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, 2017



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



Commission File Number

001-09071



BBX Capital 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, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.





If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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 2, 2017 is as follows:

 

Class A Common Stock of $.01 par value, 85,962,198 shares outstanding.
Class B Common Stock of $.01 par value, 16,565,728 shares outstanding.





 

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PART I – FINANCIAL INFORMATION



Item 1. Financial Statements









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BBX Capital Corporation 

Notes to Condensed Consolidated Financial Statements - Unaudited





1.    Presentation of Interim Financial Statements



Basis of Financial Statement Presentation



BBX Capital Corporation is referred to in this report together with its subsidiaries as the “Company” or, unless otherwise indicated or the context otherwise requires, “we,” “us” or “our” and is referred to in this report without its subsidiaries as “BBX Capital.” The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted 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 condensed consolidated financial condition of the Company at September 30, 2017; the condensed consolidated results of operations and comprehensive income of the Company for the three and nine months ended September 30, 2017 and 2016; the condensed consolidated changes in equity of the Company for the nine months ended September 30, 2017; and the condensed consolidated cash flows of the Company for the nine months ended September 30, 2017 and 2016.  Operating results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 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 consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (the “2016 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.



BBX Capital is a diversified holding company whose core investments include Bluegreen Vacations Corporation (“Bluegreen”), real estate and middle market operating businesses.  Bluegreen is a sales, marketing and management company focused on the vacation ownership industry. The Company’s real estate investments include real estate joint ventures and the ownership, financing, acquisition, development and management of real estate. The Company’s investments in middle market operating businesses include Renin Holdings, LLC (“Renin”), a company that manufactures products for the home improvement industry, and the Company’s investments in confectionery businesses through its wholly-owned subsidiary, BBX Sweet Holdings, LLC (“BBX Sweet Holdings”).  The Company’s investment in confectionery businesses includes BBX Sweet Holdings’ acquisition of IT’SUGAR, LLC (“IT’SUGAR”) in June 2017 (see Note 2 – Acquisitions).



On December 15, 2016, the Company completed the acquisition of all of the outstanding shares of the former BBX Capital Corporation (“BCC”) not previously owned by the Company, and on January 30, 2017, the Company changed its name from BFC Financial Corporation to BBX Capital Corporation. On September 27, 2017, Bluegreen changed its name from Bluegreen Corporation to Bluegreen Vacations Corporation.



Prior to the acquisition of all of the outstanding shares of BCC, the Company had an 82% equity interest in BCC and a direct 54% equity interest in Woodbridge Holdings, LLC (“Woodbridge”), the parent company of Bluegreen.  BCC held the remaining 46% interest in Woodbridge.  As a result of the acquisition of the publicly held shares of BCC, BCC (directly) and Bluegreen (indirectly through Woodbridge) are wholly owned subsidiaries of the Company.



BBX Capital has two classes of common stock. Holders of the Class A common stock are entitled to one vote per share, which in the aggregate represents 22% of the combined voting power of the Class A common stock and the Class B common stock. Class B common stock represents the remaining 78% of the combined vote. The percentage of total common equity represented by Class A and Class B common stock was 87% and 13%, respectively, at September 30, 2017.   Class B common stock is convertible into Class A common stock on a share for share basis at any time at the option of the holder.



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On October 23, 2017, the Company announced that Bluegreen filed a registration statement on Form S-1 with the SEC relating to a proposed initial public offering of shares of Bluegreen’s common stock representing a minority interest in Bluegreen. The number of shares to be offered and the price range for the proposed offering have not yet been determined.  It is currently contemplated that Woodbridge will participate in the proposed offering as a selling shareholder with respect to a portion of the offering.  There is no assurance that Bluegreen will complete the proposed offering or that Woodbridge will sell any shares in the offering. 



