5dd52088056b41f

 

 

 

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

 

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

OR

[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission files number     001-13133

BBX CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Florida

(State or other jurisdiction of

incorporation or organization)

65-0507804

(I.R.S. Employer

Identification No.)

 

401 East Las Olas Boulevard Suite 800

Fort Lauderdale, Florida

(Address of principal executive offices)

33301

(Zip Code)

 

(954) 940-4000

(Registrant's telephone number, including area code)

Not Applicable

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

 

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

 

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

 

 

 

Large accelerated filer [   ]

Accelerated filer [ X  ]

Non-accelerated filer [   ]

Small reporting company [      ]

 

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

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.

 

 

Title of Each Class

Outstanding at August 4, 2014

Class A Common Stock, par value $0.01 per share

17,088,390

Class B Common Stock, par value $0.01 per share

    195,045

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

 

Page

Part I.

FINANCIAL INFORMATION

 

 

 

 

Reference

 

 

 

 

 

Item 1.

Financial Statements

3-41

 

 

 

 

Consolidated Statements of Financial Condition - June 30, 2014 and December 31,

 

  2013 - Unaudited

 

 

 

 

 

Consolidated Statements of Operations - For the Three and Six Months Ended

 

 June 30, 2014 and 2013 - Unaudited

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) - For the Three and Six Months

 

 Ended June 30, 2014 and 2013 - Unaudited

 

 

 

 

 

Consolidated Statements of Total Equity - For the Six Months Ended June 30, 2014

 

 and 2013 - Unaudited

 

 

 

 

 

Consolidated Statements of Cash Flows - For the Six Months Ended June 30,

 

 2014 and 2013 - Unaudited

 

 

 

 

 

Notes to Consolidated Financial Statements - Unaudited

8-41

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

42-59

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

59 

 

 

 

Item 4.

Controls and Procedures

59 

 

 

 

Part II.

OTHER INFORMATION

 

 

 

 

Item 1A.

Risk Factors

60 

 

 

 

Item 6.

Exhibits

60 

 

 

 

 

Signatures

61 

 

 

 

 

 

 

 

 

 


 

 

 

 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION-UNAUDITED 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

(In thousands, except share data)

 

2014

 

2013

ASSETS

 

 

 

 

Cash and interest bearing deposits in banks ($2,777 and $8,686 in Variable Interest Entities ("VIE"))

$

47,881 

 

43,138 

Loans held for sale ($46,641 and $53,846 in VIE)

 

46,641 

 

53,846 

Loans receivable, net of allowance for loan losses of $1,881 and $2,713 ($27,818 and $56,170, net of allowance of $1,881 and $1,759 in VIE)

 

39,530 

 

72,226 

Real estate held for investment ($23,692 and $15,836 in VIE)

 

93,032 

 

107,336 

Real estate held for sale ($15,183 and $23,664 in VIE)

 

38,021 

 

33,971 

Investment in unconsolidated real estate joint ventures

 

7,437 

 

1,354 

Investment in Woodbridge Holdings, LLC

 

78,057 

 

78,573 

Properties and equipment, net ($7,730 and $7,899 in VIE)

 

14,688 

 

14,824 

Inventories

 

10,899 

 

9,155 

Goodwill and other intangible assets

 

4,377 

 

2,686 

Other assets ($1,332 and $2,413 in VIE)

 

18,732 

 

14,038 

        Total assets

$

399,295 

 

431,147 

LIABILITIES AND EQUITY

 

 

 

 

Liabilities:

 

 

 

 

BB&T preferred interest in FAR, LLC ($26,986 and $68,517 in VIE)

$

26,986 

 

68,517 

Notes payable to related parties

 

11,750 

 

21,662 

Notes payable

 

16,871 

 

9,034 

Other liabilities ($12,785 and $12,355 in VIE)

 

29,539 

 

28,368 

        Total liabilities

 

85,146 

 

127,581 

Commitments and contingencies (Note 12)

 

 

 

 

Equity:

 

 

 

 

Preferred stock, $.01 par value, 10,000,000 shares authorized;

 

 

 

 

   none issued and outstanding    

 

 -

 

 -

Class A common stock, $.01 par value, authorized 25,000,000

 

 

 

 

   shares; issued and outstanding 15,810,588 and 15,778,088 shares

 

158 

 

158 

Class B common stock, $.01 par value, authorized 1,800,000

 

 

 

 

   shares; issued and outstanding 195,045 and 195,045 shares

 

 

Additional paid-in capital

 

346,976 

 

345,300 

Accumulated deficit

 

(34,442)

 

(43,091)

Accumulated other comprehensive income

 

47 

 

13 

Total BBX Capital Corporation shareholders' equity

 

312,741 

 

302,382 

Noncontrolling interest

 

1,408 

 

1,184 

Total equity

 

314,149 

 

303,566 

        Total liabilities and equity

$

399,295 

 

431,147 

 

 

 

 

 

See Notes to Consolidated Financial Statements - Unaudited

 

 

 

 

 

 

 

3

 


 

 

 

 

 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Six Months

 

 

Ended June 30,

 

Ended June 30,

(In thousands, except share and per share data)

 

2014

 

2013

 

2014

 

2013

Revenues:

 

 

 

 

 

 

 

 

Sales

$

15,804 

 

 -

 

32,671 

 

 -

Interest income

 

1,282 

 

2,373 

 

3,058 

 

5,418 

Net gains on the sales of assets

 

3,926 

 

2,194 

 

3,877 

 

4,256 

Income from real estate operations

 

1,473 

 

1,194 

 

2,966 

 

2,430 

Other

 

448 

 

387 

 

1,489 

 

879 

     Total revenues

 

22,933 

 

6,148 

 

44,061 

 

12,983 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of goods sold

 

11,445 

 

 -

 

23,546 

 

 -

BB&T's priority return in FAR distributions

 

222 

 

906 

 

553 

 

1,919 

Interest expense

 

463 

 

334 

 

959 

 

503 

Real estate operating expenses

 

1,938 

 

1,392 

 

3,491 

 

2,468 

Selling, general and administrative expenses

 

11,924 

 

6,658 

 

23,425 

 

14,843 

       Total costs and expenses

 

25,992 

 

9,290 

 

51,974 

 

19,733 

Equity earnings in Woodbridge Holdings, LLC

 

8,108 

 

3,442 

 

14,330 

 

3,442 

Equity losses in unconsolidated real estate joint ventures

 

(26)

 

 -

 

(32)

 

 -

Recoveries from (provision for) loan losses

 

2,046 

 

(172)

 

3,294 

 

(931)

Asset impairments, net

 

94 

 

(2,977)

 

(1,225)

 

(5,142)

Income (loss) from continuing operations before income taxes

 

7,163 

 

(2,849)

 

8,454 

 

(9,381)

Provision for income taxes

 

 

 -

 

 

 -

Net income (loss)

 

7,157 

 

(2,849)

 

8,448 

 

(9,381)

Less: net loss attributable to non-controlling interest

 

134 

 

 -

 

201 

 

 -

Net income (loss) attributable to BBX Capital Corporation

$

7,291 

 

(2,849)

 

8,649 

 

(9,381)

Basic earnings (loss) per share

$

0.46 

 

(0.18)

 

0.54 

 

(0.59)

Diluted earnings (loss) per share

$

0.43 

 

(0.18)

 

0.52 

 

(0.59)

Basic weighted average number of common

 

 

 

 

 

 

 

 

 shares outstanding

 

16,005,633 

 

15,805,009 

 

15,995,757 

 

15,795,492 

Diluted weighted average number of common and

 

 

 

 

 

 

 

 

common equivalent shares outstanding

 

16,790,560 

 

15,805,009 

 

16,746,419 

 

15,795,492 

 

 

 

See Notes to Consolidated Financial Statements - Unaudited

4

 


 

 

 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) UNAUDITED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Six Months

 

 

Ended June 30,

 

Ended June 30,

(In thousands, except share and per share data)

 

2014

 

2013

 

2014

 

2013

Net income (loss)

$

7,157 

 

(2,849)

 

8,448 

 

(9,381)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax

 

12 

 

 -

 

42 

 

 -

Comprehensive income (loss)

 

7,169 

 

(2,849)

 

8,490 

 

(9,381)

Less: net loss attributable to non-controlling interest

 

134 

 

 -

 

201 

 

 -

 Foreign currency translation adjustments attributable to non-controlling interest

 

(2)

 

 -

 

(8)

 

 -

Total comprehensive income (loss) attributable to BBX Capital Corporation

$

7,301 

 

(2,849)

 

8,683 

 

(9,381)

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements - Unaudited

 

 

5

 


 

 

 

 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF TOTAL EQUITY 

FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013 - UNAUDITED 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Additional

 

Other

BBX Capital

Non-

 

 

 

Common

Paid-in

(Accumulated

Comprehensive

Corporation

Controlling

Total

(In thousands)

 

Stock

Capital

Deficit)

Income

Equity

Interest

Equity

BALANCE, DECEMBER 31, 2012

$

157 
331,097 
(90,930)

 -

240,324 

 -

240,324 

Net loss

 

 -

 -

(9,381)

 -

(9,381)

 -

(9,381)

Investment in Woodbridge Holdings, LLC

 

 -

13,337 

 -

 -

13,337 

 -

13,337 

Share based compensation expense

 

 -

1,115 

 -

 -

1,115 

 -

1,115 

BALANCE, JUNE 30, 2013

$

157 
345,549 
(100,311)

 -

245,395 

 -

245,395 

 

 

 

 

 

 

 

 

 

BALANCE, DECEMBER 31, 2013

$

160 
345,300 
(43,091)
13 
302,382 
1,184 
303,566 

Net income

 

 -

 -

8,649 

 -

8,649 
(201)
8,448 

Noncontrolling interest distributions

 

 -

 -

 -

 -

 -

(157)
(157)

Noncontrolling interest contributions

 

 -

 -

 -

 -

 -

574 
574 

Other comprehensive income

 

 -

 -

 -

34 
34 
42 

Share based compensation expense

 

 -

1,676 

 -

 -

1,676 

 -

1,676 

BALANCE, JUNE 30, 2014

$

160 
346,976 
(34,442)
47 
312,741 
1,408 
314,149 

 

See Notes to Consolidated Financial Statements - Unaudited

 

 

 

 

 

 

 

 

6

 


 

 

 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months

 

 

Ended June 30,

(In thousands)

 

2014

 

2013

Net cash provided by (used in) operating activities

$

3,284 

 

(8,873)

Investing activities:

 

 

 

 

Proceeds from redemption of tax certificates

 

462 

 

1,514 

Purchase of tax certificates

 

 -

 

(31)

Proceeds from maturities of interest bearing deposits

 

 -

 

496 

Repayments of loans

 

30,997 

 

41,479 

Proceeds from the sales of loans transferred to held for sale

 

 -

 

1,100 

Additions to real estate

 

(312)

 

 -

Proceeds from sales of real estate

 

13,870 

 

22,496 

Proceeds from the contribution of real estate to unconsolidated real estate joint ventures

 

4,710 

 

 -

Purchases of properties and equipment

 

(342)

 

(21)

Proceeds from sales of properties and equipment

 

53 

 

 -

Investments in unconsolidated real estate joint ventures

 

(2,595)

 

(1,300)

Investment in Woodbridge Holdings, LLC

 

 -

 

(60,404)

Return of Woodbridge Holdings, LLC investment

 

516 

 

5,351 

Cash paid for acquisitions, net of cash acquired

 

(2,000)

 

 -

Net cash provided by investing activities

 

45,359 

 

10,680 

Financing activities:

 

 

 

 

Repayment of notes payable

 

(349)

 

 -

Repayments of notes payable to related parties

 

(3,267)

 

 -

Proceeds from notes payable to related parties

 

830 

 

 -

Repayment of BB&T preferred interest in FAR, LLC

 

(41,531)

 

(42,399)

Noncontrolling interest contributions

 

574 

 

 -

Noncontrolling interest distributions

 

(157)

 

 -

Net cash used in financing activities

 

(43,900)

 

(42,399)

Increase (decrease) in cash and cash equivalents

 

4,743 

 

(40,592)

Cash and cash equivalents at the beginning of period

 

43,138 

 

62,377 

Cash and cash equivalents at end of period

$

47,881 

 

21,785 

Cash paid for:

 

 

 

 

Interest paid

$

1,413 

 

2,309 

Supplementary disclosure of non-cash investing and

 

 

 

 

 financing activities:

 

 

 

 

Loans and tax certificates transferred to real estate held for investment or real estate held-for-sale

 

13,229 

 

14,086 

Loans transferred to properties and equipment

 

 -

 

12,834 

Refinance of notes payable to related parties

 

7,475 

 

 -

Receivable from sale of real estate held-for-sale

 

5,265 

 

 -

Transfer from real estate-held-for-investment to real estate-held-for-sale

 

18,916 

 

 -

Tax certificates transferred to tax certificates held for sale

 

 -

 

494 

Notes payable issued in connection with the investment in Woodbridge Holdings, LLC

 

 -

 

11,750 

Increase in additional paid-in-capital associated with the investment in Woodbridge Holdings, LLC

 

 -

 

13,337 

Real estate held-for-investment transferred to investment in real estate joint ventures

 

1,920 

 

 -

Change in accumulated other comprehensive income

 

42 

 

 -

 

 

 

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements - Unaudited

 

 

 

7

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

 

1.  Presentation of Interim Financial Statements

Basis of Financial Statement Presentation BBX Capital Corporation (formerly BankAtlantic Bancorp, Inc.) together with its subsidiaries is referred to herein as “the Company”, “we”, “us,” or “our” and is referred to herein without its subsidiaries as the “Parent Company” or “BBX Capital”. BBX Capital was organized under the laws of the State of Florida in 1994. We are involved in the ownership, financing, acquisition, development and management of real estate and real estate related assets, and we are also involved in the investment in or acquisition of operating businesses. 

In April 2013, BBX Capital acquired a 46% equity interest in Woodbridge Holdings, LLC (“Woodbridge”).  Woodbridge’s principal asset is its ownership of Bluegreen Corporation and its subsidiaries (“Bluegreen”).  Bluegreen is a vacation ownership company with over 60 owned or managed resorts and 180,000 owners of vacation ownership interests.  BFC Financial Corporation (“BFC”), the controlling shareholder of the Company, owns the remaining 54% of Woodbridge (see Note 2 Investment in Woodbridge Holdings, LLC). 

In October 2013, Renin Holdings, LLC (“Renin”), a newly formed joint venture owned 81% by BBX Capital and 19% by BFC, acquired substantially all of the assets and certain liabilities of Renin Corp. (“the Renin Transaction”).  Renin manufactures interior closet doors, wall décor, hardware and fabricated glass products. Renin is headquartered in Canada and has two manufacturing, assembly and distribution facilities in Canada and the United States and a distribution facility in the United Kingdom.

In December 2013, BBX Sweet Holdings, LLC (“BBX Sweet Holdings”), a wholly-owned subsidiary of BBX Capital, acquired the outstanding equity interest in Hoffman’s Chocolates and its subsidiaries Boca Bons, LLC and S&F Good Fortunes, LLC (collectively, “Hoffman’s”).  Hoffman’s is a manufacturer of gourmet chocolates, with four retail locations in South Florida.   

In January 2014, BBX Sweet Holdings acquired Williams & Bennett, a Florida based manufacturer of quality chocolate products.  The fair value of the identifiable net assets acquired was $2.1 million which included $1.5 million of other intangible assets, $1.1 million of inventory and $0.7 million of liabilities assumed.  In July 2014, BBX Sweet Holdings acquired Jer’s Chocolates, a California based distributor of peanut butter chocolate products internationally and in the United States.  In July 2014, BBX Sweet Holdings acquired Helen Grace Chocolates, a California based manufacturer of premium chocolate confections, chocolate bars, chocolate candies and truffles.   The BBX Sweet Holdings acquisitions are not considered material to the Company’s financial condition or results of operation, as of or for the three and six month periods ended June 30, 2014.

The Company has two classes of common stock. Holders of the Class A common stock are entitled to one vote per share, which in the aggregate represents 53% of the combined voting power of the Class A common stock and the Class B common stock. Class B common stock represents the remaining 47% of the combined vote. BFC currently owns 100% of the Company’s Class B common stock and 51% of the Company’s outstanding Class A common stock resulting in BFC owning 52% of the Company’s aggregate outstanding common stock and 72% of the voting power of the Company’s common stock. The percentage of total common equity represented by Class A and Class B common stock was 99% and 1% at June 30, 2014, respectively. The fixed voting percentages will be eliminated, and shares of Class B common stock will be entitled to only one vote per share from and after the date that BFC or its affiliates no longer own in the aggregate at least 97,523 shares of Class B common stock (which is one-half of the number of shares it now owns). Class B common stock is convertible into Class A common stock on a share for share basis.

In May 2013, BBX Capital entered into a definitive merger agreement (the “Merger Agreement”) with BFC and BBX Merger Sub, LLC, a newly formed wholly owned subsidiary of BFC (“Merger Sub”). The Merger Agreement provides for BBX Capital to merge with and into Merger Sub (the “Merger”), with Merger Sub continuing as the surviving company of the Merger and a wholly owned subsidiary of BFC. Under the terms of the Merger Agreement, which was approved by a special committee comprised of the Company’s independent directors (the “Special Committee”) as well as the full boards of directors of both BFC and the Company, the Company’s shareholders (other than BFC and shareholders of the Company who exercise and perfect their appraisal rights in accordance with Florida law) will be entitled to receive 5.39 shares of BFC’s Class A Common Stock in exchange for each share of the Company’s Class A Common Stock that they hold at the effective time of the Merger (as such exchange ratio may be adjusted in accordance with the terms of the Merger Agreement, the “Exchange Ratio”). Each option to acquire shares of the Company’s Class A Common Stock that is outstanding at the effective time of the Merger, whether or not then exercisable, will be converted into an option to acquire

8

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

shares of BFC’s Class A Common Stock and be subject to the same terms and conditions as in effect at the effective time of the Merger, except that the number of shares which may be acquired upon exercise of the option will be multiplied by the Exchange Ratio and the exercise price of the option will be divided by the Exchange Ratio. In addition, each share of the Company’s Class A Common Stock subject to a restricted stock award outstanding at the effective time of the Merger will be converted into a restricted share of BFC’s Class A Common Stock and be subject to the same terms and conditions as in effect at the effective time of the Merger, except that the number of shares subject to the award will be multiplied by the Exchange Ratio. The Merger Agreement was approved by the Company’s shareholders and by BFC’s shareholders on April 29, 2014. Consummation of the Merger is subject to certain closing conditions, including, without limitation, BFC’s Class A Common Stock being approved for listing on a national securities exchange (or interdealer quotation system of a registered national securities association) at the effective time of the Merger and the absence of any “Material Adverse Effect” (as defined in the Merger Agreement) with respect to either the Company or BFC.

