Notes to Consolidated Financial Statements - Unaudited

1.    Presentation of Interim Financial Statements

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. In management’s opinion, the accompanying unaudited consolidated financial statements contain all adjustments, which include normal recurring adjustments, as are necessary for a fair statement of the  consolidated financial condition of BFC Financial Corporation (“BFC” or, unless otherwise indicated or the context otherwise requires, “we,” “us,” “our,” or the “Company”) at March 31, 2013; the consolidated results of operations and  comprehensive income (loss) of BFC for the three months ended March 31, 2013 and 2012; the consolidated cash flows of BFC for the three months ended March 31, 2013 and 2012; and changes in consolidated equity of BFC for the three months ended March 31, 2013. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013 or any other future period. These unaudited consolidated financial statements and related notes are presented as permitted by Form 10-Q and should be read in conjunction with the Company’s audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.  All significant inter-company balances and transactions have been eliminated in consolidation. As used throughout this document, the term “fair value” reflects the Company’s estimate of fair value as discussed herein. Certain amounts for prior periods have been reclassified to conform to the current period’s presentation.

BFC is a holding company whose principal holdings include a direct controlling interest   in BBX Capital Corporation (formerly BankAtlantic Bancorp, Inc.) and its subsidiaries (“BBX Capital”) and , through Woodbridge Holdings, LLC (“Woodbridge”), a 54% equity controlling interest in Bluegreen Corporation and its subsidiaries (“Bluegreen”) .  BFC also holds interests in other investments and subsidiaries as described herein and previously held a significant investment in Benihana Inc. (“Benihana”) until the acquisition of Benihana by Safflower Holdings Corp. (“Safflower”) during August 2012. The Company reports the results of its continuing operations through four segments: Real Estate Operations; Bluegreen Resorts; BBX; and Florida Asset Resolution Group (“FAR”).

GAAP requires that BFC consolidate the financial results of the entities in which it has controlling interest. As a consequence, the assets and liabilities of all such entities are presented on a consolidated basis in BFC’s financial statements. However, except as otherwise noted, the debts and obligations of the consolidated entities, including BBX Capital , Woodbridge, and Bluegreen, are not direct obligations of BFC and are non-recourse to BFC. Similarly, the assets of those entities are not available to BFC absent a dividend or distribution from those entities (and, in the case of Bluegreen, a subsequent dividend or distribution by Woodbridge) . The recognition by BFC of income from controlled entities is determined based on the total percent of economic ownership in those entities. At March 31 , 201 3 , BFC had an approximately 53 % economic ownership interest in BBX Capital and, through Woodbridge, an approximately 54 % economic ownership interest in Bluegreen (in each case excluding restricted shares issued by the applicable company to its officers and directors which were unvested as of March 31, 2013). The merger between Bluegreen and Woodbridge described below was consummated on April 2, 2013, resulting in Bluegreen becoming a wholly-owned subsidiary of Woodbridge.  As a result of the completion of that transaction, BFC and BBX Capital own 54% and 46%, respectively, of Woodbridge.

As discussed below, BankAtlantic’s Community Banking, Investments, Tax Certificates, and Capital Services components are recorded as discontinued operations as a result of BBX Capital’s sale of BankAtlantic, BBX Capital’s former banking subsidiary, to BB&T Corporation (“BB&T”) during July 2012.  Discontinued operations of BFC also include the results of Bluegreen Communities, substantially all of the assets of which were sold by Bluegreen during May 2012, and Cypress Creek Holdings, LLC (“Cypress Creek Holdings”). See Note 3   for further discussion of discontinued operations.

