37233fbebc65410

 

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 September 30, 2012

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.)

2100 West Cypress Creek Road

Fort Lauderdale, Florida

(Address of principal executive offices)

33309

(Zip Code)

 

(954) 940-5000

(Registrant's telephone number, including area code)

BankAtlantic Bancorp, Inc.

(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 [    ]

Non-accelerated filer [    ]

Small reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   [   ] YES   [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 November 9, 2012

Class A Common Stock, par value $0.01 per share

15,577,464

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

3-46

 

 

 

 

Consolidated Statements of Financial Condition - September 30, 2012

 

 and December 31, 2011 - Unaudited

 

 

 

 

Consolidated Statements of Operations - For the Three and Nine Months

 

 

 Ended September 30, 2012 and 2011 - Unaudited

 

 

 

 

 

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

 

 Nine Months Ended September 30, 2012 and 2011 - Unaudited

 

 

 

 

 

Consolidated Statements of Equity (Deficit) - For the Three and

 

 Nine Months Ended September 30, 2012 and 2011 - Unaudited

 

 

 

 

 

Consolidated Statements of Cash Flows - For the Nine Months Ended

 

 September 30, 2012 and 2011

 

 

 

 

 

Notes to Consolidated Financial Statements - Unaudited

8-46

 

 

 

Item 2.

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

47-67

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

67-68

 

 

 

Item 4.

Controls and Procedures

68 

 

 

 

Part II.

OTHER INFORMATION

 

 

 

 

Item 1A.

Risk Factors

69 

 

 

 

Item 5.

Other Information

69 

 

 

 

Item 6.

Exhibits

71 

 

 

 

 

Signatures

72 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

BBX CAPITAL CORPORATION AND SUBSIDARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - UNAUDITED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

(In thousands, except share data)

 

2012

 

2011

ASSETS

 

 

 

 

Cash and interest bearing deposits in banks (Cash of $5,044 in VIE as of 9/30/2012)

$

38,885 

 

770,292 

Securities available for sale, at fair value

 

 -

 

46,435 

Tax certificates, net of allowance of $3,739 and $7,488 ($4,232, net of allowance of $3,739 in VIE as of 9/30/12)

 

4,232 

 

46,488 

Loans held for sale ($20,349 in VIE at 9/30/2012)

 

33,601 

 

55,601 

Loans receivable, net of allowance for loan losses of $6,595  and $129,887 ($259,092, net of allowance of $4,783 in VIE at 9/30/2012)

 

308,034 

 

2,448,203 

Accrued interest receivable ($1,771 in VIE at 9/30/2012)

 

1,771 

 

18,432 

Real estate owned ($22,577 in VIE at 9/30/2012)

 

92,263 

 

87,174 

Real estate held for sale

 

3,612 

 

3,898 

Office properties and equipment, net

 

1,147 

 

139,165 

Other assets ($3,221 in VIE at 9/30/2012)

 

4,809 

 

8,221 

Investments in unconsolidated companies

 

 -

 

10,106 

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

 

 -

 

18,308 

Goodwill

 

 -

 

13,081 

Prepaid FDIC deposit insurance assessment

 

 -

 

12,715 

        Total assets

 

488,354 

 

3,678,119 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

Liabilities:

 

 

 

 

BB&T preferred interest in FAR, LLC ($208,986 in VIE at 9/30/2012)

 

208,986 

 

 -

Other liabilities ($14,305 in VIE at 9/30/2012)

 

24,639 

 

55,848 

Deposits

 

 -

 

3,280,083 

Subordinated debentures

 

 -

 

22,000 

Junior subordinated debentures

 

 -

 

337,114 

        Total liabilities

 

233,625 

 

3,695,045 

Commitments and contingencies (Note 11)

 

 

 

 

Stockholders' Equity (Deficit):

 

 

 

 

 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 15,577,464 and 15,434,564 shares

 

155 

 

154 

 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

 

330,717 

 

329,995 

 Accumulated deficit

 

(76,145)

 

(326,692)

 Accumulated other comprehensive loss

 

 -

 

(20,385)

Total stockholders' equity (deficit)

 

254,729 

 

(16,926)

        Total liabilities and stockholders' equity (deficit)

$

488,354 

 

3,678,119 

 

 

 

 

 

See Notes to Consolidated Financial Statements - Unaudited

3

 


 

 

 

 

 

 

 

BBX CAPITAL CORPORATION AND SUBSIDARIES

CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands, except share and per share data)

 

For the Three Months

 

For the Nine Months

 

 

Ended September 30,

 

Ended September 30,

Interest income:

 

2012

 

2011

 

2012

 

2011

Interest and fees on loans

$

4,152 

 

9,155 

 

19,774 

 

32,123 

Interest on tax certificates

 

79 

 

 -

 

79 

 

 -

Interest and dividends on taxable securities

 

 

 

 

38 

       Total interest income

 

4,236 

 

9,156 

 

19,858 

 

32,161 

Interest expense:

 

 

 

 

 

 

 

 

BB&T's priority return in FAR distributions

 

1,040 

 

 -

 

1,040 

 

 -

Interest on subordinated debentures

 

1,402 

 

3,899 

 

9,695 

 

11,537 

       Total interest expense

 

2,442 

 

3,899 

 

10,735 

 

11,537 

Net interest income  

 

1,794 

 

5,257 

 

9,123 

 

20,624 

Provision for (recovery from)  loan losses

 

257 

 

13,892 

 

(1,135)

 

25,032 

Net interest income after

 

 

 

 

 

 

 

 

   provision for loan losses

 

1,537 

 

(8,635)

 

10,258 

 

(4,408)

Non-interest income:

 

 

 

 

 

 

 

 

Income from unconsolidated companies

 

42 

 

482 

 

281 

 

1,295 

Securities activities, net

 

22 

 

 -

 

22 

 

(1,500)

Gain (loss) on sale of loans

 

 -

 

 -

 

 

(89)

Other

 

133 

 

12 

 

229 

 

31 

       Total non-interest income

 

197 

 

494 

 

535 

 

(263)

Non-interest expense:

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

6,669 

 

5,322 

 

16,197 

 

17,148 

Occupancy and equipment

 

627 

 

2,456 

 

4,486 

 

8,192 

Advertising and promotion

 

92 

 

159 

 

375 

 

417 

Professional fees

 

1,843 

 

2,875 

 

11,279 

 

5,661 

(Recoveries) on assets held for sale

 

 -

 

 -

 

(1,165)

 

 -

Impairments on loans held for sale

 

638 

 

156 

 

1,097 

 

1,538 

Impairment of real estate owned

 

768 

 

2,922 

 

4,302 

 

10,436 

Other

 

2,001 

 

1,031 

 

6,657 

 

6,898 

       Total non-interest expense

 

12,638 

 

14,921 

 

43,228 

 

50,290 

Loss from continuing operations

 

 

 

 

 

 

 

 

 before income taxes

 

(10,904)

 

(23,062)

 

(32,435)

 

(54,961)

Benefit for income taxes

 

(4,206)

 

(4,422)

 

(12,512)

 

(16,925)

Loss from continuing operations

 

(6,698)

 

(18,640)

 

(19,923)

 

(38,036)

Discontinued operations

 

 

 

 

 

 

 

 

Income from discontinued operations (including gain on disposal of $290,642)

 

290,227 

 

11,146 

 

285,243 

 

43,559 

Provision for income taxes

 

6,467 

 

4,300 

 

14,773 

 

16,803 

Income from discontinued operations

 

283,760 

 

6,846 

 

270,470 

 

26,756 

Net income (loss)

 

277,062 

 

(11,794)

 

250,547 

 

(11,280)

Less: net loss (income) attributable to non-controlling interest

 

 -

 

254 

 

 -

 

(331)

Net income (loss) attributable to

 

 

 

 

 

 

 

 

 BBX Capital Corporation

 

277,062 

 

(11,540)

 

250,547 

 

(11,611)

Basic earnings (loss) per share

 

 

 

 

 

 

 

 

 Continuing operations

$

(0.43)

 

(1.18)

 

(1.27)

 

(2.79)

 Discontinued operations

 

18.02 

 

0.44 

 

17.23 

 

1.95 

Basic earnings (loss) per share

$

17.59 

 

(0.74)

 

15.96 

 

(0.84)

Diluted earnings (loss) per share

 

 

 

 

 

 

 

 

 Continuing operations

$

(0.43)

 

(1.18)

 

(1.27)

 

(2.79)

 Discontinued operations

 

18.02 

 

0.44 

 

17.23 

 

1.95 

Diluted earnings (loss) per share

$

17.59 

 

(0.74)

 

15.96 

 

(0.84)

Basic weighted average number

 

 

 

 

 

 

 

 

 of common shares outstanding

 

15,748,113 

 

15,626,874 

 

15,702,660 

 

13,754,966 

Diluted weighted average number

 

 

 

 

 

 

 

 

 of common and common

 

 

 

 

 

 

 

 

 equivalent shares outstanding

 

15,748,113 

 

15,626,874 

 

15,702,660 

 

13,754,966 

 

 

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements - Unaudited

4

 


 

 

 

 

 

BBX CAPITAL CORPORATION AND SUBSIDARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME - UNAUDITED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Nine Months

 

 

Ended September 30,

 

Ended September 30,

(In thousands, except share and per share data)

 

2012

 

2011

 

2012

 

2011

Net income (loss)

$

277,062 

 

(11,794)

 

250,547 

 

(11,280)

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

   Unrealized (loss) on securities available for sale

 

(75)

 

(359)

 

(659)

 

(617)

   Provision for income taxes

 

 -

 

 -

 

 -

 

 -

     Unrealized (loss) on securities available for sale, net of tax

 

(75)

 

(359)

 

(659)

 

(617)

   Reclassification adjustments:

 

 

 

 

 

 

 

 

 Net realized loss from settlement of defined benefit plan (less income tax benefit of $2,222)

 

22,428 

 

 -

 

22,428 

 

 -

 Net realized (gain) on securities available for sale (less income tax benefit of $39, $0, $39 and $0)

 

(1,384)

 

(6,959)

 

(1,384)

 

(6,959)

   Reclassification adjustments

 

21,044 

 

(6,959)

 

21,044 

 

(6,959)

Other comprehensive income (loss), net of tax

 

20,969 

 

(7,318)

 

20,385 

 

(7,576)

Comprehensive income (loss)

 

298,031 

 

(19,112)

 

270,932 

 

(18,856)

Less: comprehensive (loss) income attributable to   noncontrolling interest

 

 -

 

(254)

 

 

 

331 

Total comprehensive income (loss) attributable to

 

 

 

 

 

 

 

 

 BBX Capital Corporation

$

298,031 

 

(18,858)

 

270,932 

 

(19,187)

 

 

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements - Unaudited

 

5

 


 

 

 

 

 

 

 

 

 

 

 

 

 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF (DEFICIT) EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 - UNAUDITED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Additional

 

Other

BBX Capital

Non-

 

 

 

Common

Paid-in

(Accumulated

Comprehensive

Corporation

Controlling

Total

(In thousands)

 

Stock

Capital

Deficit)

Loss

Equity

Interest

Equity

BALANCE, DECEMBER 31, 2010

$

125 
317,863 
(297,615)
(6,088)
14,285 
458 
14,743 

Net loss

 

 -

 -

(11,611)

 -

(11,611)
331 
(11,280)

Other comprehensive loss

 

 -

 -

 -

(7,576)
(7,576)

 -

(7,576)

Non-controlling interest distributions

 

 -

 -

 -

 -

 -

(724)
(724)

Issuance of Class A Common Stock

 

31 
10,970 

 -

 -

11,001 

 -

11,001 

Share based compensation expense

 

 -

957 

 -

 -

957 

 -

957 

BALANCE, SEPTEMBER 30, 2011

$

156 
329,790 
(309,226)
(13,664)
7,056 
65 
7,121 

BALANCE, DECEMBER 31, 2011

$

156 
329,995 
(326,692)
(20,385)
(16,926)

 -

(16,926)

Net income

 

 -

 -

250,547 

 -

250,547 

 -

250,547 

Other comprehensive income

 

 -

 -

 -

20,385 
20,385 

 -

20,385 

Share based compensation expense

 

722 

 -

 -

723 

 -

723 

BALANCE, September 30, 2012

$

157 
330,717 
(76,145)

 -

254,729 

 -

254,729 

 

 

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements - Unaudited

 

6

 


 

 

 

 

BBX CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months

 

 

Ended September 30,

(In thousands)

 

2012

 

2011

Net cash provided by operating activities

$

14,379 

 

58,405 

Investing activities:

 

 

 

 

Proceeds from redemption of tax certificates

 

25,660 

 

52,161 

Purchase of investment securities and tax certificates

 

(2,073)

 

(21,604)

Proceeds from maturities of securities available for sale

 

13,916 

 

247,602 

Proceeds from maturities of interest bearing deposits

 

5,655 

 

34,003 

Proceeds from sales of securities available for sale

 

32 

 

90,979 

Redemptions of FHLB stock

 

9,980 

 

18,334 

Net repayments of loans

 

322,050 

 

306,259 

Proceeds from the sales of loans

 

 

 

 

 transferred to held for sale

 

1,000 

 

27,793 

Additions to real estate owned

 

(2,501)

 

 -

Proceeds from sales of real estate owned

 

24,944 

 

21,485 

Purchases of office property and equipment

 

(343)

 

(1,623)

Proceeds from the sale of office properties

 

 

 

 

 and equipment

 

1,168 

 

1,287 

Net cash outflow from sale of BankAtlantic

 

(1,191,617)

 

 -

Net cash outflow from sale of Tampa branches

 

 -

 

(257,255)

Net cash (used in) provided by investing activities

 

(792,129)

 

519,421 

Financing activities:

 

 

 

 

Net increase (decrease) in deposits

 

178,831 

 

(247,584)

Net repayments of FHLB advances

 

 -

 

(170,020)

BB&T preferred interest in FAR distributions

 

(76,014)

 

 -

Payment of TruPS deferred interest

 

(51,314)

 

 -

Decrease in short-term borrowings

 

 -

 

(21,804)

Net proceed from the issuance of Class A common stock

 

 -

 

11,001 

Noncontrolling interest distributions

 

 -

 

(724)

Net cash provided by (used in) financing activities

 

51,503 

 

(429,131)

(Decrease) increase in cash and cash equivalents

 

(726,247)

 

148,695 

Cash and cash equivalents at the beginning of period

 

764,636 

 

507,908 

Change in cash and cash equivalents held for sale

 

 -

 

5,850 

Cash and cash equivalents at end of period

$

38,389 

 

662,453 

 

 

 

 

 

Cash paid (received) for:

 

 

 

 

Interest on borrowings and deposits

$

60,767 

 

12,918 

Income tax payments (refund)

 

(1,053)

 

84 

Supplementary disclosure of non-cash investing and

 

 

 

 

 financing activities:

 

 

 

 

Assumption of TruPS obligation by BB&T

 

285,000 

 

 -

Loans and tax certificates transferred to REO

 

30,994 

 

49,188 

Loans receivable transferred to loans held-for-investment

 

14,185 

 

 -

Loans receivable transferred to loans held-for-sale

 

35,209 

 

62,208 

 

 

 

 

 

See Notes to Consolidated Financial Statements - Unaudited

7

 


 

 

 

 

8

 


 

BBX Capital Corporation

 

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

1.  Presentation of Interim Financial Statements

 

Basis of Financial Statement Presentation  BBX Capital Corporation (formerly BankAtlantic Bancorp, Inc.) and its subsidiaries may also be referred to as “the Company”, “we”, “us,” or “our” in the notes to the consolidated financial statements. BBX Capital Corporation (the “Parent Company” or “BBX”) was organized under the laws of the State of Florida in 1994. BBX’s principal asset until July 31, 2012 was its investment in 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 July 31, 2012, BBX completed its previously announced sale to BB&T Corporation (“BB&T”) of all of the issued and outstanding shares of capital stock of BankAtlantic (the stock sale and related transactions described herein are collectively referred to as the “Transaction”).  Following the Transaction with BB&T, BBX requested and received approval from the Federal Reserve for deregistration as a savings and loan holding company effective August 31, 2012. As such, BBX is no longer subject to regulation by the Federal Reserve or restrictions applicable to a savings and loan holding company. 

 

On November 1, 2011, the Company entered into a definitive agreement to sell BankAtlantic to BB&T, this agreement was amended on March 13, 2012 (“the Agreement”).  The Agreement was amended to, among other things, provide for the assumption by BB&T of the Company’s $285.4 million in principal amount of outstanding trust preferred securities (“TruPS”) obligations.  At the closing of the Transaction, BB&T assumed the obligations with respect to the Company’s outstanding TruPS, and the Company paid BB&T approximately $51.3 million, representing all accrued and unpaid interest on the TruPS through closing.  The Company also paid approximately $2.3 million for certain legal fees and expenses with respect to the now resolved TruPS-related litigation brought in the Delaware Chancery Court against the Company by holders of the TruPS and certain trustees.    The Company funded the TruPS accrued interest and the TruPS related legal fees and expenses with proceeds received in the Transaction.    

 

Pursuant to the terms of the Agreement, prior to the closing of the Transaction, BankAtlantic formed two subsidiaries, BBX Capital Asset Management, LLC (“CAM”) and Florida Asset Resolution Group, LLC (“FAR”).  BankAtlantic contributed to FAR certain performing and non-performing loans, tax certificates and real estate owned that had an aggregate carrying value on BankAtlantic’s balance sheet of approximately $346 million 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 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 outstanding 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 September 30, 2012 was reduced to $209 million.

 

Prior to the closing of the Transaction, BankAtlantic contributed to CAM certain non-performing commercial loans, commercial real estate owned and previously written-off assets that had an aggregate carrying value on BankAtlantic’s balance sheet of $125 million as of July 31, 2012.  CAM assumed all liabilities related to these assets.  BankAtlantic also contributed approximately $82 million in cash to CAM.  Prior to the closing of the Transaction, BankAtlantic distributed all of the membership interests in CAM to the Company.  CAM remains a wholly-owned subsidiary of the Company.  CAM distributed the $82 million of cash to the Company and the Company used $51.3 million of the cash to pay BB&T for the accrued and unpaid interest on the TruPS through closing.

 

9

 


 

BBX Capital Corporation

 

 

BB&T made a cash payment in connection with the closing of the Transaction of approximately $6.4 million to the Company  which was based on a deposit premium of $315.9 million and the net asset value of BankAtlantic as of June 30, 2012. The deposit premium and BankAtlantic’s net asset value were  calculated pursuant to the terms of the Agreement, including, with respect to the net asset value of BankAtlantic, after giving effect to the asset contributions and membership interest distributions by BankAtlantic to the Company

 

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

 

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.

