Bluegreen Vacations Holding Corp - Quarter Report: 2012 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, DC  20549

 

FORM 10-Q

 

 

For the Quarter Ended September 30, 2012

OR

 

Commission File Number

001-09071

BFC Financial Corporation

(Exact name of registrant as specified in its charter)

 

 

 

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 November 8, 2012 is as follows:

 

Class A Common Stock of $.01 par value, 70,299,379 shares outstanding.
Class B Common Stock of $.01 par value, 6,858,461 shares outstanding.

 

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PART I - FINANCIAL INFORMATION

 

Item  1.  FINANCIAL STATEMENTS

 

BFC Financial Corporation

Consolidated Statements of Financial Condition – Unaudited

(In thousands, except share data)

 

 

See Notes to Unaudited Consolidated Financial Statements.

 

 

 

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BFC Financial Corporation

Consolidated Statement of Changes in Equity - Unaudited

For the Nine Months Ended September 30, 2012

(In thousands)

 

 

 

 

 

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BFC Financial Corporation

Notes to Unaudited Consolidated Financial Statements

 

 

1.    Presentation of Interim Financial Statements

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“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  consolidated financial condition of BFC Financial Corporation (“BFC” or, unless otherwise indicated or the context otherwise requires, “we,” “us,” “our,” or the “Company”) at September 30, 2012; the consolidated results of operations and  comprehensive income (loss) for the three and nine months ended September 30, 2012 and 2011; cash flows for the nine months ended September 30, 2012 and 2011; and the changes in consolidated equity for the nine months ended September 30, 2012. Operating results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012 or any other future period. 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.

 

BFC is a holding company whose principal holdings include direct or indirect controlling interests in BBX Capital Corporation (formerly BankAtlantic Bancorp, Inc.) and its subsidiaries (“BBX Capital”) and Bluegreen Corporation and its subsidiaries (“Bluegreen”).  BFC also had a significant investment in Benihana Inc. (“Benihana”) prior to the acquisition of Benihana by Safflower Holdings Corp. (“Safflower”) during August 2012. BBX Capital’s principal asset until July 31, 2012 was its investment in BankAtlantic, a federal savings bank headquartered in Fort Lauderdale, Florida.  On July 31, 2012, BBX Capital completed its 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 were unitary savings and loan holding companies subject to examination and regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Effective August 31, 2012, BBX Capital and BFC were released from registration as savings and loan holding companies because, as a result of the Transaction, they no longer directly or indirectly control a financial institution.   As such, both BBX Capital and BFC are no longer subject to regulation by the Federal Reserve or subject to restrictions applicable to financial institution holding companies.  

 

As a holding company with controlling positions in BBX Capital and Bluegreen,  GAAP  requires 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 September 30, 2012, BFC had an approximately 53% economic ownership interest in BBX Capital and, through Woodbridge, 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.

 

   

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On November 11, 2011, BFC entered into a definitive merger agreement with Bluegreen.  Pursuant to the terms of the merger agreement and subject to the conditions set forth herein, if the merger is consummated, Bluegreen would become a wholly-owned subsidiary of BFC, and Bluegreen’s shareholders (other than BFC) would 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 of BFC contemplated by the merger agreement).  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 which, subject to consummation of the merger, BFC would effect immediately prior to the merger. 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. Under the terms of the merger agreement, either party was permitted to terminate the agreement if the merger was not consummated by September 30, 2012. As previously disclosed, in light of the parties’ continued efforts towards consummation of the merger, on September 27, 2012, BFC and Bluegreen agreed that neither party would exercise its right to so unilaterally terminate the merger agreement prior to December 31, 2012. There is no assurance that the conditions for the consummation of the merger will be met or that the merger will be consummated on the contemplated terms, including in the contemplated time frame, or at all. 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 residential communities business segment, Bluegreen Communities, 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), if any, it receives in the event of its sale 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. 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. See Note 3 for additional information.

 

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”). Pursuant to 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 $346 million on the date the sale was consummated, July 31, 2012. FAR assumed all liabilities related to these assets. BankAtlantic also contributed approximately $50 million in cash to FAR on July 31, 2012 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.  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 preferred interest within seven years.  As such, FAR is considered a variable interest entity (“VIE”) and in accordance with the applicable accounting guidance for VIE’s, BBX Capital, as the primary beneficiary, is required to consolidate the financial statements of FAR. BB&T’s preferred interest in FAR as of September 30, 2012 was reduced to $209 million.

 

 

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 $125 million as of July 31, 2012. CAM assumed all liabilities related to these assets. BankAtlantic also contributed approximately $82 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. CAM distributed the $82 million of cash to BBX Capital and BBX Capital used $51.3

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million of the cash to pay BB&T for the accrued and unpaid interest on the TruPs through closing, in each case as described in further detail below.

 

BB&T made a cash payment in connection with the closing of the Transaction of approximately $6.4 million to BBX Capital which was based on a deposit premium of $315.9 million and the net asset value of BankAtlantic at June 30, 2012, 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 to BBX Capital described above.

 

BFC recognized a gain on sale of BankAtlantic of approximately $293.4 million, including approximately $2.8 million of purchase accounting adjustments related to BFC’s acquisitions during 2008 of shares of BBX Capital’s Class A Common Stock which were accounted for as step acquisitions under the purchase method of accounting then in effect. 

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 now resolved litigation relating to the Transaction brought by certain trustees and holders of the TruPs.  BBX Capital used proceeds received in the Transaction to make these payments.

 

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 in the future may originate, commercial loans. 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 Changes in Equity, Consolidated Statements of Comprehensive Income (Loss) and Consolidated Statements of Cash Flows remain unchanged from prior period historical presentation for all periods presented.  Additionally, pursuant to the BB&T Agreement, BBX Capital transferred to BB&T certain assets and liabilities associated with the commercial lending reporting unit.  BBX Capital retained certain assets and liabilities associated with the disposed reporting units and these assets and liabilities,  together with all other assets and liabilities retained by BBX Capital in the Transaction, are included in the Consolidated Statement of Financial Condition in their respective line items as of September 30, 2012.

 

BFC held a significant investment in Benihana prior to the merger between Benihana and Safflower during August 2012.  Pursuant to the merger agreement, Safflower acquired Benihana for a cash purchase price of $16.30 per outstanding share of Bluegreen’s common stock.  BFC received approximately $24.5 million in exchange for the 1,505,330 shares of Benihana’s common stock that it held at the effective time of the transaction. Prior to such transaction, BFC sold approximately 77,000 shares of Benihana’s common stock during July and August 2012 pursuant to the terms of a Rule 10b5-1 Trading Plan and received net proceeds from such sales of approximately $1.25 million.  BFC recognized a gain on sale of approximately $9.3 million in connection with the transaction and sales under the Rule 10b5-1 Trading Plan. 