Recent Events

BBX Capital Merger Agreement

On May 7, 2013, BFC, BBX Merger Sub, LLC, a newly formed wholly-owned subsidiary of BFC (“BBX Merger Sub”), and BBX Capital entered into a definitive merger agreement which provides for BBX Capital to merge with and into BBX Merger Sub, with BBX Merger Sub continuing as the surviving company of the merger and a wholly-

owned subsidiary of BFC. Under the terms of the merger agreement, BBX Capital’s shareholders (other than BFC and shareholders of BBX Capital who exercise and perfect their appraisal rights in accordance with Florida law) will be entitled to receive 5.39 shares of BFC’s Class A Common Stock in exchange for each share of BBX Capital’s Class A Common Stock that they hold at the effective time of the merger (as such exchange ratio may be adjusted in accordance with the terms of the merger agreement, the “Exchange Ratio”).  Each option to acquire shares of BBX Capital’s Class A Common Stock that is outstanding at the effective time of the merger, whether or not then exercisable, will be converted into an option to acquire shares of BFC’s Class A Common Stock and be subject to the same terms and conditions as in effect at the effective time of the merger, except that the number of shares which may be acquired upon exercise of the option will be multiplied by the Exchange Ratio and the exercise price of the option will be divided by the Exchange Ratio. In addition, each share of BBX Capital’s Class A Common Stock subject to a restricted stock award outstanding at the effective time of the merger will be converted into a restricted share of BFC’s Class A Common Stock and be subject to the same terms and conditions as in effect at the effective time of the merger, except that the number of shares subject to the award will be multiplied by the Exchange Ratio.  Consummation of the merger is subject to certain closing conditions, including, without limitation, the approval of BFC’s and BBX Capital’s respective shareholders, BFC’s Class A Common Stock being approved for listing on a national securities exchange (or interdealer quotation system of a registered national securities association) at the effective time of the merger, holders of not more than 10 % of BBX Capital’s Common Stock exercising appraisal rights, and the absence of any “Material Adverse Effect” (as defined in the merger agreement) with respect to either BFC or BBX Capital. BFC has agreed in the merger agreement to vote all of the shares of BBX Capital’s Common Stock that it owns in favor of the merger agreement, which would constitute the requisite approval of the merger agreement by BBX Capital’s shareholders under Florida law. There is no assurance that the merger will be consummated on the currently contemplated terms or at all.

The Bluegreen Merger

On April 2, 2013, Bluegreen merged with a wholly-owned subsidiary of Woodbridge in a cash merger transaction (sometimes hereinafter referred to as the “Bluegreen merger”).  Pursuant to the terms of the merger agreement, Bluegreen’s shareholders (other than Woodbridge) received consideration of $ 10.00 in cash for each share of Bluegreen’s common stock that they held at the effective time of the merger, including unvested restricted shares. In addition, each option to acquire shares of Bluegreen’s common stock that was outstanding at the effective time of the merger, whether vested or unvested, was canceled in exchange for a cash payment to the holder in an amount equal to the excess, if any, of the $10.00 per share merger consideration over the exercise price per share of the option. The aggregate merger consideration was approximately $ 149 million.  As a result of the merger, Bluegreen, which was the surviving corporation of the merger, became a wholly-owned subsidiary of Woodbridge.  Prior to the merger, Woodbridge owned approximately 54 % of Bluegreen’s outstanding common stock. These shares were canceled upon consummation of the merger without any payment therefor.

In connection with the financing of the merger, BFC and Woodbridge entered into a Purchase Agreement with BBX Capital on April 2, 2013 (the “Purchase Agreement”).  Pursuant to the terms of the Purchase Agreement, BBX Capital invested $ 71.75 million in Woodbridge contemporaneously with the closing of the merger in exchange for a 46 % equity interest in Woodbridge. BFC continues to hold the remaining 54 % of Woodbridge’s outstanding equity interests. BBX Capital’s investment in Woodbridge consisted of $ 60 million in cash, which was utilized to pay a portion of the aggregate merger consideration, and a promissory note in Woodbridge’s favor in the principal amount of $ 11.75 million (the “Note”). The Note has a term of five years, accrues interest at a rate of 5 % per annum and provides for payments of interest only on a quarterly basis during the term of the Note, with all outstanding amounts being due and payable at the end of the five-year term. In connection with BBX Capital’s investment in Woodbridge, BFC and BBX Capital entered into an Amended and Restated Operating Agreement of Woodbridge, which sets forth BFC’s and BBX Capital’s respective rights as members of Woodbridge and provides for, among other things, unanimity on certain specified “major decisions” and distributions to be made on a pro rata basis in accordance with BFC’s and BBX Capital’s respective percentage equity interests in Woodbridge.