Recently Adopted Accounting Pronouncements



On January 1, 2017, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-09, Compensation – Stock Compensation (Topic 718), Improvements to Employee Share-based Payment Accounting.  The new standard requires the recognition of excess tax benefits (“windfall”) and tax deficiencies in the income statement when the stock awards vest or are settled, thus eliminating additional paid in capital pools. The new standard also removes the requirement to delay recognition of windfall tax benefits until it reduces current taxes payable. The new standard instead requires the recognition of windfall tax benefits at the time of settlement, subject to valuation allowance considerations.  The new standard clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity on the Company’s statement of cash flows and cash flows related to windfall tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows which are classified as operating activities.  The new standard provides an accounting policy election to account for forfeitures as they occur instead of on an estimated basis and allows for the employer to repurchase more of an employee’s shares for tax withholding purposes up to the maximum statutory rate in the employee’s applicable jurisdictions without triggering liability accounting. The new standard changes the computation of diluted earnings per share as windfall tax benefits will not be included in the calculation of assumed proceeds when applying the treasury stock method. 



The primary impact of the implementation of this standard on the Company’s Consolidated Financial Statements was the recognition of a $3.1 million  windfall tax benefit as a cumulative effect to accumulated earnings associated with windfall tax benefits that were not previously recognized because the related tax deduction had not reduced current taxes payable. 



Upon adoption of the new standard, the Company made an accounting policy election to recognize forfeitures as they occur.  The presentation requirement for cash flows related to employee taxes paid for withheld shares had no impact to operating cash flows on any of the periods presented in the Company’s consolidated cash flows statements since these cash flows have historically been presented as a financing activity.



New Accounting Pronouncements



The FASB has issued the following accounting pronouncements and guidance which may be applicable to the Company but have not yet become effective. (See the 2016 Annual Report for additional accounting pronouncements and guidance issued relevant to the Company’s operations which have not been adopted as of September 30, 2017): 



Accounting Standards Update (ASU) No. 2014-09 –  Revenue Recognition (Topic 606): In May 2014, the FASB issued a new standard related to revenue recognition. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has recently issued several amendments to the standard, including identifying performance obligations and other technical corrections and minor improvements affecting a variety of topics and required disclosures in the new standard.  This standard will be effective and the Company will adopt this standard on January 1, 2018. Entities have the option to apply the new guidance under a full retrospective approach or a modified retrospective approach with the cumulative effect of initially applying the new guidance recognized at the date of initial application. The Company will determine the transition method of this standard later in 2017 following the issuance of timeshare industry-specific guidance.



The Company’s initial analysis identifying areas that will be impacted by the new guidance is substantially complete, and the Company is currently analyzing the potential impacts that adopting this standard may have on its consolidated financial statements and related disclosures and its business processes, accounting policies and controls.    



The Company believes that the new standard will impact the timing of revenue recognition associated with the sale of real estate.  Specifically, the Company believes the new standard will result in the recognition of revenue sooner for

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contingent consideration on real estate sales and on the contribution of real estate to joint ventures in which the Company has an equity interest. 



The Company believes that the new standard will not materially affect revenue recognition associated with trade sales. Retail trade sales performance obligations are satisfied at the time of the transaction as customers of the retail business typically pay in cash at the time of transfer of the promised goods.  Wholesale trade sales performance obligations are generally satisfied when the promised goods are shipped by the Company or received by the customer. 



The Company does not expect this standard to materially change the accounting for the recognition of its fee-based sales commission revenue, ancillary revenues, and rental revenue. The Company currently expects possible areas of impact will include (i) gross versus net presentation for payroll reimbursement and insurance premiums reimbursement related to resorts managed by Bluegreen on behalf of third parties and (ii) the timing of the recognition of VOI revenue related to the removal of certain bright line tests regarding the determination of the adequacy of the buyer’s commitment under existing industry-specific guidance.  Final industry-specific guidance remains open for the following issues: (i) application of percentage of completion related to sales of incomplete VOIs, (ii) satisfaction of performance obligations and (iii) contract costs.  Due to the nature and potential significant impact of these open issues, the Company expects to disclose additional details on the impact of the adoption of this accounting standard following the issuance of timeshare industry-specific guidance on these items.



