of June 30, 2012 and December 31, 2011 – Unaudited

     3   
    

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2012 and 2011 – Unaudited

     4   
    

Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2012 and 2011 – Unaudited

     6   
    

Consolidated Statement of Changes in Equity for the Six Months Ended June 30, 2012 – Unaudited

     7   
    

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011 – Unaudited

     8   
     Notes to Unaudited Consolidated Financial Statements      10   
  Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      66   
  Item 3.    Quantitative and Qualitative Disclosures about Market Risk      119   
  Item 4.    Controls and Procedures      119   
PART II.   OTHER INFORMATION   
  Item 1.    Legal Proceedings      120   
  Item 1A.    Risk Factors      122   
  Item 6.    Exhibits      122   
  SIGNATURES      124   

 

2


Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

BFC Financial Corporation

Consolidated Statements of Financial Condition - Unaudited

(In thousands, except share data)

 

     June 30,     December 31,  
     2012     2011  
ASSETS     

Cash and interest bearing deposits in other banks

   $ 1,261,284        858,789   

Restricted cash ($39,823 in 2012 and $38,913 in 2011 held by variable interest entities (“VIEs”)

     59,414        62,727   

Securities available for sale at fair value

     25,591        62,803   

Tax certificates, net of allowance of $3,519 in 2012 and $7,488 in 2011

     5,293        46,488   

Federal Home Loan Bank (“FHLB”) stock, at cost which approximates fair value

     —          18,308   

Loans held for sale

     47,029        55,601   

Loans receivable, net of allowance for loan losses of $7,153 in 2012 and $129,887 in 2011

     355,794        2,442,236   

Notes receivable, including gross securitized notes of $353,631 in 2012 and $375,904 in

     —       

2011, net of allowance of $67,743 in 2012 and $73,260 in 2011

     496,875        517,836   

Accrued interest receivable

     1,862        18,432   

Inventory

     210,517        213,325   

Real estate owned

     86,195        87,174   

Investments in unconsolidated affiliates

     12,690        12,343   

Properties and equipment, net

     60,078        191,568   

Goodwill

     —          12,241   

Intangible assets, net

     64,484        72,804   

Assets held for sale

     2,120,873        35,035   

Prepaid Federal Deposit Insurance Corporation (“FDIC”) deposit insurance assessment

     —          12,715   

Other assets

     58,961        57,730   
  

 

 

   

 

 

 

Total assets

   $ 4,866,940        4,778,155   
  

 

 

   

 

 

 
LIABILITIES AND EQUITY     

Liabilities:

    

Interest bearing deposits

   $ —          2,433,216   

Non-interest bearing deposits

     —          846,636   

Deposits held for sale

     3,448,884        —     
  

 

 

   

 

 

 

Total deposits

     3,448,884        3,279,852   

Receivable-backed notes payable, (including $352,457 in 2012 and $385,140 in 2011 held by VIEs

     437,895        478,098   

Notes and mortgage notes payable and other borrowings

     32,284        108,533   

Junior subordinated debentures

     485,992        477,316   

Deferred income taxes

     41,839        24,645   

Deferred gain on settlement of investment in subsidiary

     —          29,875   

Liabilities related to assets held for sale

     58,199        11,156   

Shares subject to mandatory redemption (See Note 11)

     12,177        —     

Other liabilities

     140,352        174,634   
  

 

 

   

 

 

 

Total liabilities

     4,657,622        4,584,109   
  

 

 

   

 

 

 

Commitments and contingencies (See Note 14)

    

Preferred stock of $.01 par value; authorized - 10,000,000 shares: (See Note 11)

    

Redeemable 5% Cumulative Preferred Stock - $.01 par value; authorized 15,000 shares issued and outstanding 15,000 shares with redemption value of $1,000 per share

     —          11,029   
  

 

 

   

 

 

 

Equity:

    

Class A common stock of $.01 par value, authorized 150,000,000 shares; issued and outstanding 70,275,222 in 2012 and 70,274,972 in 2011

     703        703   

Class B common stock of $.01 par value, authorized 20,000,000 shares; issued and outstanding 6,859,501 in 2012 and 6,859,751 in 2011

     69        69   

Additional paid-in capital

     230,330        232,705   

Accumulated deficit

     (78,102     (100,873

Accumulated other comprehensive loss

     (3,926     (12,863
  

 

 

   

 

 

 

Total BFC Financial Corporation (“BFC”) shareholders' equity

     149,074        119,741   

Noncontrolling interests

     60,244        63,276   
  

 

 

   

 

 

 

Total equity

     209,318        183,017   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 4,866,940        4,778,155   
  

 

 

   

 

 

 

See Notes to Unaudited Consolidated Financial Statements.

 

3


Table of Contents

BFC Financial Corporation

Consolidated Statements of Operations - Unaudited

(In thousands, except per share data)

 

     For the Three Months Ended
June 30,
    For the Six Months Ended
June 30,
 
     2012     2011     2012     2011  

Revenues

        

Real Estate and Other:

        

Sales of VOIs

   $ 52,215        45,344        95,812        81,678   

Fee-based sales commission and other revenues

     25,703        18,607        38,481        29,642   

Other fee-based services revenue

     18,875        17,287        37,690        34,487   

Interest income

     20,913        21,974        42,077        44,407   
  

 

 

   

 

 

   

 

 

   

 

 

 
     117,706        103,212        214,060        190,214   
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial Services:

        

Interest income

     7,287        11,167        15,622        23,005   

Securities activities, net

     —          (1,500     —          (1,500

Gain (loss) on sale of loans

     —          10        3        (89

Other non-interest income

     12        6        96        19   
  

 

 

   

 

 

   

 

 

   

 

 

 
     7,299        9,683        15,721        21,435   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     125,005        112,895        229,781        211,649   
  

 

 

   

 

 

   

 

 

   

 

 

 

Costs and Expenses

        

Real Estate and Other:

        

Cost of VOIs sold

     6,308        6,703        10,670        13,928   

Cost of other resort operations

     11,951        12,156        24,937        25,237   

Interest expense

     12,507        16,378        25,219        34,082   

Selling, general and administrative expenses

     63,609        54,451        117,818        103,740   

Other expenses

     —          1,239        —          915   
  

 

 

   

 

 

   

 

 

   

 

 

 
     94,375        90,927        178,644        177,902   
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial Services:

        

Interest expense

     4,161        3,885        8,359        7,700   

(Recovery from) provision for loan losses

     (627     4,313        (1,392     11,140   

Employee compensation and benefits

     4,269        6,303        9,528        11,826   

Occupancy and equipment

     1,779        2,794        4,026        5,938   

Advertising and promotion

     130        145        283        258   

Professional fees

     3,239        658        9,436        2,786   

Recovery on assets held for sale

     (1,165     —          (1,165     —     

Impairments on loans held for sale

     196        754        459        1,382   

Impairment of real estate owned

     1,793        5,826        3,534        7,514   

Other expenses

     1,790        2,697        3,852        4,902   
  

 

 

   

 

 

   

 

 

   

 

 

 
     15,565        27,375        36,920        53,446   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     109,940        118,302        215,564        231,348   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gain on settlement of investment in subsidiary

     —          —          —          11,305   

Gain on extinguishment of debt

     29,875        —          29,875        —     

Equity in earnings from unconsolidated affiliates

     154        475        312        2,252   

Other income

     419        403        1,005        977   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     45,513        (4,529     45,409        (5,165

Less: Provision for income taxes

     10,813        6,520        16,014        8,665   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     34,700        (11,049     29,395        (13,830

(Loss) income from discontinued operations, net of income tax benefit of $1,328 and $20,634 during the three months ended June 30, 2012 and 2011; and $1,797 and $20,986 during the six months ended June 30, 2012 and 2011.

     (5,324     8,066        (2,380     (1,479
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     29,376        (2,983     27,015        (15,309

Less: Net income (loss) attributable to noncontrolling interests

     3,697        3,955        4,056        (5,760
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to BFC

     25,679        (6,938     22,959        (9,549

Preferred stock dividends

     —          (187     (188     (375
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) to common shareholders

   $ 25,679        (7,125     22,771        (9,924
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(CONTINUED)

See Notes to Unaudited Consolidated Financial Statements.

 

4


Table of Contents

BFC Financial Corporation

Consolidated Statements of Operations - Unaudited

(In thousands, except per share data)

 

     For the Three Months Ended
June 30,
    For the Six Months Ended
June 30,
 
     2012     2011     2012      2011  

Basic and Diluted Earnings (Loss) Per Common Share Attributable to BFC
(Note 16):

         

Basic Earnings (Loss) Per Common Share

         

Earnings (loss) per share from continuing operations (1)

   $ 0.36        (0.15     0.28         (0.12

(Loss) earnings per share from discontinued operations

     (0.04     0.05        0.01         (0.01
  

 

 

   

 

 

   

 

 

    

 

 

 

Net earnings (loss) per common share (1)

   $ 0.32        (0.10     0.29         (0.13
  

 

 

   

 

 

   

 

 

    

 

 

 

Diluted Earnings (Loss) Per Common Share

         

Earnings (loss) per share from continuing operations (1)

   $ 0.36        (0.15     0.28         (0.12

(Loss) earnings per share from discontinued operations

     (0.04     0.05        0.01         (0.01
  

 

 

   

 

 

   

 

 

    

 

 

 

Net earnings (loss) per common share (1)

   $ 0.32        (0.10     0.29         (0.13
  

 

 

   

 

 

   

 

 

    

 

 

 

Basic weighted average number of common shares outstanding

     77,135        75,381        77,135         75,381   
  

 

 

   

 

 

   

 

 

    

 

 

 

Diluted weighted average number of common and common equivalent shares outstanding

     78,820        75,381        78,267         75,381   
  

 

 

   

 

 

   

 

 

    

 

 

 

Amounts attributable to BFC common shareholders:

         

Income (loss) from continuing operations, net of tax and noncontrolling interests

   $ 28,513        (11,119     22,038         (9,410

(Loss) income from discontinued operations, net of tax and noncontrolling interests

     (2,834     3,994        733         (514
  

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss) to common shareholders

   $ 25,679        (7,125     22,771         (9,924
  

 

 

   

 

 

   

 

 

    

 

 

 

 

(1) In accordance with the applicable accounting guidance, upon reclassification of mandatorily redeemable preferred stock to a liability, the difference between the fair value of the liability and its carrying amount results in an adjustment to paid in capital, which adjustment is added to or deducted from net earnings available to common shareholders in the calculation of earnings per share. As such, earnings per share for the three and six months ended June 30, 2012 was adjusted to reflect the decrease in equity of approximately $0.5 million. See Note 11 for additional information regarding the Company’s shares subject to mandatory redemption.

See Notes to Unaudited Consolidated Financial Statements.