BBX Capital’s principal asset until July 31, 2012 was its ownership of BankAtlantic and its subsidiaries (“BankAtlantic”).  BankAtlantic was a federal savings bank headquartered in Fort Lauderdale, Florida and provided traditional retail banking services and a wide range of commercial banking products and related financial services through a broad network of community branches located in Florida.  On November 1, 2011, the Company entered into a definitive agreement to sell BankAtlantic to BB&T Corporation (“BB&T”), which agreement was amended on March 13, 2012 (“the Agreement”).  On July 31, 2012, BBX Capital completed the sale to 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 “BB&T Transaction”). Pursuant to the terms of the Agreement, prior to the closing of the BB&T Transaction, BankAtlantic formed two wholly-owned 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 that had an aggregate carrying value on BankAtlantic’s Balance Sheet of approximately $346 million as of July 31, 2012 (the date the BB&T Transaction was consummated).  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 the Company.  At the closing of the BB&T Transaction, the Company transferred to BB&T 95% of the outstanding preferred membership interests in FAR in connection with BB&T’s assumption of the Company’s $285.4 million in principal amount of outstanding trust preferred securities (“TruPS”) obligations, as described in further detail below. The Company continues to hold the remaining 5% of FAR’s preferred membership interests. Under the terms of the Amended and Restated Limited Liability Company agreement of FAR, which was entered into by the Company 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 the Company will thereafter be entitled to any and all residual proceeds from FAR through its ownership of FAR’s Class R units. It is expected that the assets (other than cash) contributed to FAR will be monetized over a period of seven years, or longer provided BB&T’s preference amount is repaid within such seven-year period. The Company 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. BB&T’s preferred interest in FAR as of June 30, 2014 had been reduced through cash distributions to $27.0 million. 

 

Prior to the closing of the BB&T Transaction, BankAtlantic contributed approximately $82 million in cash to CAM and certain non-performing commercial loans, commercial real estate 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.  Prior to the closing of the BB&T Transaction, BankAtlantic distributed all of the membership interests in CAM to the Company. CAM remains a wholly-owned subsidiary of the Company. 

 

The Company’s consolidated financial statements have been prepared on a going concern basis, which reflects the realization of assets and the repayments of liabilities in the normal course of business.

 

All significant inter-company balances and transactions have been eliminated in consolidation.  Throughout this document, the term “fair value” in each case is an estimate of fair value as discussed herein.

 

In management's opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) as are necessary for a fair statement of the Company's consolidated financial condition at June 30, 2014, the consolidated results of operations and consolidated statement of comprehensive income for the three and six months ended June 30, 2014 and 2013, and the consolidated total equity and cash flows for the six months ended June 30, 2014 and 2013.  The results of operations for the three and six months ended June 30, 2014 are not necessarily indicative of results of operations that may be expected for the subsequent interim periods during 2014 or for

9

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

the year ended December 31, 2014.  The consolidated financial statements and related notes are presented as permitted by Form 10-Q and should be read in conjunction with the consolidated financial statements appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 2013.

Certain amounts for prior years have been reclassified to conform to the revised financial statement presentation for 2014.

Basic earnings per share excludes dilution and is computed by dividing net income attributable to the Company by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if options to issue common shares or restricted common stock of the Company were exercised or lapse. In calculating diluted earnings per share, net income attributable to the Company is divided by the weighted average number of common shares. Options and restricted stock are included in the weighted average number of common shares outstanding based on the treasury stock method, if dilutive.  During the three and six months ended June 30, 2014 options to acquire 21,282 shares of Class A common stock were anti-dilutive.  During the three and six months ended June 30, 2013 options to acquire 25,195 shares of Class A common stock and outstanding restricted stock Class A Common Stock awards in the amount of 1,162,906 were anti-dilutive.

The Company follows the equity method of accounting to record its investments in real estate joint ventures in which it has the ability to significantly influence the decisions of the joint venture and to record its investment in variable interest entities in which it is not the primary beneficiary. Under the equity method, an investment is shown on the Statement of Financial Condition of an investor as a single amount and an investor’s share of earnings or losses from its investment is shown in the Statement of Operations as a single amount.  The investment is initially measured at cost and adjusted for the investor’s share of the earnings or losses of the investee as well as dividends received from the investee.  The investor recognizes its share of the earnings or losses of the investee in the periods for which they are reported by the investee in its financial statements rather than in the period in which an investee declares a dividend. 

Goodwill and other intangible assets consisted of $0.3 million of goodwill associated with the Williams & Bennett acquisition, and $4.1 million of other identifiable intangible assets including trade names, customer relationships and lease premiums acquired in connection with the Renin Transaction and the Hoffman’s and Williams & Bennett acquisitions. 

Goodwill is recorded at the acquisition date of a business.  Annually, goodwill is assessed for qualitative factors to determine whether it is necessary to perform a goodwill impairment test. Goodwill testing is a two-step process. The first step of the goodwill impairment test is used to identify potential impairment. This step compares the fair value of a reporting unit with its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is considered not impaired and the second step of the impairment test is not necessary. If the fair value of the reporting unit is less than the carrying value, then the second step of the test is used to measure the amount of goodwill impairment, if any, in the reporting unit. This step compares the current implied goodwill in the reporting unit to its carrying amount. If the carrying amount of the goodwill exceeds the implied goodwill, impairment is recorded for the excess. The implied goodwill is determined in the same manner as the amount of goodwill recognized in a business combination is determined.

The trade names, customer relationship and lease premium intangible assets were initially recorded at fair value and are amortized on a straight-line basis over their estimated useful lives which are generally twenty years for trade names, ten years for customer relationships and over the remaining lease term for lease premiums. Intangible assets are reviewed for impairment at least on an annual basis or at interim periods if events occur subsequent to the annual test date that would result in a decline in the fair value of the intangible assets. The impairment test compares the fair value of the intangible asset with the carrying value. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in the amount of the excess carrying amount. 

 

New Accounting Pronouncements:

 

The FASB has issued the following accounting pronouncements and guidance relevant to the Company’s operations:

 

Update Number 2014-09 – Revenue from Contracts with Customers – (Topic 606). This update applies to all companies that enter into contracts with customers to transfer goods or services and is effective for public entities for interim and annual reporting periods beginning after December 15, 2016. Early application is not permitted and entities have the choice to apply this update either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying this update at the date of initial application and not adjusting comparative information. The Company is

10

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

currently evaluating the requirements of this update and has not yet determined its impact on the Company's consolidated financial statements.

 

Update Number 2014-08 – Reporting Discontinued Operations and Disclosure of Disposals of Components of an Entity - (Topic 360 and Topic 205). This update changes the criteria for reporting discontinued operations and requires additional disclosures about discontinued operations and the disposal of individually significant disposals that do not qualify for discontinued operations presentation in the financial statements.  This update is effective for annual and interim periods beginning after December 15, 2014. The adoption of this update is not currently expected to have a material effect on the Company’s financial statements.

 

Update Number 2014-04 – Receivables - (Topic 310-40):  Troubled Debt Restructurings by Creditors. This update provides guidance on when a creditor should derecognize a consumer mortgage loan and recognize a foreclosed asset upon taking physical possession of residential real property collateralizing a consumer mortgage loan. A creditor is considered to have received physical possession of residential real property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. This update is effective for annual and interim periods beginning after December 15, 2014.  The Company does not believe that this update will have a material effect on its financial statements.

 

Liquidity Considerations

 

The Company’s cash was $45.0 million at June 30, 2014. This amount does not include $2.7 million and $0.2 million of cash held in FAR and Renin, respectively.  The Company had $4.7 million of current liabilities as of June 30, 2014.  The Company’s principal source of liquidity is its cash holdings, funds obtained from payments on and sales of its loans, loan payoffs, sales of real estate, income from income producing real estate, and distributions received from FAR and Woodbridge. While FAR is consolidated in the Company’s financial statements, the cash held in FAR and generated from its assets will be used primarily to pay FAR’s operating expenses and to pay BB&T’s 95% preferred membership interest and the related priority return and will generally not be available for distribution to the Company until the BB&T preferred membership interest is repaid. The balance of BB&T’s preferred membership interest in FAR was approximately $27.0 million and $16.4 million at June 30, 2014 and July 31, 2014, respectively.  Based on current and expected liquidity needs and sources, the Company expects to be able to meet its liquidity needs over the next twelve months. 

   

 

2.    Investment in Woodbridge Holdings, LLC

 

On April 2, 2013, the Company invested $71.75 million in Woodbridge in exchange for a 46% equity interest in Woodbridge. The investment was made in connection with Woodbridge’s acquisition on April 2, 2013 of the publicly held shares of Bluegreen. BFC holds the remaining 54% of Woodbridge’s outstanding equity interests and is the managing member of Woodbridge. Since BFC is the majority owner of Woodbridge and the managing member, the Company’s investment in Woodbridge is accounted for under the equity method.  The Company’s investment in Woodbridge consisted of $60.4 million in cash (including $0.4 million in transaction costs) and a promissory note in Woodbridge’s favor in the principal amount of $11.75 million. In connection with the Company’s investment in Woodbridge, the Company and BFC entered into an Amended and Restated Operating Agreement of Woodbridge, which sets forth the Company’s and BFC’s respective rights as members of Woodbridge and provides, among other things, for unanimity on certain specified “major decisions” and for distributions to be made on a pro rata basis in accordance with the Company’s and BFC’s percentage equity interests in Woodbridge.

 

 

 

11

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

The following are the adjustments to the investment in Woodbridge under the equity method for the three and six months ended June 30, 2014 and for the three months ended June 30, 2013 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Six

 

Ended June 30,

 

Months Ended

 

 

2014

 

2013

 

June 30, 2014

 

 

 

 

 

 

 

Cash to Woodbridge

$

 -

 

60,404 

 

 -

Note payable to Woodbridge

 

 -

 

11,750 

 

 -

Increase in additional paid-in capital

 

 -

 

13,337 

 

 -

Investment in Woodbridge

 

84,795 

 

85,491 

 

78,573 

Equity earnings in Woodbridge

 

8,108 

 

3,442 

 

14,330 

Dividends received from Woodbridge

 

(14,846)

 

(8,793)

 

(14,846)

Investment in Woodbridge

$

78,057 

 

80,140 

 

78,057 

 

 

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

The condensed Statements of Financial Condition as of the dates indicated of Woodbridge Holdings, LLC were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

2014

 

2013

Assets

 

 

 

 

Cash and restricted cash

$

214,212 

 

224,104 

Notes receivable, net

 

448,080 

 

467,319 

Inventory of real estate

 

203,891 

 

204,256 

Intangible assets

 

64,027 

 

64,142 

Other assets

 

145,080 

 

126,494 

  Total assets

$

1,075,290 

 

1,086,315 

Liabilities and Equity

 

 

 

 

Accounts payable, accrued liabilities and other

$

116,358 

 

116,956 

Deferred tax liabilities, net

 

97,347 

 

76,726 

Notes payable

 

501,243 

 

537,500 

Junior subordinated debentures

 

148,724 

 

147,431 

  Total liabilities

 

863,672 

 

878,613 

  Total Woodbridge members' equity

 

168,859 

 

169,981 

Noncontrolling interest

 

42,759 

 

37,721 

  Total equity

 

211,618 

 

207,702 

  Total liabilities and equity

$

1,075,290 

 

1,086,315 

 

The condensed Statement of Operations of Woodbridge Holdings, LLC is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Six

 

 

Ended June 30,

 

Months Ended

 

 

2014

 

2013

 

June 30, 2014

Total revenues

$

150,617 

 

131,876 

 

280,537 

Total costs and expenses

 

120,262 

 

115,381 

 

225,195 

Other income

 

689 

 

358 

 

1,377 

Income from continuing operations before taxes

 

31,044 

 

16,853 

 

56,719 

Provision for income taxes

 

11,441 

 

5,540 

 

20,586 

Income from continuing operations

 

19,603 

 

11,313 

 

36,133 

Loss from discontinued operations, net of tax

 

103 

 

(78)

 

57 

Net income

 

19,706 

 

11,235 

 

36,190 

Net income attributable to noncontrolling interest

 

(2,080)

 

(3,752)

 

(5,038)

Net income attributable to Woodbridge

 

17,626 

 

7,483 

 

31,152 

BBX Capital 46% equity earnings in Woodbridge

$

8,108 

 

3,442 

 

14,330 

 

 

 

13

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

3.  Consolidated Variable Interest Entities

 

FAR

 

In consideration for BB&T assuming BBX Capital’s $285.4 million in principal amount of TruPS in connection with the sale of BankAtlantic, BB&T received from BBX Capital at the closing of the BB&T Transaction a 95% preferred membership interest in the net cash flows of FAR (Class A Units in FAR) which it will hold 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 holds the remaining 5% of the Class A Units and 100% of the Class R units, will thereafter be the sole member of FAR and be entitled to any and all residual proceeds.  FAR’s assets were 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 support BB&T’s recovery within seven years of the $285 million preference amount. At June 30, 2014 and July 31, 2014, BB&T’s preferred interest in FAR had been reduced to approximately $27.0 million and $16.4 million, respectively. 

 

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 after satisfaction of the preferred membership interests, and the incremental $35 million guarantee issued to BB&T. CAM also services approximately $13.0 million of FAR commercial loans and has a right of first refusal to acquire certain FAR commercial loans. CAM is entitled to purchase certain commercial loans on a basis established in FAR’s operating agreement.

 

The Company 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 the Company has the obligation to absorb losses and the right to receive any appreciation of the assets of FAR through its rights to the residual cash flows of FAR and its obligation under the incremental $35 million guarantee to BB&T supporting the repayment of BB&T’s preferred interest in FAR. Also contributing to the Company’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 a $285 million preference amount plus the related 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 membership interests. 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 an amended and restated limited liability agreement which grants the Board of Managers decision-making authority over FAR. The Board has four members, two members elected by the Company and two members elected by BB&T. The approval of an issue before the Board requires three of the members’ approval. Members designated by BB&T must resign from the Board upon the redemption of its preferred interest in FAR.

 

14

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

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

 

 

 

 

 

 

 

 

 

 

 

June 30,

December 31,

 

 

2014

2013

Cash and interest bearing deposits in banks

$

2,668 
8,388 

Loans held-for-sale

 

46,641 
53,846 

Loans receivable, net

 

27,818 
56,170 

Real estate held-for-investment

 

23,279 
15,509 

Real estate held-for-sale

 

15,183 
23,664 

Properties and equipment, net

 

7,730 
7,899 

Other assets

 

957 
2,413 

        Total assets

$

124,276 
167,889 

BB&T preferred interest in FAR, LLC

$

26,986 
68,517 

Other liabilities

 

12,698 
12,343 

       Total liabilities

$

39,684 
80,860 

 

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 interests. FAR anticipates making quarterly distributions. As such, the Company will receive 5% of the net cash flows from the monetization of FAR’s assets, net of expenses. FAR finances its activities through revenues from principal and interest payments received and the monetization of its assets.

 

BBX Capital’s maximum loss exposure in FAR if all of FAR’s assets were deemed worthless would have been $111 million as of June 30, 2014, consisting of a loss of $84 million of net assets, and the incremental guarantee in favor of BB&T for repayment of the $27 million balance of the preference amount. 

 

JRG/BBX Development, LLC (“North Flagler”)

 

In October 2013, an indirect wholly-owned subsidiary of BBX Capital entered into the North Flagler joint venture with JRG USA, and in connection with the formation of the joint venture JRG USA assigned to the joint venture a contract to purchase for $10.8 million a 4.5 acre real estate parcel overlooking the Intracoastal Waterway in West Palm Beach Florida and we invested $0.5 million of cash.  This joint venture is seeking to expand land entitlements and is currently working to amend the current zoning designation and increase the parcel’s residential height restrictions with a view to increasing the value of the parcel.  We are entitled to receive 80% of any joint venture distributions until we recover our capital investment and then will be entitled to receive 70% of any joint venture distributions thereafter.  We are the managing member and have control of all aspects of the operations of the joint venture. 

 

The Company analyzed North Flagler’s operating agreement and determined that we are the primary beneficiary of the joint venture and therefore should consolidate North Flagler in our financial statements. This conclusion was based primarily on the determination that the Company absorbs 80% of the losses, is entitled to 70% of the profits and controls all aspects of North Flagler’s operations.

 

15

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

The carrying amount of the assets and liabilities of North Flagler and the classification of these assets and liabilities in the Company’s Statement of Financial Condition was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

December 31,

 

 

2014

2013

Cash and interest bearing deposits in banks

$

109 
298 

Real estate held-for-investment

 

413 
327 

Other assets

 

375 

 -

Total assets

$

897 
625 

Other liabilities

$

87 
12 

Noncontrolling interest

$

135 
135 

 

BBX Capital’s maximum loss exposure in North Flagler if all of North Flagler’s assets were deemed worthless would have been $675,000 as of June 30, 2014.

 

 

 

 

4.  Investments in Unconsolidated Real Estate Joint Ventures

 

 

The Company had the following investments in unconsolidated real estate joint ventures (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

December 31,

 

 

2014

2013

Altis at Kendall Square, LLC

$

1,298 
1,300 

New Urban/BBX Development, LLC

 

2,368 
54 

Sunrise and Bayview Partners, LLC

 

1,800 

 -

PGA Design Center Holdings, LLC

 

1,971 

 -

Investments in unconsolidated real estate joint ventures

$

7,437 
1,354 

 

Altis at Kendall Square, LLC (“Kendall Commons”)

 

In March 2013, the Company invested $1.3 million in a joint venture to develop 321 apartment units. The Company is entitled to receive 13% of the joint venture distributions until a 15% internal rate of return has been attained and then the Company will be entitled to receive 9.75% of any joint venture distributions thereafter.

