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EX-31.1 - EX-31.1 - Bluegreen Vacations Holding Corpc858-20170930xex31_1.htm





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)





 

 

Florida

 

59‑2022148

(State or other jurisdiction of incorporation or organization)

 

(I.R.S Employer Identification No.)







 

 

401 East Las Olas Boulevard, Suite 800

 

 

Fort Lauderdale, Florida

 

33301

(Address of principal executive office)

 

(Zip Code)







(954) 940-4900

(Registrant's telephone number, including area code)



Not Applicable

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



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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.





 

 

 

Large accelerated filer [ ]

Accelerated filer[X]

Non-accelerated filer [ ]

Smaller reporting company [ ] 

Emerging growth company [ ]

 

 

 



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.





 


 

 





 

 



 

 

BBX Capital Corporation

TABLE OF CONTENTS



Part I.



 

 

Item 1.

Financial Statements

 



 

 



Condensed Consolidated Statements of Financial Condition as of September 30, 2017 and December 31, 2016 - Unaudited



 

 



Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016 - Unaudited



 

 



Condensed Consolidated Statements of Changes in Equity for the Nine Months Ended September 30, 2017 - Unaudited



 

 



Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016 - Unaudited



 

 



Notes to Condensed Consolidated Financial Statements - Unaudited



 

 

Item 2.

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

37 



 

 

Item 4.

Controls and Procedures

61 



 

 

Part II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

62 



 

 

Item 1A.

Risk Factors

62 



 

 

Item 6.

Exhibits

63 



 

 



Signatures

64 



  

 

 

 


 

 



PART I – FINANCIAL INFORMATION



Item 1. Financial Statements





 

 

 

 

BBX Capital Corporation

Condensed Consolidated Statements of Financial Condition - Unaudited

(In thousands, except share data)



 

 

 

 



 

September 30,

 

December 31,



 

2017

 

2016

ASSETS

 

 

 

 

Cash and cash equivalents

$

264,380 

 

299,861 

Restricted cash ($28,099 in 2017 and $21,894 in 2016 in variable

 

 

 

 

interest entities ("VIEs"))

 

61,479 

 

46,456 

Loans receivable, net

 

21,042 

 

25,521 

Notes receivable, net ($304,313 in 2017 and $287,111 in 2016 in VIEs)

 

429,356 

 

430,480 

Construction funds receivable

 

12,485 

 

20,744 

Inventory

 

320,453 

 

268,514 

Real estate held-for-sale, net

 

30,029 

 

33,345 

Real estate held-for-investment

 

13,399 

 

12,029 

Investments in unconsolidated real estate joint ventures

 

43,286 

 

43,374 

Property and equipment, net

 

111,502 

 

95,998 

Goodwill

 

41,016 

 

6,731 

Intangible assets, net

 

72,145 

 

68,455 

Other assets

 

104,670 

 

84,560 

Total assets

$

1,525,242 

 

1,436,068 



 

 

 

 



 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

Liabilities:

 

 

 

 

Accounts payable

$

27,882 

 

28,855 

Deferred income 

 

40,498 

 

37,015 

Escrow deposits

 

28,488 

 

20,152 

Other liabilities

 

108,121 

 

95,611 

Receivable-backed notes payable - recourse

 

72,028 

 

87,631 

Receivable-backed notes payable - non-recourse (in VIEs)

 

347,308 

 

327,358 

Notes payable and other borrowings

 

137,783 

 

133,790 

Junior subordinated debentures

 

135,112 

 

152,367 

Deferred income taxes

 

71,560 

 

44,318 

Redeemable 5% cumulative preferred stock of $.01 par value; authorized 15,000 shares;

 

 

 

 

issued and outstanding 15,000 shares with a stated value of $1,000 per share

 

13,856 

 

13,517 

Total liabilities

 

982,636 

 

940,614 



 

 

 

 

Commitments and contingencies (See Note 10)

 

 

 

 



 

 

 

 

Redeemable noncontrolling interest (See Note 2)

 

2,739 

 

 -



 

 

 

 

Equity:

 

 

 

 

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

 

 -

 

 -

Class A Common Stock of $.01 par value, authorized 150,000,000 shares;

 

 

 