 

5


Table of Contents

BFC Financial Corporation

Consolidated Statements of Comprehensive Income (Loss) - Unaudited

(In thousands)

 

     For the Three Months Ended
June 30,
    For the Six Months Ended
June 30,
 
     2012      2011     2012      2011  

Net income (loss)

   $ 29,376         (2,983     27,015         (15,309
  

 

 

    

 

 

   

 

 

    

 

 

 

Other comprehensive income (loss), net of tax:

          

Unrealized gains (loss) on securities available for sale

     4,785         (4,053     8,614         (4,917
  

 

 

    

 

 

   

 

 

    

 

 

 

Other comprehensive income (loss), net of tax

     4,785         (4,053     8,614         (4,917
  

 

 

    

 

 

   

 

 

    

 

 

 

Comprehensive income (loss)

     34,161         (7,036     35,629         (20,226

Less: Comprehensive income (loss) attributable to noncontrolling interests

     3,670         4,738        3,733         (5,390
  

 

 

    

 

 

   

 

 

    

 

 

 

Comprehensive income (loss) attributable to BFC

   $ 30,491         (11,774     31,896         (14,836
  

 

 

    

 

 

   

 

 

    

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements.

 

6


Table of Contents

BFC Financial Corporation

Consolidated Statement of Changes in Equity - Unaudited

For the Six Months Ended June 30, 2012

(In thousands)

 

                                        Accumulated                    
                                        Other     Total     Non-        
    Shares of Common     Class A     Class B     Additional           Compre-     BFC     controlling        
    Stock Outstanding     Common     Common     Paid-in     Accumulated     hensive     Shareholders’     Interest in     Total  
    Class A     Class B     Stock     Stock     Capital     Deficit     Loss     Equity     Subsidiaries     Equity  

Balance, December 31, 2011

    70,275        6,860      $ 703      $ 69      $ 232,705      $ (100,873   $ (12,863   $ 119,741      $ 63,276      $ 183,017   

Net income

    —          —          —          —          —          22,959        —          22,959        4,056        27,015   

Other comprehensive income (loss)

    —          —          —          —          —          —          8,937        8,937        (323     8,614   

Net effect of subsidiaries’ capital transactions attributable to BFC

    —          —          —          —          738        —          —          738        —          738   

Noncontrolling interest net effect of subsidiaries’ capital transactions

    —          —          —          —          —          —          —          —          (6,765     (6,765

Decrease in equity due to the change in fair value of shares subject to mandatory redemption

    —          —          —          —          (472     —          —          (472     —          (472

Dividends on 5% Preferred Stock

    —          —          —          —          —          (188     —          (188     —          (188

Share-based compensation

    —          —          —          —          205        —          —          205        —          205   

Decrease in equity attributable to Woodbridge’s dissenting holders

    —          —          —          —          (2,846     —          —          (2,846     —          (2,846
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2012

    70,275        6,860      $ 703      $ 69      $ 230,330      $ (78,102   $ (3,926   $ 149,074      $ 60,244      $ 209,318   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Unaudited Consolidated Financial Statements.

 

7


Table of Contents

BFC Financial Corporation

Consolidated Statements of Cash Flows - Unaudited

(In thousands)

 

     For the Six Months Ended  
     June 30,  
     2012     2011  

Net cash provided by operating activities

   $ 73,680        111,895   
  

 

 

   

 

 

 

Investing activities:

    

Proceeds from redemption of tax certificates

     22,526        40,459   

Purchase of investment securities and tax certificates

     (765     (18,567

Proceeds from the maturities of interest bearing deposits

     5,655        25,283   

Proceeds from sales of securities available for sale

     —          9,597   

Proceeds from maturities of securities available for sale

     12,287        126,679   

Purchase of securities available for sale

     —          (9,932

Cash paid in settlement of liabilities held for sale

     (668     —     

Redemption of FHLB stock

     9,980        11,943   

Distributions from unconsolidated affiliates

     82        139   

Net repayments of loans

     230,632        232,518   

Proceeds from the sales of loans transferred to held for sale

     1,000        27,793   

Proceeds from sales of real estate owned

     20,553        10,197   

Purchases of office property and equipment, net

     (1,185     (2,429

Proceeds from the sale of communities division, net

     27,750        —     

Net cash outflow from sale of Tampa branches

     —          (257,221
  

 

 

   

 

 

 

Net cash provided by investing activities

     327,847        196,459   
  

 

 

   

 

 

 

Financing activities:

    

Net increase (decrease) in deposits

     170,677        (144,400

Net repayments of FHLB advances

     —          (170,020

Net decrease in securities sold under agreements to repurchase

     —          (21,524

Net decrease in short term borrowings and federal funds purchased

     —          (220

Repayment of notes, mortgage notes payable and other borrowings

     (126,602     (103,933

Proceeds from notes, mortgage notes payable and other borrowings

     29,824        25,301   

Payments for debt issuance costs

     (990     (1,090

Preferred stock dividends paid

     —          (375

Proceeds from issuance of subsidiaries' common stock to non-BFC shareholders

     —          1,001   

Distributions to non-controlling interest

     (7,350     (4,142
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     65,559        (419,402
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     467,086        (111,048

Cash and cash equivalents at beginning of period (1)

     853,132        588,846   

Cash and cash equivalents held for sale

     (59,431     5,850   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period (2)

   $ 1,260,787        483,648   
  

 

 

   

 

 

 

(CONTINUED)

See Notes to Unaudited Consolidated Financial Statements.

 

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BFC Financial Corporation

Consolidated Statements of Cash Flows - Unaudited

(In thousands)

 

     For the Six Months Ended  
     June 30,  
     2012     2011  

Supplemental cash flow information:

    

Interest paid on borrowings and deposits

   $ 30,305        39,024   

Income taxes paid

     3,170        4,488   

Income tax refunded

     (51     (3,164

Supplementary disclosure of non-cash investing and financing activities:

    

Loans and tax certificates transferred to real estate owned

     21,887        25,074   

Loans receivable transferred to loans held-for-sale

     16,140        55,966   

Inventory acquired through financing

     1,270        —     

Increase (decrease) in accumulated other comprehensive income (loss), net of taxes

     8,614        (4,917

Net increase (decrease) in BFC shareholders’ equity from the effect of subsidiaries’ capital transactions, net of taxes

     738        (1,088

Decrease in equity attributable to Woodbridge’s dissenting holders

     (2,846     —     

Decrease in equity due to the change in fair value of shares subject to mandatory redemption

     (472     —     

Change due to the re-classification of redeemable preferred stock to shares subject to mandatory redemption

     (11,029     —     

 

(1) Included in cash and interest bearing deposits in other banks on the balance sheet as of December 31, 2011 and 2010 was $5.7 million and $45.6 million, respectively, of time deposits. These time deposits had original maturities of greater than 90 days and are not considered cash equivalents.
(2) Included in cash and interest bearing deposits in other banks on the balance sheet as of June 30, 2012 and 2011 was $0.5 million and $20.3 million, respectively, of time deposits. These time deposits had original maturities of greater than 90 days and are not considered cash equivalents.

See Notes to Unaudited Consolidated Financial Statements.

 

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BFC Financial Corporation

Notes to Unaudited Consolidated Financial Statements

1.     Presentation of Interim Financial Statements

BFC Financial Corporation (“BFC” or, unless otherwise indicated or the context otherwise requires, “we”, “us”, “our” or the “Company”) is a holding company whose principal holdings include controlling interests in BBX Capital Corporation (formerly BankAtlantic Bancorp, Inc.) and its subsidiaries (“BBX Capital”) and Bluegreen Corporation and its subsidiaries (“Bluegreen”), and a non-controlling interest in Benihana Inc. (“Benihana”). BBX Capital’s principal asset until July 31, 2012 was its investment in BankAtlantic and its subsidiaries (“BankAtlantic”). BankAtlantic, a federal savings bank headquartered in Fort Lauderdale, Florida, provides traditional retail banking services and a wide range of commercial banking products and related financial services through a broad network of community branches located in Florida. On July 31, 2012, BBX Capital completed its previously announced sale to BB&T Corporation (“BB&T”) of all of the issued and outstanding shares of capital stock of BankAtlantic (the stock sale and related transactions described herein are collectively referred to as the “Transaction”). As a result of their respective historic direct and indirect ownership interests in BankAtlantic, both BBX Capital and BFC are currently unitary savings and loan holding companies subject to examination and regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). In connection with the closing of the Transaction with BB&T, each of BBX Capital and BFC has requested from the Federal Reserve deregistration as a savings and loan holding company and, pending approval by the Federal Reserve, both BBX Capital and BFC expect upon such deregistration to no longer be subject to regulation by the Federal Reserve or to be subject to restrictions applicable to savings and loan holding companies.

As a holding company with controlling positions in BBX Capital and Bluegreen, generally accepted accounting principles (“GAAP”) require the consolidation of the financial results of both entities. As a consequence, the assets and liabilities of both entities are presented on a consolidated basis in BFC’s financial statements. However, except as otherwise noted, the debts and obligations of BBX Capital and Bluegreen as well as BFC’s other consolidated entities, including BFC’s wholly owned subsidiary, Woodbridge Holdings, LLC (“Woodbridge”), are not direct obligations of BFC and are non-recourse to BFC. Similarly, the assets of those entities are not available to BFC absent a dividend or distribution. The recognition by BFC of income from controlled entities is determined based on the total percent of economic ownership in those entities. At June 30, 2012, BFC had an approximately 53% economic ownership interest in BBX Capital and an approximately 54% economic ownership interest in Bluegreen.

The Company’s business activities currently consist of (i) Real Estate and Other business activities and (ii) Financial Services. We currently report the results of our business activities through five segments. Three of the segments relate to our Real Estate and Other business activities. These segments are: BFC Activities; Real Estate Operations; and Bluegreen Resorts. Our other two segments — BankAtlantic’s commercial lending reporting unit (“CLRU”) and BBX Capital Parent Company (which represents the operations of BBX Capital at its parent company level) — relate to our Financial Services business activities. As discussed below, discontinued operations include the results of Bluegreen Communities and BankAtlantic’s community banking, investment, capital services and tax certificate reporting units. Cypress Creek Holdings, LLC (“Cypress Creek Holdings”) is also reported as a discontinued operation. See Note 3 for additional information regarding discontinued operations.