Accounting Standards Update (ASU) No. 2016-02 – Leases (Topic 842).  This update will require assets and liabilities to be recognized on the balance sheet of a lessee for the rights and obligations created by leases of assets with terms of more than 12 months.  For income statement purposes, the update retained a dual model, requiring leases to be classified as either operating or finance based on largely similar criteria to those applied in current lease accounting, but without explicit bright lines.  ASU 2016-02 also requires extensive quantitative and qualitative disclosures, including significant judgments made by management, to provide greater insight into the extent of revenue and expense recognized and expected to be recognized from existing leases.  This standard will be effective for the Company on January 1, 2019.  Early adoption is permitted.  The Company expects that the implementation of this new standard will have an impact on its consolidated financial statements and related disclosures as the Company has aggregate future minimum lease payments of $159.7 million at September  30, 2017 under its current non-cancelable lease agreements with various expirations dates between 2017 and 2030. The Company anticipates the recognition of additional assets and corresponding liabilities related to these leases on its consolidated statement of financial condition.   



Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.  This update introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan losses. Further, public entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination (i.e., by vintage year). This standard will be effective for the Company on January 1, 2020. Early adoption is permitted beginning on January 1, 2019. The Company is currently evaluating the impact that ASU 2016-13 may have on its consolidated financial statements.



Accounting Standard Update (ASU) No. 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20).    This update indicates that nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity by transferring ownership in the legal entity to a counterparty.  The update indicates that an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counterparty and derecognize each asset when the counterparty obtains control of the asset.  This update supersedes the guidance in Topic 845 and eliminates partial sale accounting associated with the transfer of real estate to a joint venture for a noncontrolling interest in the joint venture.  The ASU is effective upon adoption of ASU 2014-09.  In certain joint ventures, the Company accounted for the transfer of land to joint ventures for initial capital contributions as partial sales resulting in deferred gains and joint venture basis adjustments.  Joint venture aggregate basis adjustments and deferred gains were $6.3 million and $0.5 million as of September 30, 2017.  The Company is currently evaluating the requirements of this update and has not yet determined its impact on the Company’s consolidated financial statements.



Accounting Standard Update (ASU) No. 2017-09, Compensation – Stock Compensation (Topic 718).  This update was issued to provide guidance on determining which changes to the terms and conditions of share-based compensation awards require an entity to apply modification accounting under Topic 718.  An entity should apply modification accounting to changes to terms or conditions of a share-based compensation awards unless there is no change in the fair value, vesting or classification of the modified award as compared to the original award. The ASU is effective for

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annual periods and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted.  The Company believes that the adoption of this update will not have a material impact on the Company’s consolidated financial statements. 





2.    Acquisitions



Acquisition of IT’SUGAR



On June 16, 2017 (the “Acquisition Date”), a wholly-owned subsidiary of BBX Sweet Holdings acquired IT’SUGAR, a specialty candy retailer with 95 retail locations in 26 states and Washington, DC, through the acquisition of all of its Class A Preferred Units and 90.4% of its Class B Common Units for cash consideration of approximately $58.4 million, net of cash acquired. The remaining 9.6% of IT’SUGAR’s Class B Common Units are owned by JR Sugar Holdings, LLC (“JR Sugar”), an entity owned by the founder and CEO of IT’SUGAR. 



The consolidated net assets and results of operations of IT’SUGAR are included in the Company’s consolidated financial statements commencing on the Acquisition Date and resulted in the following impact to trade sales and net income attributable to shareholders for the three and nine months ended September 30, 2017 (in thousands):





Purchase Price Allocation



The Company accounted for the acquisition of IT’SUGAR using the acquisition method of accounting, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair values at the Acquisition Date. The following table summarizes the provisional purchase price allocation based on the Company’s preliminary valuation, including the fair values of the assets acquired, liabilities assumed, and the redeemable noncontrolling interest in IT’SUGAR at the Acquisition Date (in thousands):











As management is still in the process of completing its valuation analysis, our accounting for the acquisition is not complete as of the date of this report. As a result, the amounts reported in the above table are provisional amounts that

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may be updated in subsequent periods to reflect the completion of our valuation analysis and any additional information obtained during the measurement period.