Additionally, the proceeds from Bluegreen’s issuance of $ 75 million of senior secured notes (the “2013 Notes Payable”) on March 26, 2013 in a private transaction and approximately $ 14 million of Bluegreen’s unrestricted cash were utilized in connection with the funding of the $149 million merger consideration indicated above. See Note 9 for additional information regarding the 2013 Notes Payable .

Two consolidated class action lawsuits relating to the merger remain pending.  As described in detail in the “Legal Proceedings” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, these actions include, among others, claims based on alleged breaches of fiduciary duty.  The plaintiffs have asserted that the consideration received by Bluegreen’s minority shareholders in the merger was inadequate and unfair, and are

seeking to recover damages in connection with the merger. The Company believes that these lawsuits are without merit and intends to vigorously defend the actions.

Sale of BankAtlantic

O n July 31, 2012, BBX Capital completed the sale to BB&T of all of the issued and outstanding shares of capital stock of BankAtlantic , the former wholly-owned banking subsidiary of BBX Capital (the stock sale and related transactions are referred to in this report as the “BankAtlantic Sale” or the “BB&T Transaction”).   The BankAtlantic Sale was consummated pursuant to the terms of a definitive agreement, dated November 1, 2011, between BBX Capital and BB&T, as amended on March 13, 2012 (the “Agreement”). The March 13, 2012 amendment amended the previously contemplated terms of the transaction to , among other things , provide for the assumption by BB&T of BBX Capital’s $ 285.4 million in principal amount of then- outstanding trust preferred securities (“TruPS”) obligations. 

Pursuant to the Agreement, prior to the closing of the BankAtlantic Sale , 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 Consolidated Statement of Financial Condition of approximately $ 346 million on the date the sale was consummated, July 31, 2012.   FAR assumed all liabilities related to these assets. BankAtlantic also contributed approximately $ 50 million in cash to FAR on July 31, 2012 and thereafter distributed all of the membership interests in FAR to BBX Capital.  At the closing of the BankAtantic Sale , BBX Capital transferred to BB&T 95 % of the outstanding preferred membership interests in FAR in connection with BB&T’s assumption of BBX Capital’s then- outstanding approximately $285 million of TruP S obligations .   BBX Capital continues to hold the remaining 5 % of FAR’s preferred membership interests.  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 + 2. 0 0 % per annum on any unpaid preference amount. At that time, BB&T’s interest in FAR will terminate, and BBX Capital will thereafter be entitled to any and all residual proceeds from FAR through its ownership of FAR’s Class R units.  It is expected that the assets (other than cash) contributed to FAR will be monetized over a period of seven years, or longer provided BB&T’s preference amount is repaid within such seven -year period. BBX Capital entered into an incremental $ 35 million guarantee in BB&T’s favor to further assure BB&T’s recovery of the $285 million preferr ed interest. BB&T’s preferred interest in FAR was reduced through cash distributions to $ 1 64 million   as of March 31, 201 3.

Prior to the closing of the BankAtlantic Sale , 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 Consolidated Statement of Financial Condition of $ 125 million as of July 31, 2012. CAM assumed all liabilities related to these assets.  BankAtlantic also contributed $82 million of cash to CAM on July 31, 2012.  Prior to the closing of the BankAtlantic Sale , BankAtlantic distributed all of the membership interests in CAM to BBX Capital.  CAM remains a wholly - owned subsidiary of BBX Capital.

Sale of Bluegreen Communities

On May 4, 2012, Bluegreen sold substantially all of the assets that comprised its former residential communities business, Bluegreen Communities, to Southstar Development Partners, Inc. (“Southstar”) for a purchase price of $ 29.0 million in cash.  Southstar also agreed to pay an amount equal to 20 % of the net proceeds (as calculated in accordance with the terms of the agreement), of its sale, if any, of two specified parcels of real estate purchased by Southstar under the agreement.  Southstar sold one of the parcels during 2012 and paid to Bluegreen the proceeds to which it was entitled, which were insignificant.  Assets excluded from the sale included primarily Bluegreen’s Communities notes receivable portfolio.  Bluegreen Communities is classified as a discontinued operation for all periods presented in the accompanying consolidated financial statements.  See Note   3   for additional information regarding discontinued operations.