On November 11, 2011, BFC entered into a definitive merger agreement with Bluegreen. Pursuant to the terms of the merger agreement, if the merger is consummated, Bluegreen will become a wholly-owned subsidiary of BFC, and Bluegreen’s shareholders (other than BFC) will be entitled to receive eight shares of BFC’s Class A Common Stock for each share of Bluegreen’s common stock that they hold at the effective time of the merger (as adjusted in connection with the reverse stock split expected to be effected by BFC prior to the consummation of the merger). The merger agreement was approved by BFC’s and Bluegreen’s respective shareholders on June 19, 2012. At that time, BFC’s shareholders also approved an amendment of BFC’s Articles of Incorporation relating to the contemplated reverse stock split and a reduction in the authorized number of shares of BFC’s common stock. However, consummation of the merger remains subject to certain closing conditions, including the listing of BFC’s Class A Common Stock on a national securities exchange at the effective time of the merger. The merger agreement provides for the transaction to be consummated by September 30, 2012. BFC and Bluegreen are working to satisfy the conditions required to consummate the merger, including BFC’s pursuit of the listing of its Class A Common Stock. The transaction will close when all conditions in the merger agreement have been met. There is no assurance that the conditions for the consummation of the merger will be met or that the merger will be consummated.

 

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Following the announcement of our entry into the merger agreement, purported class action lawsuits seeking to enjoin the merger or, if it is completed, to recover relief as determined by the presiding court to be appropriate were filed. See Note 14 for further information regarding this litigation.

On May 4, 2012, Bluegreen sold substantially all of the assets that comprised its Bluegreen Communities business to Southstar Development Partners, Inc. (“Southstar”) for a purchase price of $29.0 million in cash. Southstar also agreed to pay an amount equal to 20% of the net proceeds (as calculated in accordance with the terms of the agreement) it receives upon its sale, if any, of two specified parcels of real estate purchased by Southstar under the agreement. Assets excluded from the sale included primarily Bluegreen’s Communities notes receivable portfolio. See Note 3 for additional information. Bluegreen Communities was previously reported as a separate segment in our Real Estate and Other business activities and has been classified as a discontinued operation in all periods presented in the accompanying consolidated financial statements.

As indicated above, on July 31, 2012, BBX Capital completed the sale of BankAtlantic to BB&T pursuant to the terms of the Stock Purchase Agreement between BBX Capital and BB&T dated November 1, 2011, as amended (“the “BB&T Agreement”). Under the terms of the BB&T Agreement, prior to the closing of the Transaction, BankAtlantic formed two subsidiaries, BBX Capital Asset Management, LLC (“CAM”) and Florida Asset Resolution Group, LLC (“FAR”). BankAtlantic contributed to FAR certain performing and non-performing loans, tax certificates, and real estate owned that had an aggregate carrying value on BankAtlantic’s balance sheet of approximately $358 million as of June 30, 2012. FAR assumed all liabilities related to these assets. BankAtlantic also contributed approximately $37 million in cash to FAR and thereafter distributed all of the membership interests in FAR to BBX Capital. At the closing of the Transaction, BBX Capital transferred to BB&T 95% of the outstanding preferred membership interests in FAR in connection with BB&T’s assumption of BBX Capital’s outstanding TruPs obligations, as described in further detail below. BBX Capital continues to hold the remaining 5% of FAR’s preferred membership interests. Under the terms of the Amended and Restated Limited Liability Company of FAR, which was entered into by BBX Capital and BB&T at the closing, BB&T will hold its 95% preferred interest in the net cash flows of FAR until such time as it has recovered $285 million in preference amount plus a priority return of LIBOR + 200 basis points per annum on any unpaid preference amount. At that time, BB&T’s interest in FAR will terminate, and BBX Capital will thereafter be entitled to any and all residual proceeds from FAR through its ownership of FAR’s Class R units. It is expected that the assets (other than cash) contributed to FAR will be monetized over a period of seven years, or longer provided BB&T’s preference amount is repaid within such seven-year period. BBX Capital entered into an incremental $35 million guarantee in BB&T’s favor to further assure BB&T’s recovery of the $285 million preference amount within seven years.

Prior to the closing of the Transaction, BankAtlantic contributed to CAM, certain non-performing commercial loans, commercial real estate owned and previously written off assets that had an aggregate carrying value on BankAtlantic’s balance sheet of $126 million as of June 30, 2012. CAM assumed all liabilities related to these assets. BankAtlantic also contributed approximately $81 million in cash to CAM. Prior to the closing of the Transaction, BankAtlantic distributed all of the membership interests in CAM to BBX Capital. CAM remains a wholly owned subsidiary of BBX Capital.

Pursuant to the BB&T Agreement, the cash consideration exchanged by the parties at the closing of the Transaction in connection with the sale of BankAtlantic’s stock was based on the deposit premium and the net asset value of BankAtlantic, in each case as calculated pursuant to the terms of the BB&T Agreement, including, with respect to the net asset value of BankAtlantic, after giving effect to the asset contributions and membership interest distributions by BankAtlantic described above. Based on financial information as of June 30, 2012 and the preliminary calculations of the deposit premium (which was estimated to be $315.9 million) and the net asset value of BankAtlantic, BBX Capital received from BB&T a cash payment related to the sale of BankAtlantic’s stock of approximately $6.4 million. However, the deposit premium and net asset value of BankAtlantic as well as the resulting cash payment made to BBX Capital are all estimates based on available financial information as of June 30, 2012. Under the terms of the BB&T Agreement, these amounts are subject to adjustment post-closing as all relevant financial information is reviewed and approved by the parties, and the cash payment made to BBX Capital may be less than the amount indicated above or BBX Capital may be required to make a net cash payment to BB&T. BBX Capital expects to recognize a $307 million gain in connection with the Transaction, and

 

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based on the Company’s approximately 53% ownership interest in BBX Capital, BFC expects to recognize a gain of approximately $165.7 million in connection with the Transaction, including approximately $2.7 million related to purchase accounting adjustments. However, the amount of gain recognized by BBX Capital and BFC is subject to adjustment based on the final balance sheet reconciliation procedures described above

Under the terms of the BB&T Agreement, at the closing of the Transaction, BB&T assumed the obligations with respect to BBX Capital’s approximately $285 million in principal amount of outstanding trust preferred securities (“TruPs”), and BBX Capital paid BB&T approximately $51.3 million, representing all accrued and unpaid interest on the TruPs through closing. BBX Capital also paid approximately $2.3 million for certain legal fees and expenses incurred by trustees with respect to the previously disclosed litigation relating to the Transaction brought by certain trustees and holders of the TruPs.

Based on the probable sale of BankAtlantic to BB&T, as of March 31, 2012, the assets and liabilities then anticipated to be transferred to BB&T were reclassified as “Assets held for sale”, “Deposits held for sale” and “Other liabilities held for sale”. As such, the assets and liabilities transferred to BB&T, consisting of all of BankAtlantic’s assets and liabilities less the assets and liabilities to be retained in CAM and FAR, are presented as “Assets held for sale” and “Liabilities held for sale” in the unaudited Consolidated Statement of Financial Condition as of June 30, 2012. While the majority of cash and interest bearing deposits in other banks were transferred to BB&T upon closing of the Transaction, with the exception of cash at BankAtlantic’s branches and automated teller machines, the cash and interest bearing deposits transferred to BB&T are not presented as “Assets held for sale” as of June 30, 2012. The assets and liabilities transferred to BB&T were measured as of June 30, 2012 on a combined basis as a single disposal group at the lower of cost or fair value less costs to sell. Accordingly, the assets and liabilities held for sale are presented in the unaudited Consolidated Statement of Financial Condition as of June 30, 2012 based on their carrying value as the Company recorded a gain associated with the Transaction.

BankAtlantic’s community banking, investment, capital services and tax certificate reporting units are reflected as “Discontinued Operations” in the unaudited Consolidated Statements of Operations for all periods presented. BBX Capital is continuing to service and manage and may originate commercial loans in the future and as a result, the results of operations for the Commercial Lending reporting unit are included in the unaudited Consolidated Statement of Operations as continuing operations for all periods presented. The assets and liabilities transferred to BB&T were not reclassified to assets and liabilities held for sale in the Consolidated Statement of Financial Condition as of December 31, 2011. The Consolidated Statement of Stockholders’ (Deficit) Equity, Consolidated Statements of Comprehensive (Loss) Income and Consolidated Statement of Cash Flows remain unchanged from prior period historical presentation for all periods presented. Additionally, pursuant to the Agreement, BBX Capital agreed to sell to BB&T certain assets and liabilities associated with its Commercial Lending reporting unit and these assets and liabilities are included in assets and liabilities held for sale in the Consolidated Statement of Financial Condition as of June 30, 2012. Similarly, BBX Capital will retain certain assets and liabilities associated with the disposed reporting units and these assets and liabilities are included in the Consolidated Statement of Financial Condition in their respective line items as of June 30, 2012.

The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. In management's opinion, the accompanying unaudited consolidated financial statements contain all adjustments, which include normal recurring adjustments, as are necessary for a fair statement of the Company's consolidated financial condition at June 30, 2012; the consolidated results of operations and comprehensive income (loss) for the three and six months ended June 30, 2012 and 2011; cash flows for the six months ended June 30, 2012 and 2011; and the changes in consolidated equity for the six months ended June 30, 2012. Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. These unaudited consolidated financial statements and related notes are presented as permitted by Form 10-Q and should be read in conjunction with the Company’s audited consolidated financial statements and footnotes thereto included in Amendment No.1 to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2011. All significant inter-company balances and transactions have been eliminated in consolidation. As used throughout this document, the term “fair value” reflects the Company’s estimate of fair value as discussed herein. Certain amounts for prior periods have been reclassified to conform to the current period’s presentation.

During the quarter ended March 31, 2012, management identified an error in its cost of sales and other miscellaneous accounts and recorded an out of period adjustment related to prior quarters and years. The impact of the errors was: an understatement of cost of sales of VOIs sold of $1.3 million; an overstatement of other expenses

 

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of $300,000; an understatement of net loss from continuing operations of $1.0 million; an overstatement of net income attributable to noncontrolling interest of $608,000; an overstatement of provision for income taxes of $402,000; and an understatement of net loss attributable to BFC of $22,000. Management determined, after evaluating the quantitative and qualitative aspects of these corrections, that our current and prior period financial statements were not materially misstated. Furthermore, management does not believe that these adjustments will be material to its estimated results of operations for the year ended December 31, 2012.

2.    Liquidity and Regulatory Considerations

BFC

Regulatory Considerations

As a result of its position as the controlling shareholder of BBX Capital, BFC is currently a “unitary savings and loan holding company” subject to examination and regulation by the Federal Reserve. Effective July 21, 2011, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Federal Reserve succeeded to the supervisory authority previously held by the Office of Thrift Supervision (“OTS”).

BFC, on a parent company only basis, previously committed that it will not, without the prior written non-objection of its primary regulator, (i) incur or issue any additional debt or debt securities, increase lines of credit or guarantee the debt of any other entity or (ii) make dividend payments on its stock. BFC has determined not to seek the Federal Reserve’s written non-objection to the dividend payments on its preferred stock for each of the quarters ended December 31, 2011, March 31, 2012 and June 30, 2012 and, therefore, has not yet made the dividend payments. Unpaid dividends on BFC’s outstanding preferred stock will cumulate, and it is anticipated that payment of unpaid cumulative dividends will be made following BFC’s deregistration as a unitary savings and loan holding company. As described in Note 1, BFC has requested deregistration as a result of BBX Capital’s sale of BankAtlantic to BB&T on July 31, 2012. If such request is approved, then upon deregistration, dividend payments by BFC, including with respect to its outstanding preferred stock, will no longer require the prior written non-objection of the Federal Reserve. As of June 30, 2012, unpaid dividend payments totaled approximately $563,000, and such amount is included in shares subject to mandatory redemption in the accompanying consolidated statement of financial condition as of June 30, 2012.