 

issued and outstanding 84,040,952 in 2017 and 84,844,439 in 2016 

 

840 

 

848 

Class B Common Stock of $.01 par value, authorized 20,000,000 shares;

 

 

 

 

issued and outstanding 13,127,505 in 2017 and 13,184,789 in 2016

 

131 

 

132 

Additional paid-in capital

 

193,296 

 

193,347 

Accumulated earnings

 

297,922 

 

259,110 

Accumulated other comprehensive income

 

1,530 

 

1,167 

Total shareholders' equity

 

493,719 

 

454,604 

Noncontrolling interests

 

46,148 

 

40,850 

Total equity

 

539,867 

 

495,454 

Total liabilities and equity

$

1,525,242 

 

1,436,068 



 

 

 

 

See Notes to Condensed Consolidated Financial Statements - Unaudited







1

 


 

 











 

 

 

 

 

 

 

 

BBX Capital Corporation

Condensed Consolidated Statements of Operations and Comprehensive Income - Unaudited

(In thousands, except per share data)



 

 

 

 

 

 

 

 



 

For the Three Months Ended

 

For the Nine Months Ended



 

September 30,

 

September 30,



 

2017

 

2016

 

2017

 

2016

Revenues

 

 

 

 

 

 

 

 

Sales of vacation ownership interests ("VOIs")

$

61,687 

 

71,741 

 

172,839 

 

196,654 

Fee-based sales commission revenue

 

69,977 

 

59,383 

 

179,046 

 

153,718 

Other fee-based services revenue

 

27,386 

 

26,810 

 

83,442 

 

78,421 

Trade sales

 

44,880 

 

22,078 

 

96,835 

 

64,290 

Interest income

 

21,035 

 

22,096 

 

63,065 

 

64,464 

Net (losses) gains on sales of assets

 

(18)

 

5,035 

 

2,161 

 

5,326 

Other revenue

 

1,332 

 

2,021 

 

3,584 

 

5,158 

Total revenues

 

226,279 

 

209,164 

 

600,972 

 

568,031 



 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

 

 

Cost of sales of VOIs

 

6,284 

 

5,827 

 

10,737 

 

19,410 

Cost of other fee-based services

 

18,176 

 

17,057 

 

51,550 

 

48,644 

Cost of trade sales

 

28,988 

 

16,674 

 

67,453 

 

50,680 

Interest expense

 

9,480 

 

9,517 

 

27,577 

 

28,322 

Recoveries from loan losses, net

 

(2,005)

 

(10,944)

 

(6,098)

 

(18,979)

Asset impairments (recoveries), net

 

1,506 

 

(30)

 

1,551 

 

1,692 

Net gains on cancellation of

 

 

 

 

 

 

 

 

junior subordinated debentures

 

 -

 

 -

 

(6,929)

 

 -

Litigation costs and penalty reimbursements

 

(2,113)

 

 -

 

(11,719)

 

 -

Selling, general and administrative expenses

 

148,536 

 

133,584 

 

398,535 

 

387,843 

Total costs and expenses

 

208,852 

 

171,685 

 

532,657 

 

517,612 



 

 

 

 

 

 

 

 

Equity in net earnings of unconsolidated

 

 

 

 

 

 

 

 

real estate joint ventures

 

2,451 

 

4,480 

 

9,620 

 

5,793 

Foreign exchange (loss) gain

 

(105)

 

 

(312)

 

325 

Other (loss) income, net

 

(87)

 

531 

 

64 

 

721 

Income before income taxes

 

19,686 

 

42,495 

 

77,687 

 

57,258 

Provision for income taxes (See Note 9)

 

(8,195)

 

(19,118)

 

(30,028)

 

(23,857)

Net income

 

11,491 

 

23,377 

 

47,659 

 

33,401 

Less: Net income attributable to noncontrolling interests

 

3,256 

 

5,602 

 

9,467 

 

9,900 

Net income attributable to shareholders

$

8,235 

 

17,775 

 

38,192 

 

23,501 



 

 

 

 

 

 

 

 

Basic earnings per share

$

0.08 

 

0.21 

 

0.39 

 

0.27 

Diluted earnings per share

$

0.08 

 

0.21 

 

0.36 

 