 

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 impacts  of the errors were: an understatement of cost of sales of Vacation Ownership Interests (“VOIs”) sold of $1.3 million; an overstatement of other expenses 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 ending December 31, 2012.

 

On October 14, 2011, BBX Capital effected a one-for-five reverse split of its common stock. The reverse stock split did not impact the Company’s equity or voting interest in BBX Capital. Where appropriate, amounts throughout this report have been adjusted to reflect the reverse stock split.

 

 

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2.    Liquidity and Regulatory Considerations

 

BFC

 

Regulatory Considerations

 

As a result of BBX Capital’s direct, and BFC’s indirect, previous ownership interest in BankAtlantic, BBX Capital and BFC were “unitary savings and loan holding companies” subject to examination and regulation by the Federal Reserve.  As previously described, in connection with BBX Capital’s sale of BankAtlantic to BB&T, both BBX Capital and BFC were released from registration as “unitary savings and loan holding companies,” effective August 31, 2012.

 

BFC, on a parent company only basis, previously committed that it would not, without the prior written non-objection of the Federal Reserve, (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 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.  Following BFC’s deregistration as a savings and loan holding company, such unpaid dividends totaling approximately $563,000 were paid. BFC paid its third quarter dividend of $187,500 as of September 30, 2012.  Future dividend payments will not require the prior written non-objection of the Federal Reserve, provided BFC continues not to be subject to regulation as a financial institution holding company. 

 

 

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 nine months ended September 30, 2012, or during the years ended December 31, 2011 or 2010.

 

BFC has not received cash dividends from BBX Capital since March 2009. Prior to its deregistration as a savings and loan holding company, BBX Capital’s payment of dividends was subject to the oversight of the Federal Reserve.  In addition, prior to its sale of BankAtlantic, BBX Capital was restricted from paying dividends pursuant to the terms of the indentures governing its TruPs due to its deferral of interest payments thereunder.  While these restrictions no longer apply, 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”).

 

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.

 

As previously described, BFC held a significant investment in Benihana prior to the merger between Benihana and Safflower during August 2012.  Pursuant to the merger agreement, Safflower acquired Benihana for a cash purchase price of $16.30 per outstanding share of Bluegreen’s common stock.  BFC received approximately $24.5 million in exchange for the 1,505,330 shares of Benihana’s common stock that it held at the effective time of the transaction. Prior to Safflower’s acquisition of Benihana, BFC sold approximately 77,000 shares of Benihana’s common stock

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during July and August 2012 pursuant to the terms of a Rule 10b5-1 Trading Plan and received net proceeds from such sales of approximately $1.25 million. BFC recognized a gain on sale of approximately $9.3 million in connection with the transaction and sales under the Rule 10b5-1 Trading Plan.  In addition, during each of the first three quarters of 2012, BFC received approximately $127,000 of dividend payments with respect to its shares of Benihana’s common stock.

 

 

We believe that our current financial condition and credit relationships, together with anticipated cash flows from other sources of funds, dividends from our subsidiaries, 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 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, and the shareholders of WHC at the effective time of the merger (other than BFC) were entitled to receive 3.47 shares of BFC’s Class A Common Stock in exchange for each share of WHC’s Class A Common Stock that they owned.  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 based on Woodbridge’s $1.10 per share offer to the Dissenting Holders, with a corresponding reduction to additional paid-in capital.  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 to approximately $7.5 million (with a corresponding reduction to additional paid in capital of $2.8 million as of the quarter ended June 30, 2012 to account for the per share value awarded.   However, the amount of the award for legal and other costs that may be payable could not be reasonably estimated and accordingly, is not reflected in BFC’s financial statements.  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 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.

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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 vacated during March 2010 and after efforts to lease the space proved unsuccessful, the lender  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 and CAM had cash balances of $33.8 million and current liabilities of $10.3 million as of September 30, 2012.  In connection with the consummation of the Transaction, on July 31, 2012, BBX Capital received 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 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 funds paid to it based on its 5% preferred interest in FAR.  Based on current and expected liquidity needs and sources, BBX Capital expects to be able to meet its liquidity needs over the next 12 months.

 

 

 

3.    Discontinued Operations

 

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), if any, it receives in the event of its sale of two specified parcels of real estate purchased by Southstar under the agreement. Certain assets, including primarily 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

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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 Bluegreen’s 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 tables below present the results of discontinued operations for Bluegreen Communities for the three and nine months ended September 30, 2012 and 2011 and Cypress Creek Holdings for the three months ended September 30, 2011 and the nine months ended September 30, 2012 and 2011 (in thousands):

 

 

 

 

There were no results of discontinued operations for Cypress Creek Holdings during the three months ended September 30, 2012.

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The following table presents 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):

 

 

 

BBX Capital

 

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. Although certain assets of the Commercial Lending reporting unit were sold to BB&T, BBX Capital intends to continue Commercial Lending reporting unit activities and as a result, will include the Commercial Lending reporting unit in continuing operations in the statement of operations.  

 

Pursuant to the BB&T 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 

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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 included in FAR’s total assets discussed above was $112 million as of July 31, 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  or longer provided BB&T’s preferred interest is repaid within such 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 gain on the sale of BankAtlantic to BB&T, which is included in the consolidated statements of operations in “Discontinued operations” for the three and nine months ended September 30, 2012, was as follows (in thousands):

 

 

 

 

 

Included in the carrying amount of BankAtlantic was $2.0 million of unrealized holding gains on securities available for sale and $20.2 million of defined benefit pension plan losses deferred in BankAtlantic’s other comprehensive income.  Also included in the gain on the sale of BankAtlantic was $1.0 million of stay bonuses paid by BBX Capital  and reimbursed by BB&T, to key employees of BankAtlantic for pre-acquisition services.

As a consequence of the sale of BankAtlantic, BBX Capital’s stockholders’ equity increased by $308.8 million representing a $290.6 million gain on the sale of BankAtlantic and an $18.2 million reduction in accumulated other comprehensive loss.    

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The cash consideration received by BBX for the sale of BankAtlantic’s stock upon the consummation of the Transaction as of July 31, 2012 was as follows (in thousands):

 

 

 

 

The consolidated net cash outflows associated with the sale of BankAtlantic were as follows (in thousands):

 

 

 

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

 

 

 

 

 

 

 

 

Pursuant to the Transaction, BB&T assumed the obligations with respect to BBX Capital’s outstanding TruPs, and BBX Capital paid BB&T approximately $51.3 million, representing all accrued and unpaid interest on the TruPs through closing.

 

 

 

 

 

 

 

 

 

4.    Fair Value Measurement 

 

Assets on a recurring basis

 

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

 

 

 

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

 

 

 

 

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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 months ended September 30, 2011 or the three and nine months ended September 30, 2012. 

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

 

 

 

 

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 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.