Liquidity Considerations

Except as otherwise noted, the debts and obligations of BBX Capital, Bluegreen and Woodbridge are not direct obligations of BFC and generally are non-recourse to BFC. Similarly, the assets of those entities are not available to BFC, absent a dividend or distribution from those entities. BFC’s principal sources of liquidity are its available cash and short-term investments.

We expect to use our available funds to fund operations and meet our obligations. We may also use available funds to make additional investments in the companies within our consolidated group, invest in equity securities and other investments, or repurchase shares of our common stock pursuant to our share repurchase program. On September 21, 2009, our board of directors approved a share repurchase program which authorizes the repurchase of up to 20,000,000 shares of Class A Common Stock and Class B Common Stock at an aggregate cost of up to $10 million. The share repurchase program replaced our $10 million repurchase program that our board of directors approved in October 2006 which placed a limitation on the number of shares which could be repurchased under the program at 1,750,000 shares of Class A Common Stock. The current program, like the prior program, authorizes management, at its discretion, to repurchase shares from time to time subject to market conditions and other factors. No shares were repurchased during the three or six months ended June 30, 2012, or during the years ended December 31, 2011 or 2010.

BFC has not received cash dividends from BBX Capital since March 2009. BBX Capital may only pay dividends if and when declared by its board of directors, a majority of whom are independent directors under the listing standards of the New York Stock Exchange (the “NYSE”). In addition, pending approval of its request for deregistration as a unitary savings and loan holding company, BBX Capital’s payment of dividends is subject to the oversight of the Federal Reserve.

BFC has never received cash dividends from Bluegreen. Certain of Bluegreen’s credit facilities contain terms which prohibit the payment of cash dividends, and Bluegreen may only pay dividends subject to such restrictions and declaration by its board of directors, a majority of whom are independent directors under the listing standards of the NYSE.

 

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During March 2012, a registration statement on Form S-3 was filed by Benihana and declared effective by the SEC, under which we may sell any and all of the shares of Benihana’s Common Stock that we own. As of June 30, 2012, we owned 1,582,577 shares of Benihana’s Common Stock. On July 13, 2012, we entered into a Rule 10b5-1 Trading Plan providing for the sale of up to an aggregate of 150,000 shares of Benihana’s Common Stock from time to time until January 28, 2013 at a minimum predetermined price per share. Sales commenced under the plan on July 30, 2012. The proceeds we receive from sales of Benihana’s Common Stock will depend on the timing of the sale and the market price of Benihana’s Common Stock.

On May 22, 2012, Benihana entered into an Agreement and Plan of Merger with Safflower Holdings Corp. which provides for Safflower’s acquisition of Benihana for a purchase price of $16.30 per share of Benihana’s Common Stock. The proceeds that we receive in connection with the merger, if consummated, will depend on the number of shares of Benihana’s Common Stock that we own at the effective time of the merger. Consummation of the merger is subject to certain closing conditions, including the approval of Benihana’s stockholders and regulatory clearance. Benihana has indicated that, assuming the satisfaction of all closing conditions, this merger is expected to close during August 2012.

We believe that our current financial condition and credit relationships, together with anticipated cash flows from other sources of funds, including the sale of Benihana’s Common Stock and/or the proceeds we receive in exchange for such stock upon the consummation, if any, of Benihana’s currently proposed merger, and, to the extent determined to be advisable, proceeds from the disposition of properties or investments, will allow us to meet our anticipated near-term liquidity needs. With respect to long-term liquidity requirements, in addition to the foregoing, we may also, subject to the receipt of any regulatory approval or non-objection (to the extent required), seek to raise funds through the incurrence of long-term secured or unsecured indebtedness, or the issuance of equity and/or debt securities. However, these alternatives may not be available to us on attractive terms, or at all. The inability to raise funds through the sources discussed above would have a material adverse effect on the Company’s business, results of operations and financial condition.

Woodbridge

On September 21, 2009, BFC consummated its merger with Woodbridge Holdings Corporation (“WHC”). Pursuant to the merger, WHC became a wholly owned subsidiary of BFC, Woodbridge and the shareholders of WHC at the effective time of the merger (other than BFC) were entitled to receive in exchange for each share of WHC’s Class A Common Stock that they owned, 3.47 shares of BFC’s Class A Common Stock. Under Florida law, holders of WHC’s Class A Common Stock who did not vote to approve the merger and properly asserted and exercised their appraisal rights with respect to their shares (“Dissenting Holders”) are entitled to receive a cash payment in an amount equal to the fair value of their shares as determined in accordance with the provisions of Florida law in lieu of the shares of BFC’s Class A Common Stock that they would otherwise have been entitled to receive. Dissenting Holders, who collectively held approximately 4.2 million shares of WHC’s Class A Common Stock, rejected Woodbridge’s offer of $1.10 per share and requested payment for their shares based on their respective fair value estimates of WHC’s Class A Common Stock. In accordance with Florida law, Woodbridge thereafter commenced legal proceedings relating to the appraisal process. In December 2009, a $4.6 million liability was recorded with a corresponding reduction to additional paid-in capital, which is reflected in the Company’s consolidated statements of financial condition representing in the aggregate Woodbridge’s offer to the Dissenting Holders. On July 5, 2012, the presiding court in the appraisal rights action determined the fair value of the Dissenting Holders’ shares to be $1.78 per share and awarded legal and other costs in favor of the Dissenting Holders. As a result, the $4.6 million liability was increased (with a corresponding reduction to additional paid in capital of $2.8 million) to approximately $7.5 million as of June 30, 2012 to account for the per share value awarded, however, any award for legal and other costs that may be paid could not be reasonably estimated. Woodbridge has appealed the court’s decision regarding the per share value and the award to the Dissenting Holders of legal fees and costs. The outcome of the appeal is uncertain.

Core Communities

In early 2010, Woodbridge made the decision to pursue an orderly liquidation of Core Communities LLC, Woodbridge’s wholly owned subsidiary (“Core” or Core Communities”) and worked cooperatively with the various

 

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lenders to achieve that objective. During November 2010, Core entered into a settlement agreement with one of its lenders, which had previously commenced actions seeking foreclosure of properties in Florida and South Carolina which served as collateral under mortgage loans totaling approximately $113.9 million. Under the terms of the agreement, Core pledged additional collateral to the lender consisting of membership interests in five of Core’s subsidiaries and granted security interests in the real property owned by such subsidiaries in Port St. Lucie, Florida, substantially all of which was undeveloped raw land. Core also agreed to an amendment of the complaint related to the Florida foreclosure action to include this additional collateral and an entry into consensual judgments of foreclosure in both the Florida and South Carolina foreclosure actions. As of November 30, 2010, Core deconsolidated the five subsidiaries, the membership interests in which were transferred to the lender upon entry into the consensual judgments of foreclosure. In turn, the lender agreed not to enforce a deficiency judgment against Core and, in February 2011, released Core from any other claims arising from or relating to the loans. In connection therewith, a deferred gain on settlement of investment in subsidiary of $11.3 million was recognized into income during the three months ended March 31, 2011.

Carolina Oak

In 2007, WHC acquired from Levitt and Sons, LLC (“Levitt and Sons”), WHC’s wholly-owned subsidiary at the time, all of the outstanding membership interests in Carolina Oak, LLC (“Carolina Oak”), which engaged in homebuilding activities in South Carolina prior to the suspension of the activities in the fourth quarter of 2008. In the fourth quarter of 2009, the inventory of real estate at Carolina Oak was reviewed for impairment and a $16.7 million impairment charge was recorded to adjust the carrying amount of Carolina Oak’s inventory to its fair value of $10.8 million.

Woodbridge was the obligor under a $37.2 million loan collateralized by the Carolina Oak property. During 2009, the lender declared the loan to be in default and filed an action for foreclosure. On April 26, 2011, a settlement agreement was entered into to resolve the disputes and ligation relating to the loan. Under the terms and subject to the conditions of the settlement agreement, (i) Woodbridge paid $2.5 million to the note holder, (ii) Carolina Oak conveyed to the note holder the real property securing the loan and (iii) the note holder agreed not to pursue certain remedies, including a deficiency judgment, and after the expiration of an agreed-upon time period (which expired during April 2012), to fully release Woodbridge and Carolina Oak. In accordance with applicable accounting guidance, a deferred gain on debt settlement of $29.9 million was recorded in the Company’s consolidated statement of financial condition as of December 31, 2011 and was recognized as income in the quarter ended June 30, 2012 as a result of the full release of Woodbridge and Carolina Oak during April 2012.

Cypress Creek Holdings

Cypress Creek Holdings owned an 80,000 square foot office building in Fort Lauderdale, Florida. As of December 31, 2011, the building, which had an estimated carrying value of approximately $6.4 million, served as collateral for an approximately $11.2 million mortgage loan.

The building was previously 50% occupied by an unaffiliated third party pursuant to a lease which expired in March 2010. The tenant opted not to renew the lease and vacated the space as of March 31, 2010. After efforts to lease the space proved unsuccessful, the lender with respect to the loan secured by the office building agreed to permit Cypress Creek Holdings to pursue a short sale of the building. During January 2012, the building was sold for approximately $10.8 million. The proceeds of the sale plus a $668,000 payment made by Cypress Creek Holdings were paid to the lender in full satisfaction of the loan. During the first quarter of 2012, the Company recognized a gain of approximately $4.4 million in connection with the sale.

Cypress Creek Holdings’ results of operations are reported as a discontinued operation in the Company’s consolidated financial statements and its assets, which were sold during the first quarter of 2012, were classified as assets held for sale as of December 31, 2011.

BBX Capital

BBX Capital had cash of $4.0 million and current liabilities of $5.8 million as of June 30, 2012. In connection with the consummation of the Transaction, on July 31, 2012, BBX Capital received net cash proceeds of approximately $29.0 million, consisting of a $6.4 million cash payment from BB&T and approximately $22.5 million of cash held in its wholly-owned subsidiary, CAM, net of transaction costs, trustee fees and costs associated with the TruPs related litigation and payments to BB&T of accrued and unpaid TruPs interest. BBX Capital’s liquidity is primarily dependent upon the repayments of loans, sales of real estate, and obtaining funds from its 5% preferred interest in FAR. Based on the current and expected liquidity needs and sources, BBX Capital expects to be able to meet its liquidity needs over the next 12 months.