Acquisition of Benihana by Safflower

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

Prior to Safflower’s acquisition of Benihana, BFC sold approximately 77,000 shares of Benihana’s common stock during July and August 2012 pursuant to the terms of a Rule 10b5-1 Trading Plan and received net proceeds from such sales of approximately $ 1.25 million.

BFC recognized a gain on sale of approximately $ 9.3 million in connection with its sales of shares of Benihana’s common stock during July and August 2012 and disposition of its remaining shares of Benihana’s common stock pursuant to the merger between Benihana and Safflower during August 2012. In addition, during each of the first three quarters of 2012, BFC received approximately $ 127,000 of dividend payments with respect to the shares of Benihana’s common stock which BFC owned at that time.    

2.    Liquidity

BFC

Except as otherwise noted, the debts and obligations of BBX Capital, Woodbridge and Bluegreen are not direct obligations of BFC and generally are non-recourse to BFC.  Similarly, the assets of those entities are not available to BFC, absent a dividend or distribution from those entities (and, in the case of Bluegreen, a subsequent dividend or distribution by Woodbridge) . BFC’s principal sources of liquidity are its available cash and short-term investments.  Dividends from its subsidiaries have also been, and may in the future be, a material source of BFC’s liquidity; however, as described below, dividend payments   may be dependent on a number of factors and/or be subject to certain limitations, and dividend decisions made by subsidiaries not 100 % owned by BFC, including BBX Capital, Woodbridge and Bluegreen, are outside of the control of BFC and may not be made in the best interests of BFC.

We expect to use our available funds to fund operations and meet our obligations.  We may also use available funds to make additional investments in the companies within our consolidated group, invest in real estate based opportunities and middle market operating businesses ,   invest in equity securities and/ or repurchase shares of our common stock pursuant to our share repurchase program. On September 21, 2009, our board of directors approved a share repurchase program which authorizes the repurchase of up to 20,000,000 shares of Class A Common Stock and Class B Common Stock at an aggregate cost of up to $ 10 million.  The share repurchase program replaced our $ 10 million repurchase program that our board of directors approved in October 2006 which placed a limitation on the number of shares which could be repurchased under the program at 1,750,000 shares of Class A Common Stock.  The program   authorizes management, at its discretion, to repurchase shares from time to time subject to market conditions and other factors considered by management.     No shares have been repurchased under the current program .  

BFC has not received cash dividends from BBX Capital since March 2009. Prior to its deregistration as a savings and loan holding company in connection with its sale of BankAtlantic, BBX Capital’s payment of dividends was subject to the oversight of the Board of Governors of the Federal Reserve System (the “Federal Reserve”).  In addition, prior to its sale of BankAtlantic, BBX Capital was restricted from paying dividends pursuant to the terms of the indentures governing its TruPS due to its deferral of interest payments thereunder.  While these restrictions no longer apply, BBX Capital will only pay dividends if and when declared by its board of directors, a majority of whom are independent directors under the listing standards of the NYSE.  BBX Capital has disclosed that it expects to utilize its available cash to pursue opportunities in accordance with its business strategies and has no current plans to pay cash dividends to its shareholders.

Bluegreen has not historically paid cash dividends to its shareholders and certain of Bluegreen’s credit facilities contain terms which could limit the payment of cash dividends.  Bluegreen may only pay dividends subject to its restrictions as well as declaration by its board of directors, a majority of whom were independent directors under the listing standards of the NYSE. In addition, as a result of the Bluegreen merger on April 2, 2013, Woodbridge, as the parent company of Bluegreen, would be entitled to 100 % of all dividends paid by Bluegreen and any subsequent dividend or distribution by Woodbridge requires the approval of the boards of directors of both BBX Capital and BFC, which own 46% and 54%, respectively, of Woodbridge.

During the first quarter of 2012, BFC received approximately $ 127,000 of dividend payments with respect to its shares of Benihana’s common stock.  As previously described, BFC received a total of approximately $ 25.75 million pursuant to open market sales of Benihana’s common stock during July and August 2012 and in exchange for its remaining interest in Benihana’s common stock in connection with Safflower’s acquisition of Benihana during August 2012. 