 

The Company analyzed the amended and restated operating agreement of Kendall Commons and determined that we are not the primary beneficiary and therefore the investment in the real estate joint venture is accounted for under the equity method of accounting.  This conclusion was based primarily on the determination that the Company only has limited protective rights under the operating agreement, is not the manager of the joint venture and the manager of the joint venture is entitled to 83% of the joint venture’s distributions. 

New Urban/BBX Development, LLC (“Village at Victoria Park”)

 

In December 2013, the Company entered into a joint venture agreement with New Urban Communities to develop

16

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

2 acres of vacant land located near downtown Fort Lauderdale, Florida as 30 single-family homes. The closing of the joint venture was subject to obtaining third party acquisition, development and construction financing. The Company and New Urban Communities each have a 50% membership interest in the joint venture and New Urban Communities serves as the developer and the manager. 

 

In April 2014, the joint venture obtained an acquisition, development and construction loan from a financial institution and the Company and New Urban Communities each contributed $692,000 to the joint venture as a capital contribution. The joint venture purchased the two acre site from the Company for $3.6 million consisting of $1.8 million in cash (less $0.2 million in selling expenses) and a $1.6 million promissory note.  The promissory note bears interest at 8% per annum and is subordinated to the financial institution acquisition, development and construction loan. 

 

The Company’s deferred profits and recognized gain on the sale of the site to the joint venture was as follows (in thousands):

 

 

 

 

 

 

 

 

Sales price

$

3,600 

Selling expenses

 

(169)

Carrying value of property

 

(889)

Gross profits

 

2,542 

Notes receivable subject to future subordination

 

1,600 

Land acquisition loan

 

566 

Gross profits deferred - cost recovery method

 

2,166 

Gross profits before equity interest deferral

 

376 

Equity interest in real estate joint venture

 

50% 

Equity interest gross profit deferred

 

188 

Total gross profits deferred included in other liabilities

 

2,354 

Gross profits recognized in net gains on sales of assets

$

188 

 

The Company analyzed the Village at Victoria Park’s operating agreement and determined that we are not the primary beneficiary and therefore the investment in the real estate joint venture was accounted for under the equity method of accounting.  This conclusion was based primarily on the determination that New Urban Communities has the power to direct activities of the joint venture that most significantly affect the joint venture’s performance as it is the developer and manager of the project. Additionally, New Urban Communities also receives significant benefits from the joint venture in excess of its 50% membership interest in the form of development and administrative fees.    

 

Sunrise and Bayview Partners

 

In June 2014, the Company entered into a joint venture agreement with an affiliate of Procacci Development Corporation (“PDC”) and the Company and PDC each contributed $1.8 million in the Sunrise and Bayview Partners joint venture.  The Company and PDC each have a 50% interest in the joint venture.  In July 2014, the joint venture borrowed $5.0 million from PDC and acquired for $8.0 million three acres of real estate in Fort Lauderdale, Florida. The property is improved with an approximate 84,000 square foot office building along with a convenience store and gas station.  The Company provided PDC with a guarantee of 50% of the outstanding balance of the joint venture’s $5.0 million loan with PDC.  The joint venture is in the process of refinancing the PDC borrowings with a financial institution.

 

The Company analyzed the Sunrise and Bayview Partners operating agreement and determined that we are not the primary beneficiary and therefore the investment in the real estate joint venture was accounted for under the equity method of accounting.  This conclusion was based primarily on the determination that PDC has the power to direct activities of the joint venture that most significantly affect the joint venture’s performance as it is managing the property, including locating 

17

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

tenants, executing leases, collecting rent payments and conducting development activities. Additionally, PDC also receives significant benefits from the joint venture in excess of its 50% membership interest in the form of development and property management fees.    

 

PGA Design Center Holdings, LLC (“PGA Design Center”)

 

In December 2013, the Company purchased a commercial property with three existing buildings consisting of 145,000 square feet of mainly furniture retail space for $6.1 million. In January 2014, the Company entered into a joint venture with Stiles Development, and in connection with the formation of the joint venture, the Company sold the commercial property to the joint venture in exchange for $2.9 million in cash and a 40% interest in the joint venture. The joint venture intends to seek governmental approvals to change the use of a portion of the property from retail to office and subsequently sell or lease the property. The property contributed to the joint venture excluded certain residential development entitlements valued at $1.2 million which were transferred to adjacent parcels owned by the Company.

   The Company analyzed the PGA Design Center’s operating agreement and determined that we are not the primary beneficiary and therefore the investment in the real estate joint venture was accounted for under the equity method of accounting.  This conclusion was based primarily on the determination that Stiles Development has a 60% interest in the joint venture and is also the managing member. As such, Stiles Development is the joint venture member that has the majority of the power to direct the activities of the joint venture that most significantly impact its economic performance and through its 60% membership interest has the obligation to absorb the majority of the losses and the right to receive the majority of the benefits of the joint venture.

Bonterra – CC Devco Homes (formerly Hialeah Communities)

In July 2014, the Company entered into a joint venture agreement with CC Devco Homes to develop approximately 394 homes in a portion of the newly proposed Bonterra community in Hialeah Florida. The Company transferred approximately 50 acres of land at an agreed upon value of approximately $15.6 million subject to an $8.3 million mortgage which was assumed by the joint venture.  In exchange, the Company received a joint venture interest and $2.2 million in cash. The Company is entitled to receive 45% of the joint venture distributions and the Company initially contributed 57% of the capital. The Company continues to be liable for the $8.3 million mortgage that was assumed by the joint venture.

 

 

 

 

 

18

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

 

 

 

 

5.  Loans Held-for-Sale

 

Loans held-for-sale were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

2014

 

2013

Residential 

$

35,070 

 

38,223 

First-lien consumer

 

3,729 

 

4,176 

Small business

 

7,842 

 

11,447 

Total loans held-for-sale

$

46,641 

 

53,846 

 

Loans held-for-sale are reported at the lower of cost or fair value.  The Company 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.  The Company transfers loans previously held-for-sale to loans held-for-investment at the lower of cost or fair value on the transfer date.  All loans held-for-sale at June 30, 2014 and December 31, 2013 were owned by FAR.

 

In July 2014, the Company received net proceeds of approximately $9.6 million from the sale of its first-lien consumer loan portfolio and $5.3 million of its residential loans.

 

 

 

 

 

 

 

 

6.  Loans Receivable

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

2014

 

2013

Commercial non-real estate

$

1,362 

 

3,331 

Commercial real estate

 

31,971 

 

62,937 

Consumer 

 

8,078 

 

8,618 

Residential

 

 -

 

53 

         Total gross loans

 

41,411 

 

74,939 

Adjustments:

 

 

 

 

 Premiums, discounts and net deferred fees

 

 -

 

 -

 Allowance for loan  losses

 

(1,881)

 

(2,713)

         Loans receivable -- net

$

39,530 

 

72,226 

 

 

 

19

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

The recorded investment (unpaid principal balance less charge-offs and deferred fees) of non-accrual loans receivable was (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

Loan Class

 

2014

 

2013

Commercial non-real estate

$

1,362 

 

3,331 

Commercial real estate

21,228 

 

45,540 

Consumer

 

3,022 

 

2,972 

Residential

 

 -

 

53 

Total nonaccrual loans

$

25,612 

 

51,896 

 

An age analysis of the past due recorded investment in loans receivable as of June 30, 2014 and December 31, 2013 was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

31-59 Days

 

60-89 Days

 

90 Days

 

Total

 

 

 

Loans

June 30, 2014

 

Past Due

 

Past Due

 

or More (1)

 

Past Due

 

Current

 

Receivable

Commercial non-real estate

$

 -

 

 -

 

330 

 

330 

 

1,032 

 

1,362 

Commercial real estate:

 

989 

 

 -

 

8,202 

 

9,191 

 

22,780 

 

31,971 

Consumer

 

442 

 

 -

 

2,606 

 

3,048 

 

5,030 

 

8,078 

Residential:

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

Total

$

1,431 

 

 -

 

11,138 

 

12,569 

 

28,842 

 

41,411 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

31-59 Days

 

60-89 Days

 

90 Days

 

Total

 

 

 

Loans

December 31, 2013

 

Past Due

 

Past Due

 

or More (1)

 

Past Due

 

Current

 

Receivable

Commercial non-real estate

$

 -

 

 -

 

2,269 

 

2,269 

 

1,062 

 

3,331 

Commercial real estate:

 

 -

 

 -

 

22,729 

 

22,729 

 

40,208 

 

62,937 

Consumer

 

317 

 

293 

 

2,480 

 

3,090 

 

5,528 

 

8,618 

Residential:

 

 -

 

 -

 

53 

 

53 

 

 -

 

53 

Total

$

317 

 

293 

 

27,531 

 

28,141 

 

46,798 

 

74,939 

 

(1)  The Company had no loans that were past due greater than 90 days and still accruing as of June 30, 2014 or December 31, 2013.

 

 

20

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

The activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2014 was as follows (in thousands):    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

Commercial

Real

Small

 

 

 

 

 

Non-Real Estate

Estate

Business

Consumer

Residential

Total

Allowance for Loan Losses:

 

 

 

 

 

 

Beginning balance

$

 -

113 

 -

1,475 

 -

1,588 

    Charge-offs :

 

 -

 -

 -

(281)
(1)
(282)

     Recoveries :

 

27 
2,083 
80 
379 
52 
2,621 

     Provision:

 

(27)
(2,081)
(80)
193 
(51)
(2,046)

Ending balance

$

 -

115 

 -

1,766 

 -

1,881 

Ending balance individually

 

 

 

 

 

 

 

 evaluated for impairment

$

 -

 -

 -

 -

 -

 -

Ending balance collectively

 

 

 

 

 

 

 

 evaluated for impairment

 

 -

115 

 -

1,766 

 -

1,881 

Total

$

 -

115 

 -

1,766 

 -

1,881 

Loans receivable:

 

 

 

 

 

 

 

Ending balance individually

 

 

 

 

 

 

 

 evaluated for impairment

$

1,362 
21,228 

 -

2,229 

 -

24,819 

Ending balance collectively

 

 

 

 

 

 

 

 evaluated for impairment

$

 -

10,743 

 -

5,849 

 -

16,592 

Total

$

1,362 
31,971 

 -

8,078 

 -

41,411 

Purchases of loans

$

 -

 -

 -

 -

 -

 -

Proceeds from loan sales

$

 -

 -

 -

 -

 -

 -

Transfer to loans held for sale

$

 -

 -

 -

 -

 -

 -

Transfer from loans held for sale

$

 -

 -

 -

 -

 -

 -

 

21

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

The activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2013 was as follows (in thousands): 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

Commercial

Real

Small

 

 

 

 

 

Non-Real Estate

Estate

Business

Consumer

Residential

Total

Allowance for Loan Losses:

 

 

 

 

 

 

 

Beginning balance

$

1,196 
1,437 

 -

1,993 
623 
5,249 

     Charge-offs:

 

 -

(2,509)

 -

(911)
(59)
(3,479)

     Recoveries :

 

84 
1,870 
42 
559 
747 
3,302 

     Provision :

 

104 
174 
(42)
1,084 
(1,148)
172 

Ending balance

$

1,384 
972 

 -

2,725 
163 
5,244 

Ending balance individually

 

 

 

 

 

 

 

 evaluated for impairment

$

822 
461 

 -

 -

 -

1,283 

Ending balance collectively

 

 

 

 

 

 

 

 evaluated for impairment

 

562 
511 

 -

2,725 
163 
3,961 

Total

$

1,384 
972 

 -

2,725 
163 
5,244 

Loans receivable:

 

 

 

 

 

 

 

Ending balance individually

 

 

 

 

 

 

 

 evaluated for impairment

$

3,341 
135,249 

 -

4,563 
38,374 
181,527 

Ending balance collectively

 

 

 

 

 

 

 

 evaluated for impairment

$

6,824 
23,170 

 -

10,010 
10,700 
50,704 

Total

$

10,165 
158,419 

 -

14,573 
49,074 
232,231 

Proceeds from loan sales

$

 -

1,100 

 -

 -

 -

1,100 

Transfer to loans held for sale

$

 -

 -

 -

 -

 -

 -

Transfer from loans held for sale

$

 -

 -

 -

 -

 -

 -

22

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

 

 

The activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2014 was as follows (in thousands): 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

Commercial

 

 

 

 

 

 

Non-Real

Real

Small

 

 

 

 

 

Estate

Estate

Business

Consumer

Residential

Total

Allowance for Loan Losses:

 

 

 

 

 

 

Beginning balance

$

954 
227 

 -

1,532 

 -

2,713 

    Charge-offs :

 

(1,939)

 -

 -

(359)
(1)
(2,299)

     Recoveries :

 

41 
3,749 
187 
690 
94 
4,761 

     Provision :

 

944 
(3,861)
(187)
(97)
(93)
(3,294)

Ending balance

$

 -

115 

 -

1,766 

 -

1,881 

Proceeds from loan sales

$

 -

 -

 -

 -

 -

 -

Transfer to loans held for sale

$

 -

 -

 -

 -

 -

 -

Transfer from loans held for sale

$

 -

 -

 -

 -

 -

 -

 

The activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2013 was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

Commercial

 

 

 

 

 

 

Non-Real

Real

Small

 

 

 

 

 

Estate

Estate

Business

Consumer

Residential

Total

Allowance for Loan Losses:

 

 

 

 

 

 

 

Beginning balance

$

1,735 
1,869 

 -

1,261 
446 
5,311 

     Charge-offs:

 

 -

(3,688)

 -

(1,287)
(448)
(5,423)

     Recoveries :

 

255 
2,147 
116 
1,017 
890 
4,425 

     Provision :

 

(606)
644 
(116)
1,734 
(725)
931 

Ending balance

$

1,384 
972 

 -

2,725 
163 
5,244 

Proceeds from loan sales

$

 -

1,100 

 -

 -

 -

1,100 

Transfer to loans held for sale

$

 -

 -

 -

 -

 -

 -

Transfer from loans held for sale

$

 -

 -

 -

 -

 -

 -

23

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

Impaired Loans -  Loans are considered impaired when, based on current information and events, the Company 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 the Company’s on-going credit monitoring process for commercial loans which results in the evaluation for impairment of substandard loans.  Factors considered in determining if a loan is impaired are past payment history, financial 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 established, 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 as of June 30, 2014 and December 31, 2013 were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2014

 

As of December 31, 2013

 

 

 

Unpaid

 

 

 

Unpaid

 

 

 

Recorded

Principal

Related

 

Recorded

Principal

Related

 

 

Investment

Balance

Allowance

 

Investment

Balance

Allowance

With a related allowance recorded:

 

 

 

 

 

 

 

 

Commercial non-real estate

$

 -

 -

 -

 

3,001 
4,472 
954 

Commercial real estate:

 

 -

 -

 -

 

 -

 -

 -

Consumer

 

949 
2,138 
949 

 

920 
2,228 
920 

Residential:

 

 -

 -

 -

 

 -

 -

 -

Total with allowance recorded

$

949 
2,138 
949 

 

3,921 
6,700 
1,874 

With no related allowance recorded:

 

 

 

 

 

 

 

 

Commercial non-real estate

$

1,362 
3,097 

 -

 

330 
634 

 -

Commercial real estate:

 

21,875 
53,280 

 -

 

45,540 
79,186 

 -

Consumer

 

6,692 
8,602 

 -

 

7,165 
8,730 

 -

Residential:

 

 -

 -

 -

 

53 
189 

 -

Total with no allowance recorded

$

29,929 
64,979 

 -

 

53,088 
88,739 

 -

Total:

 

 

 

 

 

 

 

 

Commercial non-real estate

$

1,362 
3,097 

 -

 

3,331 
5,106 
954 

Commercial real estate

 

21,875 
53,280 

 -

 

45,540 
79,186 

 -

Consumer

 

7,641 
10,740 
949 

 

8,085 
10,958 
920 

Residential

 

 -

 -

 -

 

53 
189 

 -

Total

$

30,878 
67,117 
949 

 

57,009 
95,439 
1,874 

 

24

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

 

Average recorded investment and interest income recognized on impaired loans for the three and six months ended June  30, 2014 were (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

June 30, 2014

 

June 30, 2014

 

 

Average Recorded

Interest Income

 

Average Recorded

Interest Income

 

 

Investment

Recognized

 

Investment

Recognized

With an allowance recorded:

 

 

 

 

 

 

Commercial non-real estate

$

 -

 -

 

 -

 -

Commercial real estate:

 

 -

 -

 

 -

 -

Consumer

 

1,048 

 

930 

Residential:

 

 -

 -

 

 -

 -

Total with allowance recorded

$

1,048 

 

930 

With no related allowance recorded:

 

 

 

 

 

 

Commercial non-real estate

$

1,390 

 -

 

1,391 

 -

Commercial real estate:

 

21,876 
154 

 

21,879 
274 

Consumer

 

6,738 
50 

 

6,790 
127 

Residential:

 

 -

 -

 

 -

 -

Total with no allowance recorded

$

30,004 
204 

 

30,060 
401 

Total:

 

 

 

 

 

 

Commercial non-real estate

$

1,390 

 -

 

1,391 

 -

Commercial real estate

 

21,876 
154 

 

21,879 
274 

Consumer

 

7,786 
54 

 

7,720 
132 

Residential

 

 -

 -

 

 -

 -

Total

$

31,052 
208 

 

30,990 
406 

 

25

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

Average recorded investment and interest income recognized on impaired loans for the three and six months ended June  30, 2013 were (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

June 30, 2013

 

June 30, 2013

 

 

Average Recorded

Interest Income

 

Average Recorded

Interest Income

 

 

Investment

Recognized

 

Investment

Recognized

With an allowance recorded:

 

 

 

 

 

 

Commercial non-real estate

$

3,023 
24 

 

3,028 
84 

Commercial real estate:

 

 

 

 

 

 

 Residential

 

2,746 

 -

 

3,036 

 -

 Other

 

19,777 
154 

 

24,577 
350 

Consumer

 

1,870 

 -

 

1,011 

 -

Residential:

 

 

 

 

 

 

Residential-interest only

 

 -

 -

 

 -

 -

Residential-amortizing

 

 -

 -

 

 -

 -

Total with allowance recorded

$

27,416 
178 

 

31,652 
434 

With no related allowance recorded:

 

 

 

 

 

 

Commercial non-real estate

$

330 

 -

 

330 

 -

Commercial real estate:

 

 

 

 

 

 

 Residential

 

42,873 
75 

 

42,467 
313 

 Other

 

74,069 
218 

 

78,032 
673 

Consumer

 

12,493 
66 

 

14,032 
142 

Residential:

 

 

 

 

 

 

Residential-interest only

 

15,226 
28 

 

15,123 
28 

Residential-amortizing

 

29,852 
137 

 

29,878 
233 

Total with no allowance recorded

$

174,843 
524 

 

179,862 
1,389 

 

 

 

 

 

 

 

Commercial non-real estate

$

3,353 
24 

 

3,358 
84 

Commercial real estate

 

139,465 
447 

 

148,112 
1,336 

Consumer

 

14,363 
66 

 

15,043 
142 

Residential

 

45,078 
165 

 

45,001 
261 

Total

$

202,259 
702 

 

211,514 
1,823 

 

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 were collectively measured for impairment.