 

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3. Assets and Liabilities Held for Sale

Bluegreen Communities

On May 4, 2012, Bluegreen sold substantially all of the assets that comprised Bluegreen Communities to Southstar for a purchase price of $29.0 million in cash. Additionally, Southstar agreed to pay an amount equal to 20% of the net proceeds (as calculated in accordance with the terms of the agreement) it receives upon its sale, if any, of two specified parcels of real estate purchased by Southstar under the agreement. Certain assets including Bluegreen Communities’ notes receivable portfolio were not sold to Southstar.

The assets sold to Southstar were accounted for as assets held for sale and had been previously written down to their fair value less costs to sell. The fair value of the assets held for sale was derived from the sale price under the agreement with Southstar. Therefore, Bluegreen did not incur a significant gain or loss upon the closing of the transaction.

Also included in results of discontinued operations in each of the periods presented is interest expense primarily on the H4BG Communities Facility as certain of the assets classified as held for sale (and which were sold to Southstar as part of the Bluegreen Communities sale) served as collateral under this facility. The entire amount of the debt outstanding under the H4BG Communities Facility and a $2.0 million deferred fee were repaid upon the sale of the assets on May 4, 2012.

Cypress Creek Holdings

During January 2012, Cypress Creek Holdings sold the office building it owned for approximately $10.8 million. The building served as collateral for an approximately $11.2 million mortgage loan. Accordingly, the proceeds of the sale plus a $668,000 payment made by Cypress Creek Holdings were paid to the lender in full satisfaction of the loan. The Company recognized a gain of approximately $4.4 million in connection with the sale during the first quarter of 2012. Cypress Creek Holdings’ results of operations are reported as a discontinued operation in the accompanying consolidated financial statements and its assets, which were sold during January 2012, were classified as assets held for sale as of December 31, 2011.

The following tables summarize the discontinued operations for Bluegreen Communities for the three and six months ended June 30, 2012 and 2011 and Cypress Creek Holdings for the three months ended June 30, 2011 and the six months ended June 30, 2012 and 2011 (in thousands):

 

     For the Three
Months  Ended
June 30, 2012
    For the Three Months Ended June 30, 2011  
     Bluegreen
Communities
    Bluegreen
Communities
    Cypress
Creek
Holdings
    Total  

Revenues

   $ 1,017        4,170        4        4,174   
  

 

 

   

 

 

   

 

 

   

 

 

 
     1,017        4,170        4        4,174   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost and Expenses:

        

Cost of discontinued operations

     3,053        4,271        265        4,536   

(Gain) loss on assets held for sale

     (59     52,733        —          52,733   

Interest expense

     744        772        160        932   
  

 

 

   

 

 

   

 

 

   

 

 

 
     3,738        57,776        425        58,201   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from discontinued operations, before taxes

     (2,721     (53,606     (421     (54,027

Benefit for income taxes

     1,328        20,634        —          20,634   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from discontinued operations, net

   $ (1,393     (32,972     (421     (33,393
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
     For the Six Months Ended June 30, 2012      For the Six Months Ended June 30, 2011  
     Bluegreen
Communities
    Cypress
Creek
Holdings
     Total      Bluegreen
Communities
    Cypress
Creek
Holdings
    Total  

Revenues

   $ 3,815        3         3,818         9,893        4        9,897   

Gain on sale of asset

     —          4,446         4,446         —          —          —     
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     3,815        4,449         8,264         9,893        4        9,897   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Cost and Expenses:

              

Cost of discontinued operations

     5,717        52         5,769         10,169        536        10,705   

Loss on assets held for sale

     205        —           205         52,733        —          52,733   

Interest expense

     1,386        —           1,386         1,532        321        1,853   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     7,308        52         7,360         64,434        857        65,291   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

(Loss) income from discontinued operations, before taxes

     (3,493     4,397         904         (54,541     (853     (55,394

Benefit for income taxes

     1,797        —           1,797         20,986        —          20,986   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

(Loss) income from discontinued operations, net

   $ (1,696     4,397         2,701         (33,555     (853     (34,408
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

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Table of Contents

The following table summarizes the assets held for sale and liabilities related to the assets held for sale for Bluegreen Communities and Cypress Creek Holdings as of December 31, 2011 (in thousands):

 

     December 31, 2011  
            Cypress         
     Bluegreen      Creek         
     Communities      Holdings      Total  

Inventory

   $ 23,264         —           23,264   

Property and equipment, net

     5,361         6,410         11,771   
  

 

 

    

 

 

    

 

 

 

Assets held for sale

   $ 28,625         6,410         35,035   
  

 

 

    

 

 

    

 

 

 

Notes and mortgage payable

   $ —           11,156         11,156   
  

 

 

    

 

 

    

 

 

 

Liabilities related to assets held for sale

   $ —           11,156         11,156   
  

 

 

    

 

 

    

 

 

 

BBX Capital

The following table summarizes the assets and liabilities held for sale related to the BBX Capital transaction (as discussed in Note 1) as of June 30, 2012 (in thousands):

 

     As of  
     June 30,
2012
 

Cash and due from banks

   $ 59,431   

Securities available for sale, at fair value

     33,550   

Tax certificates

     17,736   

Federal Home Loan Bank stock

     8,328   

Loans receivable (1)

     1,828,485   

Accrued interest receivable

     11,347   

Office properties and equipment (1)

     123,683   

Goodwill (1)

     12,241   

Other assets (1)

     26,072   
  

 

 

 

Total assets held for sale

   $ 2,120,873   
  

 

 

 

Deposits

  

Interest free checking

   $ 926,892   

Insured money fund savings

     699,169   

Now accounts

     1,114,360   

Savings accounts

     424,848   
  

 

 

 

Total non-certificate accounts

     3,165,269   

Certificate accounts

     283,615   
  

 

 

 

Total deposits held for sale (2)

     3,448,884   
  

 

 

 

Subordinated debentures

     22,000   

Other liabilities

     36,199   
  

 

 

 

Total other liabilities held for sale (2)

     58,199   
  

 

 

 

Total liabilities held for sale

   $ 3,507,083   
  

 

 

 

 

(1) Loans receivable, office properties and equipment and goodwill amounts were reduced by approximately $5.3 million, $6.0 million and $0.8 million, respectively, and other assets increased by $6.7 million, in each case as a result of purchase accounting adjustments in connection with BFC's purchase of shares of BBX Capital’s Class A Common Stock during 2008, which were accounted for as step acquisitions under the purchase method of accounting then in effect.
(2) Total deposits held for sale includes the elimination of $1.6 million of cash held at BankAtlantic by BFC. Total other liabilities held for sale includes the elimination of $0.2 million of shared service accruals between BankAtlantic and BFC.

 

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Table of Contents

The majority of the cash and interest bearing deposits in other banks on BBX Capital’s consolidated statement of financial condition were also transferred to BB&T in the Transaction.

BankAtlantic’s five reporting units each reflect a component of the BankAtlantic entity and each is the lowest level for which cash flows can be clearly distinguished, operationally and for financial reporting purposes. These five components are Community Banking, Commercial Lending, Tax Certificates, Investments, and Capital Services. Based on its agreement with BB&T, BBX Capital determined that its Community Banking, Investments, Capital Services and Tax Certificates reporting units should be treated as discontinued operations. BBX Capital sold all operations and the majority of the assets and liabilities of these discontinued reporting units to BB&T as of July 31, 2012. Management does not intend to continue in any material respect any activities of or have any continuing involvement with these reporting units. BBX Capital intends to continue Commercial Lending reporting unit activities after the closing of the Transaction. Therefore, although certain assets of this reporting unit were sold to BB&T and are presented as assets and liabilities held for sale in the Consolidated Statement of Financial Condition as of June 30, 2012, the Commercial Lending reporting unit was not reported as discontinued operations.

Pursuant to the Agreement, FAR will retain in addition to certain assets associated with BBX Capital’s continuing Commercial Lending reporting unit, certain assets and liabilities that were associated with BBX Capital’s disposed reporting units (Community Banking, Tax Certificates, Investments, and Capital Services reporting units). BBX Capital determined that the ongoing cash flows of the disposed reporting units were not significant relative to the historical cash flows of each reporting unit; therefore the income and expenses associated with the disposed reporting units are reported in discontinued operations for each period presented. The carrying value of the disposed reporting units’ net assets anticipated to be included in FAR’s total assets discussed above was $120 million as of June 30, 2012. The assets held by FAR are expected to be monetized in accordance with the terms of such assets or through orderly transactions over a seven year period. Ninety-five percent of the cash flows from these assets net of operating expenses and a stated preferred return will be applied toward the repayment of BB&T’s preferred interest in FAR.

The (loss) income from Community Banking, Investments, Capital Services and Tax Certificates reporting units included in discontinued operations in the accompanying Consolidated Statement of Operations was as follows (in thousands):

 

     For the Three Months
Ended June 30,
     For the Six Months
Ended June 30,
 
     2012     2011      2012     2011  

Revenues:

  

      

Interest income

   $ 18,349        26,402         39,365        54,628   

Service charges on deposits

     7,491        11,226         15,342        23,258   

Other service charges and fees

     5,958        6,886         11,896        14,077   

Securities activities, net

     (99     —           (99     (24

Gain on sale of Tampa branches

     —          38,656         —          38,656   

Other non-interest income

     1,383        2,878         5,118        6,172   
  

 

 

   

 

 

    

 

 

   

 

 

 
     33,082        86,048         71,622        136,767   
  

 

 

   

 

 

    

 

 

   

 

 

 

Costs and Expenses:

         

Interest expense

     3,248        4,242         6,502        8,954   

Provision for loan losses

     7,301        6,396         16,518        27,381   

Employee compensation and benefits (1)

     10,456        13,428         22,146        27,195   

Occupancy and equipment (1)

     7,159        8,380         14,431        17,502   

Advertising and promotion (1)

     919        1,378         1,935        2,961   

Professional fees (1)

     395        637         2,218        1,869   

Other expenses (1)

     7,535        10,128         12,953        17,976   
  

 

 

   

 

 

    

 

 

   

 

 

 
     37,013        44,589         76,703        103,838   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net (loss) income from discontinued operations

   $ (3,931     41,459         (5,081     32,929   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

(1) Pursuant to applicable accounting rules, all general corporate overhead was allocated to continuing operations.