 

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

 

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 September  30, 2012, the consolidated results of operations and consolidated statement of comprehensive income (loss) for the three and nine months ended September  30, 2012 and 2011, and the consolidated stockholders' equity (deficit) and cash flows for the nine months ended September  30, 2012 and 2011.  The results of operations for the three and nine months ended September  30, 2012 are not necessarily indicative of results of operations that may be expected for the year ended December 31, 2012.  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, 2011.

 

Certain amounts for prior years have been reclassified to conform to the revised financial statement presentation for 2012.    

 

2.  Discontinued Operations

 

BankAtlantic’s five reporting units each reflect a component of the BankAtlantic entity and each is the lowest level for which cash flows can be clearly distinguished, operationally and for financial reporting purposes.  These five components are Community Banking, Commercial Lending, Tax Certificates, Investments, and Capital Services.   Based on the Agreement with BB&T, the Company determined that its Community Banking, Investments, Capital Services and Tax Certificates reporting units should be treated as discontinued operations.  The Company sold all operations and the majority of the assets and liabilities of these discontinued reporting units to BB&T on July 31, 2012.  Management does not intend to continue in any material respect any activities of or have any continuing involvement with these reporting units.  Although certain assets of the Commercial Lending reporting unit were sold to BB&T, the Company intends to continue Commercial Lending reporting unit activities resulting in the Company including the Commercial Lending reporting unit in continuing operations in the Company’s Statements of Operations.

10

 


 

BBX Capital Corporation

 

 

Pursuant to the Agreement, FAR will retain in addition to certain assets associated with the Company’s continuing Commercial Lending reporting unit, certain assets and liabilities that were associated with the Company’s disposed reporting units (Community Banking, Tax Certificates, Investments, and Capital Services reporting units). The Company determined that the ongoing cash flows of the disposed reporting units were not significant relative to the historical cash flows from the activities of each reporting unit; therefore, the income and expenses associated with the disposed reporting units are reported  in discontinued operations for each period presented.  The carrying value of the disposed reporting units’ net assets transferred to FAR were $112 million as of July  31, 2012.    The assets held by FAR are expected to be monetized in accordance with the terms of such assets or through orderly transactions over a seven year period or longer provided BB&T’s preferred interest is repaid within such seven-year periodNinety-five percent of the cash flows from these assets net of operating expenses and a stated preferred return will be applied toward the ongoing repayment of BB&T’s preferred interest in FAR. 

 

            The gain on the sale of BankAtlantic to BB&T, which is included in the Company’s Consolidated Statements of Operations in “Discontinued operations” for the three and nine months ended September 30, 2012, was as follows (in thousands):

 

 

 

 

 

 

 

Investment in BankAtlantic

$

306,302 

Reduction in other comprehensive loss

 

(18,124)

Carrying amount of BankAtlantic's net assets

 

288,178 

Stay bonuses

 

1,300 

Transaction costs

 

(5,000)

Cash consideration

 

6,433 

Other

 

(269)

Gain on sale of BankAtlantic

$

290,642 

 

 

(1)  The investment in BankAtlantic represents BankAtlantic’s stockholder’s equity as of July 31, 2012 after giving effect to the transfer of CAM and FAR to BBX.

 

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

 

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

 

11

 


 

BBX Capital Corporation

 

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

 

 

 

 

 

 

 

Deposit premium

$

315,900 

BankAtlantic net asset value:

 

 

BankAtlantic stockholder's equity

 

 

 before distribution of FAR and CAM

 

280,058 

Distribution of FAR

 

(384,140)

Distribution of CAM

 

(205,385)

BankAtlantic net asset value (1)

 

(309,467)

Cash consideration

$

6,433 

Pre-acquisition stay bonuses reimbursed by BB&T

$

983 

(1)  BankAtlantic net asset value was calculated as of June 30, 2012  after giving effect to the contribution to BankAtlantic of small business loans with a carrying value of $10.7 million in exchange for commercial loans with a carrying value of $7.5 million which were initially designated to be contributed to BankAtlantic and were instead retained by FAR

 

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

 

 

 

 

 

BankAtlantic assets sold:

 

 

Tax certificates

$

16,630 

Loans receivable

 

1,792,026 

Securities available for sale

 

29,781 

Office properties and equipment

 

129,025 

Other assets

 

60,113 

Total assets sold

 

2,027,575 

BankAtlantic liabilities assumed:

 

 

Deposits

 

(3,458,914)

Subordinated debentures

 

(22,000)

Other liabilities

 

(28,920)

Total liabilities assumed

 

(3,509,834)

Gain on sale of BankAtlantic

 

290,642 

Net cash outflows from sale of BankAtlantic

$

(1,191,617)

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Nine Months

 

 

Ended September 30,

 

Ended September 30,

 

 

2012

 

2011

 

2012

 

2011

Net interest income  

 $

5,235 

 

21,023 

 

37,384 

 

65,849 

Provision for loan losses

 

1,865 

 

4,010 

 

18,383 

 

31,391 

Net interest income after

 

 

 

 

 

 

 

 

 provision for loan losses

 

3,370 

 

17,013 

 

19,001 

 

34,458 

Gain on sale of BankAtlantic

 

290,642 

 

 -

 

290,642 

 

 -

Total non-interest income

 

4,978 

 

24,982 

 

37,234 

 

107,121 

Total non-interest expense

 

8,763 

 

30,849 

 

61,634 

 

98,020 

Income  from operations of  

 

 

 

 

 

 

 

 

 discontinued operations

 

290,227 

 

11,146 

 

285,243 

 

43,559 

Provision for income taxes

 

6,467 

 

4,300 

 

14,773 

 

16,803 

Income from discontinued operations

 $

283,760 

 

6,846 

 

270,470 

 

26,756 

12

 


 

BBX Capital Corporation

 

 

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

 

 

3Variable Interest Entity - FAR

 

In consideration for BB&T assuming the Company’s $285.4 million in principal amount of TruPS,  BB&T  received from the Company at the closing of the Transaction a 95% preferred membership interest in the net cash flows of FAR until such time as it has recovered $285 million in preference amount plus a priority return of LIBOR + 200 basis points per annum.  At that time, BBT’s interest in FAR will terminate, and the Company, which initially holds a 5% preferred membership interest in the net cash flows of FAR, will thereafter be entitled to any and all residual proceeds. FAR’s assets are expected to be monetized over a period of seven years, or longer provided BB&T’s preference amount is repaid within such seven-year period. The Company provided BB&T with an incremental $35 million guarantee to further assure BB&T’s recovery within seven years of the $285 million preference amount.  At September 30, 2012, BB&T’s preferred interest in FAR was reduced to approximately $209 million.

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

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 returns of FAR and its obligation under the incremental $35 million guarantee to BB&T assuring 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 $285 million preference amount plus the priority return.  Based on the amended and restated limited liability agreement, FAR is required to make quarterly distributions or more frequently as approved by FAR’s Board of Managers, of excess cash flows from its operations and the orderly disposition of its assets to redeem the preferred equity interests in FAR.  As such, the Class A units are considered mandatorily redeemable and are reflected as debt obligations in the Company’s Consolidated Statement of Financial Condition and the priority return is considered interest expense in the Company’s Consolidated Statements of Operations.

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

13

 


 

BBX Capital Corporation

 

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):

 

 

 

 

 

 

 

 

September 30,

 

 

2012

Cash and due from banks

 $

5,044 

Tax certificates

 

4,232 

Loans held for sale

 

20,349 

Loans receivable

 

259,092 

Real estate owned

 

22,577 

Accrued interest receivable

 

1,771 

Other assets (1)

 

3,221 

        Total assets

 $

316,286 

BB&T preferred interest in FAR

$

208,986 

Other liabilities

 

14,305 

       Total liabilities

$

223,291 

 

(1) Other assets consisted of a receivable from BB&T associated with net cash inflows from FAR’s assets for the one month ended September 30, 2012. Also included in other assets in the Company’s Consolidated Statement of Financial Condition was $0.6 million receivable from BB&T associated with the net cash inflows from CAM assets for the one month ended September 30, 2012.

 

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 and the priority return.   The Company anticipates that FAR will finance its activities through revenues from principal and interest payments received and the monetization of its assets. 

 

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

 

4.  Liquidity Considerations

 

            BBX and CAM had cash balances of $33.8 million and current liabilities of $10.3 million as of September 30, 2012.  In connection with the consummation of the Transaction on July 31, 2012, BBX received net cash proceeds of approximately $29.0 million, consisting of a $6.4 million cash payment from BB&T and approximately $22.5 million of cash held in CAM, net of transaction costs, trustee fees and costs associated with the TruPS related litigation and payments to BB&T of accrued and unpaid TruPS interest.  BBX liquidity is primarily dependent upon the repayments of loans, sales of real estate, and funds paid to it based on its 5% preferred interest in FAR.  Based on current and expected liquidity needs and sources, the Company expects to be able to meet its liquidity needs over the next 12 months.

 

 

14

 


 

BBX Capital Corporation

 

 

5.  Fair Value Measurement

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements  Using

 

 

 

Quoted prices in

 

 

 

 

 

Active Markets

Significant Other

Significant

 

 

As of

for Identical

Observable

Unobservable

 

 

December 31,

Assets

Inputs

Inputs

Description

 

2011

(Level 1)

(Level 2)

(Level 3)

Mortgage-backed securities

$

13,418 

 -

13,418 

 -

REMICS

 

31,690 

 -

31,690 

 -

Equity securities

 

1,327 
827 
500 

 -

Total

$

46,435 
827 
45,608 

 -

 

There were no assets measured at fair value on a recurring basis in the Company’s financial statements as of September 30, 2012.  There were no recurring liabilities measured at fair value in the Company’s financial statements as of September  30, 2012 or December 31, 2011.

 

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

 

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

 

Equity securities are generally fair valued using the market approach and quoted market prices (Level 1) or matrix pricing (Level 2) with inputs obtained from independent pricing sources, if available.  We also obtain non-binding broker quotes to validate fair values obtained from matrix pricing. We also invested in private limited partnerships that do not have readily determinable fair values.  We use the net asset value per share as provided by the partnership to estimate the fair value of these investments.  The net asset value of the partnership is a Level 2 input since we have the ability to require the redemption of our investment at its net asset value.

 

15

 


 

BBX Capital Corporation

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

Quoted prices in

 

 

 

 

 

 

Active Markets

Significant

Significant

Total

 

 

 

for Identical

Other Observable

Unobservable

Impairments (1)

 

 

September 30,

Assets

Inputs

Inputs

For the Nine

Description

 

2012

(Level 1)

(Level 2)

(Level 3)

Months Ended

Loans measured for

 

 

 

 

 

 

 impairment using the fair value

 

 

 

 

 

 

 of the underlying collateral

$

60,492 

 -

 -

60,492 
4,869 

Impaired  real estate owned

 

36,494 

 -

 -

36,494 
4,302 

Impaired loans held for sale

 

16,559 

 -

 -

16,559 
1,097 

Total

$

113,545 

 -

 -

113,545 
10,268 

 

 

(1)

Total impairments represent the amount losses recognized during the nine months ended September 30, 2012 on assets that were held and measured at fair value as of September 30, 2012.

 

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 September 30, 2012

 

Fair

Valuation

Unobservable

 

 

Description

 

Value

Technique

Inputs

Range (Average) (1)

 

Loans measured for

 

 

 

 

 

 

 impairment using the fair value

 

 

 

 

 

 

 of the underlying collateral

$

60,492 

Fair Value of Property

Appraisal

$0.3 - 4.6 million (3.4 million)

 

Impaired  real estate owned

 

36,494 

Fair Value of Property

Appraisal

$0.1 - 7.8 million (2.6 million)

 

Impaired loans held for sale

 

16,559 

Fair Value of Collateral

Appraisal

$0.3 - 4.3 million (2.4 million)

 

Total

$

113,545 

 

 

 

 

 

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

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

Quoted prices in

 

 

 

 

 

 

Active Markets

Significant

Significant

Total

 

 

 

for Identical

Other Observable

Unobservable

Impairments (1)

 

 

September 30,

Assets

Inputs

Inputs

For the Nine

Description

 

2011

(Level 1)

(Level 2)

(Level 3)

Months Ended

Loans measured for

 

 

 

 

 

 

 impairment using the fair value

 

 

 

 

 

 

 of the underlying collateral

$

244,765 

 -

                          -

244,765 
33,641 

Impaired loans held for sale

 

39,110 

                          -

                          -

39,110 
6,190 

Impaired  real estate held for sale

 

4,145 

 

 -

4,145 
353 

Impaired  real estate owned

 

72,601 

                          -

                          -

72,601 
12,294 

Total

$

360,621 

 -

 -

360,621 
52,478 

16

 


 

BBX Capital Corporation

 

 

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

 

There were no material liabilities measured at fair value on a non-recurring basis in the Company’s financial statements as of September 30, 2012 and December 31, 2011.

 

Loans Measured For Impairment

 

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

 

Impaired Real Estate Owned

 

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

 

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.

17

 


 

BBX Capital Corporation

 

 

 

Financial Disclosures about Fair Value of Financial Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

Carrying

 

Quoted prices in

 

 

 

 

Amount

 

Active Markets

Significant

Significant

 

 

As of

As of

for Identical

Other Observable

Unobservable

(in thousands)

 

September 30,

September 30,

Assets

Inputs

Inputs

Description

 

2012

2012

(Level 1)

(Level 2)

(Level 3)

Financial assets:

 

 

 

 

 

 

Cash and interest bearing

 

 

 

 

 

 

 deposits in other banks

$

38,885 
38,885 
38,885 

                         -

                     -

 Tax certificates

 

4,232 
3,594 

                                  -

                         -

3,594 

Loans receivable including loans held for sale, net

 

341,635 
336,590 

 -

 -

336,590 

Financial liabilities:

 

 

 

 

 

 

BB&T preferred interest in FAR

 

208,986 
208,986 

                                  -

 -

208,986 

 

 

 

 

 

 

 

 

 

 

 

 

18

 


 

BBX Capital Corporation

 

 

 

December 31, 2011

 

 

Carrying

 

Fair

(in thousands)

 

Amount

 

Value

Financial assets:

 

 

 

 

Cash and interest bearing

 

 

 

 

  deposits in other banks

$

770,292 

 

770,292 

 Securities available for sale

 

46,435 

 

46,435 

 Tax certificates

 

46,488 

 

45,562 

 Federal home loan bank stock

 

18,308 

 

18,308 

 Loans receivable including loans

 

 

 

 

   held for sale, net

 

2,503,804 

 

2,317,144 

Financial liabilities:

 

 

 

 

 Deposits

 

3,280,083 

 

3,279,562 

 Subordinated debentures

 

22,000 

 

21,989 

 Junior subordinated debentures

 

337,114 

 

226,991 

 

 

 

 

Management has made estimates of fair value that it believes to be reasonable. However, because there is no active market for many of these financial instruments and management has derived the fair value of 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.

 

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

 

The fair value of performing loans is calculated by using an income approach with Level 3 inputs.  The fair value of performing loans is estimated by discounting forecasted cash flows through the estimated maturity using estimated market discount rates that reflect the interest rate risk inherent in the loan portfolio. The estimate of average maturity is based on BankAtlantic's historical experience with prepayments for each loan classification, modified as required, by an estimate of the effect of current economic and lending conditions. Management assigns a credit risk premium and an illiquidity adjustment to these loans based on risk grades and delinquency status.  The fair value of non-performing collateral dependent loans is estimated using an income approach with Level 3 inputs. The fair value of non-performing loans utilizes the fair value of the collateral adjusted for operating and selling expenses and discounted over the estimated holding period based on the market risk inherent in the property.  

 

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

 

BB&T preferred interest in FAR securities are considered adjustable rate debt securities.  The fair value of these securities is calculated using the income approach with Level 3 inputs.  The fair value of these securities was obtained by discounting forecasted cash flows by risk adjusted market interest rate spreads to the LIBOR swap curve.  The market spreads were obtained from reference data in the secondary institutional market place. 

 

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

 

19

 


 

BBX Capital Corporation

 

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

 

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

 

            In determining the fair value of all of the Company’s junior subordinated debentures at December 31, 2011, the Company used NASDAQ price quotes available with respect to its $73.5 million of publicly traded trust preferred securities related to its junior subordinated debentures (“public debentures”). However, $263.6 million of the outstanding trust preferred securities related to its junior subordinated debentures were not traded, but were privately held in pools (“private debentures”) and with no liquidity or readily determinable source for valuation. We had deferred the payment of interest as of December 31, 2011 with respect to all of our junior subordinated debentures as permitted by the terms of these securities.  Based on the deferral status and the lack of liquidity and ability of a holder to actively sell such private debentures, the fair value of these private debentures may have been subject to a greater discount to par and have a lower fair value than indicated by the public debenture price quotes.  However, due to their private nature and the lack of a trading market, fair value of the private debentures were not readily determinable at December 31, 2011, and as a practical alternative, management used the NASDAQ price quotes of the public debentures to value all of the outstanding junior subordinated debentures whether privately held or public traded.  As such, the private debentures were valued using Level 2 inputs.

20

 


 

BBX Capital Corporation

 

 

6.   Securities Available for Sale

 

The following table summarizes securities available for sale (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2011

 

 

 

 

Gross

 

Gross

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Estimated

 

 

Cost

 

Gains

 

Losses

 

Fair Value

Government agency securities:

 

 

 

 

 

 

 

 

Mortgage-backed securities

$

12,533 

 

885 

 

 -

 

13,418 

Real estate mortgage investment conduits

 

30,561 

 

1,129 

 

 -

 

31,690 

    Total

 

43,094 

 

2,014 

 

 -

 

45,108 

Equity securities

 

1,260 

 

67 

 

 -

 

1,327 

         Total

$

44,354 

 

2,081 

 

 -

 

46,435 

 

 

During the three months ended September 30, 2012, the Company sold equity securities available for sale for gross proceeds of $32,000 recognizing a $22,000 gain included in securities activities, net in the Company’s Consolidated Statement of Operations for the three and nine months ended September 30, 2012.  There were no securities available for sale outstanding as of September 30, 2012.