The Company 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 June 30, 2014 were $18.9 million of collateral dependent loans, which were measured for impairment using current appraisals.

 

26

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

The Company had no commitments to lend additional funds on impaired loans as of June 30, 2014.

 

 

 

Troubled Debt Restructured Loans

 

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, 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 have involved changing monthly payments from interest and principal payments to interest only payments or deferring several 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 and extensions of maturity dates based on the risk profile of the loan.  Residential loan concessions primarily have involved reductions of monthly payments through extensions of the amortization period and/or deferral of monthly payments.

 

Consumer and residential troubled debt restructured loans had no financial statement effect because the affected loans were generally on non-accrual status and measured for impairment before the restructuring. The financial statement effects of commercial 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 associated with loans for which concessions were made, as the concessions generally resulted from the expectation of slower future cash flows.

 

There were no troubled debt restructurings during the three and six months ended June 30, 2014 and 2013.  There were no loans modified in troubled debt restructurings beginning January 1, 2013 through June 30, 2014 that experienced a payment default during the three and six months ended June 30, 2014. There were no loans modified in troubled debt restructurings beginning January 1, 2012 through June 30, 2013 that experienced a payment default during the three and six months ended June 30, 2013.

 

27

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

 

 

 

 

 

 

 

 

 

7.  Real Estate Held-for-Investment and Real Estate Held-for-Sale

 

Substantially all of the Company’s real estate has been acquired through foreclosures, settlements or deeds in lieu of foreclosure.  Upon acquisition, real estate is classified as real estate held-for-sale or real estate held-for-investment.  Real estate is classified as held-for-sale when the property is available for immediate sale in its present condition, management commits to a plan to sell the property, an active program to locate a buyer has been initiated, the property is being marketed at a price that is reasonable in relation to its current fair value and it is likely that a sale will be completed within one year.  When the property does not meet the real estate held-for-sale criteria, the real estate is classified as held-for-investment.

 

The following table presents real estate held-for-sale grouped in the following classifications (in thousands):

 

 

 

 

 

 

 

 

 

 

 

As of June 30,

As of December 31,

 

 

2014

2013

Land

$

32,005 
18,268 

Rental properties

 

1,748 
6,168 

Residential single-family

 

3,781 
6,447 

Other

 

487 
3,088 

 Total held-for-sale

$

38,021 
33,971 

 

The following table presents real estate held-for-investment grouped in the following classifications (in thousands):

 

 

 

 

 

 

 

 

 

 

 

As of June 30,

As of December 31,

 

 

2014

2013

Land

$

61,052 
79,656 

Rental properties

 

31,191 
26,891 

Other

 

789 
789 

Total held-for-investment

$

93,032 
107,336 

 

 

The following table presents the activity in real estate held-for-sale and held-for-investment for the three and six months ended June 30, 2014 and 2013, respectively (in thousands):

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

June 30, 2014

 

June 30, 2014

 

 

Real Estate

 

Real Estate

 

 

Held-for-Sale

 

Held-for-Investment

 

Held-for-Sale

 

Held-for-Investment

Beginning of period

$

33,444 

 

108,430 

 

33,971 

 

107,336 

Acquired through foreclosure

 

881 

 

(63)

 

1,730 

 

11,499 

Transfers

 

15,345 

 

(15,345)

 

18,916 

 

(18,916)

Purchases

 

 -

 

 -

 

 -

 

 -

Improvements

 

 -

 

119 

 

 -

 

311 

Accumulated depreciation

 

 -

 

(109)

 

 -

 

(212)

Sales

 

(11,578)

 

 -

 

(16,388)

 

(4,800)

Impairments

 

(71)

 

 -

 

(208)

 

(2,186)

End of Period

$

38,021 

 

93,032 

 

38,021 

 

93,032 

 

28

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

June 30, 2013

 

June 30, 2013

 

 

Real Estate

 

Real Estate

 

 

Held-for-Sale

 

Held-for-Investment

 

Held-for-Sale

 

Held-for-Investment

Beginning of period

$

38,888 

 

38,781 

 

45,637 

 

37,413 

Acquired through foreclosure

 

6,063 

 

 

12,191 

 

1,894 

Improvements

 

 -

 

 -

 

 -

 

 -

Sales

 

(6,660)

 

 -

 

(18,384)

 

(465)

Impairments

 

(2,248)

 

 -

 

(3,401)

 

(57)

End of Period

$

36,043 

 

38,785 

 

36,043 

 

38,785 

 

 

 

 

8.   Inventories

 

Inventories were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

 

June 30, 2014

 

December 31, 2013

Raw materials

$

5,744 

 

5,077 

Work in process

 

 -

 

379 

Finished goods

 

5,155 

 

3,699 

Total

$

10,899 

 

9,155 

 

 

Inventories are measured at the lower of cost, determined on a first-in, first-out basis, or market.  Cost includes all costs of conversions, including materials, direct labor, production overhead and amortization of equipment.  Raw materials are stated at the lower of cost, determined on a first-in, first-out basis, or market determined by reference to replacement cost.  Raw materials are not written down unless the goods in which they are incorporated are expected to be sold for less than cost, in which case, they are written down by reference to replacement cost of the raw materials.  Finished goods and work in process are stated at the lower of cost or market.  Shipping and handling fees billed to the customers are recorded as sales.  Included in the Company’s Statement of Operations as selling, general, and administrative expenses for the three and six months ended June 30, 2014 were $1.5 million and $3.0 million, respectively, of costs associated with shipping goods to customers.

 

 

 

 

 

 

 

 

29

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

9.   Related Parties

 

The Company, BFC and Bluegreen are entities under common control. The controlling shareholder of the Company and Bluegreen is BFC.  Shares of BFC’s capital stock representing a majority of the voting power are owned or controlled by the Company’s Chairman and Vice Chairman, both of whom are also executive officers of the Company, executive officers and directors of BFC and directors of Bluegreen. The Company, BFC and Bluegreen share certain office premises and employee services, pursuant to the agreements described below.

 

Effective December 1, 2012, the Company entered into an agreement with BFC under which the Company provides office facilities and is reimbursed by BFC based on cost. BFC also provides risk management services to the Company and BFC is reimbursed by the Company based on cost. The Company’s employees are provided health insurance under policies maintained by Bluegreen for which Bluegreen is reimbursed at cost. 

 

The table below shows the effect of these related party agreements and arrangements on the Company’s consolidated statements of operations for the three and six months ended June 30, 2014 and 2013 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

June 30,

 

June 30,

 

 

2014

 

2013

 

2014

 

2013

Other revenues

$

104 

 

110 

 

219 

 

218 

Expenses:

 

 

 

 

 

 

 

 

 Employee compensation

 

 

 

 

 

 

 

 

   and benefits

 

(145)

 

(48)

 

(215)

 

(81)

 Other - back-office support

 

(42)

 

(52)

 

(85)

 

(91)

Net effect of affiliate transactions

 

 

 

 

 

 

 

 

 before income taxes

$

(83)

 

10 

 

(81)

 

46 

 

On October 30, 2013, Renin, which is owned 81% by the Company and 19% by BFC, was formed by the Company and BFC to complete the Renin Transaction. Bluegreen funded approximately $9.4 million of the Renin Transaction consideration in the form of a loan and revolver facility and the remaining funds necessary to complete the Renin Transaction were funded by BBX Capital and BFC pro rata in accordance with their percentage equity interests. Renin recognized $91,000 and $307,000, respectively, of interest expense under the Bluegreen loan for the three and six months ended June 30, 2014.

 

The Bluegreen loan had an outstanding balance of $9.7 million as of December 31, 2013.  On June 11, 2014, Renin entered into a credit agreement with Wells Fargo Capital Finance Corporation (“Lender”).  Under the terms and conditions of the Credit Agreement, the Lender made a $1.5 million term loan to Renin. The Credit Agreement also includes a revolving advance facility pursuant to which the Lender agreed to make loans to Renin on a revolving basis up to a maximum of approximately $18 million or, if lesser, the Borrowing Base (as defined in the Credit Agreement), subject to the Borrowers’ compliance with the terms and conditions of the Credit Agreement, including certain specific financial covenants as discussed below. Upon execution of the Credit Agreement and funding of the term loan, the Lender also made loans to Renin in the aggregate amount of approximately $6.5 million under the revolving advance facility. The approximate $8.0 million of financing received by Renin from the Lender, together with pro rata capital contributions to Renin from the Company and BFC of $2,025,000 and $475,000, respectively, were utilized to repay in full the Bluegreen loan.

Amounts outstanding under the term loan and loans made under the revolving advance facility bear interest at the Canadian Prime Rate or the daily three month LIBOR rate plus a margin specified in the Credit Agreement at various rates between 0.5% per annum and 3.25% per annum. The revolving advance facility also includes a 0.25% per annum fee charged on the amount of unused commitment. The term loan and borrowings under the revolving advance facility require monthly interest payments. In addition, beginning on October 1, 2014, the term loan requires quarterly principal repayments of $75,000. The maturity date under the Credit Agreement with respect to the term loan and all loans made pursuant to the revolving advance facility is June 11, 2019.

30

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

Under the terms and conditions of the Credit Agreement, Renin is required to comply with certain financial covenants from June 30, 2014 to November 30, 2014, including limits on monthly capital expenditures and the achievement of monthly EBITDA (as defined in the Credit Agreement) in amounts equal to or greater than specific amounts set forth in the Credit Agreement. In addition, beginning on December 1, 2014, Renin will be required to maintain as of the end of each month a certain specified Fixed Charge Coverage Ratio (as defined in the Credit Agreement) measured on a trailing twelve-month basis. The Credit Agreement also contains customary affirmative and negative covenants, including those that, among other things, limit the ability of Renin to incur liens or engage in certain asset dispositions, mergers or consolidations, dissolutions, liquidations or winding up of its businesses. The loans are collateralized by all of Renin’s assets. 

 

As disclosed in Note 2, on April 2, 2013, the Company invested $71.75 million in Woodbridge in exchange for a 46% equity interest in Woodbridge. The investment was made in connection with Woodbridge’s acquisition of the publicly held shares of Bluegreen. BFC holds the remaining 54% of Woodbridge.  The Company contributed $60 million in cash and issued to Woodbridge an $11.75 million note payable in connection with the Company’s acquisition of its 46% equity interest in Woodbridge.  During the three and six months ended June 30, 2014, the Company recognized $147,000 and $294,000, respectively, of interest expense in connection with the Woodbridge note payable. 

31

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

 

10.   Segment Reporting

 

The information provided for Segment Reporting is based on internal reports utilized by management. Results of continuing operations are reported through three reportable segments: BBX, FAR and Renin. The BBX reportable segment includes the results of operations of CAM and BBX Partners for the three and six months ended June 30, 2014 and 2013.  BBX’s activities consisted of the activities associated with managing its commercial loan portfolio, real estate properties, and portfolio of charged off loans as well as its investment in Woodbridge and investments in real estate joint ventures. 

 

The FAR reportable segment consists of the activities associated with overseeing the management and monetization of its assets with a view to the repayment of BB&T’s preferred interest and maximizing the cash flows of any remaining assets.

 

The Renin reportable segment consists of the activities of Renin. Renin was acquired in October 2013; therefore, the Renin reportable segment includes the results of operations of Renin for the three and six months ended June 30, 2014.

 

The other column represents the activities of Hoffman’s and Williams & Bennett. The amounts are provided in order to reconcile the reportable segments to the financial statements.

The accounting policies of the segments are generally the same as those described in the summary of significant accounting policies.  Intersegment transactions are eliminated in consolidation.

Depreciation and amortization consist of: depreciation on properties and equipment, amortization of leasehold improvements, and deferred rent.

 

32

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

The Company evaluates segment performance based on segment net income after tax. The table below provides segment information for the three and six months ended June 30, 2014 and 2013 (in thousands): 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusting and

 

 

 

 

 

 

 

 

 

 

 

 

Elimination

 

Segment

For the Three Months Ended:

 

BBX

 

FAR

 

Renin

 

Other

 

Entries

 

Total

June 30, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

$

4,143 

 

3,038 

 

14,745 

 

1,062 

 

(55)

 

22,933 

Costs and expenses

 

(6,385)

 

(2,871)

 

(15,444)

 

(1,347)

 

55 

 

(25,992)

Recoveries from (provision for) loan losses

 

2,332 

 

(286)

 

 -

 

 -

 

 -

 

2,046 

Asset impairments

 

 -

 

94 

 

 -

 

 -

 

 

 

94 

Equity earnings in unconsolidated companies

 

8,082 

 

 -

 

 -

 

 -

 

 -

 

8,082 

Segment income (loss) before income taxes

 

8,172 

 

(25)

 

(699)

 

(285)

 

 -

 

7,163 

Provision for income tax

 

 -

 

 -

 

 

 -

 

 -

 

Net income (loss)

$

8,172 

 

(25)

 

(705)

 

(285)

 

 -

 

7,157 

Total assets

$

545,108 

 

121,951 

 

23,315 

 

8,560 

 

(299,639)

 

399,295 

Equity method investments

 

 

 

 

 

 

 

 

 

 

 

 

 included in total assets

$

85,494 

 

 -

 

 -

 

 -

 

 -

 

85,494 

Expenditures for segment assets

$

247 

 

 

59 

 

21 

 

 -

 

328 

Depreciation and amortization

$

86 

 

154 

 

67 

 

135 

 

 -

 

442 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusting and

 

 

 

 

 

 

 

 

 

 

 

 

Elimination

 

Segment

For the Six Months Ended:

 

BBX

 

FAR

 

Renin

 

Other

 

Entries

 

Total

June 30, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

$

5,159 

 

6,348 

 

28,883 

 

3,791 

 

(120)

 

44,061 

Costs and expenses

 

(12,659)

 

(5,542)

 

(29,934)

 

(3,959)

 

120 

 

(51,974)

Recoveries from (provision for) loan losses

 

3,336 

 

(42)

 

 -

 

 -

 

 -

 

3,294 

Asset impairments

 

(81)

 

(1,144)

 

 -

 

 -

 

 -

 

(1,225)

Equity earnings in unconsolidated companies

 

14,298 

 

 -

 

 -

 

 -

 

 -

 

14,298 

Segment income (loss) before income taxes

 

10,053 

 

(380)

 

(1,051)

 

(168)

 

 -

 

8,454 

Provision for income tax

 

 -

 

 -

 

 

 -

 

 -

 

Net income (loss)

$

10,053 

 

(380)

 

(1,057)

 

(168)

 

 -

 

8,448 

Expenditures for segment assets

$

255 

 

 

65 

 

21 

 

 -

 

342 

Depreciation and amortization

$

160 

 

302 

 

281 

 

233 

 

 -

 

976 

 

 

 

33

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusting and

 

 

 

 

 

 

 

 

Elimination

 

Segment

For the Three Months Ended:

 

BBX

 

FAR

 

Entries

 

Total

June 30, 2013:

 

 

 

 

 

 

 

 

Revenues

$

3,342 

 

2,854 

 

(48)

 

6,148 

Costs and expenses

 

(6,389)

 

(2,949)

 

48 

 

(9,290)

Recoveries from (provision for) loan losses

 

1,031 

 

(1,203)

 

 -

 

(172)

Asset impairments

 

10 

 

(2,987)

 

 -

 

(2,977)

Equity earnings in Woodbridge

 

3,442 

 

 -

 

 -

 

3,442 

Segment income (loss) before income taxes

 

1,436 

 

(4,285)

 

 -

 

(2,849)

Provision for income tax

 

 -

 

 -

 

 -

 

 -

Net income (loss)

$

1,436 

 

(4,285)

 

 -

 

(2,849)

Total assets

$

434,729 

 

243,554 

 

(236,252)

 

442,031 

Equity method investments

 

 

 

 

 

 

 

 

 included in other assets

$

80,140 

 

 -

 

 -

 

80,140 

Expenditures for segment assets

$

 -

 

 -

 

 -

 

 -

Depreciation and amortization

$

53 

 

108 

 

 -

 

161 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusting and

 

 

 

 

 

 

 

 

Elimination

 

Segment

For the Six Months Ended:

 

BBX

 

FAR

 

Entries

 

Total

June 30, 2013:

 

 

 

 

 

 

 

 

Revenues

$

7,065 

 

6,019 

 

(101)

 

12,983 

Costs and expenses

 

(13,307)

 

(6,527)

 

101 

 

(19,733)

Recoveries from (provision for) loan losses

 

1,449 

 

(2,380)

 

 -

 

(931)

Asset impairments

 

(917)

 

(4,225)

 

 -

 

(5,142)

Equity earnings in Woodbridge

 

3,442 

 

 -

 

 -

 

3,442 

Segment income (loss) before income taxes

 

(2,268)

 

(7,113)

 

 -

 

(9,381)

Provision for income tax

$

 -

 

 -

 

 -

 

 -

Net income (loss)

$

(2,268)

 

(7,113)

 

 -

 

(9,381)

Expenditures for segment assets

$

21 

 

 -

 

 -

 

21 

Depreciation and amortization

$

108 

 

108 

 

 -

 

216 

 

 

 

 

 

 

34

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

11.  Fair Value Measurement

 

There were no assets or liabilities measured at fair value on a recurring basis in the Company’s financial statements as of June 30, 2014 and December 31, 2013.