0.27 

Basic weighted average number of common

 

 

 

 

 

 

 

 

shares outstanding

 

98,073 

 

85,864 

 

98,408 

 

86,215 

Diluted weighted average number of common and

 

 

 

 

 

 

 

 

common equivalent shares outstanding

 

106,021 

 

86,573 

 

105,802 

 

86,632 



 

 

 

 

 

 

 

 

Cash dividends declared per Class A common share

$

0.0075 

 

0.005 

 

0.0225 

 

0.010 

Cash dividends declared per Class B common share

$

0.0075 

 

0.005 

 

0.0225 

 

0.010 



 

 

 

 

 

 

 

 

Net income

$

11,491 

 

23,377 

 

47,659 

 

33,401 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

Unrealized gains(losses) on securities available for sale

 

16 

 

(9)

 

62 

 

57 

Foreign currency translation adjustments

 

418 

 

568 

 

301 

 

378 

Other comprehensive income, net

 

434 

 

559 

 

363 

 

435 

Comprehensive income, net of tax

 

11,925 

 

23,936 

 

48,022 

 

33,836 

Less: Comprehensive income attributable

 

 

 

 

 

 

 

 

to noncontrolling interests

 

3,256 

 

5,686 

 

9,467 

 

9,966 

Total comprehensive income attributable to shareholders

$

8,669 

 

18,250 

 

38,555 

 

23,870 



 

 

 

 

 

 

 

 

See Notes to Condensed Consolidated Financial Statements - Unaudited



2

 


 

 















 

 

 

 

 

 

 

 

 

 

 

BBX Capital Corporation

Condensed Consolidated Statements of Changes in Equity - Unaudited

For the Nine Months Ended September 30, 2017

(In thousands)



 

 

 

 

 

 

 

 

 

 

 



Shares of

 

 

 

 

 

Accumulated

 

 

 



Common Stock

 

Common

 

 

Other

 

 

 



Outstanding

 

Stock

Additional

 

Comprehen-

Total

Non-

 



Class

 

Class

Paid-in

Accumulated

sive

Shareholders'

controlling

Total



A

B

 

A

B

Capital

Earnings

Income

Equity

Interests

Equity



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2016

84,845  13,185 

$

848  132  193,347  259,110  1,167  454,604  40,850  495,454 

Net income excluding $249 of earnings attributable to redeemable noncontrolling interest

 -

 -

 

 -

 -

 -

38,192 

 -

38,192  9,218  47,410 

Other comprehensive income

 -

 -

 

 -

 -

 -

 -

363  363 

 -

363 

Cumulative effect from excess tax benefits on share based compensation associated with the adoption of ASU 2016-09 (See Note 1)

 -

 -

 

 -

 -

 -

3,054 

 -

3,054 

 -

3,054 

Distributions to noncontrolling interests

 -

 -

 

 -

 -

 -

 -

 -

 -

(3,920) (3,920)

Class A Common Stock cash dividends declared

 -

 -

 

 -

 -

 -

(2,057)

 -

(2,057)

 -

(2,057)

Class B Common Stock cash dividends declared

 -

 -

 

 -

 -

 -

(377)

 -

(377)

 -

(377)

Conversion of common stock from Class B to Class A

46  (46)

 

 -

 -

 -

 -

 -

 -

 -

 -

Repurchase and retirement of common stock

(1,000) (12)

 

(10) (1) (10,230)

 -

 -

(10,241)

 -

(10,241)

Issuance of Class A Common Stock from exercise of options

150 

 -

 

 -

60 

 -

 -

62 

 -

62 

Share-based compensation

 -

 -

 

 -

 -

10,119 

 -

 -

10,119 

 -

10,119 

Balance, September 30, 2017

84,041  13,127 

$

840  131  193,296  297,922  1,530  493,719  46,148  539,867 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

See Notes to Condensed Consolidated Financial Statements - Unaudited





3

 


 

 











 

 

 

 

 



 

 

 

 

 

BBX Capital Corporation

Condensed Consolidated Statements of Cash Flows - Unaudited

(In thousands)



 

 

 

 

 



 

For the Nine Months Ended 



 

September 30,

 



 

2017

 

2016

 

Operating activities:

 

 

 

 

