UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, DC  20549

 

FORM 10-Q

 

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

 

For the Quarter Ended September 30, 2015

 

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

 

Commission File Number

001-09071

 

BFC Financial Corporation

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

Not Applicable

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

YES [X]NO [   ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

YES [X]NO [   ]

 

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

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

YES [   ]NO [ X ]

 

The number of shares outstanding of each of the registrant’s classes of common stock as of November 3, 2015 is as follows:

 

Class A Common Stock of $.01 par value, 75,492,819 shares outstanding.
Class B Common Stock of $.01 par value, 13,718,928 shares outstanding.

 

 

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(i)

 

 

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PART I – FINANCIAL INFORMATION

 

Item 1.  FINANCIAL STATEMENTS

 

 

 

 

 

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BFC Financial Corporation

Notes to Condensed Consolidated Financial Statements - Unaudited

 

 

1.    Presentation of Interim Financial Statements

 

Basis of Financial Statement Presentation

 

The accompanying unaudited condensed consolidated financial statements of BFC Financial Corporation (“BFC” or, unless otherwise indicated or the context otherwise requires, “we,” “us,” “our,” or the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“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 condensed 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 at September 30, 2015; the consolidated results of operations and comprehensive income of BFC for the three and nine months ended September 30, 2015 and 2014; changes in consolidated equity of BFC for the nine months ended September 30, 2015 and 2014; and the condensed consolidated cash flows of BFC for the nine months ended September 30, 2015 and 2014. Operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015 or any other future period.  These unaudited condensed 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 condensed consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 (the “2014 Annual Report”).  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.

 

GAAP requires that BFC consolidate the financial results of the entities in which it has controlling financial interests, including BBX Capital Corporation and its subsidiaries (“BBX Capital”), Woodbridge Holdings, LLC (“Woodbridge”) and Bluegreen Corporation and its subsidiaries (“Bluegreen”).  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, Bluegreen’s parent company).   

 

BFC is a Florida-based holding company whose principal holdings include an approximately 81% equity interest in BBX Capital and a direct 54% equity interest in Woodbridge. BBX Capital holds the remaining 46% equity interest in Woodbridge. Woodbridge owns 100% of Bluegreen.  Bluegreen is a sales, marketing and management company focused on the vacation ownership industry. BBX Capital is a Florida-based company involved in the ownership, financing, acquisition, development and management of real estate, including through real estate joint ventures, and investments in middle market operating businesses. 

 

BBX Capital’s principal asset until July 31, 2012 was its ownership of BankAtlantic and its subsidiaries (“BankAtlantic”).  BankAtlantic was a federal savings bank headquartered in Fort Lauderdale, Florida.  On July 31, 2012, BBX Capital completed the 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 “BankAtlantic Sale” or the “BB&T Transaction”).  Prior to the closing of the BB&T Transaction, BankAtlantic formed two wholly-owned subsidiaries, BBX Capital Asset Management, LLC (“CAM”) and Florida Asset Resolution Group, LLC (“FAR”). 

 

On April 30, 2015, the Company completed a cash tender offer pursuant to which it purchased from the shareholders of BBX Capital a total of 4,771,221 shares of BBX Capital’s Class A Common Stock at a purchase price of $20.00 per share, for an aggregate purchase price of approximately $95.4 million.  Prior to the tender offer, the Company

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owned approximately 51% of the issued and outstanding shares of BBX Capital’s Class A Common Stock and all of the issued and outstanding shares of BBX Capital’s Class B Common Stock.  Collectively, these shares represented an approximately 51% equity interest and 74% voting interest in BBX Capital. The purchase of BBX Capital’s Class A Common Stock in the tender offer increased the Company’s ownership interest to approximately 81% of the issued and outstanding shares of BBX Capital’s Class A Common Stock. The shares of BBX Capital’s Class A Common Stock and Class B Common Stock owned by the Company currently represent an approximately 81% equity interest and 90% voting interest in BBX Capital.  

 

As a result of the increase in BFC’s ownership interest in BBX Capital due to the purchase of additional shares of BBX Capital’s Class A Common Stock in the tender offer, BFC will be filing a consolidated group tax return which will include the operations of BBX Capital, Woodbridge and Bluegreen.  See Note 10 for additional information regarding the Company’s income taxes.