 

The following table presents major categories of assets measured at fair value on a non-recurring basis as of June 30, 2014 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

Quoted prices in

 

 

Total

 

 

 

Active Markets

Significant

Significant

Impairments (1)

 

 

As of

for Identical

Other Observable

Unobservable

For the Six

 

 

June 30,

Assets

Inputs

Inputs

Months Ended

Description

 

2014

(Level 1)

(Level 2)

(Level 3)

June 30, 2014

Loans measured for

 

 

 

 

 

 

 impairment using the fair value

 

 

 

 

 

 

 of the underlying collateral

$

126 

 -

 -

126 
245 

Impaired real estate held-for-sale and held-for-investment

 

11,604 

 -

 -

11,604 
2,428 

Impaired loans held for sale

 

5,292 

 -

 -

5,292 
404 

Total

$

17,022 

 -

 -

17,022 
3,077 

 

(1)

Total impairments represent the amount of losses recognized during the six months ended June  30, 2014 on assets that were held and measured at fair value as of June  30, 2014.

 

 

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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2014

 

Fair

Valuation

Unobservable

 

 

Description

 

Value

Technique

Inputs

Range (Average) (1)(2)

 

Loans measured for

 

 

 

 

 

 

 impairment using the fair value

 

 

 

 

 

 

 of the underlying collateral

$

126 

Fair Value of Collateral

Appraisal

$0.1 - $0.4 million ($0.2 million)

 

Impaired real estate held-for-sale and held-for-investment

 

11,604 

Fair Value of Property

Appraisal

$0.1 - $9.0 million ($1.7 million)

 

Impaired loans held for sale

 

5,292 

Fair Value of Collateral

Appraisal

$0.1  -$0.7 million ($0.1 million)

 

Total

$

17,022 

 

 

 

 

 

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

(2)  Average was computed by dividing the aggregate appraisal amounts by the number of appraisals.

 

35

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

The following table presents major categories of assets measured at fair value on a non-recurring basis as of June 30, 2013 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

Quoted prices in

 

 

Total

 

 

 

Active Markets

Significant

Significant

Impairments (1)

 

 

As of

for Identical

Other Observable

Unobservable

For the Six

 

 

June 30,

Assets

Inputs

Inputs

Months Ended

Description

 

2013

(Level 1)

(Level 2)

(Level 3)

June 30, 2013

Loans measured for

 

 

 

 

 

 

impairment using the fair value

 

 

 

 

 

 

of the underlying collateral

$

19,279 

 -

 -

19,279 
4,080 

Impaired real estate held-for-sale and held-for-investment

 

25,076 

 -

 -

25,076 
3,776 

Impaired loans held for sale

 

14,653 

 -

 -

14,653 
1,190 

Total

$

59,008 

 -

 -

59,008 
9,046 

 

 

(1) Total impairments represent the amount of losses recognized during the six months ended June  30, 2013 on assets that were held and measured at fair value as of June 30, 2013.

 

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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2013

 

Fair

Valuation

Unobservable

 

Description

 

Value

Technique

Inputs

Range (Average) (1)(2)

Loans measured for

 

 

 

 

 

impairment using the fair value

 

 

 

 

 

of the underlying collateral

$

19,279 

Fair Value of Collateral

Appraisal

$0.1 - $9.0 million ($0.4 million)

Impaired real estate held-for-sale and held-for-investment

 

25,076 

Fair Value of Property

Appraisal

$0.1 - $11.8 million ($1.8 million)

Impaired loans held for sale

 

14,653 

Fair Value of Collateral

Appraisal

$0.1 - $2.2 million ($0.4 million)

Total

$

59,008 

 

 

 

 

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

(2)  Average was computed by dividing the aggregate appraisal amounts by the number of appraisals.

 

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

There were no material liabilities measured at fair value on a non-recurring basis in the Company’s financial statements as of June 30, 2014 and December 31, 2013.

 

Loans Measured For Impairment

 

Impaired loans are generally valued based on the fair value of the underlying collateral less cost to sell as the majority of the Company’s loans are collateral dependent. The fair value of our loans may significantly increase or decrease based on changes in property values as our loans are primarily secured by real estate. The Company primarily uses third party appraisals to assist in measuring non-homogenous impaired loans and broker price opinions to assist in measuring homogenous impaired loans. The appraisals generally use the market or income approach valuation technique and use market observable data to formulate an estimate of the fair value of the loan’s collateral. However, the appraiser uses professional judgment in determining the fair value of the collateral, and we may also adjust these values for changes in market conditions subsequent to the appraisal date. When current appraisals are not available for certain loans, we use our judgment on market conditions to adjust the most current appraisal. As a consequence, the calculation of the fair value of the collateral are considered Level 3 inputs. The Company generally recognizes impairment losses based on third party broker price opinions 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 include comparable property sales, rent rolls, market capitalization rates on income producing properties, risk adjusted discounts rates and foreclosure timeframes and exposure periods. 

 

Impaired Real Estate Held-for-Sale and Held-for-Investment

 

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 estimate of the fair value of the properties.  The market observable data is 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 judgment 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.

 

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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BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

The following table presents the fair value of the Company’s financial instruments as of June 30, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

Carrying

 

Quoted prices in

 

 

 

 

Amount

Fair Value

Active Markets

Significant

Significant

 

 

As of

As of

for Identical

Other Observable

Unobservable

(in thousands)

 

June 30,

June 30,

Assets

Inputs

Inputs

Description

 

2014

2014

(Level 1)

(Level 2)

(Level 3)

Financial assets:

 

 

 

 

 

 

Cash and interest bearing

 

 

 

 

 

 

 deposits in banks

$

47,881 
47,881 
47,881 

-

-

Loans receivable including loans held for sale, net

 

86,171 
89,383 

 -

 -

89,383 

Financial liabilities:

 

 

 

 

 

 

Notes payable

 

16,871 
17,356 

-

 -

17,356 

Notes payable to related parties

 

11,750 
11,336 

-

 -

11,336 

BB&T preferred interest in FAR

 

26,986 
27,059 

-

 -

27,059 

 

 

The following table presents the fair value of the Company’s financial instruments as of December 31, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

Carrying

 

Quoted prices in

 

 

 

 

Amount

Fair Value

Active Markets

Significant

Significant

 

 

As of

As of

for Identical

Other Observable

Unobservable

(in thousands)

 

December 31,

December 31,

Assets

Inputs

Inputs

Description

 

2013

2013

(Level 1)

(Level 2)

(Level 3)

Financial assets:

 

 

 

 

 

 

Cash and interest bearing

 

 

 

 

 

 

 deposits in banks

$

43,138 
43,138 
43,138 

-

-

Loans receivable including loans held for sale, net

 

126,072 
131,853 

 -

 -

131,853 

Financial liabilities:

 

 

 

 

 

 

Notes payable

 

9,034 
9,716 

 -

 -

9,716 

Notes payable to related parties

 

21,662 
21,419 

 

 

21,419 

BB&T preferred interest in FAR

 

68,517 
69,032 

-

 -

69,032 

 

 

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, management has derived the fair value of the majority 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. The Company’s 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, the Company 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.

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

 

Fair values are estimated for loan portfolios with similar financial characteristics. Loans are segregated by category, and each loan category is further segmented by performing and non-performing categories.

 

The fair value of 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 using estimated market discount rates that reflect the interest rate and credit risk inherent in the loan portfolio. Management assigns a credit risk premium and an illiquidity adjustment to these loans based on delinquency status.  The fair value of non-performing collateral dependent loans is estimated using an income approach with Level 3 inputs utilizing the fair value of the collateral adjusted for operating and selling expenses and discounted over the estimated holding period based on the market risk inherent in the property.  

 

The fair value of notes payables, including to related parties, were measured using the income approach with Level 3 inputs obtained by discounting the forecasted cash flows based on estimated market rates.  

 

BB&T’s preferred interest in FAR is considered an adjustable rate debt security.  The fair value of this security is calculated using the income approach with Level 3 inputs.  The fair value 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 secondary institutional markets

 

 

12.  Commitments and Contingencies

 

The Company and its subsidiaries are parties to lawsuits as plaintiff or defendant involving its collections, lending and prior period tax certificate activities. Although the Company believes it has meritorious defenses in all current legal actions, the outcome of litigation and the ultimate resolution are uncertain and inherently difficult to predict.

 

Reserves are accrued for matters in which it is probable that a loss will be incurred and the amount of such loss can be reasonably estimated. These accrual amounts as of June 30, 2014 are not material to the Company’s financial statements. The actual costs of resolving these legal claims may be substantially higher or lower than the amounts accrued for these claims. 

 

A range of reasonably possible losses is estimated for matters in which it is reasonably possible that a loss has been incurred or that a loss is probable but not reasonably estimated. Management currently estimates the aggregate range of reasonably possible losses as $0 to $4.4 million. This estimated range of reasonably possible losses represents the estimated possible losses over the life of such legal matters, which may span a currently indeterminable number of years, and is based on information currently available as of June 30, 2014. The matters underlying the estimated range will change from time to time, and actual results may vary significantly from this estimate. Those matters for which a reasonable estimate is not possible are not included within this estimated range and, therefore, this estimated range does not represent the Company’s maximum loss exposure.

 

In certain matters we are unable to estimate the loss or reasonable range of loss until additional developments in the case provide information sufficient to support an assessment of the loss or range of loss. Frequently in these matters the claims are broad and the plaintiffs have not quantified or factually supported the claim.    

 

We believe that liabilities arising from litigation discussed below, in excess of the amounts currently accrued, if any, will not have a material impact to the Company’s financial statements. However, due to the significant uncertainties involved in these legal matters, we may incur losses in excess of accrued amounts and an adverse outcome in these matters could be material to the Company’s financial statements.

 

We have received notices from BB&T regarding a series of pending and threatened claims asserted against BB&T’s subsidiary, Branch Banking and Trust Company, as successor to BankAtlantic, by certain individuals who purport to have had accounts in their names with BankAtlantic prior to consummation of the sale of BankAtlantic to BB&T.  These third party claims allege wrongful conduct by BankAtlantic in connection with certain alleged unauthorized transactions associated with their accounts. BB&T’s notices assert its belief that it may be entitled to indemnification under the BankAtlantic stock purchase agreement with respect to such claims as well as another third party claim relating to an action which was recently settled by BB&T.  On July 31, 2014, BBX Capital and BB&T entered into a tolling agreement with

39

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

respect to the time period within which BB&T may assert a claim for indemnity under the stock purchase agreement with respect to such claims.

 

The following is a description of certain ongoing or recently concluded litigation matters:

 

BBX Shareholders Lawsuit Challenging the Merger with BFC

 

On May 30, 2013, Haim Ronan filed a purported class action against BFC, BBX Merger Sub, BBX Capital and the members of BBX Capital’s board of directors seeking to represent BBX Capital’s shareholders in a lawsuit challenging the currently proposed merger between BFC and BBX Capital. In this action, which is styled Haim Ronan, On Behalf of Himself and All Others Similarly Situated, v. Alan B. Levan, John E. Abdo, Jarett S. Levan, Steven M. Coldren, Bruno L. Di Giulian, Charlie C. Winningham, II, David A. Lieberman, Willis N. Holcombe, Anthony P. Segreto, BBX Capital Corporation, BFC Financial Corporation and BBX Merger Sub, LLC and was filed in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida, Mr. Ronan asserted as a cause of action that the individual defendants breached their fiduciary duties of care, loyalty and good faith, in part, by failing to obtain a high enough price for the shares of BBX Capital’s Class A Common Stock to be acquired by BFC in the merger. Mr. Ronan also asserted a cause of action against BFC and Merger Sub for aiding and abetting the alleged breaches of fiduciary duties. Mr. Ronan is seeking an injunction blocking the proposed merger. On May 31, 2013, in an action styled John P. Lauterbach, on Behalf of Himself and All Others Similarly Situated, v. BBX Capital Corporation, John E. Abdo, Norman H. Becker, Steven M. Coldren, Bruno L. Di Giulian, John K. Grelle, Willis N. Holcombe, Alan B. Levan, Jarett S. Levan, David A. Lieberman, Anthony P. Segreto, Charlie C. Winningham II, Seth M. Wise, BFC Financial Corporation and BBX Merger Sub, LLC and filed in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida, John P. Lauterbach filed a purported class action against all of the defendants named in Mr. Ronan’s complaint, challenging the currently proposed merger for substantially the same reasons as set forth in Mr. Ronan’s complaint, but asserting an additional, direct cause of action for breach of fiduciary duties against BFC, Alan B. Levan and John E. Abdo. Mr. Lauterbach also added as defendants Norman H. Becker, who was appointed to BBX Capital’s board of directors on May 7, 2013, as well as Seth M. Wise, who serves as an executive officer and director of BFC and as an executive officer of BBX Capital, and John K. Grelle, who serves as an executive officer of BFC and BBX Capital. On September 4, 2013, the Ronan and Lauterbach actions were consolidated into a single action styled In Re BBX Capital Corporation Shareholder Litigation, with the complaint filed in the Lauterbach action being the operative complaint in the consolidated action. On October 11, 2013, the plaintiffs filed an amended complaint in the consolidated action.  In the amended complaint, which includes the same causes of action set forth in the Lauterbach complaint, the plaintiffs: (i) allege that the merger, including the exchange ratio and other terms and conditions of the merger agreement, is unfair to BBX Capital’s minority shareholders and is the product of unfair dealing on the part of the defendants; (ii) allege that the defendants initiated, timed, negotiated and structured the merger for the benefit of BFC and to the detriment of BBX Capital’s minority shareholders, including that BFC and its and BBX Capital’s management caused BBX Capital to engage in transactions which had the effect of reducing BBX Capital’s intrinsic value; (iii) challenge the independence of the members of BBX Capital’s special committee and the process pursuant to which BBX Capital’s special committee engaged its legal and financial advisors, and negotiated and approved the merger agreement, including limitations on its ability to pursue alternative transactions; (iv) assert that BBX Capital’s shareholders’ rights to appraisal do not constitute an adequate remedy; and (v) allege that the joint proxy statement/prospectus contains material misrepresentations and does not contain adequate disclosure regarding the merger and specifically the value of BBX Capital and the shares of its Class A Common Stock, and fails to provide the plaintiffs and BBX Capital’s minority shareholders the information necessary to determine whether the merger consideration is fair. On November 8, 2013, defendants filed a motion to dismiss the amended complaint arguing that plaintiffs’ remedies were limited to an action for appraisal under Florida law.  On April 8, 2014, the Court denied defendants’ motion to dismiss.  On April 11, 2014, plaintiffs filed a motion for class certification.  On April 18, 2014, plaintiffs filed a Second Amended Class Action Complaint.  The Second Amended Class Action Complaint added allegations with respect to BBX Capital’s March 21, 2014 definitive proxy statement.  Specifically, plaintiffs allege that in the definitive proxy statement defendants set a vote date of April 29, 2014, but failed to provide full and accurate disclosure regarding: (i) the timing of the merger, (ii) the status of the listing of the new shares; (iii) transactions impacting valuation following the negotiation of the exchange ratio; (iv) the per share value of shares held by BBX Capital’s minority shareholders and (v) the fundamental assumptions underlying the opinion of BBX Capital’s financial advisor.  BBX Capital and BFC believe the claims to be without merit and intend to vigorously defend the action. 

 

 

 

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

Securities and Exchange Commission Complaint 

 

On January 18, 2012, the SEC brought an action in the United States District Court for the Southern District of Florida against BBX Capital and Alan B. Levan, BBX Capital’s Chairman and Chief Executive Officer, alleging that they violated securities laws by not timely disclosing known adverse trends in BBX Capital’s commercial real estate loans, selectively disclosing problem loans and engaging in improper accounting treatment of certain specific loans which may have resulted in a material understatement of its net loss in BBX Capital’s Annual Report on Form 10-K for the year ended December 31, 2007. Further, the complaint alleges that Mr. Alan B. Levan intentionally misled investors in related earnings calls. The SEC is seeking a finding by the court of violations of securities laws, a permanent injunction barring future violations, civil money penalties and, in the case of Mr. Alan B. Levan, an order barring him from serving as an officer or director of a public company.

Discovery in the action is now closed.  The Court has denied summary judgment as to most issues, but granted the SEC’s motion for partial summary judgment that certain statements in one of Alan Levan’s answers on a July 25, 2007 investor conference call were false.  The grant of partial summary judgment does not resolve any of the SEC’s claims in its favor; with respect to Mr. Alan Levan’s answer on the July 25, 2007 conference call, the jury will still determine issues relating to materiality and scienter.  The case was recently transferred to a new judge and is currently on the trial calendar during the two-week period beginning on November 3, 2014.  BBX Capital believes the claims to be without merit and intends to vigorously defend the actions.

New Jersey Tax Sales Certificates Antitrust Litigation

On December 21, 2012, plaintiffs filed an Amended Complaint in an existing purported class action filed in Federal District Court in New Jersey adding BBX Capital and Fidelity Tax, LLC, a wholly owned subsidiary of CAM, among others as defendants.  The class action complaint is brought on behalf of a class defined as “all persons who owned real property in the State of New Jersey and who had a Tax Certificate issued with respect to their property that was purchased by a Defendant during the Class Period at a public auction in the State of New Jersey at an interest rate above 0%.”  Plaintiffs allege that beginning in January 1998 and at least through February 2009, the Defendants were part of a statewide conspiracy to manipulate interest rates associated with tax certificates sold at public auction from at least January 1, 1998, through February 28, 2009. During this period, Fidelity Tax was a subsidiary of BankAtlantic.  Fidelity Tax was contributed to CAM in connection with the sale of BankAtlantic in the BB&T Transaction. BBX Capital and Fidelity Tax filed a Motion to Dismiss in March 2013 and on October 23, 2013, the Court granted the Motion to Dismiss and dismissed the Amended Complaint with prejudice as to certain claims, but without prejudice as to plaintiffs’ main antitrust claim.  Plaintiffs filed a Consolidated Amended Complaint on January 6, 2014.  BBX Capital and Fidelity Tax have moved to dismiss the Consolidated Amended Complaint with prejudice as to all claims, and are awaiting the Court’s decision on the fully-briefed motion.  BBX Capital believes the claims to be without merit and intends to vigorously defend the actions.