 

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Table of Contents

4.    Fair Value Measurement

Assets on a recurring basis

The following tables present major categories of the Company’s assets measured at fair value on a recurring basis as of June 30, 2012 (in thousands):

 

Description

   June 30,
2012
     Fair Value Measurements Using  
      Quoted prices in
Active Markets
for Identical
Assets

(Level 1)
     Significant Other
Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Benihana’s Common Stock

   $ 25,368         25,368         —           —     

Other equity securities

     223         223         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 25,591         25,591         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

The following tables present major categories of the Company’s assets measured at fair value on a recurring basis as of December 31, 2011 (in thousands):

 

Description

   December 31,
2011
     Fair Value Measurements Using  
      Quoted prices in
Active Markets
for Identical
Assets

(Level 1)
     Significant Other
Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Mortgage-backed securities

   $ 13,418         —           13,418         —     

REMICS (1)

     31,690         —           31,690         —     

Benihana’s Common Stock

     16,190         16,190         —           —     

Other equity securities

     1,505         1,005         500         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 62,803         17,195         45,608         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Real estate mortgage investment conduits (“REMICs”) are pass-through entities that hold residential loans, and investors are issued ownership interests in the entities in the form of a bond. The securities were issued by government agencies.

 

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Table of Contents

The following table presents major categories of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2011 (in thousands):

 

     Benihana  
     Convertible  
For the three months ended June 30, 2011:    Preferred
Stock (1)
 

Beginning Balance at March 31, 2011

   $ 20,951   

Total gains and losses (realized/unrealized)

  

Included in earnings (or changes in net assets)

     —     

Cumulative effect of change in accounting principle

     —     

Included in other comprehensive loss

     —     

Purchases, issuances, and settlements

     (5,238

Transfers in and/or out of Level 3

     (15,713
  

 

 

 

Balance at June 30, 2011

   $ —     
  

 

 

 
     Benihana  
     Convertible  
For the six months ended June 30, 2011:    Preferred
Stock (1)
 

Beginning Balance January 1, 2011

   $ 21,106   

Total gains and losses (realized/unrealized)

  

Included in earnings

     —     

Cumulative effect of change in accounting principle

     —     

Included in other comprehensive loss

     (155

Purchases, issuances, and settlements

     (5,238

Transfers in and/or out of Level 3

     (15,713
  

 

 

 

Balance at June 30, 2011

   $ —     
  

 

 

 

 

  (1) During May and July 2011, BFC converted an aggregate of 300,000 shares of Convertible Preferred Stock of Benihana into shares of Benihana’s Common Stock. In connection with the May 2011 conversion, effective for the quarter ended June 30, 2011, we began to assess the value of our investment in Benihana’s Convertible Preferred Stock, as if converted, by using the market approach with Level 2 measurements instead of the income approach with Level 3 measurements which we historically used. During October 2011, BFC converted its remaining 500,000 shares of Convertible Preferred Stock of Benihana into shares of Benihana’s Common Stock.

There were no assets measured at fair value on a recurring basis using significant unobservable inputs (level 3) in the Company’s financial statements for the three or six months ended June 30, 2012.

The valuation techniques and the inputs used in our financial statements to measure the fair value of our recurring financial instruments are described below.

The fair values of mortgage-backed securities and REMICs are estimated using independent pricing sources and matrix pricing. Matrix pricing uses a market approach valuation technique and Level 2 valuation inputs as quoted market prices are not available for the specific securities that BBX Capital owns. The independent pricing sources value these securities using observable market inputs including: benchmark yields, reported trades, broker/dealer quotes, issuer spreads and other reference data in the secondary institutional market which is the principal market for these types of assets. To validate fair values obtained from the pricing sources, BBX Capital reviews fair value estimates obtained from brokers, investment advisors and others to determine the reasonableness of the fair values obtained from independent pricing sources. BBX Capital reviews any price that it determines may not be reasonable and requires the pricing sources to explain the differences in fair value or re-evaluate its estimated fair value.

Equity securities are generally fair valued using the market approach and quoted market prices (Level 1) or matrix pricing (Level 2) with inputs obtained from independent pricing sources, if available. At June 30, 2012 and December 31, 2011, the estimated fair value of Benihana’s Common Stock was obtained by using the quoted market price using Level 1 inputs. We also obtain non-binding broker quotes to validate fair values obtained from matrix pricing. BBX Capital also invests in private limited partnerships that do not have readily determinable fair values. BBX Capital uses the net asset value per share as provided by the partnership to estimate the fair value of these investments. The net asset value of the partnership is a Level 2 input since BBX Capital has the ability to require the redemption of its investment at its net asset value.

 

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Table of Contents

Liabilities on a recurring basis

There were no liabilities measured at fair value on a recurring basis as of June 30, 2012 and December 31, 2011.

Assets on a non-recurring basis

The following table presents major categories of assets measured at fair value on a non-recurring basis as of June 30, 2012 (in thousands):

 

     Fair Value Measurements Using         

Description

   June 30,
2012
     Quoted prices in
Active Markets
for Identical
Assets

(Level 1)
     Significant
Other Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
     Total
Impairments
For the Six
Months Ended
June 30,

2012 (1)
 

Impaired real estate owned

   $ 27,288         —           —           27,288         3,534   

Impaired loans held for sale

     9,397         —           —           9,397         459   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 36,685         —           —           36,685         3,993   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Total impairments represent the amount recognized during the six months ended June 30, 2012 on assets that were held and measured at fair value as of June 30, 2012.

Quantitative information about significant unobservable inputs within Level 3 non-recurring major categories of assets is as follows (dollars in thousands):

 

As of June 30, 2012 Description

   Fair Value      Valuation Technique    Unobservable
Inputs
  

Range (Average) (1)

Impaired real estate owned

   $ 27,288       Fair Value of Property    Appraisal    $0.4 - 6.5 million (3.0 million)

Impaired loans held for sale

     9,397       Fair Value of Collateral    Appraisal    $0.9 -3.6 million (1.9 million)
  

 

 

          

Total

   $ 36,685            
  

 

 

          

 

(1) Range and average appraised values were reduced by costs to sell.

The following table presents major categories of assets measured at fair value on a non-recurring basis as of June 30, 2011 (in thousands):

 

     Fair Value Measurements Using         

Description

   June 30,
2011
     Quoted prices in
Active Markets
for Identical
Assets

(Level 1)
     Significant
Other Observable
Inputs (Level 2)
     Significant
Unobservable
Inputs

(Level 3)
     Total
Impairments
For the Six
Months Ended

June 30,
2011 (1)
 

Loans measured for impairment using the fair value of the underlying collateral

   $ 265,245         —           —           265,245         24,624   

Impaired loans held for sale

     27,463         —           —           27,463         6,335   

Impaired real estate owned

     36,044         —           —           36,044         8,830   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 328,752         —           —           328,752         39,789   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Total impairments represent the amount recognized during the six months ended June 30, 2011 on assets that were measured at fair value as of June 30, 2011.

 

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Table of Contents

Liabilities on a non-recurring basis

The following table presents major categories of liabilities measured at fair value on a non-recurring basis using significant unobservable inputs (Level 3) as of June 30, 2012 (in thousands):

 

            Fair Value Measurements Using  

Description

   June 30,
2012
     Quoted prices
in Active
Markets for
Identical
Assets

(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Shares subject to mandatory redemption

   $ 11,501         —           —           11,501   

The fair value of the shares subject to mandatory redemption has been calculated using the discounted cash flow method of the income approach.

Loans Measured For Impairment

Impaired loans are generally valued based on the fair value of the underlying collateral less cost to sell. BBX Capital primarily uses third party appraisals to assist in measuring non-homogenous impaired loans. These appraisals generally use the market or income approach valuation technique and use market observable data to formulate an opinion of the fair value of the loan’s collateral. However, the appraiser uses professional judgment in determining the fair value of the collateral or properties, and BBX Capital may also adjust these values for changes in market conditions subsequent to the appraisal date. When current appraisals are not available for certain loans, BBX Capital uses its judgment on market conditions to adjust the most current appraisal. The sales prices may reflect prices of sales contracts not closed, and the amount of time required to sell out the real estate project may be derived from current appraisals of similar projects. As a consequence, the calculation of the fair value of the collateral are considered Level 3 inputs. BBX Capital generally recognizes impairment losses when impaired homogenous loans become 120 days delinquent based on third party broker price opinions or an automated valuation service to obtain the fair value of the collateral less cost to sell. These third party valuations from real estate professionals also use Level 3 inputs in determining fair values. The observable market inputs used to fair value loans are comparable property sales, rent rolls, market capitalization rates on income producing properties, risk adjusted discounts rates and foreclosure period and exposure periods. The fair value of BBX Capital loans may significantly increase or decrease based on property values as its loans are primarily real estate loans.

Loans Held for Sale

Loans held for sale are valued using an income approach with Level 3 inputs as market quotes or sale transactions of similar loans are generally not available. The fair value is estimated by discounting forecasted cash flows, using a discount rate that reflects the risks inherent in the loans held for sale portfolio. For non-performing loans held for sale, the forecasted cash flows are based on the estimated fair value of the collateral less cost to sell adjusted for foreclosure expenses and other operating expenses of the underlying collateral until foreclosure or sale.

 

23


Table of Contents

Impaired Real Estate Owned

Real estate is generally valued using third party appraisals or broker price opinions. These appraisals generally use the market approach valuation technique and use market observable data to formulate an opinion of the fair value of the properties. The market observable data was generally comparable property sales, rent rolls, market capitalization rates on income producing properties and risk adjusted discount rates. However, the appraisers or brokers use professional judgments in determining the fair value of the properties and we may also adjust these values for changes in market conditions subsequent to the valuation date. As a consequence of using appraisals, broker price opinions and adjustments to appraisals, the fair values of the properties are considered Level 3 inputs.

Financial Disclosures about Fair Value of Financial Instruments

The following tables present information for financial instruments at June 30, 2012 and December 31, 2011 (in thousands):

 

            Fair Value Measurements Using  
     Carrying
Amount As
of June 30,
2012
     As of
June 30,
2012
     Quoted prices
in
Active Markets
for Identical
Assets

(Level 1)
     Significant
Other
Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Financial assets:

              

Cash and interest bearing deposits in other banks

   $ 1,261,284         1,261,284         1,261,284         —           —     

Restricted cash

     59,414         59,414         59,414         —           —     

Securities available for sale

     25,591         25,591         25,591         —           —     

Tax certificates

     5,293         5,346         —           —           5,346   

Loans receivable including loans held for sale, net

     402,823         405,300         —           —           405,300   

Notes receivable, net

     496,875         542,000         —           —           542,000   

Financial liabilities:

              

Receivable-backed notes payable

   $ 437,895         425,900         —           —           425,900   

Notes and mortgage notes payable and other borrowings

     32,284         31,700         —           —           31,700   

Junior subordinated debentures

     485,992         419,921         —           304,921         115,000   

Shares subject to mandatory redemption

     12,177         12,177         —           —           12,177   

 

     December 31, 2011  
     Carrying
Amount
     Fair Value  

Financial assets:

     

Cash and interest bearing deposits in other banks

   $ 858,789         858,789   

Restricted cash

     62,727         62,727   

Securities available for sale

     62,803         62,803   

Tax certificates

     46,488         45,562   

Federal Home Loan Bank stock

     18,308         18,308   

Loans receivable including loans held for sale, net

     2,497,837         2,311,177   

Notes receivable, net

     517,836         558,000   

Financial liabilities:

     

Deposits

   $ 3,279,852         3,279,331   

Receivable-backed notes payable

     478,098         468,000   

Notes and mortgage notes payable and other borrowings

     108,533         107,989   

Junior subordinated debentures

     477,316         336,221   

 

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Table of Contents

Management has made estimates of fair value that it believes to be reasonable. However, because there is no active market for many of these financial instruments and management has derived the fair value of certain of these financial instruments using the income approach technique with Level 3 unobservable inputs, it is possible that the Company or its subsidiaries may not receive the estimated value upon sale or disposition of the asset or pay the estimated value upon disposition of the liability in advance of its scheduled maturity. Management estimates used in its net present value financial models rely on assumptions and judgments regarding issues where the outcome is unknown and actual results or values may differ significantly from these estimates. These fair value estimates do not consider the tax effect that would be associated with the disposition of the assets or liabilities at their fair value estimates.