21

 


 

BBX Capital Corporation

 

 

7.  Loans Receivable

 

The loan disclosures in this note as of September 30, 2012 include loans in the Company’s asset workout subsidiary and the loans transferred to FAR and to CAM in connection with the Transaction (“Retained Loans”).    The loan disclosures as of December 31, 2011 include the Retained Loans and the loans that were transferred to BB&T in connection with the Transaction.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2012

 

2011

Commercial non-real estate

$

11,735 

 

118,145 

Commercial real estate:

 

 

 

 

 Residential

 

60,188 

 

104,593 

 Land

 

3,496 

 

24,202 

 Owner occupied

 

8,089 

 

86,809 

 Other

 

151,522 

 

464,902 

Small Business:

 

 

 

 

 Real estate

 

 -

 

184,919 

 Non-real estate

 

 -

 

99,835 

Consumer:

 

 

 

 

 Consumer - home equity

 

18,918 

 

545,908 

 Consumer other

 

30 

 

10,704 

 Deposit overdrafts

 

 -

 

1,971 

Residential:

 

 

 

 

 Residential-interest only

 

21,276 

 

375,498 

 Residential-amortizing

 

39,140 

 

558,026 

         Total gross loans

 

314,394 

 

2,575,512 

Adjustments:

 

 

 

 

 Premiums, discounts and net deferred fees

 

235 

 

2,578 

 Allowance for loan  losses

 

(6,595)

 

(129,887)

         Loans receivable -- net

$

308,034 

 

2,448,203 

         Loans held for sale

$

33,601 

 

55,601 

 

 

Loans held for sale - Loans held for sale as of September 30, 2012 consisted of $14.5 million of commercial real estate loans and $19.1 million of small business loans.  Subsequent to the sale of BankAtlantic to BB&T, management evaluated its loan portfolio and transferred its entire portfolio of small business loans to loans held for sale and transferred $14.2 million of residential loans previously held for sale to loans held for investment.  Loans held for sale are reported at the lower of cost or fair value. The Company charged down its small business loans by $1.3 million and reduced its allowance for loan losses by $1.1 million upon the transfer of its small business loans to loans held for sale.  Loans held for sale as of December 31, 2011 consisted of $35.8 million of commercial real estate loans and $19.8 million of residential loans. 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. 

22

 


 

BBX Capital Corporation

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

Loan Class

 

2012

 

2011

Commercial non-real estate

$

6,620 

 

19,172 

Commercial real estate:

 

 

 

 Residential

 

62,452 

 

71,719 

 Land

 

12,887 

 

14,839 

 Owner occupied

3,141 

 

4,168 

 Other

 

58,508 

 

123,396 

Small business:

 

 

 

 

 Real estate

 

1,885 

 

10,265 

 Non-real estate

593 

 

1,751 

Consumer

 

8,533 

 

14,134 

Residential:

 

 

 

 

  Interest only

19,898 

 

33,202 

  Amortizing

 

32,774 

 

52,653 

Total nonaccrual loans

$

207,291 

 

345,299 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

31-59 Days

 

60-89 Days

 

90 Days

 

Total

 

 

 

Loans

September 30, 2012

 

Past Due

 

Past Due

 

or More

 

Past Due

 

Current

 

Receivable

Commercial non-real estate

$

1,952 

 

 -

 

4,668 

 

6,620 

 

5,115 

 

11,735 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 Residential

 

 -

 

 -

 

53,744 

 

53,744 

 

10,304 

 

64,048 

 Land

 

 -

 

 -

 

12,888 

 

12,888 

 

 -

 

12,888 

 Owner occupied

 

 -

 

 -

 

1,861 

 

1,861 

 

7,508 

 

9,369 

 Other

 

 -

 

 -

 

32,560 

 

32,560 

 

118,863 

 

151,423 

Small business:

 

 

 

 

 

 

 

 

 

 

 

 

 Real estate

 

786 

 

 -

 

1,173 

 

1,959 

 

11,622 

 

13,581 

 Non-real estate

 

 

 -

 

 -

 

 

5,600 

 

5,606 

Consumer

 

350 

 

814 

 

8,218 

 

9,382 

 

9,695 

 

19,077 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

Residential-interest only

 

 -

 

397 

 

19,592 

 

19,989 

 

1,286 

 

21,275 

Residential-amortizing

 

 -

 

964 

 

30,224 

 

31,188 

 

8,040 

 

39,228 

Total

$

3,094 

 

2,175 

 

164,928 

 

170,197 

 

178,033 

 

348,230 

23

 


 

BBX Capital Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

31-59 Days

 

60-89 Days

 

90 Days

 

Total

 

 

 

Loans

December 31, 2011

 

Past Due

 

Past Due

 

or More (1)

 

Past Due

 

Current

 

Receivable

Commercial non-real estate

$

 -

 

2,248 

 

13,292 

 

15,540 

 

102,605 

 

118,145 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 Residential

 

 -

 

 -

 

44,633 

 

44,633 

 

64,134 

 

108,767 

 Land

 

681 

 

 -

 

14,839 

 

15,520 

 

18,070 

 

33,590 

 Owner occupied

 

2,008 

 

 -

 

4,031 

 

6,039 

 

82,102 

 

88,141 

 Other

 

 -

 

5,467 

 

47,841 

 

53,308 

 

431,399 

 

484,707 

Small business:

 

 

 

 

 

 

 

 

 

 

 

 

 Real estate

 

2,089 

 

372 

 

9,449 

 

11,910 

 

173,009 

 

184,919 

 Non-real estate

 

 -

 

462 

 

76 

 

538 

 

99,187 

 

99,725 

Consumer

 

5,339 

 

3,996 

 

14,134 

 

23,469 

 

538,569 

 

562,038 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

Residential-interest only

 

2,656 

 

3,488 

 

32,317 

 

38,461 

 

343,958 

 

382,419 

Residential-amortizing

 

3,968 

 

4,513 

 

48,189 

 

56,670 

 

514,570 

 

571,240 

Total

$

16,741 

 

20,546 

 

228,801 

 

266,088 

 

2,367,603 

 

2,633,691 

 

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

 

 

 

 

24

 


 

BBX Capital Corporation

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

Commercial

Real

Small

 

 

 

 

 

Non-Real Estate

Estate

Business

Consumer

Residential

Total

Allowance for Loan Losses:

 

 

 

 

 

 

Beginning balance

$

800 
4,383 
1,326 
407 
237 
7,153 

    Charge-off :

 

(1,376)
(558)
(1,619)
(615)
(1,091)
(5,259)

     Recoveries :

 

421 
2,992 
155 
40 
700 
4,308 

     Provision for (recovery from):

 

2,084 
(3,371)
306 
896 
342 
257 

     Discontinued operations

 

 

 

 

 

 

 

        provision:

 

 -

70 
(168)
63 
171 
136 

Ending balance

$

1,929 
3,516 

 -

791 
359 
6,595 

Ending balance individually

 

 

 

 

 

 

 

 evaluated for impairment

$

1,490 
1,586 

 -

 -

 -

3,076 

Ending balance collectively

 

 

 

 

 

 

 

 evaluated for impairment

 

439 
1,930 

 -

791 
359 
3,519 

Total

$

1,929 
3,516 

 -

791 
359 
6,595 

Loans receivable:

 

 

 

 

 

 

 

Ending balance individually

 

 

 

 

 

 

 

 evaluated for impairment

$

6,620 
176,383 

 -

8,010 
38,904 
229,917 

Ending balance collectively

 

 

 

 

 

 

 

 evaluated for impairment

$

5,115 
46,912 

 -

10,938 
21,512 
84,477 

Total

$

11,735 
223,295 

 -

18,948 
60,416 
314,394 

Purchases of loans

$

                          -

                         -

                 -

                -

                   -

                   -

Proceeds from loan sales

$

                          -

 -

                 -

                -

                   -

 -

Transfer to loans held for sale

$

                          -

 -

19,069 

                -

                   -

19,069 

Transfer from loans held for sale

$

                          -

 -

 -

                -

14,185 
14,185 

 

25

 


 

BBX Capital Corporation

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

Commercial

Real

Small

 

 

 

 

 

Non-Real Estate

Estate

Business

Consumer

Residential

Total

Allowance for Loan Losses:

 

 

 

 

 

 

 

Beginning balance

$

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

     Charge-offs:

 

(7,563)
(6,422)
(2,321)
(6,555)
(3,489)
(26,350)

     Recoveries :

 

21 
316 
644 
543 
1,525 

     Provision :

 

7,770 
6,122 

 -

 -

 -

13,892 

     Discontinued operations

 

 

 

 

 

 

 

        provision:

 

 -

 -

109 
3,858 
42 
4,009 

Ending balance

$

11,225 
67,775 
7,957 
22,946 
20,816 
130,719 

Ending balance individually

 

 

 

 

 

 

 

 evaluated for impairment

$

9,791 
49,380 
821 
1,519 
5,661 
67,172 

Ending balance collectively

 

 

 

 

 

 

 

 evaluated for impairment

 

1,434 
18,395 
7,136 
21,427 
15,155 
63,547 

Total

$

11,225 
67,775 
7,957 
22,946 
20,816 
130,719 

Loans receivable:

 

 

 

 

 

 

 

Ending balance individually

 

 

 

 

 

 

 

 evaluated for impairment

$

20,989 
280,082 
18,956 
27,167 
64,390 
411,584 

Ending balance collectively

 

 

 

 

 

 

 

 evaluated for impairment

$

93,973 
434,168 
263,148 
547,818 
922,776 
2,261,883 

Total

$

114,962 
714,250 
282,104 
574,985 
987,166 
2,673,467 

Purchases of loans

$

                          -  

                          -  

                          -  

                          -  

 -

 -

Proceeds from loan sales

$

                          -  

 -

                          -  

                          -  

2,823 
2,823 

Transfer to loans held for sale

$

                          -  

6,242 

                          -  

                          -  

 -

6,242 

 

26

 


 

BBX Capital Corporation

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

Commercial

Real

Small

 

 

 

 

 

Non-Real Estate

Estate

Business

Consumer

Residential

Total

Allowance for Loan Losses:

 

 

 

 

 

 

Beginning balance

$

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

    Charge-off :

 

(15,991)
(53,839)
(3,991)
(8,028)
(12,847)
(94,696)

     Recoveries :

 

861 
4,623 
425 
1,071 
1,977 
8,957 

     Provision :

 

2,549 
(5,228)
306 
896 
342 
(1,135)

Transfer to held for sale:

 

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

Discontinued operations

 

 

 

 

 

 

 

 Provision:

 

 -

70 
546 
4,937 
6,674 
12,227 

Ending balance

$

1,929 
3,516 

 -

791 
359 
6,595 

Purchases of loans

$

                         - 

                         - 

                         - 

                         - 

 -

 -

Proceeds from loan sales

$

                         - 

1,000 

                         - 

 

 -

1,000 

Transfer to held for sale

$

                         - 

 -

35,209 

                         - 

 -

35,209 

Transfer from loans held for sale

$

                          -

 -

 -

                -

14,185 
14,185 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

Commercial

Real

Small

 

 

 

 

 

Non-Real Estate

Estate

Business

Consumer

Residential

Total

Allowance for Loan Losses:

 

 

 

 

 

 

Beginning balance

$

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

    Charge-off :

 

(8,151)
(31,939)
(6,942)
(20,748)
(17,267)
(85,047)

     Recoveries :

 

849 
814 
829 
1,544 
1,109 
5,145 

     Provision :

 

7,741 
17,291 

 -

 -

 -

25,032 

Transfer to held for sale:

 

                           -

(2,250)

 -

                -

(5,690)
(7,940)

Discontinued operations

 

 

 

 

 

 

 

 provision:

 

 -

 -

2,556 
10,107 
18,727 
31,390 

Ending balance

$

11,225 
67,775 
7,957 
22,946 
20,816 
130,719 

Purchases of loans

$

                         - 

                         - 

                         - 

                         - 

13,680 
13,680 

Proceeds from loan sales

$

                         - 

27,793 

                         - 

 

15,546 
43,339 

Transfer to held for sale

$

                         - 

37,136 

                         - 

                         - 

25,072 
62,208 

 

 

 

27

 


 

BBX Capital Corporation

 

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

 

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 and small business loans which results in the evaluation for impairment of substandard loans.  Factors considered in determining if a loan is impaired are past payment history, strength of the borrower or guarantors, and cash flow associated with the collateral or business.    If a loan is impaired, a specific valuation allowance is allocated, if necessary, based on the present value of estimated future cash flows using the loan’s existing interest rate or based on the fair value of the loan. Collateral dependent impaired loans are charged down to the fair value of collateral less cost to sell. Interest payments on impaired loans for all loan classes are recognized on a cash basis, unless collectability of the principal and interest amount is probable, in which case interest is recognized on an accrual basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible.  Impaired loans held for sale are measured for impairment based on the estimated fair value of the collateral less cost to sell adjusted for foreclosure expenses and other operating expenses of the underlying collateral until foreclosure and sale.

28

 


 

BBX Capital Corporation

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2012

 

As of December 31, 2011

 

 

 

Unpaid

 

 

 

Unpaid

 

 

 

Recorded

Principal

Related

 

Recorded

Principal

Related

 

 

Investment

Balance

Allowance

 

Investment

Balance

Allowance

With a related allowance recorded:

 

 

 

 

 

 

 

 

Commercial non-real estate

$

4,339 
4,465 
1,490 

 

17,792 
17,792 
15,408 

Commercial real estate:

 

 

 

 

 

 

 

 

 Residential

 

11,145 
20,481 
922 

 

64,841 
70,780 
20,986 

 Land

 

 -

 -

 -

 

5,451 
5,451 
1,765 

 Owner occupied

 

 -

 -

 -

 

1,715 
1,715 
100 

 Other

 

19,948 
19,948 
664 

 

130,771 
149,742 
29,731 

Small business:

 

 

 

 

 

 

 

 

 Real estate

 

 -

 -

 -

 

6,499 
6,499 
85 

 Non-real estate

 

 -

 -

 -

 

1,339 
1,339 
776 

Consumer

 

 -

 -

 -

 

15,951 
17,502 
1,454 

Residential:

 

 

 

 

 

 

 

 

Residential-interest only

 

 -

 -

 -

 

15,441 
20,667 
2,982 

Residential-amortizing

 

 -

 -

 -

 

20,554 
24,545 
3,960 

Total with allowance recorded

$

35,432 
44,894 
3,076 

 

280,354 
316,032 
77,247 

With no related allowance recorded:

 

 

 

 

 

 

 

 

Commercial non-real estate

$

2,281 
2,586 

 -

 

5,922 
5,922 

 -

Commercial real estate:

 

 

 

 

 

 

 

 

 Residential

 

51,840 
114,010 

 -

 

26,735 
71,759 

 -

 Land

 

12,887 
35,967 

 -

 

9,388 
30,314 

 -

 Owner occupied

 

4,541 
6,719 

 -

 

3,882 
4,872 

 -

 Other

 

91,087 
132,614 

 -

 

63,024 
86,052 

 -

Small business:

 

 

 

 

 

 

 

 

 Real estate

 

6,564 
7,051 

 -

 

10,265 
12,007 

 -

 Non-real estate

 

869 
1,665 

 -

 

792 
1,107 

 -

Consumer

 

17,694 
21,991 

 -

 

9,719 
13,246 

 -

Residential:

 

 

 

 

 

 

 

 

Residential-interest only

 

19,898 
34,336 

 -

 

17,761 
28,042 

 -

Residential-amortizing

 

34,399 
50,139 

 -

 

34,494 
45,680 

 -

Total with no allowance recorded

$

242,060 
407,078 

 -

 

181,982 
299,001 

 -

 

 

 

 

 

 

 

 

 

Commercial non-real estate

$

6,620 
7,051 
1,490 

 

23,714 
23,714 
15,408 

Commercial real estate

 

191,448 
329,739 
1,586 

 

305,807 
420,685 
52,582 

Small business

 

7,433 
8,716 

 -

 

18,895 
20,952 
861 

Consumer

 

17,694 
21,991 

 -

 

25,670 
30,748 
1,454 

Residential

 

54,297 
84,475 

 -

 

88,250 
118,934 
6,942 

Total

$

277,492 
451,972 
3,076 

 

462,336 
615,033 
77,247 

29

 


 

BBX Capital Corporation

 

   

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

September 30, 2012

 

September 30, 2012

 

 

Average Recorded

Interest Income

 

Average Recorded

Interest Income

 

 

Investment

Recognized

 

Investment

Recognized

With an allowance recorded:

 

 

 

 

 

 

Commercial non-real estate

$

4,339 

 -

 

4,387 
29 

Commercial real estate:

 

 

 

 

 

 

 Residential

 

11,145 

 -

 

12,991 
139 

 Land

 

 -

 -

 

 -

 -

 Owner occupied

 

 -

 -

 

 -

 -

 Other

 

19,988 
221 

 

19,996 
658 

Small business:

 

 

 

 

 

 

 Real estate

 

 -

 -

 

 -

 -

 Non-real estate

 

 -

 -

 

 -

 -

Consumer

 

 -

 -

 

 -

 -

Residential:

 

 

 

 

 

 

Residential-interest only

 

 -

 -

 

 -

 -

Residential-amortizing

 

 -

 -

 

 -

 -

Total with allowance recorded

$

35,472 
221 

 

37,374 
826 

With no related allowance recorded:

 

 

 

 

 

 

Commercial non-real estate

$

2,558 

 -

 

2,185 
108 

Commercial real estate:

 

 

 

 

 

 

 Residential

 

51,791 
124 

 

59,559 
434 

 Land

 

13,086 

 -

 

13,807 

 -

 Owner occupied

 

4,627 
28 

 

5,232 
72 

 Other

 

91,024 
558 

 

99,142 
1,336 

Small business:

 

 

 

 

 

 

 Real estate

 

6,905 
96 

 

6,995 
290 

 Non-real estate

 

2,279 
27 

 

2,444 
86 

Consumer

 

17,921 
75 

 

18,358 
223 

Residential:

 

 

 

 

 

 

Residential-interest only

 

20,992 

 -

 

21,841 

 -

Residential-amortizing

 

35,542 
28 

 

37,355 
82 

Total with no allowance recorded

$

246,725 
936 

 

266,918 
2,631 

 

 

 

 

 

 

 

Commercial non-real estate

$

6,897 

 -

 

6,572 
137 

Commercial real estate

 

191,661 
931 

 

210,727 
2,639 

Small business

 

9,184 
123 

 

9,439 
376 

Consumer

 

17,921 
75 

 

18,358 
223 

Residential

 

56,534 
28 

 

59,196 
82 

Total

$

282,197 
1,157 

 

304,292 
3,457 

30

 


 

BBX Capital Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

September 30, 2011

 

September 30, 2011

 

 

Average Recorded

Interest Income

 

Average Recorded

Interest Income

 

 

Investment

Recognized

 

Investment

Recognized

With an allowance recorded:

 

 

 

 

 

 

Commercial non-real estate

$

16,280 
35 

 

16,119 
220 

Commercial real estate:

 

 

 

 

 

 

 Residential

 

80,285 
518 

 

84,055 
1,432 

 Land

 

4,870 

 -

 

7,594 

 -

 Owner occupied

 

945 

                      -

 

1,938 

 -

 Other

 

93,735 
453 

 

99,475 
989 

Small business:

 

 

 

 

 

 

 Real estate

 

7,646 

                      -

 

6,469 

                     -

 Non-real estate

 

1,644 

                      -

 

1,754 

                     -

Consumer

 

17,807 

                      -

 

14,148 

                     -

Residential:

 

 

 

 

 

 

Residential-interest only

 

12,577 

                      -

 

18,604 

                     -

Residential-amortizing

 

15,576 

                      -

 

17,893 

                     -

Total with allowance recorded

$

251,365 
1,006 

 

268,049 
2,641 

With no related allowance recorded:

 

 

 

 

 

 

Commercial non-real estate

$

12,823 

 -

 

7,517 

 -

Commercial real estate:

 

 

 

 

 

 

 Residential

 

21,339 
87 

 

27,982 
387 

 Land

 

13,737 

 -

 

14,557 

 -

 Owner occupied

 

5,929 
22 

 

4,924 
53 

 Other

 

81,005 
589 

 

80,637 
1,700 

Small business:

 

 

 

 

 

 

 Real estate

 

9,736 
117 

 

11,165 
310 

 Non-real estate

 

462 
11 

 

475 
31 

Consumer

 

9,833 
106 

 

13,005 
319 

Residential:

 

 

 

 

 

 

Residential-interest only

 

21,361 

                      -

 

17,622 

 -

Residential-amortizing

 

34,334 
30 

 

31,439 
88 

Total with no allowance recorded

$

210,559 
962 

 

209,323 
2,888 

 

 

 

 

 

 

 

Commercial non-real estate

$

29,103 
35 

 

23,636 
220 

Commercial real estate

 

301,845 
1,669 

 

321,162 
4,561 

Small business

 

19,488 
128 

 

19,863 
341 

Consumer

 

27,640 
106 

 

27,153 
319 

Residential

 

83,848 
30 

 

85,558 
88 

Total

$

461,924 
1,968 

 

477,372 
5,529 

31

 


 

BBX Capital Corporation

 

 

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

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 September 30, 2012 was  $138.2 million of collateral dependent loans, of which $50.2 million were measured for impairment using current appraisals and $88.0 million were measured by adjusting appraisals greater than six months old, as appropriate, to reflect changes in market conditions subsequent to the last appraisal date.   Appraised values with respect to three loans which did not have current appraisals were adjusted down by an aggregate amount of $1.0 million based on changes in market conditions since the appraisal date.  