 

13.  Subsequent Events

 

Subsequent events have been evaluated through August 8, 2014, the date of the filing of this document.

 

In July 2014, BBX Sweet Holdings acquired Jer’s Chocolates and Helen Grace Chocolates (see Note 1).  In July 2014, the Company entered into a joint venture with CC Devco Homes to develop a portion of the newly  proposed Bonterra community in Hialeah, Florida (see Note 4).  In July 2014, the Company sold its first lien consumer loans and $5.3 million of its residential loans held in FAR (see Note 5).   

 

 

 

 

 

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

 

 

 

 

 

Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The objective of the following discussion is to provide an understanding of the financial condition and results of operations of BBX Capital and its subsidiaries for the three and six months ended June 30, 2014. 

 

This document contains forward-looking statements based on current expectations that involve a number of risks and uncertainties. All opinions, forecasts, projections, future plans or other statements, other than statements of historical fact, are forward-looking statements and may include words or phrases such as “plans,” “believes,” “will,” “expects,” “anticipates,” “intends,” “estimates,” “our view,” “we see,” “would” and words and phrases of similar import. The forward looking statements in this document are also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and involve substantial risks and uncertainties. We can give no assurance that such expectations will prove to be correct. Future results could differ materially as a result of a variety of risks and uncertainties, many of which are outside of the control of management. These risks and uncertainties include, but are not limited to the impact of economic, competitive and other factors affecting the Company and its assets, including the impact of decreases in real estate values or high unemployment rates on our business generally, the ability of our borrowers to service their obligations and the value of collateral securing our loans; credit risks and loan losses, and the related sufficiency of the allowance for loan losses, including the impact of the economy and real estate market values on our assets and the credit quality of our loans; the risk that loan losses will continue and the risks of additional charge-offs, impairments and required increases in our allowance for loan losses; the impact of and expenses associated with litigation including but not limited to litigation brought by the SEC; adverse conditions in the stock market, the public debt market and other financial and credit markets and the impact of such conditions on our activities; the risk that the assets retained by the Company in CAM and FAR may not be monetized at the values currently ascribed to them; and the risks associated with the impact of periodic valuation of our assets for impairment.  In addition, this document contains forward looking statements relating to the Company’s ability to successfully implement its currently anticipated business plans, which may not be realized as anticipated, if at all, and that the Company’s anticipated investments in real estate developments, real estate joint ventures and operating businesses may not achieve the returns anticipated or may not be profitable, including the Company’s investment in Woodbridge and its acquisitions of Hoffman’s, Williams & Bennett, Jer’s Chocolates, Helen Grace Chocolates and Renin Corp. The Company’s investments in real estate developments, either directly or through joint ventures, will increase exposure to downturns in the real estate and housing markets and expose us to risks associated with real estate development activities, including risks associated with obtaining necessary zoning and entitlements and the risk that our joint venture partners may not fulfill their obligations.  The Company’s investment in Woodbridge, which owns Bluegreen Corporation, exposes the Company to risks inherent in the time-share industry, which risks are identified in BFC’s Annual Report on Form 10-K filed on March 17, 2014 with the SEC and available on the SEC’s website www.sec.gov.  The Company’s acquisition of Hoffman’s, Williams & Bennett, Jer’s Chocolates, Helen Grace Chocolates and Renin Corp. exposes us to the risks of their respective businesses, which in the case of Renin includes foreign currency exchange risk of the U.S. dollar compared to the Canadian dollar and Great Britain Pound, the amount and terms of Renin’s indebtedness which may impact its financial condition and results of operations and limit its activities; the failure of Renin to meet its financial covenants and that BBX Capital and BFC may be required to make further capital contributions to Renin; as well as the risk that the integration of these operating businesses may not be completed effectively or on a timely basis, and that the Company may not realize any anticipated benefits or profits from the transactions. This document also contains forward looking statements regarding the Company’s proposed Merger with BFC which is subject to risks relating to the ability to realize the expected benefits from the Merger, the ability of the parties to satisfy all of the conditions to the closing of the Merger, including BFC’s ability to obtain the listing of its Class A Common Stock on a national securities exchange (or qualified interdealer quotation system), litigation that has been brought challenging the Merger, and that the Merger may not otherwise be consummated in accordance with its terms, or at all.  Past performance and perceived trends may not be indicative of future results.  In addition to the risks and factors identified above, reference is also made to other risks and factors detailed in reports filed by the Company with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 and the quarterly report on Form 10-Q for the quarter ended March 31, 2014.  The Company cautions that the foregoing factors are not exclusive. 

 

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

Critical Accounting Policies

Management views critical accounting policies as accounting policies that are important to the understanding of our financial statements and also involve estimates and judgments about inherently uncertain matters. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated statements of financial condition and assumptions that affect the recognition of income and expenses on the Consolidated Statements of Operations for the periods presented. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in subsequent periods relate to the determination of the allowance for loan losses, including the valuation of collateral dependent loans, the valuation of loans held for sale, the valuation of real estate held-for-sale and held-for-investment, the determination of lower of cost or market for inventories, the amount of the deferred tax asset valuation allowance, accounting for uncertain tax positions and accounting for contingencies. The two accounting policies that we have identified as critical accounting policies are allowance for loan losses and impairment of long-lived assets, including real estate held-for-sale and real estate held-for-investment. For a more detailed discussion of these critical accounting policies see “Critical Accounting Policies” appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

BBX Capital’s Business Strategy

Since the sale of BankAtlantic in July 2012, we have been repositioning our business, monetizing our legacy portfolios of loans and real estate, and pursuing our goal of transitioning into a growth business by focusing on real estate opportunities and acquiring operating businesses.  For more detailed information regarding our corporate strategy see the “BBX Capital Corporate Overview” filed on April 16, 2014 with the Securities and Exchange Commission as an exhibit to our Current Report on Form 8-K which is available on the SEC website, www.sec.gov or our website,  www.bbxcapital.com.

The majority of our assets do not generate income on a regular or predictable basis. Recognizing the nature of our assets, our goal is to build long-term value.  We do not expect to generate significant revenue from the legacy BankAtlantic assets until the assets are monetized through repayments or transactions involving the sale, joint venture or development of the underlying real estate. BBX Capital is currently utilizing the cash flow from the monetization of its assets and dividends from Woodbridge to pay operating expenses and to invest in income producing real estate, real estate developments, real estate joint ventures and operating businesses. BBX Capital is seeking to balance its cash needs and the timing of monetizing its existing assets with new investments to maximize its returns. In some cases, this may involve immediate sale and in other cases a longer term hold or development (either directly or through a joint venture).  The Company is also engaged in land entitlement activities on certain properties that we acquired through foreclosure and anticipate moving forward with land development projects which may include selling or leasing the improved properties to third parties or pursuing joint ventures with developers for the development of residential and commercial real estate projects involving the contribution of these properties by us as well as potential cash investments in such projects.  We are also pursuing potential investments in joint venture real estate projects that include real estate held by a joint venture partner or to be acquired from unrelated parties.  Furthermore, as a result of the substantial decline in real estate values, the majority of our non-performing commercial real estate loans and foreclosed real estate were written down in prior periods to the then prevailing estimated fair values of the collateral less costs to sell.  We are observing improvements generally in real estate markets and believe that the prior estimated fair values of the underlying collateral securing certain of our commercial real estate loans and our real estate carrying values may be below current market values.  Additionally, this recovery in the real estate market has favorably affected the financial condition of our borrowers and we are aggressively pursuing our borrowers and/or guarantors in order to maximize our recoveries through cash settlements, loan workout arrangements or participation interests in the development or performance of the collateral.  If we are successful in our efforts, we expect to recognize gains to the extent that the amounts we collect exceed the carrying value of our commercial loans and foreclosed real estate and expect these gains to be reflected in an increase in our shareholders’ equity in the long term.  Due to the nature of these activities however, we do not expect to generate revenues or earnings on a predictable or consistent basis.  Accordingly, we expect our results of operations to vary significantly on a quarterly basis and we may experience losses in subsequent periods.  

 

Consolidated Results of Operations

 

The Company reports its consolidated results of operations in three reportable segments, BBX, FAR and Renin.  The BBX reportable segment consists of the activities associated with CAM’s and BBX Partner’s portfolios of loans

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

receivable, real estate properties, and a BankAtlantic legacy portfolio of previously charged-off loans retained by CAM in the BB&T Transaction. The BBX segment also includes the Company’s investment in Woodbridge and in real estate joint ventures.  BBX’s primary business activities relate to:  managing and, where appropriate, monetizing its portfolio of loans receivable; managing and, where appropriate, monetizing or developing its portfolio of real estate properties;  maximizing the cash flows from its portfolio of charged-off loans and judgments; and pursuing equity and debt investment opportunities in real estate and middle market operating businesses.

 

The FAR reportable segment consists of the activities associated with overseeing the management and monetization of the assets held by FAR with a view to repayment of BB&T’s preferred interest and maximizing the cash flows of any remaining assets.

 

The Renin reportable segment consists of the activities of Renin Holdings, LLC and its subsidiaries (“Renin”).  Renin manufactures interior closet doors, wall décor, hardware and fabricated glass products and its distribution channels include big box and independent home improvement retailers, builders, other manufacturers and specialty retail outlets primarily in North America.  Renin is headquartered in Brampton, Ontario and has two manufacturing, assembly and distribution facilities located in Brampton, Ontario and Tupelo, Mississippi and a sales and distribution office in the United Kingdom. 

 

The other line represents the activities of Hoffman’s and Williams & Bennett.   Revenues of Hoffman’s and Williams & Bennett are highly seasonal with approximately 40% of total revenues earned in the fourth quarter and accordingly, financial results of Hoffman’s and Williams & Bennett may vary significantly on a quarterly basis.  The amounts are provided in order to reconcile the reportable segments to the financial statements. 

 

Net income (loss) from each of the Company’s reportable segments was as follows (in thousands):

 

 

For the Three Months Ended June 30, 2014 Compared to the Same 2013 Period:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30,

 

 

2014

2013

Change

BBX

$

8,172 
1,436 
6,736 

FAR

 

(25)
(4,285)
4,260 

Renin

 

(699)

 -

(699)

Other (1)

 

(285)

 -

(285)

Income (loss) before provision

 

 

 

 

 for income taxes

 

7,163 
(2,849)
10,012 

Provision for income taxes

 

 -

Net income (loss)

$

7,157 
(2,849)
10,006 

 

(1) Other represents the activities of Hoffman’s and Williams & Bennett.

 

Summary Results of Operations – BBX Reportable Segment

 

The improvement in the BBX segment’s performance during the 2014 second quarter compared to the same 2013 quarter was primarily the result of equity earnings from its investment in Woodbridge, higher recoveries from loan losses and interest income as well as increased gains on the sales of assets.  

Equity earnings in Woodbridge were $8.1 million during the three months ended June  30, 2014 compared to $3.4 million during the same 2013 period.   

Recoveries from loan losses and interest income were $2.3 million and $0.5 million during the three months ended June 30, 2014 compared to $1.0 million and $0.1 million during the same 2013 period.  The higher recoveries from loan losses and interest income primarily resulted from payoffs of non-accrual loans

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

Gains on the sales of assets were $2.8 million during the three months ended June 30, 2014 compared to $2.1 million during the same 2013 period.  During the three months ended June 30, 2014 one commercial real estate property was sold for a $2.5 million gain.

Summary Results of Operations – FAR Reportable Segment

 

The reduction in FAR’s net loss during the three months ended June 30, 2014 compared to the same 2013 period resulted primarily from a $3.1 million and $0.9 million decrease in assets impairments and the provision for loan losses, respectively.

 

Costs and expenses remained at 2013 levels as lower interest expense on BB&T’s preferred interest in FAR were partially offset by higher loan servicing costs and expenses associated with an increase in the number of foreclosed properties. 

 

Total revenues increased by $0.2 million during the 2014 quarter compared to the same period during 2013.  Increased gains from the sales of foreclosed real estate as well as higher revenues from foreclosed income producing properties were partially offset by lower interest income primarily resulting from a significant decline in the outstanding balances of accruing loans due to loan repayments. 

 

During the three months ended June 30, 2014 there were net reversals of impairments of $0.1 million compared to asset impairments of $3.0 million during the same 2013 period.  Asset impairments during the three months ended June 30, 2014 consisted of $0.1 million of recoveries from tax certificate losses, $0.1 million reduction in the valuation allowance on loans held for sale and a $0.1 million increase in foreclosed real estate valuation allowance.  Asset impairments during the three months ended June 30, 2013 consisted of $2.2 million of foreclosed real estate impairments, $0.7 million of lower of cost or market valuation allowance adjustments on loans held for sale and $0.1 million provision for tax certificate losses. 

The provision for loan losses was $0.3 million during the three months ended June 30, 2014 compared to $1.2 million during the same 2013 period.  The reduction resulted primarily from a reduction in the provision for consumer loan losses during the 2014 quarter compared to the same period during 2013.

Summary Results of Operations – Renin Reportable Segment

 

Included in Renin’s loss before income taxes during the three months ended June 30, 2014 were $0.6 million of costs associated with the consolidation of manufacturing facilities in Canada, and $0.2 million of professional fees related to process improvements. 

 

For the Six Months Ended June 30, 2014 Compared to the Same 2013 Period (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30,

 

 

2014

2013

Change

BBX

$

10,053 
(2,268)
12,321 

FAR

 

(380)
(7,113)
6,733 

Renin

 

(1,051)

 -

(1,051)

Other (1)

 

(168)

 -

(168)

Income (loss) before provision

 

 

 

 

for income taxes

 

8,454 
(9,381)
17,835 

Provision for income taxes

 

 -

Net income (loss)

$

8,448 
(9,381)
17,829 

 

(1) Other represents the activities of Hoffman’s and Williams & Bennett.

 

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

 

Summary Results of Operations – BBX Reportable Segment

The improvement in the BBX segment’s income from continuing operations during the six months ended June 30, 2014 compared to the same 2013 period was primarily the result of the items discussed above for the three months ended June 30, 2014.  Equity earnings in Woodbridge were $14.3 million during the six months ended June 30, 2014 compared to $3.4 million during the same 2013 period.  Recoveries from loan losses were $3.3 million during the six months ended June 30, 2014 compared to $1.4 million during the same 2013 period. 

Summary Results of Operations – FAR Reportable Segment

 

The reduction in FAR’s segment loss from continuing operations during the six months ended June 30, 2014 compared to the same 2013 period was primarily the result of the items discussed above for the three months ended June 30, 2014.   During the six months ended June 30, 2014 compared to the same 2013 period assets impairments and the provision for loan losses declined by $3.1 million and $2.3 million, respectively. 

 

Summary Results of Operations – Renin Reportable Segment

 

The Renin segment loss from continuing operations during the six months ended June 30, 2014 compared to the same 2013 period was primarily the result of the items discussed above for the three months ended June 30, 2014.    

 

 

BBX Reportable Segment

The BBX business segment’s primary assets are loans receivable, real estate held-for-sale and real estate held-for-investment, investments in real estate joint ventures, rights to BankAtlantic’s legacy portfolio of previously charged off loans and related judgments which were transferred to CAM in connection with the consummation of the BB&T Transaction and BBX Capital’s 46% equity interest in Woodbridge.

The composition of BBX’s loans was (dollars in thousands): 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2014

 

As of December 31, 2013

 

 

 

 

Unpaid

 

 

 

 

 

Unpaid

 

 

 

 

 

 

Principal

 

Carrying

 

 

 

Principal

 

Carrying

Loans held-for-investment:

 

Number

 

Balance

 

Amount

 

Number

 

Balance

 

Amount

Loans receivable:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate:

 

 

 

 

 

 

 

 

 

 

 

 

Accruing

 

 -

 

$              -

 

$              -

 

 -

 

$              -

 

$                      -

Non-accruing

 

 

3,097 

 

1,362 

 

 

5,107 

 

3,331 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

Accruing

 

 

2,130 

 

2,130 

 

 

2,152 

 

2,152 

Non-accruing

 

 

22,211 

 

8,218 

 

 

27,077 

 

11,526 

Total loans held-for-investment         

 

 

$    27,438

 

$    11,710

 

 

$    34,336

 

$            17,009

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans held-for-sale

 

 -

 

$              -

 

$              -

 

 -

 

$              -

 

$                      -

 

During the six months ended June  30, 2014, a $1.9 million non-accrual commercial non-real estate loan with a carrying value of $1.1 million was charged off as the business securing the loan ceased operations and the guarantors were unwilling to repay the loan.    

 

During the six months ended June 30, 2014, a non-accrual commercial real estate loan with a carrying value of $3.2 million was paid-in-full.

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

 

 

The composition of BBX’s real estate was (dollars in thousands): 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2014

 

As of December 31, 2013

 

 

 

 

Carrying

 

 

 

Carrying

 

 

Number

 

Amount

 

Number

 

Amount

Real estate held-for-investment:

 

 

 

 

 

 

 

 

Land

 

14 

 

$     58,202

 

13 

 

$     75,333

Rental properties

 

 

10,762 

 

 

15,705 

Other

 

 

789 

 

 

789 

Total real estate held-for-investment

 

16 

 

$     69,753

 

16 

 

$     91,827

 

 

 

 

 

 

 

 

 

Real estate held-for-sale:

 

 

 

 

 

 

 

 

Land

 

10 

 

$     22,839

 

10 

 

$     10,307

Total real estate held-for-sale

 

10 

 

$     22,839

 

10 

 

$     10,307

A $2.6 million real estate held-for-investment parcel of land was moved from real estate held-for-investment to real estate held-for-sale during the six months ended June 30, 2014 based on improving real estate market conditions in the area where the property is located.  