 

Liabilities on a recurring basis

 

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

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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 September 30, 2012 (in thousands):

 

 

 

 

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

 

 

 

 

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

 

 

 

 

Liabilities on a non-recurring basis

 

There were no liabilities measured at fair value on a non-recurring basis as of September 30, 2012 or December 31, 2011.

 

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 based on third party broker price opinions or automated valuation services to obtain the fair value of the collateral less cost to sell when impaired homogenous loans become 120 days delinquent. 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 time frames and exposure periods.  The fair value of BBX Capital’s loans may significantly increase or decrease based on changes in 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. 

 

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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 September 30, 2012 and December 31, 2011 (in thousands):

 

 

 

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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. 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.  As such, BBX Capital 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.

 

Included in cash and due from banks as of September 30, 2012 and December 31, 2011 was $0.5 million and $5.7 million, respectively, of time deposits with other banks. These time deposits had original maturities of greater than 90 days and accordingly are not considered cash equivalents. 

 

The fair value of tax certificates was calculated using the income approach with Level 3 inputs.  The fair value was 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 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 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.    

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BB&T’s preferred interest in FAR’s securities are considered adjustable rate debt securities.  The fair value of these securities is calculated using the income approach with Level 3 inputs.  The fair value of these securities was obtained by discounting forecasted cash flows by risk adjusted market interest rate spreads to the LIBOR swap curve.  The market spreads were obtained from reference data in the secondary institutional market place. 

 

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 at December 31, 2011, BBX Capital used NASDAQ price quotes available with respect to its $73.5 million of publicly traded TruPs related to its junior subordinated debentures (“public debentures”). However, $263.6 million of BBX Capital’s outstanding TruPS related to its junior subordinated debentures were not traded, but were privately held in pools (“private debentures”) and with no liquidity or readily determinable source for valuation. BBX Capital had deferred the payment of interest as of December 31, 2011 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 have been 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 were not readily determinable at 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 inputs for the three or nine months ended September 30, 2012.

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5.    Securities Available for Sale  

 

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

 

 

 

 

 

 

 

 

As previously described, BFC held a significant investment in Benihana prior to the merger between Benihana and Safflower during August 2012.  Pursuant to the merger agreement, Safflower acquired Benihana for a cash purchase price of $16.30 per outstanding share of Bluegreen’s common stock.  BFC received approximately $24.5 million in exchange for the 1,505,330 shares of Benihana’s common stock that it held at the effective time of the transaction.

Prior to Safflower’s acquisition of Benihana, BFC sold approximately 77,000 shares of Benihana’s common stock during July and August 2012 pursuant to the terms of a Rule 10b5-1 Trading Plan and received net proceeds from such sales of approximately $1.25 million.  BFC recognized a gain on sale of approximately $9.3 million in connection with its disposition of its shares of Benihana’s common stock pursuant to Benihana’s merger with Safflower and the sales of shares of Benihana’s common stock under the Rule 10b5-1 Trading Plan.

 

During each of the first three quarters of 2012, BFC received approximately $127,000 of dividend payments with respect to its shares of Benihana’s common stock.

 

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

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The following table shows the gross unrealized loss and fair value of the Company’s securities available for sale as of December 31, 2011, all of which were in a continuous unrealized loss position for less than 12 months (in thousands):

 

 

 

 

 

At December 31, 2011, the estimated fair value of BFC’s investment in Benihana’s Common Stock was approximately $16.2 million based on the closing price of Benihana’s Common Stock on the NASDAQ on December 31, 2011 of $10.23 per share.

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6    Loans Receivable

 

The loan disclosure below, as of September 30, 2012, includes loans in BBX Capital’s asset workout subsidiary and the loans transferred to FAR or CAM in connection with the Transaction (“Retained Loans”).  The loan disclosure as of December 31, 2011 includes the Retained loans and the loans that were transferred to BB&T in connection with the Transaction. 

 

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

 

 

 

 

 

Loans held for sale – Loans held for sale as of September 30, 2012 consisted of $14.5 million of commercial real estate loans and $19.1 million of small business loans.  Subsequent to the sale of BankAtlantic to BB&T, management evaluated its loan portfolio and transferred its entire portfolio of small business loans to loans held for sale and transferred $14.2 million of residential loans previously held for sale to loans held for investment.  Loans held for sale are reported at the lower of cost or fair value. BBX Capital charged down its small business loans by $1.3 million and reduced its allowance for loan losses by $1.1 million upon the transfer of its small business loans to loans held for sale.  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.  BBX Capital transfers loans previously held for sale to loans held for investment at the lower of cost or fair value on the transfer date.

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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 was as follows (in thousands):

 

 

 

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

 

 

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

 

 

 

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

 

 

 

 

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

 

 

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

 

 

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As part of the transition of the regulation of OTS savings associations like BankAtlantic 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 was less than the recorded investment of the loan, a charge-off of the amount of the deficiency rather than a specific valuation allowance was 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.

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.

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

 

 

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Average recorded investment and interest income recognized on impaired loans as of September 30, 2012 were (in thousands):

 

 

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Average recorded investment and interest income recognized on impaired loans as of September 30, 2011 were (in thousands):

 

 

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Impaired loans without specific valuation allowances represent loans that were written-down to the fair value of the collateral less cost to sell, loans in which the collateral value less cost to sell was greater than the carrying value of the loan, loans in which the present value of the cash flows discounted at the loans’ effective interest rate were equal to or greater than the carrying value of the loans, or large groups of smaller-balance homogeneous loans that were collectively measured for impairment.

BBX Capital monitors impaired collateral dependent loans and performs an impairment analysis on these loans quarterly. Generally, a full appraisal is obtained when a real estate loan is initially evaluated for impairment and an updated full appraisal is obtained within one year from the prior appraisal date, or earlier if management deems it appropriate based on significant changes in market conditions.  In instances where a property is in the process of foreclosure, an updated appraisal may be postponed beyond one year, as an appraisal is required on the date of foreclosure; however, such loans remain subject to quarterly impairment analyses and adjustments.  Included in total impaired loans as of September 30, 2012 was $138.2  million of collateral dependent loans, of which $50.2 million were measured for impairment using current appraisals and $88.0 million were measured by adjusting appraisals greater than six months old, as appropriate, to reflect changes in market conditions subsequent to the last appraisal date. Appraised values with respect to three loans which did not have current appraisals were adjusted down by an aggregate amount of $1.0 million to reflect the change in market conditions since the appraisal date.  

BBX Capital had commitments to lend $0.2 million of additional funds on impaired loans as of September 30, 2012.

Credit Quality Information

Management of BBX Capital monitors delinquency trends, net charge-off levels of classified loans, impaired loans and general economic conditions nationwide and in Florida in an effort to assess loan credit quality. BBX Capital uses a risk grading matrix to monitor credit quality for commercial and small business loans.  Risk grades are assigned to each commercial and small business loan upon origination.  The loan officers monitor the risk grades and BBX Capital assigns risk grades on a scale of 1 to 13.  A general description of the risk grades is as follows:

Grades 1 to 7 – The loans in these risk grades are generally well protected by the current net worth and paying capacity of the borrower or guarantors or by the fair value, less cost to sell, of the underlying collateral.