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

 

Credit Quality Information

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

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

Grades 8 to 9 – Not used.

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

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

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

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

 

32

 


 

BBX Capital Corporation

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

Owner Occupied

Other

Small

Small

 

 

Non

Commercial

Commercial

Commercial

Commercial

Business

Business

 

Real Estate

Residential

Land

Real Estate

Real Estate

Real Estate

Non-Real Estate

Grade:

 

 

 

 

 

 

 

 

 Grades 1 to 7

$

108 

 -

                   -

5,226 
33,345 

                   -

191 

 Grade 10

 

1,886 
1,596 

                   -

 -

21,138 
1,432 
1,782 

 Grade 11

 

9,741 
62,452 
12,888 
4,143 
97,040 
12,032 
3,633 

Total

$

11,735 
64,048 
12,888 
9,369 
151,523 
13,464 
5,606 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

Owner Occupied

Other

Small

Small

 

 

Non

Commercial

Commercial

Commercial

Commercial

Business

Business

 

 

Real Estate

Residential

Land

Real Estate

Real Estate

Real Estate

Non-Real Estate

Risk Grade:

 

 

 

 

 

 

 

 

 Grades 1 to 7

$

71,798 
16,085 
18,752 
82,251 
250,238 
157,237 
85,942 

 Grade 10

 

6,021 
1,375 

                   -

                           -

50,208 
2,837 
4,306 

 Grade 11

 

40,326 
91,307 
14,838 
5,890 
184,261 
24,845 
9,477 

Total

$

118,145 
108,767 
33,590 
88,141 
484,707 
184,919 
99,725 

 

 

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

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2012 (1)

 

As of December 31, 2011 (1)

 

 

Residential

 

Residential

 

Residential

 

Residential

Loan-to-value ratios

 

Interest Only

 

Amortizing

 

Interest Only

 

Amortizing

Ratios not available (2)

$

3,788 

 

17,210 

 

124,868 

 

304,372 

<=60%

 

406 

 

3,459 

 

20,314 

 

68,817 

60.1% - 70%

 

548 

 

905 

 

10,316 

 

30,033 

70.1% - 80%

 

254 

 

1,669 

 

24,784 

 

32,271 

80.1% - 90%

 

891 

 

1,996 

 

27,622 

 

27,523 

>90.1%

 

15,389 

 

13,988 

 

174,515 

 

108,224 

Total

$

21,276 

 

39,227 

 

382,419 

 

571,240 

33

 


 

BBX Capital Corporation

 

 

(1)  Current loan-to-value ratios (“LTV”) for the majority of the portfolio were obtained as of the second quarter of 2011 based on automated valuation models.

(2)  Ratios not available consisted of properties not found in the automated valuation database, and $9.2 million and $78.8 million as of September 30, 2012 and December 31, 2011, respectively, of loans originated under the community reinvestment act program that are not monitored based on loan-to-value.

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

 

34

 


 

BBX Capital Corporation

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Home Equity

 

 

September 30,

 

December 31,

Loan-to-value ratios

 

2012

 

2011

<=70%

$

9,926 

 

334,050 

70.1% - 80%

 

4,156 

 

97,516 

80.1% - 90%

 

3,171 

 

62,674 

90.1% -100%

 

1,127 

 

40,327 

>100%

 

538 

 

11,341 

Total

$

18,918 

 

545,908 

 

 

 

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

 

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

 

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

 

 

35

 


 

BBX Capital Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

September 30, 2012

 

September 30, 2011

 

 

 

Recorded 

 

 

 

Recorded 

 

Number

 

Investment

 

Number

 

Investment

Troubled Debt Restructurings

 

 

 

 

 

 

 

Commercial non-real estate

 -

 $

 -

 

 $

2,771 

Commercial real estate:

 

 

 

 

 

 

 

 Residential

 -

 

 -

 

 

11,822 

 Land

 -

 

 -

 

 -

 

 -

 Owner occupied

 -

 

 -

 

 -

 

 -

 Other

 -

 

 -

 

 

1,462 

Small business:

 

 

 

 

 

 

 

 Real estate

 -

 

 -

 

 

1,314 

 Non-real estate

 

296 

 

 -

 

 -

Consumer

 -

 

 -

 

 

111 

Residential:

 

 

 

 

 

 

 

 Residential-interest only

 -

 

 -

 

 -

 

 -

 Residential-amortizing

 -

 

 -

 

 

1,626 

Total Troubled Debt Restructured

 $

296 

 

20 

 $

19,106 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended

 

September 30, 2012

 

September 30, 2011

 

 

 

Recorded 

 

 

 

Recorded 

 

Number

 

Investment

 

Number

 

Investment

Troubled Debt Restructurings

 

 

 

 

 

 

 

Commercial non-real estate

 -

 $

 -

 

 $

4,982 

Commercial real estate:

 

 

 

 

 

 

 

 Residential

 -

 

 -

 

 

32,565 

 Land

 -

 

 -

 

 -

 

 -

 Owner occupied

 -

 

 -

 

 

692 

 Other

 -

 

 -

 

 

52,460 

Small business:

 

 

 

 

 

 

 

 Real estate

 

342 

 

 

1,314 

 Non-real estate

 

296 

 

 -

 

 -

Consumer

 

47 

 

 

571 

Residential:

 

 

 

 

 

 

 

 Residential-interest only

 -

 

 -

 

 

547 

 Residential-amortizing

 

62 

 

19 

 

3,321 

Total Troubled Debt Restructured

 $

747 

 

54 

 $

96,452 

 

 

 

 

36

 


 

BBX Capital Corporation

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

September 30, 2012

 

September 30, 2011

 

 

 

 

Recorded

 

 

 

Recorded

 

 

Number

 

Investment

 

Number

 

Investment

Troubled Debt Restructurings which

 

 

 

 

 

 

 

 

have subsequently defaulted:

 

 

 

 

 

 

 

 

Commercial non-real estate

 

 -

$

 -

 

 -

$

 -

Commercial real estate:

 

 

 

 

 

 

 

 

 Residential

 

 

6,907 

 

 -

 

 -

 Land

 

 -

 

 -

 

 -

 

 -

 Owner occupied

 

 -

 

 -

 

 -

 

 -

 Other

 

 

22,050 

 

 -

 

 -

Small business:

 

 

 

 

 

 

 

 

 Real estate

 

 -

 

 -

 

 

598 

 Non-real estate

 

 -

 

 -

 

 -

 

 -

Consumer

 

 -

 

 -

 

 

227 

Residential:

 

 

 

 

 

 

 

 

Residential-interest only

 

 -

 

 -

 

 -

 

 -

Residential-amortizing

 

 -

 

 -

 

 

64 

Total Troubled Debt Restructured

 

$

28,957 

 

$

889 

 

 

37

 


 

BBX Capital Corporation

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended

 

 

September 30, 2012

 

September 30, 2011

 

 

 

 

Recorded

 

 

 

Recorded

 

 

Number

 

Investment

 

Number

 

Investment

Troubled Debt Restructurings which

 

 

 

 

 

 

 

 

have subsequently defaulted:

 

 

 

 

 

 

 

 

Commercial non-real estate

 

 -

$

 -

 

 -

$

 -

Commercial real estate:

 

 

 

 

 

 

 

 

 Residential

 

 

6,907 

 

 

6,869 

 Land

 

 -

 

 -

 

 

3,458 

 Owner occupied

 

 -

 

 -

 

 

1,473 

 Other

 

 

22,050 

 

 

6,102 

Small business:

 

 

 

 

 

 

 

 

 Real estate

 

 -

 

 -

 

 

754 

 Non-real estate

 

 -

 

 -

 

 -

 

 -

Consumer

 

 -

 

 -

 

11 

 

1,004 

Residential:

 

 

 

 

 

 

 

 

Residential-interest only

 

 

247 

 

 

547 

Residential-amortizing

 

 

177 

 

 

1,135 

Total Troubled Debt Restructured

 

$

29,381 

 

27 

$

21,342 

 

 

38

 


 

BBX Capital Corporation

 

 

8.    Share-based Compensation and Common Stock

 

Share-based Compensation

 

In February 2010, the Board of Directors granted to employees awards of 320,000 shares of restricted Class A Common Stock (“RSAs”) under the BankAtlantic Bancorp, Inc. 2005 Restricted Stock and Option Plan.  The Board of Directors also granted 15,000 RSAs to employees of BFC Financial Corporation (“BFC”) that perform services for the Company.  The RSAs vest pro-rata over four years and had a fair value of $6.20 per share at the grant date. 

 

The following is a summary of the Company’s non-vested restricted Class A common share activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

Weighted

 

 

Non-vested

 

Average

 

 

Restricted

 

Grant date

 

 

Stock

 

Fair Value

Outstanding at December 31, 2010

 

313,780 

$

7.40 

Vested

 

(87,130)

 

8.68 

Forfeited

 

(14,000)

 

6.20 

Granted

 

 -

 

 -

Outstanding at September 30, 2011

 

212,650 

$

6.94 

 

 

 

 

 

Outstanding at December 31, 2011

 

211,900 

 $

6.96 

Vested

 

(142,900)

 

6.20 

Forfeited

 

(4,000)

 

6.20 

Granted

 

                -

 

                                   - 

Outstanding at September 30, 2012

 

65,000 

 $

8.68 

 

 

            As of September 30, 2012, the total unrecognized compensation cost related to non-vested restricted stock compensation was approximately $0.3 million. The cost of these non-vested RSAs is expected to be recognized over a weighted-average period of approximately seventeen months. The fair value of shares vested during the three and nine months ended September 30, 2012 was $437,000 and $684,000, respectively, compared to $1,600 and $446,000 during the three and nine months ended September 30, 2011, respectively.  The vesting of 72,400 shares of non-vested RSAs was accelerated with respect to employees employed by BankAtlantic at the closing of the Transaction.  As a consequence, the Company recognized $0.4 million of compensation expense upon the vesting of the RSA’s on July 31, 2012. 

 

            Upon the consummation of the Transaction and the transfer of employees to BB&T, 55,426 options to acquire the Company’s Class A Common Stock with a weighted average exercise price of $306.63 were forfeited.  The Company had 36,804 options to acquire its Class A Common Stock outstanding as of September 30, 2012 with a weighted average exercise price of $233.00.

 

 

9.   Related Parties

The Company, BFC and Bluegreen Corp. (“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.

 

39

 


 

BBX Capital Corporation

 

In March 2008, BankAtlantic entered into an agreement with BFC to provide information technology support in exchange for monthly payments by BFC to BankAtlantic. In May 2008, BankAtlantic also entered into a lease agreement with BFC under which BFC pays BankAtlantic monthly rent for office space in BankAtlantic’s corporate headquarters. 

 

 

The Company maintained service agreements with BFC pursuant to which BFC provided human resources, risk management and investor relations services to the Company.  BFC was compensated for these services based on its cost. 

 

During the second quarter of 2010, BankAtlantic and the Parent Company entered into a real estate advisory service agreement with BFC for assistance relating to the work-out of loans and the sale of real estate owned.  BFC was compensated $12,500 per month by each of BankAtlantic and the Parent Company and, if BFC’s efforts result in net recoveries of any non-performing loan or the sale of real estate owned, it will receive a fee equal to 1% of the net value recovered. During the three and nine months ended September 30, 2012, the Company incurred $25,000 and $260,000 respectively, of real estate advisory service fees under this agreement compared to $47,000 and $421,000 during three and nine months ended September 30, 2011, respectively

 

The above agreements were either terminated effective upon the closing of the Transaction or were assumed by BB&T for a limited period of time after consummation of the Transaction and thus are no longer considered related party transactions.

 

Upon the consummation of the Transaction, the Company entered into a transition services agreement with BB&T under which certain former employees of BankAtlantic that were employed by BB&T after the Transaction would provide specified services to the Company at no cost to the Company through the earlier of the termination of employment with BB&T and December 2012.   It is anticipated that certain of these employees will be employed by the Company after their employment is terminated by BB&T.  The fair value of the costs of these services was not material during the three and nine months ended September 30, 2012.   Additionally, the Company has the right under the transition services agreement to utilize office space at the Company’s former headquarters at no cost until December 2012.

 

The table below shows the effect of service arrangements with related parties on the Company’s consolidated statements of operations for the three and nine months ended September 30, 2012 and 2011 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2012

 

2011

 

2012

 

2011

Non-interest income:

$

25 

 

103 

 

205 

 

312 

Non-interest expense:

 

 

 

 

 

 

 

 

 Employee compensation

 

 

 

 

 

 

 

 

   and benefits

 

(2)

 

(10)

 

(19)

 

(42)

 Other - back-office support

 

(80)

 

(426)

 

(884)

 

(1,398)

Net effect of affiliate transactions

 

 

 

 

 

 

 

 

 before income taxes

$

(57)

 

(333)

 

(698)

 

(1,128)

40

 


 

BBX Capital Corporation

 

 

 

The Company, in prior periods, issued options to acquire shares of the Company’s Class A Common Stock to employees of BFC. Additionally, employees of the Company have transferred to affiliate companies and the Company has elected, in accordance with the terms of the Company’s stock option plans, not to cancel the stock options held by those former employees.  The Company also issued options and restricted stock awards to BFC employees who performed services for the Company.  During the year ended December 31, 2010, the Company granted 15,000 RSAs to BFC employees who performed services for the Company. These stock awards vest pro-rata over a four year period.  The Company recorded $2,000, and $19,000 of expenses relating to all options and restricted stock awards held by employees of affiliated companies for the three and nine months ended September 30, 2012, compared to expenses of $10,000 and $42,000 during the three and nine months ended September 30, 2011, respectively.  

 

The Company had 723 options to acquire its Class A Common Stock outstanding to BFC employees as of September 30, 2012 with a weighted average exercise price of $259.87.

 

The Company’s Compensation Committee of the Board of Directors approved the acceleration of vesting of the 7,500 RSAs issued to BFC employees who were employed by BankAtlantic upon the closing of the Transaction. Additionally, 4,944 options to acquire the Company’s Class A Common Stock issued to BFC employees were forfeited upon the closing of the Transaction. 

 

            BFC had deposits at BankAtlantic totaling $0.2 million as of December 31, 2011. The Company recognized nominal interest expense in connection with the above deposits. These deposits were on the same general terms as offered to unaffiliated third parties. 

 

41

 


 

BBX Capital Corporation

 

10.   Segment Reporting

 

The information provided for Segment Reporting is based on internal reports utilized by management. Results of continuing operations are reported through two reportable segments: Commercial Lending reporting unit (“CLRU”) and the Parent Company. CLRU’s activities previously consisted of managing a commercial loan portfolio which included construction, residential development, land acquisition and commercial business loans and as of August 1, 2012 consists of criticized tax certificates and residential, consumer and small business loans. The activities during the three and nine months ended September 30, 2012 and 2011 included renewing, modifying, increasing, extending, refinancing and making protective advances on commercial loans, as well as the servicing of commercial loans. The Parent Company activities include the managing of non-performing loans and related real estate owned acquired from BankAtlantic.

The accounting policies of the segments are generally the same as those described in the summary of significant accounting policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Intersegment transactions are eliminated in consolidation.

The Company evaluates segment performance based on segment net income from continuing operations.

 

 

42

 


 

BBX Capital Corporation

 

The Company evaluates segment performance based on segment net income from continuing operations after tax.  The table below is segment information for segment net income from continuing operations for the three and nine months ended September 30, 2012 and 2011 (in thousands): 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusting and

 

 

 

 

 

 

Parent

 

Elimination

 

Segment

For the Three Months Ended:

 

CLRU

 

Company

 

Entries

 

Total

September 30, 2012:

 

 

 

 

 

 

 

 

Interest income

$

4,190 

 

46 

 

 -

 

4,236 

Interest expense

 

(1,094)

 

(1,348)

 

 -

 

(2,442)

Recovery of loan losses

 

(257)

 

 -

 

 -

 

(257)

Non-interest income

 

133 

 

153 

 

(89)

 

197 

Non-interest expense

 

(6,275)

 

(6,452)

 

89 

 

(12,638)

Segments loss

 

 

 

 

 

 

 

 

  before income taxes

 

(3,303)

 

(7,601)

 

 -

 

(10,904)

Benefit for income tax

 

(1,274)

 

(2,932)

 

 -

 

(4,206)

Net loss

$

(2,029)

 

(4,669)

 

 -

 

(6,698)

Total assets

$

446,757 

 

300,487 

 

(258,890)

 

488,354 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusting and 

 

 

 

 

 

 

   Parent  

 

Elimination

 

  Segment  

For the Three Months Ended:

 

  CLRU 

 

  Company  

 

Entries (1)

 

  Total  

September 30, 2011:

 

 

 

 

 

 

 

 

Interest income

$

9,109 

 

47 

 

 -

 

9,156 

Interest expense

 

 -

 

(3,899)

 

 -

 

(3,899)

Provision for loan losses

 

(13,745)

 

(147)

 

 -

 

(13,892)

Non-interest income

 

 -

 

809 

 

(315)

 

494 

Non-interest expense

 

(14,705)

 

(531)

 

315 

 

(14,921)

Segments loss

 

 

 

 

 

 

 

 

  before income taxes

 

(19,341)

 

(3,721)

 

 -

 

(23,062)

Benefit for income tax

 

(3,709)

 

(713)

 

 -

 

(4,422)

Net loss

$

(15,632)

 

(3,008)

 

 -

 

(18,640)

Total assets

$

668,710 

 

341,423 

 

2,730,521 

 

3,740,654 

 

(1)

Includes assets transferred to BB&T in connection with the Transaction.

