15. Fair Value Measurement

Assets and liabilities on a recurring basis

There were no significant assets or liabilities measured at fair value on a recurring basis in the Company’s financial statements as of June 30, 2016 or December 31, 2015.

Assets on a non-recurring basis

The following table presents major categories of assets measured at fair value on a non-recurring basis as of June 30, 2016 (in thousands):



			Fair Value Measurements Using
		Carrying	Quoted prices in	Significant		Total
		Amount	Active Markets	Other	Significant	Impairments (1)
		As of	for Identical	Observable	Unobservable	For the Six
		June 30,	Assets	Inputs	Inputs	Months Ended
Description		2016	(Level 1)	(Level 2)	(Level 3)	June 30, 2016
Loans measured for
impairment using the fair value
of the underlying collateral	$	5,703	-	-	5,703	93

Impaired real estate held-for-sale		4,432	-	-	4,432	2,456
Total	$	10,135	-	-	10,135	2,549

(1)

Total impairments represent the amount of losses recognized during the six months ended June 30, 2016 on assets that were held and measured at fair value as of June 30, 2016.

Quantitative information about significant unobservable inputs within Level 3 on major categories of assets measured at fair-value on a non-recurring basis as of June 30, 2016 is as follows (Fair Value in thousands):



As of June 30, 2016		Fair	Valuation	Unobservable
Description		Value	Technique	Inputs	Range (Average) (1)(2)
Loans measured for
impairment using the fair value			Fair Value of	Discount Rates and Appraised
of the underlying collateral	$	5,703	Collateral	Value less Cost to Sell	$0.2 - $0.7 million ($0.4 million)

Impaired real estate			Fair Value of
held-for-sale		4,432	Property	Asset Purchase Agreements	$0.3 - $1.5 million ($0.8 million)
Total	$	10,135

(1)

Range and average appraised values were reduced by costs to sell.

(2)

Average was computed by dividing the aggregate amounts by the number of loans or real estate properties.

The following table presents major categories of assets measured at fair value on a non-recurring basis as of June 30, 2015 (in thousands):



			Fair Value Measurements Using
		Carrying	Quoted prices in	Significant		Total
		Amount	Active Markets	Other	Significant	Impairments (1)
		As of	for Identical	Observable	Unobservable	For the Six
		June 30,	Assets	Inputs	Inputs	Months Ended
Description		2015	(Level 1)	(Level 2)	(Level 3)	June 30, 2015
Loans measured for
impairment using the fair value
of the underlying collateral	$	110	-	-	110	117
Impaired real estate held-for-sale
and held-for-investment		2,525	-	-	2,525	522
Total	$	2,635	-	-	2,635	639

(1)

Total impairments represent the amount of losses recognized during the six months ended June 30, 2015 on assets that were held and measured at fair value as of June 30, 2015.

Quantitative information about significant unobservable inputs within Level 3 on major categories of assets measured at fair value on a non-recurring basis as of June 30, 2015 was as follows (Fair Value in thousands):



As of June 30, 2015		Fair	Valuation	Unobservable
Description		Value	Technique	Inputs	Range (Average) (1)(2)
Loans measured for impairment				Discount Rates and
using the fair value of the			Fair Value of	Appraised Value
underlying collateral	$	110	Collateral	less Cost to Sell	$0.3 million ($0.3 million)

Impaired real estate held-for-			Fair Value of	Discount Rates and Appraised
sale and held-for-investment		2,525	Property	Value less Cost to Sell	$0.2 - $1.0 million ($0.5 million)
Total	$	2,635

(1)

Range and average appraised values were reduced by costs to sell.

(2)

Average was computed by dividing the aggregate appraisal amounts by the number of appraisals.

Liabilities on a non-recurring basis

There were no significant liabilities measured at fair value on a non-recurring basis in the Company’s financial statements as of June 30, 2016 or December 31, 2015.

Loans Measured For Impairment

Impaired loans are generally valued based on the fair value of the underlying collateral less cost to sell as the majority of BBX Capital’s loans are collateral dependent. The fair value of BBX Capital’s loans may significantly increase or decrease based on changes in property values. BBX Capital primarily uses third party appraisals to assist in measuring non-homogenous impaired loans and broker price opinions to assist in measuring homogenous impaired loans. The appraisals generally use the market or income approach valuation technique and use market observable data to formulate an estimate of the fair value of the loan’s collateral. However, the appraiser uses professional judgment in determining the fair value of the collateral, and BBX Capital may also adjust these values for changes in market conditions subsequent to the appraisal date. When current appraisals are not available for certain loans, BBX Capital uses its judgment on market conditions to adjust the most current appraisal. As a consequence, the calculation of the fair value of the collateral is considered a Level 3 input. BBX Capital generally recognizes impairment losses based on third party broker price opinions when impaired homogenous loans become 120 days delinquent. These third party valuations from real estate professionals also use Level 3 inputs in determining fair values. The observable market inputs used to fair value loans include comparable property sales, rent rolls, market capitalization rates on income producing properties, risk adjusted discount rates and foreclosure time frames and exposure periods.