The fair value of tax certificates is calculated using the income approach with Level 3 inputs. The fair value is based on discounted expected cash flows using discount rates that take into account the risk of the cash flows of tax certificates relative to alternative investments.

The fair value of FHLB stock is its carrying amount as the FHLB redeems its stock at par.

As permitted by applicable accounting guidance, the fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, savings and NOW accounts, and money market and checking accounts, is shown in the above table at book value. The fair value of certificates of deposit is based on an income approach with Level 3 inputs. The fair value is calculated by the discounted value of contractual cash flows with the discount rate estimated using then-current rates offered by BankAtlantic for similar remaining maturities.

Fair values are estimated for BBX Capital’s loan portfolios with similar financial characteristics. Loans are segregated by category, and each loan category is further segmented into fixed and adjustable rate interest terms and by performing and non-performing categories.

The fair value of BBX Capital’s performing loans is calculated by using an income approach with Level 3 inputs. The fair value of performing loans is estimated by discounting forecasted cash flows through the estimated maturity using estimated market discount rates that reflect the interest rate risk inherent in the loan portfolio. The estimate of

 

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average maturity is based on historical experience with prepayments for each loan classification, modified as required, by an estimate of the effect of current economic and lending conditions. Management of BBX Capital assigns a credit risk premium and an illiquidity adjustment to these loans based on risk grades and delinquency status. The fair value of non-performing collateral dependent loans is estimated using an income approach with level 3 inputs. The fair value of non-performing loans utilizes the fair value of the collateral adjusted for operating and selling expenses and discounted over the estimated holding period based on the market risk inherent in the property.

The fair value of BankAtlantic’s subordinated debentures was based on discounted values of contractual cash flows at a market discount rate adjusted for non-performance risk (Level 3 inputs).

In determining the fair value of BBX Capital’s junior subordinated debentures, BBX Capital used NASDAQ price quotes available with respect to its $76.6 million of publicly traded TruPs related to its junior subordinated debentures (“public debentures”). However, $268.5 million of BBX Capital’s outstanding TruPS related to its junior subordinated debentures are not traded, but are privately held in pools (“private debentures”) and with no liquidity or readily determinable source for valuation. BBX Capital has deferred the payment of interest with respect to all of its junior subordinated debentures as permitted by the terms of these securities. Based on the deferral status and the lack of liquidity and ability of a holder to actively sell the private debentures, the fair value of the private debentures may be subject to a greater discount to par and have a lower fair value than indicated by the public debenture price quotes. However, due to their private nature and the lack of a trading market, fair value of the private debentures was not readily determinable at June 30, 2012 or December 31, 2011, and as a practical alternative, BBX Capital used the NASDAQ price quotes of the public debentures to value its remaining outstanding junior subordinated debentures whether privately held or publicly traded. As such, the private debentures were valued using Level 2 inputs.

The fair value of Bluegreen’s notes receivable is estimated using Level 3 inputs and is based on estimated future cash flows considering contractual payments and estimates of prepayments and defaults, discounted at a market rate.

The estimated fair values of notes and mortgage notes payable and other borrowings, including receivable-backed notes payable, were determined by discounting the net cash flows to be used to repay the debt (Level 3 inputs).

The estimated fair value of Woodbridge’s and Bluegreen’s junior subordinated debentures are estimated using Level 3 inputs based on the contractual cash flows discounted at a market rate or based on market price quotes from the over-the-counter bond market.

There were no transfers between Level 1 and Level 2 for the three or six months ended June 30, 2012.

 

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5. Securities Available for Sale

The following tables summarize securities available for sale as of June 30, 2012 and December 31, 2011 (in thousands):

 

     As of June 30, 2012  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Estimated
Fair  Value
 

Benihana’s Common Stock

   $ 16,477         8,891         —           25,368   

Other equity securities

     75         148         —           223   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities

   $ 16,552         9,039         —           25,591   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     As of December 31, 2011  
      Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Estimated
Fair Value
 

Government agency securities:

           

Mortgage-backed securities

   $ 12,533         885         —           13,418   

Real estate mortgage conduits

     30,561         1,129         —           31,690   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total government agency securities

     43,094         2,014         —           45,108   
  

 

 

    

 

 

    

 

 

    

 

 

 

Investment securities:

           

Benihana’s Common Stock

     16,477         —           287         16,190   

Other equity securities

     1,326         179         —           1,505   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities

     17,803         179         287         17,695   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 60,897         2,193         287         62,803   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table shows the gross unrealized loss and fair value of the Company’s securities available for sale, all of which were in a continuous unrealized loss position for less than 12 months (in thousands):

 

     As of December 31, 2011  
     Less Than 12 Months  
     Fair
Value
     Unrealized
Losses
 

Benihana Common Stock

   $ 16,190         (287
  

 

 

    

 

 

 

As of June 30, 2012, there were no unrealized losses associated with the Company’s securities available for sale.

As of June 30, 2012, BFC owned an aggregate of 1,582,577 shares of Benihana’s Common Stock, representing an approximately 9% ownership and voting interest in Benihana. At June 30, 2012 and December 31, 2011, the estimated fair value of our investment in Benihana’s Common Stock was approximately $25.4 million and $16.2 million, respectively, based on the closing price of Benihana’s Common Stock on the NASDAQ on June 30, 2012 and December 31, 2011 of $16.03 per share and $10.23 per share, respectively.

During March 2012, a registration statement on Form S-3 was filed by Benihana and declared effective by the SEC, under which BFC may sell any and all of the shares of Benihana’s Common Stock that BFC owns. On July 13, 2012, BFC entered into a Rule 10b5-1 Trading Plan providing for the sale of up to an aggregate of 150,000 shares of Benihana’s Common Stock from time to time until January 28, 2013 at a minimum predetermined price per share. Sales commenced under the plan on July 30, 2012. The proceeds that BFC receives from sales of Benihana’s Common Stock will depend on the timing of the sale and the market price of Benihana’s Common Stock.

 

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On May 22, 2012, Benihana entered into an Agreement and Plan of Merger with Safflower Holdings Corp. which provides for Safflower’s acquisition of Benihana for a purchase price of $16.30 per share of Benihana’s Common Stock. The proceeds that BFC receives in connection with the merger, if consummated, will depend on the number of shares of Benihana’s Common Stock that BFC owns at the effective time of the merger. Consummation of the merger is subject to certain closing conditions, including the approval of Benihana’s stockholders and regulatory clearance. Benihana has indicated that, assuming the satisfaction of all closing conditions, the merger is expected to close during August 2012.

 

6. Loans Receivable

The loan disclosure below, as of June 30, 2012, includes loans in BBX Capital’s asset workout subsidiary and only those loans which were to be transferred to FAR or CAM in connection with the Transaction and excludes $1.8 billion of loans transferred to BB&T under the terms of the Agreement. The loans transferred to BB&T are included in assets held for sale as of June 30, 2012.

The loan portfolio consisted of the following (in thousands):

 

     June 30,     December 31,  
     2012     2011  

Commercial non-real estate

   $ 28,167        118,145   

Commercial real estate:

    

Residential

     60,894        104,593   

Land

     3,496        24,202   

Owner occupied

     8,100        86,809   

Other

     161,180        464,902   

Small Business:

    

Real estate

     19,963        184,919   

Non-real estate

     11,755        99,835   

Consumer:

    

Consumer - home equity

     19,958        545,908   

Consumer other

     30        10,704   

Deposit overdrafts

     —          1,971   

Residential:

    

Residential-interest only

     18,077        369,531   

Residential-amortizing

     31,065        558,026   
  

 

 

   

 

 

 

Total gross loans

     362,685        2,569,545   
  

 

 

   

 

 

 

Adjustments:

    

Premiums, discounts and net deferred fees

     262        2,578   

Allowance for loan losses

     (7,153     (129,887
  

 

 

   

 

 

 

Loans receivable - net

   $ 355,794        2,442,236   
  

 

 

   

 

 

 

Loans held for sale

   $ 47,029        55,601   
  

 

 

   

 

 

 

Loans held for sale - Loans held for sale as of June 30, 2012 consisted of $30.9 million of commercial real estate loans and $16.1 million of residential loans. Loans held for sale as of December 31, 2011 consisted of $35.8 million of commercial real estate loans and $19.8 million of residential loans. BBX Capital transfers loans to held-for-sale when, based on the current economic environment and related market conditions, it does not have the intent to hold those loans for the foreseeable future.