Grades 8 to 9 – Not used.

Grade 10 – These loans are considered to have potential weaknesses that deserve management’s close attention. While these loans do not expose BBX Capital to immediate risk of loss, if left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan.  

Grade 11 – These loans are considered to be inadequately protected by the current sound net worth and paying capacity of the borrower or guarantors or by the collateral pledged, if any.  Loans in this grade have well-defined weaknesses that jeopardize the liquidation of the loan and there is a distinct possibility that BBX Capital may sustain some credit loss if the weaknesses are not corrected.

Grade 12 – These loans are considered to have all the weaknesses of a Grade 11 with the added characteristic that the weaknesses make collection of BBX Capital’s investment in the loan highly questionable and improbable on the basis of currently known facts, conditions and fair values of the collateral. 

Grade 13 – These loans, or portions thereof, are considered uncollectible and of such little value that continuance on BBX Capital’s books as an asset is not warranted. Such loans are generally charged down or completely charged off.

 

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The following table presents risk grades for commercial and small business loans including loans held for sale as of September 30, 2012 (in thousands):

 

 

 

 

The following table presents risk grades for commercial and small business loans including loans held for sale as of  December 31, 2011 (in thousands):

 

 

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BBX Capital monitors the credit quality of residential loans through loan-to-value ratios of the underlying collateral.  Elevated loan-to-value ratios indicate the likelihood of increased credit losses upon default which results in higher loan portfolio credit risk.

The loan-to-value ratios of BBX Capital’s residential loans were as follows (in thousands):

 

 

BBX Capital monitors the credit quality of its portfolio of consumer loans secured by real estate utilizing loan–to-value ratios at origination. BBX Capital’s experience indicates that default rates are significantly lower with loans that have lower loan-to-value ratios at origination. 

 

The loan-to-value ratios at loan origination of BBX Capital’s consumer loans secured by real estate were as follows (in thousands):

 

 

 

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The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules, extending loan maturities, deferring loan payments until the loan maturity date and other actions intended to minimize potential losses. The majority of concessions for consumer loans were changing monthly payments from interest and principal payments to interest only payments as well as deferring monthly loan payments until the loan maturity date.  Commercial real estate and non-real estate loan concessions were primarily interest rate reductions to below market interest rates based on the risk profile of the loan and extensions of maturity dates.  Residential and small business loan concessions were mainly reductions of monthly payments by extending the amortization period and/or deferring monthly payments.

 

There was no financial statement effect of consumer and residential troubled debt restructured loans as the affected loans were generally on non-accrual status and measured for impairment before the restructuring. The financial statement effects of commercial and small business troubled debt restructured loans was the establishment of specific valuation allowances, if any, in place of the general allowance for those loans that had not already been placed on nonaccrual status. There was an impact to the allowance for loan losses as a result of the concessions made, which generally results from the expectation of slower future cash flows.

 

 

Troubled debt restructurings during the three months ended September 30, 2012 and 2011 were as follows (dollars in thousands):

 

 

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Troubled debt restructurings during the nine months ended September 30, 2012 and 2011 were as follows (dollars in thousands):

 

 

 

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The following table represents the recorded investment of loans that were modified in troubled debt restructurings beginning January 1, 2011 and 2010 and experienced a payment default during the three months ended September 30, 2012 and 2011, respectively (dollars in thousands).

 

 

 

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The following table represents the recorded investment of loans that were modified in troubled debt restructurings beginning January 1, 2011 and 2010 and experienced a payment default during the nine months ended September 30, 2012 and 2011 (dollars in thousands).

 

 

 

 

 

 

 

 

 

 

 

 

7.    Notes Receivable

 

The table below sets forth information relating to Bluegreen’s notes receivable (in thousands):

 

 

 

As previously disclosed, included in the table above are notes acquired through our November 2009 acquisition of approximately 7.4 million shares of Bluegreen Common Stock giving us a controlling interest in Bluegreen.  In accordance with applicable accounting guidance “Loans and Debt Securities Acquired with Deteriorated Credit Quality”, the Company has elected to recognize interest income on these notes receivable using the expected cash flows method. The Company treated expected prepayments consistently in determining its cash flows expected to be collected, such that the non-accretable difference is not affected and the difference between actual prepayments and expected prepayments shall not affect the non-accretable difference.  The assumption for prepayment rates was derived from Bluegreen’s historical performance information for its off-balance sheet securitizations and ranges from 4% to 9%.  As of September 30, 2012 and December 31, 2011, the outstanding contractual unpaid principal balance of the acquired notes was $160.6 million and $196.3 million, respectively. As of September 30, 2012 and December 31, 2011, the carrying amount of the acquired notes was $143.0 million and $167.8 million, respectively.

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The carrying amount of the acquired notes is included in the balance sheet amounts of notes receivable at September 30, 2012 and December 31, 2011. The following is a reconciliation of accretable yield as of September 30, 2012 and December 31, 2011 (in thousands):

 

 

 

 

All of Bluegreen’s vacation ownership interests (“VOIs”) notes receivable bear interest at fixed rates. The weighted-average interest rate charged on loans secured by VOIs was 15.5% and 15.4% at September 30, 2012 and December 31, 2011, respectively. The majority of Bluegreen’s notes receivable secured by home sites bear interest at variable rates. The weighted-average interest rate charged on notes receivable secured by home sites was 7.7% and 7.8% at September 30, 2012 and December 31, 2011, respectively.

 

Bluegreen’s VOI notes receivable are generally secured by properties located in Florida, Louisiana, Nevada, New Jersey, Michigan, Missouri, Pennsylvania, South Carolina, Tennessee, Virginia, Wisconsin, and Aruba. The majority of Bluegreen Communities notes receivables are secured by home sites in Georgia, Texas, and Virginia.

Notes receivable excluding the acquired notes as described above, are carried at amortized cost less an allowance for bad debts. Interest income is suspended, and previously accrued but unpaid interest income is reversed on all delinquent notes receivable when principal or interest payments are more than three months contractually past due and not resumed until such loans are less than three months past due. Bluegreen’s notes receivable are generally written off as uncollectible when they have become approximately 120 days past due. As of September 30, 2012 and December 31, 2011, $13.2 million and $20.9 million, respectively, of the VOI notes receivable were more than three months past due, and accordingly, consistent with Bluegreen’s policy, were not accruing interest income.

Credit Quality for Financial Receivables and Allowance for Credit Losses

 

Bluegreen holds large amounts of homogeneous VOI notes receivable and assesses uncollectibility based on pools of receivables. In estimating future credit losses, Bluegreen does not use a single primary indicator of credit quality but instead evaluates its VOI notes receivable based upon a combination of factors including a static pool analysis, the aging of the respective receivables, current default trends and prepayment rates by origination year, and the FICO® scores of the buyers at the time of origination.