43

 


 

BBX Capital Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusting and

 

 

 

 

 

 

Parent

 

Elimination

 

Segment

For the Nine Months Ended:

 

CLRU

 

Company

 

Entries

 

Total

September 30, 2012:

 

 

 

 

 

 

 

 

Interest income

$

19,591 

 

267 

 

 -

 

19,858 

Interest expense

 

(1,094)

 

(9,641)

 

 -

 

(10,735)

Recovery of loan losses

 

1,129 

 

 

 -

 

1,135 

Non-interest income

 

203 

 

1,018 

 

(686)

 

535 

Non-interest expense

 

(28,762)

 

(15,152)

 

686 

 

(43,228)

Segments loss

 

 

 

 

 

 

 

 

  before income taxes

 

(8,933)

 

(23,502)

 

 -

 

(32,435)

Benefit for income tax

 

(3,446)

 

(9,066)

 

 -

 

(12,512)

Net loss

$

(5,487)

 

(14,436)

 

 -

 

(19,923)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusting and 

 

 

 

 

 

 

   Parent  

 

Elimination

 

  Segment  

For the Nine Months Ended:

 

  CLRU 

 

  Company  

 

Entries

 

  Total  

September 30, 2011:

 

 

 

 

 

 

 

 

Interest income

$

31,971 

 

196 

 

(6)

 

32,161 

Interest expense

 

 -

 

(11,543)

 

 

(11,537)

Provision for loan losses

 

(24,391)

 

(641)

 

                 - 

 

(25,032)

Non-interest income

 

13 

 

648 

 

(924)

 

(263)

Non-interest expense

 

(44,751)

 

(6,463)

 

924 

 

(50,290)

Segments loss

 

 

 

 

 

 

 

 

  before income taxes

 

(37,158)

 

(17,803)

 

 -

 

(54,961)

Benefit for income tax

 

(11,442)

 

(5,483)

 

 -

 

(16,925)

Net loss

$

(25,716)

 

(12,320)

 

 -

 

(38,036)

 

44

 


 

BBX Capital Corporation

 

11.  Commitments and Contingencies 

 

The Company and its subsidiaries are parties to lawsuits as plaintiff or defendant involving its operations.   Although the Company believes it has meritorious defenses in all current legal actions, the outcome of litigation and regulatory matters and timing of ultimate resolution are inherently difficult to predict and uncertain.

 

The Company establishes litigation reserves for matters in which it is probable that a loss will be incurred and the amount of such loss can be reasonably estimated. The Company had no litigation reserves as of September 30, 2012 as the amount of loss associated with its legal matters could not be reasonably estimated.  The actual costs of resolving these legal claims may be significant to the Company’s financial statements.   

 

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 estimable. Management currently estimates that the aggregate range of reasonably possible losses cannot be reasonable estimated as of September 30, 2012.   An estimated range of reasonably possible losses represents the estimated possible losses over the life of such legal matters, which may be an indeterminable time period, and is based on information currently available as of September 30, 2012. 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. During the nine months ended September 30, 2012, a matter associated with tax certificates activities was settled for $1.6 million reducing the range of possible losses reported as of December 31, 2011.  

 

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 and regulatory matters, discussed below 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  and an adverse outcome in these matters could be material to the Company’s financial statements.

As a consequence of the sale of BankAtlantic to BB&T, litigation and regulatory matters in which BankAtlantic was a party are no longer reported by the Company except material matters for which the Company agreed to indemnify BB&T. The following is a description of the ongoing litigation and regulatory matters:

 

Class action securities litigation 

 

In October 2007, the Company and current or former officers of the Company were named in a lawsuit which alleged that during the period of November 9, 2005 through October 25, 2007, the Company and the named officers knowingly and/or recklessly made misrepresentations of material fact regarding BankAtlantic and specifically BankAtlantic’s loan portfolio and allowance for loan losses. The Complaint asserted claims for violations of the Securities Exchange Act of 1934 and Rule 10b-5 and sought unspecified damages. On November 18, 2010, a jury returned a verdict awarding $2.41 per share to shareholders who purchased shares of the Company’s Class A Common Stock during the period of April 26, 2007 to October 26, 2007 who retained those shares until the end of the period.  The jury rejected the plaintiffs’ claim for the six month period from October 19, 2006 to April 25, 2007.  Prior to the beginning of the trial, the plaintiffs abandoned any claim for any prior period.  On April 25, 2011, the Court granted defendants’ post-trial motion for judgment as a matter of law and vacated the jury verdict, resulting in a judgment in favor of all defendants on all claims.  On July 23, 2012, a three judge panel of the United States Court of Appeals for the Eleventh Circuit issued a unanimous opinion affirming the judgment in favor of all defendants on all claims. On October 12, 2012, plaintiff’s petition for panel rehearing in the Eleventh Circuit was denied.

 

 

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 and Alan B. Levan, BBX’s Chairman and Chief Executive Officer, alleging that they violated securities laws by not timely disclosing known adverse trends in BBX’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’s Annual Report on Form 10-K for the year ended December 31, 2007.  The

45

 


 

BBX Capital Corporation

 

complaint also 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 is on-going.  BBX believes the claims to be without merit and intends to vigorously defend the actions.

 

BBX Shareholders Lawsuit Seeking to Block the sale of BankAtlantic to BB&T under the Agreement 

 

                On April 5, 2012, J. Phillip Max filed a class action complaint in the Circuit Court for the Seventeenth Judicial Circuit in Broward County, Florida against Alan Levan, Jarett Levan, John Abdo, Steven Coldren, D. Keith Cobb, Charles C. Winningham III, Bruno Di Giulian, Willis Holcombe, David Lieberman, BankAtlantic Bancorp, Inc., BFC Financial Corporation, and BB&T Corporation.  The complaint alleges that the individual defendants breached their fiduciary duties of care, good faith and loyalty by causing or permitting BBX to sell BankAtlantic.  The complaint further alleges that BBX, BFC and BB&T aided and abetted these breaches of fiduciary duty. The complaint seeks declaratory and equitable relief, including an injunction against the proposed transaction between BBX and BB&T, as well as seeking damages.  As a consequence of the consummation of the sale of BankAtlantic to BB&T much of the complaint was rendered moot and BBX believes the remainder of the claims to be without merit and intends to vigorously defend the lawsuit.

12.  New Accounting Pronouncements   

Update Number 2011-12 – Comprehensive Income (Topic 220):  Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.  In this update, the FASB deferred only changes in ASU 2011-5 that relate to the presentation of reclassification adjustments.  The deferral allows the FASB to re-deliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income of the components of net income and other comprehensive income for all periods presented.  All other requirements of ASU 2011-5 are not affected by this deferral.    

 

Update Number 2011-11 – Balance Sheet (Topic 210):  Disclosures about Offsetting Assets and Liabilities.  The amendment requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial condition and instruments and transactions subject to an agreement similar to a master netting arrangement.  This amendment includes derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. This accounting standard update is effective for annual and interim periods beginning on or after January 1, 2013.  The Company believes that this update will not have a material impact on its financial statements.

 

Update Number 2011-10 – Property, Plant, and Equipment (Topic 360): Derecognition of In-substance Real Estate—a Scope Clarification. Generally, when a reporting entity ceases to have a controlling financial interest in a subsidiary that is in-substance real estate as a result of default on the subsidiary’s nonrecourse debt, the reporting entity should apply the guidance of Topic 360 to determine whether it should derecognize the in-substance real estate.  The reporting entity would continue to include the real estate and debt on its financial statements until legal title to the real estate is transferred to legally satisfy the debt.  This accounting standard update is effective for annual and interim periods beginning on or after June 15, 2012.  The Company believes that this update will not have a material impact on its financial statements.

 

Update Number 2011-08 – Intangibles – Goodwill and Other (Topic 350):  Testing Goodwill for Impairment.  This accounting standard update allows entities an option to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under this option, an entity is no longer required to calculate the fair value of a reporting unit unless the entity determines, based on that qualitative assessment, that it is more likely than not that the reporting unit’s fair value is less than its carrying amount. This accounting standard update is effective for annual and interim goodwill impairment tests performed beginning January 1, 2012. This update did not have a material impact on the Company’s financial statements.

 

Update Number 2011-05 – Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This update makes available the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income,

46

 


 

BBX Capital Corporation

 

and a total amount for comprehensive income. Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statements where the components of net income and the components of other comprehensive income are presented.  The update did not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.  However, the update eliminated the presentation of other comprehensive income as part of the statement of changes in stockholders’ equity. This update is effective for the first interim period beginning after December 15, 2011, and must be applied retrospectively. The Company implemented this update as of January 1, 2012 except for the presentation of reclassification adjustments on the face of the financial statements which was deferred as permitted by Update Number 2011-12.  Pursuant to the implementation of this update, the Company changed its presentation of comprehensive income from the presentation of comprehensive income as part of its Statement of Changes in Stockholders’ Equity to presenting comprehensive income in a separate statement.  The implementation of this update did not have a material effect on the Company’s financial statements.

 

             Update Number 2011-4 – Fair Value Measurement (Topic 820).  Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS.  This guidance clarifies the FASB’s intent regarding the highest and best use valuation premise and also provides guidance on measuring the fair value of an instrument classified in shareholders’ equity, the treatment of premiums and discounts in fair value measurements and measuring fair value of financial instruments that are managed within a portfolio. This standard also expands the disclosure requirements related to fair value measurements, including a requirement to disclose valuation processes and sensitivity of the fair value measurements to changes in unobservable inputs for fair value measurements categorized within Level 3 of the fair value hierarchy and categorization by level of the fair value hierarchy for items that are not measured at fair value in the statement of financial position but for which the fair value measurement is required to be disclosed.  The effective date of this update is for the first interim period beginning after December 15, 2011, and early application was not permitted. The Company implemented this disclosure update as of January 1, 2012 and the implementation of this update did not have a material effect on the Company’s financial statements.

 

                                                               

 

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BBX Capital Corporation

 

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 Corporation (formerly BankAtlantic Bancorp, Inc.) (the “Parent Company” or “BBX”) and subsidiaries (BBX, together with its subsidiaries, the “Company”, which may also be referred to as “we,” “us,” or “our”) for the three and nine months ended September 30, 2012.  On July 31, 2012 BBX completed the sale to BB&T Corporation (“BB&T”) of all of the shares of BankAtlantic (the sale and related transactions, the “Transaction”).  As a result of the completion of the Transaction and the entry into the definitive agreement governing the terms of the Transaction, BBX’s financial statements reflect BankAtlantic’s Community Banking, Investments, Tax Certificates and Capital Services reporting units as discontinued operations for the three and nine months ended September 30, 2012 and 2011, respectively.  The Company expects to continue commercial lending activities subsequent to the Transaction resulting in the inclusion of BankAtlantic’s Commercial Lending reporting unit  in continuing operations for the three and nine months ended September 30, 2012 and 2011.   See Note 1 – “Basis of Financial Statement Presentation” to the Notes to the Company’s Consolidated Financial Statements for a further discussion of the presentation of the Company’s results of operations, including the impact of the Transaction on such presentation. 

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 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 have been 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 markets, products and services, including the impact of the changing regulatory environment, decreases in real estate values, and increased unemployment or sustained 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 and the risks associated with the impact of periodic valuation of our assets for impairment. Past performance and perceived trends may not be indicative of future results.  In addition, this document contains forward looking statements relating to BBX’s future business plans that may not be realized as anticipated, if at all; that the Company’s Class A Common Stock may not meet the requirements for continued listing on the NYSE; and that the assets retained by BBX directly or through subsidiaries may not be monetized at the values currently ascribed to them.    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, 2011 and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 and June 30, 2012. The Company cautions that the foregoing factors are not exclusive. 

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, evaluation of assets for impairment, including the valuation of real estate acquired in connection with foreclosure or in satisfaction of loans and the measuring of loans for impairment, the amount of the deferred tax asset valuation allowance, 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.  For a more detailed discussion of these critical accounting

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BBX Capital Corporation

 

policies see “Critical Accounting Policies” appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Consolidated Results of Operations

CLRU consists of the results of operations of our Commercial Lending reporting unit.  The CLRU results include the interest income and impairments associated with $297.3 million of commercial loans transferred to BB&T upon the consummation of the Transaction on July 31, 2012 and BankAtlantic’s general corporate overhead for the one and seven month period ended July 31, 2012, but not for the two month period ended September 30, 2012.  The CLRU also includes the results of operations of $120 million in assets of the disposed reporting units that were retained by the Company.

  

Loss from continuing operations from each of the Company’s reportable segments was as follows (in thousands):

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30,

 

 

2012

2011

Change

CLRU

$

(3,303)
(19,341)
16,038 

Parent Company

 

(7,601)
(3,721)
(3,880)

Loss from continuing operations

 

 

 

 

 before benefit for income taxes

 

(10,904)
(23,062)
12,158 

Benefit for income taxes

 

(4,206)
(4,422)
216 

Loss from continuing operations

$

(6,698)
(18,640)
11,942 

 

For the Three Months Ended September 30, 2012 Compared to the Same 2011 Period:

The improvement in CLRU’s loss from continuing operations during the 2012 quarter compared to the 2011 quarter was primarily the result of lower operating expenses and a decrease in the provision for loan losses partially offset by a decline in net interest income.

 

The decrease in operating expenses reflects a $3.2 million reduction in professional fees, $1.6 million decrease in real estate owned impairments as well as a $4.2 million decline in compensation and occupancy expenses.  The significant decline in professional fees during the three months ended September 30, 2012 compared to the same period during 2011 primarily resulted from lower commercial loan foreclosure legal costs and declines in supervisory and audit fees relating to the consummation of the Transaction as of July 31, 2012.  The decrease in impairments on real estate owned reflect lower valuation adjustments during the 2012 quarter compared to the same 2011 period based on updated property valuations. The decline in employee compensation resulted primarily from the transfer of substantially all of the Company’s employees to BB&T upon consummation of the Transaction and an arrangement under the transition services agreement which provided for the Company to receive specified services from certain former employees at no cost       as well as workforce reductions and the corresponding reduction in payroll taxes and employee benefits. See Note 9 to the “Notes to Consolidated Financial Statements – Unaudited” for a description of the terms of the transition services agreement with BB&T.   The lower occupancy expense reflects the consolidation of back-office facilities during prior periods, the consummation of the Transaction  and the terms of the BB&T transition services agreement.  

 

The $13.5 million decrease in the provision for loan losses primarily reflects a  significant reduction in charge-offs during the 2012 quarter compared to the same 2011 quarter and the slowing in the amount of loans migrating to a delinquency or non-accrual status compared to prior periods.  This reduction in loans migrating to delinquency or loss status primarily reflects lower balances in the loan portfolio, the transfer of loans to BB&T and what management believes is a stabilization of real estate values.   

 

The $6.0 million of lower net interest income resulted primarily from a significant reduction in loan average balances associated with the consummation of the Transaction and the recognition of $1.1 million of interest expense related to BB&T’s priority return distributed by  FAR.  There was no interest expense recognized in the CLRU during the three months ended September 30, 2011.  

 

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BBX Capital Corporation

 

The increase in the Parent Company’s loss for the 2012 quarter compared to the same 2011 quarter resulted from a $3.7 million increase in compensation expense and $2.2 million of higher professional fees partially offset by a $2.6 million reduction in junior subordinated debenture interest expense.

 

The compensation expense increase resulted primarily from the accrual of $3.6 million of executive management bonuses in September 2012. The increase in professional fees during the 2012 quarter was associated primarily with the previously settled TruPS related litigation in Delaware as well as a $0.9 million litigation settlement gain recognized during the 2011 quarter.  The junior subordinated debenture interest expense reduction reflects BB&T’s assumption of the Parent Company’s obligations under the junior subordinated debentures as of July 31, 2012 in connection with the consummation of the Transaction.

For the Nine Months Ended September 30, 2012 compared to the Same 2011 Period:

 

 

 

 

 

 

 

For the Nine Months Ended September 30,

 

 

2012

2011

Change

CLRU

$

(8,933)
(37,158)
28,225 

Parent Company

 

(23,502)
(17,803)
(5,699)

Loss from continuing operations

 

 

 

 

 before benefit for income taxes

$

(32,435)
(54,961)
22,526 

Benefit for income taxes

 

(12,512)
(16,925)
4,413 

Loss from continuing operations

 

(19,923)
(38,036)
18,113 

 

 

The improvement in CLRU’s loss from continuing operations during the nine months ended September 30, 2012 compared to the same 2011 period resulted primarily from the items discussed above for the three months ended September 30, 2012 compared to the same 2011 period. 

 

The increase in the Parent Company’s loss for the nine months ended September 30, 2012 resulted primarily from the items discussed above for the three months ended September 30, 2012 compared to the same 2011 period. 

 

Results of Discontinued Operations

            Income from the Company’s discontinued operations was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Nine Months

 

 

Ended September 30,

 

Ended September 30,

 

 

2012

2011

Change

 

2012

2011

Change

Net interest income

$

5,235 
21,023 
(15,788)

 

37,384 
65,849 
(28,465)

Provision for loan losses

 

(1,865)
(4,010)
2,145 

 

(18,383)
(31,391)
13,008 

Gain on the sale of BankAtlantic

 

290,642 

 -

290,642 

 

290,642 

 -

290,642 

Non-interest income

 

4,978 
24,982 
(20,004)

 

37,234 
107,121 
(69,887)

Non-interest expense

 

(8,763)
(30,849)
22,086 

 

(61,634)
(98,020)
36,386 

Income from discontinued operations

 

 

 

 

 

 

 

 

 before provision for income taxes

 

290,227 
11,146 
279,081 

 

285,243 
43,559 
241,684 

Provision for income taxes

 

(6,467)
(4,300)
(2,167)

 

(14,773)
(16,803)
2,030 

Net income from discontinued operations

$

283,760 
6,846 
276,914 

 

270,470 
26,756 
243,714 

 

The significant increase in income from discontinued operations during the three and nine months ended September 30, 2012 compared to the same 2011 period resulted primarily from the gain recognized on the sale of BankAtlantic to BB&T.  As a consequence of the sale, the income from discontinued operations for the three months ended September 30,

50

 


 

BBX Capital Corporation

 

2012 includes one month of activity while the 2011 period includes three months of activity.   Likewise, income (loss) from discontinued operations for the nine months ended September 30, 2012 reflects seven months of activity while the income from discontinued operations for the nine months ended September 30, 2012 reflects nine months of activity.

