Note 2—BONDs available-for-sale

Bonds available-for-sale includes mortgage revenue bonds and other bonds.

The following table summarizes the Company’s bonds and related unrealized losses and unrealized gains subsequent to the sale of TEB’s common shares on July 3, 2013 and at June 30, 2013 and December 31, 2012.

	July 3, 2013
(in thousands)	Unpaid Principal Balance			Basis Adjustments ⁽¹⁾		Unrealized Losses		Unrealized Gains		Fair Value
Mortgage revenue bonds	$	161,715		$	(3,631)	$	(41,395)	$	22,972	$	139,661
Other bonds		81,527			(2,062)		(22,364)		20,578		77,679
Total	$	243,242	⁽²⁾	$	(5,693)	$	(63,759)	$	43,550	$	217,340

	June 30, 2013
(in thousands)	Unpaid Principal Balance			Basis Adjustments ⁽¹⁾		Unrealized Losses		Unrealized Gains		Fair Value
Mortgage revenue bonds	$	835,486		$	(6,880)	$	(108,624)	$	98,661	$	818,643
Other bonds		81,527			(2,062)		(22,364)		20,578		77,679
Total	$	917,013	⁽²⁾	$	(8,942)	$	(130,988)	$	119,239	$	896,322

	December 31, 2012
(in thousands)	Unpaid Principal Balance			Basis Adjustments ⁽¹⁾		Unrealized Losses		Unrealized Gains		Fair Value
Mortgage revenue bonds	$	898,209		$	(10,314)	$	(118,933)	$	115,196	$	884,158
Other bonds		86,113			(2,339)		(22,364)		23,826		85,236
Total	$	984,322	⁽²⁾	$	(12,653)	$	(141,297)	$	139,022	$	969,394

⁽¹⁾

Represents net discounts, deferred costs and fees.

⁽²⁾

The Company had bonds with an unpaid principal balance of $85.0 million ($76.6 million fair value), $158.9 million ($151.8 million fair value) and $123.9 million ($125.1 million fair value) at July 3, 2013, June 30, 2013 and December 31, 2012, respectively, which were eliminated due to consolidation of the real estate partnerships where the real estate served as collateral for the Company’s bonds. See Note 16, “Consolidated Funds and Ventures” for more information.

Mortgage Revenue Bonds

Mortgage revenue bonds are issued by state and local governments or their agencies or authorities to finance multifamily rental housing; typically however, the only source of recourse on these bonds is the collateral, which is a first mortgage or a subordinate mortgage on the underlying properties. The Company’s rights under the mortgage revenue bonds are defined by the contractual terms of the underlying mortgage loans, which are pledged to the bond issuer and assigned to a trustee for the benefit of bondholders to secure the payment of debt service (any combination of interest and/or principal as laid out in the trust indenture) on the bonds.

The payment of debt service on our subordinate bond investments occurs only after payment of senior obligations which have priority to the cash flow of the underlying collateral. At June 30, 2013, the Company’s subordinate bond investments had an aggregate unpaid principal balance of $15.7 million (or $55.1 million including those bond investments eliminated in consolidation) and the Company held all of the related senior bonds. As part of the Company’s sale of TEB’s common shares on July 3, 2013, certain bonds were certificated and the senior certificates were transferred to the purchaser of TEB’s common shares and the subordinate certificates were retained by the Company. The cash proceeds received on the transfers of the senior certifications were accounted for as secured borrowings because the transfers did not meet the criteria for sale accounting. At July 3, 2013 and subsequent to the sale of TEB’s common shares, the Company’s subordinate bond investments had an aggregate unpaid principal balance of $32.9 million (or $83.7 million including those bond investments eliminated in consolidation, $82.7 million of which a third party held the related senior interests).

At June 30, 2013, and subsequent to the sale of TEB’s common shares on July 3, 2013 the Company had no participating bonds (i.e., bonds that allow the Company to receive additional interest from net property cash flows in addition to the base interest rate) on its balance sheet; however, there were participating bonds eliminated in consolidation with an unpaid principal balance of $33.3 million. Both the stated and participating interest on the Company’s participating bonds are exempt from federal income tax.

A significant portion of the tax-exempt income generated from the mortgage revenue bonds is subject to the alternative minimum tax (“AMT”) calculation for federal income tax purposes.

Other Bonds

Other bonds are primarily municipal bonds issued by community development districts or other municipal issuers to finance the development of community infrastructure supporting single-family housing and mixed-use and commercial developments such as storm water management systems, roads and utilities. In some cases these bonds are secured by specific payments or assessments pledged by the issuers or incremental tax revenue generated by the underlying properties. The income on these bonds is exempt from federal income tax and is generally not included in the AMT calculation.