The provisional fair values reported in the above table have been estimated by the Company using available market information and appropriate valuation methods. As considerable judgment is involved in estimates of fair value, the provisional fair values presented above are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methods could have a material effect on the estimated fair value amounts.



The following summarizes the Company’s methodologies for estimating the fair values of certain assets and liabilities associated with IT’SUGAR:



Property and Equipment



Property and equipment acquired consisted primarily of leasehold improvements at IT’SUGAR’s retail stores. The fair value of the leasehold improvements and other equipment was estimated based on the replacement cost approach.



Identifiable Intangible Assets and Liabilities



The identifiable intangible assets acquired primarily consisted of the fair value of IT’SUGAR’s trademark, which was estimated using the relief-from-royalty method, a form of the income approach. Under this approach, the fair value was estimated by calculating the present value using a risk-adjusted discount rate of the expected future royalty payments that would have to be paid if the IT’SUGAR trademark was not owned. 



The identifiable intangible assets and liabilities also included the fair value of IT’SUGAR’s operating lease agreements associated with its retail stores. The fair value of these assets and liabilities were estimated by calculating the present value using a risk-adjusted discount rate of the difference between the contractual amounts to be paid pursuant to the lease agreements and the estimate of market lease rates at the Acquisition Date.



The $4.2 million trademark intangible asset is amortized over 15 years and the $0.2 million favorable and the $0.7 million of unfavorable lease agreements are amortized over a weighted average period of 6.5 years. The noncompetition agreement is amortized over five years.



Goodwill



The goodwill recognized in connection with the acquisition reflects the difference between the estimated fair value of the net assets acquired and the Company’s consideration paid to acquire IT’SUGAR. The goodwill recognized in the acquisition is deductible for income tax purposes.  



Pro Forma Information



The following unaudited pro forma financial data presents the Company’s revenues and earnings for the three and nine months ended September 30, 2017 and 2016 as if the Acquisition Date had occurred on January 1, 2016 (in thousands):









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The unaudited pro forma financial data reported in the above table does not purport to represent what the actual results of the Company’s operations would have been assuming that the Acquisition Date was January 1, 2016, nor does it purport to predict the Company’s results of operations for future periods.



Noncontrolling Interest



Under the terms of IT’SUGAR’s operating agreement, JR Sugar may require the Company to purchase for cash its IT’SUGAR Class B Common Units upon the occurrence of certain events, including events relating to the employment agreement between BBX Sweet Holdings and the CEO of IT’SUGAR, as described below. The purchase price payable by the Company for such Class B Common Units will be determined based on the circumstance giving rise to such purchase obligation in accordance with prescribed formulas set forth in IT’SUGAR’s operating agreement.  In addition, following the seventh anniversary of the Acquisition Date, the Company shall have the right, but not the obligation, to require JR Sugar to sell its Class B Common Units to the Company in accordance with a prescribed formula set forth in IT’SUGAR’s operating agreement.



As a result of the redemption features, JR Sugar’s Class B Common Units are considered redeemable noncontrolling interests and reflected in the mezzanine section as a separate line item in the Company’s Condensed Consolidated Statements of Financial Condition. As the noncontrolling interests are not currently subject to redemption but are probable of becoming redeemable in a future period, the Company will measure the noncontrolling interests by accreting changes in the estimated purchase price from the Acquisition Date to the earliest redemption date and may adjust the carrying amount of such interests to equal the calculated value in the event it is in excess of the carrying amount at such time.