 

Included in income from discontinued operations during the nine months ended September 30, 2011 was the sale  of 19 Tampa branches and related facilities to an unrelated financial institution on June 3, 2011 for a net gain of $38.7 million.  The decline in net interest income and non-interest income during the 2012 nine month period compared to the same 2011 period resulted primarily from a significant reduction in earning assets and an increasing proportion of investments in low yielding cash balances, at the Federal Reserve Bank.  The decline in non-interest income resulted primarily from lower deposit fee income mainly due to fewer deposit accounts as a result of the sale of the Tampa branches and lower overdraft fees.   The above reductions in net interest income and non-interest income during the nine months ended September 30, 2012 compared to the same 2011 period were partially offset by lower operating expenses.  The decrease in operating expenses reflects lower compensation and occupancy expenses associated with the consolidation of back-office facilities, workforce reductions, normal attrition and elimination of expenses associated with BankAtlantic’s Tampa operations as a result of the completion of the Tampa branch sale.

 

Provision (benefit) for income taxes

            Generally, the amount of tax expense or benefit allocated to continuing operations is determined without regard to the tax effects of other categories of income or loss, such as discontinued operations or accumulated other comprehensive loss.  However, an exception to the general rule exists when there is a pre-tax loss from continuing operations and pre-tax income from other categories.  In such instances, income from other categories is used to offset the current loss from continuing operations resulting in such offset being reflected in continuing operations.  The offset is limited to the lower of income from other categories or the loss from continuing operations.  As a consequence, the Company recognized a continuing operation benefit for income taxes for the three and nine months ended September 30, 2012 in the amount of $4.2 million and $12.5 million, respectively, calculated based on the Company’s effective income tax rate of 38.6% and the pre-tax loss from continuing operations.  The discontinued operations provision for income taxes represents the $4.2 million and $12.5 million benefit in continuing operations for the three and nine months ended September 30, 2012 plus $2.3 million of additional provision for income taxes included in other comprehensive income that was transferred  to discontinued operations upon the sale of  BankAtlantic. 

            The Company recognized a continuing operations benefit for income taxes for the three and nine months ended September 30, 2011 in the amount of $4.4 million and $16.9 million, representing an effective tax rate of 19.2% and 30.8%, respectively.  The continuing operations benefit for income taxes was limited by the pre-tax income from discontinued operations.  Also included in continuing operations benefit for income taxes during the three and nine months ended September 30, 2011 was the recognition of $206,000 of tax benefits upon the resolution of a tax contingency partially offset by an $84,000 tax payment associated with the recapture of low income tax credits.

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BBX Capital Corporation

 

CLRU Results of Operations

 

The following table is a condensed income statement summarizing the results of operations of the Commercial Lending Reporting Unit (“CLRU”) (in thousands):

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Nine Months

 

 

Ended September 30,

 

Ended September 30,

 

 

2012

2011

Change

 

2012

2011

Change

Net Interest income

 $

3,096 
9,109 
(6,013)

 

18,497 
31,971 
(13,474)

(Provision for) recovery 

 

 

 

 

 

 

 

 

 from loan losses

 

(257)
(13,745)
13,488 

 

1,129 
(24,391)
25,520 

Net interest income after

 

 

 

 

 

 

 

 

 provision for loan losses

 

2,839 
(4,636)
7,475 

 

19,626 
7,580 
12,046 

Non-interest income

 

133 

 -

133 

 

203 
13 
190 

Non-interest expense

 

(6,275)
(14,705)
8,430 

 

(28,762)
(44,751)
15,989 

CLRU loss before income taxes

 

(3,303)
(19,341)
16,038 

 

(8,933)
(37,158)
28,225 

Provision for income taxes

 

(1,274)
(3,709)
2,435 

 

(3,446)
(11,442)
7,996 

CLRU net loss

 $

(2,029)
(15,632)
13,603 

 

(5,487)
(25,716)
20,229 

 

Net Interest Income

The reduction in net interest income during the three and nine months ended September 30, 2012 compared to the same 2011 period resulted primarily from the decline in average balances associated with the transfer of $297 million of commercial loans to BB&T on July 31, 2012 and secondarily from $1.1 million of interest expense associated with BB&T’s priority return in FAR.  The average balance declines for the three and nine months ended were also impacted by loan repayments, migration of loans to real estate owned and loan sales as well as a substantial decline in loan originations. 

Asset Quality

 

The loans and real estate owned and related data presented below as of September 30, 2012 and for the three and nine months ended September 30, 2012 excludes loans and real estate owned transferred to BB&T as of July 31, 2012 upon consummation of the Transaction.

 

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BBX Capital Corporation

 

The table below presents the allocation of the allowance for loan losses (“ALL”) by various loan classifications, the percent of allowance to each loan category (“ALL to gross loans percent”) and the percentage of loans in each category to total loans (“Loans to gross loans percent”).  The allowance shown in the table should not be interpreted as an indication that charge-offs in future periods will occur in these amounts or percentages or that the allowance accurately reflects future charge-off amounts or trends (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2012

 

 

December 31, 2011

 

 

 

 

ALL

 

Loans

 

 

 

ALL

 

Loans

 

 

 

 

to gross

 

by

 

 

 

to gross

 

by

 

 

 

ALL

loans

 

category

 

 

ALL

loans

 

category

 

 

 

by

in each

 

to gross

 

 

by

in each

 

to gross

 

 

 

category

category

 

 loans

 

 

category

category

 

 loans

 

Commercial non-real estate

$

1,929 
16.44 

%

3.56 

%

$

16,408 
13.89 

%

4.6 

%

Commercial real estate

 

3,516 
1.48 

 

72.25 

 

 

66,269 
9.84 

 

26.23 

 

Small business

 

 -

0.00 

 

 -

 

 

7,168 
2.52 

 

11.09 

 

Residential real estate

 

791 
1.31 

 

18.39 

 

 

16,704 
1.79 

 

36.34 

 

Consumer

 

359 
1.88 

 

5.80 

 

 

22,554 
4.04 

 

21.74 

 

Total allowance for loan losses

$

6,595 
2.00 

%

100.00 

%

$

129,103 
5.03 

%

100 

%

 

Included in the allowance for loan losses as of September 30, 2012 and December 31, 2011 were specific valuation allowances by loan type as follows (in thousands):

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2012

 

2011

Commercial non-real estate

$

1,490 

 

15,408 

Commercial real estate

 

1,586 

 

51,798 

Small business

 

 -

 

861 

Consumer

 

 -

 

1,454 

Residential

 

 -

 

6,942 

Total

$

3,076 

 

76,463 

 

The decrease in the allowance for loan losses at September 30, 2012 compared to December 31, 2011 resulted primarily from the charge-off of specific valuation allowances on collateral dependent loans as well as from the transfer of $1.8 billion of loans and $46.3 million of allowance for loan losses to BB&T in connection with the sale of BankAtlantic.  The reduction in allowance for loan losses to gross loans in each category also reflects the charge-off of $65.7 million of the specific valuation allowances discussed in the following paragraph and the fact that a higher percent of the loans which were not transferred to BB&T in the Transaction are non-performing and/or collateral dependent.  An allowance for loan losses was not established for those collateral dependent loans as these loans were instead charged-down to the fair value of the collateral less cost to sell.  The specific valuation allowance as of September 30, 2012 reflects impaired loans measured based on the present value of expected cash flows discounted at the loan’s effective interest rate or appraisal adjustments on collateral dependent impaired loans.

As part of the transition of the regulation of OTS savings associations such as BankAtlantic to the OCC, the OCC  provided guidance to thrifts related to their transition to OCC regulatory reporting, which was to be implemented no later than March 31, 2012, including  guidance surrounding specific valuation allowances on collateral dependent loans.  Under OCC guidance, where the appraised value of collateral on a collateral dependent loan is less than the recorded investment of the loan, a charge-off of the amount of the deficiency rather than a specific valuation allowance is generally required.  

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BBX Capital Corporation

 

Management considered the appraisals on its impaired collateral dependent loans, including appraised values and appraisal dates and, during the first quarter of 2012, the Company charged down the recorded investment of loans by $66.5 million to the fair value of the collateral less cost to sell.  This charge down consisted entirely of the charging-off of existing specific valuation allowances.  As  a specific valuation allowance was previously established for these loans, the charge-offs did not impact the provision for loan losses or the net loss during the three months ended March 31, 2012, but did reduce the Company’s allowance for loan losses and recorded investment in the loans.  Further, these charge-offs of specific valuation allowances did not  impact the estimation of the allowance for loan losses as the change in the specific valuation allowances was always a factor in the overall estimation of BankAtlantic’s allowance for loan losses. 

The activity in CLRU’s allowance for loan losses was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Nine Months

 

 

Ended September 30,

 

Ended September 30,

Allowance for Loan Losses:

2012

 

2011

 

2012

 

2011

Balance, beginning of period

$

5,183 

 

79,071 

 

82,676 

 

93,816 

Charge-offs :

 

 

 

 

 

 

 

 

Commercial real estate

 

(558)

 

(6,422)

 

(53,059)

 

(32,636)

Commercial non-real estate

 

(1,376)

 

(7,563)

 

(15,990)

 

(8,151)

Small business

 

(1,619)

 

 -

 

(1,619)

 

 -

Consumer

 

(615)

 

 -

 

(615)

 

 -

Residential

 

(1,091)

 

 -

 

(1,091)

 

 -

Total Charge-offs

 

(5,259)

 

(13,985)

 

(72,374)

 

(40,787)

Recoveries of loans

 

 

 

 

 

 

 

 

previously charged-off

 

4,308 

 

 

6,383 

 

1,413 

Net (charge-offs)

 

(951)

 

(13,983)

 

(65,991)

 

(39,374)

(Recovery from) provision

 

 

 

 

 

 

 

 

for loan losses

 

257 

 

13,745 

 

(1,135)

 

24,391 

Retained loan allowance

 

2,106 

 

 -

 

2,106 

 

 -

Transfer to assets

 

 

 

 

 

 

 

 

 held for sale

 

 -

 

 -

 

(11,061)

 

 -

Balance, end of period

$

6,595 

 

78,833 

 

6,595 

 

78,833 

 

 

Certain small business, consumer and residential loans associated with the disposed Capital Services and Community Banking reporting units were retained and the allowance for loan losses reflects the activity of these retained loans for the two months ended September 30, 2012. 

 

Commercial real estate charge-offs during the three months ended September 30, 2012 primarily represent declines in the collateral values of two collateral dependent non-accrual commercial-other loans based on updated property valuations.  The commercial real estate charge-offs during the three months ended September 30, 2011 were primarily related to $3.4 million and $1.6 million of commercial residential loans and commercial other loan charge-offs, respectively.  Management also believes that the significant decline in commercial real estate charge-offs during the 2012 quarter compared to the 2011 quarter reflects the stabilization of commercial property values resulting in lower loss severity impairments associated with updated valuations and a decline in non-performing loans due to the sale of BankAtlantic. 

 

Commercial non-real estate charge-offs during the three months ended September 30, 2012 were associated with the charge-off of an asset-based loan as the liquidation of the borrower’s inventory resulted in net proceeds below the carrying value of the loan.  The commercial non-real estate charge-offs during the three months ended September 30, 2011 included a $7.5 million charge-off relating to a factoring joint venture that ceased operations in September 2011. 

 

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BBX Capital Corporation

 

Subsequent to the sale of BankAtlantic, management evaluated its retained loan portfolio in relation to its business strategy and operating costs and transferred its entire portfolio of small business loans to loans held for sale.  Upon transfer, the small business loans were charged down by $1.3 million which represent the lower of the fair value of the loan and its carrying value. 

 

Consumer and residential loan charge-offs during the three months ended September 30, 2012 primarily reflect updated property valuations on residential loans more than 120 days past due. 

 

The recoveries for loan losses during the three and nine months ended September 30, 2012 primarily related to commercial loan short sales at amounts higher than the loans’ carrying values and cash settlements with borrowers in connection with obtaining deeds in lieu of foreclosure on commercial loans. 

 

Commercial real estate loan charge-offs during the nine months ended September 30, 2012 included $46.7 million of charge-offs related to  previously established  specific valuation allowances as discussed above.  Excluding these specific valuation allowance charge-offs, commercial real estate charge-offs declined from $32.6 million during the nine months ended September 30, 2011 to $6.3 million for the same 2012 period.   Commercial real estate loan charge-offs during the 2012 nine month period included $4.0 million related to one $16.3 million commercial residential loan transferred to loans held for sale. 

 

Commercial non-real estate charge-offs during the nine months ended September 30, 2012 included $12.5 million of charge-offs related to previously established specific valuation allowances. The remaining $3.5 million of charge-offs during the 2012 period related primarily to two asset backed lending relationships.  The commercial non-real estate loan charge-offs during the nine months ended September 30, 2011 related primarily to one $0.5 million business loan in the real estate brokerage industry and the $7.5 million charge-off mentioned above.  

 

The improvement in the provision for (recovery from) loan losses for the three and nine months ended September 30, 2012 compared to the same 2011 period reflects declining commercial real estate loan balances, recoveries from short sales, lower charge-offs and the stabilizing of real estate values.

 

Pursuant to the Agreement with BB&T, commercial loans with a recorded investment of $378.2 million as of March 31, 2012 were transferred to assets held for sale as these loans were anticipated to be transferred to BB&T in the Transaction.  The allowance for loan losses as of March 31, 2012 associated with these commercial loans, which were included in the above table for the nine months ended September 30, 2012, was $11.1 million.  As of July 31, 2012 the recorded investment of the disposed reporting units’ retained loans was $103 million.  The allowance for loan  losses associated with these loans of $2.1 million was included in the above table for the three and nine months ended September 30, 2012.


 

55

 


 

BBX Capital Corporation

 

At the indicated dates, CLRU’s non-performing assets, loans contractually past due 90 days or more and still accruing and troubled debt restructured loans as of September  30, 2012  and as of December 31, 2011 were as follows (in thousands):

 

 

 

 

 

 

 

 

 

As of

 

 

September 30, 2012

 

December 31, 2011

NON-PERFORMING ASSETS

 

 

 

 

Tax certificates

$

4,808 

 

3,094 

Residential (1)

 

52,672 

 

85,855 

Commercial real estate (2)

 

133,432 

 

206,038 

Commercial non-real estate

 

6,620 

 

19,172 

Small business

 

2,478 

 

12,016 

Consumer

 

8,533 

 

14,134 

Total non-accrual assets (3)

 

208,543 

 

340,309 

REPOSSESSED ASSETS:

 

 

 

 

Tax certificates

 

704 

 

800 

Residential real estate

 

5,191 

 

9,592 

Commercial real estate

 

72,424 

 

63,091 

Small business real estate

 

3,339 

 

3,883 

Consumer real estate

 

359 

 

671 

Total repossessed assets

 

82,017 

 

78,037 

Total non-performing assets

$

290,560 

 

418,346 

OTHER ACCRUING IMPAIRED

 

 

 

 

 LOANS

 

 

 

 

Contractually past due 90 days

 

 

 

 

 or more (4)

 $

-

 

80 

Troubled debt restructured loans

 

70,426 

 

116,954 

TOTAL OTHER ACCRUING

 

 

 

 

 IMPAIRED LOANS

 $

70,426 

 

117,034 

 

 

(1)  Includes $20 million and $33.2 million of interest-only residential loans as of September 30, 2012 and December      31, 2011, respectively. 

(2)  Excluded from the above table as of September 30, 2012 and December 31, 2011 were $3.6 million and $8.1 million, respectively, of commercial residential loans that were transferred to a work-out subsidiary of the Parent Company in March 2008.

(3)  Includes $96.7 million and $124.8 million of troubled debt restructured loans as of September 30, 2012 and December 31, 2011, respectively.

The decline in non-performing assets at September 30, 2012 compared to December 31, 2011 reflects the charge-off of $66.5 million of collateral dependent loans, payoffs and loan short sales.  

The decline in commercial real estate non-accrual loans resulted primarily from $46.7 million of loan charge-offs associated with previously established specific valuation allowances,  the payoff of $27.4 million of commercial residential loans and a $16.1 million payoff of commercial other loans partially offset by $41.7 million of commercial loans transferring to nonaccrual. 

56

 


 

BBX Capital Corporation

 

 

The decline in commercial non-real estate non-accrual loans reflects $12.5 million of charge-offs associated with previously established specific valuation allowances including asset based loan charge-offs of $3.2 million. 

 

The decline in residential non-accrual loans related primarily to loan repayments associated with borrower short sales, $6.9 million of charge-offs associated with previously established specific valuation allowance and charge-offs.

 

The decline in consumer non-accrual loans reflects $1.1 million of charge-offs associated with previously established specific valuation allowances and charge-offs.

 

The decline in small business non-accrual loans reflects loan payoffs, charge-offs, and $2.8 million of small business non-accrual loans transferring to BB&T associated with the sale of BankAtlantic.

 

The higher repossessed assets balances resulted primarily from commercial real estate loan foreclosures partially offset by the sale of residential real estate owned. During the nine months ended September 30, 2012, $31.0 million of loans migrated to real estate owned, $4.9 million of impairments were recognized and $22.5 million of real estate owned properties were sold.    As non-accrual loans migrate into repossessed assets in the future, we expect repossessed assets as well as sales of real estate owned to increase.  

 

In response to current market conditions, management generally decides, on a case-by-case basis, whether to modify loans for borrowers experiencing financial difficulties and has modified the terms of certain loans.  The concessions made to borrowers experiencing financial difficulties have included, among others, the reduction of contractual interest rates and, in some cases, forgiveness of a portion of loan principal upon satisfactory performance under the modified terms, conversion of amortizing loans to interest only payments or the deferral of some interest payments until the maturity date of the loan.  Loans that are not delinquent at the date of modification are generally not placed on non-accrual.  Modified non-accrual loans are generally not returned to an accruing status and the days past due are not reset on delinquent modified loans until the borrower demonstrates a sustained period of performance under the modified terms, which is generally performance over a six month period. 