 

Share-based Compensation

 

On September 1, 2015, the Company granted 2,372,592 restricted shares of the Company’s Class B Common Stock to the Company’s executive officers under the Company’s 2014 Stock Incentive Plan.  The restricted Class B common shares had an aggregate fair value of $7.5 million on the grant date. The restricted shares granted to each executive officer are scheduled to vest ratably in annual installments over four years beginning in October 2016.  The Company recognizes the compensation costs based on the straight-line method over the vesting period.

 

On September 16, 2015, a total of 1,532,975 shares of restricted Class A common stock granted to executive officers in September 2011 vested.  The executive officers surrendered a total of 574,934 shares of BFC Class A common stock to satisfy the $1.8 million tax withholding obligation associated with the vesting of these shares.  BFC retired the surrendered shares.

 

On September 30, 2015, a total of 1,389,072 shares of restricted Class A common stock and 773,206 shares of restricted Class B common stock granted to executive officers in November 2012 and October 2014, respectively, vested.  The executive officers surrendered a total of 914,677 shares of BFC’s Class A common stock to BFC to satisfy the $2.6 million tax withholding obligation associated with the vesting of these shares. BFC retired the surrendered shares.

 

On September 1, 2015, BFC’s Board of Directors approved (a) the exercise in full of BFC’s options with respect to all of the BBX Capital RSUs held by the BBX Capital Executives which vested on September 30, 2015 and (b) the issuance of shares of BFC’s Class B Common Stock in exchange therefor.  In connection with this option exercise, on September 30, 2015, BFC issued a total of 1,218,476 shares of its Class B Common Stock to the BBX Capital Executives and received a total of 221,821 shares of BBX Capital’s Class A Common Stock in exchange therefor.  The share exchanges were effected simultaneously with the vesting of the applicable BBX Capital RSUs on September 30, 2015 and were based on the closing prices of BFC’s Class B Common Stock and BBX Capital’s Class A Common Stock on September 29, 2015 of $2.88 per share and $15.82 per share, respectively.

 

Earnings Per Share

 

Basic earnings per share excludes dilution and is computed by dividing net income attributable to the Company by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if options to issue common shares were exercised or restricted stock awards of the Company were to vest.  In calculating diluted earnings per share, net income attributable to the Company is divided by the weighted average number of common shares. Options and certain restricted stock awards are included in the weighted average number of common shares outstanding based on the treasury stock method, if dilutive. 

 

New Accounting Pronouncements

 

The Financial Accounting Standards Board (“FASB”) has issued the following accounting pronouncements and guidance relevant to the Company’s operations during 2015. (See the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 for accounting pronouncements issued prior to March 16, 2015 relevant to the Company’s operations.) 

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Accounting Standards Update Number 2015-16 –– Business Combinations – Imputation of Interest (Topic 805) – Simplifying the Accounting Measurement-Period Adjustments.  This update requires that an acquirer in a business combination recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.  The acquirer is required to record, in the same period’s financial statements, the effect on earnings, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.  The amendments in this update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years.  The amendments in this update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this update with earlier application permitted for financial statements that have not been issued.  The adoption of this update is not expected to have a material impact on the Company’s consolidated financial statements.

 

Accounting Standards Update Number 2015-15 –– Interest – Imputation of Interest (Topic 835-30) – Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements.  This update amends ASU 2015-03 and permits presentation of line of credit debt issuance costs as an asset with amortization over the term of the line of credit, regardless if there are any outstanding borrowings on the line of credit.  This update was effective upon the issuance of the standard and may be applied prospectively.  The adoption of this update is not expected to have a material impact on the Company’s consolidated financial statements.

 

Accounting Standards Update Number 2015-11 –– Inventory (Topic 330) – Simplifying the Measurement of Inventory. This update requires that an entity measure inventory at the lower of cost and net realizable value.  Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.   The update is intended to more clearly articulate the requirements for the measurement and disclosure of inventory and not to change current practices.   The update is effective for annual and interim reporting periods beginning after December 15, 2016.  The update should be applied prospectively with early application permitted at the beginning of an interim or annual reporting period.  The adoption of this update is not expected to have a material impact on the Company’s consolidated financial statements.

 

Accounting Standards Update Number 2015-05 –– Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.  This update provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract.  The standard is effective for annual and interim reporting periods beginning after December 15, 2015.  Early application is permitted.  The adoption of this update is not expected to have a material impact on the Company’s consolidated financial statements.