 

The table below sets forth the activity in the allowance for loan losses (including homesite notes receivable) as follows (in thousands):

 

 

 

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The following table shows the delinquency status of Bluegreen’s VOI notes receivable as of September 30, 2012 and December 31, 2011 (in thousands):

 

 

 

 

 

 

 

 

8.    Variable Interest Entities

 

Bluegreen

 

Bluegreen sells VOI notes receivable originated by Bluegreen Resorts through special purpose finance entities. These transactions are generally structured as non-recourse to Bluegreen, with the exception of one securitization transaction entered into in 2010 which was guaranteed by Bluegreen. These transactions are generally designed to provide liquidity for Bluegreen and transfer the economic risks and certain of the benefits of the notes receivable to third-parties.  In a securitization, various classes of debt securities are issued by the special purpose finance entities that are generally collateralized by a single tranche of transferred assets, which consist of VOI notes receivable. Bluegreen services the notes receivable for a fee which it believes approximates market rate for such services.

 

With each securitization, Bluegreen generally retains a portion of the securities. Under these arrangements, the cash payment received from the obligors on the receivables sold are generally applied monthly to pay fees to service providers, make interest and principal payments to investors, and fund required reserves, if any, with the remaining balance of such cash retained by Bluegreen; however, to the extent that portfolio of receivables fails to satisfy specified performance criteria (as may occur due to an increase in default rate or loan loss severity) or other trigger events occur, the funds received from obligors are distributed on an accelerated basis to investors.  Depending on the circumstances and the transaction, the application of the accelerated payment formula may be permanent or temporary until the trigger event is cured.  As of September 30, 2012, Bluegreen was in compliance with all applicable terms and no trigger events had occurred.

 

In accordance with applicable guidance for the consolidation of variable interest entities, Bluegreen analyzes its variable interests, which may consist of loans, guarantees, and equity investments, to determine if an entity in which it has a variable interest is a variable interest entity. Bluegreen’s analysis includes both quantitative and qualitative reviews. Bluegreen bases its quantitative analysis on the forecasted cash flows of the entity, and it bases its qualitative analysis on the design of the entity, its organizational structure including decision-making ability, and relevant financial agreements. Bluegreen also uses qualitative analysis to determine if it must consolidate a variable interest entity as the primary beneficiary.  In accordance with applicable accounting guidance currently in effect, Bluegreen has determined these securitization entities to be VIEs and consolidates the entities into its financial statements as it is the primary beneficiary of the entities.

 

Under the terms of certain of Bluegreen’s timeshare note sales, Bluegreen has the right to repurchase or substitute, a limited amount of defaulted mortgage notes for new notes at the outstanding principal balance plus accrued interest

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or, in some facilities, at 24% of the original sale price associated with the VOI which collateralizes the defaulted mortgage note.  Voluntary repurchases and substitutions by Bluegreen of defaulted notes during the nine months ended September 30, 2012 and 2011 were $9.8 million and $18.5 million, respectively.

 

Below is the information related to the assets and liabilities of the VIEs included on the consolidated statements of financial condition (in thousands):

 

 

The restricted cash and the securitized notes receivable balances disclosed above are restricted to satisfy obligations of the VIEs.

 

BBX Capital

In consideration for BB&T assuming BBX Capital’s $285.4 million in principal amount of TruPS, BB&T received from BBX Capital at the closing of the Transaction a 95% preferred membership 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.  At that time, BBT’s interest in FAR will terminate, and BBX Capital, which initially holds a 5% preferred membership interest in the net cash flows of FAR, will thereafter be entitled to any and all residual proceeds. FAR’s assets are expected to 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 provided BB&T with an incremental $35 million guarantee to further assure BB&T’s recovery within seven years of the $285 million preference amount. At September 30, 2012, BB&T’s preferred interest in FAR was reduced to approximately $209 million.

BBX Capital’s variable interests in FAR include its 5%  preferred membership interest in the cash flows of FAR, rights to all residual cash flows and the incremental $35 million guarantee issued to BB&T.  BBX Capital also services approximately $45 million of FAR commercial loans and has a right of first refusal to acquire certain FAR commercial loans. It can also purchase certain commercial loans on a basis established in FAR’s operating agreement. 

BBX Capital analyzed FAR’s amended and restated limited liability agreement and determined that it was the primary beneficiary and therefore should consolidate FAR in its financial statements. This conclusion was based primarily  on the determination that BBX Capital has the obligation to absorb losses and the rights to receive any appreciation of the assets of FAR through its rights to the residual returns of FAR and  its obligations under the incremental $35 million guarantee to BB&T assuring the repayment of BB&T’s preferred interest in FAR.  BB&T, the other entity with variable interests in FAR, is entitled to its $285 million preference amount plus the preferred return.  Also contributing to BBX Capital’s determination that it was the primary beneficiary of FAR was its ability to direct the activities  relating to the commercial loans that it services, its ability to purchase certain commercial loans  and its right of first refusal in connection with the disposition of certain commercial loans.

BB&T’s preferred equity interest in FAR only entitles it to $285 million preference amount plus the priority return.  Based on the amended and restated limited liability agreement FAR is required to make quarterly distributions or more frequently as approved by FAR’s board of managers, of excess cash flows from its operations and the orderly disposition of its assets to redeem the preferred equity interests in FAR.  As such, the Class A units are considered mandatorily redeemable and are reflected as  debt obligations in the Company’s Consolidated Statement of Financial Condition and the priority return is considered interest expense in the Company’s Consolidated Statements of Operations.

The activities of FAR are governed by the amended and restated limited liability agreement which grants the Board of Managers board authority over FAR.  The Board has four members, two members elected by BBX Capital and two members elected by BB&T.  The approval of an issue before the Board requires three of the members to approve the issue.  BB&T members will resign from the Board upon the redemption of its preferred interest in FAR.

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The carrying amount of the assets and liabilities of FAR and the classification of these assets and liabilities in BBX Capital’s Statement of Financial Condition was as follows (in thousands):

 

 

Until BB&T’s preference amount is repaid, the proceeds from the monetization of FAR’s assets are restricted to payments of expenses, including the priority return and estimated working capital requirements of FAR, and the repayment of FAR’s preferred membership interest net of the payment of all expenses and the priority return. FAR anticipates making quarterly distributions.  As such, BBX Capital will receive 5% of the net cash flows from the monetization of FAR’s assets net of expenses and the priority return.   BBX Capital anticipates that FAR will finance its activities through revenues from principal and interest payments received and monetization of its assets. 

 

BBX Capital’s maximum loss exposure in FAR if all of FAR’s assets were deemed worthless would have been $128 million as of September 30, 2012, consisting of $93 million of net assets plus the $35 million incremental guarantee.