 

Net income

$

47,659 

 

33,401 

 

Adjustment to reconcile net income to net cash

 

 

 

 

 

provided by operating activities:

 

 

 

 

 

Recoveries from loan losses and asset impairments, net

 

(5,097)

 

(15,939)

 

Provision for notes receivable allowances

 

32,066 

 

36,897 

 

Depreciation, amortization and accretion, net

 

15,528 

 

13,995 

 

Share-based compensation expense

 

10,119 

 

4,936 

 

Share-based compensation expense of subsidiaries

 

 -

 

4,921 

 

Net gains on sales of real estate, loans held-for-sale,

 

 

 

 

 

and properties and equipment

 

(1,732)

 

(5,326)

 

Equity in earnings of unconsolidated real estate

 

 

 

 

 

joint ventures

 

(9,620)

 

(5,793)

 

Return on investment in unconsolidated real estate joint ventures

 

11,465 

 

3,402 

 

Increase in deferred income tax

 

30,272 

 

29,749 

 

Impairment of goodwill

 

 -

 

457 

 

Net gains realized on cancellation of junior subordinated debentures

 

(6,929)

 

 -

 

Interest accretion on shares subject to mandatory redemption

 

901 

 

874 

 

Increase in restricted cash

 

(15,023)

 

(966)

 

Increase in notes receivable

 

(30,942)

 

(45,695)

 

Increase in inventory

 

(36,320)

 

(10,902)

 

Increase in other assets

 

(18,003)

 

(8,980)

 

Increase in other liabilities

 

13,813 

 

26,077 

 

Net cash provided by operating activities

 

38,157 

 

61,108 

 

Investing activities:

 

 

 

 

 

Decrease in restricted cash

 

 -

 

1,306 

 

Return of investment in unconsolidated real estate joint ventures

 

888 

 

4,388 

 

Investments in unconsolidated real estate joint ventures

 

(2,645)

 

(2,353)

 

Repayment of loans receivable, net

 

9,522 

 

42,025 

 

Proceeds from sales of real estate held-for-sale

 

10,601 

 

20,788 

 

Additions to real estate held-for-sale

 

(809)

 

 -

 

Additions to real estate held-for-investment

 

(124)

 

(2,319)

 

Purchases of property and equipment, net

 

(14,158)

 

(8,928)

 

Cash paid for acquisition, net of cash received

 

(58,418)

 

 -

 

Increase in intangible assets

 

(31)

 

(540)

 

Increase from other investing activities

 

(342)

 

(224)

 

Net cash (used in) provided by investing activities

 

(55,516)

 

54,143 

 

Financing activities:

 

 

 

 

 

Repayments of notes, mortgage notes payable and other borrowings

 

(197,581)

 

(225,657)

 

Proceeds from notes, mortgage notes payable and other borrowings

 

206,884 

 

205,950 

 

Redemption of junior subordinated debentures

 

(11,438)

 

 -

 

Payments for debt issuance costs

 

(3,217)

 

(2,462)

 

Payments of interest on shares subject to mandatory redemption

 

(563)

 

(563)

 

Proceeds from the exercise of stock options

 

62 

 

10 

 

Dividends paid on common stock

 

(2,136)

 

(418)

 

Repurchase and retirement of common stock

 

(6,213)

 

(3,029)

 

Distributions to noncontrolling interest

 

(3,920)

 

(7,350)

 

Net cash used in financing activities

 

(18,122)

 

(33,519)

 

(Decrease) increase in cash and cash equivalents

 

(35,481)

 

81,732 

 

Cash and cash equivalents at beginning of period 

 

299,861 

 

198,905 

 

Cash and cash equivalents at end of period 

$

264,380 

 

280,637 

 



 

 

 

Continued

 



4

 


 

 









 

 

 

 

 



 

 

 

 

 

BBX Capital Corporation

Condensed Consolidated Statements of Cash Flows - Unaudited

(In thousands)



 

 

 

 

 



 

For the Nine Months Ended 



 

September 30,

 



 

2017

 

2016

 

Supplemental cash flow information:

 

 

 

 

 

Interest paid on borrowings

$

21,392 

 

24,786 

 

Income taxes paid

 

2,570 

 

987 

 