BBX sub-divided the Bonterra properties (formerly Hialeah Communities) described below into three parcels.   One of the parcels with an assigned value of $13.9 million was moved to real estate held-for-sale from real estate held-for-investment – Land upon the execution of a asset purchase agreement with a third party developer.

The decline in real estate held-for-investment rental properties reflects the contribution of a $4.8 million property to the PGA Design Holdings joint venture described below for $2.9 million in cash and a 40% interest in the joint venture.

A $3.2 million real estate held-for-sale property was sold during the six months ended June 30, 2014.

The Company had investments in the following real estate joint ventures as of June 30, 2014 and December 31, 2013 that are reported in the BBX reportable segment (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

2014

 

2013

Altis at Kendall Square, LLC

$

1,298 

 

1,300 

New Urban/BBX Development, LLC

 

2,368 

 

54 

Sunrise and Bayview Partners, LLC

 

1,800 

 

 -

PGA Design Center Holdings, LLC

 

1,971 

 

 -

Investments in unconsolidated real estate joint ventures

$

7,437 

 

1,354 

Investment in JRG/BBX Development, LLC

$

680 

 

480 

 

Kendall Commons (Altis at Kendall Square, LLC)

 

In March 2013, the Company sold land to Altman Development (“Altman”), a third party real estate developer, for net proceeds of $8.0 million.  Altman is developing a multifamily rental community comprised of 12 three-story apartment buildings, one mixed-use building and one clubhouse totaling 321 apartment units.  The Company has invested $1.3 million of cash in the project as one of a number of investors.  The development is currently under construction and scheduled to begin leasing during the third quarter of 2014.  The Company is entitled to receive 13% of venture distributions until a 15%

47

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

internal rate of return has been attained and thereafter the Company will be entitled to receive 9.75% of any venture distributions.

 

Village at Victoria Park (New Urban/BBX Development, LLC)

Village at Victoria Park consists of approximately 2 acres of vacant land located near downtown Fort Lauderdale, Florida. In December 2013, the Company entered into a joint venture agreement with New Urban Communities to develop the project as 30 single-family homes.  The project is a 50% joint venture, with New Urban Communities serving as the developer and manager.  In April 2014, the joint venture executed an acquisition, development and construction loan with a financial institution and the Company and New Urban Communities each contributed an additional $692,000 to the joint venture as a capital contribution.  The joint venture purchased the vacant land from the Company for $3.6 million consisting of $1.8 million in cash (less $0.2 million in selling expenses) and a $1.6 million promissory note.  The $1.6 million promissory note is secured by a junior lien on the vacant land and future improvements and subordinated to the acquisition, development and construction loan.  The project is currently scheduled to commence construction and sales in the third quarter of 2014.   Closings are projected to begin by the third quarter of 2015.

Bayview (Sunrise and Bayview Partners, LLC)

 

In June 2014, the Company entered into a joint venture agreement with an affiliate of Procacci Development Corporation.  The joint venture acquired for approximately $8.0 million three acres of real estate located at Bayview Drive and Sunrise Boulevard in Fort Lauderdale, Florida.  The new joint venture entity, Sunrise and Bayview Partners, LLC, is a 50% - 50% joint venture between the Company and an affiliate of Procacci Development.  The property is currently improved with an approximate 84,000 square foot office building along with a convenience store and gas station, and located minutes from the Fort Lauderdale beaches and directly across from the Galleria at Ft. Lauderdale.  The office building has low occupancy with short term leases.  The convenience store’s lease ends in March 2017 with a five year extension.  We anticipate the property will be repurposed at some point in the future.

 

PGA Design Center Holdings, LLC

 

In December 2013, the Company purchased for $6.1 million a commercial property in Palm Beach Gardens, Florida, with three existing buildings consisting of 145,000 square feet of mainly furniture retail space. The property, which is located in a larger mixed use property now known as PGA Place, was substantially vacant at the date of acquisition.  Subsequent to the acquisition of the property, the Company entered into a joint venture with Stiles Development which acquired a 60% interest in the joint venture for $2.9 million in cash.  The Company contributed the property (excluding certain residential development entitlements having an estimated value of $1.2 million) to the joint venture in exchange for $2.9 million in cash and the remaining 40% interest in the joint venture.  The Company transferred the retained residential development entitlements to adjacent parcels owned by it in the PGA mixed use property now known as PGA Place (see below for a discussion of the other parcels owned by the Company in the PGA mixed use property).  The joint venture intends to seek governmental approvals to change the use of a portion of the property from retail to office and subsequently sell or lease the property.

 

North Flagler (JRG/BBX Development, LLC)

In October 2013, the Company entered into a joint venture with JRG USA pursuant to which JRG USA assigned to the joint venture a contract to purchase for $10.8 million a 4.5 acre parcel overlooking the Intracoastal Waterway in West Palm Beach, Florida and the Company invested $0.5 million of cash.  The joint venture is seeking to expand land entitlements and is currently working to amend the current zoning designation and increase the parcel’s residential height restrictions with a view to increasing the value of the parcel.  The Company is entitled to receive 80% of any joint venture distributions until it recovers its capital investment and thereafter will be entitled to receive 70% of any joint venture distributions.  The entitlement process is currently expected to be concluded in 2015. 

 

The Company also owns a 2.7 acre parcel located adjacent to the 4.5 acre parcel which is the subject of the contract held by the North Flagler joint venture with JRG USA.  The 2.7 acre parcel was acquired by the Company through foreclosure and had a carrying value of $3.2 million as of June 30, 2014.  We believe that the value of this parcel will increase if the density is increased by the municipality approval of the zoning changes referenced in the preceding paragraph.

48

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

 

The following development projects are currently in the planning stages and involve real estate held-for-investment and real estate held-for-sale included in the above table.

Bonterra – CC Devco Homes

In July 2014, the Company entered into a joint venture agreement with CC Devco Homes- a Codina-Carr Company, to develop homes in a portion of the newly proposed Bonterra Communities (formerly called the Hialeah Communities) in Hialeah, Florida.  As the developer and manager of the joint venture, CC Devco Homes currently plans to build approximately 394 single-family homes.    The Company transferred to the joint venture approximately 50 acres of land at an agreed upon value of approximately $15.6 million subject to an $8.3 million mortgage which was assumed by the joint venture.  In exchange, the Company received its joint venture interest and $2.2 million of cash.  Anticipated project profits resulting from the joint venture will be distributed to CC Devco Homes and the Company on a 55% and 45% basis, respectively.  Capital requirements for the joint venture will be contributed by CC Devco Homes and the Company on a 43% and 57% basis, respectively.  The project is in the final stages of planning and subject to receipt of government approvals.  Construction and sales are anticipated to commence in the first half of 2015. The Company continues to guarantee the $8.3 million mortgage that was assumed by the joint venture. (The Bonterra - CC Devco Homes joint venture is part of the master-planned community project, Bonterra Communities, discussed below.) 

Gardens at Millenia

Gardens at Millenia consists of 37 acres of land located near the Mall at Millenia in a commercial center of Orlando, Florida with a carrying value of $11.2 million as of June 30, 2014.  This site is currently in the planning process and the final size and density of the project is subject to governmental approvals and other conditions.  The proposed plans for 26 acres of this site include a 300,000 square foot retail shopping center with multiple big-box and in-line tenants as well as four outparcel retail pads.  The Company is in discussions with a potential joint venture partner to develop a portion of the 26 acre parcel.  Current plans for the remaining 11 acres of this site include nine rental apartment buildings totaling approximately 280 units, a clubhouse, lakeside pavilion, lakeside running trail, and a dog park.  The Company is in discussions with a potential joint venture partner to develop the eleven acre parcel.

 

Bonterra Communities – (formerly Hialeah Communities)

Bonterra Communities is a proposed master-planned community anticipated to be built on an approximate 128 acres of land consisting of a 114 acre parcel owned by the Company having a carrying value of $30.7 million at June 30, 2014, (this includes the 50 acre parcel transferred in July 2014 to the Bonterra – CC Devco Homes joint venture discussed above) and approximately 14 acres of adjacent land which is currently under contract to be acquired by the Bonterra – CC Devco Homes joint venture discussed above.  Once completed, Bonterra Communities is planned to have approximately 1,171 single-family homes, villas, town homes, and apartments, along with amenities including a clubhouse, fitness center, resort pool, parks, and a 15 acre lake.  The Bonterra community site is currently in the final stages of master-planning and our plans continue to be subject to receipt of governmental approvals.  It is anticipated that the community will be divided into three parcels, which include: 

 

1.

As discussed in the Bonterra - CC Devco Homes joint venture paragraph above, an approximate 59 acre parcel (including approximately 9 acres under contract to acquire) to be developed with approximately 394 single-family homes by a joint venture between the Company and CC Devco Homes.

2.

An approximate 14 acre parcel owned by the Company to be developed with approximately 314 rental apartment units.  The Company is currently seeking required entitlements and plans to partner with a third party developer to develop this parcel.

3.

An approximate 55 acre parcel (including 5 acres under contract to be acquired by the Bonterra - CC Devco Homes joint venture) owned by the Company to be developed with approximately 463 additional single-family homes, villas and townhomes.  The Company has a contract to sell this parcel, subject to the receipt of entitlements currently being sought and due diligence by the purchaser.

 

 

 

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

PGA Place

The Company owns an office building and land located in the newly named PGA Place, in the city of Palm Beach Gardens, Florida, with carrying values aggregating $14.4 million as of June 30, 2014.  The property held by the PGA Design Center Holdings joint venture described above is adjacent to PGA Place.  We believe this property presents a variety of development opportunities, some of which are currently in the planning stages and remain subject to receipt of government approvals.   These include:

 

Office and Multi-Use - This mixed use property includes a 33,000 square foot commercial leased office building that is currently 56% occupied with an attached 428 space parking garage. Additionally, the Company is currently seeking governmental approvals for a 125 room limited-service suite hotel, a 5,000 square foot freestanding restaurant and a 60,000 square foot office building on vacant tracts of land adjacent to this office building.  We anticipate partnering with a third party developer to develop all or a portion of these components of the project. 

 

Multi-family - Current plans for this 7-acre multifamily parcel include approximately 300 apartment units, a clubhouse and spa, and lakeside pavilion. The Company is in discussions with a potential joint venture partner to develop this parcel. 

 

BBX Reportable Segment Results of Operations

The following table is a condensed income statement summarizing the results of operations of the BBX business segment for the three and six months ended June 30, 2014 and 2013 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Six Months

 

 

Ended June 30,

 

Ended June 30,

 

 

2014

2013

Change

 

2014

2013

Change

Interest income

 $

473 
82 
391 

 

645 
526 
119 

Net gains on sales of assets

 

2,774 
2,144 
630 

 

2,710 
3,904 
(1,194)

Income from real estate operations

 

775 
908 
(133)

 

1,552 
1,884 
(332)

Other revenues

 

121 
208 
(87)

 

252 
751 
(499)

Total revenues

 

4,143 
3,342 
801 

 

5,159 
7,065 
(1,906)

Interest expense

 

260 
333 
(73)

 

521 
502 
19 

Real estate operating expenses

 

1,245 
1,082 
163 

 

1,991 
1,876 
115 

Selling, general and administrative expenses

 

4,880 
4,974 
(94)

 

10,147 
10,929 
(782)

Total costs and expenses

 

6,385 
6,389 
(4)

 

12,659 
13,307 
(648)

Equity earnings in Woodbridge

 

8,108 
3,442 
4,666 

 

14,330 
3,442 
10,888 

Equity earnings in unconsolidated joint ventures

 

(26)

 -

(26)

 

(32)

 -

(32)

Recoveries from loan losses

 

2,332 
1,031 
1,301 

 

3,336 
1,449 
1,887 

Asset impairments

 

 -

10 
(10)

 

(81)
(917)
836 

Income (loss) before  income taxes

 

8,172 
1,436 
6,736 

 

10,053 
(2,268)
12,321 

Provision for income taxes

 

 -

 -

 -

 

 -

 -

 -

BBX segment income (loss)

 $

8,172 
1,436 
6,736 

 

10,053 
(2,268)
12,321 

 

 

 

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

Total Revenues

The increase in total revenues during the three months ended June 30, 2014 resulted primarily from a $0.6 million increase in gains on the sales of assets and a $0.4 million increase in interest income.  

During the three months ended June 30, 2014, BBX sold real estate properties for a $2.7 million gain, including a $2.5 million gain on the sale of one property.  During the three months ended June 30, 2013, the gain on the sale of assets resulted primarily from the sale of  real estate properties.   

The increase in interest income during the three months ended June 30, 2014 compared to the same 2013 period resulted primarily from the repayment to the Company of a non-accrual loan.

The decline in total revenues during the six months ended June 30, 2014 compared to the same 2013 period resulted primarily from a $1.2 million decline in gains on the sales of assets and a $0.5 million decrease in other revenues. The decline in the sales of assets reflects lower gains on the sale of real estate properties during the six months ended June 30, 2014 compared to the same 2013 period.  The decrease in other revenues reflects $0.4 million of recoveries on loans in excess of contractual principal balances during the six months ended June 30, 2013. 

Total Costs and Expenses

Total costs and expenses during the three months ended June 30, 2014 remained at the same levels as during the 2013 period.  The decline in interest expense during the three months ended June 30, 2014 resulted from the repayment of a $2.5 million note payable in December 2013.  The increase in real estate operating expenses resulted primarily from higher real estate taxes and maintenance costs associated with foreclosed properties

The decline in total costs and expenses during the six months ended June 30, 2014 compared to the same 2013 period resulted primarily from lower professional fees included in selling, general and administrative expenses.  During the three months ended March 31, 2013, BBX incurred significantly higher legal costs associated with the SEC civil action compared to the same 2014 period as the action had been scheduled for trial in April 2013.  The trial was subsequently postponed and is currently on the court’s trial calendar during November 2014. 

Equity Earnings in Woodbridge

Equity earnings in Woodbridge were $8.1 million during the three months ended June  30, 2014 compared to $3.4 million during the same 2013 period.   The Woodbridge earnings represent 46% of Bluegreen Corporation’s net income.

Recoveries from loan losses

Recoveries from loan losses during the three months ended June 30, 2014 resulted primarily from payoffs of non-accrual loans and recoveries from BBX’s portfolio of charged off loans.  Recoveries from loan losses during the six months ended June 30, 2014 included $1.4 million of property tax refunds on a charged off commercial land loan.  

The recoveries of loans previously charged-off during the three and six months ended June 30, 2013 resulted primarily from cash collected on certain previously charged-off loans and related judgments which were transferred from BankAtlantic to CAM in connection with the BB&T Transaction and recoveries from loans transferring to real estate owned as the fair value of the underlying collateral less cost to sell was greater than the recorded investment on certain loans. 

Asset Impairments

Asset impairments during the six months ended June 30, 2014 resulted from an $80,000 write-down on one foreclosed real estate property resulting from an updated valuation.  

 

Asset impairments during the three months ended June 30, 2013 reflects allowance reversals of $10,000 on loans held for sale resulting from updated valuations.  Asset impairments during the six months ended June 30, 2013 resulted from write-downs of $1.1 million on real estate owned and allowance reversals of $0.2 million on loans held for sale, all resulting from updated valuations. 

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

 

FAR Reportable Segment

The FAR business segment’s primary assets are loans held-for-investment, loans held-for-sale, real estate held-for-sale and real estate held-for-investment.  FAR’s activities are associated with overseeing the management and monetization of its assets with a view to repayment of BB&T’s preferred interest and maximizing the cash flows of any remaining assets.

The composition of FAR’s loans was (dollars in thousands): 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2014

 

As of December 31, 2013

 

 

 

 

Unpaid

 

 

 

 

 

Unpaid

 

 

 

 

 

 

Principal

 

Carrying

 

 

 

Principal

 

Carrying

Loans held-for-investment:

 

Number

 

Balance

 

Amount

 

Number

 

Balance

 

Amount

Loans receivable:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial non-real estate:

 

 

 

 

 

 

 

 

 

 

 

 

Accruing

 

 -

 

$              -

 

$              -

 

 -

 

$              -

 

$                      -

Non-accruing

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

Accruing

 

 

8,613 

 

8,613 

 

 

15,245 

 

15,245 

Non-accruing

 

 

30,422 

 

13,010 

 

10 

 

52,108 

 

34,014 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

Accruing

 

55 

 

5,056 

 

5,056 

 

62 

 

5,646 

 

5,646 

Non-accruing

 

43 

 

6,122 

 

3,022 

 

43 

 

5,846 

 

2,972 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

Accruing

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

Non-accruing

 

 -

 

 -

 

 -

 

 

189 

 

53 

Total loans held-for-investment

 

109 

 

$    50,213

 

$    29,701

 

124 

 

$    79,034

 

$            57,930

Loans held-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

Accruing

 

 -

 

$              -

 

$              -

 

 -

 

$              -

 

$                      -

Non-accruing

 

 -

 

 -

 

 -

 

 -

 

 -

 

 -

 Consumer

 

 

 

 

 

 

 

 

 

 

 

 

Accruing

 

14 

 

1,905 

 

1,343 

 

15 

 

2,044 

 

1,494 

Non-accruing

 

26 

 

3,441 

 

2,386 

 

31 

 

4,135 

 

2,682 

 Residential

 

 

 

 

 

 

 

 

 

 

 

 

Accruing

 

35 

 

4,897 

 

3,902 

 

34 

 

4,912 

 

3,945 

Non-accruing

 

233 

 

53,283 

 

31,168 

 

255 

 

58,603 

 

34,278 

 Small business

 

 

 

 

 

 

 

 

 

 

 

 

Accruing

 

37 

 

6,834 

 

5,504 

 

52 

 

10,320 

 

8,170 

Non-accruing

 

12 

 

3,369 

 

2,338 

 

17 

 

4,204 

 

3,277 

Total loans held-for-sale

 

357 

 

$    73,729

 

$    46,641

 

404 

 

$    84,218

 

$            53,846

 

The decline in accruing commercial real estate loans resulted primarily from the payoff of two loans with a carrying value of $7.0 million.