Employment and Loan Agreements



In connection with the acquisition of IT’SUGAR, BBX Sweet Holdings entered into an employment agreement with the founder and CEO of IT’SUGAR for his continued services as CEO of IT’SUGAR. Upon the occurrence of certain events constituting a breach of the employment agreement by the CEO resulting in his termination, the Company may exercise its ability to purchase JR Sugar’s Class B Common Units for cash for an amount equal to the lesser of the fair market value of such units determined in accordance with the prescribed formula set forth in IT’SUGAR’s operating agreement and the initial value ascribed to such units at the Acquisition Date. Similarly, upon the occurrence of certain “not for cause” termination events associated with the termination of the CEO’s employment, JR Sugar may require the Company to purchase its Class B Common Units for cash for an amount equal to the greater of the fair market value of such units determined in accordance with the prescribed formula set forth in IT’SUGAR’s operating agreement and the initial value ascribed to such units at the Acquisition Date.



Concurrent with the acquisition, JR Sugar borrowed $2.0 million from BBX Sweet Holdings in the form of two promissory notes, as partial consideration for the purchase of its 9.6% ownership of IT’SUGAR’s Class B Common Units. The notes mature on June 16, 2024, and a portion of the aggregate principal balance and accrued interest of such notes may be forgiven on an annual basis provided that IT’SUGAR’s CEO continues to remain employed with BBX Sweet Holdings pursuant to his employment agreement. The notes receivable are presented as a deduction from the balance of the related Class B Common Units.





3.    Consolidated Variable Interest Entities



From time to time, 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 certain of the economic risks and 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.



In these securitizations, 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

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required to be 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, 2017, Bluegreen was in compliance with all applicable terms under its securitization transactions, and no trigger 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 a review of both quantitative and qualitative factors.  Bluegreen bases its quantitative analysis on the forecasted cash flows of the entity and bases its qualitative analysis on the structure of the entity, including Bluegreen’s decision-making ability and authority with respect to the entity, 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 these entities into its financial statements. 



Under the terms of certain of Bluegreen’s VOI note sales, Bluegreen has the right to repurchase or substitute a limited amount of defaulted notes for new notes at the outstanding principal balance plus accrued interest.  Voluntary repurchases and substitutions by Bluegreen of defaulted notes during the nine months ended September 30, 2017 and 2016 were $7.4 million and $3.5 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 notes payable, plus cash reserves and any additional residual interest in future cash flows from collateral.



Information related to the assets and liabilities of Bluegreen’s consolidated VIEs included in the Company’s Condensed Consolidated Statements of Financial Condition is set forth below (in thousands):









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





4.    Loans Receivable 



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







As of September 30, 2017, foreclosure proceedings were in process with respect to $8.5 million of residential loans and $0.1 million of consumer loans.



The total discount on loans receivable was $2.4 million and $3.3 million as of September 30, 2017 and December 31, 2016, respectively.



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Credit Quality of Loans Receivable and the Allowance for Loan Losses



The Company assesses loan credit quality by monitoring loan delinquencies. 



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







An age analysis of the past due recorded investment in loans receivable as of September 30, 2017 and December 31, 2016 was as follows (in thousands):













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The activity in the allowance for loan losses for the three and nine months ended September 30, 2017 and 2016 was as follows (in thousands): 







Impaired Loans



Loans are considered impaired when, based on current information and events, management believes it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impairment is evaluated based on past due status for consumer and residential loans. Impairment is evaluated for commercial and small business loans based on payment history, financial strength of the borrower or guarantors and cash flow associated with the collateral or business. Collateral dependent impaired loans are charged down to the fair value of collateral less cost to sell. Interest payments on impaired loans are recognized on a cash basis as interest income. Impaired loans, or portions thereof, are charged off when deemed uncollectible.    



Individually impaired loans as of September 30, 2017 and December 31, 2016 were as follows (in thousands):









Average recorded investment and interest income recognized on impaired loans for the three and nine months ended September 30, 2017 and 2016 were as follows (in thousands):