 

Troubled debt restructured loans by loan type were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2012

 

As of December 31, 2011

 

 

Non-accrual

 

Accruing

 

Non-accrual

 

Accruing

Commercial

$

85,375 

 

54,459 

 

108,946 

 

96,146 

Small business

 

1,754 

 

4,956 

 

4,024 

 

6,878 

Consumer

 

1,451 

 

9,386 

 

1,071 

 

11,536 

Residential

 

8,151 

 

1,625 

 

10,718 

 

2,394 

Total

$

96,731 

 

70,426 

 

124,759 

 

116,954 

 

57

 


 

BBX Capital Corporation

 

BankAtlantic’s commercial loan portfolio includes large loan balance lending relationships. Seven relationships accounted for 51.0% of our $140.1 million of non-accrual commercial loans as of September 30, 2012.  The following table outlines general information about these seven relationships as of September 30, 2012 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

      Unpaid

 

 

 

 

 

 

 

 

      Principal

Recorded

Date loan

Date Placed

Default

Loan

Date of Last

Relationships

 

Balance

Investment (3)

Originated

on Nonaccrual

Date (2)

Class

Full Appraisal

Commercial Land Developers

 

 

 

 

 

 

 

 

Relationship No. 1

$

10,338 
6,907 

Q1-2005

Q4- 2010

Q2-2012

Land

Q4-2011

Relationship No. 2

 

30,516 
9,392 

Q4-2006

Q4-2008

Q4-2008

Land

Q4-2011

Relationship No. 3

 

17,642 
10,686 

Q1-1995

Q4-2009

Q4-2009

Land

Q1 -2012

Total

$

58,496 
26,985 

 

 

 

 

 

Commercial Non-Residential

 

 

 

 

 

 

 

 

  Developers

 

 

 

 

 

 

 

 

Relationship No. 4

$

31,050 
11,058 

Q4-2004

Q4-2008

Q4-2008

Land

Q4-2011

Relationship No. 5

 

24,790 
12,109 

Q2-2008

Q4-2011

Q1-2012

Other

Q2 -2012

Relationship No. 6

 

18,388 
6,218 

Q1-2007

Q3-2010

Q2-2012

Other

Q2 -2012

Relationship No. 7

 

22,343 
14,995 

Q1-2007

Q4-2010

(1)

Other

Q1-2012

Total

$

96,571 
44,380 

 

 

 

 

 

Total of Large Relationships

$

155,067 
71,365 

 

 

 

 

 

 

(1)  The loan is currently not in default; however, management believes that it is not probable that the borrower will comply with the contractual or modified loan repayment terms.

(2)   The default date is defined as the date of the initial missed payment prior to default.

(3)   Recorded investment is the “Unpaid Principal Balance” less charge-offs.

 

 

58

 


 

BBX Capital Corporation

 

The following table presents purchased residential loans by year of origination segregated by amortizing and interest only loans at September 30, 2012 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortizing Purchased Residential Loans

Year of

 

Unpaid

Recorded

LTV at

Current

FICO Scores

Current

Amount

Debt Ratios

Origination

 

Principal

Investment

Origination

LTV(1)

at Origination

FICO Scores(2)

Delinquent

at Origination(3)

2007 

$

4,911 
2,734 
79.08% 
196.88% 
708 
560 
4,276 
43.01% 
2006 

 

5,494 
3,606 
73.82% 
136.47% 
697 
576 
4,835 
39.54% 
2005 

 

6,790 
4,066 
77.78% 
132.65% 
702 
592 
6,790 
37.05% 
2004 

 

20,309 
15,300 
75.09% 
95.76% 
712 
582 
16,599 
36.81% 

Prior to 2004

 

4,534 
4,242 
72.79% 
49.69% 
641 
575 
3,974 
36.65% 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Only Purchased Residential Loans

Year of

 

Unpaid

Recorded

LTV at

Current

FICO Scores

Current

Amount

Debt Ratios

Origination

 

Principal

Investment

Origination

LTV(1)

at Origination

FICO Scores(2)

Delinquent

at Origination(3)

2007 

$

9,488 
5,352 
77.48% 
133.36% 
739 
595 
8,909 
33.30% 
2006 

 

15,833 
8,783 
77.79% 
166.31% 
733 
607 
15,345 
29.21% 
2005 

 

6,234 
3,720 
73.69% 
114.83% 
713 
621 
5,610 
38.01% 
2004 

 

2,448 
1,984 
78.00% 
111.23% 
724 
612 
2,449 
33.17% 

Prior to 2004

 

1,836 
1,437 
61.48% 
72.33% 
675 
576 
1,836 
36.34% 

 

The following table presents purchased residential loans by geographic area segregated by amortizing and interest-only loans at September 30, 2012 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Amortizing Purchased Residential Loans

 

 

Unpaid

Recorded

LTV at

Current

FICO Scores

Current

Amount

Debt Ratios

State

 

Principal

Investment

Origination

LTV(1)

at Origination

FICO Scores(2)

Delinquent

at Origination(3)

Arizona

$

315 
289 
73.90% 
48.90% 
741 
554 
306 
45.11% 

California

 

8,384 
6,229 
73.87% 
99.19% 
702 
611 
6,027 
38.00% 

Florida

 

10,348 
6,418 
78.20% 
131.51% 
695 
551 
10,154 
36.57% 

Nevada

 

773 
318 
92.50% 
184.68% 
696 
577 
773 
35.72% 

Other States

 

22,219 
16,693 
72.65% 
71.34% 
686 
585 
19,214 
38.80% 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Only Purchased Residential Loans

 

 

Unpaid

Recorded

LTV at

Current

FICO Scores

Current

Amount

Debt Ratios

State

 

Principal

Investment

Origination

LTV(1)

at Origination

FICO Scores(2)

Delinquent

at Origination(3)

Arizona

$

883 
317 
80.00% 
194.11% 
767 
551 
883 
38.12% 

California

 

7,712 
5,106 
74.03% 
110.84% 
733 
624 
6,645 
33.21% 

Florida

 

7,914 
4,298 
72.12% 
131.51% 
725 
587 
7,914 
33.78% 

Nevada

 

1,162 
414 
78.31% 
199.64% 
727 
597 
1,161 
36.00% 

Other States

 

18,168 
11,140 
78.63% 
148.52% 
726 
607 
17,545 
35.38% 

 

59

 


 

BBX Capital Corporation

 

(1)  Current loan-to-values (“LTV”) for the majority of the portfolio were obtained as of the second quarter of 2011 from automated valuation models. 

(2)  Current FICO scores based on borrowers for which FICO scores were available as of the second quarter of 2011.

(3)  Debt ratio is defined as the portion of the borrower’s income that goes towards debt service.

CLRU Non-Interest Income

Non-interest income during the three and nine months ended September 30, 2012 was $133,000 and $203,000, respectively.  The non-interest income during the three months ended September 30, 2012 related primarily to deposit overdraft recoveries received during the two months ended September 30, 2012 associated with BankAtlantic’s customer deposit overdrafts through July 31, 2012.  The non-interest income during the nine months ended September 30, 2012 also included the retention of a $67,000 non-refundable deposit associated with a contract to sell  real estate owned property and a $3,000 gain on the sale of a loan.  There were no loan sales during the three months ended September 30, 2012.

 

Non-interest income during the three and nine months ended September 30, 2011 was $0 and $13,000, respectively. The income consisted of a $10,000 gain on the sale of loans and miscellaneous income from a joint venture that factors receivables. The joint venture ceased operations in September 2011.  

CLRU Non-Interest Expense

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Nine Months

 

 

Ended September 30,

 

Ended September 30,

(in thousands)

 

2012

2011

Change

 

2012

2011

Change

Employee compensation and benefits

$

2,457 
4,817 
(2,360)

 

10,992 
15,604 
(4,612)

Occupancy and equipment

 

613 
2,456 
(1,843)

 

4,469 
8,191 
(3,722)

Advertising and promotion

 

13 
83 
(70)

 

162 
227 
(65)

Professional fees

 

488 
3,701 
(3,213)

 

3,594 
5,344 
(1,750)

(Recoveries) on assets held for sale

 

 -

 -

 -

 

(1,165)

 -

(1,165)

Impairments on loans held for sale

 

473 
156 
317 

 

932 
761 
171 

Impairment of real estate owned

 

839 
2,478 
(1,639)

 

3,444 
7,716 
(4,272)

Other

 

1,392 
1,014 
378 

 

6,334 
6,908 
(574)

 Total non-interest expense

$

6,275 
14,705 
(8,430)

 

28,762 
44,751 
(15,989)

 

 

Accounting rules require that BankAtlantic’s general corporate overhead be included in its entirety in CLRU non-interest expense for the one and seven months ended July  31, 2012 and the three and nine months ended September 30, 2011.  In connection with the Transaction, the Company entered into a transition services agreement with BB&T pursuant to which, among other things, former employees of BankAtlantic would provide specified services to the Company at no cost to the Company until the later of such date that they are no longer employed by BB&T and October 2012 and the Company has the right to utilize office space at the Company’s former headquarters at no cost until December 2012.   As a consequence, the Company did not recognize compensation expenses during the two months ended September 30, 2012 for services performed on behalf of the Company by these BB&T employees as the fair value of the costs of these services was not material.    Management anticipates that the Company’s cost structure will significantly change during the fourth quarter of 2012 as a result of the reduction in general overhead associated with consummation of the BB&T Transaction partially offset by the termination of the services provided under the  transition services agreement with BB&T. 

The decline in employee compensation and benefits during the three and nine months ended September 30, 2012 compared to the same 2011 periods resulted primarily from reduced compensation expenses associated with the BB&T transition services agreement and secondarily workforce reductions as well as attrition.  BankAtlantic had significantly reduced its back-office work force since January 1, 2010.  BankAtlantic also reduced its commercial lending workforce, consisting primarily of lending officers, through normal attrition as commercial loan originations and purchases during 2011 and 2012 were significantly reduced from historical levels.  This reduction in the number of employees resulted in lower health insurance, payroll taxes, and share-based compensation.  The above reduction in compensation expense during the

60

 


 

BBX Capital Corporation

 

three and nine months ended September 30, 2012 was partially offset by $0.9 million of pre-acquisition stay bonuses paid to key employees of BankAtlantic and $0.4 million of share-based compensation recognized upon the acceleration of restricted stock award vesting associated with the Transaction.  The $0.9 million of stay bonuses were reimbursed by BB&T and included in the gain on the sale of BankAtlantic in the Company’s Consolidated Statement of Operations.

Occupancy and equipment for the three and nine months ended September  30, 2012 and 2011 primarily reflects costs associated with the operation of back office facilities including the corporate headquarters.  The lower occupancy and equipment expenses during the 2012 periods compared to the same 2011 periods resulted from the BB&T transition services agreement and lower real estate taxes, utilities, depreciation and repairs and maintenance expenses due primarily to consolidation of back-office facilities.

The decline in professional fees during the three months ended September 30, 2012 compared to the same 2011 period resulted primarily from higher legal fees relating to a commercial loan foreclosure associated with a land lease and a significant decline in regulatory supervisory and audit fees as a consequence of the sale of BankAtlantic.  Impacting professional fees during the nine months ended September 30, 2011 compared to the same 2012 period was  $3.3 million of insurance reimbursements of expenses incurred during prior periods in connection with class action securities litigation compared to no reimbursements during the 2012 nine month period.   

The recoveries on assets held for sale represents a $1.2 million decline in the carrying value of loans transferred to BB&T in the Transaction during the nine months ended September 30, 2012.

Impairments on loans held for sale during the three months ended September 30, 2012 represented lower of cost or fair value adjustments on residential loans held for sale.  In September 2012, the residential loans held for sale were transferred to loans held for investment as these loans were non-performing and it was determined based on the current real estate environment to pursue foreclosures of these loans.

Impairments  on loans held for sale for the nine months ended September 30, 2012 represent the lower of cost or fair value adjustments on commercial loans classified as held for sale.  The impairments primarily were the result of updated valuations of the underlying loan collateral.  

During the three and nine months ended September 30, 2012, valuation allowances were adjusted based on updated property valuations resulting in impairments as shown on the above table. During the nine months ended September 30, 2011, a real estate owned impairment of $5.2 million was recognized related to one property.  

Other non-interest expenses consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Nine Months

 

 

Ended September 30,

 

Ended September 30,

(in thousands)

 

2012

2011

Change

 

2012

2011

Change

Insurance

$

461 
1,090 
(629)

 

2,748 
3,031 
(283)

Foreclosed asset activity

 

540 
(1,163)
1,703 

 

1,093 
(158)
1,251 

Executive services

 

198 
630 
(432)

 

1,265 
1,826 
(561)

Other

 

193 
457 
(264)

 

1,228 
2,209 
(981)

 Total non-interest expense

$

1,392 
1,014 
378 

 

6,334 
6,908 
(574)

 

The increase in foreclosed asset activity during the three and nine months ended September 30, 2012 compared to the same 2011 periods resulted primarily from the sale of a commercial property during the three months ended September 30, 2011 for a $1.6 million gain.  During the nine months ended September 30, 2012 compared to the same 2011 period, the gain on the sale of the commercial property was partially offset by higher rental income from foreclosures of income producing properties.

The lower executive services expenses primarily resulted from the termination of the shared services agreements with BFC upon consummation of the Transaction.

61

 


 

BBX Capital Corporation

 

The reduced other expenses during the three and nine months periods of 2012 compared to the same 2011 periods resulted from declines in operating expenses associated with the sale of BankAtlantic.  Core deposit intangible assets were fully amortized as of March 31, 2012 reducing other expenses by $0.3 million and $0.9 million during the three and nine months ended September 30, 2012 compared to the 2011 periods.    

Parent Company Results of Operations 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Nine Months

 

 

Ended September 30,

 

Ended September 30,

(in thousands)

 

2012

2011

Change

 

2012

2011

Change

Net interest income (expense):

 

 

 

 

 

 

 

 

Interest income on loans

$

41 
46 
(5)

 

262 
146 
116 

Interest and dividend income

 

 

 

 

 

 

 

 

 on taxable securities

 

 

44 
(39)

Interest expense on junior

 

 

 

 

 

 

 

 

 subordinated debentures

 

(1,348)
(3,899)
2,551 

 

(9,641)
(11,537)
1,896 

Net interest expense

 

(1,302)
(3,852)
2,550 

 

(9,374)
(11,347)
1,973 

(Recovery from) provision for

 

 

 

 

 

 

 

 

 loan losses

 

 -

147 
(147)

 

(6)
641 
(647)

Net interest expense after

 

 

 

 

 

 

 

 

 provision for loan losses

 

(1,302)
(3,999)
2,697 

 

(9,368)
(11,988)
2,620 

Non-interest income:

 

 

 

 

 

 

 

 

Income from unconsolidated trusts

 

42 
482 
(440)

 

282 
1,295 
(1,013)

Securities activities, net

 

22 

 -

22 

 

22 
(1,500)
1,522 

Other income

 

89 
327 
(238)

 

714 
853 
(139)

   Non-interest income

 

153 
809 
(656)

 

1,018 
648 
370 

Non-interest expense:

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

4,212 
505 
3,707 

 

5,205 
1,544 
3,661 

Professional fees

 

1,355 
(826)
2,181 

 

7,685 
317 
7,368 

Advertising and promotion

 

79 
76 

 

213 
190 
23 

Other

 

806 
776 
30 

 

2,049 
4,412 
(2,363)

 Non-interest expense

 

6,452 
531 
5,921 

 

15,152 
6,463 
8,689 

Parent Company loss

$

(7,601)
(3,721)
(3,880)

 

(23,502)
(17,803)
(5,699)

 

 

The Parent Company interest income on loans during the three and nine months ended September  30, 2012 and 2011 represents interest income on two performing loans.  During the nine months ended September 30, 2012, the Parent Company recognized $134,000 of additional interest income on one of the performing loans as a result of the receipt of previously deferred monthly payments.  

Interest expense for the three and nine months ended September  30, 2012 and 2011 represents interest expense recognized on the Parent Company’s junior subordinated debentures.  BB&T assumed the Parent Company’s junior subordinated debenture obligation upon the consummation of the Transaction as of July 31, 2012 and as a result the Parent Company did not recognize interest expense subsequent to July 31, 2012. 

Income from unconsolidated trusts during the three and nine months ended September 30, 2012 and 2011 represents equity earnings from trusts formed to issue trust preferred securities. The Company’s interests in these trusts were transferred to BB&T as of July 31, 2012 in connection with its assumption of the Company’s junior subordinated debentures.    

62

 


 

BBX Capital Corporation

 

Securities activities, net during the three and nine months ended September 30, 2012 represents the sale of equity securities for a gain as shown on the above table. 

Securities activities, net during the nine months ended September 30, 2011 represents the Parent Company’s recognition of a $1.5 million other than temporary impairment on an equity security. 

Included in other non-interest income during each of the three and nine months ended September 30, 2012 was $0.1 million and $0.7 million of income from BankAtlantic for executive management services compared to $0.3 million and $0.9 million during the same 2011 periods, respectively. These fees were eliminated in the Company’s consolidated financial statements. 

The increase in compensation expense during the three and nine months ended September 30, 2012 compared to the same 2011 period primarily resulted from the accrual of $3.6 million of executive management bonuses in September 2012.  

The  increase in professional fees during the three and nine months ended September 30, 2012 compared to the same 2011 periods primarily represents litigation costs associated with the TruPS related litigation in Delaware which arose in connection with the Transaction and includes reimbursements to trustees for their legal fees and related expenses in that litigation. Additionally, included in professional fees during the three and nine months ended September 30, 2011 was a $0.9 million gain from a loan participation settlement. 

The decrease in other non-interest expense during the nine months ended September 30, 2012 compared to the same 2011 period related primarily to lower impairments.  Impairments on real estate owned and loans held for sale declined from $3.5 million during the 2011 nine month period to $1.1 million during the same 2012 period. 

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Credit Quality

The composition of the Parent Company’s loans and real estate owned at the indicated dates was as follows (in thousands):

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2012

 

2011

Nonaccrual loans:

 

 

 

Commercial non-real estate:

 $

 -

 

948 

Commercial real estate:

 

 

 

 

 Residential

3,132 

 

3,703 

 Land

 

424 

 

3,432 

Total non-accrual loans

3,556 

 

8,083 

Allowance for loan losses

 -

 

(784)

Non-accrual loans, net

3,556 

 

7,299 

Performing other commercial loans

2,386 

 

2,432 

Loans receivable, net

 $

5,942 

 

9,731 

Real estate owned

 $

10,246 

 

9,137 

 

During the nine months ended September 30, 2012, the Parent Company charged off a $0.9 million commercial non-real estate loan and foreclosed on $3.4 million of land loans.  The Parent Company had established a $0.8 million specific valuation allowance during prior periods on the charged off commercial non-real estate loan.