 

Accounting Standards Update Number 2015-03  – Interest – Imputation of Interest (Subtopic 835-30):  Simplifying the Presentation of Debt Issuance Costs.   This update requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount.  This standard will be effective for annual and interim reporting periods beginning after December 15, 2015.  The Company’s adoption of ASU 2015-03 is not expected to have a material impact on its consolidated financial statements.

 

Accounting Standards Update Number 2015-02  – Consolidation (Subtopic 810):  Amendments to Consolidation Analysis.  This new guidance makes targeted amendments to the current consolidation guidance and ends the deferral granted to investment companies from applying the VIE guidance.  This standard will be effective for annual and interim reporting periods beginning after December 15, 2015.  The Company is currently evaluating the impact that ASU 2015-02 may have on its consolidated financial statements.

 

Accounting Standards Update Number 2014-09 –  Revenue Recognition (Topic 606): Revenue from Contracts with Customers. This guidance is intended to improve the financial reporting requirements for revenue from contracts with customers by providing a principle based approach.  It also requires disclosures designed to enable readers of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from

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contracts with customers.  This accounting guidance update will replace most existing revenue recognition guidance in GAAP.  The standard was to be effective for annual and interim reporting periods beginning after December 15, 2016.  AU 2015-14 deferred the effective date of this update for all entities by one year.   Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.  The Company is currently evaluating the requirements of this update and has not yet determined the impact it may have on the Company's consolidated financial statements.

 

 

2.    Variable Interest Entities

 

Bluegreen

 

Bluegreen sells VOI notes receivable through special purpose finance entities. These transactions are generally structured as non-recourse to Bluegreen, and are designed to provide liquidity for Bluegreen and to transfer the economic risks and certain benefits of the notes receivable to third-parties.  In a securitization, various classes of debt securities are issued by the special purpose finance entities that are generally collateralized by a single tranche of transferred assets, which consist of VOI notes receivable.  Bluegreen services the securitized notes receivable for a fee pursuant to servicing agreements negotiated with third parties based on market conditions at the time of the securitization.

 

With each securitization, Bluegreen generally retains a portion of the securities and continues to service the securitized notes receivable.  Under these arrangements, the cash payments received from obligors on the receivables sold are generally applied monthly to pay fees to service providers, make interest and principal payments to investors, and fund required reserves, if any, with the remaining balance of such cash retained by Bluegreen; however, to the extent the portfolio of receivables fails to satisfy specified performance criteria (as may occur due to, among other things, an increase in default rates or credit loss severity) or other trigger events occur, the funds received from obligors are distributed on an accelerated basis to investors.  Depending on the circumstances and the transaction, the application of the accelerated payment formula may be permanent or temporary until the trigger event is cured.  As of September 30, 2015, Bluegreen was in compliance with all applicable terms under its securitization transactions, and no triggering events had occurred.

 

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

 

Under the terms of certain of Bluegreen’s timeshare note sales, Bluegreen has the right to repurchase or substitute a limited amount of defaulted mortgage notes receivable for new notes receivable at the outstanding principal balance plus accrued interest or, in certain facilities, at 24% of the original sale price associated with the VOI which collateralizes the defaulted mortgage note receivable.  Voluntary repurchases and substitutions by Bluegreen of defaulted notes receivable during the nine months ended September 30, 2015 and 2014 were $2.3 million and $4.1 million, respectively.  Bluegreen’s maximum exposure to loss relating to its non-recourse securitization entities is the difference between the outstanding VOI notes receivable and the associated notes payable, plus cash reserves and any additional residual interest in future cash flows from collateral.

 

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Information related to the assets and liabilities of Bluegreen’s consolidated VIEs included in the Company’s consolidated statements of financial condition is set forth below (in thousands):

 

 

 

 

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

 

BBX Capital

 

FAR

 

BB&T’s preferred equity interest in FAR, which was represented by FAR’s Class A Units, entitled it to a $285.0 million preference amount plus the related priority return.  Based on FAR’s amended and restated limited liability company agreement, FAR was required to make distributions quarterly, or more frequently as approved by FAR’s Board of Managers, of excess cash flows from its operations and the orderly disposition of its assets to redeem the preferred membership interests.  As such, the Class A units previously were considered mandatorily redeemable and were reflected as debt obligations in the consolidated statement of financial condition at December 31, 2014 and the priority return was considered interest expense in the consolidated statements of operations. 