Real Estate Held-for-Sale and Held-for-Investment

Real estate is generally valued using third party appraisals or broker price opinions. These appraisals generally use the market or income approach valuation techniques and use market observable data to formulate an estimate of the fair value of the properties. The market observable data typically consists of comparable property sales, rent rolls, market capitalization rates on income producing properties and risk adjusted discount rates. The above inputs are considered Level 3 inputs as the appraiser uses professional judgement in the calculation of the fair value of the properties.

Financial Disclosures about Fair Value of Financial Instruments

The following tables present information for financial instruments as of June 30, 2016 and December 31, 2015 (in thousands):



				Fair Value Measurements Using
				Quoted prices
		Carrying		in Active	Significant
		Amount	Fair Value	Markets	Other	Significant
		As of	As of	for Identical	Observable	Unobservable
		June 30,	June 30,	Assets	Inputs	Inputs
		2016	2016	(Level 1)	(Level 2)	(Level 3)
Financial assets:
Cash and cash equivalents	$	270,933	270,933	270,933	-	-
Restricted cash		58,388	58,388	58,388	-	-
Loans receivable including loans held-
for-sale, net		34,218	44,067	-	-	44,067
Notes receivable, net		417,820	530,000	-	-	530,000
Notes receivable from preferred shareholders (1)		5,000	4,500	-	-	4,500

Financial liabilities:
Receivable-backed notes payable	$	414,096	419,900	-	-	419,900
Notes and mortgage notes payable and
other borrowings		112,753	116,992	-	-	116,992
Junior subordinated debentures		151,532	106,500	-	-	106,500
Shares subject to mandatory redemption		13,303	11,900	-	-	11,900



				Fair Value Measurements Using
				Quoted prices
		Carrying		in Active	Significant
		Amount	Fair Value	Markets	Other	Significant
		As of	As of	for Identical	Observable	Unobservable
		December 31,	December 31,	Assets	Inputs	Inputs
		2015	2015	(Level 1)	(Level 2)	(Level 3)
Financial assets:
Cash and interest bearing deposits in banks	$	198,905	198,905	198,905	-	-
Restricted cash		59,365	59,365	59,365	-	-
Loans receivable including loans held-
for-sale, net		55,389	63,668	-	-	63,668
Notes receivable, net		415,598	495,000	-	-	495,000
Notes receivable from preferred shareholders (1)		5,063	4,500	-	-	4,500

Financial liabilities:
Receivable-backed notes payable	$	403,912	406,600	-	-	406,600
Notes and mortgage notes payable and
other borrowings		120,994	124,456	-	-	124,456
Junior subordinated debentures		150,485	116,500	-	-	116,500
Shares subject to mandatory redemption		13,098	11,900	-	-	11,900

(1)

Notes receivable from preferred shareholders is included in other assets on BFC’s condensed consolidated statements of financial condition as of June 30, 2016 and December 31, 2015.

Management of each of BFC, BBX Capital and Bluegreen has made estimates of fair value that it believes to be reasonable. However, because there is no active market for many of these financial instruments, the fair value of these financial instruments has been derived using the income approach technique with Level 3 unobservable inputs. Estimates used in net present value financial models rely on assumptions and judgments regarding issues where the outcome is unknown and actual results or values may differ significantly from these estimates. These fair value estimates do not consider the tax effect that would be associated with the disposition of the assets or liabilities at their fair value estimates. As such, the estimated value upon sale or disposition of the asset may not be received and the estimated value upon disposition of the liability in advance of its scheduled maturity may not be paid.

Fair values are estimated for loan portfolios with similar financial characteristics. Loans are segregated by category, and each loan category is further segmented by delinquency categories.

The fair value of BBX Capital’s loans is calculated by using an income approach with Level 3 inputs. The fair value of loans is estimated by discounting forecasted cash flows using estimated market discount rates that reflect the interest rate and credit risk inherent in the loan portfolio. BBX Capital’s management assigns a credit risk premium and an illiquidity adjustment to these loans based on delinquency status. The fair value of collateral dependent loans is estimated using an income approach with Level 3 inputs utilizing the fair value of the collateral adjusted for operating and selling expenses and discounted over the estimated holding period based on the market risk inherent in the property.

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

The fair value of BFC’s shares subject to mandatory redemption is calculated using the income approach with Level 3 inputs discounting the estimated cash flows at a market discount rate.

The amounts reported in the condensed consolidated statements of financial condition relating to Bluegreen’s notes and mortgage notes payable and other borrowings, including receivable-backed notes payable, approximate fair value for indebtedness that provides for variable interest rates. The fair value of Bluegreen’s fixed rate, receivable-backed notes payable was determined using Level 3 inputs by discounting the net cash outflows estimated to be used to repay the debt. These obligations are to be satisfied using the proceeds from the consumer loans that secure the obligations. The fair value of BBX Capital’s notes payable is measured using the income approach with Level 3 inputs obtained by discounting the forecasted cash flows based on estimated market rates.

The fair value of junior subordinated debentures is estimated using Level 3 inputs based on the contractual cash flows discounted at a market rate or based on market price quotes from the over-the-counter bond market.