 

9     Inventory

 

Inventory consisted of the following (in thousands):

 

 

Bluegreen reviews real estate held for future resort development for impairment under applicable accounting guidelines, which require that such properties be reviewed for impairment when events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. No impairment charges were recorded with respect to Bluegreen Resorts’ inventory during the nine months ended September 30, 2012 or the year ended December 31, 2011.

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Interest capitalized to VOI inventory during the three and nine months ended September 30, 2012 and 2011 was insignificant. The interest expense reflected in our financial statements is net of capitalized interest.

 

 

10     Debt

 

Notes and Mortgage Notes Payable and Other Borrowings 

 

The table below sets forth the balances of Bluegreen’s lines-of-credit and notes payable facilities and as of December 31, 2011, BankAtlantic’s subordinated debentures (dollars in thousands):

 

 

 

Significant changes related to Bluegreen’s lines-of-credit and notes payable during the nine months ended September 30, 2012 include:

 

RFA AD&C Facility. This facility was used to finance the acquisition and development of certain of Bluegreen’s resorts and currently has one outstanding project loan, which is primarily collateralized by the Bluegreen Club 36^TM resort in Las Vegas, Nevada (the “Club 36 Loan”). On March 30, 2012, the Club 36 Loan was amended to extend the maturity date from June 30, 2012 to December 31, 2012 and granted Bluegreen the option, subject to certain provisions and the payment of certain additional fees, to further extend the maturity of up approximately $9.1 million until June 30, 2013. The amendment also increased the interest rate under the Club 36 Loan from LIBOR plus 4.5% to a fixed rate of 10%.

 

During the nine months ended September 30, 2012, Bluegreen repaid $18.6 million of the outstanding balance under this facility.  The remaining $3.0 million outstanding balance was repaid in full during October 2012

 

H4BG Communities Facility. The H4BG Communities Facility was secured by the real property homesites (and personal property related thereto) and golf courses at several Bluegreen Communities projects. In connection with the sale of Bluegreen Communities to Southstar on May 4, 2012, the entire then outstanding amount of the H4BG facility was repaid along with a $2.0 million deferred fee. 

 

Wells Fargo Term Loan.  In February 2012, the facility was amended to extend the maturity date to June 30, 2012, and to require four  $4.5 million minimum installments to be paid monthly starting March 2012.  In May 2012, Bluegreen repaid the entire outstanding balance under this facility.

 

Foundation Capital. During the nine months ended September 30, 2012, Bluegreen repaid $3.4 million of the outstanding balance under the facility.

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Receivable-Backed Notes Payable

 

The table below sets forth the balances of Bluegreen’s receivable-backed notes payable facilities (dollars in thousands):

 

 

 

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Significant changes related to our receivable-backed notes payable facilities during the nine months ended September 30, 2012 include:

 

2008 Liberty Bank Facility. The outstanding balance was repaid in full during September 2012 in connection with the 2012 Term Securitization described below. 

 

2011 Liberty Bank Facility. The 2011 Liberty Bank Facility provides for maximum outstanding borrowings of $60.0 million at an 85% advance rate on eligible receivables pledged under the facility on a revolving basis during a two-year period ending in February 2013, subject to eligible collateral and terms and conditions Bluegreen believes to be customary for transactions of this type.  Principal and interest are repaid as cash is collected on the pledged receivables, with the remaining balance due in February 2016.    Indebtedness under the 2011 Liberty Bank Facility bears interest at the Prime Rate plus 2.25%, subject to a floor of 6.5% (6.5% as of September 30, 2012).  During the nine months ended September 30, 2012, Bluegreen pledged $11.9 million of VOI notes receivable to this facility and received cash proceeds of $10.1 million in order to adjust its outstanding balance to be consistent with previously pledged collateral. Bluegreen also repaid $3.1 million on the facility during the period.

 

NBA Receivables Facility. Bluegreen/Big Cedar Joint Venture has an outstanding timeshare notes receivable hypothecation facility with the National Bank of Arizona (“NBA”).  Bluegreen Corporation has guaranteed the full payment and performance of Bluegreen/Big Cedar Joint Venture in connection with the facility.  During the nine months ended September 30, 2012, Bluegreen repaid $4.7  million on the facility.

 

In October 2012, the NBA Receivables Facility was amended to provide for borrowings on a revolving basis through October 2014 to be secured by eligible timeshare receivables from the Bluegreen/Big Cedar Joint Venture in amounts up to an aggregate of $30.0 million.  Under the amended facility, future advances will be made at an advance rate of 85% and bear interest at the 30-day LIBOR plus 4.5% per annum subject to a floor of 6.0%.  Certain future advances are also subject to a 1.5% loan fee.  The outstanding balance prior to the amendment ($12.1 million as of September 30, 2012) bears interest at the 30-day LIBOR plus 5.25%, subject to a floor of 6.75%.  All principal and interest payments received on pledged receivables are applied to principal and interest due under the facility.  All amounts will mature and be due on April 10, 2020  subject to earlier required periodic repayments of principal to satisfy certain balance requirements set forth in the facility.

 

BB&T Purchase Facility. Bluegreen has a timeshare notes receivable purchase facility with Branch Banking and Trust Company (“BB&T”) (the “BB&T Purchase Facility”) which allows for maximum outstanding borrowings of $50.0 million and has a revolving advance period through December 17, 2012. During the nine months ended September 30, 2012, Bluegreen pledged $24.7 million of VOI notes receivable to this facility and received cash proceeds of $16.7 million. In addition, during September 2012, Bluegreen repaid all outstanding borrowings under this facility in connection with the 2012 Term Securitization described below.

 

While ownership of the receivables is transferred for legal purposes, the transfers of receivables under the facility are accounted for as secured borrowings.  Accordingly, the receivables are reflected as assets and the associated obligations are reflected as liabilities on Bluegreen’s balance sheet.   The BB&T Purchase Facility is nonrecourse and is not guaranteed by Bluegreen.

 

Quorum Purchase Facility. During March 2012, Bluegreen amended and expanded an existing timeshare notes receivable purchase facility (the “Quorum Purchase Facility”) with Quorum Federal Credit Union (“Quorum”). Pursuant to the terms of the amended facility and subject to certain conditions precedent, Quorum agreed to purchase on a revolving basis through March 31, 2013 eligible timeshare receivables from Bluegreen or certain of its subsidiaries in an amount of up to an aggregate $25.0 million purchase price. The amended terms of the Quorum Purchase Facility reflect an 83% advance rate with respect to any future advances. The March 2012 amendment also provided for a program fee rate of 6.5% per annum with respect to any future advances. During September 2012, the facility was further amended to decrease the program fee rate with respect to advances subsequent to the date of such amendment to 6.0% per annum.  As of September 30, 2012, $6.3 million of the outstanding balance bears interest at a fixed rate of 8.0% pursuant to the terms of the original agreement, and $4.9 million of the outstanding balance bears interest at a fixed rate of 6.5% in accordance with the terms of the March 2012 amendment. Eligibility requirements for receivables sold include, among others, that the obligors under the timeshare notes receivable sold be members of Quorum at the time of the note sale. Subject to performance of the collateral, Bluegreen will receive any excess cash flows generated by the receivables transferred to Quorum under the facility (excess meaning after customary payments of fees, interest and principal under the facility on a pro-rata basis as borrowers make payments on their timeshare loans).