We believe that our current financial condition and credit relationships, together with anticipated cash flows from other sources of funds, potential dividends from our subsidiaries, and, to the extent determined to be advisable, proceeds from the disposition of properties or investments, will allow us to meet our anticipated near-term liquidity needs. With respect to long-term liquidity requirements, in addition to the foregoing, we may also   seek to raise funds through the incurrence of long-term secured or unsecured indebtedness, or the issuance of equity and/or debt securities.  However, these alternatives may not be available to us on attractive terms, or at all. The inability to raise funds through the sources discussed above would have a material adverse effect on the Company’s business, results of operations and financial condition.

Woodbridge

On September 21, 2009, BFC consummated its merger with Woodbridge Holdings Corporation (“WHC”). Pursuant to the merger, WHC merged with and into Woodbridge , and the shareholders of WHC at the effective time of the merger (other than BFC) were entitled to receive 3.47 shares of BFC’s Class A Common Stock in exchange for each share of WHC’s Class A Common Stock that they owned .   Under Florida law, holders of WHC’s Class A Common Stock who did not vote to approve the merger and properly asserted and exercised their appraisal rights with respect to their shares (“Dissenting Holders”) are entitled to receive a cash payment in an amount equal to the fair value of their shares as determined in accordance with the provisions of Florida law in lieu of the shares of BFC’s Class A Common Stock that they would otherwise have been entitled to receive. Dissenting Holders, who collectively held approximately 4.2 million shares of WHC’s Class A Common Stock, rejected Woodbridge’s offer of $ 1.10 per share and requested payment for their shares based on their respective fair value estimates of WHC’s Class A Common Stock. In accordance with Florida law, Woodbridge thereafter commenced legal proceedings relating to the appraisal process.  In December 2009, a $ 4.6 million liability was recorded based on Woodbridge’s $1.10 per share offer to the Dissenting Holders, with a corresponding reduction to additional paid-in capital .  On July 5, 2012, the presiding court in the appraisal rights action determined the fair value of the Dissenting Holders’ shares to be $ 1.78 per share and awarded legal and other costs in favor of the Dissenting Holders. As a result, the $4.6 million liability was increased to approximately $ 7.5 million (with a corresponding reduction to additional paid in capital of $ 2.8 million )   during the quarter ended June 30, 2012 to account for the per share value awarded .     On March 11, 2013, the court awarded legal fees and pre and post judgment interest to the Dissenting Holders for a total award to the Dissenting Holders of approximately $11.9 million (including the $7.5 million based on the $1.78 per share value determination).  As a result, the liability was increased by approximately $ 4.4 million during the fourth quarter of 2012. Woodbridge has appealed the court’s ruling with respect to its fair value determination and the award of legal fees and costs and, on April 5, 2013, posted a $13.4 million bond in connection with the appeal. The outcome of the appeal is uncertain.

Bluegreen

Bluegreen believes that its existing cash, anticipated cash generated from operations, anticipated future permitted borrowings under existing or proposed credit facilities and anticipated future sales of notes receivable under the purchase facilities and one or more replacement facilities Bluegreen may seek to put in place will be sufficient to meet its anticipated working capital, capital expenditures and debt service requirements, including the contractual payment of the obligations of Bluegreen described herein, for the foreseeable future, subject to the successful implementation of ongoing strategic initiatives and the ongoing availability of credit. Bluegreen will continue its efforts to renew, extend, or replace any credit and receivables purchase facilities that have expired or that will expire in the near term.  Bluegreen may, in the future, also obtain additional credit facilities and may issue corporate debt securities or enter into joint ventures with third parties. If Bluegreen is unable to sell notes receivable or borrow under existing or new facilities, Bluegreen’s ability to satisfy its obligations would be materially adversely affected.

Carolina Oak

In 2007, W oodbridge’s predecessor acquired from Levitt and Sons, LLC (“Levitt and Sons”), all of the outstanding membership interests in Car olina Oak, LLC (“Carolina Oak”).  Carolina Oak engaged in homebuilding activities in South Carolina prior to the suspension of those activities in the fourth quarter of 2008.