 

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The recorded investment (unpaid principal balance less charge-offs and deferred fees) of non-accrual loans receivable and loans held for sale as of June 30, 2012 and December 31, 2011 was as follows (in thousands):

 

     June 30,      December 31,  

Loan Class

   2012      2011  

Commercial non-real estate

   $ 5,607         19,172   

Commercial real estate:

     

Residential

     63,381         71,719   

Land

     12,888         14,839   

Owner occupied

     3,140         4,168   

Other

     91,590         123,396   

Small business:

     

Real estate

     4,887         10,265   

Non-real estate

     1,380         1,751   

Consumer

     8,261         14,134   

Residential:

     

Interest only

     22,085         33,202   

Amortizing

     35,005         52,653   
  

 

 

    

 

 

 

Total nonaccrual loans

   $ 248,224         345,299   
  

 

 

    

 

 

 

An age analysis of the past due recorded investment in loans receivable and loans held for sale as of June 30, 2012 and December 31, 2011 was as follows (in thousands):

 

June 30, 2012

   31-59 Days
Past Due
     60-89 Days
Past Due
     90 Days
or More
     Total
Past Due
     Current      Total
Loans
Receivable
 

Commercial non-real estate

   $ 2,500         1,093         1,381         4,974         23,193         28,167   

Commercial real estate:

                 

Residential

     —           —           46,328         46,328         18,590         64,918   

Land

     —           —           12,888         12,888         —           12,888   

Owner occupied

     —           138         3,002         3,140         6,242         9,382   

Other

     —           —           42,149         42,149         135,085         177,234   

Small business:

                 

Real estate

     893         —           4,127         5,020         15,092         20,112   

Non-real estate

     20         —           —           20         11,735         11,755   

Consumer

     719         1,134         8,261         10,114         10,003         20,117   

Residential:

                 

Residential-interest only

     397         —           21,779         22,176         1,286         23,462   

Residential-amortizing

     1,358         779         32,292         34,429         7,512         41,941   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,887         3,144         172,207         181,238         228,738         409,976   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

December 31, 2011

   31-59 Days
Past Due
     60-89 Days
Past Due
     90 Days or
More (1)
     Total
Past Due
     Current      Total
Loans
Receivable(2)
 

Commercial non-real estate

   $ —           2,248         13,292         15,540         102,605         118,145   

Commercial real estate:

                 

Residential

     —           —           44,633         44,633         64,134         108,767   

Land

     681         —           14,839         15,520         18,070         33,590   

Owner occupied

     2,008         —           4,031         6,039         82,102         88,141   

Other

     —           5,467         47,841         53,308         431,399         484,707   

Small business:

                 

Real estate

     2,089         372         9,449         11,910         173,009         184,919   

Non-real estate

     —           462         76         538         99,187         99,725   

Consumer

     5,339         3,996         14,134         23,469         538,569         562,038   

Residential:

                 

Residential-interest only

     2,656         3,488         32,317         38,461         343,958         382,419   

Residential-amortizing

     3,968         4,513         48,189         56,670         514,570         571,240   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 16,741         20,546         228,801         266,088         2,367,603         2,633,691   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Includes an $80,000 commercial loan that was past due greater than 90 days and still accruing.

 

(2) At December 31, 2011, total loans receivable excluded purchase accounting of $6.0 million in connection with BFC’s share acquisitions of BBX Capital in 2008. The 2008 share acquisitions were accounted for as step acquisitions under the purchase method of accounting then in effect.

The activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2012 was as follows (in thousands):

 

     Commercial
Non-Real
Estate
    Commercial
Real Estate
    Small
Business
    Consumer     Residential     Total  

Allowance for Loan Losses:

            

Beginning balance

   $ 1,359        4,212        1,020        366        210        7,167   

Charge-off :

     —          (1,778     (748     (849     (1,547     (4,922

Recoveries :

     386        1,631        128        236        281        2,662   

Provision :

     (945     318        —          —          —          (627

Discontinued operations provision:

     —          —          926        654        1,293        2,873   

Transfer to assets held for sale:

     —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 800        4,383        1,326        407        237        7,153   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance individually evaluated for impairment

   $ 237        1,265        790        —          —          2,292   

Ending balance collectively evaluated for impairment

     563        3,118        536        407        237        4,861   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 800        4,383        1,326        407        237        7,153   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans receivable:

            

Ending balance individually evaluated for impairment

   $ 7,361        194,168        957        7,907        40,331        250,724   

Ending balance collectively evaluated for impairment

   $ 20,806        39,502        30,761        12,081        8,811        111,961   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 28,167        233,670        31,718        19,988        49,142        362,685   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Purchases of loans

   $ —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Proceeds from loan sales

   $ —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transfer to loans held for sale

   $ —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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The activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2011 was as follows (in thousands):

 

     Commercial
Non-Real Estate
    Commercial
Real Estate
    Small
Business
    Consumer     Residential     Total  

Allowance for Loan Losses:

            

Beginning balance

   $ 10,708        79,142        10,125        27,511        27,565        155,051   

Charge-offs:

     (124     (15,100     (2,010     (6,379     (5,767     (29,380

Recoveries :

     57        75        203        492        435        1,262   

Provision :

     376        3,937        —          —          —          4,313   

Discontinued operations provision:

     —          —          1,535        3,375        1,487        6,397   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 11,017        68,054        9,853        24,999        23,720        137,643   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance individually evaluated for impairment

   $ 9,618        47,638        1,595        1,671        4,555        65,077   

Ending balance collectively evaluated for impairment

     1,399        20,416        8,258        23,328        19,165        72,566   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 11,017        68,054        9,853        24,999        23,720        137,643   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans receivable: (1)

            

Ending balance individually evaluated for impairment

   $ 34,569        285,325        10,370        24,576        57,740        412,580   

Ending balance collectively evaluated for impairment

   $ 90,261        466,287        282,388        568,561        982,126        2,389,623   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 124,830        751,612        292,758        593,137        1,039,866        2,802,203   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Purchases of loans

   $ —          —          —          —          9,816        9,816   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Proceeds from loan sales

   $ —          24,693        —          —          4,983        29,676   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transfer to loans held for sale

   $ —          28,444        —          —          —          28,444   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Total loans receivable exclude purchase accounting adjustments of $7.6 million as of June 30, 2011, in connection with BFC’s acquisitions of shares of BBX Capital’s Class A Common Stock during 2008. The 2008 share acquisitions were accounted for as step acquisitions under the purchase method of accounting then in effect.

 

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The activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2012 was as follows (in thousands):

 

     Commercial
Non-Real Estate
    Commercial
Real Estate
    Small
Business
    Consumer     Residential     Total  

Allowance for Loan Losses:

            

Beginning balance

   $ 16,407        67,054        7,168        22,554        16,704        129,887   

Charge-off :

     (14,615     (53,281     (2,372     (7,413     (11,756     (89,437

Recoveries :

     440        1,631        270        1,031        1,277        4,649   

Provision :

     465        (1,857     —          —          —          (1,392

Transfer to held for sale:

     (1,897     (9,164     (4,454     (20,639     (12,491     (48,645

Discontinued operations Provision:

     —          —          714        4,874        6,503        12,091   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 800        4,383        1,326        407        237        7,153   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Purchases of loans

   $ —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Proceeds from loan sales

   $ —          1,000        —            —          1,000   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transfer to held for sale

   $ —          16,140        —          —          —          16,140   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2011 was as follows (in thousands):

 

     Commercial
Non-Real Estate
    Commercial
Real Estate
    Small
Business
    Consumer     Residential     Total  

Allowance for Loan Losses:

            

Beginning balance

   $ 10,786        83,859        11,514        32,043        23,937        162,139   

Charge-off :

     (588     (26,152     (4,621     (14,193     (13,778     (59,332

Recoveries :

     848        793        513        900        566        3,620   

Provision :

     (29     11,169        —          —          —          11,140   

Transfer to held for sale:

     —          (1,615     —          —          (5,691     (7,306

Discontinued operations Provision:

     —          —          2,447        6,249        18,686        27,382   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 11,017        68,054        9,853        24,999        23,720        137,643   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Purchases of loans

   $ —          —          —          —          13,680        13,680   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Proceeds from loan sales

   $ —          27,793        —            12,601        40,394   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transfer to held for sale

   $ —          30,894        —          —          25,072        55,966   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As part of the transition of the regulation of OTS savings associations to the OCC, the OCC provided guidance to thrifts related to their transition to OCC regulatory reporting, which was to be implemented no later than March 31, 2012, including guidance surrounding specific valuation allowances on collateral dependent loans. Under OCC guidance where the appraised value of collateral on a collateral dependent loan is less than the recorded investment of the loan, a charge-off of the amount of the deficiency rather than a specific valuation allowance is now generally required. Management considered the appraisals on its impaired collateral dependent loans, including appraised values and appraisal dates and during the first quarter of 2012, BBX Capital charged down the recorded investment of loans by $66.5 million to the fair value of the collateral less cost to sell. This charge down consisted entirely of the charging off of existing specific valuation allowances. As a specific valuation allowance was previously established for these loans, the charge-offs did not impact the provision for loan losses or the net loss during the three months ended March 31, 2012, but did reduce BBX Capital’s allowance for loan losses and recorded investment in the loans.

 

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Table of Contents

Impaired Loans - Loans are considered impaired when, based on current information and events, BBX Capital believes it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan agreement. For a loan that has been restructured, the contractual terms of the loan agreement refer to the contractual terms specified by the original loan agreement, not the contractual terms specified by the restructured agreement. Impairment is evaluated based on past due status for consumer and residential loans. Impairment is evaluated as part of BBX Capital’s on-going credit monitoring process for commercial and small business loans which results in the evaluation for impairment of all substandard loans. Factors considered in determining if a loan is impaired are past payment history, strength of the borrower or guarantors, and cash flow associated with the collateral or business. If a loan is impaired, a specific valuation allowance is allocated, if necessary, based on the present value of estimated future cash flows using the loan’s existing interest rate or based on the fair value of the loan. Collateral dependent impaired loans are charged down to the fair value of collateral less cost to sell. Interest payments on impaired loans for all loan classes are recognized on a cash basis, unless collectability of the principal and interest amount is probable, in which case interest is recognized on an accrual basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible. Impaired loans held for sale are measured for impairment based on the estimated fair value of the collateral less cost to sell adjusted for foreclosure expenses and other operating expenses of the underlying collateral until foreclosure and sale.

Impaired loans as of June 30, 2012 and December 31, 2011 were as follows (in thousands):

 

     As of June 30, 2012      As of December 31, 2011  
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
 

With a related allowance recorded:

                 

Commercial non-real estate

   $ 1,174         1,174         237         17,792         17,792         15,408   

Commercial real estate:

                 

Residential

     7,544         12,411         67         64,841         70,780         20,986   

Land

     —           —           —           5,451         5,451         1,765   

Owner occupied

     —           —           —           1,715         1,715         100   

Other

     35,307         50,429         1,198         130,771         149,742         29,731   

Small business:

                 

Real estate

     —           —           —           6,499         6,499         85   

Non-real estate

     957         957         790         1,339         1,339         776   

Consumer

     —           —           —           15,951         17,502         1,454   

Residential:

                 

Residential-interest only

     —           —           —           15,441         20,667         2,982   

Residential-amortizing

     —           —           —           20,554         24,545         3,960   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total with allowance recorded

   $ 44,982         64,971         2,292         280,354         316,032         77,247   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With no related allowance recorded:

                 

Commercial non-real estate

   $ 6,933         7,059         —           5,922         5,922         —     

Commercial real estate:

                 

Residential

     56,297         122,432         —           26,735         71,759         —     

Land

     12,887         35,768         —           9,388         30,314         —     

Owner occupied

     4,549         6,523         —           3,882         4,872         —     

Other

     108,901         147,666         —           63,024         86,052         —     

Small business:

                 

Real estate

     10,566         12,167         —           10,265         12,007         —     

Non-real estate

     744         868         —           792         1,107         —     

Consumer

     18,723         22,966         —           9,719         13,246         —     

Residential:

                 

Residential-interest only

     22,085         38,244         —           17,761         28,042         —     

Residential-amortizing

     37,075         53,254         —           34,494         45,680         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total with no allowance recorded

   $ 278,760         446,947         —           181,982         299,001         —