 

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During the nine months ended September 30, 2012, Bluegreen pledged $6.4 million of VOI notes receivable to this facility and received cash proceeds of $5.3 million.  Bluegreen also repaid $1.6 million on the facility.

 

While ownership of the receivables is transferred for legal purposes, the transfers of receivables under the facility are accounted for as secured borrowings.  Accordingly, the receivables are reflected as assets and the associated obligations are reflected as liabilities on Bluegreen’s balance sheet.   The Quorum Purchase Facility is nonrecourse and is not guaranteed by Bluegreen.

 

CapitalSource Facility. Bluegreen has a $30.0 million revolving timeshare receivables hypothecation facility (“the CapitalSource Facility”) with CapitalSource Bank. The CapitalSource Facility provides for advances on eligible receivables pledged under the facility, subject to specified terms and conditions, during the two-year revolving credit period ending in September 2013. Eligible “A” receivables that meet certain eligibility and FICO® score requirements, which Bluegreen believes are typically consistent with loans originated under its current credit underwriting standards, are subject to an 80% advance rate.  The CapitalSource Facility also allows for certain eligible “B” receivables (which have less stringent FICO® score requirements) to be funded at a 45% advance rate.  Principal repayments and interest rate are to be paid as cash is collected on the pledged receivables subject to future required decreases in the advance rate after the two-year revolving credit period, with the remaining balance being due in September 2016.  The CapitalSource Facility bears interest at the 30-day LIBOR plus 5.75% subject to a LIBOR floor of 0.75% (6.50% as of September 30, 2012).  During the nine months ended September 30, 2012, Bluegreen pledged $19.3 million of VOI notes receivable to this facility and received cash proceeds of $15.6 million. Bluegreen also repaid $2.5 million on the facility during the period.

 

2012 Term Securitization. On September 13, 2012, Bluegreen completed a private offering and sale of $100 million of investment-grade, timeshare loan-backed notes (the "2012 Term Securitization") to BB&T Capital Markets and RBS Securities Inc., as initial purchasers. The 2012 Term Securitization consisted of the issuance of two tranches of timeshare-loan backed notes: $79.05 million of Class A notes and $20.95 million of Class B notes with interest rates of 2.66% and 3.99%, respectively, which blended to a weighted average interest rate of 2.94%. The gross advance rate for this transaction was 89.5%. 

 

The amount of the timeshare receivables sold was approximately $111.7 million, approximately $109.8 million of which was provided prior to September 30, 2012 and the remainder of which was provided during October 2012. Approximately $78.0 million of the $100.0 million of gross proceeds were used to repay in full both the BB&T Purchase Facility and the 2008 Liberty Bank Facility, as described above, as well as to capitalize a reserve fund and pay fees and expenses associated with the transaction.  Bluegreen expects to use the remaining $22.0 million of gross proceeds for general corporate purposes. 

 

While ownership of the timeshare receivables included in the 2012 Term Securitization was transferred and sold for legal purposes, the transfer of these timeshare receivables was accounted for as a secured borrowing for financial accounting purposes.

 

Other Receivable-Backed Notes Payable. In addition to the above described facilities, during the nine months ended September 30, 2012, Bluegreen repaid $83.0 million of its other receivable-backed notes payable, which included a full repayment of the 2004 Term Securitization.

 

 

 

11.    Shares Subject to Mandatory Redemption

 

On June 7, 2004, the Company’s board of directors designated 15,000 shares of the Company’s preferred stock as 5% Cumulative Preferred Stock. On June 21, 2004, the Company sold all 15,000 shares of the 5% Cumulative Preferred Stock to an investor group in a private offering.

 

The Company’s 5% Cumulative Preferred Stock has a stated value of $1,000 per share. The shares of 5% Cumulative Preferred Stock are redeemable at the option of the Company, from time to time, at redemption prices ranging from $1,015 per share for the twelve month period ending April 29, 2013 to $1,000 per share for the twelve month period ending April 29, 2016.  The 5% Cumulative Preferred Stock’s liquidation preference is equal to its stated value of $1,000 per share plus any accumulated and unpaid dividends or an amount equal to the applicable redemption price in a voluntary liquidation or winding up of the Company. Holders of the 5% Cumulative Preferred Stock have no voting rights, except as provided by Florida law, and are entitled to receive, when and as declared by the Company’s board of directors (and previously also upon the written non-objection from the Federal Reserve),

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cumulative quarterly cash dividends on each such share at a rate per annum of 5% of the stated value from the date of issuance. From the second quarter of 2004 through the third quarter of 2011, the Company paid quarterly dividends on the 5% Cumulative Preferred Stock of $187,500. The Company determined not to seek the Federal Reserve’s written non-objection to the dividend payment for the fourth quarter of 2011 or the first or second quarters of 2012 and, therefore, the Company accrued unpaid dividend payments totaling approximately $563,000 as of June 30, 2012.   As described in Note 1, as a result of BBX Capital’s sale of BankAtlantic to BB&T on July 31, 2012, BFC was released from registration as a savings and loan holding company, effective August 31, 2012.  Following such deregistration, the unpaid dividends of $563,000 were paid by BFC. BFC paid its third quarter dividend of $187,500 during September 2012.  Future dividend payments will not require the prior written non-objection of the Federal Reserve, provided BFC continues not to be subject to regulation as a financial institution holding company.  Included in the balance of shares subject to mandatory redemption in the accompanying consolidated statement of financial condition as of September 30, 2012 is accrued interest of approximately $231,000. 

 

On December 17, 2008, certain of the previously designated relative rights, preferences and limitations of the 5% Cumulative Preferred Stock were amended (the “First Amendment”) to eliminate the right of the holders of the 5% Cumulative Preferred Stock to convert their shares into shares of the Company’s Class A Common Stock. The First Amendment also required the Company to redeem shares of the 5% Cumulative Preferred Stock with the net proceeds received in the event the Company sold any shares of Benihana’s stock that it owned and entitled the holders of the 5% Cumulative Preferred Stock, in the event the Company defaulted on its dividend payment obligation with respect to such stock, to receive directly from Benihana the payments due (collectively, the “Benihana Stock Provisions”).