Woodbridge was the obligor under a $ 37.2 million loan collateralized by certain property owned by Carolina Oak .  During 2009, the lender declared the loan to be in default and filed an action for foreclosure.  On April 26, 2011, a settlement agreement was entered into to resolve the disputes and li ti gation relating to the loan. Under the terms and subject to the conditions of the settlement agreement, (i) Woodbridge paid $ 2.5 million to the note holder, (ii) Carolina Oak conveyed to the note holder the real property securing the loan and (iii) the note holder agreed not to pursue certain remedies, including a deficiency judgment, and after the expiration of an agreed-upon time period

(which expired during April 2012), to fully release Woodbridge and Carolina Oak. In accordance with applicable accounting guidance, a deferred gain on debt settlement of $ 29.9 million was recorded in the Company’s consolidated statement of financial condition as of December 31, 2011 and was recognized as income in the quarter ended June 30, 2012 as a result of the full release of Woodbridge and Carolina Oak in April 2012.

BBX Capital

BBX Capital ’s cash at banks was  $ 64.4 million a s of March 31, 2013, which does not include $5.6 million of cash held in FAR.  BBX Capital had $ 8.7 million of current liabilities as of March 31, 2013.  BBX Capital’s principal source of liquidity is its cash holdings, funds obtained from payments on and sales of its loans, loan payoffs, sales of real estate owned, income from income producing real estate, and distributions received from FAR. While FAR is consolidated in BBX Capital’s financial statements, the cash held in FAR and generated from its assets will be used primarily to pay FAR’s operating expenses and to pay BB&T’s 95% preferred membership interest and the related priority return and will generally not be available for distribution to BBX Capital.  The balance of BB&T’s preferred membership interest in FAR was approximately $164 million at March 31, 2013.  Based on current and expected liquidity needs and sources, BBX Capital expects to be able to meet its liquidity needs over the next twelve months.  As discussed above in Note 1, on April 2, 2013, BBX Capital completed an investment in Woodbridge, which included an investment of $60 million in cash.

3.    Discontinued Operations

Discontinued operations for the three months ended March 31, 2012 included BankAtlantic’s Community, Investments, Tax Certificates and Capital Services components, Bluegreen Communities and Cypress Creek Holdings.  Discontinued operations for the three months ended March 31, 2013 consisted of Bluegreen Communities.  The results of discontinued operations for the three months ended March 31, 2013 were not significant.  The following table summarizes the results of discontinued operations for   Bluegreen Communities and Cypress Creek Holdings for the three months ended   March 31, 2012 (in thousands):

Bluegreen Communities 

In May 2012, Bluegreen sold substantially all of the assets that comprised Bluegreen Communities to Southstar f or a purchase price of $ 29.0 million in cash.   Certain assets, including primarily Bluegreen Communities’ notes receivable portfolio, were not sold to Southstar.  

In addition to the results of Bluegreen Communities, discontinued operations include interest expense primarily on Bluegreen’s H4BG Communities Facility as certain of the assets classified as held for sale (and which were sold to Southstar as part of the Bluegreen Communities sale) served as collateral under this facility.

Cypress Creek Holdings

During January 2012, Cypress Creek Holdings sold the office building it owned for approximately $ 10.8 million. The building , which was classified as an asset held for sale as of December 31, 2011, served as collateral for an approximately $ 11.2 million mortgage loan. The proceeds of the sale plus a $ 668,000 payment made by Cypress Creek Holdings were paid to the lender in full satisfaction of the loan. The Company recognized a gain of approximately $ 4.4 million in connection with the sale during the first quarter of 2012.

BBX Capital

Sale of BankAtlantic to BB&T

BankAtlantic’s five reporting units each reflect ed a component of the BankAtlantic entity and wa s the low est level for which cash flows c ould be clearly distinguished, operationally and for financial reporting purposes.  These five components we re Community Banking, Commercial Lending, Tax Certificates, Investments, and Capital Services.  Based on the terms of the sale of BankAtlantic under the agreement with BB&T, BBX Capital determined that the Community Banking, Investments, Capital Services and Tax Certificates reporting units should be treated as discontinued operations.  BBX Capital sold all operations and the majority of the assets and liabilities of these discontinued reporting units to BB&T upon the consummation of the BB&T Transaction on July 31, 2012. BBX Capital’s m anagement does not intend to continue in any material respect any activities of or have any continuing involvement with these reporting units. Although certain assets of the Commercial Lending reporting unit were sold to BB&T, BBX Capital has continued Commercial Lending reporting unit activities resulting in BBX Capital including the Commercial Lending reporting unit in continuing operations in the statements of operations .  