 

 

 

 

 

Supplementary disclosure of non-cash investing and financing activities:

 

 

 

 

 

Construction funds receivable transferred to inventory

$

8,259 

 

 -

 

Mortgage payable assumed upon foreclosure

 

164 

 

 -

 

Loans receivable transferred to real estate held-for-sale

 

1,055 

 

4,612 

 

Loans held-for-sale transferred to loans receivable

 

 -

 

16,078 

 

Real estate held-for-investment transferred to real estate held-for-sale

 

 -

 

11,582 

 

Real estate held-for-sale transferred to property and equipment

 

 -

 

6,557 

 

Real estate held-for-sale transferred to real estate held-for-investment

 

1,276 

 

 -

 

Property and equipment transferred to real estate held-for-sale

 

6,181 

 

 -

 

Repayment of note payable with restricted time deposit

 

 -

 

995 

 

Decrease in deferred tax liabilities due to cumulative effect of excess

 

 

 

 

 

tax benefits

 

3,054 

 

 -

 

Increase in the investment in subsidiary from the issuance of BBX

 

 

 

 

 

Capital's common stock

 

 -

 

898 

 

Increase in shareholders' accumulated other comprehensive income,

 

 

 

 

 

net of taxes

 

363 

 

369 

 

Net increase in shareholders' equity from the effect of subsidiaries'

 

 

 

 

 

capital transactions, net of taxes

 

 -

 

1,386 

 

Repurchase and retirement of shares of common stock in connection

 

 

 

 

 

with share based compensation withholding tax obligations

 

4,028 

 

3,388 

 



 

 

 

 

 

See Notes to Condensed Consolidated Financial Statements - Unaudited









 

5

 


 

 

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.



 

6

 


 

 

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

 

7

 


 

 

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

 

8

 


 

 

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):





 

 

 

 



 

 

 

 



 

 

 

 



 

For the Three Months

 

For the Nine Months



 

Ended September 30, 2017

 

Ended September 30, 2017

Trade sales

$

22,592 

 

26,880 

Net income attributable to shareholders

$

1,176 

 

1,530 



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):







 

 



 

 

Property and equipment

$

19,395 

Cash, inventory and other assets

 

12,212 

Identifiable intangible assets (1)

 

4,512 

Total assets acquired

 

36,119 

Accounts payable and other liabilities

 

(5,140)

Identifiable intangible liabilities (2)

 

(716)

Total liabilities assumed

 

(5,856)

Fair value of identifiable net assets

 

30,263 

Redeemable noncontrolling interest

 

(2,490)

Goodwill

 

34,286 

Purchase consideration

 

62,059 

Less: cash acquired

 

(3,641)

Cash paid for acquisition less cash acquired

$

58,418 



 

 

Acquisition-related costs included in selling, general and administrative expenses

$

2,818 





(1)

Identifiable intangible assets consisted of $4.2 million, $0.2 million and $0.1 million of trademarks, favorable lease agreements, and a noncompetition agreement, respectively.

(2)

Identifiable intangible liabilities consisted of unfavorable lease agreements.



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

 

9

 


 

 

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):







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

For the Three Months

 

For the Nine Months



 

Ended September 30,

 

Ended September 30,



 

2017

 

2016

 

2017

 

2016

Trade sales

$

226,280 

 

231,101 

 

637,530 

 

624,800 

Income before income taxes

$

19,699 

 

43,897 

 

78,359 

 

54,554 

Net income (1) 

$

11,499 

 

24,232 

 

48,059 

 

31,739 

Net income attributable to shareholders (1)

$

8,242 

 

18,582 

 

38,623 

 

22,103 



(1)

The pro forma net income and net income attributable to shareholders for the three and nine months ended September 30, 2017 were adjusted to exclude $2.8 million of acquisition-related costs.



 

10

 


 

 

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

 

11

 


 

 

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):







 

 

 

 



 

 

 

 



 

September 30,

 

December 31,



 

2017

 

2016

Restricted cash

$

28,099 

 

21,894 

Securitized notes receivable, net

 

304,313 

 

287,111 

Receivable backed notes payable - non-recourse

 

347,308 

 

327,358 





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):





 

 

 

 



 

 

 

 



 

September 30, 2017

 

December 31, 2016

Commercial non-real estate

$

789 

 

1,169 

Commercial real estate

 

4,677 

 

5,880 

Small business

 

1,716 

 

2,506 

Consumer

 

951 

 

1,799 

Residential

 

12,909 

 

14,167 

         Loans receivable

$

21,042 

 

25,521 





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.