During the nine months ended September  30, 2012, the Parent Company sold $3.5 million of real estate owned for a $0.4 million gain and invested an additional $1.8 million in a real estate owned property by purchasing a participants interest in the property. 

The following table outlines general information about the Parent Company’s non-accrual loans  as of September 30, 2012 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unpaid

 

 

 

 

 

 

 

 

 

Principal

Recorded

Specific

Date loan

Date Placed

Default

Collateral

Date of Last

Relationships

 

Balance

Investment

Reserves

Originated

on Nonaccrual

Date (2)

Type (3)

Full Appraisal

Residential Land Developers

 

 

 

 

 

 

 

 

 

         Borrower No. 1 (1)

$

20,005 
3,132 

 -

Q1-2005

Q4-2007

Q1-2008

Residential

Q3-2011

         Borrower No. 2

 

3,060 
424 

 -

Q2-2006

Q4-2008

Q1-2008

Residential

Q2-2011

Total Residential Land Developers

$

23,065 
3,556 

 -

 

 

 

 

 

 

 

(1) During 2008, 2009 and 2010, the Parent Company recognized partial charge-offs on relationship No. 1 aggregating $16.4 million.

(2) The default date is defined as the date of the initial missed payment prior to default.

(3) Acquisition and development (“A&D”).

 

The loans that comprise the above relationships are all collateral dependent. As such, the Parent Company measures these loans based on the fair value of the collateral less costs to sell. The fair value of the collateral was determined using unadjusted third party appraisals. Management performs quarterly impairment analyses on these credit relationships subsequent to the date of the appraisals and may reduce appraised values if market conditions significantly deteriorate

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subsequent to the appraisal dates.  However, our policy is to obtain a full appraisal within one year from the date of the prior appraisal, unless the loan is in the process of foreclosure. 

 

Changes in the Parent Company’s allowance for loan losses were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months  

 

For the Nine Months  

 

 

Ended September 30,

 

Ended September 30,

 

 

2012

2011

 

2012

2011

Balance, beginning of period

 $

 -

 -

 

784 
830 

Loans charged-off

 

 -

 -

 

(948)
(1,305)

Recoveries of loans previously charged-off

 

 -

20 

 

170 

 -

Net (charge-offs)

 

 -

20 

 

(778)
(1,305)

(Recovery from) provision for loan losses

 

 -

147 

 

(6)
642 

Balance, end of period

 $

 -

167 

 

 -

167 

 

The provision for loan losses during the nine months ended September 30, 2012 reflects the charge-off of a $0.9 million commercial non-real estate loan and the related charge-off of the specific valuation allowances established on this non-real estate loans during prior periods.  The $0.2 million recovery relates to the foreclosure of a commercial land loan for which the fair value of the collateral less cost to sell exceeded the recorded investment in the loan. 

 

The $1.3 million of charge-offs during the nine months ended September 30, 2011 were comprised of a $1.2 million charge-off of a commercial land loan for which the Company had maintained a $0.8 million specific valuation allowance and a $0.1 million charge-off of a commercial residential loan. 

 

BBX Capital Corporation Consolidated Financial Condition

Total assets declined by $3.2 billion as a result of the sale of BankAtlantic to BB&T.  The Company retained $603 million of BankAtlantic assets as part of the Transaction including $50 million of cash held in FAR and $82 million of cash held in CAM.   The Company used the cash in CAM to  reimburse BB&T $51 million at the closing of the Transaction for accrued and unpaid interest on the TruPS through July 31, 2012.  FAR used its cash, together with additional cash generated after the consummation of the Transaction to pay down $76 million to BB&T’s 95% preferred interest in FAR and BB&T’s priority return. 

The Company’s total assets as of September 30, 2012 were $488.4 million compared to $3.7 billion as of December 31, 2011.  The Company’s total assets as of September 30, 2012 primarily consisted of:

·

Cash obtained from the Transaction and cash inflows from the assets retained of which $5.0 million is restricted for FAR’s operations and the repayment of FAR’s preferred membership interest,

·

Tax certificates in FAR of which $4.8 million were non-performing,

·

Loans held for sale including $19.1 million and $1.3 million of FAR small business and commercial loans and $13.3 million of CAM and BBX commercial loans.

·

Loans receivable including loans in FAR totaling $263.9 million and commercial loans in CAM and BBX totaling $50.7 million.

·

Real estate owned including $22.6 million of properties in FAR of which $13.0 million were commercial real estate and the remaining real estate owned representing commercial real estate in CAM and BBX. 

·

Other assets primarily represent a receivable from BB&T for cash collected on loans, tax certificates and real estate owned serviced by BB&T in September 2012.

 

The Company's total liabilities at September  30, 2012 were $233.6 million compared to $3.7 billion at December 31, 2011.  Total liabilities of $3.5 billion were transferred as a result of the sale of BankAtlantic to BB&T.  The changes in the components of total liabilities are summarized below:

 

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·

The Company issued to BB&T a $285 million preferred interest in FAR in exchange for BB&T’s assumption of the Company’s TruPS obligations.  BB&T’s preferred interest in FAR was paid down to $209 million at September 30, 2012 from cash contributed to FAR in connection with the Transaction as well as net cash inflows from FAR assets.

·

Other liabilities as of September 30, 2012 includes $14.0 million of servicer advances on FAR residential loans and accrued expenses primarily consisting of real estate taxes on real estate owned, compensation and professional fees. 

·

Subordinated debentures of $22 million were transferred to BB&T; and

·

All deposits were transferred to BB&T.

 

Liquidity and Capital Resources 

On July 31, 2012, BBX completed its previously announced sale of BankAtlantic to BB&T. Under the terms of the Agreement, immediately prior to the sale of BankAtlantic to BB&T, BankAtlantic distributed to BBX the membership interests of FAR and CAM. 

 

CAM’s assets consisted of $82 million of cash and non-performing commercial loans, commercial real estate owned and previously written off assets that had an aggregate carrying value on BankAtlantic’s balance sheet of $125 million as of July  31, 2012.  CAM had approximately $1.7 million of liabilities related to these assets as of July 31, 2012. 

 

FAR’s assets consisted of $50 million of cash and performing and non-performing loans, tax certificates and real estate owned that had an aggregate carrying value on BankAtlantic’s balance sheet of approximately $346 million  as of July  31, 2012.  FAR had approximately $14.2 million of liabilities related to these assets as of July 31, 2012.  At the closing of the 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 outstanding TruPS obligations. 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 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. 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 preference amount within seven years.  As a consequence, until BB&T’s preferred interest in FAR is recovered, the cash generated from the activities of FAR will be utilized to pay expenses, fund the priority return and repay the preferred membership interest.

 

 

BBX also received from BB&T a cash payment of $6.4 million at the closing of the Transaction in connection with the sale of the stock of BankAtlantic.  As a result of the Transaction, the Company’s stockholders’ equity increased by $308.8 million representing a $290.6 million gain on the sale of BankAtlantic and an $18.2 million reduction in accumulated other comprehensive income. 

 

CAM distributed the $82 million of cash transferred to it at the closing of the Transaction to BBX and BBX utilized  $51.3 million of the cash to reimburse BB&T for all accrued and unpaid interest on the TruPS through the closing of the Transaction, and $7.3 million of the cash to fund transaction costs and payments of certain legal fees and expenses with respect to the now resolved litigation relating to the Transaction brought by certain holders of the TruPS.  The remaining cash of approximately $29 million was available for general corporate purposes.

 

 

 

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BBX Capital Corporation

 

The net cash flows received by BBX from CAM and the cash proceeds from the Transaction are summarized below (in thousands):

 

 

 

 

 

 

 

 

 

 

Cash received from Transaction:

 

 

Cash held in CAM

$

81,210 

Transaction cash consideration

 

6,433 

 Total cash received

 

87,643 

Cash outflows from Transaction:

 

 

TruPS accrued and unpaid interest

 

(51,314)

Legal fees - TruPS litigation

 

(2,349)

Transaction costs

 

(5,000)

 Total cash outflows

 

(58,663)

Net cash received from Transaction

 

 

 by BBX

$

28,980 

 

The Company’s principal source of liquidity was its cash holdings, funds obtained from its wholly-owned work-out subsidiary,  the net cash proceeds received in connection with  the Transaction, and $4 million of distributions received from FAR.  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 operating expenses and to pay BB&T’s 95% preferred membership interest and the related priority return.  The balance of BB&T’s preferred membership interest in FAR was approximately $209 million at September 30, 2012.

 

The Company’s cash at banks excluding FAR’s cash was $33.8 million and the Company had $10.3 million of current liabilities as of September 30, 2012.   The Company expects to obtain funds in subsequent periods from the cash flows on loans and real estate and other assets in CAM and the Company’s existing asset workout subsidiary, each of which is wholly-owned by the Company, and distributions from its 5% preferred interest in the net cash flows from FARThe Company also may obtain funds through the issuance of equity and debt securities. The Company anticipates utilizing these funds for general corporate purposes including employee compensation and benefits, servicing costs and real estate owned operating expenses in the near term and anticipates involvement in investments in real estate and other business opportunities as well as specialty finance activities over time as assets are monetized. 

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BBX Capital Corporation

 

 

            The Company’s Contractual Obligations and Off Balance Arrangements as of September 30, 2012 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

$

208,986 

 -

 -

42,736 
166,250 

Operating lease obligation

 

2,183 
165 
863 
916 
239 

Other obligations

 

540 
155 
375 
10 

 -

Total contractual cash obligations

$

211,709 
320 
1,238 
43,662 
166,489 

 

 

FAR is required to make quarterly distributions of excess cash obtained from loan payments or the liquidation of assets to pay down its preferred membership interests (which are held 95% by BB&T and 5% by the Company) and the related priority return.  However, if the preference amount represented by BB&T interest exceeds $175 million on July 31, 2015, certain asset must be liquidated within 180 days in order to reduce the preference amount to $175 million Additionally, if the preference amount is not reduced to $100 million by July 31, 2017, certain assets must be liquidated within 180 days in order to reduce the preference amount to $100 million.    If BB&T’s preferred interest in FAR is not fully repaid on July 31, 2019, the remaining assets must be liquidated within 180 days.   The Company entered into an incremental $35 million guarantee in BB&T's favor to further assure BB&T's recovery of its preference amount within seven years.

 

Operating lease obligations represent minimum future lease payments in which the Company is a lessee for office space.

 

Other obligations are primarily legally binding agreements with loan servicers that represent fixed payments for a time period greater than one year.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Subsequent to the Transaction, the Company’s market risk primarily consists of interest rate risk on its accruing loans. As a result, the Company’s earnings are affected by interest rates, which are subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve Board. The Company has estimated the changes in its interest income based on changes in interest rates.  Presented below is an analysis of the Company’s estimated net interest income over a twelve month period calculated utilizing the Company’s model (dollars in thousands):

 

 

 

 

 

As of September 30, 2012

Basis Point

 

Net

Change

 

Interest

in Rate

 

Income

           200

$

9,691 

           100

 

8,972 

                -

 

8,253 

          (100)

 

7,533 

          (200)

 

6,814 

 

 

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BBX Capital Corporation

 

 

Additionally, because a significant majority of the Company’s assets consist of loans secured by real estate and real estate owned, the Company’s financial condition and earnings are also affected by changes in real estate values in the markets where the real estate is located.

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 September  30, 2012 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 September 30, 2012 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting other than the following changes resulting from the consummation of the Transaction.  After consummation of the Transaction the Company’s internal control over financial reporting no longer includes the review of transactions, receipts and disbursements associated with deposit operations and the investment business unit.  

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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, 2011 as supplemented by Item 1A Risk Factors in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012. 

Item 5. Other Information.

 

On November 12, 2012, the Company, upon the approval of the Compensation Committee of its Board of Directors after consultation with a third party compensation consultant, entered into employment agreements with certain of its executive officers, including Alan B. Levan, the Company’s Chairman and Chief Executive Officer, John E. Abdo, the Company’s Vice Chairman, Jarett S. Levan, the Company’s President, Seth M. Wise, the Company’s Executive Vice President, and John K. Grelle, the Company’s Chief Financial Officer (collectively, the “Executive Officers”). 

 

Under the terms of their respective employment agreements, each of the Executive Officers will receive an annual base salary and be entitled to receive bonus payments under bonus plans established from time to time by the Compensation Committee or otherwise at the discretion of the Compensation Committee. The following table sets forth information regarding the base salary and bonuses paid or payable to the Executive Officers under the employment agreements.

 

 

 

 

 

Executive Officer

Base Salary(1)

Bonus(2)

Bonus Opportunity(3)

Alan B. Levan

$
750,000 
$
1,100,000 
200% 

John E. Abdo

$
750,000 
$
1,100,000 
200% 

Jarett S. Levan

$
375,000 
$
650,000 
80% 

Seth M. Wise

$
375,000 
$
750,000 
80% 

John K. Grelle

$
200,000 

-

60% 

 

(1)

Represents base salaries for the year ending December 31, 2012. The Compensation Committee will review and have the discretion to increase each Executive Officer’s base salary on an annual basis. The base salaries may not be decreased without the applicable Executive Officer’s written consent.

(2)

Represents discretionary cash bonuses paid to the Executive Officer upon execution of his employment agreement based on a subjective evaluation of his overall performance in areas outside those that can be objectively measured from financial results.

(3)

Represents the Executive Officer’s bonus opportunity, stated as a percentage of his then-current base salary, for each calendar year during the term of the agreement commencing with the year ending December 31, 2012 (hereinafter referred to as the “Annual Bonus”).  Any Annual Bonuses payable for the year ending December 31, 2012 would be in addition to the amounts set forth in the “Bonus” column.

 

In addition, pursuant to the terms of their respective employment agreements, the Company granted 376,802 shares of restricted stock to each of Mr. Alan Levan and Mr. Abdo, and 188,401 shares of restricted stock to each of Mr. Jarett Levan and Mr. Wise, in each case under the Company’s 2005 Restricted Stock and Option Plan.  These restricted stock awards are in shares of the Company’s Class A Common Stock and are scheduled to vest in four equal annual installments beginning on November 12, 2013, subject to the applicable Executive Officer’s continued employment with the Company and certain other terms and conditions of the awards. 

 

The employment agreements also provide that the Compensation Committee will work with the compensation consultant and the Company’s executive management team to develop a “carried interest” compensation plan in which the Executive Officers will be entitled to participate.

 

Each employment agreement (other than the employment agreement with Mr. Grelle) has an initial term of three years and provides for annual renewal terms unless either the applicable Executive Officer or the Company elects for the agreement to expire at the end of the then-current term or the agreement is earlier terminated as set forth below.  Mr. Grelle’s employment agreement is for a term expiring on March 31, 2015.

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Each employment agreement may be terminated by the Company for “Cause” or “Without Cause” or by the Executive Officer for “Good Reason” (as such terms are defined in the employment agreement).  If an employment agreement is terminated with the Company for “Cause,” the applicable Executive Officer will be entitled to receive his base salary through the date of termination.  If an employment agreement is terminated by the Company “Without Cause” or by the Executive Officer for “Good Reason,” the applicable executive officer will be  entitled to receive (i) his base salary through the date of termination (or through March 31, 2015, in the case of Mr. Grelle), (ii) the prorated portion of the Executive Officer’s Annual Bonus (based on the average Annual Bonus paid to him during the prior two fiscal years) through the date of termination and (iii) with respect to Mr. Alan Levan, Mr. Abdo, Mr. Jarett Levan and Mr. Wise, a severance payment as follows.  Each of Mr. Alan Levan and Mr. Abdo will be entitled to receive a severance payment in an amount equal to 2 times the sum of his annual base salary and Annual Bonus opportunity at the date of termination (or 2.99 times the sum of his annual base salary and Annual Bonus opportunity at the date of termination if such termination occurs within two years after a “Change in Control” (as defined in the employment agreement). Each of Mr. Jarett Levan and Mr. Wise will be entitled to receive a severance payment in an amount equal to 1.5 times the sum of his annual base salary and Annual Bonus opportunity at the date of termination (or 2 times the sum of his annual base salary and Annual Bonus opportunity at the date of termination if such termination occurs within two years after a “Change in Control”).  In addition, if an Executive Officer’s employment agreement is terminated by the Company “Without Cause” or by the Executive Officer for “Good Reason,” all incentive stock options and restricted stock awards previously granted to the Executive Officer by the Company but not yet vested will immediately accelerate and fully vest as of the termination date, and the Company will be required to provide the Executive Officer with continued benefits, including, without limitation, health and life insurance, for the following periods: (i) two years following the year in which the termination occurs (or three years following the year in which the termination occurs, if such termination occurred within two years after a Change in Control), in the case of each of Mr. Alan Levan and Mr. Abdo, (ii) eighteen months following the year in which the termination occurs (or two years following the year in which the termination occurs, if such termination occurred within two years after a Change in Control), in the case of each of Mr. Jarett Levan and Mr. Wise, and (iii) through March 31, 2015, in the case of Mr. Grelle.  Each employment agreement will also be terminated upon the Executive Officer’s death, in which case the applicable Executive Officer’s estate will be entitled to receive his base salary through the date of his death and the prorated portion of the Executive Officer’s Annual Bonus (based on the average Annual Bonus paid to him during the prior two fiscal years) through the date of his death.

 

Each Executive Officer also agreed in his respective employment agreement to enter into a non-disclosure, non-competition, confidentiality and non-solicitation of customers agreement with the Company on terms acceptable to both the Executive Officer and the Company. Entry into such agreement is a condition to the Company’s obligation to make and provide the post-termination payments and benefits described in the preceding paragraph.

 

The foregoing description of the employment agreements is only a summary and is qualified in its entirety by reference to the full text of the agreements, which are filed as Exhibits 10.1 through 10.5 to this Quarterly Report on Form 10-Q, and are incorporated herein by reference. 

 

 

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Item 6.                            Exhibits

                                    Exhibit 10.1                    Employment agreement of Alan B. Levan

                                    Exhibit 10.2                    Employment agreement of John E. Abdo

                                    Exhibit 10.3                    Employment agreement of Jarett S. Levan

                                    Exhibit 10.4                    Employment agreement of John K. Grelle

                                    Exhibit 10.5                    Employment agreement of Seth M. Wise

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

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

                                    Exhibit 32.1                    Certification 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 32.2                    Certification 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 101                     Interactive data Files

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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

 

 

 

November 14, 2012 

By

/s/ Alan B. Levan

    Date

 

Alan B. Levan

 

 

Chief Executive Officer/

 

 

Chairman of the Board 

 

 

 

November 14, 2012 

By:

/s/ John K. Grelle

    Date

 

John K. Grelle

 

 

Executive Vice President,

 

 

Chief Financial Officer

 

73