Pursuant to the Agreement with BB&T, in addition to certain assets associated with BBX Capital’s continuing Commercial Lending reporting unit, FAR also retained certain assets and liabilities that were associated with BBX Capital’s disposed reporting units (Community Banking, Tax Certificates, Investments, and Capital Services reporting units).  BBX Capital determined that the ongoing cash flows relating to the retained assets of the disposed reporting units expected in future periods 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 the three months ended March 31, 2012.  The results of operations and cash flows associated with the retained assets associated with the disposed reporting units were included in continuing operations for the three months ended March 31, 2013.

The income from BankAtlantic’s Community Banking, Investments, Capital Services and Tax Certificates reporting units included in discontinued operations for the three months ended March 31, 2012 was as follows (in thousands):

4.    Fair Value Measurement  

Assets and liabilities on a recurring basis

There were no significant assets or liabilities measured at fair value on a recurring basis in the Company’s statements of financial condition as of March 31, 2013 or December 31, 2012.

Assets on a non-recurring basis

The following table presents major categories of assets measured at fair value on a non-recurring basis as of March 31, 2013 (in thousands):

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

The following table presents major categories of assets measured at fair value on a non-recurring basis as of March 31, 2012 (in thousands):

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

Liabilities on a non-recurring basis

There were no liabilities measured at fair value on a non-recurring basis as of March 31, 2013 or December 31, 2012.

Loans Measured For Impairment

Impaired loans are generally valued based on the fair value of the underlying collateral less cost to sell. The fair value of BBX Capital’s loans may significantly increase or decrease based on changes in property values as its loans are primarily secured by real estate.  BBX Capital primarily uses third party appraisals to assist in measuring non-

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

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 is generally comparable property sales, rent rolls, market capitalization rates on income producing properties and risk adjusted discount rates. However, the appraisers or brokers use professional judgment in determining the fair value of the properties and BBX Capital 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. 

Financial Disclosures about Fair Value of Financial Instruments

The following tables present information for financial instruments at March 31, 2013 and December 31, 2012 (in thousands):

The applicable company’s 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, the fair value of certain of these financial instruments has been derived using the income approach technique with Level 3 unobservable inputs. Estimates

used in net present value financial models rely on assumptions and judgments regarding issues where the outcome is unknown and actual results or values may differ significantly from these estimates. These fair value estimates do not consider the tax effect that would be associated with the disposition of the assets or liabilities at their fair value estimates.  As such, BBX Capital or Bluegreen 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.

Interest-bearing deposits in banks include $0.5 million of certificates of deposits guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) with maturities of less than one year as of March 31, 2013 and December 31, 2012. Due to the FDIC guarantee and the short-term maturity of these certificates of deposit, the fair value of these deposits approximates the carrying value.

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

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

BB&T’s preferred interest in FAR is considered an adjustable rate debt security.  The fair value of this security is calculated using the income approach with Level 3 inputs and 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 estimated fair value of junior subordinated debentures are estimated using Level 3 inputs based on the contractual cash flows discounted at a market rate or based on market price quotes from the over-the-counter bond market.

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

The estimated fair values of Bluegreen’s notes and mortgage notes payable and other borrowings, including receivable-backed notes payable, were determined using Level 3 inputs by discounting the net cash outflows estimated to be used to repay the debt.  These obligations are to be satisfied using the proceeds from the consumer loans that secure the obligations.  The fair value of BBX Capital’s notes payable is measured using the income approach with Level 3 inputs and was obtained by discounting the forecasted cash flows based on risk adjusted market interest rates.

5.    BBX Capital’s Loans Receivable

BBX Capital’s loan portfolio consisted of the following (in thousands ):

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

An age analysis of the past due recorded investment in loans receivable as of March 31, 2013 and December 31, 2012 was as follows (in thousands):