Maturity

Principal payments on bonds are based on amortization tables set forth in the bond documents. If no principal amortization is required during the bond term, the outstanding principal balance is required to be paid in a lump sum payment at maturity or at such earlier time as may be provided under the bond documents. The following table summarizes, by contractual maturity, the amortized cost and fair value of bonds available-for-sale subsequent to the sale of TEB’s common shares on July 3, 2013 and at June 30, 2013.

	July 3, 2013
(in thousands)	Amortized Cost		Fair Value
Non-Amortizing:
Due in less than one year	$	-	$	-
Due between one and five years		-		-
Due between five and ten years		-		-
Due after ten years		1,560		3,462
Amortizing:
Due at stated maturity dates between December 2013 and June 2056		172,230		213,878
	$	173,790	$	217,340

	June 30, 2013
(in thousands)	Amortized Cost		Fair Value
Non-Amortizing:
Due in less than one year	$	-	$	-
Due between one and five years		-		-
Due between five and ten years		-		-
Due after ten years		1,560		3,462
Amortizing:
Due at stated maturity dates between December 2013 and June 2056		775,523		892,860
	$	777,083	$	896,322

Bonds with Lockouts, Prepayment Premiums or Penalties

Substantially all of the Company’s bonds include provisions that allow the borrowers to prepay the bonds at a premium or at par after a specified date that is prior to the stated maturity date. The following table provides the amount of bonds that were prepayable without restriction, premium or penalty subsequent to the sale of TEB’s common shares on July 3, 2013 and at June 30, 2013 as well as the year in which the remaining portfolio becomes prepayable without restriction, premium or penalty at each period presented.

	July 3, 2013
(in thousands)	Amortized Cost		Fair Value
Bonds that may be prepaid without restrictions, premiums or penalties at July 3, 2013	$	7,752	$	10,528
July 4 through December 31, 2013		1,132		1,400
2014		-		-
2015		-		-
2016		12,972		16,627
2017		5,855		8,421
Thereafter		106,730		130,567
Bonds that may not be prepaid		39,349		49,797
Total	$	173,790	$	217,340

	June 30, 2013
(in thousands)	Amortized Cost		Fair Value
Bonds that may be prepaid without restrictions, premiums or penalties at June 30, 2013	$	49,576	$	54,609
July 1 through December 31, 2013		1,132		1,400
2014		–		–
2015		2,562		2,725
2016		12,972		16,627
2017		14,520		17,320
Thereafter		630,136		725,257
Bonds that may not be prepaid		66,185		78,384
Total	$	777,083	$	896,322

Non-Accrual Bonds

The carrying value of bonds on non-accrual was $77.8 million and $103.8 million at June 30, 2013 and December 31, 2012, respectively. During the period in which these bonds were on non-accrual, the Company recognized interest income on a cash basis of $1.8 million and $1.5 million for the six months ended June 30, 2013 and 2012, respectively. Interest income not recognized on the non-accrual bonds was $2.5 million and $3.0 million for the six months ended June 30, 2013 and 2012, respectively.

The following table provides an aging analysis for the fair value of bonds available-for-sale subsequent to the sale of TEB’s common shares on July 3, 2013 and at June 30, 2013 and December 31, 2012.

(in thousands)	July 3, 2013		June 30, 2013		December 31, 2012
Total current	$	129,132	$	808,114	$	850,155
30-59 days past due		-		–		8,013
60-89 days past due		10,419		10,419		7,471
Greater than 90 days		77,789		77,789		103,755
Total	$	217,340	$	896,322	$	969,394

Bond Sales and Redemptions

The Company recorded cash proceeds on redemptions of bonds of $6.6 million and $8.2 million for the six months ended June 30, 2013 and 2012, respectively. In connection with the 2013 redemptions, the Company used cash of $3.3 million to pay down its bond related debt. The Company did not use any cash from the 2012 bond redemption to pay down bond related debt.

Provided in the table below are unrealized losses and realized gains and losses recorded through “Impairment on bonds” and “Net gains (losses) on assets and derivatives” for bonds sold or redeemed during the three months and six months ended June 30, 2013 and 2012, as well as for bonds still in the Company’s portfolio at June 30, 2013 and 2012, respectively.

	For the three months ended June 30,				For the six months ended June 30,
(in thousands)	2013		2012		2013		2012
Bond impairment recognized on bonds held at each period-end	$	(480)	$	(849)	$	(833)	$	(1,087)
Gains recognized at time of redemption		416		52		598		52
Total net losses on bonds	$	(64)	$	(797)	$	(235)	$	(1,035)

Unfunded Bond Commitments

Unfunded bond commitments are agreements to fund construction or renovation of properties securing a bond over the construction or renovation period. Since September 30, 2010 there have been no unfunded bond commitments.