 

The activities of FAR are governed by an amended and restated limited liability company agreement, which grants the Board of Managers decision-making authority over FAR.  Prior to May 6, 2015, the Board had four members, two members elected by the BBX Capital and two members elected by BB&T.  Upon redemption of BB&T’s preferred interest in FAR on May 6, 2015, FAR became a wholly owned subsidiary of BBX Capital and the two Board members designated by BB&T resigned.  FAR was no longer a variable interest entity as of May 6, 2015.

 

The carrying amount of the remaining assets and liabilities of FAR and the classification of these assets and liabilities in BFC’s consolidated statements of financial condition at December 31, 2014 was as follows (in thousands):

 

 

 

 

 

 

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3.     Investments in Unconsolidated Real Estate Joint Ventures 

 

BBX Capital had the following investments in unconsolidated real estate joint ventures (in thousands):

 

 

 

 

The amount of interest capitalized in investments in unconsolidated real estate joint ventures associated with joint venture real estate development activities for the three and nine months ended September 30, 2015 was $131,000 and $359,000, respectively.  There was no interest capitalized in investments in unconsolidated real estate joint ventures for the three or nine months ended September 30, 2014.  

 

The condensed statements of operations for the three and nine months ended September 30, 2015 and 2014 for all of the above listed equity method joint ventures in the aggregate were as follows (in thousands):

 

 

 

 

Information regarding BBX Capital’s investments in unconsolidated real estate joint ventures entered into during the nine months ended September 30, 2015 are listed below.  See Note 10 to the Consolidated Financial Statements included in the 2014 Annual Report for information on BBX Capital’s investments in other unconsolidated real estate joint ventures entered into before December 31, 2014.  

 

CCB Miramar, LLC

 

In May 2015, BBX Capital entered into a joint venture agreement with two separate unaffiliated developers for the acquisition of real estate  in Miramar, Florida to construct single-family homes.  BBX Capital contributed $875,000 for a 35% interest in the joint venture and one of the developers contributed to the joint venture a contract to purchase real estate. The purchase of the real estate is subject to certain closing conditions, including receipt of all necessary entitlements and completion of due diligence by the joint venture.    

 

BBX Centra, LLC 

 

In August 2015, BBX Capital and other investors invested in a joint venture with a developer for the development and sale of 89 townhomes in Pembroke Pines, Florida.  BBX Capital contributed $750,000 and is entitled to receive

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7.143% of the joint venture distributions until a 12% return on its investment has been attained and then BBX Capital will be entitled to 3.175% of the joint venture distributions thereafter.

 

 

4.  BBX Capital’s Loans Held-For-Sale

 

BBX Capital’s loans-held-for-sale are as follows (in thousands):

 

 

 

 

Loans held-for-sale are reported at the lower of cost or fair value.  BBX Capital transfers loans to held-for-sale when, based on the current economic environment and related market conditions, it does not have the intent to hold those loans for the foreseeable future.  BBX Capital transfers loans previously held-for-sale to loans held-for-investment at the lower of cost or fair value on the transfer date.  In June 2015, BBX Capital transferred its small business, residential and second-lien consumer loans from held-for-sale to held-for-investment based on its decision to hold these loans for the foreseeable future as a result of the recent appreciation of real estate values and the forecasted improving economic environment.  As a consequence, $2.4 million,  $70,000 and $4.9 million of second-lien consumer, residential and small business loans, respectively, were transferred from loans held-for-sale to loans receivable measured at the lower of cost or fair value on the transfer date.  Any difference between the carrying amount of the loan and its outstanding principal balance was recognized as a discount.   Such loans are included in loans receivable, net of the discount on the statement of financial condition as of September 30, 2015.    

 

As of September 30, 2015, foreclosure proceedings were in process on  $14.3  million of BBX Capital’s residential loans held-for-sale.

 

 

5.    BBX Capital’s Loans Receivable 

 

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

 

 

 

As of September 30, 2015, foreclosure proceedings were in process on $1.2 million of BBX Capital’s consumer loans.

 

The total discount on loans receivable was $3.5 million and $0 as of September 30, 2015 and December 31, 2014, respectively.

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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 BBX Capital’s loans receivable as of September 30, 2015 and December 31, 2014 was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

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The activity in BBX Capital’s allowance for loan losses for the three and nine months ended September 30, 2015 and 2014 was as follows (in thousands):