Based on an analysis of the 5% Cumulative Preferred Stock after giving effect to the First Amendment, the Company previously determined that the 5% Cumulative Preferred Stock met the requirements to be re-classified outside of permanent equity and into the mezzanine category at its fair value at the effective date of the First Amendment of approximately $11.0 million. The remaining amount of approximately $4.0 million is recorded in additional paid in capital in the Company’s consolidated statements of financial condition. The fair value of the 5% Cumulative Preferred Stock was calculated using an income approach by discounting estimated cash flows at a market discount rate.

 

On April 4, 2012, the relative rights, preferences and limitations of the 5% Cumulative Preferred Stock were further amended (the “Second Amendment”).  Pursuant to the Second Amendment, to the extent the shares are not earlier redeemed pursuant to the optional redemption right described above, the Company will be required to redeem 5,000 shares of the 5% Cumulative Preferred Stock during each of the years ending December 31, 2016, 2017 and 2018 for an aggregate annual redemption price of $5.0 million, or $1,000 per share. The Second Amendment also provides that, in the event that the Company defaults on its dividend or mandatory redemption obligations, then the holders of the 5% Cumulative Preferred Stock will be entitled to receive from the Company shares of common stock of Bluegreen owned by the Company having, in the aggregate, a fair market value equal to the amount of the dividend or redemption payment, as the case may be, to the extent not timely paid; provided that the maximum number of shares of Bluegreen’s common stock which the holders of the 5% Cumulative Preferred Stock will be entitled to receive as a result of one or more defaults with respect to the Company’s mandatory redemption obligation will be 5,000,000 shares (subject to adjustment  in the case of a stock split or other applicable share combination or division affecting Bluegreen’s common stock). In consideration therefor, the Second Amendment eliminated the Benihana Stock Provisions.

 

Under applicable accounting guidance, as a result of the Second Amendment and the mandatory redemption provision contained therein, the 5% Cumulative Preferred Stock was re-classified as a liability during the quarter ended June 30, 2012 at its estimated fair value of approximately $11.5 million.   The fair value was determined by an independent third party and was based on a cash flow model using a discount rate equivalent to benchmark bond ratings.   The $0.5 million difference between the previously stated value of $11.0 million as of March 31, 2012 and the current estimated fair value of $11.5 million was recorded as an adjustment to additional paid in capital in the Company’s consolidated statement of financial condition at September 30, 2012. 

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12.    Noncontrolling Interests

 

The following table summarizes the noncontrolling interests in the Company’s subsidiaries at September 30, 2012 and December 31, 2011 (in thousands):

 

The following table summarizes the income (loss) recognized with respect to the Company’s subsidiaries attributable to noncontrolling interests for the three and nine months ended September 30, 2012 and 2011 (in thousands):

 

 

 

 

13.    Segment Reporting

 

Operating segments are defined as components of an enterprise about which separate financial information is available that is regularly reviewed by the chief operating decision maker in assessing performance and deciding how to allocate resources. Reportable segments consist of one or more operating segments with similar economic characteristics, products and services, production processes, type of customer, distribution system or regulatory environment. 

 

The information provided for segment reporting is based on internal reports utilized by management of the Company and its subsidiaries. The presentation and allocation of assets and results of operations may not reflect the actual economic costs of the segments as standalone businesses. If a different basis of allocation were utilized, the relative contributions of the segments might differ but the relative trends in the segments’ operating results would, in management's view, likely not be impacted.

 

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 — relate to our Financial Services business activities and represent BBX Capital’s continuing operations. Discontinued operations include the results of Bluegreen Communities (which previously

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was a separate reporting segment), BankAtlantic’s community banking, investment, capital services and tax certificate reporting units (which were previously part of the BankAtlantic reporting segment) and Cypress Creek Holdings (which was previously part of the Real Estate Operations reporting segment). See Note 3 for additional information regarding discontinued operations.

 

The Company evaluates segment performance based on its segment net income (loss).

 

The following summarizes the aggregation of the Company's operating segments into reportable segments:

 

BFC Activities

 

The BFC Activities segment consists of the operations of BFC and other activities, including investments and operations of Woodbridge unrelated to real estate. BFC operations primarily consist of our corporate overhead and selling, general and administrative expenses, including the expenses of Woodbridge, the financial results of a venture partnership that BFC controls and other equity investments, as well as income and expenses associated with BFC’s shared service operations, which provided human resources, risk management, investor relations and executive office administration services to BBX Capital and provides certain risk management and administration services to Bluegreen. Woodbridge’s other operations include the activities of Snapper Creek Equity Management, LLC and certain other investments. This segment also includes our previous investment in Benihana (which we no longer hold due to the acquisition of Benihana by Safflower during August 2012), as well as investments made by our wholly owned subsidiary, BFC/CCC, Inc. (“BFC/CCC”).

 

Woodbridge had an equity interest in Pizza Fusion Holdings, Inc. (“Pizza Fusion”), a restaurant operator and franchisor engaged in the quick service and organic food industries. The investment included all of the outstanding shares of Pizza Fusion’s Series B Convertible Preferred Stock, which was entitled to special voting rights, including the right, to the extent Woodbridge chose to do so, to elect a majority of Pizza Fusion’s board of directors. During December 2011, Pizza Fusion effected a stock reclassification pursuant to which each share of Pizza Fusion’s Series A and Series B Convertible Preferred Stock automatically converted into one share of Pizza Fusion’s common stock. As a result, Woodbridge is no longer deemed to have a controlling interest in Pizza Fusion and, under the applicable accounting guidance for business combinations, the financial statements of Pizza Fusion were deconsolidated as of December 31, 2011. In connection with such deconsolidation, the Company recognized a $615,000 loss on investment in subsidiary during December 2011. Prior to that time, Pizza Fusion was determined to be a VIE under applicable accounting guidance, and the operating results of Pizza Fusion were consolidated into BFC.

 

Real Estate Operations

The Company’s Real Estate Operations segment consists of Core Communities, which suspended activities in December 2010, and Carolina Oak, which suspended its homebuilding activities in the fourth quarter of 2008.

 

 

Bluegreen Resorts

 

Bluegreen Resorts markets, sells and manages real estate-based VOIs in resorts generally located in popular, high-volume, “drive-to” vacation destinations, which were developed or acquired by Bluegreen or developed by others.  Bluegreen Resorts also earns fees from third-party resort developers and timeshare owners for providing services such as sales and marketing, mortgage servicing, construction management, title, and resort management.

 

CLRU

 

CLRU’s activities consist of managing a commercial loan portfolio, which include construction, residential development, land acquisition and commercial business loans.  The activities during the three and nine months ended September 30, 2012 and 2011 consisted of, but were not limited to, renewing, modifying, increasing, extending, refinancing and making protective advances on commercial loans, as well as the servicing of commercial loans.

 

BBX Capital Parent Company

 

The BBX Capital Parent Company activities include the managing of non-performing loans and related real estate owned acquired from BankAtlantic.