 

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

The decline in non-accruing commercial real estate loans held-for-investment resulted primarily from a deed in lieu of foreclose on a $10.9 million loan and the payoff of a $6.1 million loan.

 

The decline in small business, residential and consumer loans held-for-sale resulted primarily from loan repayments. 

 

In July 2014, the Company received net proceeds of approximately $9.6 million from the sale of its entire consumer loan held-for-sale portfolio with a $3.7 million carrying value and from the sale of residential loans with a $5.3 million carrying value.

 

The composition of FAR’s real estate was (dollars in thousands):  

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2014

 

As of December 31, 2013

 

 

 

 

Carrying

 

 

 

Carrying

 

 

Number

 

Amount

 

Number

 

Amount

Real estate held-for-investment:

 

 

 

 

 

 

 

 

Land

 

 

$       2,850

 

 

$       4,323

Rental properties

 

 

20,429 

 

 

11,186 

Total real estate held-for-investment

 

 

$     23,279

 

 

$     15,509

 

 

 

 

 

 

 

 

 

Real estate held-for-sale:

 

 

 

 

 

 

 

 

Land

 

 

$       9,166

 

 

$       7,961

Rental properties

 

 

1,748 

 

 

6,168 

Residential single-family

 

22 

 

3,781 

 

29 

 

6,447 

Other

 

19 

 

487 

 

23 

 

3,088 

Total real estate held-for-sale

 

51 

 

$     15,182

 

63 

 

$     23,664

 

The decrease in real estate held-for-investment reflects the transfer of two land loans to real estate held-for-sale upon the completion of a development feasibility evaluation by management.  

 

The increase in real estate held-for-investment rental properties reflects a $10.9 million property acquired through foreclosure. 

 

The decrease in real estate held-for-sale rental properties resulted from the sale of two properties with a $4.4 million carrying value.

 

The decrease in real estate held-for-sale other resulted primarily from sales of three commercial retail properties with an aggregate carrying value of $3.0 million partially offset by a $0.4 million property acquired through foreclosure. 

 

 

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

FAR Results of Operations 

The following table is a condensed income statement summarizing the results of operations of the FAR business segment (“FAR”) for the three and six months ended June 30, 2014 and 2013 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Six Months

 

 

Ended June 30,

 

Ended June 30,

 

 

2014

2013

Change

 

2014

2013

Change

Interest income

$

865 
2,291 
(1,426)

 

2,529 
4,892 
(2,363)

Net gains on sales of assets

 

1,152 
50 
1,102 

 

1,167 
352 
815 

Income from real estate operations

 

698 
286 
412 

 

1,414 
546 
868 

Other revenues

 

323 
227 
96 

 

1,238 
229 
1,009 

Total revenues

 

3,038 
2,854 
184 

 

6,348 
6,019 
329 

BB&T's priority return in FAR distributions

 

235 
954 
(719)

 

583 
2,020 
(1,437)

Real estate operating expenses

 

692 
310 
382 

 

1,499 
592 
907 

Selling, general and administrative expenses

 

1,944 
1,685 
259 

 

3,460 
3,915 
(455)

Total costs and expenses

 

2,871 
2,949 
(78)

 

5,542 
6,527 
(985)

Provision for loan losses

 

(286)
(1,203)
917 

 

(42)
(2,380)
2,338 

Asset impairments

 

94 
(2,987)
3,081 

 

(1,144)
(4,225)
3,081 

Loss from continuing operations

 

(25)
(4,285)
4,260 

 

(380)
(7,113)
6,733 

Provision (benefit) for income taxes

 

 -

 -

 -

 

 -

 -

 -

Net loss from continuing operations

$

(25)
(4,285)
4,260 

 

(380)
(7,113)
6,733 

 

 

Total Revenues

The decline in interest income for the three and six months ended June 30, 2014 compared to the same periods during 2013 reflects lower accruing loan balances primarily due to loan repayments. Accruing loans declined from $115.1 million as of December 31, 2012 to $24.4 million at June 30, 2014.

The increase in the gains on sales of assets reflects higher gains on the sales of residential and commercial real estate during the 2014 quarter and six month period compared to the same 2013 periods.

The increase in income and expenses from real estate operations during the three and six months ended June 30, 2014 resulted primarily from two student housing facilities that FAR acquired through settlements with borrowers in September 2013 and January 2014. 

Other revenues during the three months ended June 30, 2014 and 2013 consisted mainly of rental income from a public storage operating facility that was acquired through foreclosure in April 2013.  Other revenues during the six months ended June 30, 2014 included $0.6 million of income associated with a foreclosed loan where the fair value of the real estate acquired through foreclosure was in excess of the contractual principal amount of the loan.     

Total Cost and Expenses

The decline in BB&T’s priority return in FAR distributions resulted from a lower preferred membership interest preference amount outstanding during the 2014 quarter and six month period compared to the same 2013 periods.  The preferred membership interest preference amount was reduced from $196.9 million as of December 31, 2012 to $27.0 million as of June 30, 2014. 

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

The increase in selling, general and administrative expenses during the three months ended June 30, 2014 compared to the same 2013 period resulted primarily from higher professional fees associated with collection and foreclosure activities as well as higher operating expenses at the public storage operating facility acquired through foreclosure in April 2013.  The decline in selling, general and administrative expense during the six months ended June 30, 2014 compared to the same 2013 period resulted from lower foreclosure expenses.  The 2013 six month period included $0.8 million of foreclosure expenses associated with two properties.    

Provision for loan losses

The provision for loan losses during the three months ended June 30, 2014 reflects an increase in the consumer allowance for loan losses of $0.3 million associated with increased delinquencies.  During the six months ended June 30, 2014 the increased consumer allowance for loan losses was partially offset by recoveries associated with nonaccrual and charged off loans. 

The $1.2 million and $2.4 million provision for loan losses during the three months and six months ended June 30, 2013, respectively, resulted primarily from an increase in the consumer allowance for loan losses and charge-offs partially offset by a reduction in the allowance for loan losses for commercial and residential loans due to an improved historical loss experience. 

Asset Impairments

Asset impairments during the three months ended June 30, 2014 reflect $0.1 million recoveries from tax certificate losses, $0.1 million of valuation allowance reversals on loans held for sale partially offset by $0.1 million of increased foreclosed real estate valuation allowances. 

Asset impairments during the six months ended June 30, 2014 also includes a $2.2 million write down on a student housing facility acquired through foreclosure due to an updated valuation partially offset by $0.6 million of recoveries from short sales and payoffs of residential loans and a $0.6 million reduction in loans held for sale valuation allowances.

Asset impairments during the three months ended June 30, 2013 consisted of $2.2 million of foreclosed real estate impairments, $0.7 million of lower of cost or market valuation allowance adjustments on loans held for sale and a $0.1 million provision for tax certificate losses.  The real estate owned impairments resulted primarily from a $2.0 million impairment on an office warehouse property based on an updated valuation.   The increase in the valuation allowance for loans held for sale resulted from a decline in small business loan valuations. 

Asset impairments for the six months ended June 30, 2013 consisted of $2.3 million of real estate owned impairments, $1.5 million of lower of cost or market valuation allowance adjustments on loans held for sale and a $0.4 million provision for tax certificate losses. 

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

Renin Results of Operations 

The following table is a condensed income statement summarizing the results of operations of the Renin business segment for the three and six months ended June  30, 2014 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

For the Six Months

 

 

Ended June 30, 2014

Ended June 30, 2014

Sales

$

14,745 
28,883 

Cost of goods sold

 

(11,076)
(21,521)

Gross margin

 

3,669 
7,362 

Interest expense

 

187 
403 

Selling, general and administrative expenses

 

4,322 
7,844 

(Gain) loss on foreign currency exchange

 

(141)
166 

Total costs and expenses

 

4,368 
8,413 

Loss before income taxes

 

(699)
(1,051)

Provision for income taxes

 

Net loss

$

(705)
(1,057)

Included in selling, general and administrative expenses during the three and six months ended June 30, 2014 were $0.6 million of costs associated with the consolidation of manufacturing facilities in Canada, and $0.2 million of process improvement professional fees.  Renin also incurred $0.1 million of acquisition related expenses during the six months ended June 30, 2014.

The gain (loss) on foreign currency exchange resulted primarily from the valuation of the Canadian dollar compared to the U.S. dollar during the three and six months ended June 30, 2014.  The Canadian dollar to U.S. dollar exchange rate declined from 94.02% as of December 31, 2013 to 90.46% as of March 31, 2014 and increased to 93.72% as of June 30, 2014. 

 

 

 

 

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

 

BBX Capital Consolidated Financial Condition

The Company’s total assets as of June 30, 2014 were $399.3 million compared to $431.1 million as of December 31, 2013.  The decline in total assets reflects the utilization of cash proceeds from loan repayments, loan sales and real estate sales to repay BB&T’s preferred interest in FAR. The changes in the components of total assets from December 31, 2013 to June 30, 2014 are summarized below:

·

Increase in cash resulting primarily from $31.0 million of loan repayments, $4.7 million of proceeds from the contribution of real estate held-for-investment to joint ventures and $14.8 million of dividends from Woodbridge, partially offset by $41.5 million of payments of BB&T’s preferred interest in FAR and $3.3 million of payments of notes payable to related parties as well as $2.0 million of cash outflows for acquisitions. 

·

Lower loans receivable and loans held for sale balances reflecting $31.0 million of loan repayments and $13.2 million of loans transferring through foreclosure to real estate held-for-investment and real estate held-for-sale,  

·

Decrease in real estate held-for-investment primarily from $18.9 million of properties transferred to real estate held-for-sale, $2.2 million of write-downs due to updated valuations subsequent to loan foreclosures and $4.8 million of properties contributed to a joint venture, partially offset by $11.5 million of real estate acquired through foreclosure,     

·

Increase in real estate held-for-sale primarily from $18.9 million of properties transferred from real estate held-for-investment and $1.7 million of real estate acquired through foreclosure, partially offset by  real estate sales of $16.4 million,

·

Increase in investment in real estate joint ventures reflecting a $1.8 million cash investment in the Sunrise and Bayview joint venture, the contribution of $0.7 million to an existing joint venture, the receipt of a $1.6 million subordinated note receivable from the sale of real estate to a joint venture and the contribution of real estate held-for-investment to a joint venture in exchange for $2.9 million in cash and a 40% interest in the joint venture with a carrying amount of $1.9 million,

·

Lower investment in Woodbridge Holdings, LLC reflecting $14.8 million of dividends received from Woodbridge partially offset by the recognition of $14.3 million of equity earnings,

·

Increase in inventory resulting primarily from the acquisition of Williams & Bennett and a $0.3 million increase in Renin inventory,

·

Goodwill and other intangible assets increase was due primarily to the Williams & Bennett acquisition,

·

Increase in other assets resulting primarily from a $5.3 million receivable from the sale of foreclosed properties by the lead bank pursuant to a participation agreement.   

The Company's total liabilities at June 30, 2014 were $85.1 million compared to $127.6 million at December 31, 2013.  The changes in the components of total liabilities from December 31, 2013 to June  30, 2014 are summarized below:

·

Decrease in BB&T’s preferred interest in FAR reflecting distributions of proceeds from the monetization of FAR’s assets, 

·

Decrease in notes payable to related parties associated with the refinancing of the Bluegreen loan with Wells Fargo Capital Finance Corporation as well as the repayment of a $250,000 note issued in connection with the Hoffman’s acquisition, 

·

Increase in notes payable reflecting $7.5 million of borrowings by Renin from Wells Fargo Capital Finance Corporation,  partially offset by scheduled notes payable principal repayments and discount amortization, and

·

Increase in other liabilities due primarily to $2.4 million of deferred profits on the sale of real estate to joint ventures partially offset by lower principal and interest advances on residential loans serviced by others.

 

Liquidity and Capital Resources 

The Company held cash of  $45.0 million at June 30, 2014. This amount does not include $2.7 million and $0.2 million of cash held in FAR and Renin, respectively.  The Company had $4.7 million of current liabilities as of June 30, 2014.  The Company’s principal sources of liquidity are its cash holdings, funds obtained from scheduled payments on loans and sales of its loans, loan payoffs, sales of real estate held-for-sale, income from income producing real estate and distributions received from Woodbridge.  

 

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

The Company expects that it will receive dividends from time to time from its 46% ownership interest in Woodbridge.  Dividends from Woodbridge will be dependent on and subject to Bluegreen’s results of operations, cash flows and business of Bluegreen, as well as restrictions contained in Bluegreen’s debt facilities, and as a consequence, the Company may not receive dividends from Woodbridge consistent with prior periods or in the time frames or amounts anticipated, or at all.  The Company also expects to obtain funds in subsequent periods from cash flows on loans, real estate and other assets in CAM and BBX Partners, each of which is wholly-owned by BBX Capital, and distributions from its 5% membership interest in FAR.  The Company also may seek to obtain funds through borrowings or the issuance of equity securities. The Company anticipates utilizing these funds for general corporate purposes, including employee compensation and benefits, administrative and occupancy expenses, servicing costs, real estate operating expenses, Renin and BBX Sweet Holdings operating expenses and, to the extent of available liquidity, to pursue its business strategy to invest directly or through joint ventures, in real estate (which may include acquisition and/or development) and in operating businesses over time as assets are monetized.  BBX Sweet Holdings is actively pursuing other acquisitions in the candy and confections industry. While FAR is consolidated in the Company’s financial statements, the cash held in FAR and generated from its assets will be used primarily to pay FAR’s operating expenses and to pay BB&T’s 95% preferred membership interest and the related priority return and will generally not be available for distribution to BBX Capital beyond its 5% preferred membership interest until such time as BB&T’s preferred membership interest is fully repaid.  The balance of BB&T’s preferred membership interest in FAR was approximately $27.0 million and $16.4 million at June 30, 2014 and July 31, 2014, respectively.  

 

On June 11, 2014, Renin entered into a credit agreement with Wells Fargo Capital Finance Corporation (“Lender”).  Under the terms and conditions of the Credit Agreement, the Lender made a $1.5 million term loan to Renin. The Credit Agreement also includes a revolving advance facility pursuant to which the Lender agreed to make loans to Renin on a revolving basis up to a maximum of approximately $18 million or, if lesser, the Borrowing Base (as defined in the Credit Agreement), subject to the Borrowers’ compliance with the terms and conditions of the Credit Agreement, including certain specific financial covenants as discussed below. Upon execution of the Credit Agreement and funding of the term loan, the Lender also made loans to Renin in the aggregate amount of approximately $6.5 million under the revolving advance facility. The approximate $8.0 million of financing received by Renin from the Lender, together with pro rata capital contributions to Renin from the Company and BFC of $2,025,000 and $475,000, respectively, were utilized to repay in full the $10.5 million outstanding balance of the Bluegreen loan to Renin.  

 

A significant source of liquidity is the liquidation of loans and real estate and the contribution of properties to real estate joint ventures.  During the six months ended June 30, 2014, the proceeds from the liquidation of loans and real estate were approximately $31.0 million and $19.1 million, respectively, and proceeds from the contribution of properties to joint ventures were $4.7 million

 

The Company’s real estate activities include hiring property managers to operate income producing properties, making protective expenditures in an effort to maintain the value of properties and undertaking the zoning and entitlement, development or improvement of properties to position the properties for sale, or potential joint venture arrangements. 

 

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

The Company’s Contractual Obligations and Off Balance Arrangements as of June 30, 2014 were (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Payments Due by Period

 

 

 

Less than

 

 

After 5

Contractual Obligations

 

Total

1 year

1-3 years

4-5 years

years

BB&T's preferred interest in FAR

$

26,986 

 -

 -

 -

26,986 

Operating lease obligation

 

5,067 
2,099 
2,354 
518 
96 

Notes payable to related parties

 

11,750 

 -

 -

11,750 

 -

Notes payable 

 

17,313 
649 
1,998 
1,248 
13,418 

Other obligations

 

160 
120 
40 

 -

 -

Total contractual cash obligations

$

61,276 
2,868 
4,392 
13,516 
40,500 

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

The discussion contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 under Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” provides quantitative and qualitative disclosures about the Company’s primary market risk, which is equity pricing risk associated with the real estate market.  

The majority of the Company’s assets are real estate held-for-investment or real estate held-for-sale and loans secured by real estate.  The Company’s financial condition and earnings are significantly affected by changes in real estate values in the markets where the real estate is located.  The Company’s equity pricing risk associated with the real estate market did not significantly change during the six months ended June 30, 2014.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June  30, 2014 to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2014 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.  Management has excluded Renin Holdings LLC and its subsidiaries (“Renin”), Hoffman’s chocolates and its subsidiaries (“Hoffman’s”) and Williams & Bennett from its review of the changes in internal control over financial reporting that occurred during the quarter ended June 30, 2014.  We acquired these businesses during the fourth quarter of 2013 and the first quarter of 2014 and our management has not conducted an assessment of the acquired businesses’ internal control over financial reporting.   Renin’s total revenues and total assets represented 65.6% and 5.8%, respectively, of the related consolidated financial statement amounts as of and for the six months ended June  30, 2014. Hoffman’s and Williams & Bennett’s total revenues and total assets represented 8.6% and 2.1%, respectively, of the related consolidated financial statement amounts as of and for the six months ended June 30, 2014.

 

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BBX CAPITAL CORPORATION AND SUBSIDIARIES

PART II - OTHER INFORMATION

 

Item 1A.  Risk Factors.

There have been no material changes from the risk factors disclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. 

Item 6.  Exhibits

Exhibit 31.1Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 101Interactive data Files

60

 


 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

 

 

Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

BBX Capital Corporation

 

 

 

August 08, 2014 

By

/s/Alan B. Levan

    Date

 

Alan B. Levan

 

 

Chief Executive Officer/

 

 

Chairman of the Board 

 

 

 

August 08, 2014 

By:

/s/John K. Grelle

    Date

 

John K. Grelle

 

 

Executive Vice President,

 

 

Chief Financial Officer

 

61