 

12

 


 

 

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):





 

 

 

 



 

 

 

 



 

September 30,

 

December 31,

Loan Class

 

2017

 

2016

Commercial non-real estate

$

789 

 

1,169 

Commercial real estate

4,677 

 

5,880 

Small business

 

1,716 

 

2,506 

Consumer

 

878 

 

1,701 

Residential

 

11,563 

 

12,762 

Total nonaccrual loans

$

19,623 

 

24,018 





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):





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Total



 

31-59 Days

 

60-89 Days

 

90 Days

 

Total

 

 

 

Loans

September 30, 2017

 

Past Due

 

Past Due

 

or More (1)

 

Past Due

 

Current

 

Receivable

Commercial non-real estate

$

789 

 

 -

 

 -

 

789 

 

 -

 

789 

Commercial real estate

 

 -

 

 -

 

2,995 

 

2,995 

 

1,682 

 

4,677 

Small business

 

 -

 

 -

 

 -

 

 -

 

1,716 

 

1,716 

Consumer

 

25 

 

 -

 

376 

 

401 

 

550 

 

951 

Residential

 

343 

 

20 

 

8,485 

 

8,848 

 

4,061 

 

12,909 

Total

$

1,157 

 

20 

 

11,856 

 

13,033 

 

8,009 

 

21,042 







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Total



 

31-59 Days

 

60-89 Days

 

90 Days

 

Total

 

 

 

Loans

December 31, 2016

 

Past Due

 

Past Due

 

or More (1)

 

Past Due

 

Current

 

Receivable

Commercial non-real estate

$

 -

 

 -

 

330 

 

330 

 

839 

 

1,169 

Commercial real estate

 

 -

 

 -

 

3,986 

 

3,986 

 

1,894 

 

5,880 

Small business

 

 -

 

 -

 

 -

 

 -

 

2,506 

 

2,506 

Consumer

 

23 

 

 -

 

467 

 

490 

 

1,309 

 

1,799 

Residential

 

609 

 

231 

 

9,541 

 

10,381 

 

3,786 

 

14,167 

Total

$

632 

 

231 

 

14,324 

 

15,187 

 

10,334 

 

25,521 





1)

There were no loans that were 90 days or more past due and still accruing interest as of September 30, 2017 or December 31, 2016.



 

13

 


 

 

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): 





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

For the Three Months

 

For the Nine Months



 

Ended September 30,

 

Ended September 30,

Allowance for Loan Losses:

2017

 

2016

 

2017

 

2016

Beginning balance

$

 -

 

 -

 

 -

 

 -

    Charge-offs

 

(5)

 

(48)

 

(123)

 

(144)

     Recoveries

 

2,010 

 

10,992 

 

6,221 

 

19,123 

     Recoveries from loan losses, net

 

(2,005)

 

(10,944)

 

(6,098)

 

(18,979)

Ending balance

$

 -

 

 -

 

 -

 

 -

Loans receivable:

 

 

 

 

 

 

 

 

Ending balance individually evaluated for impairment

$

18,252 

 

22,356 

 

18,252 

 

22,356 

Ending balance collectively evaluated for impairment

 

2,790 

 

6,260 

 

2,790 

 

6,260 

Total

$

21,042 

 

28,616 

 

21,042 

 

28,616 





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):







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

As of September 30, 2017

 

As of December 31, 2016



 

 

Unpaid

 

 

 

Unpaid

 



 

Recorded

Principal

Related

 

Recorded

Principal

Related



 

Investment

Balance

Allowance

 

Investment

Balance

Allowance



 

 

 

 

 

 

 

 

Total with allowance recorded

$

 -

 -

 -

 

 -

 -

 -

Total with no allowance recorded

 

19,782  32,805 

 -

 

24,188  39,901 

 -

Total

$

19,782  32,805 

 -

 

24,188  39,901 

 -





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):





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